UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
Commission File Number:
333-264
Exact name of Registrant as specified in its charter:
South Seas Properties Company Limited Partnership
State or other Jurisdiction of incorporation or organization:
Ohio
I.R.S. Employer Identification Number:
59-2541464
Address of Principal Executive Offices:
12800 University Drive, Suite 350
Fort Myers, FL 33907
Registrant?s Telephone Number, including Area Code:
(941) 481-5600
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. X YES NO
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
YES NO
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
FORM 10-Q
JUNE 30, 1998
INDEX
PAGE NO.
COVER LETTER
PART I
ITEM 1
FINANCIAL INFORMATION
Consolidated Balance Sheets at
June 30, 1998 and
December 31, 1997 1
Consolidated Statements of Operations
for the Three Months and Six Months Ended
June 30, 1997 and 1998 2
Consolidated Statements of Cash Flows
for the Six Months Ended
June 30, 1997 and 1998 3-4
Notes to Consolidated Financial Statements 5-7
ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-12
PART II
OTHER INFORMATION 13
SIGNATURES 14
EXHIBITS:
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
EXHIBIT 99.1 - CALCULATION OF WEIGHTED AVERAGE
UNITS OUTSTANDING
EXHIBIT 10.1 - MERISTAR (FORMERLY CAPSTAR) ASSET PURCHASE
AGREEMENT
EXHIBIT 10.2 - MERISTAR (FORMERLY CAPSTAR) CONTRIBUTION
AGREEMENT
EXHIBIT 10.3 - MERISTAR (FORMERLY CAPSTAR) FIRST AMENDMENT TO
CONTRIBUTION AGREEMENT
EXHIBIT 10.4 - PERCENTAGE LEASE AGREEMENT DATED AS OF FEBRUARY
19, 1998 AMONG BOYKIN HOTEL PROPERTIES, L.P. AS LESSOR, SOUTH
SEAS ESTERO ISLAND, LTD., AS LESSEE, AND SOUTH SEAS
PROPERTIES COMPANY LIMITED PARTNERSHIP AS GUARANTOR
<PAGE>
<TABLE>
<CAPTION>
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(unaudited)
June 30, December 31,
1998 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,358 $2,933
Restricted cash 6 144
Accounts receivable, trade 4,891 5,814
Receivables from affiliates - 27
Inventories 1,731 1,714
Prepaid expenses and other 1,301 2,255
Total current assets 9,287 12,887
PROPERTY, PLANT AND EQUIPMENT, net 92,363 87,684
LOAN COSTS, net 4,016 4,386
GOODWILL, net 6,737 6,942
OTHER ASSETS 4,501 3,484
Total assets $116,904 $115,383
LIABILITIES AND PARTNERS' CAPITAL
DEFICIENCY
CURRENT LIABILITIES
Current maturities of notes
and mortgages payable $ 2,002 $1,500
Payables to affiliates 765 -
Accounts payable 5,108 4,986
Accrued expenses 3,737 1,767
Accrued payroll and related 2,905 3,772
Customer deposits 4,091 5,297
Deferred revenue 1,500 1,949
Total current liabilities 20,108 19,271
NOTES AND MORTGAGES PAYABLE, less
current maturities 62,378 70,163
BONDS PAYABLE 43,500 43,500
OTHER LONG-TERM OBLIGATIONS 1,376 1,305
COMMITMENTS AND CONTINGENCIES - -
PARTNERSHIP UNITS SUBJECT TO REDEMPTION 825 825
MINORITY INTERESTS 76 30
PARTNERS' CAPITAL DEFICIENCY (11,359) (19,711)
Total liabilities and
partners' capital
deficiency $116,904 $115,383
</TABLE>
The accompanying unaudited notes are an integral part of these unaudited
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except per unit data)
(unaudited)
Three Months Six Months
Ended June 30 Ended June 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues
Rooms $21,416 $18,451 $47,294 $43,383
Food and beverage 5,848 5,356 12,288 11,534
Retail 1,859 1,734 3,615 3,639
Golf 921 913 2,414 2,320
Spa and fitness 761 678 1,511 1,375
Other 4,993 4,074 10,091 8,717
Total revenues 35,798 31,206 77,213 70,968
Expenses
Rooms 4,832 4,281 9,482 8,820
Food and beverage 4,458 3,953 9,230 8,401
Retail 1,326 1,258 2,589 2,558
Golf 256 175 555 553
Spa and fitness 418 383 851 750
Other 1,845 1,746 3,691 3,436
Condominium lease and rental expenses 6,108 4,829 12,297 10,933
Sales and marketing 2,130 2,183 3,882 4,052
Maintenance and grounds 1,621 1,448 3,211 2,951
General and administrative -
resort properties 5,011 4,662 9,735 9,602
General and administrative -
corporate overhead 1,081 778 2,105 1,690
Depreciation and amortization 2,321 2,129 4,548 4,134
Total expenses 31,407 27,825 62,176 57,880
Income before non-operating items 4,391 3,381 15,037 13,088
Interest expense (2,489) (2,446) (5,071) (5,071)
Minority interests (16) (9) (46) (31)
Net income $ 1,886 $ 926 $9,920 $7,986
Net income per unit, basic $ .42 $ .21 $ 2.20 $ 1.80
Net income per unit, diluted $ .34 $ .21 $ 1.40 $ 1.19
Weighted average units outstanding,
basic 4,516 4,427 4,516 4,427
Weighted average units outstanding,
diluted 8,659 4,427 8,659 8,569
</TABLE>
The accompanying unaudited notes are an integral part of these unaudited
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
Page 1 of 2
(In Thousands)
(unaudited)
Six Months
Ended June 30
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers and others $ 76,212 $ 70,883
Cash paid to suppliers, employees and affiliates (55,861) (53,327)
Interest paid (5,000) (5,181)
Net cash provided by operating
activities 15,351 12,375
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures/purchase of assets (6,147) (3,935)
Loans to affiliates, net of repayments 792 57
Purchase of resort property assets (2,000) (3,411)
Option payments (507) -
Acquisition costs and deposits (243) -
Change in restricted cash/marketable securities 138 1
Other 16 2
Net cash used by investing
activities (7,951) (7,286)
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred loan costs (125) (228)
Principal payments, long-term debt (1,100) (876)
Principal payments, under capital
lease obligations (112) (62)
Distributions to partners (1,580) (659)
Distributions to minority unit holders - (16)
Principal payments under revolving line
of credit (10,250) (9,000)
Draws under line of credit 2,000 1,500
Proceeds from long-term debt 2,180 -
Other 12 -
Net cash used by
financing activities (8,975) (9,341)
Net decrease in cash (1,575) (4,252)
Cash and cash equivalents, beginning of period 2,933 6,459
Cash and cash equivalents, end of period $ 1,358 $ 2,207
</TABLE>
(continued)
The accompanying unaudited notes are an integral part of these unaudited
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
Page 2 of 2
(In Thousands)
(unaudited)
Six Months
Ended June 30
1998 1997
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income $ 9,920 $ 7,986
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation/amortization expense 4,548 4,134
Minority interest 46 31
Gain on sale of fixed assets - (2)
Changes in assets and liabilities
(Increase) decrease in:
Accounts receivable, net 989 2,809
Inventories 57 6
Prepaid expenses and other assets 806 (848)
Increase (decrease) in:
Accounts payable 121 (1,116)
Accrued expenses 854 2,177
Customer deposits (1,535) (2,346)
Deferred revenues (455) (456)
Total adjustments 5,431 4,389
Net cash provided by operating activities $15,351 $12,375
Supplemental schedule of noncash investing and financing activities:
In January, 1997 South Seas acquired the Seaside Inn on Sanibel Island,
Florida for $6.5 million. In connection with the acquisition, South Seas
assumed liabilities of $2.5 million.
In May, 1998 South Seas entered into a ten-year lease arrangement on the
Best Western Pink Shell Resort on Ft. Myers Beach. In connection with the
lease, South Seas acquired certain operating accounts, (consisting
primarily of accounts receivable, inventory and customer deposits)
totalling $486 in assets, including $16 of cash, and assumed liabilities of
$486.
</TABLE>
The accompanying unaudited notes are an integral part of these unaudited
consolidated financial statements.
<PAGE>
Note 1. Basis of Presentation
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all
adjustments necessary (consisting of only normal
recurring adjustments) to present fairly South Seas
Properties Company Limited Partnership (?South Seas?)
consolidated financial position as of June 30, 1998 and
December 31, 1997 and the consolidated results of its
operations for the three and six months ended June 30,
1998 and 1997 and its consolidated cash flows for the
six months ended June 30, 1998 and 1997. The results of
operations for the six month period ended June 30, 1998
are not indicative of the results to be expected for the
full year due to the seasonality of the business
operation. For further information, refer to the
audited consolidated financial statements and notes
thereto, included in South Seas' 10-K report. Certain
amounts in the financial statements have been
reclassified to conform with the current presentation.
These reclassifications had no effect on the results of
operations previously reported. The consolidated
balance sheet at December 31, 1997 has been derived from
the audited financial statements at that date but does
not include all disclosures required by generally
accepted accounting principles. Refer to South Seas
annual 10-K report for complete footnote disclosure.
Note 2. Computation of Earnings Per Unit
Basic net income per unit is computed by dividing net
income by the weighted average number of partnership
units outstanding during the period. Accordingly, units
outstanding for per unit purposes could be lower than
actual units issued and outstanding at period end.
Income per unit assuming dilution is computed by
dividing net income by the weighted average number of
units outstanding increased by assumed conversion of
other potentially dilutive securities during the period.
Potentially dilutive units which have been included in
the diluted per unit calculation were 4,143 in both 1997
and 1998, derived from the assumed conversion of
convertible bonds. Unit options issued under the
Incentive Plan were not assumed exercised in 1997 or
1998 due to their exercise price not exceeding market
value.
Note 3. Revolving Credit Line
In connection with the $40 million revolving line of
credit with Credit Lyonnais, New York Branch, South
Seas had available $20.4 million and $19.4 million at
June 30, 1997 and 1998, respectively. South Seas
applies surplus seasonal working capital or draws
working capital based on seasonal needs to reduce or
increase the outstanding revolving loan balance.
Note 4. Acquisitions and Leasing Activity
In March 1998, South Seas purchased a 9,233 square foot
retail shopping center, adjacent to South Seas
Plantation, for $2.9 million. This purchase was
primarily financed with the proceeds of a new loan in
the amount of $2.18 million. The note bears interest at
LIBOR plus 225 to 300 basis points (the spread is
determined by loan covenants relating to South Seas
financial performance each quarter). Interest is due
monthly, quarterly principal payments are $37 in 1999,
$44 in 2000, two quarterly payments of $51 each in
2001, with a ballooning maturity balance of $1.75
million.
On May 1, 1998, South Seas entered into a ten-year
lease agreement on the Best Western Pink Shell Resort
on Ft. Myers Beach. The lease requires annual minimum
rental payments of $2.2 million, plus a percentage rent
based on property revenues at various tiers. Terms of
the agreement include South Seas' wholly owned
subsidiary purchasing $2.0 million of the existing
furniture and fixtures (to be used in the operation of
the resort) and maintaining a net worth of $2.0
million, $1.9 million of which is in the form of a
guarantee from South Seas. Due to the timing of the
transaction, the remaining 1998 rental payments have
been set at $211 per month with no percentage rent
during 1998. Regular lease terms become effective
January 1, 1999.
Note 5. Recently Issued Accounting Pronouncements
SFAS 130, Reporting Comprehensive Income, is effective
for fiscal years beginning after December 15, 1997.
This Statement establishes standards for reporting and
display of comprehensive income and its components in a
full set of general purposes financial statements. This
Statement requires that all items that are required to
be recognized under accounting standards as components
of comprehensive income be reported in a financial
statement that is displayed with the same prominence as
other financial statements. At June 30, 1998 South Seas
had no items that qualified under this pronouncement
and therefore no change occurred in its' reporting
practices.
SFAS 131, Disclosures about Segments of an Enterprise
and Related Information, effective for fiscal years
beginning after December 15, 1997, establishes
standards for reporting information about operating
segments in annual financial statements and interim
financial reports issued to unitholders. Generally,
certain financial information is required to be
reported on the basis that is used internally for
evaluating performance of and allocation of resources
to operating segments. Management has reviewed the
criteria for segment reporting and has determined no
such segmentation is applicable to its operations.
Note 6. MeriStar Transaction
On April 15, 1998 South Seas publicly announced that
it had entered into an agreement with CapStar Hotel
Company (CapStar), under which CapStar and its
affiliates will acquire substantially all of South
Seas' assets. (Note: CapStar merged with American
General Hospitality in early August and the new company
name is MeriStar). Under the terms of the agreement,
South Seas is obligated to make a tender offer for all
of its outstanding 10% subordinated Notes due April 15,
2003 and to solicit the consent of the Noteholders to
certain modifications to the existing provisions of the
Indenture governing the Notes. As of the date of this
filing, the consent of over 99% of the bondholders to
effect such a change was achieved. The minimum required
percentage was 66.67%.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction
with ?Selected Historical Financial Data,? ?Selected
Consolidated Financial Data? and the audited consolidated
financial statements for South Seas and the notes thereto
appearing in the annual 10-K report for the year ended
December 31, 1997.
GENERAL
South Seas Properties Company Limited Partnership (or its'
subsidiaries)(?South Seas?) is one of the largest owners and
operators of upscale beachfront destination resorts and
hotels in Florida. South Seas owns seven resort and hotel
properties, plus an 18 hole golf course, and leases/manages
two additional resort properties, (collectively referred to
as the ?Properties"). The Properties are located on either
Sanibel, Captiva, Estero or Marco Islands off Southwest
Florida's gulf coast, with one leased property (a resort and
spa) located on Tampa Bay, Florida. The Properties are
designed to appeal to families, leisure and retired travelers
and business groups. The Properties range in size and style
from the 552-unit South Seas Plantation resort on Captiva
Island, to the 269 unit, 11 story Marco Radisson, to the 30-
unit Song of the Sea Inn, a bed-and-breakfast located on
Sanibel Island. By offering a wide variety of price points
and vacation experiences, South Seas is able to appeal to a
broad section of the vacation market. The Properties offer a
combined total of approximately 1,700 condominium and hotel
units, consisting of approximately 2,300 guestrooms,
including luxurious beach homes, fully equipped condominiums,
suites, cottages and hotel rooms. South Seas owns and
operates The Dunes Golf and Tennis Club on Sanibel Island,
which features an 18-hole, par 70 golf course, seven soft
surface tennis courts, full banquet and restaurant facilities
and other amenities. Guests staying at any of the Properties
have access to the amenities and vacation activities offered
at all of the Properties. South Seas believes that this
feature, combined with the Properties' attractive locations,
enhances customer satisfaction and guests' perceptions of
value.
Overall management and marketing of the Properties is
coordinated through the Management Company, which is
headquartered in Fort Myers. The day-to-day operation of each
Property is the responsibility of an on-site general manager.
Management functions provided on a centralized basis include
marketing, reservations, human resources, property renovation
and development, management information systems, finance and
accounting. By providing these functions on a centralized
basis, South Seas is able to achieve improved results on a
more cost-effective basis. Marketing of the Properties is
accomplished through a combination of South Seas' own sales
force and arrangements with both national and international
representatives.
SEASONALITY
Properties owned or operated by South Seas are affected by
normally recurring seasonal patterns. Room rates are
substantially higher and occupancy is somewhat higher during
the months of January, February, March and April than during
the remainder of the year. Approximately 45% of South Seas'
revenues are earned in the first four months of each year.
Accordingly, South Seas' typically reports lower revenue and
net income in the second, third and fourth calendar quarters.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30,
1998 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1997
Revenues. Revenues consist principally of room rentals,
food and beverage sales, retail sales, spa and fitness
revenues, and golf course operations. Other revenue includes
marina operations, long distance telephone charges, and
management fees from non-consolidated entities, fees for the
use of recreation facilities, commissions from realty sales,
interest income and other miscellaneous items. Revenues for
the three months ended June 30, 1998 increased by
approximately $4.6 million, or 14.7% over the prior period.
Rooms revenues increased by approximately $3.0 million, or
16.1% over the prior period. Approximately $1.1 million, or
36.3% of the increase represents room revenues attributable
to the Best Western Pink Shell Resort (leased May 1, 1998).
Room revenues at resorts owned throughout both periods
("Comparable Resorts") increased by $1.9 million, or 10.2%
The increase in room revenues at Comparable Resorts resulted
from an increase in the average daily rate ("ADR") and in the
percentage of occupancy. ADR at Comparable Resorts was
$189.44 for 1997, compared to $199.71 in 1998, an increase of
$10.27, or 5.4%. Occupancy percentage at Comparable Resorts
increased to 76.5% for the three months ended June 30, 1998
from 73.7% for the same period in 1997. The increase in ADR
reflects South Seas? efforts to maximize revenue per
available room (?REVPAR?), during peak demand periods.
During the three months ended June 30, 1998, REVPAR for
Comparable Resorts increased by $13.10, or 9.4% over the same
period in 1997. The Best Western Pink Shell Resort ("New
Resort") had an occupancy percentage of 64.3% and ADR of
$133.52 during the period under lease.
Food and beverage revenues for the three months ended
June 30, 1998 increased by $492,000, or 9.2% over the same
period in 1997. Approximately $160,000 or 32.5% of the total
increase was attributable to the new lease of the New Resort.
Comparable Resorts experienced growth over the prior period
of $332,000 or 6.2%. Marco Radisson experienced the strongest
growth in food and beverage revenues, increasing by $87,000
or 16.0% over the prior period, primarily due to an increase
in room nights in the group market segment and therefore
higher banquet review.
Retail revenues increased by $125,000 or 7.2% from the
prior period. Approximately $48,000, or 38.4% of this growth
was attributable to the New Resort.
Other revenues for the three months ended June 30, 1998
increased by $919,000, or 22.7% over the prior period.
Approximately $398,000 or 43.3% of the increase was from the
New Resort. South Seas Plantation contributed $269,000, or
29.2% of the growth in other revenues. Marked growth was
experienced in several areas including deposit forfeitures,
long distance telephone fees and group recreation programs.
Also at South Seas Plantation, a per person per night service
charge policy was implemented to cover a variety of
previously individually charged services and products.
Expenses. Total expenses for the three months ended
June 30, 1998 increased by approximately $3.6 million, or
12.9% over the prior period. As a percentage of revenues,
expenses decreased from 89.2% to 87.7%. Analysis of major
financial line items follows:
Room expenses for the three months ended June 30, 1998
increased by $551,000 or 12.9% over the prior period. As a
percentage of room revenues, room expenses decreased slightly
from 23.2% to 22.6%, primarily due to the elimination of one
senior level management position at the central reservations
facility.
Condominium lease and rental expenses for the three months
ended June 30, 1998 increased $1.3 million, or 26.5%.
Approximately $659,000, or 51.5% of the increase relates to
the lease payment on the New Resort. The remaining increase
is related to increased room revenues and therefore greater
amounts due to condominium owners in the lease program.
Net Income. Because of the foregoing factors, net income
for the three months ended June 30, 1998 increased by
$960,000 or 103.7% compared to the prior period.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998
COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1997
Revenues. Revenues for the six months ended June 30, 1998
increased by approximately $6.2 million, or 8.8% over the
prior period. Approximately $1.7 million, or 26.9% of the
increase was related to the New Resort.
Rooms revenues increased by approximately $3.9 million, or
9.0% over the prior period. Approximately $1.1 million, or
27.5% of the increase represents room revenues attributable
to the New Resort. Room revenues at Comparable Resorts
increased by $2.8 million, or 6.5% over the prior period. The
increase in room revenues resulted from an increase in the
ADR and an increase in the percentage of occupancy. Occupancy
percentages at Comparable Resorts increased to 78.7% for the
six months ended June 30, 1998 from 76.9% for the same period
in 1997. ADR at Comparable Resorts increased $7.22, or 3.3%
over the prior period ($226.64 vs. $219.42), and REVPAR
increased by $9.46, or 5.6% ($178.30 vs. $168.84). The New
Resort had an ADR of $133.50, and occupancy of 64.3% for the
two months under lease.
Food and beverage revenues for the six months ended
June 30, 1998 increased by $754,000, or 6.5% over the same
period in 1997. Approximately $160,000 or 21.2% of the
increase was due to food and beverage sales at the New
Resort. Marco Radisson also experienced strong growth in food
and beverage sales, increasing by $259,000 or 21.0% over the
prior period, primarily due to an increase in room nights in
the group market segment and therefore higher banquet
revenues.
Retail revenues decreased by $24,000 or .7% from the prior
period. Management believes two factors influenced this
decline: poor weather and an amenity access charge program.
In 1998, Southwest Florida experienced significantly more
days of rain during the peak season time frame than in the
prior period. Poor weather means fewer guests frequenting
retail outlets on-site and greater propensity to spend time
off-site at major shopping outlets and malls. In addition, at
South Seas Plantation, an amenity access program was
instituted to restrict charge privileges to registered guests
only.
Other revenues for the six months ended June 30, 1998
increased by $1.4 million, or 15.8% over the prior period.
Approximately $398,000 or 28.9% of the total increase was at
the New Resort. Approximately $536,000, or 39.0% of the total
increase was recognized at South Seas Plantation. Marked
growth was experienced in several areas including deposit
forfeitures, long distance telephone fees and group
recreation programs. Also at South Seas Plantation, a per
person per night service charge policy was implemented to
cover a variety of previously individually charged services
and products.
Expenses. Total expenses for the six months ended
June 30, 1998 increased by approximately $4.3 million, or
7.4% over the prior period. As a percentage of revenues,
expenses decreased from 81.6% to 80.5%. Analysis of major
financial line items follows:
Room expenses for the six months ended June 30, 1998
increased by $662,000 or 7.5% over the prior period. As a
percentage of room revenues, room expenses decreased slightly
from 20.3% to 20.0%, primarily due to the elimination of one
senior level management position at the central reservations
facility.
Sales and marketing costs for the six months ended
June 30, 1998 decreased by $170,000 or 4.2% over the prior
period. As a percentage of total revenues, sales and
marketing decreased from 5.7% in the six months ended
June 30, 1997 to 5.0% for the six months ended June 30, 1998.
Included in the June 30, 1998 results is approximately
$452,000 of marketing/media rebates. This unusual, non-
recurring reduction in expense is due to an independent audit
of circulation of specific directory publications over the
previous seven-year period. Circulation totals were below
guaranteed levels at the time of placement; therefore, these
rebates (per contract) are being refunded. South Seas
management has decided to maintain their current marketing
budgets for 1998; therefore, this should be a positive
variance to the prior period throughout 1998.
Net Income. Because of the foregoing factors, net income
for the six months ended June 30, 1998 increased by $1.9
million, or 24.2% compared to the prior period.
LIQUIDITY AND CAPITAL RESOURCES
South Seas has historically financed its operations and
capital expenditures through a combination of cash generated
from operations, bank borrowings, borrowings from private
investors, bond offerings and short-term credit facilities.
On March 28, 1996, South Seas completed the public
offering of $43,500,000 of its 10% subordinated notes as
offered in the Form S-1 Registration Statement (?Notes
Offering?). The terms of the Notes provided for the payment
of interest monthly at 10%, and with no principal reduction
until maturity on April 15, 2003.
The Notes are non-callable during the first four years of
the term then become redeemable, in whole or in part, at the
option of South Seas at various redemption prices (108.24% to
112.62% of principal) during or after the year 2000. After
the occurrence of certain events, the holders of Notes will
be offered the opportunity to convert the Notes at an
exchange rate of $12 per partnership unit (subject to
adjustment in certain circumstances). Upon the stated
maturity of the Notes, holders of Notes will be offered the
opportunity to convert the Notes at an exchange rate of
$10.50 per unit (subject to adjustment in certain
circumstances).
On April 15, 1998, South Seas publicly announced that it
had entered into an agreement with CapStar Hotel Company
(CapStar), under which CapStar and its affiliates will
acquire substantially all of South Seas' assets. (Note:
CapStar merged with American General Hospitality in early
August and the new company name is MeriStar). In connection
with the announced transaction, South Seas was required to
make a tender offer for all of its outstanding 10%
subordinated Notes due April 15, 2003 and to solicit the
consent of the noteholders to certain modifications to the
existing provisions of the Indenture governing the Notes. As
of the date of this filing, the consent of over 99% of the
bondholders to effect such a change was achieved. The minimum
required percentage was 66.67%.
On June 30, 1998, South Seas had cash and cash equivalents
of approximately $1.4 million, and restricted cash of $6,000.
Cash and cash equivalents decreased by $1.6 million during
the six months ended June 30, 1998.
Cash flow from operations was approximately $15.4 million
for the six months ended June 30, 1998 as compared to $12.4
million in the prior period. South Seas? other major source
of cash in the 1998 period was proceeds of long-term debt of
approximately $2.2 million for the purchase of a retail
shopping center adjacent to South Seas Plantation. This
strategic location provides South Seas the opportunity to
increase its retail opportunities, as well as, increasing
available on-site facilities by moving certain operations.
South Seas? major uses of cash during the 1998 period were
principal payments on outstanding debt of approximately $9.5
million (net of draws), combined capital expenditures and
acquisition/option payments of approximately $8.7 million,
and distributions to partners of approximately $1.6 million.
South Seas is not currently a party to any legal
proceeding which, in Management's opinion, is likely to have
a material adverse effect on its operating results or
financial position.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
SFAS 130, Reporting Comprehensive Income, is effective for
fiscal years beginning after December 15, 1997. This
Statement establishes standards for reporting and display of
comprehensive income and its components in a full set of
general purposes financial statements. This Statement
requires that all items that are required to be recognized
under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed
with the same prominence as other financial statements. At
June 30, 1998 South Seas had no items that qualified under
this pronouncement and therefore no change occurred in its'
reporting practices.
SFAS 131, Disclosures about Segments of an Enterprise and
Related Information, effective for fiscal years beginning
after December 15, 1997, establishes standards for reporting
information about operating segments in annual financial
statements and interim financial reports issued to
unitholders. Generally, certain financial information is
required to be reported on the basis that is used internally
for evaluating performance of and allocation of resources to
operating segments. Management has reviewed the criteria for
segment reporting and has determined no such segmentation is
applicable to its operations.
<PAGE>
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Change in Partnership Units
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit I - Weighted Average Units Outstanding
(b) Reports on Form 8-K
Bond Tender Offer filing made on July 15,1998
<PAGE>
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
SIGNATURES
June 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROBERT M. TAYLOR RICHARD E. KRICHBAUM
CHAIRMAN OF T&T RESORTS, L.C. VICE PRESIDENT OF FINANCE
GENERAL PARTNER OF S.S. RESORT MANAGEMENT L.C.
SOUTH SEAS PROPERTIES GENERAL PARTNER OF
COMPANY LIMITED PARTNERSHIP SOUTH SEAS RESORTS
(SIGNATURE) COMPANY, L.P.
AUGUST 14, 1998 (SIGNATURE)
AUGUST 14, 1998
TIMOTHY R. BOGOTT VIRGINIA S. BROOKS
PRESIDENT CORPORATE CONTROLLER
S.S. RESORT MANAGEMENT, L.C. S.S. RESORT MANAGEMENT,
GENERAL PARTNER OF SOUTH SEAS L.C.
RESORTS COMPANY, L.P. GENERAL PARTNER OF SOUTH
(SIGNATURE) SEAS RESORTS COMPANY, L.P.
AUGUST 14, 1998 (SIGNATURE)
AUGUST 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,358,000
<SECURITIES> 0
<RECEIVABLES> 5,045,000
<ALLOWANCES> (154,000)
<INVENTORY> 1,731,000
<CURRENT-ASSETS> 9,287,000
<PP&E> 142,789,000
<DEPRECIATION> (50,426,000)
<TOTAL-ASSETS> 116,904,000
<CURRENT-LIABILITIES> 20,108,000
<BONDS> 43,5000,000
0
0
<COMMON> 0
<OTHER-SE> (10,458,000)
<TOTAL-LIABILITY-AND-EQUITY> 116,904,000
<SALES> 77,213,000
<TOTAL-REVENUES> 77,213,000
<CGS> 26,398,000
<TOTAL-COSTS> 62,176,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,071,000
<INCOME-PRETAX> 9,920,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,920,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,920,000
<EPS-PRIMARY> 2.20
<EPS-DILUTED> 1.40
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
CALCULATION OF WEIGHTED AVERAGE UNITS OUTSTANDING
EXHIBIT 99.1
The weighted average number of partnership units used in the
computation of earnings per unit is as follows:
Six Months
Ended June 30
1997 1998
<S> <C> <C>
Actual number of units
outstanding at the beginning
of the period 4,426,568 4,515,818
Weighted average number of
units issued during the period 0 0
Weighted average number of
units outstanding during the
period 4,426,568 4,515,818
</TABLE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is
made as of April 3,1998, among South Seas Properties Company
Limited Partnership, an Ohio limited partnership ("SSPC"),
South Seas Resorts Company Limited Partnership, a Florida
limited partnership ("SSRC") Safety Harbor Management
Company, Ltd., a limited partnership ("SHMC"), and South Seas
Estero Island, Ltd., a Florida limited Partnership ("SSEI";
SSPC, SSRC, SHMC and SSEI are referred to herein individually
as a "Seller" and collectively as "Sellers") and CapStar
Hotel Company, a Delaware corporation ("CapStar" or
"Purchaser").
RECITALS:
A. SSPC owns, among other things, the hotel, resort
and other properties listed below (individually, an "SSPC
Owned Property" and, collectively, the "SSPC Owned
Properties"):
1. Sundial Beach & Tennis Resort, Sanibel Island, Florida
("Sundial");
2. Sanibel Inn, Sanibel Island, Florida ("Sanibel Inn");
3. Seaside Inn, Sanibel Island, Florida ("Seaside");
4. Plantation View Shopping Center, Captiva Island,
Florida ("Plantation View"); and
5. Certain vacant land located on Captiva Island, Florida
("Shirley's Parcel").
B. SHMC holds a leasehold interest in the property
commonly known as the Safety Harbor Resort & Spa, Safety
Harbor, Florida ("Safety Harbor") , pursuant to the terms of
the Safety Harbor Ground Lease, and owns in fee simple
certain vacant land adjacent to Safety Harbor (the "SHMC
Land");
C.SSRC currently manages the Best Western Pink Shell
Beach Resort, Estero Island, Florida ("Pink Shell"), pursuant
to the terms of the Pink Shell Management Agreement;
provided, however, that: (i) the owner of the Pink Shell has
entered into a chase agreement (the "Pink Shell Purchase
Agreement") pursuant to which the Pink Shell will be sold to
Boykin Hotel Properties, L.P., an Ohio limited partnership
(the "Prospective Purchaser"), (ii) SSEI has entered into a
purchase agreement pursuant to which, upon the consummation
of the transactions contemplated by the Pink Shell Purchase
Agreement, SSEI will purchase and the Prospective Purchaser
will sell substantially all of the furniture, fixtures and
equipment located at the Pink Shell (the "Pink Shell FF&E
Purchase Agreement") for a purchase price equal
to.$2,000,000,(the "Pink Shell FF&E Consideration"), and
(iii) SSPC has entered into a lease (the "Pink Shell Lease")
with the Prospective Purchaser pursuant to which SSPc will
lease the Pink Shell from the Prospective -vurchaser for a
period of ten (10) years commencing upon consummation of th
transact n contemplated by the Pink Shell Purchase AgreemenL-
- -;
D. Sellers are engaged, directly or indirectly,
in the following related businesses: (i) owning, operating
and managing the SSPC owned Properties and the SHMC Land
(which are referred to herein individually as a "Property",
and collectively as the Properties"), (ii) managing the Pink
Shell under the Pink Shell Management Agreement, (iii)
operating and managing the Safety Harbor under the S C Ground
Lease; (iv) operating the Vacation Planning Center pursuant
to the Vacation Planning Center Lease; and (v) managing the
short-term rental and leasing of individual condominium units
and private residences at Sundial and Sanibel Inn, (all of
the foregoing are hereafter collectively referred to as the
"Business");
E. Each Seller desires to sell to CapStar all of
the right, title and interest in and to substantially all of
the assets, properties and rights (contractual or otherwise)
and business of such Seller with respect to the Business, on
the terms and conditions set forth herein;
F. Concurrently with the execution of this
Agreement, SSPC, SSRC, South Seas Resort Limited Partnership,
an Ohio limited partnership ("SS PI'), Marco SSP, Ltd., a
Florida limited partnership ("Marco"), and South Seas &
Captiva Properties, L.P., a Florida limited partnership
(IISS&CPII), Capstar Hotel Company and CapStar Management
Company, L.P. have entered into a separate Contribution
Agreement (the "Other Agreement") providing for the
contribution of certain assets of SSPC, SSRC, SS@TP, Marco
and SS&CP to CapStar Management Company, L.P.; and
G. CapStar Hotel Company and American General
Hospitality Corporation ("AGT") have signed definitive
agreement pursuant to which, among other things, CapStar will
merge with and into AGT (the "Merger").
NOW, THE FO , in consideration of the mutual
covenants contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are
hereby acknowledged, each Seller and CapStar agrees as
follows:
ARTICLE I
DGFINITIOXS; DESCRIPTION OF P CHASED ASSETS;
EXCLUDED-PROPERTY
Section 1.1 Definitions. Capitalized words not
otherwise defined in this Agreement have the meanings set
forth
in @.hi]2it A.
Section 1.2 Description of Assets. Upon the terms
and I subject to the conditions set forth in this Agreement,
at the Closing, each Seller shall convey, sell, transfer,
assign and deliver to CapStar and Capstar shall purchase and
take all right title and interest of each Seller in and to
the Purchased Assets' but e@ressly excluding the Excluded
Assets-
Section 1.3 -Excluded Assets. There shall be
excluded from the assets, properties, rights (contractual and
otherwise) and business to be sold transferred, assigned and
delivered to CapStar pursuant to Section 1.2 the assets,
Properties, rights (contractual and otherwise) and business
set forth on schedule (the "Excluded Assets").
Section 1.4 No -Assiq=e t of Certain tv.
ert
Notwithstanding anything to the contrary in this Agreement,
to the extent that the assignment hereunder of any of the
Purchased Assets shall require the consent of any other party
(or in the event that any of the same shall be non-
assignable), neither this Agreement nor any action taken
pursuant to its provisions shall constitute an assignment or
an agreement to assign if such assignment or attempted
assignment would constitute a breach thereof or result in the
loss or diminution in the value of such Purchased Asset;
provided, however, that in each such case, Sellers shall use
commercially reasonable efforts to obtain the consent of such
other party to an assignment thereof to CapStar.
ARTICLE II
ASSUMPTION OF CERTATN LIABILITIES, - LIABILITIES NOT ASSUMED
Section 2.1 Assumption of Certain Liabilities.
CapStar shall assume and be responsible for the timely
satisfaction or performance, as the case may be, of the
following: (i) all Liabilities with respect to the Properties
and the Purchased Assets (including, without limitation, the
Contracts and the Leases) arising or acc ing on or after the
Closing Date; provided, however, that in no event will
CapStar be responsible for the payment of the Pink Shell FF&E
Consideration; and7(ii) any Liabilities described herein to
the extent CapStar has received a credit against the Purchase
Price therefor (collectively, the "Assumed Liabilities").
Section 2.2 Liabilities Not Assumed. Except for
the Assumed Liabilities, CapStar shall not by execution and
performance of this Agreement assume or otherwise responsible
for any Liabilities of Sellers or with respect to the
Purchased Assets (the "Excluded Liabilities").
ARTICLE III
PURCHASE PRICE; PAYMENT OF PURCT-IASE PRICE
,Section 3.1 Purchase Price. In consideration for
the Purchased Assets, CapStar shall pay to Sellers, in the
manner set forth in Section 3.2 below, Forty-Four Million
Five Hundred Thousand Dollars ($44,500,000), plus or minus
the adjustments and prorations called for in Article XII and
elsewhere in this Agreement (the "Purchase Price',)-
Section 3.2 Pavment of Purchase Price. On the
terms and subject to the conditions of this Agreement, o the
Closing Date, CapStar shall assume the Assumed Liabilities
and pay to SSPC, by wire transfer of immediately available
funds to an account designated by SSPC, the Purchase Price.
Section 3.3 Allocation. Sellers and CapStar hereby
agree that the Purchase Price shall be allocated for
purposes, of this Agreement and for federal, state and local
tax purposes in the manner agreed to between Sellers and
CapStar prior to the Closing. Sellers and CapStar shall file
all federal, state, local and foreign tax returns, including
Internal Revenue po $594 in accordance with any such
allocation agreed to by the parties, as the same may be
adjusted by Article XI!. The provisions of this Section
3.3,shall survive the Closing.
ARTICLE !V
DUE DILIGENCE PERIOD
Section 4.1 Due-Diligence Period.
(a) CapStar shall have until 5:00 p.m., Eastern
Standard Time, on April 13, 1998 (the "Due Diligence
Period"), to determine whether in its sole and absolute
discretion it will proceed with this transaction. If CapStar
fails to notify SSPC in writing prior to the expiration of
the Due Diligence Period that CapStar has elected not to
proceed with this transaction, CapStar shall be deemed to
have irrevocably elected - d to proceed with this
transaction.
(b) Subject to the remaining provisions of this
Section 4.1, during the Due Diligence Period, Sellers shall
give CapStar access to the Purchased Assets (in the case of
the Pink She-11 and Safety Harbor, to the extent Sellers are
not otherwise restricted from providing such access by the
fee owners of such properties). Sellers shall furnish to
CapStar as promptly as, reasonably practicable during the Due
Diligence Period all
materials, documents and information concerning the
Purchased assets as CapStar may reasonably request, to the
extent the s ,exist and are in the possession or control of
Sellers. CapStar agrees that no Seller shall have to
undertake any tests, studies or investigations in discharging
its obligations under this Section 4.1(b).
(c) CapStar shall have the right, at its cost and
expense, to perform or cause to be performed, any structural,
engineering and environmental tests, studies and investigate
9 deetned necessary by CapStar; provided, however, that such
tests, studies and investigations undertaken by CapStar or
its employees, agents or representatives (collectively, the
'CapStar Representatives") shall be conducted only: (i) upon
not less t n.. forty-eight (48) hours, prior notice to SSPC;
(ii) during n al I business hours of SSPC; and (iii) with
SSPC's prior written approval (which approval shall not be
unreasonably withheld) All of CapStar's activities under this
Section 4.1 shall be coordinated through Richard E. Krichbaum
or his designee. CapStar shall conduct its activities under
this Section 4.1 in a manner so as not to unreasonably
interfere or otherwise unreasonably disrupt the Business,
operation of the Properties, operation of Safety Harbor or
the Employees or guests of Sellers. Notwithstanding any
other provision of this Section 4.1 to the contrary, CapStar
shall not perform any drilling, boring or similar invasive
testing without Richard E. Krichbaum's prior written consent.
CapStar shall not, without the prior written consent of
Richard E. Krichbaum, (i) disclose the nature or purpose of
its activities to anyone other than CapStar Representatives
and Robert M. Taylor, Richard E. Krichbaum, Timothy R. Bogott
or Judy Emens, or (ii) dis pt Sellers, Employees or ests.
CapStar agrees to indemnify and hold harmless Sellers, their
respective employees and partners from and against any and
all losses, damages, claims, costs and expenses (including
legal fees and expenses) to the extent caused by CapStar or
the CapStar Representatives arising from any inspection
activities undertaken under this Section 4.1. CapStar, at its
own cost and expense, shall restore any damage to the
Property caused by any of the tests, studies or
investigations made by CapStar or the CapStar
Representatives. Any information obtained @y CapStar or the
CapStar Representatives under this Section 4.1 shall be
subject to the confidentiality provisions of Section 8.3(a)
of this Agreement. The indemnification obligations and other
obligations of CapStar in this Section 4.1 shall survive te
ination of this Agre and the Closing.-
(d) Sellers and CapStar have caused the Title Company
to furnish to CapStar the title insurance commitments listed on
Schedule 4,. 1 @d) Issued by the Title Company covering each parcel
of Real Property, binding the Title Company to issue ALTA Form B1970
Owners Policies of Title Insurance, in favor of CapStar,
together with copies of all documents identified in such title
insurance commitments as exceptions to title (the "Title
ommitments")- Sellers have delivered or made available to
CapStar copies of the existing land surveys listed o du e
4,.l(d) with respect to each parcel of Real Property (the
"Existing Surveys"). CapStar shall have until 5:oo p.m., Eastern
Standard Time, on April 13, 1998, to notify SSPC and the Title
Company of any restrictions, reservations, limitations,
5
easements, conditions, defects or encumbrances (together
herein called "Title Defects") disclosed in the Title
Commitments which are objectionable to CapStar. If CapStar
so notifies SSPC of a Title Defects, SSPC shall have until
:00 p.m., Eastern Standard Time, on April 14, 1998 (the
"Reply Period") in which to cure or rermve or commit to cure
or remove such Title Defects. Upon expiration of the Reply
Period, the Title Company shall notify SSPC and CapStar as to
whether or not it is then in a position to insure over the
Title Defects or issue its policies of title insurance
(collectively, the "Title Policies") wit out showing as
exceptions the Title Defects. ILc the Title Company shall
notify the parties that it will issue the Title Policies,
this transaction shall be consummated in accordance with the
terms and provisions of this Agreement. If the Title Company
shall notify the parties that it will not issue the Title
Policies with the Title Defects removed or insured over, this
Agreement shall, at Ca - Star's option, thereupon be
terminated, void and of no further force and effect, the
Escrow Agent shall thereupon return to CapStar the documents
Previously deposited by it, and the parties shall be fully
released and discharged from any liability or obligation
hereunder. The items set forth in the Title Commitments to
which CapStar does not object or to which CapStar has
objected prior to expiration of the Due Diligence Period but
which the Title Company has agreed in writing to remove or
insure over are hereafter referred to as "Permitted Title
Exceptions." Permitted Title Exceptions shall also include y
purchase money security interests granted in connection with
the purchase of any of the personal property that is the
subject of the Equipment Leases being assumed by CapStar
hereunder. Notwithstanding anything to the contra contained
in this Agreement, with the exception of the Permitted Title
Exceptions and any items for which CapStar has received a
credit against the rchape Price under Section 12.1 hereof,
Sellers shall cause all monetary liens or encumbrances
affecting the Properties and disclosed in the Title
Commitments (or incurred after the effective time of the
Title Commitments) to be removed on or prior to Closing.
TICLE V
SELLERS' REP SENTATIONS
WARRANTIES
To induce CapStar to enter into this Agreement and
to consummate the transaction contemplated hereby, each
Seller hereby makes the following representations and
warranties with respect to itself d the Purchased Assets in
which such Seller has an ownership interest (directly or
indirectly), upon which
each Seller acknowledges and agrees that CapStar is entitled
to rely:
Section S. I 0-rcr nation and P,
. Each
Seller is duly formed or organized (as the case may be),
validly
existing and in good standing or full force and effect in the
jurisdiction of its formation or organization, and is
qualified to do business in all jurisdictions in which such
qualification.
is neces L
I I
Sary (except where such failure to qualify would not
result in a Material Adverse Effect), and has all requisite
corporate or partnership (as the case may be) power and
authority I to own, lease and operate its property and to
carry on its business as now being conducted.
Section 5.2 Authority and Bindincr ob n.
Each
tion
Seller has full co orate or partnership (as the case may e)
power and authority to execute and deliver this Agreement and
all documents now or hereafter to be executed and delivered
by such Seller pursuant to this Agreement and to perform all
obligations arising under this Agreement and under such other
documents. The execution, deliver and performance of this
Agreement by each Seller has been duly and validly authorized
by all necessary corporate or partnership (as the case may
be) action on the part of such Seller, and this Agreement has
een duly executed and delivered by such Seller. This
Agreement and such other cuments, when executed and
delivered, will each constitute the legal, valid and binding
obligations of each Seller, enforce le against each Seller in
accordance with their respective terms.
Section 5.3 Consents and A;>-Prov Is;
With respect to each Seller: (i) there is no legal
'Impediment to such Seller's consummation of the transaction
contemplated by this Agreement; and (ii) zo filing with, and
no permit, authorization, co sent or approval of, any
Governmental Authority is necessary for the consummation by
such Seller of the transaction contemplated by this
Agreement. Neither the execution and deli e of this
Agreement by such Seller, nor the consummation by such Seller
of the transaction contemplated hereby, nor compliance by
such Seller with y of the provisions hereof will: (i) result
in a violation of any provision of such Seller's
organizational or governing documents in which such Seller
owns an inL--erest; (ii) violate any Applicable Law to such
Seller is subject; or (iii) result in a violation or brea of,
or constitute a default under, any Material Contract.
Section S.4 Title to Purchased Assets.
a) Schedule 1.2(a sets forth a t e, correct and
complete legal description of each Darcel of the Land and the
correct and complete address of each Property. SSPC (with
respect to Sanibel Inn, Seaside, Sundial, Plantation View and
Shirley's Parcel), and S C (with respect to the SHMC Land),
owns fee simple title to such Real Prooerty, which in
each.case sh 11 ,be free and clear of all mortgages, pledges,
liens, security interests, encu rances and restrictions of
any nature whatsoever as of the Closing Date, subject only to
the Permitted Title Exceptions. C has good title to the SHMC
Ground Lease SSPC has good title to the Pink Shell Management
Agreement, the Pink Shell Lease.
7
(b) Each Seller has good title to the Personal
Property used by it in connection with its business, which in
each case shall be free and clear of all mortgages, pledges,
liens, security i terests, encu rances and restrictions of
any nature whatsoever as of the Closing Date, su j6ct only to
the Permitted Title Exceptions.
Section 5.5 sence of Changes. Since December,31,
1997, there has not been any material adverse change in the
business, assets, properties, liabilities, revenues or
financial condition of any Seller or the Properties, except
for changes -due to the seasonal nature of the Business.
Section 5.6 Financial Stat ents and Re
2f Un4isclosed Liabilities.
(a) Schedule 5.6 sets forth: (i) the audited and
unaudited consolidated financial statements of SSPC, (ii) the
unconsolidated unaudited financial statements of SSPC and
SHMC, and (iii) certain other financial reports that have
been furnished previously to CapStar by Sellers (the
"Financial Statements"). The Financial Statements are true
and correct i all material respects, have been prepared from
and are in accordance with the books and records of each
Seller in substantial conformity with GAAP applied on a
consistent basis throughout the periods involved, and fairly
present in all terial respects the financial condition of
each Seller as of the dates stated and the results of
operations f'or'the periods then ended (subject, in the case
of unaudited interim consolidated financial statements, to no
al year-end adjustments). SSPC has filed all required fo s,
reports and documents with the Securities and Exchange
Commission required to be filed by it pursuant to the
Securities Exchange Act of 1934, as a ended, and t e rules
and regulations promulgated thereunder, all of which have
complied in all material respects with the applicable re
irements of the Securities Exchange Act of 1934, as amended,
and such les and regulations (hereinafter collectively
referred to as the IISSPC R Po ts"). None of the SSPC
ReDorts, at the time filed, contained any untrue statement of
a material fact or omitted to state a material fact required
to be stated-therein or necessa in order to make the state t
rein, in light of the circumstances under which they were
ade, not misleading. The fin cial statements of SSPC incl in
the,SSPC Reports complied as to fo in all material re cts ith
applicable accounting requirements and the published
regulations of the Securities and Exchange Commission
appli on a consistent basis (except as otherwise noted in
such financial statements) and present fairly in all material
re cts the financial position, results of operations, cash
flows and changes in financial position of SSPC and its
consolidated subsidiaries as of the dates stated or the
periods indicated, subject, in the case of unaudited interim
consolidated financial statements, to normal year-end
adjustments. CapStar acknowledges
that under the terms of the SHMC Ground Lease the annual
lease payment is $1,200,000 and that a portion of the lease
payment will be credited against the option to purchase
contained in the SIN,C Ground Lease if the option is
exercised. Because SHMC expects to exercise the option,
SSPC has capitalized a portion of the annual lease payment
and SSPC's Financial Statements reflect lease xdense of
approximately $135,000 for the calendar year 997.
(b) To Sellers, owledge, no Seller has any
Liabilities which are required to be disclosed on a balance
sheet
under GAAP, other than (i) the Liabilities sho in@the
Financial Statements, (ii) Liabilities disclosed in any of
the Schedules attached hereto or to the Other Agreement, and
(ii) Liabilities
which have arisen since December 31, 1997 in the ordina
course of business (none of which relate to any breach of
contract, tort, or violation of Applicable Law).
Section 5.7 COMIPliance it @licabl.e Law. Except
as disclosed in Schedule 5.7, to Sellers' Knowledge, no Selle
is in violation of any Applicable Law.
Section 5.8 Liticiation. Except as disclosed in S
h dule 5.8, there -is no action, suit or proceeding pending
or, to Sellers' owledge, threatened against any Seller, the
Pro,oerties or Saf ety Harbor in any court or before any
Governmental Authority which: (i) seeks to enjoin or
prohibit, or otherwise estions the validity or,,
enforceability of this Agreement or any action taken or to be
taken by Sellers in connection with this Agreement, or (ii)
if adversely determined would have a Material Adverse Effect.
Section 5.9 Insurance. Schedule 5.9 sets
forth a
true, correct and complete list and description of each
insurance
policy maintained by any Seller with respect to the
Properties
- -and Safety Harbor (the "Insurance Policies"). To Sellers'
Knowledge, all of the Insurance Policies are valid and in
full force and effect.
Section 5.10 Labor and @ lo ent Matters. To
Sellers, Knowledge, each Seller has complied in all respects
with all Applicable Laws relating to employment matters.
There are no collective bargaining or other labor agreements
to which any Seller is bound with respect to employees of any
Seller.
I Section 5.11 'Taxes. All Taxes imposed upon any Seller
th respect to the Business or the Purchased sets which
are
payable by the applicable Seller have be n paid in
full and are current- No Seller has received any written
notice that such Taxes are overdue or have not een paid. To
Sellers, owledge, each Seller has duly filed all federal,
state and local tax ret rns and tax renorts required to be
filed by it under Applicable Law, all such retu s and
rer,>orts are true and,
correct in all material respects and all Taxes and other
charges arising under such returns and reports have been
fully paid or will be timely paid.
Section 5.12 ' Environmental Matters. Schedule
5.12 sets forth a true, correct and complete list of all
environmental assessments, reports and studies with respect
to the Land prepared within the last three (3) years by or on
behalf of, or otherwise in the possession or control of, any
Seller, and Sellers have delivered or made available to
CapStar a copy of each such assessment, report and study.
Except as disclosed in Schedule 5.12, there are no pending
Environmental Claims, and to Sellers, Knowledge, no
Environmental Claims are threatened with respect to the Land.
Section 5.13 ' ERISA. (a) The only "employee
pension benefit plans", as defined in Section 3 of ERISA,
maintained by Sellers are those disclosed in Schedule S.13
(the "Pension Plans"), and the only "employee welfare benefit
plans", as defined in Section 3 of ERISA, maintained by any
Seller are those disclosed in Schedule 5.13 (the "Welfare
Plans"; the Pension Plans and the Welfare Pl-ans are
hereafter collectively referred to as the "Plans") .
(b) Except as disclosed in Schedule 5.13, a
favorable determination letter has been issued by the
Internal Revenue Service with respect to the tax-qualified
status under Section 401(a) of the Code for each Pension
Plan. Since the date of the most recent determination
letter, each Pension Plan has been timely amended to comply
with all Applicable Laws with respect to such Pension Plan,
and a request for a new determination letter has been filed
with L-he Internal Revenue Service within the time required
to Dreserve the rights of the sponsor of such Pension Plan to
adopt such amendments to such Pension Plan as may be required
by L-he Internal Revenue Service in order to secure a
favorable determination let@Ler with respect to such Pension
Plan's continued tax-qualified status.
(c) No Seller has incurred any material liability
to the Internal Revenue Service, the U.S. Department of
Labor, the Pension Benefit Guaranty Corporation or any
participant or former participant with --esoect to the Plans,
other than routine claims for benefits.
(d) Except as disclosed in Schedule 5.13: (i) the
Plans have been maintained, operated and administered in all
material respects in accordance with their respective terms
and the provisions of ERISA and the Code, and (ii) there are
no accumulated 'Lunding deficiencies (as defined in Section
302 of ERISA and 412 of the Code) with respect to any Plan.
Section 5.14 Permits. Except as disclosed in Schedule
5.14, to Sellers' Knowledge, each Seller holds all Pe=its
1 0
required in conducting its business and operating its
properties, each of which to Sellers' Knowledge is valid and
in full force and ef'Lect and no provision or condition o.C
i- which has
been breached or violated.
Section S. 15 Leases. Schedule 1. 2 (i) and
Schedule
1. 2 (i) set forth a true, correct and complete list of
the Tenant Leases and Seller Leases, respectively, and
Selle@s have delivered or made available to CapStar a true,
correct and complete copy of the Tenant Leases and Seller
Leases, and true, correct and complete samvle forms of the
Condominium Lease Agreements. No Seller has received any
written notice of any default under any of the Leases, and to
Sellers' Knowledge, no evenl-- has occurred or circumstance
exists which, with notice or the passage of time, would
result in a default thereunder. Schedule 5.15 sets forth a
true, correct and complete list of the Condominium Lease
Agreements as of March 31, 1998, including the units covered
by such Condominium Lease Agreements, the dates such
Condominium Lease Agreements were entered into and the names
of the other parties thereto.
Section 5.16 Contracts. Schedule 5.16 sets forth a
true, correct and complete list of all Equipment Leases
(indicating therein which Equipment Leases constitute Capital
Leases) and all Material Contracts in effect as of the date
hereof, and Sellers have delivered or made available to
CapStar a true, correct and complete copy of the Equipment
Leases, Material Contracts, Management Agreements and
Memberships. No Seller has received any written notice of
any default under any of the
racts, and 'llers, Knowledge, no event has occurred
or
Cont to Se
circumstance exists which, with notice or the passage of
time,
would result in a default thereunder. Schedule 5.16 sets
forth a
true, correct and complete list of all Contracts and Leases
tharequire aggregate remaining payments in excess of Two
Hundred L Thousand Dollars ($200,000) and that require by
their express terms the consent of the other party thereto in
connection with the assignment thereof to CapStar as
contemplated by this Agreement. CapStar acknowledges that
only the consents listed as deliveries under Section 9.2
shall constitute a condition to CapStar's obligations
hereunder.
Sec-Li-on 5.17 Foreicrn Person. No Seller is a
Ili'-oreign person" J@-or -Durposes of the withholding
provisions of Sections 1445 and 7701 of the Code.
Section 5.18 Finders and Investment Brokers.
Except for NationsEanc Montgomery Securities LLC, no broker,
finder or 'Linancial adviser has acted directly or indirectly
as such for Sellers in connection with the transaction
contemplated by this Agreement, or is entitled to any fee or
commission in connection with this Agreement or the
transaction contemplated hereby-
11
Section 5.20 ' SHMC Ground Lease. SHMC has
delivered or made available to Car)Star a true, correct and
complete copy of the SHMC Ground Lease. No Seller has
received any written notice of any default under the SHMC
Ground Lease, and to Sellers, Knowledge, no event has
occurred or circumstance exists which, with notice or the
passage of time, would result in a default thereunder.
Section 5.21 Trademarks. Schedule 5.21 sets forth
a true, correct and complete list of each registered
trademark, tradename, symbol and logo used by Sellers in
connection with-the ]Business (the "Proprietary Rights").
Sellers are the sole and exclusive owners of all right, title
and interest in and to all Proprietary Rights. The
Proprietary Rights do not infringe upon any trademark,
tradename, symbol or logo of any third party and, to the best
of Sellers, Knowledge, none of the Proprietary Rights are
being infringed udon by any person, firm, corporation or
other legal entity.
Section 5.22 Refurbishment Proaram at Sundial.
SSPC has the right, pursuant to the terms of Condominium
Lease Agreements or the Refurbishment Program Promissory
Notes Receivable, to offset against rent due and owing
individual condominium owners under the Condominium Lease
Agreements the amount of any payment to SSPC under any
Refurbishment Program Note Receivable (as defined in Section
12.4(d)) that is not paid to SSPC when the same is due and
payable.
CAPSTAR ACKNOWLEDGES AND AGREES TI-IAT, SUBJECT TO
THE PROVISIONS OF THIS AGREEMENT, CAPSTAR IS TAKING THE
PURCIIASED ASSETS AND THE PROPERTIES ON AN AS-IS, WHERE-IS
BASIS WITH ALL FAULTS AND THAT, EXCEPT AS EXPRESSLY SET FORTH
IN THIS ARTICLE V, NO SELLER MAKES ANY REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, OR ARISING BY OPERATION OF LAW
OR OTHERWISE, INCLUDING, BUT IN NO WAY LIMITED TO, ANY
WARRANTY OF CONDITION,
MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE AS TO T-
aE PURCHASED ASSETS AND THE PROPERTIES. CAPSTAR REPRESENTS
THAT IT IS ENGAGED IN THE BUSINESS OF HOTEL AND RESORT
PROPERTIES INVESTMENT, OWNERSHIP AND OPERATION AND AS OF THE
CLOSING DATE, IT HAS BEEN GIVEN FULL AND COMPLETE ACCESS TO
THE PURCHASED ASSETS AND THE PROPERTIES FOR ALL INSPECTIONS
AND REVIEWS THAT IT H-kS DESIRED TO CONDUCT IN PERSON AND
THROUGH THEIR RESPECTIVE AGENTS, EMPLOYEES OR REPRESENT-
XTIVES, AND IT WILL BE FAMILIAR WITT.I THE PURCHASED ASSETS
AND T---iE PROPERTIES AND WILL HAVE MADE SUCH INDEPENDENT
INVESTIGATIONS AS IT DEEMS NECESSARY OR APPROPRIATE
CONCERNING THE PURC.TMSED ASSETS AND THE PROPERTIES.
Each of the representations and warranties
contained in this Article V and its various subparagraphs are
intended for the benefit of CapStar and may be waived i-n
whole or in idart by CapStar, but only by an instrumenl-- in
writing signed by CapStar. All rights and remedies arising
i-n connection with the untruth or inaccuracy of any such
representations and warranties shall
12
survive the Closing of the transaction contemplated hereby
for the period set forth in Section 11.1 hereof unless
CapStar has Knowledge prior to Closing of the untruth or
inaccuracy of any representation or warranty and CapStar
nevertheless elects to close this transaction.
ARTICLE VI
CAPSTAR'S REPRESENTATIONS AND WARRANTIES
To induce Sellers to enter into this Agreement and
to consummate the transaction contemplated hereby, CapStar
hereby makes the J'-ollowing representations and warranties,
upon which CapStar acknowledges and agrees that Sellers are
entitled to rely:
Section 6.1 Organization and Power. CapStar is
duly formed or organized (as the case may be), validly
existing and in good standing or full force and effect in the
jurisdiction of its formation or organization and is
qualified to do business in all jurisdictions in which such
qualification is necessary (except where such failure to
qualify would not result in a Material Adverse Effect) and
has all requisite corporate or partnership (as the case may
be) power and authority to own, lease and operate its
property and to carry on its business as now being conducted.
Section 6.2 Authoritv and Binding Obliqation.
CapStar has full corporate or partnership (as the case may
be) power and authority to execute and deliver this Agreement
and all documents now or hereafter to be executed and
delivered by CapStar pursuant to this Agreement and to
perform all obligations arising under this Agreement and
under such other documents. The execution ' ' delivery and
Derformance of this Agreement by CapStar has been duly and
validly authorized by all necessary corporate or partnership
(as the case may be) action on the part oLc CapStar and this
Agreement has been duly executed and delivered by CapStar.
This Agreement and such other documents, when executed and
delivered, will each constitute the legal, valid and binding
obligations of CapStar, enforceable against CapStar in
accordance with their respective te=s.
Section 6.3 Consents and A-p-orovals; No
Conflicts. There is no legal impediment to consummation by
CapStar of the transaction contemplated by th@-s Agreement,
and (ii) no filing with, and no pe=it, authorization, consent
or approval of, any Governmental Authority or other third
idarty is necessary for the consummation by CapStar of the
transaction contemplated by this Agreement. Neither the
execution and delivery of this Agreement by CapStar, nor the
consummation by CapStar of the transaction contemplated
hereby, nor compliance by CapStar with any of the provisions
hereof will: (i) result in a violation of any provision of
the organizational or governing documents of Ca,pStar; (ii)
violate any Applicable Law to which CapStar is
13
subject; or (iii) result in a violation or breach of or
constiti-,te a default under any contract, agreement, note,
bond,
mortgage, indenture, license, lease, franchise, permil- or o-
her
L
- -
i,nstrumenL-- or obligation to which Ca-oStar is a party or
by which any of CapStar's properties are boun@.
Section 6.4 Liticration. There is no claim,
litigation, proceeding or investigation pending, or to
CapStar's Knowledge, threatened, which seeks to enjoin or
prohibit, or otherwise questions the validity or
enforceability of this Agreement or any action taken or to be
taken by CapStar in connection with this Agreement.
Section 6.5 Finders and Investment Brokers. All
negotiations relating to this Agreement and the transaction
contemplated by this Agreement have been carried on without
the involvement of any person or entity acting on behalf of
CaiDStar in such a manner as to give rise to any valid claim
against any Seller for any broker's fee, finder's fee or
similar compensation.
Each of the representations and warranties
contained in this Article VI and its various subparagraphs is
intended for the benefit of Sellers and may be waived in
whole or in part by Sellers, but only by an instrument in
writing signed by Sellers. All rights and remedies arising
in connection with the untruth or inaccuracy of any such
representations and warranties shall survive the Closing of
the transaction contemplated hereby for the period set forth
in Section 11.1 hereof, unless Sellers have Knowledge prior
to Closing of the untruth or inaccuracy of any representation
or warranty, and Sellers nevertheless elect to close this
transaction.
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions Precedent to the
Obligations of Both CaDStar and-Sellers. The respective
obligations o@L Capstar and Sellers hereunder are subject to
the satisfaction at or prior to the Closing Date of the
following conditions precedent:
(a) Adverse Proceedinqs. No preliminary or
pe=anent injunction or other order, decree or ruling issued
by a court of co=etent jurisdiction or by a Governmental
Authority nor any statute, rule, --egulation or executive
order promulgated or enacted by any Governmental Authority
shall be in effect which would: (i) make the consummation of
the transaction contemplated hereby illegal, or (ii)
otherwise prevent consummation of the transaction
contemplated hereby.
(b) Consu=ation of Transaction Contem-Dlated by
the Other Agreement. The transaction contemplated by the
Other Agreement shall have been consummated or shall be
consummated
14
simultaneously with the consummation o'L the transaction
contemplated hereby.
Section 7.2 Additional Conditions As to CapStar's
OblicTations. CapStar's obligations hereunder are also
subject to the satisfaction on or prior to the Closing Date
of the following conditions precedent:
(a) Sellers' Deliveries. Sellers shall have
delivered to or for the benefit of CapStar, on or before the
Closing Date, all of the documents recruited of Sellers
pursuant to Section 9.2.
.(b) Representations and Warranties. All of the
re7oresent,itions and warranties made in Article V of this
Agreement shall be true and correct in all material respects
when made (without taking into account any qualification as
to Knowledge) and, unless such representation or warranty is
made as of a specific date, at and as of the Closing Date as
if made at and as of such time (without taking into account
any qualification as to Knowledge), and Sellers shall have
executed and delivered to CapStar a certificate to the
foregoing effect.
(c) Covenants and Obliaations. Sellers shall have
perfo=ed in all material respects all of their covenants and
other obligations under this Agreement, and Sellers shall
have executed and delivered to CapStar a certificate to the
foregoing effect.
(d) Title Policies. The Title Company shall he
ready, willing and able to issue the Title Policies insuring
in CapStar fee simple title to each parcel of Real Property
with gap coverage from Sellers through the date of recording,
subjec-L only to the Permitted Title ExceDtions.
(e) Liauor Licenses. (i) CapStar or its designee
shall have obtained valid liquor licenses for all Properties
and Safety -@arbor either (A) through the transfer of
existing licenses (if pe--missi-ble under Applicable Law) or
(E) through the Issuance of new licenses, or (ii) Sellers and
CapStar or its designee shall have entered into an interim
arrangement allowing CapStar or its designee to sell liquor
at the Properties and Safety Harbor until licenses are
obl@ained by CaDStar or its designee.
(f) Material Adverse Chanue. From the date of
expiration of the Due Diligence Period, there shall not have
occurred any materi-al adverse change in the condition of the
Purchased Assets or the operation of the Properties, except
for changes due to the seasonal nature of the Business and
except for any matter that may arise after the expiration of
the Due Diligence Period under Article X of this Agreement.
is
Each o'L the conditions set forth in this Section
7.2 is intended for the benefit o@L CapStar; provided,
however, that if CaDStar consummates the transaction
contemplated by this Agreement without the benefit of one or
more of -Lhe foregoing conditions having been satisfied,
CapStar shall be deemed to have waived any such condition or
conditions.
Section 7.3 As to Sellers' Obligations. Each
Seller's obligations hereunder are subject to the
satisfaction on or prior to the Closing Date of the following
conditions precedent:
(a) CapStar's Deliveries. CapStar shall have
delivered to or for the hene-fit of Sellers, on or before the
Closing Date, all of the documents required of CapStar
pursuant to Section 9.3.
(b) Representations and Warranties. All of
representations and warranties made in Article VI of this
Agreement shall be true and correct in all mal--erial
respects when made (without taking into account any
qualification as to Knowledge) and, unless such
representation or warranty is made as of a specific date, at
and as of the Closing Date as if made at and as of such time
(without taking into account any crualif ication as to
Knowledge), and CapStar shall have executed and delivered to
Sellers a certificate to the foregoing effect.
(c) Covenants and OblicTations - CapStar shall
have performed in all material respects all of its covenants
and other obligations under this Agreement, and CapStar shall
have executed and delivered to Sellers a certificate to the
foregoing effect.
(d) Receipt of Purchase Price. Sellers shall have
received the Purchase P--ice, as adjusted pursuant to Article
XII, and all other sums required to be paid by CapStar
hereunder.
Each of the conditions set forth i-n this Section
7.3 is intended for the benefit o@' Sellers; provided,
however, that if Sellers consummate the transaction
contemplated by this Agreement without the benefit of one or
more of the foregoing conditions having been satisfied,
Sellers shall be deemed to have waived any such condition or
conditions.
ARTICLE VIII
COVENANTS
Section 8.1 Mutual Covenants. CaoStar and Sellers
mutually covenant as follows:
(a) Covenants Against Disclosure; Public
Anno=cements. CapStar and Sellers shall keep conf idential
and not disclose to any person or entity the terms,
conditions and provisions of thi-s Agreement; provided,
however, that: (i) CapStar and Sellers s,hall make a joint
public announcement
16
relating to the transaction contemplated hereby
simultaneously with the announcement o@L the transaction
contemplated by the other Agreement, (ii) each parl'-y may at
any time after execu-Lic)n hereof disclose the terms,
conditions and provisions of this Agreement as required under
Applicable Law (including, wi--Lhout limitation, SEC Laws),
and (iii) each party may at any t ime a@ter
L
execution hereof disclose the terms, conditions and -
provisions of this Agreement to persons on a "need to know"
basis, such as thei-r respective officers, directors,
employees, attorneys, accountants, engineers, surveyors,
consultants, lenders, partners, investors, potential lessees
and bankers and such other third parties whose assistance is
required in connection with the consummation of this
transaction.
(b) Additional Agreements. Subject to the terms
and conditions provided in this Agreement, CapStar and each
Seller agrees to use their commercially reasonable efforts to
take, or cause to be taken, all actions and to do, or cause
to be done, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the
transaction contemplated by this Agreement and to cooperate
with one another in connection with the foregoing, including
using its commercially reasonable efforts to obtain all
necessary consents, approvals and authorizations as are
required to be obtained from third parties or under
Applicable Law, to defend all lawsuits or other legal
proceedings challenging this Agreemen-L or the consummation
of the transaction contemplated hereby, to cause to be lifted
or rescinded any injunction or restraining order or other
order adversely affecting the ability of the parties to
consummate the transaction contemplated hereby, and to effect
all necessary registrations and filings.
(c) Assiq=ent and Ass=Dtion of Sanibel Ea=-Out
Aareement. At the Time of Closing, SSPC shall assign and
deliver to CapSta-- and CapStar shall assume and -Lake from
SSPC the EarnOut Agreement, dated as of January 1, 1995 (as
amended by Amendment No. I to the Earn-Out Agreement dated
October 11, 1996), between Sanibel Resort Hotel Limited
Partnership and SSPC (the "Earn-Out Agreement'')- SSPC agrees
to fund an escrow account, with a mutually agreeable escrow
agent pursuant to the terms of an escrow agreement
satisfacto--y in form and substance to CapStar and SSPC, in
the amounl-- of $700,000 (the "Sanibel Escrow Amount"). The
Sanibel Escrow shall be used to fund the Earn-Out Amount (as
defined in -L-he Earn-Out Agreement) if and when due and
Dayable. SSPC agrees to pay the difference between the Earn-
Out Amount that is due and uayable and the Sanibel Escrow
Amount. To the extent the Sanibel Escrow Amount is greater
than the Earn-Out Amount, the excess shall be refunded to
SSPC within three (3) days after the payment of the Earn-Out
Amount to Sanibel Resort Hotel Limited Partnership.
Section 8.2 Covenants of Sellers. Sellers hereby
covenant with CapStar as follows:
17
(a) Continuance of Business; Maintenance of
rrom the date hereof unl--il the Closing Date, Sellers shall
Operate the Business and main-Lain and OiDerate each Property
in the Ordinary Course of Business. Without limiting the
generality of the foregoing: (i) no Seller will sell,
exchange, assign, -Lransfer, convey, lease or otherwise
dispose of all or any part of the Purchased Assets or any
interesl-- therein except for Fixtures and Tangible Personal
Property, Consumables and Supply inventories which are sold
or consumed in the Ordinary Course of Business; (ii) each
Seller will keep all Contracts, Leases and Permits to which
it is a party in full force and effect, will pay all charges
when due under such agreements (unless being contested in
good fai-th) and will perform all of its obligations under
such agreements in the Ordinary Course of Business; (iii) no
Seller will enter into any material contracts, licenses,
easements or other agreements relating to the Purchased
Assets which will obligate CapStar or be a charge or lien
against the Purchased Assets, except those that will be
discharged on or before the Closing Date, those entered into
in the Ordinary Course of Business which are necessary to
continue the operations of the Properties and Safety Harbor
in the ordinary Course of Business or -Lhose which are
terminable without penalty on sixty (60) days' notice; (iv)
each Seller will cause its respective Property to be operated
and maintained in the manner in which it is being operated
and maintained as of the date of this Agreement, which
undertaking includes, but is not limited to, maintaining
Fixtures and Tangible Personal Property, Consumables and
Suvply Inventories in those quantities and at those levels
present as of the date of this Agreement (subject to normal
adjustments to take into account the seasonal nature of the
Business) and entering into bookings in the Ordinary Course
of Business; (v) SSPC will Dromptly notify CapStar o'L any
matter arising Drior to the Closing which could reasonably be
expected to have a Material Adverse Effect (including,
without limitation, the commencement o'L any litigation or
Droceeding or any notice of a violation of AiDplicable Laws
issued @y any governmental or quasi-governmental authority;
(vi) SSPC will promptly notify CapStar of any actual or
Droposed change in the assessed value of the ProDerties or
any portion of the Properties (including any tentative or
preliminary assessment) and of the institution or proposed
institution of any pr I oceeding (whether formal, informal,
judicial or administrative) relal-ing to any such change or
proposed change; and (vi-i) no Seller will take any action
with respecl- to the contesting or resolution of the taxable
assessed value of the Land and Imorovements without the pr@or
written consent of CaDStar, whic@ consent shall not be
unreasonably withheld.
(b) Licruor Licenses. Sellers shall use all
reasonable efforts -Lo cause to be -Lransferred to CapStar or
its designee, all liquor licenses and alcoholic beverages
licenses currently i-n use i-n connection with the Business
and operation of the Properties and Safe-Ly Harbor. To that
end, Sellers and CapStar
18
shall cooperate each wi-th the other, and each shall execute
such transfer forms, license apvli-caL--i-ons and other
documents as may be necessary to effect such trans@Ler. If
permitted under Applicable Law, the narties shall execute and
file all necessary applications and papers wik--h the a-
oproldriate liquor and alcoholic beverage authorities prior
to the Closing, to the end that the issuance of new licenses
shall take effect, if possible, on the Closing Date,
simultaneously with Closing. If not so permitted, then the
parties agree each with the other that they will promptly
execute all aD'Dlications and other documents required by the
liquor authorities in order to effect the issuance of new,
licenses at the earliest da-Le possible consistent with
Applicable Law in order that all liquor licenses may be
issued to Ca-oStar or its designee at the earliest possible
time. If under Applicable Law the new licenses cannot be
issued until after the Closing of the transaction
contemplated hereby, then Sellers covenant and agree that
they will use reasonable efforts to enable CapStar to keet)
the bars and lounges and liquor facilities at the Im-
orovements open between the Closing Date and the time when
the new liquor licenses actually become effective, by
exercising management and supervision of such facilities
under the existing licenses under a management agreement to
be executed between Sellers and CaoStar (or its designee) in
a form reasonably agreed to between Sellers and cavstar,
until such time as new liquor licenses can be issued (but in
no event longer than six (6) months from the Clos@-ng Date);
provided, however, that CapS,--ar shall indemnify and hold
Sellers harmless from any liabilities, damages, claims, dosts
or expenses (including reasonable attorneys, fees)
encountered in connection with such operations during said
period of time and CapStar shall maintain commercial general
liability insurance (including dram shop liability) i,-l the
amount of Ten Mi-llion Dollars ($10,000,000) in favor of
Sellers. The provisions ci@ this Section 8.2(b) shall
survive the Closing.
(c) Employee Matters '. The employment of the Employees
shall be terminated by SSRC and S.@C at the Time of Closing.
(d) Capital improvement Projects. In connection
with any Projec-L- CaiDital Expenditure undertaken by any
Seller after the date of execution of this Agreement, each
Seller agrees as .Lollows: to submit plans and specifications
therefor to CapStar for its review and approval (which
aDDroval shall not he unreasonably withheld or delayed); (ii)
to complete such projects in accordance with the plans and
specifications therefor; (iii) to complete such projects in a
good and workmanlike manner, in timely fashion and usi-ng
good materials; and (iv) to complete such projects in
accordance with all A-oDlicable Laws. At the Time of
Closing, Sellers shall deliver to CapStar a report detailing
each Project Capital ExDenditure undertaken by Sellers, the
work comnleted i-n connection with each Project Capital
Expenditure, the amount spent (or committed to be spen-) in
connection with each Project CaDital Expenditure and the
work, if
19
any, needed to be comvieted in connection with each Project
Canital Expendi-ture.
Section 8.3 Covenants of CaT)Star. CaDStar hereby
covenants with Sellers as 'Lollows:
(a) Confidential Info=ation. Neither CapStar nor
any of its agents or representatives shall use for their own
bene'Lit (exce,ot in connection with this transaction and as
required by SEC Laws) and shall hold in stric-L confidence
and not disclose any data and information relating to the
financial statements,-
conditions and operations of Sellers that is confidential
in
nature and not generally known to the public (the
"Confidential
Inf o=a-Li-on"). If the transaction contemplated by this
Agreement
is not consummated for any reason, CapStar shall return to
Sellers within five (5) business days of the termination of
this Agreement for any reason all data, information and any
other written material obtained by CapS-Lar or its agents and
representatives from Sellers in connection with this
transaction and any copies, summaries or extracts thereof,
and except as noted herein, shall refrain from disclosing any
of the Confidential Information -Lo any third party or using
any of the Confidential Info=ati-on 'Lor its own benefit or
that of any other person or entity. This Section 8.3(a)
shall survive termination of this Agreement.
(b) 7-mployee Matters. On the Closing Date,
CapStar
shall: (i) offer Initial employment to all Management
Level Em@loyees; provided, that CapStar may at any time prior
to June 1, 1998, designate in writing to SSPC up to ten (10)
Management Level EmDloyees that CapStar shall not be required
to offer employment; and (ii) offer initial employment to
such other EmDloyees as CaDStar so desires; provided,
however, that CaDStar shall o'Lfer e=@-oyment to a sufficient
number of such otherEmvloyees to prevent Sellers from
incurring liability under the Worker AdjusL-ment and
Retraining Notification Act, 29 U.S.C. 2101 et sea (the "WARN
Act"), and CapStar shall indemnify and hold @ar;l-ess Sellers
@Lrom and against any claims, penalties, damages, losses,
liabilities and expenses incurred by Sellers under the WARN
Act. The Management Level Employees and the other Employees
who accept such offers of employment by CaDStar are re'Lerred
to herein as the "Transferred Emoloyees". Subject to the
penultimate sentence of this Section 8.3(h), L-he parties
acknowledge tha-L- all Transferred Employees shall be subject
to such te=s and conditions of employmen-L- as CapSL--ar may
set or establish, including, but not limited to, such matters
as wages, hours and working conditions. The Transferred
Employees shall receive credit -Lcrom Ca-oStar for years of
service (time worked) with Sellers for all vurposes
(including, without limitation, compensation, vacation,
severance, options, bonuses and all pension or welfare plans
of CaDSta--)- Notwithstanding any Drovision of this Section
8.3(b) to the contrary, CaDStar agrees that for the one year
period commencing on the Closing Date all
2 0
Management Level Employees whose employment is te--mi-nated
by CapStar without cause shall be paid one week of severance
pay for each year ol-@ credited service such Em-oloyee has
with Sellers and CapStar or any a@'filiate of CapStar. The
provisions of this Section 8.3(h) shall survive the Closing.
(c) Prolect Car>ital Exmenditures. CapStar
acknowledges that it has received Sellers' proposed list of
Project Capital Expenditures in connection with its due
diligence e'Lforts. Promptly after execution of this
Agreement (but in any event within 20 days after execution of
this Agreement), CanStar shall evaluate all proposed Project
Capital Expenditures of Sellers L--o determine a final scope
and schedule for the Project CaDital Expenditures. If
Sellers undertake any Project Capital Expenditures that have
been approved by CapStar ("A-oproved ProjecL-- Capital
Expenditures"), the Purchase Price shall be increased, as
contemplated by Section 12.4 hereof, by the amount spent by
Sellers on the Approved Project Capital Ex-oenditures. If
CapStar does not aidvrove a Project Capital Ex-oen@iture,
Sellers shall be under no obligation -Lo undertake such
Projec-L Ca-oital Ex-oenditure. If CapStar fails to
undertake its evaluation of the Project Capital ExiDenditures
as required under this Section 8.3(c) and deliver to SSPC its
determination of the final scope and schedule for the Project
Capital Expenditures within the time period set forth i-h
thi-s Section 8.3(h), CapStar shall be deemed to have
approved all the Project Capital Expenditures submitted to
CapStar.
ARTICLE IX
CLOSING
Section 9.1 Closincr. The Closi-ng shall occur
simultaneously with the closing ol-@ the transaction
contemplated .by this Other Agreement. As more particularly
described below, at the Clos@-ng L--he parties will meet: (i)
to execute all of the documents required to be delivered in
connection with the transaction contemplated hereby (the
"Closing Documents,,); (ii) initiate the wire transfer of the
Purchase Price; and (iii) take all other action required by
this Agreement to be taken in order to consummate the
transaction contemplated by this Agreement (the "Closing").
The Closing shall take Dlace at the Corporate Offices, or at
any other place to which SSPC and CapStar may mutually agree
prior to the Closing Date. The Doint in time at which L-he
Closing shall have been consummated is referred to herein as
the "Ti-me of Closing.,,
Section 9.2 Sellers' Deliveries. At the Closing,
each Seller (as indicated below) shall deliver to CapStar all
of the following instruments, each of which shall have been
duly executed and, where a-Dvlicable, acknowledged and/or
sworn on behalf o4L such Seller and, except as otherwise
noted, shall be dated as of the Closing Date:
2 1
(a) The certificates required by Section 7.2(b)
and
(c) hereo-Lc.
(b) Appror)riate resolutions of the shareholders
or board of directors (!or corporate Sellers), and the
general partner (for partnership Sellers) authorizing this
transaction, toge-Lher with all other necessary approvals and
consents of Sellers and such documentary and other evidence
as may be reasonably required by CapStar authorizing and
evidencing the authorization o'L (i) the execution on behalf
of Sellers of this Aareement and the authority of the person
or persons who are executing the Closing Documents to be
executed and delivered by Sellers prior to, at or otherwise
in connection with the Closing, and (ii) the performance by
Sellers of their obligations hereunder and under the Closing
Documents.
(c) All Deeds and Conveyance Documents necessary
to transfer title to the Purchased Assets to CapStar as
contemplated by the terms of this Agreement and as reasonably
requested by Ca,oStar.
(d) A consent from the landlord under each of the
Seller Leases, in form and substance reasonably satisfactory
to CapStar, if required by the terms of the Seller Leases.
(e) A Termination of Management Agreement in form and
substance reasonably satisfactory to CapStar.
(f) Such agreements, affidavits or other
documents as may be reasonably required by the Title Company
to Issue the Title Policies.
(g) A FIRPT-K affidavit in the form set forth in the
regulations under Section 1445 of the Code.
(h) All current real estate and -Dersonal
property -Lax bills relating to the Properties and Safety
Harbor in Sellers, possession.
(i) All originals (or copies if orig- inals are
not available) of the Books and Records, Customer and
Marketing information, Pe=its, Property ReDorts, and all
other documents and records relating to the Business or any
Property in the possession or conl--rol of Sellers, which
shall be deemed to be delivered upon delivery o'L possession
of the ProDerL-ies, the Corporate Of@Lice and Safety F@arbor.
(j) A payoff letter from each lessor under each
Capi-tal Lease indicating all amounts due and owing in order
to fully discharge and payoff as of the Time of Closing such
CaDital Lease.
22
(k) Such other and further documents and
instruments as may he reasonably requested by CapStar or its
counsel @-n order to better effectuate the purposes of this
Agreement.
Secti-on 9.3 ' Ca-oStar's Deliveries. At the
Closing, CapStar shall deliver to Sellers the Purchase Price
(by wire transfer of immediately available funds to an
account designated by Sellers) and all other sums required to
be paid by CapStar hereunder, and all of the following
instruments, each of which shall have been duly executed and,
where applicable, acknowledged and/or sworn on behalf of
CapStar, and, except as otherwise I noted, shall be dated as
of the Closing Date:
(a) The certificates required by Section 7.3(]D) and
(c)
(b) Appronriate resolutions of the Board of
Directors or other governing body of CapStar and such
documentary and other evidence as may be reasonably required
by Sellers authorizing and evidencing the authorization of
(i) the execution on behalf of CapStar of this Agreement and
the authority of the person or persons who are executing the
various documents to be executed and delivered by CapStar
prior to, at or otherwise in connection with the Closing,
and (ii) the performance by CapStar of its obligations
hereunder and under such documents.
(c) A counterpart of each of the agreements to be
delivered by Sellers under Section 9.2 which require
execution by CapStar.
(d) Such other and further documents and
instruments as may be reasonably requested by Sellers or
their counsel in order to better e--Ffectuate the purposes
o'L this Agreement.
Section 9.4 Possession. Sellers shall deliver
- -Dossession of the Purchased Assets at the Closing.
ARTICLE X
CONDEMNATION; DAMAGE OR DESTRUCTION
Secti-on 10.1 Condemnation. In the event of any
actual or threatened L--aking, pursuant to the power of
eminent domain, of all or any porL--i-on of the Real
Property, or any proposed sale in lieu thereof, SSPC shall
give writtet-i notice thereof to CapStar pro=tly after SSPC
receives nol-ice thereof. If all or more than twenty percent
(2o-.), by value, of Sundi-al, Seaside Inn ' or Sanibel Inn,
taken individually, is, or is to be, so condemned or sold,
CapStar shall have the right to terminate this Agreement. If
CapStar elects not to terminate this Agreement, all proceeds,
awards and other payments arising out of such condemnation or
sale (acL--ual or threatened) shall be paid or assigned, as
applicable, to CapStar at Closing. If CaDStar elects to
terminate this Agreement by giving Sellers written notice L--
hereo'L
23
prior to the Closing, all rights and obligations o-L Sellers
and CapStar hereunder (except those rights and obligations
set forth herei-n which expressly survive a L--ermination of
this Agreement) shall terminate immediately.
Section 10.2 Damage or Destruction.
(a) If, after expiration of the Due Diligence
Period but prior to Closing, there shall occur any uninsured
damage or destruction to the ProDerty in excess of twenty
percent (20'-.) , by value, of Sundial, Seaside Inn or
Sanibel Inn, taken individually, or that would require longer
than three hundred sixty-five (365) days to repair, CapStar
shall have the option, in its sole judgment and discretion,
(i) to terminate this Agreement, or (ii) to proceed with
Closing without any adjustment in the Purchase Price, in
which event, at Closing, Sellers shall transfer and assign to
CapStar all of Sellers' right, title and interest in and to
all proceeds from all insurance policies owned by Sellers
with respect to the Purchased Assets for such damage or
destruction, provided that any existing mortgagees having
approval or similar rights relating to application of
insurance proceeds have agreed that the insurance proceeds
may he transferred and assigned to CapStar. If CapStar
elects to proceed with Closing, and, as of the Closing Date,
the existing mortga ees have no . t agreed that the insurance
proceeds may be transferred and assigned to CaDStar, then, in
such event, the insurance proceeds shall be trans'Lerred and
assigned by Sellers to Ca-oStar as soon as practicable after
Closing. If CapStar elects to terminate this Agreement,
CapStar shall give written notice thereof to Sellers on or
before the earlier to occur of (A) ten (10) days after
CapStar shall have received written notice of such damage or
destruction, or (B) the Closing Date. If CapStar does not
give such notice within such time, CapStar shall he
conclusively deemed to have elected to @roceed with Closing,
and shall not have any further right to terminate this
Agreement as a result of such damage or destruction. Upon
any te=ination o'L this Agreement under this Section 10.2(a),
all rights and obligations of Sellers and CapStar hereunder
(except those rights and obligations set forth herein which
expressly survive a te=ination of this Agreement) shall
te=inate immediately.
(b) If, prior to Closing, there shall occur any
damage or destructi-oi-i -Lo the ProDerty that would require
less than
twenty Dercent (20%), by value, of Sund@al, Seaside Inn ' or
Sani-bel Inn, taken individually, and take not longer than
three hundred sixty-five (365) days to repair, CapStar shall
not have the option to L--erminate this Agreement, but
Closing shall proceed pursuant to Section 10.2(a)(ii) unless
Sellers, insurance company has in good fai-th denied coverage
and SSPC is unwilling to pay for the cost (or estimated cost)
to repair or restore the damaged ProperL@-y through a
reduction in the Purchase Price. I'L Sellers' insurance
company denies coverage and SSPC is unwilling to pay
24
for the cost (or estimated cost) to renair or restore the
damaged Pro-oerty through a reduct@-on in L--he Purchase
Price, CapStar may elect to te--Mi-nate th-Ls Agreemen-L by
gi-ving Sellers written notice thereof prior l'o the Clos@-ng
and all rights and obligations of Sellers and CapStar
hereunder (excent those rights and obligations set forth
herein which expressly survive a termination of this
Agreement) shall terminate immediately. CapStar acknowledges
that Sellers make no representation or warranty as to the
amount of any insurance policy proceeds, if any, that will be
available to CaDStar in the event ocL a Closing pursuant to
Section 10.2(a)(ii) or this Section 10.2(h). If Sellers'
insurance company denies coverage and SSPC pays for the cost
or estimated cost to repair or restore the damaged Property
through a reduction in the Purchase Price, SSPC shall be
entitled to collecl-- and receive any insurance proceeds
ultimately dete=ined to be due and ow@-ng by Sellers,
insurance company in respect of such c'Lamage.
Section 10.3 <Omitted pursuant to request for
confidential treatment. The omitted material has been filed
separately with the SEC.>
Section 10.4 Inabilitv to Deliver Pink Shell
Management AcTreement or Pink Shell Lease. If: (a) SSRC is
unable to deliver at the Time of Closing the consent of the
owner of the Pink Shell to the assignment of the Pink Shell
Management Agreement, (ii) if the transaction contemplated by
the Pink Shell Purchase Agreement is consummated Drior to
consummation of thi's transaction and if SSEI is unable to
deliver the consent o-P Boykin Hotel Properties, L.P.
("]Boykin") to an assignment of the Pink Shell Lease (which
consent shall include Boykin's agreement to amend the non-
economic provisions of the Pink Shell Lease to con.Lorm the
Pink Shell Lease in all material respects to the form of
Percentage Lease Agreement customarily entered into between
Boykin and CaDStar's Affiliates), then CapStar shall be
entitled to eliminate irom this Agreement the Pink Shell
Management Agreement or the Pink Shell Lease, as the case may
be, and the Purchase Price shall be reduced by $2,500,000, or
(iii) if the transactions contemplated by -Lhis Agreement are
consummated prior to consummation of the transactions
contemplated by the Pink Shell Purchase Agreement and if upon
the consummation of the transactions contemplated by the Pink
Shell Purchase Agreement SSEI is unable to deliver the
consent of Boykin to an assignment of the Pink Shell Lease
(which consent shall include Boykin's agreement to amend the
non-economic provisions of the Pink Shell Lease to conform
the Pink Shell Lease in all material respects to the form of
Percentage Lease Agreement customarily entered into between
Boykin and CapStar, s Af f iliates) , then CapStar shall be
entitled to eliminate 'Lrom this Agreement the Pink Shell
Management Agreement and shall be entitled to a payment from
SSEI in the amount of $2,500,000.
Section 10.5 .Inability to Deliver any Other
Propert-y. Subjec-L to the provisions of Section 10.1 and
Section 10.2 hereof, if: (i)-Sellers are unable to deliver to
CapStar title to any ProDerty as required by the terms of
this Agreement (other than the SHMC Ground Lease or the Pink
Shell Management Agreement or Pink Shell Lease, which shall
be governed by the provisions of Sections 10.3 and 10.4,
respectively), or (ii) any of the representations and
warranties of Sellers set forth in Article V hereof shall at
the Time of Closing be untrue in any mal@-erial respect with
resvect to a particular Proper-Ly, or (iii) Sellers are
unable to deliver any ProDerty by reason oz- any
condemnation, damage or destruction with respect to a
particular Property that would allow CapStar to te=inate this
Agreement under Sections 10.1 or 10.2, then CapStar shall be
entitled to eliminate from this Agreement the Property or
ProDerties so affected and the Purchase Price shall be
adjusted by deducting the amount or amounts shown in Exhibit
B for the Property or Properties to be eliminated. If the
Purchase Price declines below $19,000,000 as
2 Do
a result of the elimination o'L Properties, Sellers may
terminate L-his Agreement by wr@-tten notice to CapStar de!4-
vered at any time after the elimination of the Property or
Properties which resul-Ls in the Purchase Price declining
below such amount.
Notwithstanding Section 8.3(b), if a Pro-.oerty is eliminated
pursuant to this Section 10.3, CapStar's obligations under
Section 8.3(b) and Sellers' obligations under Section 8.2(c)
shall cease and terminate with respect to the EmDloyees of
Sellers relating to the Pro-oerty eliminated under this
Section 10.3.
ARTICLE XI
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION;
TERMINATION RIGHTS
Section 11.1 Survival of Rer>resentations and
Warranties. The represe ntations and warranties of Sellers
and CapStar shall survive the Closing for a period of one (1)
year commencing on the Closing Date (the "Indemnity
ExpiraLion Date"). To the extent any Indemnitee i-s seeking
indemni@Lication, the Indemnitee shall be entitled to
indemnity only for those matters as to which the Indemnitee
has given written notice thereof to the other party prior to
the expiration of the one (1) year period commencing on the
Closing Date.
Section 11.2 Indemnification by Ca-ostar. CaDStar
hereby indemnities and holds Sellers, their partners, -L@eir
respective Affiliates and the officers, directors, employees,
agents, advisers and representatives of each of -Lhe
foregoing (individually, a "Seller IndemT-iitee", and
collectively, the "Seller Indemnitees") harmless from and
against any and all claims, costs, penalties, damages,
losses, liabilities and expenses (including reasonable
attorneys' fees) (individually, an "Indemni-i'-ication Loss",
and collectively, the "Indemnification Losses") that may at
any time be incurred by any Seller Indemnitee, whether before
or after Closing, as a result of: (i) any inaccuracy or
breach by CaDStar of any of its reldresentations, warranties,
covenants or obligations set forth herein, (ii) the non-
payment or nonperformance of any Assumed Liabilities, and
(iii) the conduct of the Business after the Closing Date.
Section 11.3 Inde=ification by Sellers. Sellers
hereby jointly and severally indemnify and hold Ca-oStar, its
partners, their respective Af@Liliates and the o@Lficers,
directors, employees, agenl-s, advisers and representatives
of each sucn person (individually, a "Purchaser IndemniL--
ee", and collectively, the "Purchaser Indemnitees") ha=less
from and against any and all claims, costs, Denalties,
damages, losses, liabilities and e)menses (including
reasonable attorneys' fees) (individually, an
!'Indemnification Loss", and collectively, the "Indemn4-
fication Losses") that may at any time be incurred by any
Purchaser Indemnitee, whether before or after Closing, as a
27
result of: (i) any inaccuracy or breach by Sellers of any of
the representations, warranties, covenants or obligations set
forth herei-n (except for any breach or inaccuracy of any
renresentat@on or warranty as to which CaoStar had Knowledge
prior to the Closing and nevertheless elected to consummate
the Closing), and (ii) Sellers, failure to timely discharge
or satisfy any Excluded Liabilities. Sellers' obligations
under this Section 11.3 with respect to indemnity under
clause (i) hereof shall terminate on the one year anniversary
of the Closing Date and on the second year anniversary of the
Closing Date with respect to indemnity under clause (ii)
hereof.
Section 11.4 Limitations on Inde=ification.
(a) Notwithstanding anything in Section 11.3
hereof to the contrary, to the extent indemnification is
sought by any Purchaser Indemnitee under clause (i) of
Section 11.3 hereof or under clause (i) of Section 11.3 of
the Other Agreement, Sellers shall be recruited (-o provide
indemnification only to the extent the aggregal-- Z@ amount
of all Indemnification Losses under clause
(i) of Section 11.3 of this Agreement and clause (i) of
Section
11.3 of the Other Agreement exceed Seven Hundred Fif-Ly
Thousand
Dollars ($750,000) and not for any amounts up thereto (the
"Indemnity Deductible"). Indemnification under clause (ii)
of
Section 11.3 hereof shall not be subject to the Indemnity
Deductible.
(b) Notwithstanding anything in Section 11.3
hereof to the contrary, the maximum amount payable for
indemnification under clause (i) of Section 11.3 hereof and
under clause (i) of Section 11.3 of the Other Agreement shall
not in the aggregate exceed Seven Million Five Hundred
Thousand Dollars ($7,500,000) and the maximum amount payable
by Sellers for all claims for indemnification under Section
11-3 hereof and under Section 11.3 of the Other Agreement
shall -iot in the aggregate exceed Ten Millio'n Dollars
($10,000,000).
(c) The amount of any Indemnification Loss for
which indemnification is provided under this Article XI shall
be net of any tax bene@@its or insurance proceeds actually
realized by the indemnified party as a result thereof.
Section 11-5 Indenmification Procedure. In the
case of any claim asserted by a third party against a party
entitled to inde@-ii@Licati-on under this AgreemenL- (the
"Indemni--Fied Party"), notice shall be given by the
Indemnified Party to the party required to provide
indemnification (the "Indemnifying Party") promptly after
such indemnified Party has actual knowledge of any claim as
L--o which indemnification may be sought, and the Indemnifi-
ed Party shall Dermit the Indemnifying Party (at the expense
of the Indemnii-ying Party) to assume the defense of any
claim or any litigation resulting therefrom; provided, that
(i) the counsel for the Indemnifying ParL-y who shall
conduct the
2 8
defense of the claim or litigation shall be reasonably
satisfactory to the Indemni@Lied Party, (ii) -L-he
indemnified Party may participate in the defense at the
indem-Tii@Lied Party's expense, a.-Lad (@-ii) the failure by
any Indemnified Patty to give notice as provided herein shall
not relieve the indemnifying Party of its indemnification
obligation under this Agreement, except to the extent that
such omission resull--s in a failure of actual notice to the
indemnifying Party and such Indemnifying ParL--y is
materially damaged as a result of such failure to give
notice.
Section 11.6 ' Exclusive Remedy. Subject to
Section 11.7 below, the indemnification provisions of this
Article Xi shall be the sole and exclusive remedy of the
Seller-Indemnitees and the Purchaser indemnitees with respect
to any claim for moneta--y relief based upon or arising out
of this Agreement.
Section 11.7 Te=ination by Ca-PStar. If Sellers
default in any material respect in the performance of any o@
their obligations hereunder and if Sellers fail to cure that
L default within ten (10) business days after notice thereo'
from CapStar (or such other time period as may be explicitly
provided for herein), CapSL-ar, shall have the right to
exercise any and all legal and equitable remedi-es which
CapStar may have against Sellers, including, without
limitation, the right to require that Sellers specifically
pe.rform their respective obligations under this Agreement.
Section 11.8 Te=ination by Sellers. If CapStar
defaults in any material respect in the perfo=ance of any of
their obligations hereunder and if CapStar fails to cure that
defaull-- within ten (10) business days after nol--ice
thereof from Sellers (or such other time period as may be
explicitly provided for herein), Sellers may ei-ther: (i)
te=inate this Agreement in which all rights and obligations
of Sellers and CapStar hereunder (except those rights and
obligations set forth herein which expressly survive a
termination of this Agreement) shall te=inate immediately, or
(ii) proceed to Closing.
Section 11.9 ' Te=ination by Either Sellers or a-
DStar.If the Closing shall not- have occurred before November
1, 1998, any party hereto may elect to te=inate this
Agreement, in which event all rights and obligations of
Sellers and CapStar hereunde-(excevt those rights and
obligations set forth herein which exvressly survive a te--
mination of this Agreement) shall L-e=inate immediately. In
connection with any such termination, each party shall pay
its own costs and expenses incurred in connection wil--h -Lhe
transaction contemplated hereby.
29
ARTICLE XII
PRORA-TIONS; TRANSACTION COSTS AND ADJUSTMENTS
SecL--ion 12.1 Prorations. The follow@-ng matters
and items pe--tainina to th-- Business and each Property
shall be apportioned between Sellers, on the one hand, and
CapStar, on the other hand or, where applicable, credited in
total to Sellers or CapStar, as of midniaht on L-he day
preceding the Closing Date (the "Cutoff Time"). Ne'L credits
in favor of CapStar shall he deducted from the Purchase Price
and net credits in favor of Sellers shall be added to the
Purchase Price. Unless otherwise indicated below, CapStar
shall receive a credit for any of the following items to the
extenl-- the same are accrued but unpaid as of the Cutoff
Time (whether or not due, owing or delinquent as of the
Cuto'L--F Time), and Sellers shall receive a credit to the
extent any of the following items shall have been paid prior
to the Closing Date to the extent the payment thereof relates
to any peri-od of time after the Cutoff Time:
(a) All Taxes (other than federal, state, local
and foreign income, capital stock, windfall profits and
franchise taxes) shall be prorated as of the CuL--off Time
between CapStar and Sellers. Sellers shall be charged with
such Taxes accrued or payable as of the Cutoff Time, which
shall be credited to CapStar as a reduction of L--he Purchase
Price. If the amount of any such item is not ascertainable
on the Closing Date, the credit therefor shall be based on
the most recent available bill and adjusted as necessary
post-closing, as contemplated in Section 12.3.
(b) Any amounts -oredaid, accrued or Dayable
under the IndenL--ure shall be prorate@ as of the Cutoff Time
between CapStar and Sellers. All amounl--s accrued or
payable under the Indenture with reference to periods vrior
to the Closing Date shall be credited to CapStar as a
reduction of 1-he Purchase Price. All amounts paid under the
Indenture with reference to periods after the Closing Date
shall be added to the Purchase Price.
(c) Any amounts prepaid, accrued or due and
payable under the Contracts (including any deposits payable
thereunder, .but excluding any Contracts for utilities which
proration is addressed separately in Section 12.1(i)) shall
he prorated as o'L the Cutoff Time between CapStar and
Sellers. All amounts accrued or payable under the Co-
ritracts with re--@erence to periods prior to L--he Clos@-ng
DaL--e shall be credited to CapSL--ar as a reduction of the
Purchase Price. All amounts Daid under the Contracts with
reference to ueriods after the Closing Date shall he added to
the Purchase Price- Notwithstanding the foregoing, Sellers
shall pay off at or prior to Closing all Equipment Leases
which are treated as capital leases (as oidposed to o-oeraL-
i-ng leases) under GAAP, including, without limitations the
Equipment Leases with respect to the computer, televhone and
reservations systems and equipment used at the Vacation
Planning Cent-er.
3 0
(d) Any amounts prepaid, accrued or due and
Dayable under the Leases (including any deposits payable
thereunder) shall be vrorated as of the Cuto'Lf Time between
CapStar and Sellers. All amounts accrued or Dayable under
the Leases with reference to Deri-ods prior to the Closing
Date shall be credited to CapStar as a reduction of the
Purchase Price. All amounts vaid under the Leases with
reference to periods after the Closing bate shall be added to
the Purchase Price.
(e) Any ComiDensation for the following specific
items:
direct salaries an@ wages; (ii) incentive compensation;
(iii) employer's contributions under the Federal Insurance
Contribution Act, unemployment compensation and other
employment taxes; (iv) accrued vacation -may with respect to
the Transferred Employees (A) which are due and Dayable at
Clos@ng, or (E) with respect to which the right to receive
such Compensation first arises or accrues prior to Closing
(without regard to when such Compensati-on i-s paid or
becomes due and payable) shall he prorated as of the Cutoff
Time between CaDStar and Sellers. All Compensation with
reference to periods pr@lor to the Closing Date shall be
credited to CaQStar as a reduction of the Purchase Price.
(f) All fees and charges paid for transferable
Permits the current --Deriod for which Permit includes the
Closing Date shall be prorated as of the Cutoff Time between
CapStar and Sellers. All amounts accrued or payable under
such Permits with reference to -Deriods Drior to the Closing
Date shall be credited to CapStar as a reduc@ion of the
Purchase Price. All amounts paid under such Permits with
reference to periods after the Closing Date shall be added to
the Purchase Price.
(g) The Purchase Pri-ce shall be reduced by the
amount o-f all accounts for current guests at the Prooerties,
the Pink Shell and Sa'LeL--y Harbor including items charged
to such accounts by guesl-s reflected on the ledger of each
Property, the Pink Shell and Safety Harbor as of the Cutoff
Time in an amount equal to fifty percent (50'-.) of all of
such room charges for such night, plus all other guest ledger
charges for such night.
(h) Ca-oSL--ar shall receive a credit as a
reduction in the Purchase Price for all iDreDaid deposits for
Reservatiors scheduled for accommodations or events on or
afte-- the Closing Date.
(i) All utility services, including, without
limitation, telephone and telex contracts and contracts for
the supply of heat, steam, electric power, gas, water, sewer
and ligh-Ling, shall be prorated as o@L the Cutoff Time
between CaDStar and Sellers. Where possible, cutoff readings
will be secured 'Lor all utilities as of the Cuto'Lf Time.
To the extent they are no-L available, the cost of such
utilities shall be apportioned between the varl--ies by
estimating such cost on the basis of the
3 1
latest actual (not estimated) bill for such service. All
such amounts whi-ch are payable or estimated to have accrued
for such utility services w@ith reference L-o periods Drior
to L--he Closing Date shall be credited to CapStar as a
reduction o'L the Purchase Price. All amounts idaid for such
utility services with reference to ideriods after the Closing
Date shall be added to the Purchase Price. Sellers shall
receive a credit for all deposits, if any, made by Sellers as
security under any such public service contracts if the same
are trans'Lerable and provided such deposits remain on
deposit for the benefit of CapStar.
(j) Vending machine, laundry machine, pay
telephone and other coin-operated equipment monies will be
removed by Sellers as of the Cuto'Lf Time for the benefit of
Sellers (subject -Lo the payment by Sellers or- any amounts
owed third parties in connection with such vending machines,
laundry machines, pay telephones and other coin-oderated
equipment).
(k) The Purchase Price shall be increased in an
amount equal to the amount of all Accounts Receivable
generated from the Business prior to the Cutoff Time which as
of the Cut-Off Time have been unpaid for not more than ninety
(90) days (the "Transferred Accounts Receivable"), and
CapStar shall be entitled to collect and retain all such
Accounts Receivables as they are received. If CapStar i-s
unable to collect the Trans@Lerred Accounts Receivable within
ninety (90) days following the Closing Date, Sellers shall
repurchase at the face value thereof those Trans'Lerred
Accounts Receivable that CapStar is unable to collect. No
adjustmenl-- shall be made for any Accounts Receivable
generated from the Business prior to the Cut-Off Time which
as of the Cut-Off Time shall have been unpaid for nine-Ly
(90) days or more, and Sellers shall be entitled to collect
and retain all such Accounts Receivable. Sellers shall
deliver to CapStar on the Closing Date a L--rue, correct and
comidlete schedule listing all of the Transferred Accounts
Receivable.
(1) The Purchase Price shall be increased by the
amount paid by Sellers for the items of Consumables and
Sunply Inventory shown on the Financial Statements as follows
to @he extent such items have not been exdensed prior to the
Cutoff Time: (i) unopened licruor and wine inventory; (ii)
retail (gifts, groceries, etc); (iii@ marina - gas/oil.; (iv)
general store; (v) gift shop; (vi) Warehouse Storage; (vii)
tennis Dro shop; (viii) maintenance supplies; (ix) food
service suldplies; (x) office and vending equipment; (x@-)
computer equipment (which shall be limited to Sellers, on-
hand supply o-.cL computer replacement parts and replacemenl-
- - equipment); and (xii) items customarily included in the
"miscellaneous" category. Notwithstanding this Section
12.1(1), CapStar shall have the right to advise SSPC no later
than thirty (30) days -Drior to the Closing Date that CapStar
elects not to vurchase certain beverage inventory (in which
case no prora-Lion for such excluded inventory shall be made
hereunder)- If CaDStar so notilcies SSPC, the beverage
inventory
32
that CaDStar elects not to purchase shall not be trans-erred
@o
- - L
L-
CapStar.
(m) The Purchase Price shall be decreased by the
outs-Landing accounts payable and accrued expenses of Sellers
as of the Cutoff Time to the extent that such accounts
Dayable and accrued expenses have not otherwise been deduc-
Led from the Purchase Price pursuant to this Section 12.1.
(n) All prepaid expenses (including, without
limitation, proiderty, casualty, workers, compensation or
health insurance premiums) which are required for operation
of the Properties, the Pink Shell and Safety Harbor and which
have not otherwise been prorated pursuant to this Article XII
and which relate to a period of more than one year shall be
prorated as of the Cutoff Time between CaDStar and Sellers.
Section 12.2 Settlement Statement and Closing Date
Calculation.
(a) Sellers and CapStar, through their respective
accountants or representatives, together shall make such
examinations and inventories of Sellers as may be necessary
to make the adjustments and Drorations and allocations of
Purchase Price among the Purchased Assets under this Article
XII or under any other provisions of this Agreement. Sellers
and CapStar jointly shall prepare no later than the Closing
Date a settlement statemenl- (the "Se-Ltlement Statement")
that is based upon (i) the last available month-end balance
sheet and income statement of Sellers (such mon-Lh-end
statements are generally prepared by Sellers within twenty
days following the prior month-end), and (ii) the
examinations and inventories described in the preceding
sentence. The Settlement Statement shall contain Sellers,
and Ca,DStar's best estimate of the amounts of the items
requiring the prorations and adjustments in this Agreement
and shall segregate such items on a Property by Property
basis to the extent avdlicable. The amounts set forth on the
Settlement Statement shall be the basis u-Don which the
prorations and adjustments provided for herein shall be made
at the Closing. Subject to Sections 12.2(b) and (c), the
Settlement Statement shall be binding and conclusive on all
parties hereto to the extent of the items covered by the
Settlement Statement.
(b) in the event that, at any time within nine
(9) months after the Closing Da-Le, ei-ther party discovers
any items (other than the items se-L forth in Sections
12.1(i), (k) and (1)) which should have been included in -Lhe
Settlement Statement but were omitted therefrom, such items
shall be adjusted in the same manner as if their existence
had been known at the time of the preparation of the
Settlement Statement.
(c) With respect to the items set forth in Sections
12.1(i), (k) and (1), within sixty days after the Closing
Date,
3 3
Sellers shall prepare a calculation of such items as of the
Closing Date (the "Clos@-ng Date Calculation") and shall
segregate such items therein on a Property by Property basis
to the extent applicable. The Closing Date calculation shall
also set forl--h any adjustments -Lo the prorations and
adjustments set forth in the Settlement Statement. If
CaDStar has any objections to the Closing Date Calculation,
CapStar shall deliver a detailed statement describing its
objections to Sellers within thirty (30) days after receiving
the Closing Date Calculation. CapStar and Sellers shall use
reasonable efforts to resolve any such objections themselves.
If Sellers and CapSL--ar do not obtain a' final resolution
within thi-rty (30) days a-LcL--er Sellers have received the
statement of objections, Sellers and CapStar shall select an
accounting firm mutually acceptable to them to resolve any
remaining objections. If CapStar and Sellers are unable to
agree on the choice of an accounting farm, they will select a
nationally-recognized accounting firm by lot (after excluding
their respective regular outside accounting firms). The
determination of any accounting firm so selected will be set
.Lorth in writing and will be conclusive and binding upon
CaDStar and Sellers. Upon resolution of all objections to
the Closing Date CalculaL--ion, Sellers promptly shall revise
the Closing Date Calculation to reflect such resolution of
objections. CapStar or Sellers, as the case may be, shall
promptly pay the other party the amount of any additional
adjustment required under such revised Closing Date
Calculation (or as required under the initial Closing Date
Calculati-on if Ca-oS-Lar does not notify Sellers of any
objections within the applicable thirty-day period). CapStar
and Sellers shall split the costs and expenses of the
accounting firm referenced above. Sellers shall make the
work papers and back-up,materials used in DreDari-ng the
Closing Date Calculation available to CaDStar and its
accountants and other reoresentatives at reasonable times and
upon reasonable notice at a-Lly time during (i) the
preparation by Sellers of the Closing Date Calculation, (ii)
the review by CaDStar of the Closi-ng Date Calculation, and
(iii) the resolution by CapStar and Sellers of any ob'ections
thereto.
3
Section 12.3 Transaction Costs.
(a) Sellers shall -may for the following costs
associated with this transaction: (i) the fees and expenses
o-L 4-ts accountants and attorneys, and (ii) the costs and
expenses o-any mortgage or other releases associated with the
pay off and release o@' existing mortgages and other non-
permitted encumbrances.
(b) CapSL--ar shall pay for the following costs
associated with this transaction: (i) the fees and expenses
of its investment bankers or advisers; (ii) the fees and
expenses of its accountants and attorneys; (iii) appraisal
@Lees and charges, (iv) the fees, charges and expenses
incurred in connection with any third party repo@-ts obtained
by CaDStar (including, without
34
limitation, environmental, structural engineering and
marketing reports), (v) application and/or trans@Ler fees
relating to any franchise affil@-ations CaDStar desires to
obtain, and (vi) fees and expenses relating to the transfer
of all liquor licenses for the Properties, the Pi-nk Shell
and Sa'Let7 Harbor.
(c) Sellers and CapStar shall split equally the
following costs associated with this transaction: (i)
recording fees and charges, (ii-) the fees and expenses of
any escrow agent, (iii) the costs of updates to the Existing
Surveys or obtaining new surveys, (iv) transfer taxes, (v)
documentary stamp taxes, (vi) sales and use taxes incurred by
reason of the transfer of the Purchased Assets as con-
LemiDlated by this Agreement, and (vii) costs and charges
relating to all Title Commitments and Title Policies
(includ@-ng, without limitat4-on, any costs and charges of
Guardian Title of Lee County). All other costs and expenses
not e@ressly addressed in this Section 12.3 shall be
allocated between the parties i-n accordance with local
custom for similar transactions.
(d) If SSPC is able to provide CapStar wi-th
engineering, building condition, environmental or aDDraisal
reports that are satisfactory to CapStar and for which
CapStar can obtain reliance letters, then if CapStar elects
to use such reports CapStar will nay to SSPC the fees CapStar
no=ally would pay for such reports under its nal--ional
contracts.
Notwithstanding the foregoing sentence, CapStar shall have no
obligation to use and Day for reports that SSPC may be able
to provide to CapStar.
Section 12.4 ' Further Increases to Purchase
Price. The Purchase Price shall be increased by the amounts
of the following items and such items shall be transferred to
CapStar at Closing and, i-f appropriate, shall be deemed to
be included in the Purchased Assets.
(a) all deposits for liquor licenses, utility
deposits and beverage deposits with respect to the li-quor
licenses, utilities and beverage services at the Properties,
the Pink Shell and Safety Harbor; and
(b) L--he amount by which Sellers' Actual Base
Cavital Ex-oenditures as o--F L-he Closi-ng Dat-e exceed
Sellers, Prorated Base Bu@geted Capital Ex-oenditures vlus
the amount spent by any Seller in respect of any -Zpproved
ProjecL@ CaDital Expenditure. The 1998 annual budgeted base
canital e@enditures for the purposes of the calculation
required by this Section 12.4(h) and as previously submitted
to CaDStar i-s $1,566,000; and
(c) the accruisiti-on costs and d;irect expenses
incurred by SSPC in com-iection-wi-th the purchase of the
Plantation View and Shirley's Parcel (which as of the date
hereo@L is estimated to be approximately $3,470,000) ; and
3 5
(d) all notes receivable payable to any Seller by
any condominium owner or condominium association at Sundial
in connection with the assisted owner refurbishment program
or association assisted refurbishment program at Sundial (but
excluding any notes receivable arising in connection with the
refurbishment program undertaken wi'Lh the proceeds of the
Unit Rehab Loan) (each, a "Refurbishment Program Note
Receivable").
Section 12.5 Further Reduction to Purchase Price.
The Purchase Price shall be decreased by: (i) the amount by
which Seller's Prorated Base BudgeL-ed Capital ExiDenditures
exceed Seller's Actual Base Capital Expenditures as of the
Closing Date, and (ii) all amounts due and owing in order to
fully discharge and payoff as o@L the Time of Closing the
Capital Leases as set forth in the payoff letters required to
be delivered under Section 9.2(j) hereof.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.1 Com-pleteness, Modification. This
Agreement, the Exhibits and Schedules hereto and the
documents required to be delivered hereby constitute the
entire agreement between Sellers and CapStar with respect to
the transaction contemidlated hereby and supersede all prior
discussions, understandings, agreements and negotiations
between the parties hereto. This Agreement may be modified
only by a written instrument duly executed by Sellers and
CapStar. Each reference in thi-s Agreement to an Exhibit or
Schedule shall mean an Exhibit or Schedule attached to this
Agreement and incorporated into this Agreement by such
reference.
Section 13.2 Assicr=ent. ExcepL- in connection
with the Merger, neither any Seller nor CapStar shall assign
its rights, dut-'Les or obligations hereunder withou-L the
prior written consent of the others.
Secti-on 13.3 Successors and Assicrns; No Third rt
Beneficiarv. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors
and permitted assigns and shall not inure to the benefit of,
and shall not be enforceable by, any third DarL--y. If the
Merger is consummated prior to consummation of this
transaction, this Agreement shall be binding upon each
successor entity to CaDStar.
Section 13.4 ' GovernincT Law. This Agreement and
all documenL--s.referred to herein shall be governed by and
construed and interpreted in accordance with the laws of the
State of Florida.
Section 13.5 Co=te=arts. To facilitate execution,
this Agreement may be executed in as many counterparts as may
be required. It shall not be necessary that L--he signatures
on
3 6
behalf of the parties hereto aTDDear on each counterda--t
hereof. All counte-@arL--s hereof shall collectively
constitute a single agreement'.
Section 13.6 ' Severability. If any term, covenant
or condition of this Agreement, or the application thereof to
any person or circumstance, shall to any extent be invalid or
unenforceable, the remainder of this Agreement, or the
application of such te=, covenant or condition to other
persons or circumstances shall not be af@Lected thereby, and
each term, covenant or condition of this Agreement shall be
valid and enforceable to the fullest exl--ent pe=itted by
law.
Section 13.7 Notices. All notices, requests,
demands and other communications hereunder shall be in
writing and shall be delivered by hand, transmitted by
facsimile transmission, sent prepaid by Federal Ex-oress (or
a comparable overnight delivery service) or sent by t@e
United SL-ates mail, certified, postage p--epaid, return
receiidt requested, at the addresses and with such copies as
designated below. Any notice, request, demand or other
communication delivered or sent in the manner aforesaid shall
be deemed given or made (as the case may be) when actually
del@-vered to the intended recipient.
If to Sellers: South Seas Properties Company
Limited Partnershir)
12800 University Drive, Suite 350
Fort Myers, Florida 33907
Attn: Richard E. Krichbaum
Telecopy: (941) 481-6667
W@-th a coi)y to: Baker & Hostetler LLP 1900 East Ninth
Street, Suite 3200 Cleveland, Ohio
44114-3485
Attn: Albert T. Adams, Esq.
Teleco,oy: (216) 696-0740
If to CapStar: CapStar Hotel Company
1010 Wisconsin Avenue, N.W.
Washington, D.C. 20007
Attn: John Plunket
Telecopy: (202) 295-2230
With a cody to: DeCamoo, Diamond & Ash
805 Third Avenue
New York, New York 10022
Attn: William H. Diamond, Esa.
Telecopy: (212) 758-1728
or to such other address as the intended recipient may have
specified in a nol--ice to L-he other party. Any party
hereto may change its address or desi-gnate different or
other persons or
3 7
entities to receive coidi-es by notifying the other party in
a
manner described in this Section 13.7.
Section 13.8 Rules of Construction. The following
rules shall apply to the construction and interpretation of
this Agreement:
(a) Singular words shall connote the plural
number as well as the singular and vi-ce versa, and the
masculine shall include the feminine and the neuter.
(b) All re@@erences herein to particular
articles, sections, subsections, clauses or exhibits are
references to articles, sections, subsections, clauses or
exhibits of this Agreement.
(c) The headings contained herein are solely for
convenience of reference and shall not constitute a part of
this Agreement nor shall they affecl-- its meaning,
construction or effect.
(d) Each Darty hereto and its counsel have
reviewed and revised (or requested revisions of) this
Agreement and have participated in -Lhe preparation of this
Agreement, and therefore any usual rules of construction
requiring that ambiguities are to he resolved against a
particular party shall no-L be applicable in the construction
and interpretation o'L this Agreement or any exhibits hereto.
Section 13.9 Su-pplements to Schedules. Any party
may at any time, or from time to time after the date hereof,
but not later than five (5) days prior to the Closing Date,
supplement or amend the Schedules required by this Agreemen-
L. No supplement or amendment L--o such Schedules shall have
any effect for the Durpose of determining the satisfaction of
the conditions to the obligation of the other parties under
Article VII hereof, but any matter disclosed in an amended or
supplemental Schedule pursuant to this Section 13.9 shall not
form the basis for any claim for indemnification pursuant to
this Agreement if the transaction contemplated by this
Agreement is consummated.
Sec-Lion 13.10 Radon Gas. Radon is a naturally
occurring radioactive gas that, when it has accumulated in a
building in [email protected] cruantities, may present health
risks to Dersons who are exmosed to i-L over time. Levels of
radon that exceed federal and state guidelines have been
found in buildings in Florida. Additional info=ation
regarding radon and radon testing may be obtained from your
county public health unit.
IN WI =-SS WHEREOF, Sellers and CavStar have
caused this Agreement to be executed i-n their names by their
respective duly auk--horized representatives.
- -3 8
Sellers:
SOUTH SEAS PROPERTIES COMPANY LIMITED
PARTNERSHIP, an Ohio limited partnership
By: T&T Resorts, L.C., a Florida
limited
partner
By:
Rober
ility company, general
Manager
lor, Chairma and
SOUTH SEAS RESORTS COMPAN-Y LIMITED PARTNERSHIP, a Florida
limited partnership
By: S.S. Resorr_
Florida
general
By:
Management, L.C., a
ted liability company,
r
Robert M. Tay ,@r, Chai=a and
Manager
SAFETY HARBOR MANAGEMENT COMPANY, LTD.,
a Florida limited partnership
By: S.S. Resort
agement, L.C., a
Florida li te
general pa
By:
3 9
Robert ".
Manager
liability company,
lor, Chai=an nd
SOUTH SEAS ESTERO IS@-ND, LTD., a
Flori-da limited zartnershid
By: South Seas Estero Island, L.L.C.
By: SouL--h Seas Properties Company
Limited Partnership
By: T&T Res
By:
CanStar:
Rob
Manager
L. C.
aylor, Chairm
.By_ @., c@ 4.
Name: @
Title: @.,c, @re- ,lr4
4 0
and
LIST OF EXHIBITS AND SCHEDULES
TO
ASSET PURCHASE AGREEMENT
Schedules to Asset
Schedule 1.2(a)
Schedule 1.2(1)
Schedule 1.2(j)
Schedule 1.2(1)
Schedule 1.3
Schedule 4.1(d)
Schedule 5.3
Schedule 5.6
Schedule 5.7
Schedule 5.8
Schedule 5.9
Schedule 5.12
Schedule 5.13
Schedule 5.14
Schedule 5.15
Schedule 5.16
Schedule 5.21
Exhibits
Exhibit A
Exhibit B
to Asset
Purchase Agreement:
Legal Description of Land and Addresses of
Properties
Tenant Leases
Seller Leases
Management Agreements
Excluded Assets
Title Commitments and Surveys
Sellers' Conflicts
Financial Statements
ComDliance with ADplicable Laws
Litigati-on
Insurance
Environmental Matters
Pension and Welfare Plans
Permits
List of Condominium Lease Agreements
Equipment Leases and Material Contracts
Proprietary Rights
Purchase Aareement:
Definitions
Elimination Price Reductions
4 1
EXHIBIT A
The following terms when used @-n this Agreement shall have
L-he
indicated meanings:
"Accounts Receivable" has the meaning set forth in
clause (s) of the definition of Purchased Assets.
"Actual Base Caoital Ex-oenditures" means the
amount of base capital expenditures undertaken by Sellers for
the period commencing January 1, 1998 and ending on -Lhe
Closing Date.
"Affiliate,, has the meaning set forth in Section 12b-2
of the Securities Exchange Act of 1934, as amended.
"AGTII has the meaning set forth in Recital G to this
Agreement.
"A-o,olicable Law" means all laws, statutes,
rules, regulations, ordinances and codes of any Governmental
Authority and any Board of Fire Unde--writers and similar
agencies, and any judgment, injunction, order, decree or
other judicial requirement affecting or in any way relating
to the Business and the operation of the ProDerties,
including, without limitation, Environmental Health and
Safety Laws and SEC Laws.
"Assumed Liabilities" has the meaning set forth in
Section 2.1 of this Agreemen'L.
"Base 'Canital Pr6lects" means those normal,
recurring
projects o'L a capital nature that are reflected in Sellers'
1998
budget.
"Books and Records" has t--he meaning set forth in
clause
(q) of the d=-@Lin-Ltion of Purchased Assets.
"Business" has the meani-ng set forth in Recital D to
this Agreement.
"CaDital Leases" means all Leases the obligations
of which are required to be classified and accounted for
under GAAP as capital lease obligations on a balance sheet.
"CanStar" has the meaning set forth in the first
paragraph o@L this Agreement.
"CaDStar ReDresentatives" has the meani-ng set forth in
Section 4.1(c) of this Agreement.
"Closincr" has the meaning set forth in Section. 9.1 of
this Agreement-
42
"Closina Date,, has the meaning set forth in Section 9.1
o'L th'Ls Agreement.
"Closina Da-Le Calculation" has the meaning set forth in
Section 12.2(c) of this Ag--eement.
"Closing Documents" has the meaning set forth in
Section 9.1 of this Agreement.
"Code" means the Internal Revenue Code of 1986, as
amended.
"ComDensation" means the direct salaries and wages
paid to or accrued for the benefit o'L the Employees,
including incentive compensation, together with all fringe
benefits payable to, or accrued for the benefit of, any
executive or other employee, including employer's
contributions under the Federal Insurance Contribution Act,
unemployment compensation, or other employment taxes, pension
fund contributions, workers, compensation, group life and
accident and health insurance premiums, profit sharing,
retirement, disability, maternity leave, and other similar
benefits, accrued vacatibn pay, accrued sick pay, and all
other contributions to, and amounts paid or accrued under,
Dension and other employee health and benefit plans,
'Drograms or policies, including, without limitation, as of
any date, the right to receive any of the foregoing
notwithstanding L-hat such right entitles such Employee to
receive payment at a time a@Lter the date in quest-ion.
"Condominium Lease Aareements" has the meaning set
forth in clause (f) of the definition of Purchased Assets.
"Confidential Ini@ormation" has the meaning set @Lorth in
Section 8.3(a) of this Agreement.
"Consumables" has the meaning set forth in clause (d)
OIL the definition of Purchased Assets.
"Contracts" means, collectively, the Operating
Agreements, Ecruir)ment Leases, Management Agreements and
memberships.
"Co--Dorate Offices" means the offices of Sellers
located at 12800 University Drive, Sui-Les 350 and 420, For-L
Myers, Flori-da.
"Customer and Marketincr Information" has the meaning
set forth in clause (p) of the definition of Purchased
Assets.
"Cutoff Time" has the meaning set 'LorL--h in section 12.1
O@L this Agreemen-L-
43
"Deeds and Convevance Documents" mean the
following documents necessary to convey and assign to CauStar
all o-Lc Sellers' right, title and interest in and to t@e
Purchased Assets:
(a) with respect to the transfer of the Real Property under
this Agreement, a special warranty deed in form and
substance reasonably satisfactory to SSPC and CaDStar,
subject only to the Pe=itted Title Exceptions;
(b) with respect to the transfer of the Personal Property
@other than the Personal Property covered under clauses
(d),(e) and (f) of this definition) under this
Agreement, a Bi-11 of Sale in form and substance
reasonably satisfactory to SSPC and Ca7oStar;
(c) with respect to the assignment of the Tenant Leases, the
Pink Shell Lease, the Safety Harbor Ground Lease, Seller
Leases and Condominium Lease Agreements under this
Agreement, an Assignment and Assumption of Leases in
form and substance reasonably satisfactory to SSPC and
CapStar;
(d) with respect to the assignment of the Operating
Agreements, Equipment Leases, the Pink Shell Management
Agreement, Management Agreements, Mem.berships and
Pe=its under this Agreement, an Assignment and
AssumDtion of Operating Agreements in fo= and substance
reasonably satis-Lcactory to SSPC and CaDStar;
(e) with respecl-- to the L--ransfer of any Intellectual
Property, Reservations and other intangible Personal
Property under this Agreement, an Assignment and
Assumption Agreement in form and substance reasonably
satisfactory to SSPC and CaDStar.
"Due Diliqence Period" has the meaning set forth in
Section 4.1 of this Agreement.
"EmD!ovees" means all emvloyees of SSRC, SSPC and SHMC
employed exclusively in connection wi-Lh the Business.
"Environmental Claims" means any claim for
reimbursement or remediation expense, contribution, personal
inju--y, proverty damage or damage to natural resources made
in writing by or on behal'L of any third party including,
without limitation, any Governmental Authority, relating to
or arising
Id A
out of the release of any F-azardous Substances or the
violation
of any Environmental, Health and Safety Laws.
"Environmental, Health and Safetv Laws" means any
federal, state, or local statute, law, rule, regulation,
ordinance and code of any Governmental Authority, and any
judgment, injunction, order, decree or other judicial
requirement which regulates or controls (i) Dollution,
contamination, or the condition of groundwater, sur'Lace
water, soil, sediment, air or the workplace or (ii) a spill,
leak, emission, discharge, release or disposal into
groundwater, surface water, soil, sediment, dir or the
workplace, including without limitation the federal
Comprehensive, Environmental Response, Compensation, and
Liability Act ("CERCLAII) , 42 U.S.C. 9601 e-L- sea., as
amended; the federal Resource Conservation and Recovery Act
("RCPAll), 42 U.S.C. 6901 et sea., as amended; the
Hazardous Materials Transportation Act (11 HMT-Z.") , 49 U.S.
C. 1801 et sea., as amended; the Toxic Subs'Lances Control
Ac-L ("TSCAII), is u.s.c. 2601 et sea., as amended; the
Clean Air Act ("CA-k"), 42 U.S.C. 7401 et sea., as amended;
the Clean Water Act ("CWA"), 33 U.S.C. 1251 et sea., as
amended; the Safe Drinking Water Act .(IISDWAIT), 42 U.S.C.
300f et sea., as amended; the Emergency Planning and
Community Right to Know Act ("EPCPAll) , 42 U.S. C. 11001
et sea., as amended; the Federal, Insecticide, Fungicide and
Rodenticide Act ("FIFR-z,") , 7 U.S.C. 136 et ' sea., as
amended; the Occupational Safety and Health Act ("OSHA"), 29
U.S.C. 651 et secr., as amended; the National Environmental
Policy Act ("NEPAII) , 42 U.S. C. 4321 et secr. , as
amended; any similar state or local statutes or ordinances,
and the regulations promulgated thereunder.
"Ecrui,oment Leases" has the meaning set forth in
clause
(m) of the definition o'L Purchased Assets.
"ERISAII means the Employee Retirement Income
Security Act of 1974, as amended, and the regulations,
interpretations and exemptions promulgated thereunder.
"Excluded Assets" has the meaning set forth in
Section
1.3 of this Agreement.
"Excluded Liabilities" has the meaning set forth in
Section 2.2 of thi-s Agreement-.
"Existing Survevs" has the meaning set forth in Section
4.1(d) of this Agreement.
"Financi-al SL@atements" has the meaning set forth in
Section 5.6 of this Agreement.
"Fixtures and Tanaible Personal Pro-c>ertv" has
the meaning set forth i-n clause (c) o'L the definition of
Purchased Assets.
45
"GAAP" means generally accepted accounting principles,
consis,--ently ai)-olied.
"Governmental Authoritv" means any nation or
government, any state or other political subdivision thereof
or any entity exercising executive, legislative, judicial,
regulato--y or administrative functions of or pertaining to
government, i-n each case to the extent the same has
jurisdiction over the person or property i-n question.
"Hazardous Substances" means any toxic substance,
. hazardous substance, hazardous waste, hazardous material,
soli-d waste, residual waste, infectious waste, contaminant,
pollutant, or constituent L--hereof, whether solid,
semisolid, liquid or gaseous, which are regulated, listed or
controlled by Environmental, Health and Safety Laws.
"Imnrovements" has the meani-ng set forth in clause (b)
of the definition of Purchased Assets.
"Indemnification Loss" or "Indemnification Losses"
have the meaning set forth in Sections 11.2 and 11.3 of this
Agreement.
"Indemnified Partv" has the meaning set forth in
Section 11.5 of this Agreement.
"Indemnifying Partv" has the meaning set forth in
Section 11.5 of this Agreement.
"Indemniteell means either a Seller Indemnitee or a
Purchaser Indemnitee, as the case may be.
"Indemnitv Ex-oiration Date" has the meaning set
forth
4n Section 11.1 of this Agreement.
L
"Insurance Policies" has the meaning set forth in
Section 5.9 of this Agreement.
"Intellectual ProoertV" has the meaning seL-- forth in
clause (p) of the definition of Purchased Assets.
"KnowledcTell means, (i) with respect to any
Seller, the current actual knowledge of Robert M. Taylor,
Timothy R. Bogott, Richard E. Krichbaum or Judy Emens (a'Lter
due @-nquiry of the general managers of the Properties) and
shall not be construed to refer to the knowledge of any other
trustee, partner, officer, director, agent, employee or
representative of any Seller, or any Affiliate of any Seller;
and (ii) with respect to either Purchase--, the current
actual knowledge of John Plunket, William Reynolds, Troy
Furbay, Robin Kirk, John Emery and David McCasli-n, and shall
not be construed to refer to the knowledge of any other
trustee, partner, o@L'Li-cer, director, agent, employee or
46
represenL@-ati-ve of either Purchaser or any A'Lfiliate of
either Purchaser, or any matter disclosed by Sellers to
Purchasers in w'riting pursuant to Article V or Article VI
hereof-
"Land" has the meaning set forth in clause (a) of the
definition of Purchased Assets.
"Leases" means, collectively, the Condominium Lease
Agreements, Seller Leases and Tenant Leases.
"Liabilities" means any liability, obligation,
loss 'in value, damage, cost or expense of any nature
whatsoever, whether now known or unknown, asserted or
unasserted, accrued or unaccrued, liquidated or unli-
quidated, due or to become due, including, without
limitation, any liability with respect to taxes of any kind
whatsoever that relate to any of the Purchased Assets or the
Busi-ness.
"Management Agreements" has the meaning set forth in
clause (k) o'L the definition of Purchased Assets.
"Manaaement Level EmDlovees'l means all salaried
Em-oloyees of SHMC having an annual salary of $25,000 or
more.
"Marco" has the meaning se-L forth in Recital F of this
Agreement.
"Material Adverse Ef 1-@ect 11 means, with respect
to Sellers, a material adverse e@Lfect on the business,
assets, properties or liabilities of Sellers taken as a
whole, and with respect tb Purchasers, a material adverse
effec-L on the business, asseL--s, properties or liabilities
of Purchasers taken as a whole.
"Ma'L--erial Contract" means any Operating
Agreements a-nd EquiT)ment Leases requiring aggregate
remaining paymen-Ls in excess of Fifty Thousand Dollars
($50,000).
"Membershir)sll has the meaning set forth in clause (g)
of the definition of Purchased Assets.
"Meraer" has the meaning set forth in Recital G of this
Agreement.
"ODerating Aareemen-s" has the meaning set forth
in
L:5
clause (1) o'L the definition of Purchased Assets.
"Ordinary Course o@L Business" means with respect
to the Business and each Property the ordinary course of
business consistent with past custom and practices for the
Business and such Pro@rty.
"Other Aareement" has the meaning set forth in Recital
F of this Agreement.
4 7
"Pension Plans" has the meani-ng set forth in Section
5.13(a) of this Agreement.
"Permits" has the meaning set forth in clause (n) of
the de@Linition of Purchased Assets.
"Permitted Title Exceoti..o.n.s-" has the meaning set forth
in Section 4.1(d) of this Agreement.
"Personal ProDert-VII means, collectively, all of the
Purchased Assets other than the Real Property.
"Pink Shell" has the meaning set forth in Recital C to
this Agreement.
"Pink Shell Lease" has the meaning set forth in Recital
C to this Agreem7ent.
"Pink ' Shell Manaaement Aareement" means that
certain Management Agreement, dated January 1, 1995, between
Florida Income Fund III, Limited Partnership, an Iowa limited
partnership, and SSRC.
"P.i-nk Shell FF&E Purchase Agreement" has the meaning
set forl-h in Recital C to this Agreement.
"Pink Shell FF&E Consideration" has the meaning set
forth in Re a@tal'C to this AgreemenL-.
"Pink Shell Purchase Agreement" has the meaning set
forth i-n Recital C to this Agre6ment.
"Plans" has the meaning set forth in Section 5.13(a) of
this Agreement.
"Pro@ect CaDital Exr)end@tures" means all non-
recurring, extraordinary, special -Droject capital
expenditures (other than any work undertaken with the
proceeds of the Unit Rehab Loan) incurred by Sellers in
excess of Sellers' Base Capital Projects.
"Pro-oertvll and "Prolperties" have the meaning set forth
in Recital D to this Agreement.
"Pro-oerty Re-oorts" has the meaning set forth in
clause
(r) of the definition of Purchased Assets.
"Pronrietarv Riahts" has the meaning set f. orth in
Section 5.21 of this Agreement.
"Prorated Base Budaeted Canital Ex-oenditures"
means $130,500 multiplied by the number of full months from
January 1, 1998 to, but noL-- including, the month of
Closing.
4 8
"Prosnective Purchaser" has the mean ing set forth in
ReciL--al C to this Agreement.
"Purchased Assets" means the following:
(a) The land described on Schedule 1.2(a), along
with all appurtenant rights, easements, rights-of-way and
privileges relating thereto and landscaping located thereon
(the "Land") ;
(b) All buildings, structures and improvements on
or affixed to the Land, including fixtures constituting real
properl-y under Applicable Law (-@he "Improvements"; the Land
and the Improvements are referred to herei-n collectively as
the "Real ProperL@-y'l);
(c) All fixtures, furniture, furnishings,
fittings, equipment--, machinery, appliances, vehicles,
computer hardware, art work and other articles of tangible
personal property (together with all warranties and
guaranties with respect thereto, to the exten-L
transferable), which are used or usable or have been ordered
for future use in connection with the operation of the Busi-
ness and which are located at the SSPC Owned Properties, the
Pink Shell or Safety Harbor or which are owned by SSRC
(wherever located), other than the Consumables and SuDply
Inventories (the "Fixtures and Tangible Personal Property");
(d) All food and beverages (alcoholic and
nonalcoholic) that are held for sale, whether opened or
unopened, which are used or held in reserve or ordered fo'r
future use in connection with the operation of the Business
and which are located at the SSPC Owned Properties, the Pink
Shell or Safety Harbor or which are owned by SSRC (wherever
located) at normal operating levels, and including all
resupplies and reiDlacemenL-s in the Ordinary Cou--se of
'Rusiness prior to the Closing Date (the "Consumables'l);
(e) All chi-na, glassware, silverware; linens;
uniforms; engineering, maintenance, cleaning and housekeeping
supplies; matches and ashtrays; soap and other toiletries;
stationery, menus and other printed materials; and all other
materials and supplies, whether in use or held in reserve or
ordered 'Lor 'Luture use in connection with the operation of
the Business and located at the SSPC Owned Properties, the
Pink Shell or Safety Harbor or which are owned by SSRC
(wherever located) at no=al operating levels, and including
all resupplies, substitutions and replacements in the
Ordinary Course of Business prior to the Closing Date (the
"Sur)ply inventories");
(f) All guaranteed lease agreements, rental
agreements and other similar agreements between any Seller
and owners of individual condominium units or Drivate
residences for the shortterm rental of such units or
residences by such Seller to third
49
Darties on behalf of such owners at Sundial and Sanibel Inn
(the
,,Condominium Lease Agreements,,);
(g) All memberships and membership agreements for
access to or the use of any of the facilities at any
Property, the Pink Shell or Safety Harbor (the
"Memberships,,);
(h) All bookings and reservations for (i) guest
rooms and conference, convention and banquet rooms or other
facilities at the Properties, the Pink Shell and Safety
Harbor, and (ii) the condominium units or private residences
under Condominium Lease Agreements (the "Reservations");
(i) The leases, subleases and similar agreements
(including all amendments, modi@Lications and supplements
thereto and guaranties, extensions and renewals thereof5
listed on Schedule 1.2(i) for the use or occupancy by third
parties of any portion of the Real Property (other than the
Reservations)(the "Tenant Leases''),-
(j) The leases, subleases and similar agreements
(including all amendments, modifications and supplements
thereto and guaranties, extensions and renewals thereof)
listed on Schedule 1.2(i) for the use or occupancy by Sellers
of real property (the "Seller Leases,,);
(k) The management agreements listed on Schedule
1.2(l) (the "Management Agreements");
(1) All service and maintenance contracts, credit
card service agreements, booking and reservation agreements,
brokerage and commission agreements, and all other contracts
and agreements (including all amendments, modifications and
suDDlements thereto and extensions and renewals thereof, and
all warranties and guaranties thereunder to the extent
transferable) which are held by any Seller in connection with
the Business or operation of the Properties, the Pink Shell
or Safety Harbor, other than the Condominium Lease
Agreements, Memberships, Seller Leases, Tenant Leases,
Management Agreements and Equipment Leases (the "Operating
Agreements");
(m) All leases and purchase money security
agreements .Lor any Fixtures and Tangible Personal Property
(including all amendments, modifications and supplements
thereto and extension and renewals thereof, and all
warranties and guaranties thereunder to the extent
transferable) which are held by any Seller i-n connection
with the Business or overation of the Properties, the Pink
Shell or Sa@Lety Harbor, other than the Condominium Lease
Agreements, Memberships, Seller Leases, Tenant Leases,
Management Agreements and OperaL--ing Agreements (the
"Equipment Leases");
5 0
(n) All licenses, De--mits, consents,
authorizations, approvals and certi-Lcicates of any
Governmental Authority used in connection with the Business
or operation of the Properties, the Pink Shell or Safety
Harbor (to t@e extent the same are transferable) (the
"Permits");
(o) All of the following owned by, issued to or
licensed to any Seller and used in connection with the
Business or operation of the Properties, the Pink Shell or
Safety Harbor (to the extent the same are transferable) : (i)
trademarks, trade names (including, without limitation, the
names of the Properties set forth in the recitals to this
Agreement), service marks, trade dress, symbols and logos,
together w@-th all goodwill associated therewith, and all
registrations, applications, renewals, adaptations,
derivations and combinations thereof; (ii-) copyrights an@
covyrightable works and all registration, applications and
renewals therefor; (iii) trade secrets and confidential
information (including, without limitation, ideas, drawings,
specifications designs, plans, proposals, financial and
accounting data, business and marketing plans) ; (iv)
computer software; (v) all other intellectual property
rights; and (vi) all copies and tangible embodiments of the
foregoing (in whatever .Lorm or medium) (the "Intellectual
Property");
(p) All guest lists, customer files, group files,
sales records, sales literature and brochures and other
written marketing materials, and all telephone numbers used
in the Business or operation of the ProDerties, the P@-nk
Shell and Safety Harbor, and all goodwill associated with the
Properties and the SHMC Lease (the "Cus-Lomer and Marketing
Information");
(q) All books and records, ledgers,
correspondence and other @Liles and documents maintained by
or on behalf of Sellers in connection with the Business or
operation of the Properties, L-he Pink Shell and Safety
Harbor (the "Books and Recordsil) ;
(r) All blueprints, plans and specifications,
engineering and environmental reports and studies relating to
the Real Pro-oerty, to the exten-L the same exist and are
transferable, (the "Property Reports");
(s) Subject to Section 12.1(i) hereof, all trade
accounts receivable, notes receivable and other receivables
(the "Accounts Receivable"), and all claims, deposits,
refunds, causes of acti-on, rights o@L --econvey, ri-ghts ol-
@ setoff, rights of recou-Dment and investments, and -prepaid
expenses in connection with the Business or onerati-on or-
t@e Properties, the Pink Shell and the SafeL--y Harbor.-
(t) All cash in house banks at the Properties, the
Pink Shell and aL-- Safety Harbor;
(u) The Sa-Fety Harbor Ground Lease;
51
(v) The Pink Shell FF&E Purchase Agreement;
provided, however, that the payment of the Pink Shell @rF&E
Considerati-on shall remai-n the liability of Sellers;
(w) The Pink Shell Management Agreement;
(x) The Pink Shell Lease; and
(y) The Vacation Planning Center Lease.
"Purchase Price" has the meaning set forth in
Section
3.1 of this Agreement.
"Purchaser" has the meaning set forth in the first
paragraph of this Agreement.
e
e
s
"
h
a
v
e
"Purchaser Indemniteell and "Purchaser Indemnit
the meaning set forth in Section 11.3 of this Agreement.
"Real ProDerL-vll has the meaning set forth in clause (b)
of the defi action of Purchased Assets.
"Reservations" has the meaning set forth in clause (h)
of the definition of Purchased Assets.
"Safetv Harbor" has the meaning set forth in Recital B
to this Agreement.
"Safetv Harbor Ground Lease" means that certain
Lease Agreement, dated June 14, 1995, between Safety Harbor
Spa & Fitness Center, Inc., a Florida corporation, as
landlord, and S-HMC, as tenant, with respect to Safety
Harbor, as amended by that certain First Lease A-mendment,
dated January 29, 1997.
"Sanibel Inn" has the meaning set forthlin Recital A to
this Agreement.
"Seaside" has the meaning set forth in Recital A to
this Agreement.
"SEC Laws" means The Securities Act of 1933, as
amended, The Securi-ties Exchange Act of 1934, as
amended,other federal and state laws advlicable to
securities.
and all
"Seller Leases" has the meaning set forth in clause (j)
of the definition of Purchased Assets.
"Seller Indemniteell-and "Seller Indemnitees" have the
meaning set forth in Section 11.2 of this Agreement.
"Settlement Statement" has the meaning set forth in
Section 12.2 of this Agreement.
52
"SHMC" has the meaning set forth in the first idaragraph
of this Agreement.
IISS&CPII has the meaning set forth in Recital F of this
Agreement.
IISSEIII has the meaning set forth in L--he first paragraoh
of this Agreement.
IISSPCII has the meaning set forth in the first paragraph
of this Agreement.
IISSPC Owned Pro-oerty" and IISSPC Owned Pror)erties" have
the meaning set forl--h in Recital A to this Agreement.
IISSPC Renorts" has the meaning set forth in Section 5.6
of this Agreement.
IISSRC" has the meaning set forth in the first paragraph
of this Agreement.
IISSRLP" has the meaning set forth in Recital F of this
Agreement.
"Sundial,, has the meaning set forl-h in Recital A to
this Agreement.
"SunDly Inventories" has the meaning set forth in
clause (e) of the definition of Purchased Assets.
"Taxes" means any federal, state, local or foreign
Income, gross receipts, license, Dayroll, employment, excise,
severance, stamp, occupation, premium, windfall profits,
environmental, customs duties, capital stock, @Lranchise,
profits, withholding, social security, unemployment,
disability, real property, personal property, sales, use,
room, occupancy, beach renourishment, vault, transfer,
registration, ad valorem, betterment assessments, value
added, alternative or add-on minimum, estimated or other tax,
charges or fees of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or
not, and including any obligation to indemnify or otherwise
assume or succeed to such tax liability of any other person.
"Tenant Leases" has the meaning set forth in clause (i)
of the defii-iition of Purchased Assets.
Time o'L Closing" has the meaning set forth in
Section
9.1 of this Agreement.
"Title Commi-Lments" has -Lhe meaning set forth in
Section 441(d) of this Agreement.
53
"Title Comnany" means First American Title Insurance
ComDany, Washington, D.C.
"Title Policies" has the meaning set forth in Sectic)n
4.1(d) o'L this Agreement.
"Transferred Emnloyees" has the meaning set forth in
Section 8.3(c) of this Agreement.
"Vacation Plannincr Center Lease" means the Lease
Agreement, dated May 24, 1994, between Health Park Medical
Pla'za One Associates, Ltd., as landlord, and SSRC, as
tenant, and the unexecuted Lease Agreement, dated February
14, 1995, between Lee Health Ventures, Inc., as landlord, and
SSRC, as tenant.
"Welfare Plans" has the meaning set forth in Section
5.13(a) of this Agreement.
54
I PONTRIBUTION AGREEMENT
T ION AGREEMENT (this "Agreement") is made
as of April /,q,1998, among South Seas Properties Company
Limited Partnership, a'n Ohio limited partnership (IISSPCII),
South Seas Resorts Company Limited Partnership, a Florida
limited partnership (IISSRCII), South Seas Resort Limited
Partnership, an Ohio limited partnership (IISSRLP'l), Marco
SSP, Ltd., a Florida limited partnership ("Marco"), and South
Seas &: Captiva Properties, L.P., a Florida limited
partnership (IISS&CPII; SSPC, SSRC, SSRLP, Marco and SS&CP
are referred to herein individually as a "Seller", and
collectively as "Sellers"), CapStar Hotel Com-oany, a
Delaware corporation ("CapStar"), and CapStar Management
Company, L.P., a Delaware limited partnership ("CapStar
Management"; CapStar and CapStar Management are referred to
herein individually as a "Purchaser", and collectively as the
"Purchasers").
RECITALS:
A., SSPC owns, among other things, the hotel,
resort and golf and tennis club properties listed below
(individually, an IISSPC Owned Property" and, collectively,
the IISSPC Owned Properties"):
1. Best Western Sanibel Island Beach Resort, Sanibel
Island, Florida ("Best Western Sanibel,');
2. Song of the Sea, Sanibel Islaiid, Florida ("Song of the
Sea"); and
3. The Dunes Golf & Tennis Club, Sanibel Island, Florida
("Dunes Club,');
B. SSRLP owns the resort commonly known as South
Seas Plantation Resort & Yacht Harbour, Captiva Island,
Florida ("South Seas Plantation");
C. Marco owns the resort hotel commonly known as the
Radisson Suite Beach Resort on Marco Island, Marco Island,
Florida ('!Marco Radisson,l);
D. SS&CP is in the real estate brokerage business
(the "Brokerage Business");
E. Sellers are engaged (directly or indirectly)
in, among other things, the following related businesses: (i)
operating and managing the SSPC Owned Properties, South Seas
Plantation and Marco Radisson (individually, a "Property"
and, collectively, the "Properties"), (ii) managing the
short-term rental and leasing of individual condominium units
and private residences at South Seas Plantation, and (iii)
the Brokerage Business (collectively, the "Business,,);
F. Each Seller desires to contribute to CaDStar
Management all of the right, title and interest in and to the
assets, properties and rights (contractual or otherwise) and
business of such Seller with respect to the Business, on the
terms and conditions set forth herein.
G. Concurrently with the execution of this
Agreement, SSPC, SSRC and Safety Harbor Management Company,
Ltd., a Florida limited partnership ("SHMCII), and Purchasers
have entered into a separate Asset Purchase Agreement (the
"Other Agreement") providing for the sale of certain assets
of SSPC, SSRC and SHMC to Purchasers.
H. CapStar and American General Hospitality
Corporation ("AGTII) have signed a definitive agreement
pursuant to which, among other things: (i) CapStar will merge
into AGT (the "Merger"), (ii) AGT will change its name to
MeriStar Hospitality Corporation ("MeriStar Hospitality"),
(iii) an operating partnership to be named MeriStar
Hospitality Operating Partnership, L.P. will become the
MeriStar Hospitality operating partnership in connection with
the Merger ("MeriStar Hospitality Operating Partnership"),
(iv) CapStar will spin off its hotel operations and
management business to its current shareholders as a new C-
corporation to be named MeriStar Hotels & Resorts,
Inc(i'MeriStar Hotels") and (v) a new operating partnership
to be named MeriStar Hotels & Resorts Operating Partnership,
L.P. will be formed t'I'MeriStar Hotels Operating
Partnership").
NOW, THEREFORE, in consideration of the mutual
covenants contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are
hereby acknowledged, each Seller and each Purchaser agrees as
follows:
ARTICLE I
DEFINITIONS; DESCRIPTION OF CONTRIBUTED ASSETS;
EXCLUDED PROPERTY
Section 1.1 Definitions. Capitalized words not
otherwise defined in this Agreement have the meanings set
forth in Exhibit A.
Section 1.2 Contributed Assets. Upon the terms and
subject to the conditions set forth in this Agreement, at the
Closing, each Seller shall contribute to CapStar Management
all right, title and interest of that Seller in and to the
Contributed Assets, but expressly excluding the Excluded
Assets.
Section 1.3 Excluded Assets. There shall be
excluded from the assets, properties, rights (contractual and
otherwise) and business to'be contributed to CapStar
Management pursuant to Section 1.2 the assets, properties,
rights (contractual and otherwise) and business set forth on
Schedule 1.3 (the "Excluded Assets").
Section 1.4 Non-Assi ent of Certain Property.
Notwithstanding anything to the contrary in this Agreement,
to the extent that the assignment hereunder of any of the
Contributed Assets shall require the consent of any other
party (or in the event that any of the same shall be non-
assignable), neither this Agreement nor any action taken
pursuant to its provisions shall constitute an assignment or
an agreement to assign if such assignment or attempted
assignment would constitute a breach thereof or result in the
loss or diminution in the value of such Contributed Asset;
provided, however, that in each such case, Sellers shall use
commercially reasonable efforts to obtain the consent of such
other party to an assignment thereof to CapStar Management.
ARTICLE II
ASSUMPTION OF CERTAIN LIABILITIES; LIABILITIES NOT ASSUMED
Section 2.1 Assum-ption of Certain Liabilities.
CapStar Management shall assume and be responsible for the
timely satisfaction or performance, as the case may be, of
the following: (i) all Liabilities with respect to the
Properties and the Contributed Assets (including, without
limitation, the Contracts, the Indenture and the Leases)
arising or a--cruing on or after the Closing Date; (ii) any
Liabilities described herein to the extent CapStar or CapStar
Management has received a credit against the Contribution
Consideration therefor; and (iii) the Assume@. Debt
(collectively, the "Assumed Liabilities").
Section 2.2 Liabilities Not Assumed. Except for
the Assumed Liabilities, neither CapStar nor CapStar
Management shall by execution and performance of this
Agreement assume or otherwise be responsible for any
Liabilities of Sellers or with respect to the Contributed
Assets (the "Excluded Liabilities").
ARTICLE III
CONTRIBUTION CONSIDERATION; PAYMENT OF CONTRIBUTION
CONSIDERATION; EARNEST MONEY DEPOSIT
Section 3.1 Contribution Consideration. In
consideration for the Contributed Assets, Purchasers shall
pay to Sellers, in the manner set forth in Section 3.2 below,
One Hundred Fifty-Three Million Dollars ($153,000,000), plus
or minus the adjustments and prorations called for in Article
XII and elsewhere in this Agreement (the "Contribution
Consideration").
Section 3.2 Payment of Contribution Consideration.
(a) on the terms and subject to the conditions of
this Agreement, on the Closing Date, Purchasers shall: (i)
assume the Assumed Liabilities, and (ii) issue to SSPC a
number of Partnership Units (the "Unit Portion") equal to the
quotient obtained by dividing Thirty Million Dollars
($30,000,000) (the "Dollar Amount") by the Collar Price;
provided, however, that if
3
the Closing Date Price is less than $27.17, the number of
Partnership UniL-s to be issued shall be determined by
multiplying the quotient obtained by dividing the Dollar
Amount by $30.56 by a fraction the numerator of which is
$27.17 and the denominator of which is the Closing Date
Price; and, provided, further that if the Closing Date Price
is greater than $40.75, the number of Partnership Units to be
issued shall be determined by multiplying the quotient
obtained by dividing the Dollar Amount by $37.36 by a
fraction the numerator of which is $40-75 and the denominator
of which is the Closing Date Price. If the Closing Date
Price is less than $27.17, CapStar shall have the option of
paying the difference between the "Collar Amount" and the
"Floor Amount" in immediately available funds at the Time of
Closing, in which event the number of Partnership Units to be
issued shall be determined by dividing the Dollar Amount by
the Collar Amount. For purposes of the preceding sentence,
the "Collar Amount" shall mean the amount determined by
multiplying the quotient obtained by dividing the Dollar
Amount by $30.56 by $27.17, and the "Floor Amount" shall mean
the amount determined by multiplying the quotient obtained by
dividing the Dollar Amount by $30.56 by the Closing Date
Price.
(b) If at the Time of Closing the sum of the
Assumed Debt and the net adjustments and prorations called
for in Article XII and elsewhere in this Agreement
(collectively, the "Variable Portion") is greater than One
Hundred Twenty-Three Million Dollars ($123,000,000), then at
the Time of Closing SSPC shall pay to CapStar in immediately
available funds the amount by which the Variable Portion
exceeds One Hundred Twenty-Three Million Dollars
($123,000,000). If at the Time of Closing the Variable
Portion is less than One Hundred Twenty-Three Million Dollars
($123,000,000), then at the Time of Closing CapStar shall pay
to SSPC in immediately available 'Lunds the amounl- by which
the Variable PorL--ion is less than One Hundred Twenty-Three
Million Dollars ($123,000,000).
Section 3.3 Effect of Mercrer Transaction on
Contribution Consideration. If between the date hereof and
the Time of Closing the Merger is consummated, then in lieu
of delivering Partnership Units in CapSL--ar Management in
satisfaction of the Unit Portion of the Contribution
Consideration, CapStar shall deliver to SSPC or shall cause
to be delivered to SSPC one Partnership Unit in each of
MeriStar Hotel Operating Partnership and MeriStar Hospitality
Operating PartnershiD for each Partnership Unit in CaDStar
Management that SSPC otherwise would have been entitled to
under this Agreement. .Sellers and Purchasers acknowledge and
agree that the consummation of the Merger shall not be a
condition to their respective obligations under this
Agreement.
Section 3.4 Earnest Money Deposit. Upon execution
of this Agreement CapStar shall deposit the sum of One
Million Dollars ($1,000,000) (the "Initial Deposit") in an
escrow account
4
established with First American Title Insurance Company,
Washington, D.C. (the "Escrow Agent"). Upon expiration of
the Due Diligence Period, if CapStar and CapStar Management
decide to proceed with the transaction contemplated hereby,
CapStar shall deposit the additional sum of Fourteen Million
Dollars ($14,000,000), Five Million Dollars ($5,000,000) of
which may be in the form of an irrevocable letter of credit
complying with the requirements of Section 3.5 below (the
"Additional Deposit"; the Additional Deposit and the Initial-
Deposit are hereafter collectively referred to as the
"Earnest Money Deposit"). The Initial Deposit and the
Additional Deposit shall be invested in an interest-bearing
account reasonably acceptable to both parties. If there is a
conflict between the provisions of this Agreement and the
terms of any applicable escrow agreement, the provisions of
this Agreement shall govern. If this transaction is
consummated, the Earnest Money Deposit (together with any
interest earned thereon) shall be returned to CapStar. if
Purchasers terminate this Agreement prior to the expiration
of the Due Diligence Period, the Earnest Money Deposit
(together with any interest earned thereon) shall be returned
to CapStar. If after expiration of the Due Diligence Period
this transaction is not consummated, the Earnest Money
Deposit (together with any interest earned thereon) shall be:
(i) returned to capSL--ar if the reason this transaction is
not consummated is because (A) CapStar and CapStar Management
have elected to terminate this Agreement pursuant to Article
X, (B) CapStar and CapStar Management have elected to
terminate this Agreement pursuant to Section 11.7, or (C) the
failure of one or more of the conditions precedent set forth
in Sections 7.1 or 7.2 of this Agreement to be satisfied at
or prior to the time required by this Agreement, or (ii) paid
to Sellers, as liquidated damages under Section 11.10 hereof,
if this transaction is not consummated by reason of the
default of Car,Star or CapSt--ar Management hereunder.
Section 3.5 Letter of Credit. In lieu of funding
the entire Additional Deposit in immediately available funds,
CapStar may deliver to the Escrow Agent an irrevocable and
unconditional letter of credit in the amount of up to Five
Million Dollars ($5,000,000), expiring no sooner than thirty
(30) days following the scheduled Closing Date, naming the
Escrow Agent as beneficiary thereunder, issued by a bank that
is a member of the New York Clearing House Association, and
otherwise in form and substance reasonably acceptable to SSPC
(the "Letter of Credit"). The cost of the Letter of Credit
shall be paid by CapStar. The Letter of Credit shall be held
by the Escrow Agent to secure CapStar's and CapStar
Management's obligations under this Agreement. If the
Closing is unlikely to occur on the scheduled Closing Date
and if CapStar fails to extend the Letter of Credit at least
fifteen (15) days prior to its expiration to a date upon
which the Closing is likely to occur, then the Escrow Agent
may draw the proceeds of the Letter of Credit and hold the
proceeds thereof as security for the performance of CapStar's
and CapStar Management's obligation to complete the
transaction contemplated
hereby. As provided in the Letter of Credit, it may be drawn
upon by the Escrow Agent if SSPC has terminated this
Agreement due to the default of CapStar or CapStar Management
hereunder. All funds drawn on the Letter of Credit shall
comprise earnest money and shall be paid over to SSPC at the
same time any remaining Earnest Money Deposit is paid over to
SSPC under Section 3.4. The Letter of Credit shall be
returned to CapStar (i) upon SSPC's receipt of the
Contribution Consideration andother sums to be paid under
this Agreement, or (ii) at the same time the Earnest Money
Deposit is paid over to CapStar under Section 3.4. In
addition to the other instances in this Section 3.5 under
which the Letter of Credit may be drawn upon, the Letter of
Credit may be drawn upon and the proceeds thereof paid to
SSPC at such time as SSPC is required under Section 8.4(e) to
purchase Notes tendered as part of the Tender Offer.
Section 3.6 Tax-Free Contribution. The parties
agree that the transfer of Contributed Assets to CapStar
Management as contemplated by this Agreement shall be treated
for federal income tax purposes as a contribution of the
Contributed Assets to CapStar Management in exchange for a
partnership interest in CapStar Management that is intended
to qualify as a tax-free contribution under the Code.
ARTICLE IV
DUE DILIGENCE PERIOD; BOARD OF DIRECTOR APPROVAL
Section 4.1 Due Diligence Period.
(a) CapStar and CapStar Managemen
(a) CapStar and CapStar Management shal until
5:00 p.m., Eastern Standard Time, on April Y01998 ( "Due
Diligence Period"), to determine whether in@aeir sole and
absolute discretion they will proceed with this transaction. If
CapStar fails to notify SSPC in writing prior to the expiration of the
Due Diligence Period that CapStar has elected not to proceed with this
transaction, CapStar and CapStar Management shall be deemed to have
irrevocably elected to proceed with this transaction.
(b) subject to the remaining provisions of this
Section 4.1, during the Due Diligence Period, Sellers shall
give CapStar and CapStar Management access to the
Contributed Assets. Sellers shall furnish to CapStar and
CapStar Management as promptly as reasonably practicable
during the Due Diligence
Period all additional materials, documents and
information
concerning the Contributed Assets as CapStar or CapStar
.Management may reasonably request, to the extent the same
exist
and are in the possession or control of Sellers or the
Seller
Entities. CapStar and CapStar Management agree that no
Seller
shall have to undertake any tests, studies or
investigations in
discharging its obligations under this Section 4.1(b).
(c) CapStar and CapStar Management shall have the
right, at their cost and expense, to perform or cause to be
performed, any structural, engineering and environmental
tests, studies and investigations deemed necessary by CapStar
or CapStar Management; provided, however, that such tests,
studies and investigations undertaken by CapStar or CapStar
Management or their respective employees, agents or
representatives (collectively, the "CapStar Representatives")
shall be conducted only: (i) upon not less than forty-eight
(48) hours' prior notice to SSPC; (ii) during normal business
hours of SSPC; and (iii) with SSPC's prior written approval
(which approval shall not be unreasonably withheld). All of
CapStar's and CapStar Management's activities under this
Section 4.1 shall be coordinated through Richard E. Krichbaum
or his designee. CapStar and CapStar Management shall
conduct their activities under this Section 4.1 in a manner
so as not to unreasonably interfere or otherwise unreasonably
disrupt the Business, operation of the Properties or the
Employees or guests of Sellers. Notwithstanding any other
provision of this Section 4.1 to the contrary, neither
CapStar nor CapStar Management shall perform any drilling,
boring or similar invasive testing without Richard E.
Krichbaum's prior written consent. Neither CapStar nor
CapStar Management shall, without the prior written consent
of Richard E. Krichbaum, (i) disclose the nature or purpose
of their activities to anyone other than CapStar
Representatives and Robert M. Taylor, Richard E. Krichbaum,
Timothy R. Bogott or Judy Emens, or (ii) disrupt Sellers'
Employees or guests.- CapStar and CapStar Management agree to
jointly and severally indemnify and hold harmless Sellers,
their respective employees and partners from and against any
and all losses, damages, claims, costs and expenses
(including legal fees- and expenses) to the extent caused by
CapStar, CapStar Management or the CapStar Representatives
arising from any inspection activities undertaken under this
Section 4.1. CapStar and CapStar Management, at their own
cost and expense, shall restore any damage to the Property
caused by any of the tests, studies or investigations made by
CapStar, CapStar Management or the CapStar Representatives.
Any information obtained by CapStar, CapStar Management or
the CapStar Representatives under this Section 4.1 shall be
subject to the confidentiality provisions of Section 8.3(a)
of this Agreement. The indemnification obligations and other
obligations of CapStar and CapStar Management in this Section
4.1 shall survive termination of this Agreement and the
Closing.
(d) Sellers and CapStar have caused the Title
Compdny to furnish to CapStar and CapStar Management the
title insurance commitments listed on Schedule 4.1(d) issued
by the Title Company covering each parcel of Real Property,
binding the Title Company to issue ALTA Form B-1970 Owner's
Policies of Title Insurance, in favor of CapStar Management,
together with copies of all documents identified in such
title insurance commitments as exceptions to title (the
"Title Commitments"). Sellers have delivered or made
available to CapStar and CapStar Management
7
copies of the existing land surveys listed on Schedule 4.1(d)
with respect to each parcel of Real Property (the "Existing
Surveys"). CapStar shall,have until 5:00 p.m., Eastern
Standard Time, on April 9, 1998, to notify SSPC and the Title
Company of any restrictions, reservations, limitations,
easements, conditions, defects or encumbrances (together
herein called "Title Defects") disclosed in the Title
Commitments which are objectionable to CapStar. If CapStar
so notifies SSPC of any Title Defects, SSPC shall have until
5:00 p.m., Eastern Standard Time, on April 13, 1998 (the
"Reply Period") in which to cure or remove or commit to cure
or remove such Title Defects. Upon expiration of the Reply
Period, the Title Company shall notify SSPC and CapStar as to
whether or not it is then in a position to insure over the
Title Defects or issue its policies of title insurance
(collectively, the "Title Policies") without showing as
exceptions the Title Defects. If the Title Company shall
notify the parties that it will issue the Title Policies,
this transaction shall be consummated in accordance with the
terms and provisions of this Agreement. If the Title Company
shall notify the parties that it will not issue the Title
Policies with the Title Defects removed or insured over, this
Agreement shall, at CapStar's option, thereupon be
terminated, void and of no further force and effect, the
Escrow Agent shall thereupon return to CapStar the funds and
documents previously paid or deposited by it, including, but
not limited to, the Earnest Money Deposit, and the parties
shall be fully released and discharged from any liability or
obligation hereunder. The items set forth in the Title
Commitments to which CapStar does not object or to which
CapStar has objected prior to expiration of the Due Diligence
Period but which the Title Company has agreed in writing to
remove or insure over are hereafter referred to as "Permitted
Title Exceptions." Permitted Title Exceptions shall also
include any purchase money security interests granted in
connection with the purchase of any of the personal property
that is the subject of the Equipment Leases being assumed by
CapStar Management hereunder. Notwithstanding anything to
the contrary contained in this Agreement, with the exception
of the Assumed Debt, the Permitted Title Exceptions and any
items for which CapStar or CapStar Management has received a
credit against the Contribution Consideration under Section
12.1 hereof, Sellers shall cause all monetary liens or
encumbrances affecting the Properties and disclosed in the
Title Commitments (or incurred after the effective time of
the Title Commitments) to be removed on or prior to Closing.
ARTICLE V
SELLERS' REPRESENTATIONS AND WARRANTIES
To induce CapStar and CapStar Management to enter
into this Agreement and to consummate the transaction
contemplated hereby, each Seller hereby makes the following
representations and warranties with respect to itself and the
Contributed Assets in which such Seller has an ownership
interest (directly or
indirectly) , upon which each Seller acknowledges and agrees
that
CapStar and CapStar Management are entitled to rely:
Section 5.1 Organization and Power of Sellers.
Each Seller is duly formed or organized (as the case may be),
validly existing and in good standing or full force and
effect in the jurisdiction of its formation or organization,
and is qualified to do business in all jurisdictions in which
such qualification is necessary (except where such failure to
qualify would not result in a Material Adverse Effect), and
has all requisite corporate or partnership (as the case may
be) power and authority to own, lease and operate its
proverty and to carry on its business as now being conducted.
Section 5.2 Authority and Binding Obligation.
Each Seller has full corporate or partnership (as the case
may be) power and authority to execute and deliver this
Agreement and all documents now or hereafter to be executed
and delivered by such Seller pursuant to this Agreement and
to perform all obligations arising under this Agreement and
under such other documents. The execution, delivery and
performance of this Agreement by each Seller has been duly
and validly authorized by all necessary corporate or
partnership (as the case may be) ac+@-ion on the part of such
Seller, and this Agreement has been duly executed and
delivered by such Seller. This Agreement and such other
documents, when executed and delivered, will each constitute
the legal, valid and binding obligations of each Seller,
enforceable against each Seller in accordance with their
respective terms.
Section 5.3 Consents and Approvals; No Conflicts.
With respect to each Seller: (i) there is no legal impediment
to such Seller's donsummation of the transaction contemplated
by this Ag--eement; and (ii) no f iling with, and no permit,
authorization, consent or approval of, any Governmental
Authority is necessary for the consummation by such Seller of
the transaction contemplated by this Agreement. Neither the
execution and delivery of this Agreement by such Seller, nor
the consummation by such Seller of the transaction
contemplated hereby, nor compliance by such Seller with any
of the provisions hereof will: (i) result in a violation of
any provision of such Seller's organizational or governing
documents in which such Seller owns an interest; (ii) violate
any Applicable Law to which such Seller is subject; or (iii)
result in a violation or breach of, or constitute a default
under, any Material Contract.
Section 5.4 Title to Contributed Assets.
(a) Schedule 1.2(a) sets forth a true, correct
and complete legal description of each parcel of the Land and
the correct and complete address of each Property. SSPC
(with respect to Best.Western Sanibel, Song of the Sea, and
Dunes Club), SSRLP (with respect to South Seas Plantation),
and Marco (with respect to Marco Radisson) own fee simple
title to such
9
Real Property, which in each case shall be free and clear of
all mortgages, pledges, liens, security interests,
encumbrances and restrictions of any nature whatsoever as of
the Closing Date, subject only to the Permitted Title
Exceptions.
(b) Each Seller has good title to the Personal
Property used by it in connection with its business, which in
each case shall be free and clear of all mortgages, pledges,
liens, security interests, encumbrances and restrictions of
any nature whatsoever as of the Closing Date, subject only to
the Permitted Title Exceptions.
(c) Except for the pledge of the DG&CC Stock
granted in connection with the Credit LyonnaiS Debt, SSPC
owns the DG&CC Stock free and clear of all liens, security
interests, encumbrances and restrictions of any nature
whatsoever. The sole asset held by DG&CC is the liquor
license issued i-n connection with the operation of the
Dunes. To Sellers, Knowledge, DG&CC has no Liabilities.
Section 5.5 Absence of Changes. Since December 31,
1997, there has not been any material adverse change in the
business, assets, properties, liabilities, revenues or
financial condition of any Seller or the Properties, except
for changes due to the seasonal nature of the Business.
Section 5.6 Financial Statements and Reports; Absence
of Undisclosed Liabilities.
(a) Schedule 5.6 sets forth: (i) the audited and
unaudited consolidated financial statements of SSPC, (ii) the
unconsolidated unaudited financial statements of SSPC, Marco
SSP, Ltd. and South Seas Resort Limited Partnership, and
(iii) certain other financial reports that have been
furnished previously to Purchasers by Sellers (the "Financial
Statements"). The Financial Statements are true and correct
in all material respects, have been prepared from and are in
accordance with the books and records cf each Seller in
substantial conformity with GAAP applied on a consistent
basis throughout the periods involved, and fairly present in
all material resnects the financial condition of each Seller
as of the dat@s stated and the results of operations for the
periods then ended (subject, in the case of unaudited interim
consolidated financial statements, to normal year-end
adjustments). SSPC has filed all required forms, reports and
documents with the Securities and Exchange Commission
required to be filed by it pursuant to the Securities
Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder, all of which have
complied in all material respects with the applicable
requirements of the Securities Exchange Act of 1934, as
amended, and such rules and regulations (hereinafter
collectively referred to as the IISSPC Reports"). None of
the SSPC Reports, at the time filed, contained any untrue
statement of a material fact or omitted to
1 0
state a materi-al fact required to be stated therein or
necessary in order to make the statements therein, in light
of the circumstances under which they were made, not
misleading. The financial statements of SSPC included in the
SSPC Reports complied as to form in all material respects
with applicable accounting requirements and the published
rules and regulations of the Securities and Exchange
Commission a-Qplied on a consistent basis (except as
otherwise noted in such financial statements) and present
fairly in all materi-al respects the financial position,
results of operations, cash flows and changes in financial
position of SSPC and its consolidated subsidiaries as of the
dates stated or the periods indicated, subject, in the case
of unaudited interim consolidated financial statements, to
normal year-end adjustments. Purchaser acknowledges that
under the terms of the lease between SHMC, an affiliate of
SSPC, the annual lease payment is $1,200,000 and that a
portion of the lease payment will be credited against the
option to purchase contained in the lease if the option is
exercised. Because SHMC expects to exercise the option, SSPC
has capitalized a portion of the annual lease payment and
SSPC's Financial Statements reflect lease expense of
approximately $135,000 for the calendar year 1997.
(b) To Sellers, Knowledge, no Seller has any
Liabilities which are required to be disclosed on a balance
sheet under GAAP, other than (i) the Liabilities shown in the
Financial Statements, (ii) Liabilities disclosed in any of
the Schedules attached hereto, and (ii) Liabilities which
have arisen since December 31, 1997 in the ordinary course of
business (none of which relate to any breach of contract,
tort, or violation of .kpplicable Law).
SecL--ion 5.7 Com-pliance with A-ot)licable Law.
Except as disclosed in Schedule 5.7, to Sellers' Knowledge,
no Seller is in violation of any Applicable Law.
Section 5.8 Liticration. Except as disclosed in
Schedule 5.8, there is no action, suit or proceeding pending
or, to Sellers, Knowledge, threatened against any Seller or
the Properties in any cour-L or before any Governmental
Authority which: (i) seeks to enjoin or prohibit, or
otherwise questions the validity or enforceability of this
Agreement or any action taken or to be taken by Sellers in
connection with this Agreement, or (ii) if adversely
determined would have a Material Adverse Effect.
Section 5.9 Insurance. Schedule 5.9 sets 'Lorth a
true, correct and complete lisl-- and description of each
insurance policy maintained by any Seller with respect to the
Properties (the "Insurance Policies"). To Sellers'
Knowledge, all of the Insurance Policies are valid and in
full force and effect.
11
Section 5.10 Labor and Em-ployment Matters. To
Sellers' Knowledge, each Seller has complied in all respects
with all Applicable Laws relating to employment matters.
There are no collective bargaining or other labor agreements
to which any Seller is bound with respect to employees of any
Seller.
Section 5.11 Taxes. All Taxes imposed upon any
Seller with respect to the Business or the Contributed Assets
which are due and payable by the applicable Seller have been
paid in full and are current. No Seller has received any
written notice that any such Taxes are overdue or have not
been paid. To Sellers, Knowledge, each Seller has duly filed
all federal, state and local tax returns and tax reports
required to be filed by it under Applicable Law, all such
returns and reports are true and correct in all material
respects and all Taxes and other charges arising under such
returns and reports have been fully paid or will be timely
paid.
Section 5.12 Enviro=ental Matters. Schedule 5.12
sets forth a true, correct and complete list of all
environmental assessments, reports and studies with respect
to the Land prepared within the last three (3) years by or on
behalf of, or otherwise in the possession or control of, any
Seller and Sellers have delivered or made available to
CapStar a copy of each such assessment, report and study.
Except as disclosed in Schedule 5.12, there are no pending
Environmental Claims, and to Sellers, Knowledge, no
Environmental Claims are threatened.
Section 5.13 ERISA. (a) The only "employee pension
benefit plans", as defined in Section 3 of ERISA, maintained
by S-ellers are those disclosed in Schedule 5.13 (the
"Pension Plans"), and the only "employee welfare benefit
plans", as defined in Section 3 of ERISA, maintained by any
Seller are those disclosed in Schedule 5.13 (the "Welfare
Plans"; the Pension Plans and the Welfare Plans are hereafter
collectively referred to as the "Plans") .
(b) Except as disclosed in Schedule 5.13, a
favorable determination letter has been issued by the
Internal Revenue Service wil--h respect to L--he tax-
qualified status under Section 401(a) of the Code for each
Pension Plan. Since the date of the most recent
determination letter, each Pension Plan has been timely
amended to comply with all Applicable Laws with respect to
such Pension Plan, and a request for a new determination
letter has been filed with the Internal Revenue Service
within the time required to preserve the rights of the
sponsor of such Pension Plan to adopt such amendments to such
Pension Plan as may be required by the Internal Revenue
Service in order to secure a favorable determination letter
with respect to such Pension Plan's continued L--ax-qualified
status.
(c) No Seller has incurred any material liability to
the Internal Revenue Service, the U.S. Department of Labor,
the
12
Pension Benefi-t Guaranty Corporation or any participant or
former participant with respect to the Plans, other than
routine claims for benefits.
- - (d) Except as disclosed in Schedule 5.13: (i) the
Plans have been maintained, operated and administered in all
material respects in accordance with their respective terms
and the provisions of ERISA and the Code, and (ii) there are
no accumulated funding deficiencies (as defined in Section
302 of ERISA and 412 of the Code) with respect to any Plan.
Section 5.14 ' Permits. Except as disclosed in '
Schedule 5.14, to Sellers' Knowledge, each Seller holds all
Permits required in conducting its business and operating its
properties, each of which to Sellers' Knowledge is valid and
in full force and effect and no provision or condition of
which has been breached or violated.
Section 5.15 Leases. Schedule 1.2(i) and Schedule
1.2(i) set forth a true, correct and complete list of the
Tenant Leases and Seller Leases, respectively, and Sellers
have delivered or made available to CapStar a true, correct
and complete copy of the Tenant Leases and Seller Leases, and
true, correct and complete sample forms of the Condominium
Lease Agreements. No Seller has received any written notice
of any default under any of the Leases, and to Sellers'
Knowledge, no event has occurred or circumstance exists
which, with notice or the passage of time, would result in a
default thereunder. Schedule 5.15 sets forth a true, correct
and complete list of the Condominium Lease Agreements as of
March 31, 1998, including the units covered by such
Condominium Lease Agreements, the dates such Condominium
Lease Agreements were entered into and the names of t--he
other parties thereto.
Section 5.16 Contracts. Schedule 5.16 sets forth a
true, correct and complete list of all Equipment Leases
(indicating therein which Equipment Leases constitute Capital
Leases) and all Material Contracts in e'Lfect as of the date
hereof, and Sellers have delivered or made available to
CapStar a true, correct and complete copy of the Equipment
Leases, Material Contracts, Franchise Agreements, Management
Agreements and Memberships. No Seller has received any
written notice of any default under any of the Contracts, and
to Selle--s' Knowledge, no event has occurred or circumstance
exists which, with notice or the passage of time, would
result in a default thereunder. Schedule 5.16 sets forth a
true, correct and complete list of all Contracts and Leases
that require aggregate remaining payments in excess of Two
Hundred Thousand Dollars ($200,000) and that require by their
express terms the consent of the other party thereto in
connection with the assignment thereof to CapStar Management
as contemplated by this Agreement. Each Purchaser
acknowledges that only the consents listed as deliveries
under
13
Section 9.2 shall constitute a condition to each Purchaser's
obligations hereunder.
Section 5.17 ' Indenture. To SSPC's knowledge, the
Indenture is valid and in full force and effect and
enforceable in accordance with its terms. To SSPC's
knowledge, none of the parties under the Indenture is in
default thereunder. No notice has been received by SSPC
claiming any default by SSPC or indicating the desire or
intention of any other party thereto to amend, modify,
rescind or terminate the Indenture.
Section 5.18 Foreicrn Person. No Seller is a
"foreign person" for purposes of the withholding provisions
of Sections 1445 and 7701 of the Code.
Section 5.19 ' Finders and Investment Brokers.
Except for NationsBanc Montgomery Securities LLC, no broker,
finder or financial adviser has acted directly or indirectly
as such for Sellers in connection with the transaction
contemplated by this Agreement, or is entitled to any fee or
commission in connection with this Agreement or the
transaction contemplated hereby.
Section 5.20 Credit Lvonnais Debt. Pursuant to
the terms of the Amended and Restated Loan Agreement, dated
as of September 26, 1996, as amended, among Credit Lyonnais
New York Branch ("CLNYBII) , Barnett Bank, N.A., FINOVA
Capital Corporation, CLNYB as administrative agent and
collateral agent, SSPC, SSRC, Marco, SSRLP and Safety Harbor
Management Company, Ltd. (the "Credit Lyonnais Loan
Agreement"), the Credit Lyonnais Debt may be prepaid, in
full, without premium or penalty (other than prepayment
costs) , at the end oE- any applicable interest period upon
not less than three (3) business days' prior written notice.
Section 5.21 Trademarks. Schedule 5.21 sets forth
a true, correct and complete list of each registered
trademark, tradename, symbol and logo used by Sellers in
connection with the Business (the "Proprietary Rights").
Sellers are the sole and exclusive owners of all right, title
and interest in and to all Proprietary Rights. The
Proprietary Rights do not infringe upon any trademark,
tradename, symbol or logo of any third party and, to,the best
of Sellers, Knowledge, none of the Proprietary Rights are
being infringed upon by any person, firm, corporation or
other legal entity.
Section 5.22 Additional Documents. SSPC has
delivered or will, prior to the Time of Closing, deliver to
CapStar all .documents and information in SSPC's possession
relating to the property underlying the Option Agreement.
CAPSTAR AND CAPSTAR MMAGEMENT ACKNOWLEDGE AND
AGREE THAT, SUBJECT TO THE PROVISIONS OF THIS AGREEMENT,
CAPSTAR MANAGEMENT IS TAKING THE CONTRIBUTED ASSETS AND THE
PROPERTIES ON AN AS-IS, WHERE-IS BASIS WITH ALL FAULTS AND
THAT, EXCEPT AS
14
EXPRESSLY SET FORTH IN THIS ARTICLE V, NO SELLER MAKES ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OR ARISING BY
OPERATION OF LAW OR OTHERWISE, INCLUDING, BUT IN NO WAY
LIMITED TO, ANY WARRANTY OF CONDITION, MERCHANTABILITY, OR
FITNESS FOR A PARTICULAR PURPOSE AS TO THE CONTRIBUTED ASSETS
AND THE PROPERTIES. CAPSTAR AND CAPSTAR MANAGEMENT REPRESENT
THAT THEY ARE ENGAGED IN THE BUSINESS OF HOTEL AND RESORT
PROPERTIES INVESTMENT, OWNERSHIP AND OPERATION AND AS OF THE
CLOSING DATE, THEY HAVE BEEN GIVEN FULL AND COMPLETE ACCESS
TO THE CONTRIBUTED ASSETS AND THE PROPERTIES FOR ALL
INSPECTIONS AND REVIEWS THAT THEY RAVE DESIRED TO CONDUCT IN
PERSON AND THROUGH THEIR RESPECTIVE AGENTS, EMPLOYEES OR
REPRESENTATIVES, AND THEY WILL BE FAMILIAR WITH THE
CONTRIBUTED ASSETS AND THE PROPERTIES AND WILL RAVE MADE SUCH
INDEPENDENT INVESTIGATIONS AS THEY DEEM NECESSARY OR
APPROPRIATE CONCERNING THE CONTRIBUTED ASSETS AND THE
PROPERTIES.
Each of L-he representations and warranties
contained in this Article V and its various subparagraphs are
intended for the benefit of CapStar and CapStar Management
and may be waived in whole or in part by CapStar and CapStar
Management, but only by an instrument in writing signed by
CapStar and CapStar Management. All rights and remedies
arisi-ng in connection with the untruth or inaccuracy of any
such representations and warranties shall survive the Closing
of the transaction contemplated hereby for the period set
forth in Section 11.1 hereof unless CapStar or CapStar
Management has Knowledge prior to Closing of the untruth or
inaccuracy of any representation or warranty and CapStar and
CapStar Management nevertheless elect to close this
transaction.
ARTICLE VI
CAPSTAR'S AND CAPSTAR MANAGEMENT'S REPRESENTATIONS AND
WARRANTIES
To induce Sellers to enter into this Acrreement
and to consummate the transaction contemplated hereby,
@apstar and CapStar Management hereby jointly and severally
make the following representations and warranties, upon which
CapStar and CapStar Management acknowledge and agree that
Sellers are entitled to rely:
Section 6.1 Oraanization and Power. Each
Purchaser is duly formed or organized (as the case may be),
validly existing and in good standing or full J'-orce and
effect in the jurisdiction of its formation or organization
and is qualified to do business in all jurisdictions in which
such qualification is necessary (except where such failure to
qualify would not result in a Material Adverse Effect) and
has all requisite corporate or partnership (as the case may
be) power and authority to own, lease and operate its
property and to carry on its business as now being conducted.
If the Merger is consummated prior to consummation of this
transaction, MeriStar Hotel Operating Partnership, MeriStar
HospiL--ality operating Partnership, MeriStar
is
Hotels and MeriStar HosDitality (collectively, the "Merger
Entiti-es") will each be duly formed or organized (as the
case may be), validly existing and in good standing or full
force and effect in the jurisdiction of its formation or
organization and will be qualified to do business in all
jurisdictions in which such qualification is necessary
(except where the failure to so qualify will not result in a
Material Adverse Effect) and will have all requisite
corporate or partnership (as the case may be) power and
authority to own, lease and operate its property and to carry
on its business as presently contemplated to be conducted.
Section 6.2 Authority and Binding Obligation. Each
Purchaser has full corporate or partnership (as the case may
be) power and authority to execute and deliver this Agreement
and all documents now or hereafter to be executed and
delivered by such Purchaser pursuant to this Agreement and to
perform all obligations arising under this Agreement and
under such other documents. The execution, delivery and
performance of this Agreement by each Purchaser has been duly
and validly authorized by all necessary corporate or
partnership (as the case may be) action on the part of such
Purchaser and this Agreement has been duly executed and
delivered by such Purchaser. This Agreement and such other
documents, when executed and delivered, will each constitute
the legal, valid and binding obligations of each Purchaser,
enforceable against each Purchaser in accordance with their
respective terms. If the Merger is consummated prior to
consummation of this transaction, each Merger Entity will
have full corporate or partnership (as the case may be) power
and authority to perform all obligations arising under this
Agreement and all other documents to he executed and
delivered pursuant to this Agreement and this Agreement and
such other documents, when executed and delivered, will each
constitute the legal, valid and binding obligations of each
Merger Entity, enforceable against each Merger Entity in
accordance with their respective terms.
Section 6.3 Consents and A-pprovals; No Conflicts.
Except as disclosed in Schedule 6.3: (i) there is no legal
impediment to consummation by either Purchaser of the
transaction contemplated by this Agreement, and (ii) no
filing with, and no pe=it, authorization, consent or approval
of, any Governmental Authority or other third party is
necessary for the consummation by either Purchaser o-Lc the
transaction contemplated by this Agreement. Neither the
execution and delivery of this Agreement by each Purchaser,
nor the consummation by each Purchaser of the transaction
contemplated hereby, nor compliance by each Purchaser with
any of the provisions hereof will: (i) result in a violation
of any provision of the organizational or governing documents
of such Purchaser; (ii) violate any Applicable Law to which
such Purchaser is subject; or (iii) result in a violation or
breach of or constitute a default under any contract,
agreement, note, bond, mortgage, indenture, license, lease,
franchise, permit or other instrument or obligation to which
such Purchaser is a party or by whi-ch any of such
Purchaser's properties are bound. If the
16
Merger is consummated prior to consummation of this
transaction, (i) there will be no legal impediment to any
Merger Entity's consummation of the transaction contemplated
by this Agreement, and (ii) no filing with, and no pe=it,
authorization, consent or approval of, any Governmental
Authority or other third party will be necessary for the
consummation by any Merger Entity of the transaction
contemplated by this Agreement. If the Merger is consummated
prior to consummation of this transaction, neither the
consummation by each Merger Entity of the transaction
contemplated hereby, nor compliance by each Merger Entity
with any of the provisions hereof will: (i) result in a
violation of any provision of the organizational or governing
documents of such Merger Entity; (ii) viola-te any Applicable
Law to which such Merger Entity will be subject; or (iii)
result in a violation or breach of or constitute a defaull-
under any contract, agreement, note, bond, mortgage,
indenturei license, lease, franchise, permit or other
instrument or obligation to which such Merger Entity will be
a party or by which any of such Merger Entity's properties
will be bound.
Section 6.4 Litigation- There is no claim,
litigation, proceeding or investigation pending, or to either
Purchaser's Kr-owledge, threatened, which seeks to enjoin or
prohibit, or otherwise questions the validity or
enforceability of this Agreement or any action taken or to be
taken by either Purchaser in connection with this Agreement.
Section 6.5 Finders and Investment Brokers. All
negotiations relating to this Agreement and the transaction
contemplated by this Agreement have been carried on without
the involvement of any person or entity acting on behalf of
either Purchaser in such a manner as to give rise to any
valid claim against any Seller 'Lor any broker's fee,
finder's fee or similar compensation.
Section 6.6 Financial Statements and Reports.
CapStar has filed all required fo=s, reports and documents
with the Securities and Exchange Commission required to be
filed by it pursuant to the Securities Act of 1933, as
amended, and the Securities Exchange Act o@L 1934, as
amended, and the rules and regulations promulgated
thereunder, all of which have complied in all material
respects with the applicable requirements of the Securities
Act of 1933, as amended, and the Securities Exchange Act of
1934, as amended, respectively, and such rules and
regulations (hereinafter collectively referred to as the
"Purchaser Reports"). None of the Purchaser Reports, at the
time filed, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not
misleading. The financial statements of CapStar included in
the Purchaser Reports complied as to form in all material
respects with applicable accounting requirements and the
published rules and
17
regulations of the Securities and Exchange Commission applied
on a consistent basi-s (except as otherwise noted in such
financial statements) and present fairly in all material
respects the financial position, results of operations, cash
flows and changes in financial position of CapStar and its
consolidated subsidiaries as of the dates stated or the
periods indicated, subject, in the case of unaudited interim
consolidated financial statements, to normal year-end
adjustments. If the Merger is consummated prior to this
transaction, each Merger Entity that will be subject to
Securities and Exchange Commission reporting requirements
will file all required forms, reports and documents with the
Securities and Exchange Commission required to be filed by it
pursuant to the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder, all of which will
comply in all material respects with the applicable
requirements of the Securities Act of 1933, as amended, and
the Securities Exchange Act of 1934, as amended,
respectively, and such rules and regulations (hereinafter
collectively referred to as the "Merger Entity Reports").
None of the Merger Entity Reports, at the time filed, will
contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary in order to make the statements L--herein, in light
of the circumstances under which they are made, not
misleading. The financial statements of the Merger Entities
included in the Merger Entity Reports will comply as to form
in all material respects with applicable accounting
requirements and the published rules and regulations of the
Securities and Exchange Commission applied on a consistent
basis (except as otherwise noted in such financial
statements) and will present fairly in all material respects
the financial position, results of operations, cash flows and
changes in financial position of the Merger Entity filing the
same and its consolidated subsidiaries as of the dates stated
or the periods indicated, subject, in the case of unaudited
interim consolidated financial statements, to normal year-end
adjustments.
Section 6.7 Stock Issuance. The CapStar Common
Stock to be issued in exchange for the Partnership Units has
been duly authorized for issuance and, when issued and
delivered by CapStar will be validly issued, fully paid and
nonassessable and listed (cr approved for listing upon notice
of issuance) on The New York Stock Exchange. The CavStar
Common Stock to be issued in ex.change for the Partnership
Units will not be issued in violation of any preemptive or
similar rights. CapStar will comply with all ADplicable Laws
and all rules and regulations of the United States Securities
and Exchange Commission and state securities administrators
in connection with the offer, issuance and delivery of the
CapStar Common Stock to be issued in exchange for the
Partnership Units. If the Merger is consummated prior to
consummation of this transaction, the MeriStar Hotels Common
Stock to be issued in exchange for the MeriStar Hotels
Partnership Units will have been duly authorized for issuance
18
and, when issued and delivered by MeriStar Hotels will be
validly issued, fully paid and nonassessable and listed (or
approved for listing upon notice of issuance) on a national
stock exchange or interdealer quotation system and the
MeriStar Hospitality Common Stock to be issued in exchange
for the MeriStar Hospitality Partnership Units will have been
duly authorized for issuance and, when issued and delivered
by MeriStar Hospitality will be validly issued, fully paid
and nonassessable and listed (or approved for listing upon
notice of issuance) on a national stock exchange or
interdealer quotation system. If the Merger transaction is
consummated prior to the consummation of this transaction,
the MeriStar Hotels Common Stock and the MeriStar Hospitality
Common Stock to be issued in exchange for the MeriStar Hotels
Partnership Units and the MeriStar Hospitality Partnership
Units, respectively, will not be issued in violation of any
preemptive or similar rights. If the Merger transaction is
consummated prior to the consummation of this transaction,
MeriStar Hotels and MeriStar Hospitality will each comply
with all Applicable Laws and all rules and regulations of the
United States Securities and Exchange Commission and state
securities administrators in connection with the offer,
issuance and delivery of the MeriStar Hotels Common Stock and
the MeriStar Hospitality Common Stock to be issued in
exchange for the MeriStar Hotels Partnership Units and the
MeriStar Hospitality Partnership Units, respectively.
Section 6.8 Book Ca-pital Account. The initial
book cavital account of SSPC (and the account of each SSPC
partner receiving Partnership Units) to be reflected on
CapStar Management's books and records shall be the face
amount of the Partnership Units, with each CapStar Management
Partnership Unit having a value equal to the Collar Price of
the CapStar Common Stock. If the Merger is consummated prior
to consummation of this transaction, the initial book capital
account of SSPC to be reflected on MeriStar Hotel Operating
Partnership's books and records and MeriStar Hospitality
Operating Partnership's books and records shall be the face
amount of the MeriStar Hotel Partnership Units and MeriStar
Hospitality Partnership Units, respectively.
Section 6.9 Partnership Unit Issuance. The
Partnership Units to be issued pursuant to this Agreement
have been duly authorized for issuance and the general
partner of CapStar Management has full power and authority
under the CapStar Management PartnershiD Agreement to issue
and deliver the Partnership Units required to be delivered
hereunder. When issued and delivered by CapStar Management,
the Partnership Units required to be delivered hereunder will
be validly issued and fully paid and SSPC shall not be under
any obligation to contribute additional capital to CapStar
Management. CapStar Management will comply with all
Applicable Laws and all rules and regulations of the United
States Securities and Exchange Commission and state
securities administrators in connection with
19
the offer, issuance and delivery of the Partnership UniL-s
required to be-.delivered hereunder. Upon the issuance of
the Partnership Units as con templated by t-his Agreement,
SSPC will be a limited partner-in CapStar Manage@nt, shall
have the rights of a limited partner holding the Partnership
Units as set forth in the CapStar Management Partnership
Agreement, and shall not be subject to any liabilities of
CapStar Management, except to the extent of the capital
contributed to CapStar Management by Sellers. A true,
correct and complete copy of the CapStar Management
Partnership Agreement, together with all amendments thereto
is attached hereto as Schedule 6.9. If the Merger is
consummated prior to consummation of this transaction, the
MeriStar Hotel Partnership Units and the MeriStar Hospitality
Partnership Units to be issued pursuant to this Agreement
will be duly authorized for issuance and the general partner
of MeriStar Hotels and the general partner of MeriStar
Hospitality will each have full power and authority to issue
and deliver the Mer-iStar Hotel Partnership Units and the
MeriStar Hospitality Partnership Units, respectively. When
issued and delivered by MeriStar Hotel Operating Partnership
and MeriStar Hospitality Operating Partnership, the MeriStar
Hotel Partnership Units and the MeriStar Hospitality
Partnership Units, respectively, will be validly issued and
fully paid and SSPC shall not be under any obligation to
contribute additional capital to MeriStar Hotel Operating
Partnership or MeriStar Hospitality Operating Partnership.
MeriStar Hotel Operating Partnership and MeriStar Hospitality
Operating Partnership will comply with all Applicable Laws
and all rules and regulations of the United States Securities
and Exchange Commission and state securities administrators
in connection with the offer, issuance and delivery of the
MeriStar Hotel Partnership Units and the MeriStar Hospitality
Partnership Units, respectively. Upon the issuance of the
MeriStar Hotel ParL--nership Units and the MeriStar
Hospitality Partnership Units as contemplated by this
Agreement, SSPC will be a limited partner in MeriSt--ar Hotel
Operating Partnership and MeriStar Hospitality Operating
Partnership, respectively, and shall not he subject to any
liabilities of MeriStar Hotel Operating Partnership or
MeriStar Hospitality Operating Partnership, except to the
extent of the capital contributed to MeriStar Hotel Operating
Partnership and MeriStar Hospitality Operating Partnership,
respectively.
Each of the representations and warranties
contained in this Article VI and its various subparagraphs is
intended for the benefit of Sellers and may be waived in
whole or in part by Sellers, but only by an instrument in
writing signed by Sellers. All rights and remedies arising
in connection with the untruth or inaccuracy of any such
representations and warranties shall survive the Closing of
the transaction contemplated hereby for the period set forth
in Section 11.1 hereof, unless Sellers have Knowledge prior
to Closing of the untruth or inaccuracy of any representation
or warranty, and Sellers nevertheless elect to close this
transaction.
2 0
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions Precedent to the
Obligations of Both Purchasers and Sellers. The respective
obligations of Purchasers and Sellers hereunder are subject
to the satisfaction at or prior to the Closing Date (with
respect to subsections (a) and (c)), and the Initial Tender
Expiration Date, as the same may be-extended under Section
8.4 (with respect to subsection (b)), of the following
conditions precedent:
(a) Adverse Proceedings. No preliminary or
permanent injunction or other order, decree or ruling issued
by a court of competent jurisdiction or by a Governmental
Authority nor any statute, rule, regulation or executive
order promulgated or enacted by any Governmental Authority
shall be in effect which would: (i) make the consummation of
the transaction contemplated hereby illegal, or (ii)
otherwise prevent consummation of the transaction
contemplated hereby.
(b) Consent of Noteholders; Tender Offer. No
later than the Initial Tender Expiration Date (as the same
may be extended by the First and Second Extension Periods
under Section 8.4 hereof), the holders of at least 66 2/3-.
of the outstanding Notes shall have approved the transfer of
management functions from SSRC to Ca-oStar Management as
required under.Section 8.1(b) of the Indenture and the
amendments to the Indenture set forth in Exhibit B through
any combination of: (i) consents received from Noteholders in
connection with the Consent Solicitation made as part of the
Tender Offer, and (ii) Notes tendered as part of the Tender
Offer (the Noteholders of which shall be required to consent
to the items described above i-n this Section 7.1(b)).
(c) Consu=ation of Transaction Contemplated b
the
Other Aareement. The transaction contemplated by the other
Agreement shall have been consummated or shall be consummated
simultaneously with the consummation of the transaction
contemplated hereby.
Section 7.2 Additional Conditions As to
Purchasers' Oblicrations. Each Purchaser's obligations
hereunder are also subject to the satisfaction on or prior to
the Closing Date (or such earlier date as may be specifically
indicated below) of the
following conditions precedent:
- -
(a) Sellers' Deliveries. Sellers shall have
delivered to or for the benefit of Purchasers, on or before
the Closing Date, all of the documents required of Sellers
pursuant to Section 9.2.
(b) - ReDresentations and Warranties. All of the
representations and warranties made in Article V of thi-s
Agreement shall be true and correct in all material respects
when
21
made (without taking into account any qualification as to
Knowledge) and, unless such representation or warranty is
made as of a specific date, at and as of the Closing Date as
if made at and as of such time (without taking into account
any qualification as to Knowledge), and Sellers shall have
executed and delivered to Purchasers a certificate to the
foregoing effect.
(c) Covenants and Obligations. Sellers shall have
performed in all material respects all of their covenants and
other obligations under this Agreement, and Sellers shall
have executed and delivered to Purchasers a certificate to -
Lhe foregoing effect.
(d) Title Policies. The Title Company shall be
ready, willing and able to issue the Title Policies insuring
in CapStar Management fee simple title to each parcel of Real
Property with gap coverage from Sellers through the date of
recording, subject only to the Permitted Title Exceptions.
(e) Licruor Licenses. (i) CapStar Management or
its designee shall have obtained valid liquor licenses for
all Properties either (A) through the transfer of existing
licenses (if permissible under Applicable Law) or (B) through
the issuance of new licenses, or (ii) Sellers and CapStar
Management or its designee shall have entered into an interim
arrangement allowing CapStar Management or its designee to
sell liquor at the Properties until licenses are obtained by
CapStar Management or its designee.
(f) Material Adverse Change. From the date of
expiration of the Due Diligence Period, there shall not have
occurred any material adverse change in the condition of the
Contributed Assets or the operation of the Properties, except
for changes due to the seasonal nature of the Business and
except for any matter that may arise a'Lter the expiration of
the Due Diligence Period under Article X of this Agreement.
results o'L its due diligence review relating to zoning
Marco Radisson. The condition set forth in this Section
7.2(g lapse at 8:00 a.m., Eastern Standard Time, on April 13,
1998. apstar does not notify SSPC in writing prior to 8:00
a.m., Eas tandard Time, on April 13, 1998,_ that it is not
satisfie wit results of its due diligence review relating to
zoning issues he Marco Radisson, CapStarr shall be deemed to
have waived this tion and elected to proceed to Closing
without any abatement reduction in the Contribution
Consideration. If CapStar not SSPC prior to 8:00 a.m.,
Eastern Standard Time, on April 13, that it is not satisfied
with the results of its due dilig nce relating to zoning
issues at the Marco Radission, S eliminate the Marco Radisson
from the Contributed A
22
the Contribution Consideration shall be reduced by the
amount @
it C) an elect to proceed with this
Each of the conditions set forth in this Section
7.2 is intended for the benefit of Purchasers; provided,
however, that if Purchasers consummate the transaction
contemplated by this Agreement without the benefit of one or
more of the 'Loregoing conditions having been satisfied,
Purchasers shall be deemed to have waived any such condition
or conditions.
Section 7.3 As to Sellers' obligations. Each
Seller's obligations hereunder are subject to the
satisfaction on or prior to the Closing Date of the following
conditions precedent:
(a) Purchasers' Deliveries. Purchasers shall have
delivered to or for the benefit of Sellers, on or before the
Closing Date, all of the documents required of Purchasers
pursuant to Section 9.3.
(b) Representations and Warranties. All of
representations and warranties made in Article VI of this
Agreement shall be true and correct in all material respects
when made (without taking into account any qualification as
to Knowledge) and, unless such representation or warranty is
made as of a specific date, at and as of the Closing Date as
if made at and as of such time (without taking into account
any qualification as to Knowledge), and Purchasers shall have
executed and delivered to Sellers a certificate to the
foregoing effect.
(c) Covenants and Oblicrations. Purchasers shall
have performed in all material respects all of their
covenants and other obligations under this AgreemenL-, and
Purchasers shall have executed and delivered to Sellers a
certificate to the foregoing effect.
(d) Receipt of Contribution Consideration.
Sellers shall have received the Contribution Consideration,
as adjusted pursuant to Article XII, and all other sums
required to be paid by Purchasers hereunder.
(e) Legal Opinion. SSPC shall have received the
opinion of Diamond, DeCampo & Ash, counsel to Purchasers, in
form and substance reasonably satisfactory to SSPC.
Each of the conditions set forth in this Section
7.3 is intended for the benefit of Sellers; provided,
however, that if Sellers consummate the transaction
contemplated by this Agreement without the benefit of one or
more of the foregoing conditions having been satisfied,
Sellers shall be deemed to have waived any such condition or
conditions.
23
ARTICLE VTII
COVZNANTS
SeCLiOrl 8.1 Mutu2Ll Cqvenants- Pur=hasers and SelJ.ers
iii"tually covenant as -@Oollowm:
(a)
SL =an t q. Pur,-:1-iagere and Sellex-t3 sell
keep Confidential
and rot disclose to ariy o-- e.-it4@ty the
terms, mcnditiona
ar.d provisions o@- tl-.is AcT=eement; provided, 'I-iowevor,
%"-ha--: Purchasers a-d Scllers s@all make a jo.@,-ir-
publ.ic rialatj,ng t-0 "lie transaction co.-it la,-.ed hereby
at 7.,Ov a.m., @aste--n standard 'rime, on Ap--il 1998, (i-")
eac@party may at any time after execution hereof di-gclos--
'"he terrne, conditions
- -his Agzeement as required under
Applicable
and provia:Lcns of L-
- - Law
(i.n--I.ud,ing, wlrhour- limitation, SFC: Laws), (ii,.) each
par--y may at any time afte-- exec,4tion hereca@ disclose the
terms. conditioiig
and provisions of this Agree-,nent i,n wit@i Llie
Tezidel-
Ofter and Consent Sol.icitation, and (iv) eaqh party may a-@
a.,iy L@-iiie a.CLex- execution hereof discloic the termi;,
conclill-lions and provisions of this Agreement to pexsonia
on a "need -a know" basis, auch as ',--heir re5pectj.ve
off.'Lcars, dirL-ctoz-s, emp'-cyeee, attorneys,
acctDuiitanLs, engineers, surveyox7s, consulta,-itEi,
lexide@-,s, 4nvestoro, 'pozential lessees and @anke-s
and
@uch other third parties whose a5s4-stance io required in
Confection with ,--he consummal"-ioa of this transaction. ,
(b) Additional Agreeme@e. SUbjeCt to the ' terms
an6 conditions provided in this Ac
each ?Lzrchaser
azid each seller agrees -@o une their commercially reasonable
e-@forl-@s I-_o
- -take, Q-- cause to be taken, all actions a:id to do, or
cau5e '-Io be
dono, all th4rlgB - ,IeCappary, prope-- or adv,'-Bable to
consummate and
make effective as promptly as practicable the tranaaction
contemplated by this Agreement and to cooperate with ai-le
aiioi:kip-.iti connection w;-th the foregoing, including
using its commercially reasonable efforts to obta4-n all
necescary consents, approvals and aia-@horizations as are
required %--o be obtained from third parties or u.-ider
Applicable Law, to defend a3.1 I.awq@iits or Other 3.ec;al.
@)-oceeditigs challezigirig tliiw Agreemer4t or t;he
consumiiiatiq,-i rf the transaction contemplated he--eby, to
cause to be noted or rescinded any in-un=tion or restrairing
order or ot'.,ier crder adversely affec--i.,ig the ability of
the parties to conauminate the transaction conteniiolated 1-
iereby, and tc) @ffec-t all
necessary registrations a@d filings.
5ection 8.2 cgvengil@o of giellex-m. Sellere hereby
co-ie,-iant wil--h P-u--chasers as follows;
(a) gc?@@@u@r q of Busiirimam; Xaintenance Of
ProPtirtv.
. kV. _.
Fz:om the dat:e. hf----r,eof the Closi:lg DaLe, Smller@ shall
operate the Business and maintain azid opeT4te each Property
in the Ord4-nary Course of Bu--iness. Withoul-- limiting the
gen@ral4-ty of the foregning- (i) -,no wall. exc)iancze,
assign,
24
ARTICLE VIII
COVENANTS
Section 8.1 Mutual Covenants. Purchasers and
Sellers mutually covenant as follows:
(a) Covenants Against Disclosure; Public
Announcements. Purchasers and Sellers shall keep confidential
and not disclose to any person or entity the terms,
conditions and provisions of this Agreement; provided,
however, that: (i) Purchasers and Sellers shall make-a joint
public announcement relating to the transaction contemplated
hereby at -I:ov a.m., Eastern Standard Time, on April '15,
1998, (ii) each party may at any time after execution hereof
disclose the terms, conditions
and provisions of this Agreement as required under Applicable
Law (including, without limitation, SEC Laws), (iii-) each
party may at any time after execution hereof disclose the
terms, conditions and provisions of this Agreement in
connection with the Tender Offer and Consent Solicitation,
and (iv) each party may at any time after execution hereof
disclose the terms, conditions and provisions of this
Agreement to persons on a "need to know" basis, such as their
respective officers, directors, employees, attorneys,
accountants, engineers, surveyors, consultants, lenders,
partners, investors, potential lessees and bankers and such
other third parties whose assistance is required in
connection with the consummation of this transaction. -
(b) Additional Aareements. Subject to the terms
and conditions provided in this Agreement, each Purchaser and
each Seller agrees to use their commercially reasonable
efforts to take, or cause to be taken, all actions and to do,
or cause to be done, all things necessary, proper or
advisable to consummate and make effective as promptly as
practicable the transaction contemplated by this Agreement
and to cooperate with one another in connection with the
foregoing, including using its commercially reasonable
efforts to obtain all necessary consents, approvals and
authorizations as are required to be obtained from third
parties or under Applicable Law, to defend all lawsuits or
other legal proceedings challenging this Agreement or the
consummation of the transaction contemplated hereby, to cause
to be lifted or rescinded any injunction or restraining order
or other order adversely affecting the ability of the parties
to consummate the transaction contemplated hereby, and to
effect all necessary registrations and filings.
Section 8.2 Covenants of Sellers. Sellers hereby
covenant with Purchasers as follows:
(a) Continuance of Business; Maintenance of
Property. From the date hereof until the Closing Date,
Sellers shall operate the Business and maintain and operate
each Property in the Ordinary Course of Business. Without
limiting the generality of the foregoing: (i) no Seller will
sell, exchange, assign,
24
ARTICLE VIII
COVENANTS
Section 8.1 Mutual Covenants. Purchasers and Selle
mutually covenant as follows:
(a) Covenants Against Disclosure; Public
Announcements. Purchasers and Sellers shall keep confide
Announcements. Purchasers and Sellers shall keep confi ial
and not disclose to any person or entity the terms, con ons
and provisions of this Agreement; provided, however,-t@' : (i),,
Purchasers and Sellers shall make a joint public anno@cementj relating
to the transaction contemplated hereby at !;,/* a.m., Eastern Standard
Time, on April 14-, 1998, (ii) eacly Qarty may at any time after
execution hereof disclose the and provisions of this Agreement as
required (including, without limitation, SEC Laws), at any time after
execution hereof disclose and provisions of this Agreement in conne
offer and Consent Solicitation, and (iv) time after execution hereof
disclose the provisions oi'- this Agreement to persons basis, such as
their respective office 51/1 directors, employees,
attorneys, accountants, engineers, sur eyors, consultants,
conditions
plicable Law
party may
conditions
he Tender
party may at any
s, conditions and
"need to know"
lenders, vartners, investors, pot such other third parties whose as
connection with the consummation
lessees and bankers and ce is required in s transaction.
(b) Additional Agre ts. Subject to the terms and
conditions provided in this A@/ement, each Purchaser and each
Seller agrees to use their c@iercially reasonable efforts to
take, or cause to be taken,/@l actions and to do, or cause to
be done, all things necessa roper or advisable to consummate
and make effective as prompt practicable the transaction
contemplated by this A
ent and to cooperate with one another
in connection with the egoing, including using if--=
commercially reasonaby fforts to obtain all necessary
consents,
If , .
approvals and autl
third parties or i
tions as are required to be
obtained from
- -plicable Law, to defend
all lawsuits or
I
other legal p gs challenging this Agreement or the
consummation ransaction contemplated hereby, to
cause
be lifted or d any injunction or restraining order
or
other order
consummate
to
other orde rsely affecting the ability of the parties
to
consummate ransaction contemplated hereby, and to
effect all
necessary rations and filings.
ection 8.2 Covenants of Sellers. Sellers hereby
covena th Purchasers as follows:
(a) Continuance of Business; Maintenance of Property.
he date hereof until the Closing Date, Sellers shall e the
Business and maintain and operate each Property in dinary
Course of Business. Without limiting the generality
foregoing: (i) no Seller will sell, exchange, assign,
24
transfer, convey, lease or otherwise dispose of all or any
part of the Contributed Assets or any interest therein except
for Fixtures and Tangible Personal Property, Consumables and
Supply Inventories which are sold or consumed in the Ordinary
Course of Business; (ii) each Seller will keep all Contracts,
Leases and Permits to which it is a party in full force and
effect, will pay all charges when due under such agreements
(unless being contested in good faith) and will perform all
of its obligations under such agreements in the Ordinary
Course o'L Business; (iii) no Seller will enter into any
material contracts, licenses, easements or other agreements
relating to the Contributed Assets which wi-11 obligate
either Purchaser or be a charge or lien against the
Contributed Assets, except those that will be discharged on
or before the Closing Date, those entered into in the
Ordinary Course of Business which are necessary to continue
the operations of the Properties in the Ordinary Course of
Business or those which are terminable without penalty on
sixty (60) days, notice; (iv) each Seller will cause its
respective Property to be operated and maintained in the
manner in which it is being operated and maintained as of the
date of this Agreement, which undertaking includes, but is
not limited to, maintaining Fixtures and Tangible Personal
Property, Consumables and Suvply Inventories in those
quantities and at those levels present as of the date of this
Agreement (subject to normal adjustments to take into account
the seasonal nature of the Business) and entering into
bookings in the ordinary Course of Business; (v) SSPC will
promptly notify CapStar of any matter arising prior to the
Closing which could reasonably be expected to have a Material
Adverse Effect (including, without limitation the
commencement of any litigation or proceeding or any notice of
a violation of Applicable Laws issued by any governmental or
quasi-governmental authority; (vi) SSPC will promptly notify
CapS-Lar of any actual or proposed change in the assessed
value of the Properties or any portion of the Properties
(including any tentative or preliminary assessment) and of
the institution or proposed institution of any proceeding
(whether formal, informal, judicial or administrative)
relating to any such change or proposed change; and (vii) no
Seller will take any action with respect to the contesting or
resolution of the taxable assessed value of the Land and
Improvements without the prior written consent of CapStar,
which consent shall not be unreasonably withheld.
(b) Licruor Licenses. Sellers shall use all
reasonable efforts to cause to be transferred to CapStar
Management or its designee, all liquor licenses and alcoholic
beverages licenses currently in use in connection with the
Business and operation of the Properties. To that end,
Sellers and Purchasers shall cooperate each with the other,
and each shall execute such transfer forms, license
applications and other documents as may be necessary to
effect such transfer- If pe=itted under Applicable Law, the
parties shall execute and file all necessary applications and
papers with the appropriate liquor and alcoholic
25
beverage authorities prior to the Closing, to the end that
the issuance of new licenses shall take effect, if possible,
on the Closing Date, simultaneously with Closing. If not so
permitted, then the parties agree each with the other that
they will promptly execute all applications and other
documents required by the liquor authorities in order to
effect the issuance of new licenses at the earliest date
possible consistent with Applicable Law in order that all
liquor licenses may be issued to CapStar Management or its
designee at the earliest possible time. If under Applicable
Law the new licenses cannot be issued until after the Closing
of the transaction contemplated herein, then Sellers covenant
and agree that they will use reasonable efforts to enable
CapStar Management to keep the bars and lounges and liquor
facilities at the Improvements open between the Closing Date
and the time when the new liquor licenses actually become
effective, by exercising management and supervision of such
facilities under the existing licenses under a management
agreement to be executed between Sellers and CapStar
Management (or its designee) in a form reasonably agreed to
between Sellers and CapStar Management, until.such time as
new liquor licenses can be issued (but in no event longer
than six (6) months from the Closing Date); provided,
however, that CapStar shall indemnify and hold Sellers
harmless from any liabilities, damages, claims, costs or
expenses (including reasonable attorneys' fees) encountered
in connection with such operations during said period of time
and CapStar Management shall maintain commercial general
liability insurance (including dram shop liability) in the
amount of Ten Million Dollars ($10,.000,000) in favor of
Sellers. The provisions o'L this Section 8.2(b) shall
survive the Closing.
(c) EmDloyee Matters. The employment of the Employees
shall be terminated by SSRC at the Time of Closing.
(d) Prolect Capital Ex-penditures. In connection
with any Project Capital Expenditure undertaken by any Seller
after the date of execution of this Agreement, each Seller
agrees as follows: (i) to submit plans and specifications
therefor to CapStar for its review and approval (which
approval shall not be unreasonably withheld or delayed); (ii)
to complete such projects in accordance with the plans and
specifications therefor; (iii) to complete such projects in a
good and workmanlike manner, in timely fashion and using good
materials; and (iv) to complete such projects in accordance
with all Applicable Laws. At the Time of Closing, Sellers
shall deliver to Purchasers a report detailing each Project
Ca3Dital Expenditure undertaken by Sellers, the work
completed in connection wi-th each Project Capital
Expenditure, the amount spent (or committed to be spent) in
connection with each Project Capital Expenditure and the
work, if any, needed to be completed in connection with each
Project Capital Expenditure.
2 6
(e) Accredited Investors. SSPC will distribute
Partnership Units issued in connection with this transaction
only to SSPC partners that have certified to SSPC and to the
Purchasers that they are at the Time of Closing accredited
investors (as that term is defined in Regulation D
promulgated under the Securities Act of 1933, as amended),
and sign and deliver to the Purchasers a certificate
containing the same information as in the certificate
delivered by SSPC at the Time of Closing.
(f) Credit Lvonnais Debt. At the request of
CapStar, SSPC will deliver written notice of prepayment to
Credi-t Lyonnais New York Branch as required under the te=s
of the Credit Lyonnais Loan Agreement.
Section 8.3 CovenanL-s of Purchasers. Purchasers
hereby covenant with Sellers as follows:
(a) Confidential Info=ation. Neither Purchaser
nor any of their respective agents or representatives shall
use for their own benefit (except in connection with this
transaction and as required by SEC Laws) and shall hold in
strict confidence and not disclose any data and@information
relating to th-e financial statements, conditions and
operations of Sellers that is confidential in nature and not
generally known to the public (the "Confidential
Info=ation"). If the transaction contemplated by this
Agreement is not consummated for any reason, each Purchaser
shall return to Sellers within five (5) business days of the
termination of this Agreement for any reason all data,
information and any other written material obtained by such
Purchaser or its agents and representatives from Sellers in
connection with this transaction and any copies, summaries or
extracts thereof, and except as noted herein, shall refrain
from disclosing any of the Confidential Information to any
third party or using any of the Confidential Info=ation for
its own benefit or that of any other person or entity. This
Section 8.3(a) shall survive termination of this Agreement.
(b) Sellers' Executive Management Emplo-yees.
CapStar
shall aL-- the Time of Closing assume all of the rights
and
obligations of SSRC under the terms of the Management
Transition
Agreements (which Terms shall not be modified or amended
after the date of execution of this Agreement without
CapStar's prior written consent) between the Executive
Management Employees and SSRC (the "Management Transition
Agreements"), copies of which have been delivered to CapStar.
(c) Employee Matters. Except with respect to the
Sellers' Executive Management Employees, which shall be
governed by the provisions of Section 8.3(b), on the Closing
Date, CapStar shall: (i) offer initial employment to all of
Sellers, Management Level Employees; provided, that CaDStar
may at any time -Drior to June 1, 1998, designate in writing
to SSPC up to ten (10)
27
Management Level Employees that CapStar shall not be required
to offer employment; and (ii) offer initial employment to
such other EmiDloyees as CapStar so desires; provided,
however, that CapStar shall offer employment to a sufficient
number of such other .Employees to prevent Sellers from
incurring liability under the Worker Adjustment and
Retraining Notification Act, 29 U.S.C. 2101 et sea (the
"WARN Act"), and CapStar shall indemnify and hold harmless
Sellers from and against any claims, penalties, damages,
losses, liabilities and expenses incurred by Sellers under
the WARN Act. 'The Executive Management Employees, the
Management Level Employees and the other Employees who accept
such offers of employment by CapStar are referred to herein
as the "Transferred Employees". Subject to the penultimate
sentence of this Section 8.3(c), the parties acknowledge that
all Transferred Employees (other than the Executive
Management Employees) shall be subject to such terms and
conditions of employment as CapStar may set or establish,
including, but not limited to, such matters as wages, hours
and working conditions. The Transferred Employees shall
receive credit from CapStar for years of service (time
worked) with Sellers for all purposes (including, without
limitation, compensation, vacation, severance, options,
bonuses and all pension or welfare plans of CapStar).
Notwithstanding any provision of this Section 8.3(c) to the
contrary, CapStar agrees that for the one year period
commencing on the Closing Date all Management Level Employees
whose employment is terminated by CapStar without cause shall
be paid one week of severance pay for each year of credited
service such Employee has with Sellers and CapStar or any
affiliate of CapStar. The provisions of this Section 8.3(c)
shall survive the Closing.
(d) Maintenance of Oualified Debt. For a period
of five (5) years following the Closing (the "Maintenance
Period"), CapStar Management will prevent the realization of
gain by any SSPC partner as a result of the negative capital
account balances of SSPC's limited partners through a
combination of the following: (i) maintaining an appropriate
level of SSPC,s existing qualified nonrecourse debt; (ii)
replacing SSPC,s existing qualified nonrecourse debt with
crualified nonrecourse debt; and (iii) providing to each SSPC
partner that holds Partnership Units the o portunity to
guarantee or otherwise
. p
provide credit support for CapStar Management's indebtedness.
Purchasers agree that the sum of clauses (i) and (ii) above
shall be no less than the portion of the Assumed Debt
represented by the Non-Tendered Notes at all times during the
Maintenance Period and the sum of clauses (i), (ii) and (iii)
shall at all times during the Maintenance Period be no less
than $75,000,000. Upon expiration of the Maintenance Period,
CapStar Management will provide each SSPC partner that holds
Part@-nership Units the opportunity to continue to guarantee
or otherwise provide credit support for CapStar Management's
indebtedness in an amount that will prevent realization of
gain by that SSPC partner as a result of the negative capital
account balance of that SSPC partner.
2 8
The covenants set forth in this Section 8.3(d) shall
terminate at such time as the last remaining SSPC partner
exchanges his Partnership Units for shares of CaiDStar Common
Stock.
(e) Sale of Properties. For a period of five (5)
years following the Closing Date (the IISSP Sale Maintenance
Period"), CapStar Management shall not have the authority,
without the prior written consent of SSPC, to sell, transfer
or otherwise convey South Seas Plantation or any interest
therein, except in each such case in an exchange qualifying
under Section 1031 of the Code (or in any other transaction
the effect of which is to continue tax deferral to SSPC's
limited partners) and in which no negative tax consequences
are triggered for SSPC (or its partners) or except if CapStar
Management compensates SSPC (or its partners) for any adverse
tax consequences resulting from such sale or transfer. Upon
expiration of L-he SSP Sale Maintenance Period, CapStar
Management shall have the authority, without the prior
written consent of SSPC, to sell, transfer or otherwise
convey South Seas Plantation or any interest therein so long
as CapStar Management compensates SSPC (or its partners) for
any adverse tax consequences resulting from such sale or
transfer. For purposes of determining any adverse tax
consequences under this Section 8.3(e), the parties shall use
the maximum federal income tax rate and a discount rate per
annum equal to the LIBOR Rate over a period equal to the
longer of: (i) five (5) years, and (ii) the difference
between ten (10) years and the number of whole calendar years
during which CapStar Management owned South Seas Plantation
or any Section 1031 exchange proverty. The covenants set
forth in this Section 8.3(e) shall terminate at such time as
the last remaining SSPC partner exchanges his Partnership
Units for shares of CapStar Common Stock. CapStar Management
shall have no obligation under this Section 8.3(e) to
compensate the heirs, legal representatives, or estate of any
SSPC partner.
(f) Unit Rehab Loan. Upon expiration of the Due
Diligence Period, CapStar agrees to make a loan to SSPC in an
original principal amount of up to Two Mi-llion Five Hundred
Thousand Dollars ($2,500,000) to be used by SSPC to rehab
third party owned condominium units at South Seas Plantation
(the "Unit Rehab Loan"). CapStar shall receive a credit in
the amount of the Unit Rehab Loan against CapStar's
obligation to fund the Additional Deposit. CapStar shall not
receive any credit against the Contribution Consideration
with respect to the Unit Rehab Loan. CapSL-ar's obligation
to make the Unit Rehab Loan is conditioned upon: (A) CapStar
and SSPC mutually agreeing on a draw schedule for the Unit
Rehab Loan, (B) SSPC's delivery to CapStar of reasonably
acceptable plans and specifications for the work to be
undertaken with the proceeds of the Unit Rehab Loan, and (C)
the delivery by SSPC to CapStar of signed modifications to
the Condominium Lease Agreements of those unit owners whose
units are being rehabbed with the proceeds of the Unit Rehab
Loan, which modifications shall be in form and substance
2 9
reasonably satisfactory to SSPC and CaDStar. Interest on the
Unit Rehab Loan shall accrue at a per annum rate equal to
LIBOR plus 200 basis points. If the Closing occurs, the
outstanding principal balance of the Unit Rehab Loan shall be
forgiven and accrued but unpaid interest shall be added to
the Unit Portion of the Contribution Consideration and paid
by CapStar Management to SSPC at Closing. If the Closing
does not occur by reason of CapStar's default hereunder, the
Unit Rehab Loan shall be treated as if it were Earnest Money
Deposit for all purposes of this Agreement and SSPC shall
have no further obligation for its repayment. If the Closing
does not occur for reasons other than CapStar's default
hereunder, the Unit Rehab Loan shall convert to a term loan
with a maturity of July 1, 2000 and the entire outstanding
principal balance and all accrued but unpaid interest shall
be due and payable on July 1, 2000; provided, however, that
SSPC may voluntarily prepay the entire outstanding principal
balance and all accrued but un-Qaid interest (without payment
of any premium or penalty) at any time prior thereto, and
SSPC shall pay to CapStar a monthly asset management fee of
Twenty-Five Thousand Dollars ($2S,000) until the entire
outstanding principal balance and all accrued but unpaid
interest shall have been repaid by SSPC. If the Unit Rehab
Loan is converted to a term loan as contemplated by the
immediately preceding sentence, SSPC shall execute and
deliver to CapStar a promissory note evidencing the
indebtedness and setting forth the terms of the term loan.
The parties agree that the asset management fee shall be
reduced proratably if SSPC does not borrow the entire amount
available under the Unit Rehab Loan. SSPC covenants that all
money disbursed under the Unit Rehab Loan shall be used
solely for or in connection with the rehab of third party
owned condominium units at South Seas Plantation and no money
under the Unit Rehab Loan shall be diverted, used or borrowed
for any other use. SSPC agrees That each disbursement under
the Unit Rehab Loan will be made by SSPC as the work
progresses to enable SSPC to make progress payments on
account of work or materials previously done or furnished.
Any portion of the Unit Rehab Loan that has been drawn but
that has not been disbursed (or committed for disbursement
'Lor work or materials previously done or furnished) as of
the Time of Closing shall be paid over to CapStar at the Time
of C'Losing. CapStar's obligation to fund the Unit Rehab
Loan shall survive any termination of thi-s Agreement.
(g) CapStar Manaaement Partnership Agreement.
From the date of execution of this Agreement until the Time
of Closing, no class or series of Partnership Units or
preferred units shall be established and units thereof issued
for less than the fair market value of such units.
(h) Prolect Capital Expenditures. CapStar
acknowledges that it has received Sellers' proposed list of
Project Capital Expenditures in connection with its due
diligence efforts. Promptly after execution of this
Agreement (but in any event within 20 days after execution of
this Agreement), CapStar
3 0
shall evaluate all proposed Project Capital Expenditures of
Sellers' to determine a final scope and schedule for the
Project Capital Expenditures. If Sellers undertake any
Project Capital Expenditures that have been approved by
CapStar ("Approved Project Capital Expenditures"), the ConL-
ribution Consideration shall be increased, as contemplated by
Section 12.4 hereof, by the amount spent by Sellers on the
Approved Project CaDital Expenditures. If CapStar does not
approve a Project Capital Expenditure, Sellers shall be under
no obligation to undertake such Project Capital Expenditure.
If CapStar fails to undertake its evaluation of the Project
Capital Expenditures as required under this Section 8.3(h)
and deliver to SSPC its determination of the final scope and
schedule for the Project Capital Expenditures within the time
period seL-- forth in this Section 8.3(h), Ca-oStar shall be
deemed to have approved all the Project Capital Expendi-tures
submitted to CapStar. Notwithstanding anything to the
contrary contained in this Section 8.3(h), CapStar hereby
approves the South Seas Plantation condominium unit
refurbishment project in the amount of $2,150,000.
(i) Exchange Rights. Upon issuance of the
Partnership Units to SSPC (or the SSPC partners) in
connection with this transaction, each SSPC partner shall be
granted the following quarterly exchange rights (the
"Exchange Rights") with respect to the PartnershiD Units
issued to such SSPC partner, which Exchange Rights shall be
evidenced an Exchange Rights Agreement in form and substance
- --easonably acceptable to SSPC and CapStar (the ItExchange
Rights Agreement"):
(i) Each partner shall have the right,
commencing
on the date of the ten month anniversary of the Closing
Date (the
"Lock-Up Period"), to require CapStar Management to
exchange,
subject to the limitations in clause (ii) below, all or a
portion of the Partnership Units held by such partner for the
Cash Amount. CapStar shall have the right to satisfy an
Exchange Right directly by issuing to the SSPC partner a
number of shares of CapStar Common Stock that are covered at
the time of issuance by an effective registration statement
under the Securities Act of 1933, as amended, equal to the
CapStar Shares Amount. For purposes of the preceding
sentence, each share of CapStar Common Stock shall have a
value determined in accordance with the definition of Value
contained in this Agreement. value shall be determined as of
the Valuation Date notwithstanding that an SSPC partner may
be unable to exercise Exchange Rights in any given calendar
quarter under clause (ii) below. Subject to clause (ii) o-Lc
this Section 8.3(i), if CapStar Management elects to satisfy
an Exchange Right with the Cash Amount, the Cash Amount shall
be paid no later than thirty (30) days following the end of
the quarterly period in which CapStar Management received
notice of exchange. If CapStar elects to satisfy an Exchange
Right by issuing the CapStar Shares Amount, the CaDStar
Common Stock to be issued in connection therewith shall be
issued no later than sixty (60) days following the end of the
quarterly period in
3 1
which CapStar Management received notice of exchange. No
later than ten (10) days following the end of each c-
ruarterly period in which Exchange Rights have been
exercised, CapStar shall notify, in writing, each SSPC
partner exercising Exchange Rights in any given quarterly
period whether CapStar will satisfy the Exchange Right by
paying the Cash Amount or issuing CapStar Common Stock equal
to the CapStar Shares Amount. Upon expiration of the LockUp
Period, there shall be established an "Exchange Right Fiscal
Year", which shall commence on the first day of the first
month immediately succeeding the expiration of the Lock-Up
Period and which shall end on the first anniversary of such
date. Each three-month period during any Exchange Right
Fiscal Year shall constitute the quarterly periods referred
to in this Section 8.3(i)-
(ii) Notwithstanding clause (i) above, no
partner shall be entitled to exchange his Partnership Units:
(A) until the aggregate value of all Partnership Units to be
exchanged in any one quarterly period equals or exceeds
$100,000 (the "Minimum Exchange Value"), or (B) at any time
after the aggregate value of all ParL--nership Units
exchanged in any-one Exchange Right Fiscal Year exceeds
Eighteen Million Dollars ($18,000,000) (the "Maximum Annual
Exchange Value"). All Partnership Units put for exchange
shall be exchanged on a first-in, first-out basis according
to the date the notice of exchange is received by CapStar
Management. If Partnership Units are put for exchange in any
quarterly period in which the Minimum Exchange Value has not
been met, such Partnership Units will be deemed to have been
put for exchange in each succeeding quarterly period until
the Minimum Exchange Value has been met. Likewise, if
Partnership Units are put for exchange in any Exchange Right
Fiscal Year in which the Maximum Exchange Value has been
exceeded, such Partnership Units shall be deemed to have been
put for exchange in the next succeeding Exchange Right Fiscal
Year. The parties agree that at such time as the Closing
Date Price is determined under this Agreement, the Minimum
Exchange Value and the Maximum Exchange Value will be
expressed as a number of Partnership Units, which shall be
determined by dividing the Minimum Exchange Value by the
Closing Date Price and by dividing the Maximum Exchange Value
by the Closing Date Price, respectively. Commencing
immediately upon expiration of the Lock-Up Period, CapStar
shall be entitled during the term of the Exchange Rights
Agreement to "blackout" one of the quarterly Exchange Right
periods of the SSPC partners for each Exchange Right Fiscal
Year during the term of the Exchange Rights Agreement if
CapStar determines, in the good faith exercise of the
business judgment of its Board of Directors, that such
Exchange Rights could materially interfere with any bona fide
financing, acquisition, corporate reorganization or any other
corporate development involving CapStar. Written notice of
any such "blackout" shall be given to each SSPC partner at
least thirty (30) days prior to the end of the calendar
quarter in which such "blackout" is to occur. The foregoing
restrictions and limitations shall represent the only
32
restrictions and limitations imposed upon the SSPC partners
with
respect to the Exchange Rights.
(iii) CapStar and CapStar Management shall
take whatever action is necessary, including, without
limitation, amending the CapStar Management Partnership
Agreement, to provide each SSPC partner receiving Partnership
Units in connection with this transaction with the foregoing
Exchange Rights.
(j) Credit Lvo=ais Debt and Capital Leases. At
the Time of Closing, CapStar shall assume the obligations of
Sellers under the Assumed Debt and either: (i) payoff and
satisfy in full the Assumed Debt, or (ii) refinance the
Assumed Debt, or (iii) obtain the consent of the holders of
the Assumed Debt to the assumption of the Assumed Debt by
Purchasers.
(k) Utility Easement. Purchasers agree to grant
to South Seas Utility Company (IISSUCII) and its successors
and assigns a non-exclusive construction and maintenance
easement when and if requested by SSUC (the "Utility
Easement-,). The Utility Easement will be approximately
fifty (50) feet in width (twenty-five (25) feet on either
side of the centerline of the main South Seas Plantation
Drive) from Captiva Drive to the maintenance area and the
maintenance roadway leading from the main drive to the 12.5
acre sewer plant site owned by SSUC and will be utilized by
SSUC for the purpose of installing waste water collection or
effluent transmission lines to connect the plant into a
larger system serving portions of Captiva Island outside of
South Seas Plantation. Purchasers, obligations under this
Section 8.3(k) shall be conditioned upon: (i) Purchasers
receiving adequate assurances that any installation will not
have a material adverse impact on South Seas Plantation and
will not negatively impact the level of business at South
Seas Plantation, and (ii) SSUC and Purchasers executing and
delivering each to the other an easement in form and
substance reasonably satisfactory to Purchasers and SSUC, and
(iii) SSUC paying for all costs incurred in connection with
the Utility Easement, including, without limitation, the
costs of any alterations to South Seas Plantation needed to
accommodate installation of the Utility Easement. The
provisions of this Section 8.3(k) shall survive the Closing.
Section 8.4 Covenants RelatincT to SSPC's
$43,500,000 10% Subordinated Notes. The parties agree that
the Contributed Assets shall be contributed subject to the
Notes and that Purchasers shall receive a credit against the
Contribution .Consideration, in both cases as described in
this Section 8.4. Because Purchasers desire to retire some
portion or all of the Notes after Closing, SSPC agrees as an
accommodation to Purchasers to take the following actions:
(a) Tender Offer; Depositar-V. Promptly upon
expiration of the Due Diligence Period, SSPC, at its sole
cost
3 3
and expense, shall take all acl-ion, make all necessary
registrations and filings and prepare all materials (the
"Tender Offer Materials") required in connection with making
a tender offer (the "Tender Of-Lcer") to the Noteholders
pursuant to which SSPC shall offer to purchase each Note at a
purchase price equal to the sum of the outstanding principal
balance of such Note, plus all accrued but unpaid interest on
such Note, plus the Premium. SSPC shall deliver the Tender
Of@Ler Materials to CapStar for its review and comment prior
to filing the Tender Offer Materials with the Securities and
Exchange Commission or delivering the Tender Offer Materials
to the Noteholders. In order to be considered validly
tendered, each Noteholder desiring to tender his or her Notes
shall be required to consent to the transaction contemplated
by this Agreement and amendments to the Indenture set forth
in ' Exhibit B. All No-Les tendered as part of the Tender
Offer shall be held by SunTrust Bank, Central Florida, N.A.,
as depositary (the "Depositary"), until all conditions to the
Tender Offer have been satisfied or waived. If the
conditions to the Tender Offer have not been satisfied or
waived as of the Initial Tender Expiration Date, as the same
may be extended under clauses (e) or (f) below, Notes
tendered to the Depositary shall be returned by the
Depositary to the Noteholders.
(b) Consent Solicitation. The Tender Offer shall
include a solicitation of consent of the Noteholders (the
"Consent Solicitation") so that Noteholders shall have the
option to consent to: (i) the transfer of management
functions to CapStar (or its designee), and (i-i) an
amendment to the Indenture as set forth in Exhibit B, without
having to tender their Notes. SSPC shall be under no
obligation to pay for any consents (other than payment of the
Premium for Notes validly tendered). SSPC reserves the right
to seek the consent of the Noteholders through the Tender
Offer and Consent Solicitation to eliminate the rights of the
Noteholders to exchange Notes under Section 10.11 of the
Indenture and to amend the Indenture to provide that the
Notes may be redeemed on or after September 1, 1998, without
the payment of any redemption premium.
(c) Minimum Tender/Consent Recruirements. The-
Tender Offer shall be conditioned upon the closing of the
transaction contemplated by this Agreement and the receipt of
consent of holders of no less than 66 2/30-. of the
outstanding Notes (the "Minimum Consent Requirement") through
any combination of: (A) consents received from Noteholders in
connection with the Consent SoliciL-ation, and (B) Notes
tendered as part of the Tender Offer.
(d) Commencement of Tender Offer and Consent
Solicitation. All initial filings required under SEC Laws in
connection with the Tender Offer and Consent Solicitation
shall be made no later than April 27, 1998. SSPC shall use
commercially reasonable efforts to commence the Tender Offer
and Consent Solicitation no later than May 15, 1998, and,
thereafter,
34
shall use commercially reasonable efforts to complete the
Tender Offer on the terms and subject to the conditions set
forth herein and in the Tender Offer Materials. The Tender
Offer shall initially expire no later than July 1, 1998 (the
"Initial Tender Expiration Date").
(e) First Extension of Tender Offer and Consent
Solicitation. If the Minimum Consent Requirement has not been
satisfied on or prior to the Initial Tender Expiration Date,
SSPC shall extend the Tender Offer and Consent Solicitation
until August 14, 1998 (the "First Extension Period"), and
such extension shall automatically extend the Closing Date
under Section 9.1 hereof. During the First Extension Period,
all Notes previously tendered and not accepted for payment
will remain subject to the Tender offer and Consent
Solicitation. Subject to the terms and conditions of the
Tender Offer and the Consent Solicitation, all Notes
previously tendered and not accepted for payment: (i) may be
accepted for payment by SSPC (or its designee), in its sole
and absolute discretion, at any time during the First
Extension Period, and (ii) shall be accepted for payment by
SSPC (or its designee) at such time during the First
Extension Period as (A) more than fifty percent (50?s) of the
outstanding principal amount of the Notes have been validly
tendered and (B) CapStar shall have demanded, in writing,
that SSPC accept Notes for payment (each, a "Bond Purchase").
If SSPC is required to make a Bond Purchase under clause (ii)
above, SSPC shall be entitled to use the Earnest Money
Deposit, and the Escrow Agent is hereby instructed to
disburse the Earnest Money Deposit to SSPC, for the purpose
of accepting for payment and paying any Notes validly
tendered as part of the Tender Offer. Any Notes purchased
using the proceeds of the Earnest Money Deposit shall be the
property of CapStar. If the Minimum Consent Requirement has
not been satisfied prior to expiration of the Second
Extension Period (as defined in clause (f) below), either
party may at any time therea@Lter terminate this Agreement.
(f) Second Extension of Tender Offer and Consent
Solicitation. if the Minimum Consent Requirement has not been
satisfied on or before expiration of the First Extension
Period, SSPC shall extend the Tender Offer and Consent
Solicitation until September 28, 1998 (the "Second Extension
Period"), and such extension shall automatically extend the
Closing Date under Section 9.1 hereof. The Contribution
Consideration shall be reduced on a dollar-for-dollar basis,
up to a maximum of Two Million Two Hundred Twenty-Five
Thousand Dollars ($2,225,000) for each dollar spent by
CapStar or CapStar Management on or after August 14, 1998, in
respect of the following items (to the extent the same are
bona fide expenses of CapStar or CapStar Management relating
to the Tender Offer and Consent Solicitation): (i) legal
fees; (ii) accounting fees; (iii) investment banking fees;
(iv) investment advisory fees; (v) soliciting agent fees;
(vi) information agent fees; (vii) incentive fees or
commissions paid to brokers involved in the
3 5
Tender Of'Ler; (viii) Notes purchased by CapStar; (ix) travel
expenses; (x) filing fees; (xi) printing costs and expenses;
(xii) mailing costs and expenses; (xiii) solicitation costs
and expenses; and (xiv) such other fees or expenses that SSPC
approves in writing. During the Second Extension Period, all
Notes previously tendered and not accepted for payment will
remain subject to the Tender Offer and Consent Solicitation
and, subject to the terms and conditions of the Tender Offer
and the Consent Solicitation, may be accepted for payment by
SSPC (or its designee).
(g) Adjustment to Contribution Consideration. If
the Minimum Consent Requirement is satisfied, CapStar shall
pay the outstanding principal balance of, accrued interest on
and the Premium relating to all Notes that are validly
tendered and accepted by SSPC for payment (collectively, the
"Tender Payment"). The Tender Payment shall constitute
Assumed Debt for purposes of this Agreement. With respect to
all Notes that have not been tendered and remain outstanding
upon expiration of the Tender Offer (collectively, "Non-
Tendered Notes"), CapStar shall assume the obligations of
SSPC thereunder and receive a credit against the Contribution
Consideration in an aggregate amount equal to the sum of the
presenl- value (using a discount rate equal to the London
Interbank Offering Rate on the date of expiration of the
Tender Offer plus 200 basis points (the "LIBOR Rate")) of:
(A) the Redemption Price (as defined in Section 11.1 of the
Indenture) for Notes redeemed on or after April 15, 2000, but
before Aoril 15, 2001, of all Non-Tendered Notes, plus (E)
the difference between (1) interest payable under the
Indenture on Non-Tendered Notes for the period commencing on
the date of expiration of the Tender Offer and ending on
April 15, 2000, and (2) interest payable on Non-Tendered
Notes for the period commencing on the date of expiration of
the Tender Offer and ending on April 15, 2000 assuming an
interest rate, per annum, equal to the LIBOR Rate.
(h) Escrow De-posit. At the Time of Closing,
there shall be withheld from the Contribution Consideration
and placed into an escrow account with NationsEank (the
"Tender offer Escrow Account"), pursuant to an escrow
agreement in form and substance reasonably satisfactory to
SSPC and CapS(--ar, an amount (the "Tender O-ffer Escrow
Amount") dete=ined in accordance with the following:
(i) if 66 2/30-. or more of the Notes are
tendered, an amount equal to the present value (using a
discount rate equal to the LIBOR Ra-Le) of the difference
between: (A) the interest payable on Non-Tendered Notes for
the period commencing on the date of expiration of the Tender
Offer and ending on April 15, 2000 assuming an interest rate,
per annum, equal to the LIBOR Rate, and (B) the interest
payable on Non-Tendered Notes for the period commencing on
the date of expiration of the Tender Offer and ending on
April 15, 2000 assuming an interest rate, per
3 6
annum, equal to 4.75.'6 (the "Comparable Convertible Rate").
The Comparable Convertible Rate will be recalculated at the
Time of Closing using the same methodology used to determine
the Comparable Convertible Rate on the date hereof; and
if less than 66 2/30i of the Notes are
tendered, an amount equal to the present value (using a
discount rate equal to the LIBOR Rate) of the difference
between: (A) the interest payable on Non-Tendered Notes for
the period commencing on the date of expiration of the Tender
Offer and ending on April 15, 2000 assuming an interest rate,
per annum, equal to the yield to maturity at the time of
computation of 5.500-. United States Treasury securities due
April 15, 2000, plus 50 basis points, and (3) the interest
payable on Non-Tendered Notes for the period commencing on
the date of expiration of the Tender Offer and ending on
April 15, 2000 assuming an interest rate, per annum, equal to
the Comparable Convertible Rate.
Release of Escrow Dep6sit. The Tender Offer
Escrow Amount shall be held in the Tender Offer Escrow
Account until May 15, 2000 (the "Escrow Expiration Date").
CapStar shall be entitled to a portion of the Tender Offer
Escrow Amount equal to the product obtained by multiplying t-
- -he aggregate outstanding principal balance of Non-Tendered
Notes by a fraction, the numerator of which shall be the
aggregate outstanding principal amount of Notes the holders
of which have elected to exchange their Notes under the
Indenture and the denominator of which shall be the aggregate
outstanding principal amount of NonTendered Notes. Any
portion of the Tender Offer Escrow Account remaining after
the distribution to CapStar in accordance with the preceding
sentence shall be disbursed to SSPC. All interest earned on
the Tender Offer Escrow Amount shall be paid to SSPC.
(j) Coopera@i6n by purchasers. Purchasers shall
cooperate with SSPC in connection with SSPC,s obligations
under this Section 8.4, including, without limitation, by
providing information to SSPC relating to CapStar and CapStar
Management for inclusion in the Tender Offer and Consent
Solicitation materials to be delivered to the Noteholders and
by voting any Notes purchased by CapStar in favor of the
transaction contemplated hereby.
ARTICLE IX
CLOSING
Section 9.1 Closincr. Unless otherwise mutually
agreed to by SSPC and CapStar and subject to Section 8.4, the
Closing shall occur on July 1, 1998 (provided that all
conditions precedent to the parties obligations hereunder
have been satisfied or waived (other than conditions with
respect to actions the respective parties will take at the
Closing) and if not so satisfied or waived, the Closirig
shall be automatically extended from time to time until the
first subsequent business
37
day on whi-ch all such conditions are so satisfied or waived,
subject, however to Section 11.9 hereof) (the "Closing
Date"); provided, however, that CapStar shall have the right
to accelerate or extend the Closing Date for a period of
fifteen (15) days, by providing written notice thereof to
SSPC, in order to accommodate the Closing of the Merger.
Notwithstanding the foregoing, in no event shall the Closing
occur lal--er than fifteen (15) days following consummation
of the Merger (provided that all conditions precedent to the
parties obligations hereunder have been satisfied or waived
(other than conditions with respect to actions the respective
parties will take at the Closing) as of such date and if not
so satisfied or waived, the Closing shall be automatically
extended from time to time until the first subsequent
business day on which all such conditions are so satisfied or
waived, subject, however to Section 11.9 hereof). As more
particularly described below, at the Closing the parties will
meet: (i) to execute all of the documents required to be
delivered in connection with the transaction contemplated
hereby (the "Closing Documents',); (ii) issue the Partnership
Units; and (iii) take all other action required by this
Agreement to be taken in order to consummate the transaction
contemplated by this Agreement (the "Closing"). The Closing
shall take place at the Corporate Offices, or at any other
place to which SSPC and CapStar may mutually agree prior to
the Closing Date. The point in time at which the Closing
shall have been consummated is referred to herein as the
"Time of Closing.,,
Section 9.2 Sellers' Deliveries. At the Closing,
each Seller (as indicated below) shall deliver to CapStar
Management all of the following instruments, each of which
shall have been duly executed and, where applicable,
acknowledged and/or sworn on behalf of such Seller and,
except as otherwise noted, shall be dated as of the Closing
Date:
(a) The certificates required by Section 7.2(b)
and
(c) hereof.
(b) Appropriate resolutions of the shareholders
or board of directors (for corporate Sellers), and the
general parl--ner (for partnership Sellers) authorizing this
transaction, together with all other necessary approvals and
consents of Sellers and such documentary and other evidence
as may be reasonably required by CapStar Management
authorizing and evidencing the authorization of (i) the
execution on behalf of Sellers of this Agreement and the
authority of the person or persons who are executing the
Closing Documents to be executed .and delivered by Sellers
prior to, at or otherwise in connection with the Closing, and
(ii) the performance by Sellers of their obligations
hereunder and under the Closing Documents.
(c) All Deeds and Conveyance Documents necessary to
transfer title to the Contributed Assets to CapStar
Management as
3 8
contemolated by the te=s of this Agreement and as reasonably
requested by CapStar Management.
(d) A consent from the landlord under each of the
Seller Leases, in form and substance reasonably satisfactory
to CapStar, if required by the terms of the Seller Leases.
(e) A consent from the franchiser or licensor
under each of the Franchise Agreements, in fo= and substance
reasonably satisfactory to CapStar, if required by the terms
of the Franchise Agreements.
(f) A Te=ination of Management Agreement in form and
substance reasonably satisfactory to CapStar.
(g) Such agreements, affidavits or other
documents as may be reasonably required by the Title Company
to issue the Title Policies.
(h) A FIRPTA affidavit in the form set forth in the
regulations under Section 1445 of the Code.
(i) All current real estat--e and personal property tax
bills in Sellers, possession.
(j) Stock certificates representing the DG&CC
Stock, duly executed in blank for transfer, or accompanied by
appropriate stock powers duly executed in blank for transfer.
(k) All originals (or copies if originals are not
available) of the Books and Records, Customer and Marketing
Information, Permits, Property Reports, and all other
documents and records relating to the Business or any
Property in the possession or control of Sellers, which shall
be deemed to be delivered upon delivery of possession of the
Properti-es, the Corporate Office and Vacation Planning
Center.
(1) A counterpart signature page to the Opti-on
Agreement.
(m) A counterpart signature page to the Exchange
Rights Agreement.
(n) A payoff letter from each lessor under each
Capital Lease indicating all amounts due and owing in order
to fully discharge and payoff as of the Time of Closing such
Capital Lease and, to the extent CapStar desires to payoff
the Credit Lyonnais Debt at the Time of Closing, a payoff
letter from Credit Lyonnais New York Branch in respect of the
Credit Lyonnais Debt indicating all amounts due and owing in
order to fully discharge and payoff as of the Time of Closing
the Credit Lyonnais Debt.
3 9
(o) An accredited investor certificate, in form and
substance reasonably satisfactory to CapStar, from SSPC.
(p) Such other and further documents and
instruments as may be reasonably requested by CapStar or its
counsel in order to better effectuate the purposes of this
Agreement.
Section 9.3 Purchasers' Deliveries. At the
Closing, Purchasers shall deliver to Sellers the Contribution
Consideration (by wire transfer of immediately available
funds to an account designated by Sellers in the case of the
Cash Portion) and all other sums required to be paid by
Purchasers hereunder, and all of the following instruments,
each of whi-ch shall have been duly executed and, where
applicable, acknowledged and/or sworn on behalf of
Purchasers, and, except as otherwise noted, shall be dated as
of the Closing Date:
(a) Any supplemental Indentures required under the
Indenture.
(b) The certificates required by Section 7.3(b) and
(c) -
(c) Appropriate of CapStar and the general such
documentary and other by Sellers authorizing and the
execution on behalf of authority of the person or
resolutions of the Boards of Directors partner of CapStar
Management, and evidence as may he reasonably required
evidencing the authorization of (i) Purchasers of this
Agreement and the persons who are executing the various
documents to be executed and delivered by Purchasers prior
to, at or otherwise in connection with the Closing, and (ii)
the Derformance by Purchasers of their obligations hereunder
and under such documents.
(d) A counterpart of each of the agreements to be
delivered by Sellers under Section 9.2 which require
execution by either Purchaser.
(e).A counterpart signature page to the Exchange
Rights Agreement and the CapStar Management Partnership
Agreement.
(f) The legal opinion referred to in Section 7.3(e).
(g) An Assignment and Assumption Agreement, in
form and substance reasonably satisfactory to SSPC and
CapStar, pursuant to which SSRC shall assign to CapStar all
of its right, title and interest in and to the Management
Transition Agreements and CapStar shall assume the
obligations of SSRC under the Management Transition
Agreements.
40 .
(h) Such other and further documents and
instruments as may be reasonably requested by Sellers or
their counsel in order to better effectuate the purposes oi'-
this Agreement.
Section 9.4 Possession. Sellers shall deliver
possession of the Contributed Assets at the Closing.
ARTICLE X
CONDEMNATION; DAMAGE OR DESTRUCTION
Section 10.1 Conde=ation- In the event of any
actual or threatened taking, pursuant to the power of eminent
domain, of all or any portion of the Real Property, or any
proposed sale in lieu thereof, SSPC shall give written notice
thereof to CapStar promptly after SSPC receives notice
thereof. If: (i) all or more than ten percent (10'-.), by
value, of South Seas Plantation, Best Western Sanibel, Song
of the Sea, the Dunes Club and Marco Radisson, taken as a
whole, is, or is to be, so condemned or
sold, or (ii) all or more than ten percent (lo-.), by
value, of
South Seas Plantation is, or is to be, so condemned or
sold, or
(iii) all or more than twenty percent (20'-.), by value, of
Best
Western Sanibel, Song of the Sea, the Dunes Club or Marco
Radisson, taken individually, is, or is to be, so condemned
or sold, Purchasers shall have the right to terminate this
Agreement. If Purchasers elect not to terminate this
Agreement, all proceeds, awards and other payments arising
out of such condemnation or sale (actual or threatened) shall
be paid or assigned, as applicable, to Purchasers at Closi-
ng. If Purchasers elect to terminate this Agreement by givi-
ng Sellers written notice thereof prior to the Closing, the
Earnest Money Deposit shall be promptly returned to CapStar
and all rights and obligations of Sellers and Purchasers
hereunder (except those rights and obligations set forth
herein which expressly survive a termination of this
Agreement) shall te=inate immediately.
Section 10.2 Da3nacTe or Destruction.
(a) If, after expiration of the Due Diligence
Period but prior to Closing, there shall occur any uninsured
damage or destruction L-o the Property in excess o-Lc: (i)
ten percent (10'i), by value, of South Seas Plantation, Best
Western Sanibel, Song of the Sea, the Dunes Club and Marco
Radisson, taken as a whole,
(ii) ten percent (10--.), by value, o@L South Seas
Plantation, or
(iii) twenty percent (20'-.), by value, of Best Western
Sanibel,-
Song of the Sea, the Dunes Club or Marco Radisson, taken
individually, or that would require longer than three hundred
sixty-five C365) days to repair, Purchasers shall have the
option, in their sole judgment and discretion, (i) to
terminate this Agreement, or (ii) to proceed with Closing
without any adjustment in the Contribution Consideration, in
which event, at Closing, Sellers shall transfer and assign to
Purchasers all Sellers, right, title and interest in and to
all proceeds from all insurance policies owned by Sellers wi-
th respect to the
41
Contributed Assets for such damage or destruction, provided
that any existing mortgagees having approval or similar
rights relating to application of insurance proceeds have
agreed that the insurance proceeds may be transferred and
assigned to Purchasers. If Purchasers elect to proceed with
Closing, and, as of the Closing Date, the existing mortgagees
have not agreed that the insurance proceeds may be
transferred and assigned to Purchasers, then, in such event,
the insurance proceeds shall be transferred and assigned by
Sellers to Purchasers as soon as practicable after Closing.
If Purchasers shall elect to terminate this Agreement,
Purchasers shall give written notice thereo'L to Sellers on
or before the earlier to occur of (A) ten (10) days after
Purchasers shall have received written notice of such damage
or destruction, or (E) the Closing DaL--e. If Purchasers do
not give such notice within such time, Purchasers shall be
conclusively deemed to have elect--d to proceed with Closing,
and shall not have any further right to terminate this
Agreement as a result of such damage or destruction. Upon
any termination of this Agreement under this Section 10.2(a),
the Escrow Agent shall return to Purchasers the Earnest Money
Deposit and all rights and obligations of Sellers and
Purchasers hereunder (except those rights and obligations set
forl--h herein whi-ch expressly survive a te=ination of this
Agreement) shall terminate immediately.
(b) If, prior to Closing, there shall occur any
damage or destruction to the Property that would require less
than: (i) ten percent (100-o), by value, of South Seas
Plantation, Best Western Sanibel, Song of the Sea, the Dunes
Club and Marco Radisson, taken as a whole, (ii) ten percent
(lo@), by value, of South Seas Plantation, or (iii) twenty
percent (20'-.), by value, of Best Western Sanibel, Song of
the Sea, the Dunes Club or Marco Radisson, taken
individually, and take not longer than three hundred sixty-
five (365) days to repair, Purchasers shall not have the
option to terminate this Agreement, but Closing shall proceed
pursuant to Section 10.2(a)(ii) unless Sellers, insurance
company has in good faith denied coverage and SSPC is
unwilling to pay for the cost (or estimated cost) to repair
or restore the damaged Property through a reduction in the
Contribution ConsideraL-ion. If Sellers, insurance company
denies coverage and SSPC is unwilling to pay for the cost (or
estimated cost) to repair or restore the damaged Property
through a reduction in the Contribution Consideration,
Purchasers may elect to terminate thi-s Agreement by giving
Sellers written notice thereof prior to the Closing, the
Earnest Money Deposit shall be promptly returned to CapStar
and all rights and obligations of Sellers and Purchasers
hereunder (except those rights and obligations set forth
herein which expressly survive a termination of this
Agreement) shall terminate immediately. Purchasers
acknowledges that Sellers make no reuresentation or warranty
as to the amount of any insurance policy proceeds, if any,
that will be available to Purchasers in the event of a
Closing pursuant to Section 10.2(a)(ii) or this Section
10.2(b). If Sellers' insurance
42
comvany denies coverage and SSPC pays for the cost or
estimated cos@ to repair or restore the damaged Property
through a reduction in the Contribution Consideration, SSPC
shall be entitled to collect and receive any insurance
proceeds ultimately determined to be due and owing by
Sellers, insurance company in respect of such damage.
Section 10.3 Inability to Deliver South Seas
Plantation. Subject to the provisions of Section 10.1 and
Section 10.2 hereof, if Sellers are unable to deliver title
to South Seas Plantation to CapStar Management as required by
the te=s of this Agreement, then either Sellers or Purchasers
shall have the right to terminate this Agreement. Upon any
termination of this Agreement under this Section 10.3, the
Escrow Agent shall return to Purchasers,the Earnest Money
Deposit and all rights and obligations of Sellers and
Purchasers hereunder (except those rights and obligations set
forth herein which expressly survive a termination of this
Agreement) shall terminate immediately.
Section 10.4 'Inability to Deliver any Pro-perty
Other
than South Seas Plantation. SubjecL-- to the provisions of
Section 10.1 and Section 10.2 hereof, if: (i) Sellers are
unable to deliver to CapStar Management title to any Property
(other than South Seas Plantation, which shall be governed by
the provisions of Section 10.3) as required by the terms of
this Agreement, or (ii) any of the representations and
warranties of Sellers set forth in Article V hereof shall at
the Time of Closing be untrue in any material respect with
respect to a particular Property, or (iii) Sellers are unable
to deliver any Pror)erty (other than South Seas Plantation)
by reason of any condemnation, damage or destruction with
respect to a particular Property that would allow Purchasers
to terminate this Agreement under Sections 10.1 or 10.2, then
Purchasers shall be entitled to eliminate from this Agreement
the Property or Properties so affected and the Contribution
Consideration shall be adjusted by deducting the amount or
amounts shown in Exhibit C for the Property or Properties to
be eliminated. If the Con(-ribution Consideration declines
below $135,000,000 as a result of the elimination of
Properties other than the Marco Radisson or below
$120,000,000 as a result of the elimination o'L the Marco
Radisson and any other Property, Sellers may terminate this
Agreement by written notice to Purchasers delivered at any
time after the elimination of the Property or Properties
which results in the Contribution Consideration declining
below such amount. Notwithstanding Sections 8.3(b) and
8.3(c), if a Property is eliminated pursuant to this Section
10.4, CapStar's obligations under Sections 8.3(b) and 8.3(c)
and Sellers, obligations under Section 8.2(c) shall cease and
terminate with respect to the Employees of Sellers relating
to the Property eliminated under this Section 10.4.
43
ARTICLE XI
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION;
TERMINATION RIGHTS
Section 11.1 Survival of Representations and
Warranties. The representations and warranties of Sellers and
Purchasers shall survive the Closing for a period of one (1)
year commencing on the Closing Date (the "Indemnity
ExT)iration Date"). To the extent any Indemnitee is seeking
indemnification, the Indemnitee shall be entitled to
indemnity only for those matters as to which the Indemnitee
has given written notice thereof to the other party prior to
the expiration of the one (1) year period commencing on the
Closing Date.
Section 11.2 Inde=ification b-y Purchasers.
Purchasers hereby jointly and severally indemnify and hold
Sellers, their partners, their respective Affiliates and the
officers, directors, employees, agents, advisers and
representatives of each of the foregoing (individually, a
"Seller Indemnitee", and collectively, the "Seller
Indemnitees") harmless from and againsl-- any and all claims,
costs, penalties, damages, losses, liabilities and expenses
(including reasonable attorneys' fees) (individually, an
"Indemnification Loss", and collectively, the
"Indemnification Losses") that may aL-- any time be incurred
by any Seller Indemnitee, whether before or after Closing, as
a result of: (i-) any inaccuracy or breach by Purchasers of
any of their representations, warranties, covenants or
obligations set forth herein, (ii) the non-payment or non-
performance of any Assumed Liabilities, (iii) the conduct of
the Business after the Closing Date, (iv) any untrue
statement of a material fact relating to Purchasers in the
Tender Offer Materials and provided by Purchasers in writing
to SSPC specifically for inclusion therein (the "Purchaser
Information") or any omission by Purchasers to state a
material fact relating to Purchasers in the Tender offer
Materials necessary in order to make the statements made by
Purchasers in the Tender Offer Materials, in light of the
circumstances under which they were made, not misleading, and
(v) any action taken by Purchasers or omitted to he taken by
Purchasers in connection with the Tender Offer.
Section 11.3 Indemnification b)r Sellers. Sellers
hereby jointly and severally indemnify and hold Purchasers,
their partners, their respective Affiliates and the officers,
directors, employees, agents, advisers and representatives of
each such person (individually, a "Purchaser Indemnitee",
andcollectively, the "Purchaser Indemnitees") harmless from
and against any and all claims, costs, penalties, damages,
losses, liabilities and expenses (including reasonable
attorneys, fees) (individually, an "Indemnification Loss",
and collectively, the "Indemnitication Losses") that may at
any time be incurred by any Purchaser Indemnitee, whether
before or after Closing, as a result of: (i) any inaccuracy
or breach by Sellers of any of the representations,
warranties, covenants or obligations set forth
44
herein (except for any breach or inaccuracy of any
representation cr warranty as to which either Purchaser had
Knowledge prior to the Closing and nevertheless elected to
consummate the Closing), (ii) Sellers, failure to timely
discharge or satisfy any Excluded Liabilities, (iii) any
untrue statement of a material fact (other than Purchaser
Information) in the Tender O'Lfer Materials or any omission
to state a material fact in the Tender Offer Materials
necessary in order to make the statements made in the Tender
Offer Materials, in light of the circumstances under which
they were made, not misleading, and (iv) any action taken by
Sellers or omitted to be taken by Sellers in connection with
the Tender Offer. Sellers, obligations under this Section
11.3 with respect to indemnity under clause (i) hereof shall
terminate on the one year anniversary of the Closing Date, on
the second year anniversary of the Closing Date with respect
to indemnity under clause (ii) hereof and upon expiration of
the applicable statute of limitations period with respect to
indemnity under clauses
(iii) and (iv) hereof.
Section 11.4 Limitations on Inde=ification.
(a) Notwithstanding anything in Section 11.3
hereof to the contrary, to the extent indemnification is
sought by any Purchaser Indemnitee under clause (i) of
Section 11.3 hereof or under clause (i) of Section 11.3 of
the Other Agreement, Sellers shall be required to provide
indemnification only to the extent the aggregate amount of
all Indemnification Losses under clause
(i) of Section 11.3 of this Agreement and clause (i) of
Section
11.3 of the Other Agreement exceed Seven Hundred Fifty
Thousand
Dollars ($750,000) and not for any amounts up thereto (the
"Indemnity Deductible"). Indemnification under clause (ii)
of
Section 11.3 hereof shall not be subject to the Indemnity
Deductible.
(b) Notwithstanding anything in Section 11.3
hereof to the contrary, the maximum amount payable for
indemnification under clause (i) of Section 11.3 hereof and
under clause (i) of Section 11.3 of the Other Agreement shall
not in the aggregate exceed Seven Million Five Hundred
Thousand Dollars ($7,500,000) and the maximum amount payable
by Sellers for all claims for indemnification under Section
11.3 hereof and under Section 11.3 of the Other Agreement
shall not in the aagregate exceed Ten Million Dollars
($10,000,000).
(c) The amount of any Indemnification Loss for
which indemnification is ldrovided under this Article XI
shall be net of any tax benefits or insurance proceeds
actually realized by the indemnified party as a result
thereof.
Section 11.5 Indemnification Procedure. In the
case of any claim asserted by a third party against a party
entitled to indemnification under this Agreement (the
"Indemnified Party"), notice shall be given by the
Indemnified Party to the
45
party required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has actual
knowledge of any claim as to which indemnification may be
sought, and the Indemnified Party shall permit the
Indemnifying Party (at the expense of the Indemnifying Party)
to assume the defense of any claim or any litigation
resulting therefrom@ provided, that (i) the counsel for the
Indemnifying Party who shall conduct the defense of the claim
or litigation shall be reasonably satisfactory to the
Indemnified Party, (ii) the Indemnified Party may participate
in the defense at the Indemnified Party's expense, and (iii)
the failure by any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party o'L
its indemnification obliaation under this Agreement, except
to the extent that such om@ission results in a failure of
actual notice to the Indemnifying Party and such Indemnifying
Party is materially damaged as a result of such failure to
give notice.
Section 11.6 Exclusive Remedy. Subject to Section
11.7 and Section 11.10 below, the indemnification provisions
of this Article Xi shall be the sole and exclusive remedy of
the Seller Indemnitees and the Purchaser Indemnitees with
respect to any claim for monetary relief based upon or
arising ouL-- of this Agreement.
Section 11.7 Termination by Purchasers. If Sellers
default in any material respect in the performance of any of
their obligations hereunder and if Sellers fail to cure that
default within ten (10) business days after notice thereof
from Purchasers (or such other time period as may be
explicitly provided for herein), Purchasers, shall have the
right to exercise any a-nd all legal and equitable remedies
which Purchasers may have against Sellers, including, without
limitation, the right to require that Sellers specifically
perform their respective obligations under this Agreement.
Section 11.8 Te=ination by Sellers. If Purchasers
default in any material respect in the performance of any of
their obligations hereunder and if Purchasers fails to cure
that dei'-ault within ten (10) business days after notice
thereof from Sellers (or such other time period as may be
explicitly provided for herein), Sellers may either: (i)
te=inate this Agreement in which event the Earnest Money
Deposit (together with any interest earned thereon) shall be
retained by Sellers and all other rights and obligations of
Sellers and Purchasers hereunder (except those rights and
obligations set forth herein which expressly survive a
termination of this Agreement) shall terminate immediately,
or
(ii) proceed to Closing.
Section 11.9 Te=ination by Either Sellers or
Purchasers. If the Closing shall not have occurred before
November 1, 1998, any party hereto may elect to terminate
this
Agreement, in which event (i) the Earnest Money De-oosit
(together
46
with any interest earned thereon) shall promptly be returned
to CaDSta . r, and (ii) all other rights and obligations of
Sellers and Purchase--s hereunder (except those rights and
obligations set forth herein which expressly survive a
termination of this Agreement) shall terminate immediately.
In connection with any such te=ination, each party shall pay
its own costs and expenses incurred in connection with the
transaction contemplated hereby.
Section 11.10 Licruidated Damacres. SELLERS AND
PURCRASERS AGREE THAT, IN THE EVENT OF TERMINATION OF THIS
AGREEMENT AS CONTEMPLATED BY SECTION 11.8 HEREOF OR UNDER THE
CIRCUMSTANCES DESCRIBED IN SECTION 3.4 HEREOF, THE DAMAGES
THAT SELLERS WOULD SUSTAIN AS A RESULT THEREOF WOULD BE
DIFFICULT IF NOT IMPOSSIBLE TO ASCERTAIN. THEREFORE, SELLERS
AND PURCHASERS AGREE TRAT SELLERS SHALL RETAIN THE EARNEST
MONEY DEPOSIT AS FULL AND COMPLETE LIQUIDATED DAMAGES AND AS
SELLERS' SOLE REMEDY.
ARTICLE XII
PRORATIONS; TRANSACTION COSTS AND A.DJUSTMENTS
Section 12.1 Prorations. The following matters and
items pertaining to the Business and each Property shall be
apportioned between Sellers, on the one hand, and Purchasers,
on the other hand or, where applicable, credited in total to
Sellers or Purchasers, as of midnight on the day preceding
the Closing Date (the "Cutoff Time"). Net credits i-n favor
of Purchasers shall be deducted from the Contribution
Consideration and net credits in favor of Sellers shall be
added to the Contribution Consideration. Unless otherwise
indicated below, Purchasers shall receive a credit for any of
the following items to the extent the same are accrued but
unpaid as of the Cutoff Time (whether or not due, owing or
delinquent as of the Cutoff Time), and Sellers shall receive
a credit to the extent any of the following items shall have
been paid prior to the Closing Date to the extent the payment
thereof relates to any period of time after the Cutoff Time:
(a) All Taxes (other than federal, state, local
and foreign income, capital stock, windfall profits and
franchise L--axes) shall be prorated as of the Cutoff Time
between Purchasers and Sellers. Sellers shall be charged
with such Taxes accrued or payable as of the Cutoff Time,
which shall be credited to Purchasers as a reduction of the
Contribution Consideration. If the amount of any such item
is not ascertainable on the Closing Date, the credit therefor
shall be based on the most recent available bill and adjusted
as necessary post-closing, as contemplated in Section 12.3.
(b) Any amounts prepaid, accrued or payable under
the Indenture shall be prorated as of the Cutoff Time between
Purchasers and Sellers. All amounts accrued or payable under
the Indenture with reference to periods prior to the Closing
Date shall be credited to Purchasers as a reduction of L-he
47
Contribution Consideration. All amounts paid under the
Indenture with reference to periods after the Closing Date
shall be added to the Contribution Consideration.
(c) Any amounts prepaid, accrued or due and
payable under the Contracts (including any deposits payable
thereunder, but excluding any Contracts for utilities which
proration is addressed separately in Section 12.1(i)) shall
be prorated as of the Cutoff Time between Purchasers and
Sellers. All amounts accrued or payable under the Contracts
with reference to periods prior to the Closing Date shall be
credited to Purchasers as a reduction of the Contribution
Consideration. All amounts paid under the Contracts with
reference to periods after the Closing Date shall be added to
the Contribution Consideration.
Notwithstanding the foregoing, Sellers shall pay off at or
prior to Closing all Equipment Leases which are treated as
capital leases (as opposed to operating leases) under GAAP,
including, without limitation, the Equipment Leases with
respect to the computer, telephone and reservations systems
and equipment used at the Vacation Planning Center.
(d) Any amounts prepaid, accrued or due and
payable under the Leases (including any deposits payable
thereunder) shall be prorated as of the Cutoff Time between
Purchasers and Sellers. All amounts accrued or payable under
the Leases with reference to periods prior to the Closing
Date shall be credited to Purchasers as a reduction of the
Contribution Consideration. All amounts paid under the
Leases with reference to periods after the Closing Date shall
he added to the Contribution Consideration.
(e) Any Compensation for the following specific
items:
direct salaries and wages; (ii) incentive compensation;
(iii) employer's contributions under the Federal Insurance
Contribution Act, unemployment compensation and other
employment taxes; (iv) accrued vacation pay with respect to
the Transferred Employees (A) which are due and payable at
Closing, or (B) with respect to which the right to receive
such Compensation first arises or accrues prior to Closing
(without regard to when such Compensation is paid or becomes
due and payable) shall be prorated as of the Cutoff Time
between Purchasers and Sellers. All Compensation with
reference to periods prior to the Closing Date shall be
credited to Purchasers as a reduction of the Contribution
Consideration.
(f) All fees and charges paid for transferable
Permits the current period for which Permit includes the
Closing Date shall be prorated as of the Cutoff Time between
Purchasers and Sellers. All amounts accrued or payable under
such Permits with reference to periods prior to the Closing
Date shall be credited to Purchasers as a reduction of the
Contribution Consideration. All amounts paid under such
Permits with reference to periods
4 8
after the Closing Date shall be added to the Contribution
Consideration.
(g) The Contribution Consideration shall be
reduced by the amount of all accounts for current guests at
the Properties including items charged to such accounts by
guests reflected on the ledger of each Property as of the
Cutoff Time in an amount equal to fifty percent (500-o) of
all of such room charges for such night, plus all other guest
ledger charges for such night.
(h) Purchasers shall receive a credit as a
reduction in the Contribution Consideration for all prepaid
deposits for Reservations scheduled for accommodations or
events on or after the Closing Date.
(i) All utility services, including, without
limitation, telephone and telex contracts and contracts for
the supply of heat, steam, electric power, gas, water, sewer
and lighting, shall be prorated as of the Cutoff Time between
Purchasers and Sellers by the Escrow Agent. Where possible,
cutoff readings will be secured for all utilities as of the
Cutoff Time. To the extent they are not available, the cost
of such utilities shall be apportioned between the parties by
estimating such cost on the basis of the latest actual (not
estimated) bill for such service. All such amounts which are
payable or estimated to have accrued for such utility
services with reference to periods prior to the Closing Date
shall be credited to Purchasers as a reduction of the
Contribution Consideration. All amounts paid for such
utility services with reference to periods after the Closing
Date shall be added to the Contribution Consideration.
Sellers shall receive a credit for all deposits, if any, made
by Sellers as security under any such public service
contracts if the same are transferable and provided such
deposits remain on deposit for the benefit of Purchasers.
(i) vending machine, laundry machine, pay
telephone and other coin-operated equipment monies will be
removed by Sellers as of the Cutoff Time for the benefit of
Sellers (subject to the payment by Sellers of any amounts
owed third parties in connection with such vending machines,
laundry machines, pay telephones and other coin-operated
equipment).
(k) The Contribution Consideration shall be
increased in an amount equal to the amount of all Accounts
Receivable generated from the Business prior to the Cutoff
Time which as of .the Cut-O'Lf Time have been unpaid for not
more than ninety (90) days (the "Transferred Accounts
Receivable"), and Purchasers shall be entitled to collect and
retain all such Accounts Receivables as they are received.
If Purchasers are unable to collect the Transferred Accounts
Receivable within ninety (90) days following the Closing
Date, Sellers shall repurchase at the face value thereof
those Transferred Accounts Receivable that
4 9
Purchasers are unable to collect. No adjustment shall be
made for any Accounts Receivable generated from the Business
prior to the Cut-Off Time which as of the Cut-Off Time shall
have been unpaid for ninety (90) days or more, and Sellers
shall be entitled to collect and retain all such @ccounts
Receivable. Sellers shall deliver to Purchasers on the
Closing Date a true, correct and complete schedule listing
all of the Transferred Accounts Receivable.
(1) The Contribution Consideration shall be
increased by the amount paid by Sellers for the items of
Consumables and SuDDly Inventory shown on the Financial
Statements as follows to the extent such items have not been
expensed prior to the Cutoff
Time: (i) unopened liquor and wine inventory; (ii) golf pro
shop;
(iii) retail (gifts, groceries, etc); (iv) marina -
gas/oil; (v)
Ships store; (vi) general store; (vii) Shades of Captiva;
(viii) Reflections; (ix) gift shop; (x) pizza parlor; (xi)
Uncle Bob,s Ice Cream Shop; (xii) Bayside Outrigger; (xiii)
Warehouse Storage; (xiv) Bayside Marina - Grocery; (xv)
tennis pro shop; (xvi) maintenance supplies; (xvii) food
service supplies; (xviii) office and vending equipment; (xix)
computer equipment (which shall be limited to Sellers' on-
hand supply of computer replacement parts ana replacement
equipment); (xx) gas station; and (xx-L) items customarily
included in the "miscellaneous" category. Notwithstanding
this Section 12.1(1), CapStar shall have the right to advise
SSPC no later than thirty (30) days prior to the Closing Date
that CapStar elects not to purchase certain beverage
inventory (in which case no proration for such excluded
inventory shall be made hereunder). If CapSL--ar so notifies
SSPC, the beverage inventory that CapStar elects not to
purchase shall not be transferred to CapStar.
(m) The Contribution Consideration shall be
decreased by the outstanding accounts payable and accrued
expenses of Sellers as of the Cutoff Time to the extent that
such accounts payable and accrued expenses have not otherwise
been deducted from the Contribution Consideration pursuant to
this Section 12.1.
(n) All prepaid expenses (including, without
limitation, property, casualty, workers, compensa-ion or
health
L-
insurance premiums) which are required for operation of the
Properties and which have not otherwise been prorated
pursuant to this Article XII and which relate to a period of
more than one year shall be prorated as of the Cutoff Time
between Purchasers and Sellers.
Section 12.2 Settlement Statement and Closing Date
Calculation.
(a) Sellers and Purchasers, through their
respective accountants or representatives, together shall
make such examinations and inventories of Sellers as may be
necessary to
5 0
make the adjustments and prorations and allocations of
Contribution Consideration among the Contributed Assets under
this Article XII or under any other provisions of this
Agreement Sellers and Purchasers jointly shall prepare no
later than the Closing Date a settlement statement (the
"Settlement Statement") that is based upon (i) the last
available month-end balance sheet and income statement of
Sellers (such month-end statements are generally prepared by
Sellers within twenty days following the prior month-end),
and (ii) the examinations and inventories described in the
preceding sentence. The Settlement Statement shall contain
Sellers' and Purchasers' best estimate of the amounts of the
items requiring the prora-Lions and adjustments in this
Agreement and shall segregate such items on a Property by
Property basis to the extent applicable. The amounts set
forth on the Settlement Statement shall be the basis upon
which the prorations and adjustments vrovided for herein
shall be made at the Closing. Subject to Sections 12.2(b)
and (c), the Settlement Statement shall be binding and
conclusive on all parties hereto to the extent of the items
covered by the Settlement Statement.
(b) In the event that, at any time within nine
(9) months after the Closing Date, either party discovers any
items (other than the items set forth in Sections 12.1(k),
(1) and (m)) which should have been included in the
Settlement Statement but were omitted therefrom, such items
shall be adjusted in the same manner as if their existence
had been known at the time of the preparation of the
Settlement Stat--ement.
(c) With respect to the items set forth in
Sections 12.1(k), (1) and (m), within one hundred twenty
(120) days after the Closing Date, Sellers shall prepare a
calculation of such items as of the Closing Date (the
"Clcsing Date Calculation") and sha ' 11 segregate such items
therein on a Property by Property basis to the extent
applicable. The Closing Date calculation shall also set
forth any adjustments to the prorations and adjustments set
forth in the Settlement Statement. If Purchasers have any
objections to the Closing Date Calculation, Purchasers shall
deliver a detailed statement describing its objections to
Sellers within thirty (30) days a-fter receiving the Closing
DaL--e Calculati-on. Purchasers and Sellers shall use
reasonable efforts to resolve any such objections themselves.
If Sellers and Purchasers do not obtain a final resolution
within thirty (30) days after Sellers have received the
statement of objections,
Sellers and Purchasers shall select an accounting firm
mutually acceptable to them to resolve any remaining
objections. If
Purchasers and Sellers are unable to agree on the choice of
an accounting fi=, they will select a nationally-recognized
accounting firm by lot (after excluding their respective
regular outside accounting firms) . The determination of any
accounting firm so selected will be set forth in writing and
will be conclusive and binding upon Purchasers and Sellers.
U-pon resolution of all objections to the Closing Date
Calculation, Sellers promptly shall revise the Closing Date
Calculation to
51
reflect such resolution of objections. Purchasers or
Sellers, as the case may be, shall promptly pay the other
party the amount of any additional adjustment required under
such revised Closing Date Calculation (or as required under
the initial Closing Date Calculation if Purchasers do not
notify Sellers bf any objections within the applicable
thirty-day period). Purchasers and Sellers shall split the
costs and expenses of the accounting firm referenced above.
Sellers shall make the work papers and back-up materials used
in preparing the Closing Date Calculation available to
Purchasers and its accountants and other representatives at
reasonable times and upon reasonable notice at any time
during (i) the preparation by Sellers of the Closing Date
Calculation, (ii) the review by Purchasers of the Closing
Date Calculation, and (iii) the resolution by Purchasers and
Sellers of any objections thereto.
Section 12.3 Transaction Costs.
(a) Sellers shall pay for the following costs
associated with this transaction: (i) the fees and expenses
of NationsBanc Montgomery Securities, (ii) the fees and
expenses of its accountants and attorneys, and (iii) the
costs and expenses of any mortgage or other releases
associated with the pay off and release of existing mortgages
and other non-permitted encumbrances.
(b) Purchasers shall pay for the following costs
associated with this transaction: (i) the fees and expenses
of its investment bankers or advisers; (ii) the fees and
expenses of .its accountants and attorneys; (iii) appraisal
fees and charges, (iv) the fees, charges and expenses
incurred in connection with any third party reports obtained
by either Purchaser (including, without l-LmiL-ation,
environmental, structural engineering and marketing reports),
(v) application and/or transfer fees relating to the
Franchise Agreements or any other franchise affiliations
Purchasers desire to obtain, and (vi) fees and expenses
relating to the transfer of all liquor licenses for the
Properties.
(c) Sellers and Purchaser shall split equally the
following costs associated with this transaction: (i)
recording fees and charges, (ii) the fees and expenses of the
Escrow Agent, (iii) the costs of updates to the Existing
Surveys or obtaining new surveys, (iv) transfer taxes, (v)
documentary stamp taxes, (vi) sales and use taxes incurred by
reason of the transfer of the Contributed Assets as
contemplated by this Agreement, (vii) mortgage documentary or
stamo taxes incurred in connection with the assumption of the
Assumea Debt by Purchasers, and (viii) costs and charges
relating to all Title Commitments and Title Policies
(including, without limitation, any costs and charges of
Guardi:an Title of Lee County). All other costs and expenses
not expressly addressed in this Section 12.3 shall be
allocated between the parties in accordance with local custom
for similar transactions.
52
(d) If SSPC is able to provide CapStar with
engineering, building condition, environmental or appraisal
reports that are satisfactory to CapStar and for which
CapStar can obtain reliance letters, then if CapStar elects
to use such reports CapStar will pay to SSPC the fees CapStar
normally would pay for such reports under its national
contracts.
Notwithstanding the foregoing sentence, CapStar shall have no
obligation to use and pay for reports that SSPC may be able
to provide to CapStar.
Section 12.4 Further Increases to Contribution
Consideration. The Contribution Consideration shall be
increased by the amounts of the following items and such
items shall be transferred to CapStar Management at Closing
and, if appropriate, shall be deemed to be included in the
Contributed Assets.
(a) all deposits for liquor licenses, utility
deposits and beverage deposits with respect to the liquor
licenses, utilities and beverage services at the Properties;
(b) the prepaid usage deposit for the use of effluent
water at the golf course at the Dunes Club; and
(c) the amount by which Sellers' Actual Base
Capital Expenditures as of the Closing Date exceed Sellers'
Prorated Base Budgeted Capital Expenditures plus the amount
spent by any Seller in respect of any Approved Project
Capital Expenditure. The 1998 annual budgeted base capital
expenditures for the purposes of the calculation required by
this Section 12.4(c) and as previously submitted to CapStar
is $4,151,000.
Section 12.5 Further Reduction to Contribution
Consideration. The Con,--ribution Consideration shall be
decreased by: (i) the amount by which Seller's Prorated Base
Budgeted Capital Expendi-tures exceed Seller's Actual Base
Capital Expenditures as of the Closing Date, and (ii) all
amounts due and owing in order to fully discharge and payoff
as of the Time of Closing the Capital Leases as set forth in
the payoff letters required to be delivered under Section
9.2(n) hereof.
53
ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.1 Completeness, Modification. This
Agreement, the Exhibits and Schedules hereto and the
documents required to be delivered hereby constitute the
entire agreement between Sellers and Purchasers with respect
to the transaction contemplated hereby and supersede all
prior discussions, understandings, agreements and
negotiations between the parties hereto. This Agreement may
be modified only by a written instrument duly executed by
Sellers and Purchasers. Each reference in this Agreement to
an Exhibit or Schedule shall mean an Exhibit or Schedule
attached to this Agreement and incorporated into this
Agreement by such reference.
Section 13.2 Assiq=ent. Except in connection wi-th
the Merger, neither any Seller nor any Purchaser shall assign
its rights, duties or obligations hereunder without the prior
written consent of the others.
Section 13.3 Successors and Assigns; No Third
Party Beneficiary. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors
and permitted assigns and shall not inure to the benefit o'L,
and shall not be enforceable by, any third party. If the
Merger is consummated prior to consummation of this
transaction, this Agreement shall be binding upon each
successor entity to CapStar and CapStar Management and all
obligations of CapStar hereunder shall thereafter be
obligations of MeriStar Hospitality and MeriStar Hotels and
all obligations of CapStar Management shall thereafter be
obligations of MeriStar Hotel Operating Partnership and
MeriStar Hospitality Operating Partnership as if such parties
were signato--ies hereto.
Section 13.4 ' Governincr Law. This Agreement and
all documents referred to herein shall be governed by and
construed and interpreted in accordance with the laws of the
State of Florida.
Section 13.5 Counterparts. To facilitate
execution, this Agreement may be executed in as many
counterparts as may be required. It shall not be necessary
that the signatures on behalf of the parties hereto appear on
each counterpart hereof. All counterparts hereof shall
collectively constitute a single agreement.
Section 13.6 ' Severability. If any term, covenant
or condition of this Agreement, or the application thereof to
any person or circumstance, shall to any extent be invalid or
unenforceable, the remainder of this Agreement, or the
application of such term, covenant or condition to other
persons or circumstances shall not be affected thereby, and
each te=,
54
covenant or condition o'L this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
Section 13.7 Notices. All notices, requests,
demands and other communications hereunder shall be in
writing and shall be delivered by hand, transmitted by
facsimile transmission, sent prepaid by Federal Express (or a
comparable overnight delivery service) or sent by the United
States mail, certified, postage prepaid, return receipt
requested, at the addresses and with such copies as
designated below. Any notice, request, demand or other
communication delivered or sent in the manner aforesaid shall
be deemed given or made (as the case may be) when actually
delivered to the intended recipient.
If to Sellers: South Seas Properties Company
Limited Partnership
12800 University Drive, Suite 350
Fort Myers, Florida 33907
Attn: Richard E. Krichbaum
Telecopy: (941) 481-6667
With a copy to: B aker & Hostetler LLP 1900 East Ninth
Street, Suite 3200 Cleveland, Ohio
44114-3485
Attn: Albert T., Adams, Esq.
Telecopy: (216) 696-0740
If to Purchasers: CapStar Hotel Company
1010 Wisconsin Avenue, N.W.
Washington, D.C. 20007
- -Attn: John Plunket
Telecopy: (202) 295-2230
With a copy to: DeCampo, Diamond & Ash
805 Third Avenue
New York, New York 10022
Attn: William H. Diamond, Esq.
Telecopy: (212) 758-1728
or to such other address as the intended recipient may have
specified in a notice to the other party. Any party hereto
may change its address or designate different or other
persons or entities to receive copies by notifying the other
party in a manner described in this Section 13.7.
Section 13.8 Rules of Construction. The following
rules shall apply to the construction and interpretation of
this Agreement:
(a) Singular words shall connote the plural
number as well as the singular and vice versa, and the
masculine shall include the feminine and the neuter.
55
(b) All references herein to particular articles,
sections, subsections, clauses or exhibits are references to
articles, sections, subsections, clauses or exhibits of this
Agreement.
(c) The headings contained herein are solely for
convenience of reference and shall not constitute a part of
this Agreement nor shall they affect its meaning,
construction or effect.
(d) Each party hereto and its counsel have
reviewed and revised (or requested revisions of) this
Agreement and have participated in the preparation of this
Agreement, and therefore any usual rules of construction
requiring that ambiguities are to be resolved against a
particular party shall not be applicable in the construction
and interpretation of this Agreemen-L or any exhibits hereto.
Section 13.9 Sup-olements to Schedules. Any party
may at any time, or from time to time after the date hereof,
but not later than five (5) days prior to the Closing Date,
supplement or amend the Schedules required by this Agreement.
No supplement or amendment to such Schedules shall have any
effect for the pu@uose of determining -Lhe satisfaction of
the conditions to the obligation of the other parties under
Article VII hereof, but any matter disclosed in an amended or
supplemental Schedule pursuant to this Section 13.9 shall not
form the basis for any claim for indemnification pursuant to
this Agreement if the transaction contemplated by this
Agreement is consummated.
Section 13.10 Radon Gas. Radon is a naturally
occurring radioactive gas that, when it has accumulated in a
building in sufficient quantities, may present health risks
to persons who are exposed to it over time. Levels of radon
tha,-exceed federal and state guidelines have been found in
buildings in Florida. Additional information regarding radon
and radon testing may be obtained from your county public
health unit.
5 6
IN WITNESS WHEREOF, Sellers and Purchasers have
caused this Agreement to be executed in their names by their
respective duly authorized representatives.
Sellers:
SOUTH SEAS PROPERTIES COMPANY LIMITED
PARTNERSHIP, an Ohio limited partnership
By: T&T Resorts, L.C., a Florida
limited liability company, general
partner
By:
t M. Taylor, Chai an and
R@beft-
Manager
SOUTH SEAS RESORTS COMPANY LIMITED PARTNERSHIP, a Florida
limited partnership
By: S. S. Reso
Florida
general -
By:
Management, L.C.
anagement, L.C., a ,
ed liability company,
er
Robe'rt M( Taylor, Cha an and
Manager I
SOUTH SEAS RESORT LIMITED PARTNERSHIP,
an Ohio limited partnership
By: SAN-CAP
limited
By:
57
I L.C., a Florida
ty company
Robert
Manager
Taylor, Chai an and
MARCO SSP, LTD., a Florida limited
partnership
By: Marco SSP. InC., a Florida
c:ox7pora
By: I
Its -.
SOUTH SEAS & CAFTIVA IZOPE
S, L.
By t
Resorts Realt
corporate
Inc. , a
ene-@ ar
B
I Z/ / - @/ @
Purchasers:
CAPSTA,R NOTEL COMPANY
13Y zi ,-@ic-,
. Name: 14]J,, /@ @@
Title: si@, I/.,,
Title: si@, z
CAPSTAR MANAGEMENT COMPANY, L.P.
By: CapStar Hotel Company, a Delaware
corpo
ation, general partner
r,
By I -//
74/
/,Z
Name -
Title -.
!5 8
'@ LIl-
LIST OF EXHIBITS AND SCHEDULES
TO
CONTRIBUTION AGREEMENT
Schedules to Contribution Agreement:
Schedule 1.2(a)
Schedule 1.2(1)
Schedule 1.2(j)
Schedule 1.2(1)
Schedule 1.3
Schedule 4.1(d)
Schedule 5.6
Schedule 5.7
Schedule 5.8
Schedule 5.9
Schedule 5.12
Schedule 5.13
Schedule 5.14
Schedule 5-15
Schedule 5.16
Schedule 5.21
Schedule 6.3
Schedule 6.9
Exhibits
Exhibit A
Exhibit B
Exhibit C
Exhibit D
Legal Description of Land and Addresses of
Properties
Tenant Leases
Seller Leases
Management Agreements
Excluded Assets
Title Commitments and Surveys
Financial Statements
Compliance with Applicable Laws
Litigation
Insurance
Environmental Matters
Pension and Welfare Plans
Permits
List of Condominium Lease Agreements
Equipment Leases and Material Contracts
Proprietary Rights
Purchaser's Conflicts
Capstar Management Partne--ship Agreement
to Contribution Agreement:
Definitions
Proposed Amendments to Indenture
Elimination Price Reductions
Form of Option Agreement Relating to
Tradewinds
5 9
EXHIBIT A
The following terms when used in this Agreement shall have
the
indicated meanings:
"Accounts Receivable" has the meaning set forth in
clause (t) of the definition of Contributed Assets.
"Actual Base CaDital Expenditures" means the
amount of base capital expenditures undertaken by Sellers for
the period commencing January 1, 1998 and ending on the
Closing Date.
"Additional Deposit" has the meaning set forth in
Section 3.4 of this Agreement.
"Affiliate" has the meaning set forth in Section 12b-2
of the Securities Exchange Act of 1934, as amended.
"AGTII has the meaning set forth in Recital H to this
Agreement.
"A-o-olicable Law,, means all laws, statutes,
rules, regulations, ordinances and codes of any Governmental
Authori-L-y and any Board of Fire Underwriters and similar
agencies, and any judgment, injunction, order, decree or
other judicial. requirement affecting or in any way relating
to the Business and the operation of the Properties,
including, without limitation, Environmental Health and
Safety Laws and SEC Laws.
"Assumed Debt" means the Credit Lyonnais Debt, the
Subordinated Debt and all amounts due and owing in order to
fully discharge and payoff as of the Time of Closing the
Capital Leases.
"Assumed Liabilities" has the meaning set forth in
Section 2.1 of this Agreement.
"Base CaDital Projects" means those normal,
recurring projects of a capital nature that are reflected in
Sellers' 1998 budget.
"Best Western Sanibel,, has the meaning set forth in
Recital A.1 to this Agreement.
"Bond Purchase,, has the meaning set forth in Section
8.4(e) of this A7greement.
"Books and Records" has the meaning set forth in
clause
(r) of the definition of Contributed Assets.
"Brokerage Business" has the meaning set forth in
Recital D to this Agreement.
60
"Business" has the meaning set forth in Recital E to
this Agreement.
"CaDital Leases" means all Leases the obligations
of which are required to be classified and accounted for
under GAAP as capital lease obligations on a balance sheet.
"CaDStar" has the meaning set forth in the first
paragraph of this Agreement.
"CauStar Common Stock" means the common stock, $.Ol par
value, of CapStar.
"CazStar Manaaement" has the meaning set forth in the
first paragraph of this Agreement-
"CaDStar Management Partnershin Agreement" means
the Amended and Restated Agreement of Limited Partnership of
CapStar Management, as the same has been amended.
"CapStar Representatives" has the meaning set forth in
Section 4.1(c) of this Agreement.
"CaDStar Shares Amount" means a whole number of
shares of CapStar Common Stock equal to the prbduct of the
number of Partnership Units offered for exchange, multiplied
by the Conversion Factor,(rounded down to the nearest whole
number in the event such product is not a whole number);
provided that if CapStar at any time issued to all holders of
CapStar Common Stock rights, options, warrants or convertible
or exchangeable securities entitling the shareholders to
subscribe for or purchase shares of CapStar Common Stock, or
any other securities or property, wh4Lch rights have not
expired pursuant to their terms, then the CapStar Shares
Amount thereafter shall also include such rights that a
holder of than number of shares of CapStar Common Stock would
be entitled to receive.
"Cash Amount" means an amount of cash per
Partnership Unit equal to the Value on the Valuation Date o@L
the CapStar Shares Amount.
"Closing" has the meaning set forth in Section 9.1 of
this Agreement.
"Closing Date" has the meaning set forth in Section 9.1
of this Agreement.
"Closing Date Calculation" has the meaning set forth in
Section 12.2(c) of this Agreement.
"Closing Date Price" means: (i) if the Closing
occurs prior to the consummation of the Merger, the average
of the last reported sales price (regular way) of CapStar's
Common Stock on
61
The New York Stock Exchange for the seven consecutive day
trading period commencing ten business days and ending three
business days prior to the Closing Date, and (ii) if the
Closing occurs after the consummation of the Merger, the sum
of the averages of the last reported sales prices (regular
way) of the common stock of MeriStar Hospitality and MeriStar
Hotels on The New York Stock Exchange for the seven
consecutive day trading period commencing ten business days
and ending three business days prior to the Closing Date.
"Closi:gq Documents" has the meaning set forth in
Section 9.1 of this Agreement.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Collar Amount" has the meaning set forth in Section
3.2(a) of this Agreement.
"Collar Price" means whichever of the following
applies:
(a) lio-. of the Execution Date Price, if the Closing
Date Price is greater than 1100-. of the Execution Date
Price; or
(b) 90'-. of the Execution Date Price, if the Closing
Date Price is less than 90*@ of the Execution Date Price; or
(c) the Closing Date Price, if the Closing Date
Price is greater than or equal to 90% but less than or equal
to ilooi of the Execution Date Price.
"ComDarable Convertible RaL-ell has the meaning
set for-h
t
- -
in Section 8.4(h) of this Agreement.
"Com,oensation" means the direct salaries and
wages- paid to or accrued for the benefit of the Employees,
including incentive compensation, together with all fringe
benefits payable to, or accrued for the benefit of, any
executive or other employee, including employer's
contributions under the Federal Insurance Contribution Act,
unemployment compensation, or other employment taxes, pension
fund contributions, workers, compensation, group life and
accident and health insurance premiums, profit sharing,
retirement, disability, maternity leave, and other similar
benefits, accrued vacation pay, accrued sick pay, and all
other contributions to, and amounts paid or accrued under,
pension and other employee health and benefit plans, programs
or policies, including, without limitation, as of any date,
the right to receive any of the foregoing notwithstanding
that such right entitles such Employee to receive payment at
a time after the date in question.
62
"Condominium Lease Aareements" has the meaning set
forth in clause (f) of the definition of Contributed Assets.
"Confidential Information" has the meaning set forth in
Section 8.3(a) of this Agreement.
"Consent Solicitation" has the meaning set forth in
Section 8.4(b) of this Agreement.
"Consumables" has the meaning set forth in clause (d)
of the definition of Contributed Assets.
"Contracts" means, collectively, the Operating
Agreements, Equipment Leases, Franchise Agreements,
Management Agreements and Memberships.
"Contributed Assets" means the following:
(a) The land described on Schedule 1.2(a), along
with all appurtenant rights, easements, rights-of-way and
privileges relating thereto and landscaping located thereon
(the "Land");
(b) All buildings, structures and improvements
on or
affixed to the Land, including fixtures constituting real
property under Applicable Law (the "Improvements"; the
Land and
the Improvements are referred to herein collectively as the
"Real
Property");
(c) All fixtures, furniture, furnishings,
fittings, equipment, machinery, appliances, vehicles,
computer hardware, art work and other articles of tangible
personal property (together with all warranties and
guaranties with respect thereto to L--he extenl--
transferable), which are used or usable or have been ordered
for future use in connection with the Business or operation
of the Properties, other than the Consumables and Supply
Inventories (the "Fixtures and Tangible Personal Property")
and other than the Fixtures and Tangible Personal Property
that is being sold to Purchasers under the Other Agreement;
(d) All food and beverages (alcoholic and
nonalcoholic) that are held for sale, whether opened or
unopened, which are used or held in reserve or ordered for
future use in connection with the Business or operation of
the Properties at normal operating levels, and including all
resupplies and replacements in the Ordinary Course of
Business prior to the Closing Date (the "Consumables"), other
than the Consumables being sold to Purchasers under the Other
Agreement;
(e) All china, glassware, silverware; linens;
uniforms; engineering, maintenance, cleaning and housekeeping
supplies; matches and ashtrays; soap and other toiletries;
stationery, menus and other printed materials; and all other
63
materials and supplies, whether in use or held in reserve or
ordered for future use in connection with the Business or
operation of the Properties at normal operating levels, and
including all resupplies, substitutions and replacements in
the Ordinary Course of Business prior to the Closing Date
(the "Supply Inventories"), other than the Supply Inventories
being sold to Purchasers under the Other Agreement;
(f) All guaranteed lease agreements, rental
agreements and other similar agreements between any Seller
and owners of individual condominium units or private
residences for the shortterm rental of such units or
residences by such Seller to third parties on behalf of such
owners at South Seas Plantation, the Sundial Beach & Tennis
Resort and the Sanibel Inn (the "Condominium Lease
Agreements,,);
(g) All memberships and membership agreements for
access to or the use of any of the facilities at the Dunes
Club, South Seas Plantation or any other Property (the
"Memberships,,);
(h) All bookings and reservations for (i) guest
rooms and conference, convention and banquet rooms or other
facilities at the Properties, and (ii) the condominium units
or private residences under Condominium Lease Agreements (the
"Reservations");
,(i) The leases, subleases and similar agreements
(including all amendments, modifications and supplements
thereto and guaranties, extensions and renewals thereof)
listed on Schedule 1.2(i) for the use or occupancy by third
parties of any portion of the Real Property (other than the
Reservations)(the "Tenant Leases");
(j) The leases, subleases and similar agreements
(including all amendments, modifications and supplements
thereto and guaranties, extensions and renewals thereof)
listed on Schedule 1.2(i) for the.use or occupancy by Sellers
of real property (the "Seller Leases,,);
(k) The Franchise Agreements;
(1) The management agreements listed on Schedule
1.2(l) (the "Management Agreements");
(m) All service and maintenance contracts, credit
card service agreements, booking and reservation agreements,
brokerage and commission agreements, and all other contracts
and agreements (including all amendments, modifications and
supplements thereto and extensions and renewals thereof, and
all warranties and guaratties thereunder to the extent
transferable) which are held by any Seller in connection with
the Business or operation of the Properties, other than the
Condominium Lease Agreements,
Memberships, Seller Leases, Tenant Leases, Franchise
Agreements,
64
Management Agreements and Equipment Leases (the "Operating
Agreements");
(n) All leases and purchase money security
agreements for any Fixtures and Tangible Personal Property
(including all amendments, modifications and supplements
thereto and extension and renewals thereof, and all
warranties and guaranties thereunder to the extent
transferable) which are held by any Seller in connection with
the Business or operation of the -Properties, other than the
Condominium Lease Agreements, Memberships, Seller Leases,
TenanL- Leases, Franchise Agreements, Management Agreements
and Operating Agreements (the "Equipment Leases");
(o) All licenses,-permits, consents,
authorizations, approvals and certificates of any
Governmental Authority used in connection with the Business
or operation of the Properties (to the extent the same are
transferable) (the "Permits");
(p) All of the following owned by, issued to or
licensed to any Seller and used in connection with the
Business or operation of the Properties (to the extent the
same are transferable): (i) trademarks, L--rade names
(including, without limitation, the names of the Properties
set forth in the recitals to this Agreement), service marks,
trade dress, symbols and logos, together with all goodwill
associated therewith, and all registrations, applications,
renewals, adaptations, derivations and combinations thereof;
(ii) copyrights and copyrightable works and all registration,
applications and renewals therefor; (iii) trade secrets and
confidential information (including, without limitation,
ideas, drawings, specifications, designs, plans, proposals,
financial and accounting data, business and marketing plans);
(iv) computer software; (v) all other intellectual property
rights; and (vi) all copies and tangible embodiments of the
foregoing (in whatever form or medium) (the "Intellectual
Property");
(q) All guest lists, cusl--omer files, group
files, sales records, sales literature and brochures and
other written marketing materials, and all telephone numbers
used in the Business or operation of the Properties, and all
goodwill associated with the Properties (the "Customer and
Marketing Information");
(r) All books and records, ledgers,
correspondence-and other files and documents maintained by or
on behalf of Sellers in connection with the Business or
operation of the Properties, and with respect to Sellers'
Entities (as the case may be) (the "Books and Records");
(s) All blueprints, plans and specifications,
engineering and environmental reports and studies relating to
the
65
Real Property, to the extent the same exist and are
trans'Lerable,
(the "Property Reports");
(t) Subject to Section 12.1(k) hereof, all trade
accounts receivable, notes receivable and other receivables
(the "Accounts Receivable"), and all claims, deposits,
refunds, causes of action, rights of reconvey, rights of
setoff, rights of recoupment and investments, and prepaid
expenses in connection with the Business or operation of the
Properties; and
(u) All cash in house banks at the Properties;
(v) All of the capital stock of DG&CC (the 'IDG&:CC
Stock") ;
(w) SSPC's interest in the Lee County Electric
Cooperative Equity Account.
"Contribution Consideration" has the meaning set forth
in Section 3.1 of this Agreement.
"Conversion Factor" means 1.0, provided that if
CapStar (i) declares or pays a dividend on its outstanding
shares of CapStar Common Stock in shares of CapStar Common
Stock or makes a distribution to all holders of its
outstanding CapStar Common Stock in shares of CapStar Common
Stock; or (ii) combines its outstanding shares of CapStar
Common Stock into a smaller number of shares of CapStar
Common Stock, the Conversion Factor shall be adjusted by
multiplying the Conversion Factor by a fraction, the
numerator of which shall be the number of shares of CapStar
Common Stock issued and outstanding on the record date for
such dividend, distribution, subdivision or combination
(assuming for such purposes that such dividend, distribution,
subdivision or combination has occurred as of such time), and
the denominator of which shall be the actual number of shares
of CapStar Common Stock (determined without the above
assumption) issued and outstanding on the record date for
such dividend, distribution, subdivision or combination. Any
adjustment to the Conversion Factor shall become effective
immediately after the effective date of such event
retroactive to the record date, if any, for such event.
"CorDorate Offices" means the offices of Sellers
located at 12800 University Drive, Suites 350 and 420, Fort
Myers, Florida.
"Credit LVonnais Loan Agreement" has the meaning set
forth in section 5.20 of this Agreement.
"Credit Lyonnais Debt" means the outstanding
principal amount, all accrued but unpaid interest, all
prepayment costs and any other fees and charges imposed by
Credit Lyonnais New York Branch (or the other lenders under
the Credit Lyonnais Loan
66
Agreement) as of the Time of Closing due and owing to Credit
Lyonnais New York Branch, Barnett Bank, N.A. and FINOVA
Capital Corporation under the Amended and Restated Loan
Agreement, dated as of September 26, 1996, as amended.
"Customer and Marketing Information" has the meaning
set forth in clause (q) of the definition of Contributed
Assets.
"Cutoff Time" has the meaning set forth in Section 12.1
of this Agreement.
"Deeds and ConveVance Documents" mean the
following documents necessary to convey and assign to CapStar
Management all of Sellers' right, title and interest in and
to the Property:
(a) wi-th respect to the transf er of the Real Property
under this Agreement, a special warranty deed in form
and substance reasonably satisfactory to SSPC and
CapStar, subject only to the Permitted Title Exceptions;
(b) with respect to the transfer of the Personal Property
(other than the Personal Property covered under clauses
(d) , (e) and (f) of this definition) under this
Agreement, a Bill of Sale in form and substance
reasonably satisfactory to SSPC and CapStar;
(c) with respect to the assignment of the Tenant Leases,
Seller Leases and Condominium Lease Agreements under
this Agreement, an Assignment and Assumption of Leases
in form and substance reasonably satis-Lcack--ory to
SSPC and CapStar;
(d) with respect to the assignment of the Operating
Agreements, Equipment Leases, Franchise Agreements,
Management Agreements, Memberships and Permits under
this Agreement, an Assignment and Assumption of
Operating Agreements in form and substance reasonably
satisfactory to SSPC and CapStar;
(e) with respect to L--he transfer of any Intellectual
Property, Reservations and other intangible
Personal Property under thi-s Agreement, an -
Assignment and Assumption Agreement in form and
substance reasonably satisfactory to SSPC and CapStar.
'IDG&CC" means The Dunes Golf & Country Club, Inc., a
Florida corporation.
67
'IDG&CC Stock" has the meaning set forth in clause (v)
of the definition of Contributed Assets.
"Dollar Amount" has the meaning set forth in Section
3.2(a) of this Agreement.
"Due Diligence Period" has the meaning set forth in
Section 4.1 of this Agreement.
"Dunes Club" has the meaning set forth in Recital A.3
to this Agreement.
"Earnest Money De-oosit" has the meaning set 'Lorth in
Section 3.4 of this Agreement.
"EmDlovees" means all employees of SSRC and SSPC
employed exclusively in connection with the Business.
"Environmental Claims" means any claim for
reimbursement or remediation expense, contribution, personal
injury, property damage or damage to natural resources made
in writing by or on behalf of any third party including,
without limitation, any Governmental Authority, relating to
or arising out of the release of any Hazardous Substances or
the violation of any Environmental, Health and Safety Laws.
"Environmental, Health and Safetv Laws" means any
federal, state, or local statute, law, rule, regulation,
ordinance and code of any Governmental Authority, and any
judgment, injunction, order, decree or other judicial
requirement which regulates or controls (i) pollution,
contamination, or the condition of groundwater, surface
water, soil, sediment, air or L-he workplace or (ii) a spill,
leak, emission, discharge, release or disposal into
groundwater, surface water, soil, sediment, air or the
workplace, including without limitation the federal
Comprehensive, Environmental Response, Compensation, and
Liability Act ("CERCLAII), 42 U.S.C. 9601 et secr., as
amended; the federal Resource Conservation and Recovery Act
("RCPAll), 42 U.S.C. 6901 et seg., as amended; the
Hazardous Materials Transportation Act (11 HMTAII), 49 U.S.C.
1801 et sea., as amended; the Toxic Substances Control Act
("TSCAII), 15 U.S.C. 2601 et sea., as amended; the Clean
Air Act ("CAAII), 42 U.S.C. 7401 et sea., as amended; the
Clean Water Act ("CWAII), 33 U.S.C. 1251 et seg., as
amended; the Safe Drinking Water Act (IISDWAII), 42 U.S.C.
300f et sea., as amended; the Emergency Planning and
Community Right to Know Act ("EPCPAll), 42 U.S.C. 11001 et
seg., as amended; the Federal, Insecticide, Fungicide and
Rodenticide Act ("FIFRAII), 7 U.S.C. 136 et ' sea., as
amended; the Occupational Safety and Health Act ("OSHA"), 29
U.S.C. 651 et ' sea., as amended; the National
Environmental Policy Act ("NEPAII), 42 U.S.C.
4321 et sea.,
as amended; any similar state or local statutes or
ordinances, and the regulations promulgated thereunder.
68
I., "Ecruioment Leases" has the meaning set forth in
clause
(n) of the definition of Contributed Assets.
"ERISAII means the EmiDloyee Retirement Income
Security Act of 1974, as amended, and the regulations,
interpretations and exemptions promulgated thereunder.
"Escrow Agent" has the meaning set forth in Section 3.4
of this Agreement.
"Escrow E@iration Date" has the meaning set forth in
Section 8.4(i) of this Agreement.
"Excluded Assets" has the meaning set forth in
Section
1.3 of this Agreement.
"Excluded Liabilities" has the meaning set forth in
Section 2.2 of this Agreement.
"Execution Date Price" means $33.96.
"Executive ManacTement Employees" means the
following individuals: Robert M. Taylor, Timothy R. Bogott,
Richard E. Krichbaum, Brian P. Garavuso, Ralph G. Suda,
Salvatore S. Dickinson, Fred L. Hawkins, Brett P. Smith, John
B. Naylor and Earl Raven.
"Existing Surveys" has the meaning set forth in Section
4.1(d) of this Agreement.
"Financial Statements" has the meaning set forth in
Section 5.6 of this Agreement.
"First Extension Period" has the meaning set forth in
Section 8.4(e) of this Agreement.
"Fixtures and Tancrible Personal. Property" has
the meaning set forth in clause (c) of the definition of
Contributed Assets.
"Floor Amount" has the meaning set forth in Section
3.2(a) of this Agreement.
"Franchise Aareements" means the [franchise and license
agreements for the Marco Radisson and Best Western Sanibel.
"GAAP" means generally accepted accounting principles,
consistently applied.
"Governmental Authority" means any nation or
government, any state or other political subdivision thereof
or any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to
69
government, in each case to the extent the same has
jurisdiction
over the person or property in question.
"Hazardous Substances" means any toxic substance,
hazardous substance, hazardous waste, hazardous material,
solid waste, residual waste, infectious waste, contaminant,
pollutant, or constituent thereof, whether solid, semisolid,
liquid or gaseous, which are regulated, li-sted or controlled
by Environmental, Health and Safety Laws.
"ImDrovements" has the meaning set forth in clause (b)
of the definition of Contributed Assets.
"Indemnification Loss" or "Indemnification Losses"
have the meaning set forth in Sections 11.2 and 11.3 of this
Agreement.
"Indemnified Party" has the meaning set forth in
Section 11.5 of this Agreement.
"Indemnif-ving Part-y" has the meaning set forth in
Section 11.5 of this Agreement.
"Indemniteell means either a Seller IndeTnnitee or a
Purchaser Indemnitee, as the case may be.
"Indemnity ExDiration Date" has the meaning set forth
in Section 11.1 of this Agreement.
"Indenture" means the TrusL- Indenture, dated
March 28, 1996, between Sellers and SunTrust Bank, Central
Florida, National Association, relating to Sellers' 100-.
Subordinated Notes due April 15, 2003, in the original
principal amount of $43,500,000.
"Initial Deuosit" has the meaning set forth in
Section
3.4 of.this Agreement.
"Initial Tender ExDiration Date,' has the meaning set
forth in Section 8.4(d) of L--his Agreement.
"Insurance Policies" has the meaning set forth in
Section 5.9 of this Agreement.
"Intellectual Prooertv" has the meaning set for-Lh
inclause (p) of the definition of Contributed Assets.
"Knowledcrell means, (i) with respect to any
Seller, the
I
current actual knowledge of Robert M. Taylor, Timothy R.
Dogott, Richard E. Krichbaum or Judy Emens (after due inquiry
of the general managers of the Properties) and shall not be
construed to refer to the knowledge of any other trustee,
partner, officer, director, agent, employee or representative
of any Seller, or any
7 0
Affiliate of any Seller; and (ii) with respect to either
Purchaser, the current actual knowledge of John Plunket,
William Reynolds, Troy Furbay, Robin Kirk, John Emery and
David McCaslin and shall not be construed to refer to the
knowledge of any other trustee, partner, officer, director,
agent, employee or representative of either Purchaser or any
Affiliate of either Purchaser, or any matter disclosed by
Sellers to Purchasers in writing pursuant to Article V or
Article VI hereof.
"Land" has the meaning set forth in clause (a) of the
definition of Contributed Assets.
"Leases" means, collectively, the Condominium Lease
Agreements, Seller Leases and Tenant Leases.
"Letter of Credit" has the meaning set forth in
Section
3.5 of this Agreement.
"Liabilities" means any liability, obligation,
loss in value, damage, cost or expense of any nature
whatsoever, whether now known or unknown, asserted or
unasserted, accrued or unaccrued, liquidated or unliquidated,
due or to become due, including, without limitation, any
liability with respect to taxes of any kind whatsoever that
relate to any of the Contributed Assets or the Business.
"Manacrement Aqreements" has the meaning set forth in
clause (1) of the definition bf Contributed Assets.
"Management Level Emolovees" means all salaried
Employees of SSPC and SSRC having an annual salary of $25,000
or more.
"Manaaement Transition Acrreements" has the meaning set
forth in Section 8.3(b) of this Agreement.
"Marco" has the meaning set forth in the first
paragraph of this Agreement.
"Marco Radisson" has the meaning set forth in Recital C
to this Agreement.
"Material Adverse Effect" means, with respect to
Sellers, a material adverse effect on the business, assets,
properties or liabilities of Sellers taken as a whole, and
with respect to Purchasers, a material adverse effect on the
business, assets, properties or liabilities of Purchasers
taken as a whole.
"Material Contract" means any Operating Agreements
and Equipment Leases requiring aggregate remaining payments
in excess of Fifty Thousand Dollars ($50,000).
71
"Membershi-ps" has the meaning set forth in clause (g)
OIL the definition of Contributed Assets.
"Noteholders" means the holders of the Notes issued
under the Indenture.
"Mercrer" has the meaning set forth in Recital H of this
Agreement.
"Meraer Entities" has the meaning set forth in
Section
6.1 of this Agreement.
"MeriStar Hosnitality" has the meaning Se-L forth in
Recital H of this Agreement.
"MeriStar HosDitality OPeratincT Partnershin" has the
meaning set forth in Recital H of this Agreement.
"MeriStar Hotels" has the meaning set forth in Recital
H of this Agreement.
"MeriStar Hotels Operating Partnershin" has the meaning
set forth in Recital H of this Agreement.
"Minimum Consent Reauirement" has the meaning set forth
in Section 8.4(c) of this Agreement.
"Non-Tendered Notes" has the meaning set forth in
Section 8.4(g) of this Agreement.
"Notes" means the notes issued under the Indenture.
"Overating Aareements" has the meaning set forth in
clause (m) of the definition of Contributed Assets.
"Option Agreement" means the agreement attached hereto
as Exhibit D
"Ordinarv Course of Business" means with respect
to the Business and each Property the ordinary course of
business consistent with past custom and practices for the
Business and such Property.
"Other AcTreement" has the meaning set forth in Recital
G of this Agreement.
"PartnershiD Units" means: (i) if the Closing
occurs prior to consummation of the Merger, a fractional,
undivided share of the ownership interests in CapStar
Management, and (ii) if the Closing occurs after consummation
of the Merger, a fractional, undivided share of the ownership
interests in MeriStar Hospitality Operating Partnership and
MeriStar Hotels Operating Partnership, and in each case
includes any and all
72
benefits to which the holder of such an interest may be
entitled as provided in the applicable partnership agreement
of each such partnership.
"Pension Plans" has the meaning set forth in Section
5.13(a) of this Agreement.
"Pe=its" has the meaning set forth in clause (o) of
the definition of Contributed Assets.
"Permitted Title Exce-otions" has the meaning set forth
in Section 4.1(d) of this Agreement.
"Personal ProDertV" means, collectively, all of the
Contributed Assets other than the R@al Property.
"Plans" has the meaning set forth in Section 5.13(a) of
this Agreement.
"Premium" means a spread to call of fifty (50)
basis points over the yield to maturity of the 5.500-. coupon
U.S. Treasury notes due April 15, 2000.
r
r
i
n
g
,
"Project Ca-pital Ex-oenditures" means all non-
recu '
extraordinary, special project capil--al expenditures (other
than any work undertaken with the proceeds of the Unit Rehab
Loa.n) incurred by Sellers in excess of Sellers' Base Capital
Projects.
"Pro,oertv" and "Properties" have the meaning set forth
in Recital E to this Agreement.
"Pro,oertv Reoorts" has the meaning set forth in
clause
(s) of the definition of Contributed Assets.
"ProDrietary Ricrhts" has the meaning set forth in
Section 5.21 of this Agreement.
"Prorated Base Budaeted CaDital Ex-oenditures"
means $4,151,000 multiplied by the number of full months from
January 1, 1998 to, but not including, the month of Closi-ng.
."Purchaser" and "Purchasers" have the meanings set
forth in the first paragraph of this Agreement.
"Purchaser Renorts" has the meaning set, forth in
Section 6.6 of this Agreement.
"Purchaser Indemniteell and "Purchaser Indemnitees" have
the meaning set forth in Section 11.3 of this Agreement.
"Purchaser Information" has the meaning set forth in
Section 11.2 of this Agreement.
73
"Real Property" has the meaning set forth in clause (b)
o@' the defi i@tio'n of Contributed Assets.
"Reply Period" has the meaning set forth in Section
4.1(d) of this Agreement.
"Reservations" has the meaning set forth in clause (h)
of the definition of Contributed Assets.
"SEC Laws" means The Securities Act of 1933, as
amended, The Securities Exchange Act of 1934, as amended, and
all other federal and state laws applicable to securities.
"Second Extension Period" has the meaning set forth in
Section 8.4(f) of this Agreement.
"Seller" and "Sellers" have the meanings set forth in
the first paragraph of this Agreement.
"Seller Leases" has the meaning set forth in clause (j)
of the definition of Contributed Assets.
"Seller Indemniteell and "Seller Indemnitees" have the
meaning set forth in Section 11.2 of this Agreement.
"Settlement Statement" has the meaning set forth in
Section 12.2 of this Agreement.
"SHMC" has the meaning set forth in Recital G of this
Agreement.
"Song of the Sea" has the meaning set forth in Recital
A.2 to this Agreement.
"South Seas Plantation" has the meaning set forth in
Recital B to this Agreement.
IISS&:CPII has the meaning set forth in the first
paragraph ol' this Agreement.
IISSPCII has the meaning set forth in the first paragraph
of this Agreement.
IISSPC Owned Pro-oertv" and IISSPC Owned Prooerties" ha-ve
the meaning set forth in Recital A to this Agreement.
IISSPC Reoorts" has the meaning set forth in Section 5.6
of this Agreement.
IISSRC" has the meaning set forth in the first paragraph
of this Agreement.
74
IISSRLP" has the meaning set forth in the first
paragraph of this Agreement.
"Subordinated Debt" means the outstanding
principal balance and all accrued but unpaid interest as of
the Time of Closing due and owing to the Noteholders under
the Notes and the Indenture.
"SuDDly Inventories" has the meaning set forth in
clause (e) of the definition o@L Contributed Assets.
"Taxes" means any federal, state, local or foreign
income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits,
environmental, customs duties, capital stock, franchise,
profits, withholding,. social security, unemployment,
disability, real property, personal property, sales, use,
room, occupancy, beach renourishment, vault, transfer,
registration, ad valorem, betterment assessments, value
added, alternative or add-on minimum, estimated or other tax,
charges or fees of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or
not, and including any obligation to indemnify or otherwise
assume or succeed to such tax I-iability of any other person.
"Tenant Leases" has the meaning set forth in clause (i)
of the definition of Contributed Assets.
"Tender Offer'l,has the meaning set forth in Section
8.4(a) of this Agreement.
"Tender Offer Escrow Account" has the meaning set forth
in Section 8.4(h) o'L this Agreement.
"Tender Offer Materials" has the meaning set forth in
Section 8.4(a) of this Agreement.
"Tender Payment" has the meaning set forth in Section
8.4(g) of this Agreement.
"Time of Closincr" has the meaning set forth in
Section
9.1 of this Agreement.
"Title Commitments" has the meaning set forth in
Section 4.1(d) of this Agreement.
"Title Companvll means First American Title Insurance
Company, Washington, D.C.
"Title Policies" has the meaning set forth in Section
4.1(d) of this Agreement.
75
"Transferred Emulo-yees" has the meaning set forth in
Section 8.3(c) of this Agreement.
"Unit 'Portion" has the meaning set forth in Section
3.2(a) of this Agreement.
"Valuation Date" means the date of receipt by
CapStar of a notice of exchange or, if such date is not a
business day, the first business day thereafter.
"Value" means, with respect to shares of CapStar
Common Stock (or if the Merger is consummated, shares of the
applicable Merger Entity), the average daily market price for
the ten (10) consecutive trading days immediately preceding
the Valuation Date. The market- price for each such trading
day shall be: (i) if the CapStar Common Stock is listed or
admitted to trading on any securities exchange or the NASDAQ-
National Market System, the closing price, regular way, on
such day, or if no such sale takes place on such day, the
average of the closing bid and asked prices on such day; (ii)
if the CapStar Common Stock is not listed or admitted to
trading on any securities exchange or the NASDAQ-National
Market System, the last reported sale price on such day or,
if no sale takes place on such day, the average of the
closing bid and asked prices on such day, as reported by a
reliable quotation source designated by CapStar; or (iii) if
the CapStar Common Stock is not listed or admitted to trading
on any securities exchange or the NASDAQ-National Market
System and no such last reported sale price or closing bid
and asked prices are available, the average of the reported
high bid and low asked prices on such day, as reported by a
reliable quotation source designated by CapStar, or if there
shall be no bid and asked prices on such day, the average of
the high bid and low asked prices, as so reported, on the
most recent day (not more than ten (10) days prior to the
date in question) for which prices have been so reported;
provided that if there are no bid and asked prices reported
during the ten (10) days prior to the date in question, the
Value of the CapStar Common Stock shall be determined by
CapStar acting in good faith on the basis of such quotations
and other information as it considers, in its reasonable
judgment, appropriate. In the event L--he CapStar Shares
Amount includes rights that a holder of CapStar Common Stock
would be entitled to receive, and CapStar acting in good
faith dete=ines that the value of such rights is not
reflected in the value of the CapStar Common Stock determined
as aforesaid, then the Value of such rights shall be
determined by CapStar acting in good faith on the basis of
such quotations and other information as it considers, in its
reasonable judgment, appropriate.
"Variable Portion" has the meaning set forth in Section
3.2(b) of this Agreement.
76
"Welfare Plans" has the meaning set forth in Section
5.13(a) of this Agreement.
RAS1372:23630:97003:RAS-13I.AGT
ras 04/07/98
77
4 .
I -I
FIRST AMENDXENT TO CONTRIBUTION AGREEXENT
THIS FIRST AMENDMENT TO CONTRIBUTION AGREEMENT
(this "First Amendment") is made as of April , 1998, among
South Seas Properties Company Limited Partnership, an Ohio
limited partnership (IISSPCII), South Seas Resorts Company
Limited Partnership, a Florida limited partnership
(IISSRCII), South Seas Resort Limited Partnership, an Ohio
limited partnership (IISSRLP'l) , Marco SSP, Ltd.. a Florida
limited partnership ("Marco") , and South Seas' & Captiva
Properties, L.P., a Florida limited partnership (IISS&CPII;
SSPC, SSRC, SSRLP, Marco and SS&CP are referred to herein
individually as a "Seller", and collectively as "Sellers"), -
CapStar Hotel Company, a Delaware corporation ("CapStar"),
and CapStar Management Company, L.P., a Delaware limited
partnership ("CapStar Management"; CapStar and CapStar
Management are referred to herein individually as a
"Purchaser",, and collectively as the "Purchasers").
Capitalized terms used but not defined herein shall have the
meanings ascribed to those terms in the Contribution
Agreement (as defined herein).
RECITALS:
A. Sellers and Purchasers entered into a
Contribution Agreement dated as of April 8, 1998 (the
"Contribution Agreement") , whereby each Seller has agreed to
contribute to CapStar Management all of the right, title and
interest in and to the assets,, properties and rights
(contractual or otherwise) and business of such Seller with
respect to the Business, pursuant to the terms of the
Contribution Agreement.
- -o amend the
Contribution
B. Purchasers desire 4L.
Agreement for the purpose'of allowing Purchasers the right to
extend the Closing to a date no later than September 30,
1998.
C. Sellers are willing to amend the Contribution
Agreement f or the purpose of allowing Purchasers the right
to extend the Closing to a date no later than September 30,
1998, only upon the terms and conditions set forth in this
First Amendment.
NOW, THEREFORE, based upon the foregoing premises
and for other good and valuable consideration, the receipt
and sufficiency of which is acknowledged by Sellers and
Purchasersr the parties hereby agree as follows:
1. Section 9.1 of the Contribution Agreement is deleted
in its entirety and the following is substituted in lieu
thereof:
"Section 9.1 Closinci. Unless otherwise mutually agreed to
by SSPC and CapStar and subject to Section 8.4, the Closing
shall occur on July 15, 1998 (provided that all conditions
precedent to the parties
obligations hereunder have been satisf ied or waived (other
than conditions with respect to actions the respective
parties will take at the Closing) and if not so satisfied or
waived, the Closing shall be automatically extended from time
to time until the first subsequent business day on which all
such conditions are so satisfied or waived, subject, however,
to Section 11.9 hereof) (the "Closing Date"); provided,
however, that CapStar shall have the right to extend the
Closing Date until a date no later than September 30, 1998,
by providing written notice thereof to SSPC no later than May
1, 1998 (the "Extension Notice") . If CapStar delivers the
Extension Notice, CapStar shall thereafter provide SSPC with
at least twenty (20) business days prior written notice of
the date upon which CapStar desires the Closing to occur. As
more particularly described below, at the Closing the parties
will meet: (i) to execute all of the documents required to be
delivered in connection with the transaction contemplated
hereby (the "Closing Documents") ; (ii) issue the Partnership
Units; and (iii) take all other action required by this
Agreement to be taken in order to consummate the transaction
contemplated hereby (the "Closing"). The Closing shall take
place at the Corporate Offices, or at any other place to
which SSPC and CapStar may mutually agree prior to the
Closing Date. The point in time
at which the Closing shall have been
consummated is referred to herein as the "Time
of Closing.""
2 . Upon delivery by CapStar of an Extension
Notice, then effective May 1, 1998, Section 3.2(a) of the
Contribution Agreement shall be and hereby is amended by
deleting the dollar figure 11 27.1711 in each place in which
it appears in Section 3.2(a) and substituting the dollar
figure 11$28.8711 in lieu thereof.
3 . Upon delivery by CapStar of an Extension
Notice, then effective May 1, 1998, the following new Section
3.7 shall be and hereby is added to the Contribution
Agreement to follow immediately after Section 3.6:
"Section 3.7. Partial Release of Earnest Money Deposit. If
CapStar delivers an Extension Notice, then at SSPC's option
(to be exercised by written notice to CapStar at any time on
or after July 1, 1998), there shall be released
from escrow and delivered to SSPC the sum of Eight Million
Dollars ($8,000,000) (the "Partial Release") so long as the f
ollowing two conditions are satisfied as of the date of the
Partial Release: (i) SSPC posts security with CapStar for the
Partial Release,, which security shall be adequate in
CapStar's reasonable determination to ensure repayment of the
Partial Release if the transaction contemplated hereby is not
consummated; and (ii) at the time of the Partial Release all
of SSPC's representations and warranties shall be true and
correct in all material respects (without taking into account
any qualification as to Knowledge). The Partial Release
shall for all purposes hereof constitute Earnest Money
Deposit and shall be returned to CapStar under the
circumstances set forth in Se&tion 3.4 hereof."
4 . Upon delivery by CapStar of an Extension
Notice, then from and after May 1, 1998, the condition
precedent set forth in Section 7.2(f) of the Contribution
Agreement shall be deemed to have been waived by Purchasers
and shall no longer be a condition precedent to Purchasers'
obligation under the Contribution Agreement.
5 . Upon delivery by CapStar of an Extension
Notice., then Section 8.4(d) of the. Contribution Agreement
shall be and hereby is amended by deleting "July 1, 199811 in
the ninth line of Section 8.4(d) and inserting "August 1,
199811 in lieu thereof.
6. Upon delivery by CapStar of an Extension
Notice, then Section 8.4(e) of the Contribution Agreement
shall be and hereby is amended by (i) deleting "August 14,
199811 in the fourth line of Section 8.4(e) and inserting
"September 1, 199811 in lieu thereof, (ii) by deleting in its
entirety the penultimate sentence of Section 8.4(e), and
(iii) by deleting the third full sentence of Section 8.4(e)
in its entirety and inserting the following in lieu thereof:
"Subject to the terms and conditions of the Tender Offer and
the Consent Solicitation, all Notes previously tendered and
not accepted for payment may be accepted for payment by SSPC
(or its designee), in its sole and absolute discretion, at
any time during the First Extension Period (a "Bond
Purchase")."
7. Upon delivery by CapStar of an Extension
Notice, then notwithstanding anything to the contrary
contained in section 8.4 of the Contribution Agreement to the
contrary, SSPC may, in its
sole and absolute discretion, delay the commencement of the
Tender
offer and Consent Solicitation until June 15, 1998.
8 . Upon delivery by CapStar of an Extension
Notice,, then Section 8.4(f) of the Contribution Agreement
shall be and hereby is amended by deleting "September 28,
199811 in the fourth line of Section 8.4(f) and inserting
"October 1, 199811 in lieu thereof and by deleting "August
14, 199811 in the tenth line of Section 8.4(f) and inserting
"September 1, 199811 in lieu thereof.
9 . Upon delivery by CapStar of an Extension
Noticer Section 12.4 of the Contribution Agreement shall be
and hereby is amended as follows: (i) by deleting "and" from
subsection (b), (ii) by deleting the period in the last
sentence in subsection (c) and substituting I;" in lieu
thereof, and (iii) by adding the following subsections (d)
and (e):
11 (d) the amount determined by multiplying (X) the number of
days from (and including) July 15, 1998, to (but not
including) the closing Date (as so extended pursuant to the
Extension Notice) by (Y) Forty-One Thousand Seven Hundred
Seventy Dollars ($41,770) (tlae "Per Diem Amount") ;
provided, however, that the Per Diem Amount shall be not be
payable for the number of days in the period commencing on
the Closing Date and ending on the date the Minimum Consent
Requirement is satisfied; and
(e) the "Additional Interest"; provided, however, that in
no event shall the increase to the Contribution Consideration
based upon the Additional Interest exceed Four Hundred
Thousand Dollars ($400,000). For purposes of this clause
(e), "Additional Interest" means the difference between the
Premium with respect to the Tendered Notes calculated as of
the date the Minimum Consent Requirement is satisfied and the
Premium with respect to the Tendered No%'-es calculated as of
the Closing Date. In each case, the Premium shall be based
upon a spread to call on the date the Minimum Consent
Requirement is satisfied of fifty (50) basis points over the
yield to maturity of the 5.50% coupon U.S. Treasury notes due
April 15, 2000, and shall include the Redemption Price (as
defined in the Indenture) of Notes."
10. CapStar acknowledges that SSPC I s current
property insurance coverage (IISSPC's Property Insurance
Coverage") expires on or about June 25, 1998. Accordingly,
on or before May 1, 1998,
CapStar shall submit for SSPC's review a property insurance
program covering all of SSPC's and its affiliates'
properties, with such coverage commencing on June 25, 1998,
and ending on the f irst anniversary thereof (the "Proposed
Property Insurance Coverage"). SSPC shall have a period of f
if teen (15) days to review the Proposed Property Insurance
Coverage and determine, exercising reasonable business
judgment, whether to continue with SSPC's Property Insurance
Coverage or whether to accept the Proposed Property Insurance
Coverage. In either event, CapStar shall at ' the Ti-me of
Closing assume SSPC's obligations thereunder to the extent
such obligations arise or accrue on or after the Closing Date
(whether for payment of premiums or early termination fees).
11. All other terms and conditions of the
Contribution Agreement shall remain in full force and effect
and unmodified hereby.
12. This Amendment may be executed in any number
of counterparts, each of which shall be an original, and all
of which taken together shall constitute one instrument.
13. This Ainendment shall be governed by and
construed and interpreted in accordance with the laws of the
State of Florida.
5
IN WITNESS WHEREOF, Sellers and Purchasers have
caused this Amendment to be executed in their names by their
respective duly authorized representatives.
Sellers:
SOUTH SEAS PROPERTIES COMPANY LIMITED
PARTNERSHIP, an Ohio limited partnership
By: T&T Resorts, L.C., a Florida limited
By:
1 ia--b @
i.tv company, general partner
Robert M.
Manager
SOUTH SEAS
PARTNERSHIP,
partnership
By: S. S.
Flori
gen--
By:
Robert
Manager
ylor, Cha
RESORTS COMPANY
a
Florida
sort Management,
rlimited liability
artner
M.
LIMITED
limited
L. C. . a
company,
or, Chairm
and
SOUTH SEAS RESORT LIMITED PARTNERSHIP, an
Ohio limited partnership
By: SAN-CAP
limited
By:
L.C., a Florida
t
tAv company
Robert M. Tay
Manager
or, Chairman and
apm3613:23630:97003:mpm-16.amd
mpm 4/9/98
MARCO SSP,
partnership
By: Marco
corpo
LTD., a Florida limited
SSP, Inc. , a
. on
Florida
By:
Its: @, ;,VA @ @
SOUTH SEAS & CAPTIVA PROP
By: Resorts Re cor
By:
Its: - /
CAPSTAR HOTEL COMPANY
B /)I, @,, @
@ (to
Naine: @ gz,, t @, kA . @
I c,,_t 'cA , VI
C\ , T i9
Title:
CAPSTAR MANAGEMENT COMPANY, L.P.
By: CapStar Hotel Company, a Delaware
corporation, ra
B C--, -4 I @@
@o/@L@o
Name: - - - t
Title:. EL@@ ' \[ -,, t @,- c_ @. l@ v-4
PERCENTAGE LEASE AGREEMENT
DATED AS OF FEBRUARY 19, 1998
AMONG
BOYKIN HOTEL PROPERTIES, L.P.
AS LESSOR
SOUTH SEAS ESTERO ISLAND, LTD.
AS LESSEE
AND SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSIEP
AS GUARANTOR
TABLE OF CONTENTS
Page
PERCENTAGE LEASE AGREEMENT
ARTICLE I 1
1.1 Leased Property 1
1.2 Term 2
1.3 Development Projects 3
1.4 Condominium Lease Agreements 3
ARTICLE
11........................................................
................ 4
ARTICLE III 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11
3.12 3.13
.............................................................
......... 13
Rent 13
Payment of Percentage Rent 16
Confirmation of Percentage Rent 17
Additional Charges 17
Security Deposit 18
Conversion of Property 18
Annual Revenue Projections 18
Annual Capital Expenditures Budget 18
Capital Expenditure Reserve 19
Application of Capital Expenditure Reserve 19
Unbudgeted Capital Expenditures 19
Agent Method for Purchases of Capital Expenditures 20
Lessor's Obligation to Make Capital Expenditures 20
ARTICLE IV 21
4.1 Payment of Taxes and Impositions 21
4.2 Utility Charges 21
4.3 Insurance Premiums 21
ARTICLE
V.........................................................
.............. 2 1
No Termination, Abatement,
Etc................................................. 2 1
ARTICLE VI 22
6.1 Ownership of the Leased Property 22
6.2 Lessee's Personal Property 23
6.3 Lessor's Lien 23
6.4 Initial FF&E 23
ARTICLE VII 23
7.1 Condition of the Leased Property 23
7.2 Use of the Leased Property 24
7.3 Lessor to Grant Easements, Etc 25
Paiz
e
ARTICLE VIII 25
8.1 Compliance witli Legal, Insurance Requirements,
Lessor's Insurance and Tax
Obligations 25
8.2 Legal Requirements Covenants 26
8.3 Environmental Covenants 26
8.4 Asset Management Covenants 28
8.5 Net Worth Representations/Covenants 28
8.6 Room Rate Covenant 29
ARTICLE IX 29
9.1 Maintenance and Repair 29
9.2 Encroachments, Restrictions, Etc 30
ARTICLE X 31
10.1 Alterations 31
10.2 Salvage 31
10.3 Joint Use Agreements 31
ARTICLE)U.................................................
..................... 31
Liens.....................................................
................. 31
ARTICLE
XII.......................................................
.............. 32
Permitted
Contests..................................................
......... 32
ARTICLE XIII 32
13.1 General Insurance Requirements 32
13.2 Increase in Limits 33
13.3 Blanket Policy 34
13.4 No Separate Insurance 34
13.5 Reports of Insurance Claims 34
13.6 Waiver of Subrogation 34
13.6 Form Satisfactory, Etc 34
13.7 Failure to Obtain Insurance 35
13.8 Failure to Obtain Insurance 35
13.9 Self-Insured Deductible 35
ARTICLE XIV 35
14.1 Insurance Proceeds 35
14.2 Reconstruction in the Event of Damage or
Destruction Covered by Insurance 36
14.3 Reconstruction in the Event of Dwnage or
Destruction Not Covered by
Insurance 37
14.4 Lessee's Personal Property 37
14.5 Abatement of Rent 37
14.6 Damage Near End of Term 37
14.7 Waiver 37
- -ii-
Pa2e
ARTICLE XV 37
15.1 Parties' Rights and Obligations 37
15.2 Total Taking 37
15.3 Allocation of Award 38
15.4 Partial Taking 38
15.5 Temporary Taking 38
ARTICLE XVI 38
16.1 Events of Default 38
16.2 Remedies 41
16.3 Waiver 43
16.4 Application of Funds 43
16.5 Surrender 43
16.6 Waiver 43
16.7 Notice to Guarantor Lender 44
ARTICLE XVII
44
AR'NCLE XVIII 44
ARTICLE XIX 45
19.1 REIT Compliance 45
19.2 Sublease Lessee Limitation 45
19.3 Lessee Ownership Limitation 45
19.4 Lessee Officer and Employee Limitation 45
19.5 Payments to Affiliates of Lessee 46
19.6 Third-Party Management Activities 46
ARTICLE
XX........................................................
............. 46
Holding
Over......................................................
......... 46
ARTICLE
XXI.......................................................
.............. 46
Risk of
Loss......................................................
.......... 46
ARTICLE
XYdl......................................................
.............. 46
Indemnification...........................................
................... 46
ARTICLE XXIII 47
23.1 Subletting and Assignment 47
23.2 Attomment 47
23.3 Management Agreement 48
23.4 Change of Control of Guarantor or Lessee; Sale of
Substantially All of
the Assets of Guarantor or Lessee 48
- -iii-
Pa2e
ARTICLE XXIV 49
24.1 Officers' Certificates; Filiancial Statements;
Lessor's Estoppel Certifi . cates and
Covenants 49
24.2 Lessee's Financial Covenants 49
ARTICLE
XXV.......................................................
............. 50
Books and Records; Lessor's Riglit to
Inspect...................................... 50
ARTICLE
XXVI......................................................
............. 50
No
Waiver....................................................
.............. 50
ARTICLE
XXVII.....................................................
............. 50
Remedies
Cumulative................................................
......... 50
ARTICLE
XXVIII....................................................
.............. 5 1
Acceptance of
Surrender.................................................
...... 5 1
ARTICLE
XXIX......................................................
............. 5 1
No Merger of
Title.....................................................
...... 5 1
ARTICLE
XXX.......................................................
............. 5 1
Conveyance by
Lessor....................................................
.... 5 1
ARTICLE
XXXI......................................................
............. 5 1
Quiet
Enjoyment.................................................
............ 5 I
ARTICLE
XXXII.....................................................
............. 5 1
Notices...................................................
................. 5 1
ARTICLE XXXIII 52
33.1 Lessor May Grant Liens , Subordination 52
33.2 Lessee's Right to Cure 53
33.3 Breach by Lessor 54
33.4 Lessee's Cooperation 54
ARTICLE XXXIV 54
34.1 Miscellaneous 54
34.2 Transition Procedures 54
34.3 Change of Franchise 55
34.4 Waiver of Presentment, Etc 55
ARTICLE
XXXV......................................................
............ 55
Memorandum of
Lease.....................................................
... 55
ARTICLE
XXXVI.....................................................
............. 55
Lessor's Option to Purchase Assets of
Lessee...................................... 55
- -iv-
ARTICLE XXXVII 56
37.1 Lessor's Option to Terminate Lease 56
37.2 Early Termination Payments 56
ARTICLE
XXXVIII...................................................
............. 57
Compliance with Franchise
Agreement........................................... 57
ARTICLE
XXXIX.....................................................
............. 57
Guaranty
Agreement.................................................
......... 57
EXFHBIT A Property Description
EXIIIBIT B All Space Leases
EXIUBIT C FF&E Included in Lease Property Initial
FF&E
EXFHBIT D Inventory
EXIEBIT E Condominium Lease Agreements
EXFHBIT F Form of Renewal Lease
EXFHBIT G Competitive Set
EXMBIT H Description of Facility
EX141BIT I Capital Expenditures
EXIUBIT J Security Agreement
EXIEBIT K Insurance Requirements
EXIBBIT K- I Market Value Clause
EXIEBIT L Guaranty Agreement
EXIEBIT M Nondisturbance Agreement
EXHIBIT N Operational Agreement Budget
PERCENTAGE LEASE AGREEMENT
THIS PERCENTAGE LEASE AGREEMENT (this "Lease"), made
as of the,46 Away of February, 1998, by and between Boykin
Hotel Properties, L.P., an Ohio limited partnership
("Lessor"), and South Seas Estero Island, Ltd., a Florida
limited partnership ("Lessee"), provides as follows:
WITNESSETH:
Lessor owns property the "Leased Property" (as hereinafter
defined) located at 275 Estero Boulevard,
Fort Myers Beach, Florida.
Lessee desires to lease or sublease, as the case may be,
the Leased Property, to operate as a hotel
facility.
NOW, THEREFORE, Lessor, 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 Pr@. The "Leased Property" is comprised
of Lessoes interest in the following, but expressly
excludes Lessoes interest in any mineral rights, timber,
or building antennae related to the Land (defined below):
(a) the land described in Exhibit A attached hereto
and incorporated herein by reference
(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,
structures and other improvements presently situated upon
the Land (collectively, the "Leased Improvements"),
including the Facility;
(c) all easements, rights and appurtenances relating
to the Land and to the Leased
Improvements;
(d) all equipment, machinery, fixtures, and
other items of property required or incidental to the use
of the Leased Improvements as a hotel, including all
components thereof, now and hereafter permanently affixed
to or incorporated in the Leased Improvements, including,
without limitation, all furnace ' s, 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 existing leases of space within the
Leased Property (including any security deposits or
collateral held by Lessor pursuant thereto), which space
leases are listed on Exhibit B attached hereto and
incorporated by reference;
(f) all contract rights, trade names, logos
and other intangible property of Lessor with respect to
the operation of the existing hotel business conducted on
the Leased Property, including without limitation, all
rights, if any, relating to the Franchise Agreement;
(g) the furniture, fixtures and equipment listed or
referred to on Exhibit C attached hereto
and incorporated by reference; and
(h) the Inventory listed on or referred to on Exhibit D
attached hereto and incorporated by
reference; and
4
(i) all lease agreements, rental agreements,
flex lease agreements and other similar agreements between
Lessor and owners of individual condominium units or
private residences for the rental of such units or
residences to third parties on behalf of such owners,
including, without limitation the 42 Lease Option Program
Agreements (the "Guaranteed Leases") and the 9 Rental
Program Agreements (the "Flex Leases"), which agreements
are listed on Exhibit E attached hereto and incorporated
by reference (collectively, the "Condominium Lease
Agreements").
THE LEASED PROPERTY SHALL NOT INCLUDE THE IMTIAL FF&E.
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 CURRENT AND FUTURE COVENANTS, CONDITIONS,
RESTRICTIONS, EASEMENTS AND OTHER MATTERS (NOT LINETED TO
ITEMS OF RECORD) INCLUDING ALL APPLICABLE LEGAL
REQUIREMENTS, THE LIEN OF FINANCING INSTRUMENTS,
MORTGAGES, DEEDS OF TRUST AND SECURITY DEEDS, AND
INCLUDING OTHER MATTERS WIRCH WOULD BE DISCLOSED BY AN
INSPECTION OF THE LEASED PROPERTY OR BY AN ACCURATE SURVEY
THEREOF.
1.2 Tenn. The term of the Lease (the "Tenn")
shall commence as of the date and time (i) the
Lessor acquires the Leased Property from Florida Income
Fund 111, Limited Partnership, and (ii) Lessee
pays
Lessor for the Initial FF&E (the "Commencement Date") and
shall end on the tenth anniversary of the
Commencement Date, unless sooner terminated in accordance
with the provisions hereof. Lessee is hereby given two
separate options to extend the Tenn of this Lease for two
separate, successive periods (individually, the "First
Renewal Term" and the "Second Renewal Term" and
collectively, the "Additional Terms"). The First Renewal
Term shall be for a period of three years to follow
consecutively upon the expiration of the initial Term of
this Lease. The Second Renewal Term shall be for a period
of three years to follow consecutively upon the expiration
of the First Renewal Term of this Lease. The option for
the First Renewal Term may be exercised by the Lessee
giving notice to the Lessor of Lessee's exercise of this
option not less than 270 days prior to the expiration of
the initial Term of this Lease. The option for the Second
Renewal Tenn may be exercised by the Lessee giving notice
to the Lessor of Lessee's exercise of this option not less
than 270 days prior to the expiration of the First Renewal
Term of this Lease. If this Lease is extended as provided
above, the word "Term" as used herein shall mean and refer
to the First Renewal Term or the Second Renewal Tenn, as
the case may be, and all of the terms, covenants,
conditions and provisions of this Lease shall, continue in
full force and effect during the Additional Terms, except
that the Base Rent and the Percentage Rent formulas for
each Additional Tenn shall be adjusted as Lessor and
Lessee may mutually agree no later than 45 days after
Lessee's exercise of its option to renew. If Lessor and
Lessee are
unable to agree on adjusted Base Rent and Percentage Rent
formulas within such 45-day period, then Lessor shall have
the right to solicit offers from any Person to lease the
Leased Property upon such terms and conditions as Lessor
may determine. If the Lessor receives an offer from any
Person to lease the Leased Property (an "Offer"), the
Lessee shall have the option to lease the Leased Property
upon the same terms and conditions set forth in the Offer
(the "Option"). The Option shall be exercisable by Lessee
by written notice delivered to Lessor no later than IO
Business Days after Lessee receives written notice of the
Offer from the Lessor. If the Lessee fails to exercise
the Option granted to it hereunder within such I 0-day
period, then this Lease and the Lessee's rights under this
Lease (including, without limitation, its rights to renew
under this Section 1.2) shall immediately terminate and
the Lessor shall be free to lease the Leased Property to
such other Person in accordance with the terms and
conditions of the Offer.
1.3 Development Projects. Notwithstanding anything
contained in this Lease to the contrary, Lessor shall be
permitted to undertake the development, redevelopment or
expansion of the Leased Property (each a "Development
Project"). Lessor shall provide Lessee with 120 days'
advance written notice of the commencement of a
Development Project. Within 1 0 days of Lessee's receipt
of such notice, if either Lessor or Lessee reasonably
determine and provide notice to the other party that the
Development Project to be undertaken by Lessor will likely
have an impact on the Room and Other Revenues from the
Leased Property in excess of 5% more or less than the
trailing twelve months Room and Other Revenues, then this
Lease shall terminate (including, without limitation, its
rights to renew under this Section 1.2) upon the final day
of such 120 day period. Lessor and Lessee agree, during
the first 45 days following Lessee's receipt of the 120
day notice, to negotiate in good faith a revised
percentage lease agreement which shall be on the same
terms as this Lease except that (i) the Base Rent and the
Percentage Rent formulas shall be adjusted to take into
account both temporary and permanent projected changes in
the Gross Revenue derived from the Leased Property due to
the Development Project and (ii) the term of the lease
shall be for the remaining Term hereunder. If Lessor and
Lessee are unable to agree on adjusted Base Rent and
Percentage Rent formulas within such 45-day period, then
Lessor shall have the right to solicit offers from any
Person to lease the Leased Property upon such terms and
conditions as Lessor may determine. If the Lessor
receives an offer from any Person to lease the Leased
Property (a "Development Offer"), the Lessee shall have
the option to lease the Leased Property upon the same
terms and conditions set forth in the Development Offer
(the "Development Option"). The Lessee's right to
exercise the Development Option shall survive termination
of this Lease. The Development Option shall be
exercisable by Lessee by written notice delivered to
Lessor no later than 10 Business Days after Lessee
receives written notice of the Development Offer from the
Lessor. If the Lessee fails to exercise the Development
Option granted to it hereunder within such 10-day period,
then this Lease and the Lessee's rights under this Lease
(including, without limitation, its rights to renew under
this Section 1.2) shall, subject to the terms of Article
XXXVII, immediately terminate and the Lessor shall be free
to lease the Leased Property to such other Person in
accordance with the terms and conditions of the
Development Offer.
1.4 Condominium Lease Agreements. Lessor and Lessee
acknowledge that each Condominium Lease Agreement will, by
its terms, expire prior to the expiration of the Term of
this Lease. Lessor agrees that Lessee may, as Lessor's
agent and on Lessor's behalf in Lessor's name: (i) renew
each Condominium Lease Agreement upon expiration of the
stated term of such Condominium Lease Agreement (a
"Renewal . Lease") or (ii) enter into new lease agreements
with owners of individual condominium units or private
residences for the rental of such units or residences to
third parties on behalf of such owners (the "New Leases");
provided, however, that each Renewal Lease and each New
Lease shall be in the form of Exhibit E, or, if different,
on a form approved in writing by Lessor. Upon execution,
each Renewal Lease and each New Lease shall become a part
of the Leased Property hereunder.
ARTICLE II
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:
@. American Automobile Association.
Additional C . As defined in Section 3.4.
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
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.
After Tax Earnings. As defined in Section 8.5.
Averap-c Daily Rate. The average daily rate charged for
all rooms in the Facility determined over
a thirty day period.
Audited Consolidated Financials. Financials audited by a
firm of independent certified public
accountants acceptable to Lessor in its reasonable
discretion.
Award. Compensation, sums or anything of value awarded,
paid or received on a total or partial
Condemnation.
Base Rate. The rate of interest announced publicly
by National City Bank, in Cleveland, Ohio, from time to
time, as such banies base rate. If no such rate is
announced or if such rate is discontinued, then such other
rate as Lessor may reasonably designate.
Base Rent. The annual sum set forth in Section
3.1(a), payable in advance in equal, consecutive monthly
installments, on or before the tenth day of each calendar
month of the Term; provided however, that the first
monthly payment of Base Rent shall be payable on the
Commencement Date and that the first and last monthly
payments of Base Rent shall be prorated as to any partial
month (subject to adjustment as provided in Sections 14.5,
15.2, 15.4, and 15.5).
Beach Refurbishment Iml2ositions. Any new special
charge or assessment levied against the Leased Property by
a governmental agency or taxing district for the
renourishment or replacement of the public beach seaward
of the erosion control line, which adjoins the Leased
Property.
Business D@. Each Monday, Tuesday, Wednesday,
Thursday and Friday that is a day on which national banks
in the City of Cleveland, Ohio, or in the municipality
wherein the Leased Property is located, are open.
Ca,pital Expenditures. As defined in Section 3.8.
CERCLA. The Comprehensive Environmental Response,
Compensation and Liability Act of 1980,
as amended.
Code. The Internal Revenue Code of 1986, as amended.
Commencement Date. As defined in Section 1.2.
Coml2etitive 5et. Those hotels listed on Exhibit G, as
supplemented and amended from time to time
by Lessor and Lessee.
Coml2limentaiy Rooms. Shall mean a maximum of 440
rooms per Fiscal Year allocated as follows: 240 rooms for
sales and marketinc,, promotion, disgruntled guests and
employees and 200 rooms for 0
charitable donations and community service. A maximum of
20 Complimentary Rooms may be used in each of the
following months, January, February, March, April, July
and August. Notwithstanding the foregoing, no room for
charitable donation or community service shall be deemed a
Complimentary Room to the extent such room displaces any
revenue.
Condemnatian-. 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.
Condemnor. Any public or quasi-public authority, or
private corporation or individual, having the
power of Condemnation.
Condominium Lease Aizreements. As defined in Section
1. I (i).
Consolidated Financials. For any fiscal year (or
other period for which such statements are prepared) for
Lessee and its consolidated subsidiaries, a statement of
fuiancial position as of such fiscal year (or other
period) end date and statements of operations, cash flows
and retained earnings for the fiscal year (or other
period) then ended, all in comparative form, together with
notes thereto, prepared in accordance with generally
accepted accounting principles.
1 Consolidated Net Worth. The sum of consolidated
shareholders' equity of Lessee and any consolidated
subsidiaries as shown on the most recent Audited (if
required hereunder) Consolidated Financials, as adjusted
in accordance with Section 8.5 hereof.
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 (i) a significant
change is made in the number or nature
(or both) of items used in determining the Consumer Price
Index, or (ii) the Consumer Price Index shall be
discontinued for any reason, the Lessor shall request that
the Bureau of Labor Statistics fumish a new index
comparable to the Consumer Price Index, together with
information which will make possible a conversion to the
new index in computing the adjusted Base Rent hereunder.
If for any reason the Bureau of Labor Statistics does not
fumish an index and such information, the parties will
instead mutually selec@ accept and use such other index or
comparable statistic on the cost of living in Washington,
D.C. that is computed and
published by an acency of the United States or a
responsible financial periodical of recognized authority.
4D
Customer Riti-o. The ratio of a customer type (transient;
contract business; social, military,
educational, religious and fraternal; or group) to the
Facility's total customer base.
Date of Taking. The date the Condemnor has the right to
possession of the property being
condemned.
Encumbrance. As defined in Section 33. 1.
Environmental Authoriiy. Any federal, state, local or
foreign department, agency or other body or
component of any Government that administers, oversees or
enforces any Environmental Laws.
Environmental Laws. All federal, state, county,
municipal and other governmental statutes, laws, rules,
orders, regulations, ordinances, judgments, decrees,
injunctions and duties under the common law relating to
occupational health and safety, the protection of human
health, and pollution of the indoor and outdoor
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, EPCRA, FIFRA, RCRA, SARA and TSCA.
Environmental Liabiliiy. Either of an Identified
Environmental Liability or an Unidentified
Environmental Liability.
EPCRA. The Emergency Planning and Community Right to
Know Act, as amended.
Event of Default. As defined in Section 16. 1.
Faciliiy. The hotel and/or other facility offering
lodging and other services or amenities being operated or
proposed to be operated using the Leased Property which
shall be included in the Leased Improvements. The
Facility is more particularly described on Exhibit H
attached hereto and incorporated by reference.
FIFRA. The Federal Insecticide, Fungicide, and
Rodenticide Act, as amended.
,, Fiscal Year. The 12-month period from January I to
December 3 I.
Fixtures. As defmed in Section 1. I (d).
Food and Beverage Revenues. Gross revenues, receipts
and income of any kind (whether on a cash or credit basis)
paid, collected or accrued and derived directly or
indirectly by Lessee from: (i) the sale, for on-site
consumption at the Leased Property or through off-site
catering services, of food and nonalcoholic
beverages, including sales attributable to guest rooms,
banquet rooms, meeting rooms, the restaurant, the lounge,
the bar and other similar rooms; (ii) the sale of wine,
beer, liquor or other alcoholic beverages, including sales
attributable to the restaurant, the bar, the lounge, guest
rooms, meeting rooms, banquet rooms, off-site catering or
any location at the Leased Property; (iii) cover charges
and audio-visual rental charges related to banque@
ballroom or meeting room events; and (iv) banquet and
meeting room revenues, including room rental charges from
such banquet and meeting rooms. Such revenues shall not
include the following:
(a) Room and Other Revenues as defined below;
(b) Any gratuities or service charges added to a
customer's bill or statement in lieu of a gratuity, which
gratuity or charge Lessee is obligated to pay to or which
was paid directly to an employee;
(c) Customary and reasonable credits, rebates, refunds
or negative adjustments to
guests;
(d) Sales taxes and any additional taxes imposed on
the sale of alcoholic beverages;
(e) Amounts attributable to customary and reasonable
allowances, give aways and
promotions; and
(f) Sales transactions related to a lounge provided
for the use of guests staying in rooms
located on the concierge level of the Facility.
Franchise Aizreement. The franchise agreement or
license agreement currently in effect with Franchisor, and
any amendments, replacements or extensions thereof
hereafter implemented with the prior approval of Lessor,
which approval or disapproval shall not be unreasonably
delayed, under which the Facility is operated.
Franchise Rated Hotels. Those hotels rated monthly
by the Franchisor.
Franchisor. Best Western or such other national hotel
franchiser or association approved by Lessor
in accordance with Section 34.3.
GAAP. As defined in Section 8.5.
Government. The United States of America, any state,
county, municipality, local government, district or
territory thereof, any foreign nation, any state,
district, department, territory or other political
division thereof, or any administrative agency, board,
commission, bureau or political subdivision of any of the
foregoing.
! Gross Revenue. The sum of (i) the Room and Other
Revenues plus (ii) the Food and Beverage
Revenues for the Facility.
Guarantor. South Seas Properties Company Limited
Partnership, an Ohio Limited Partnership.
Guarantor Lender. As defined in Section 16.7.
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Guaraniy Aiareement. As defined in Article XXXIX.
Hazardous Materials. All chemicals, pollutants,
contaminants, wastes and toxic substances,
including without limitation:
(a) Solid or hazardous waste, as defined in
RCRA or in any Environmental Law;
(b) Hazardous substances, as defined in CERCLA
or in any Environmental Law;
(c) Toxic substances, as defined in TSCA or in
any Environmental Law;
(d) Insecticides, fungicides, or rodenticides, as
defined in FIFRA or in any
Environmental Law; and
(e) Gasoline or any other petroleum product or
byproduct, polychlorinated biphenols, asbestos, radon and
urea formaldehyde.
HVAC. The heating, ventilation and air conditioning
system in use at the Facility.
Identified Environmental Liabilities. Any and all
obligations to pay the amount of anyjudgment 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 frorh an
Environmental Authority, the amount of any civil penalty
or criminal fine, and any court costs and reasonable
amounts for attomey's fees, fees for witnesses,
consultants 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.
lm= tio@n . Collectively, all taxes (including,
without limitation, all personal property, sales and use
(including sales, rent or occupancy taxes on Rent), single
business, gross receipts, transaction, privilege, rent or
similar taxes as the same relate to or are imposed upon
Lessee, its personal property 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), 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, the FF&E 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 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. Notwithstanding
the foregoing, Impositions shall not included) any tax
based on net income (whether denominated as an income,
franchise or capital stock or other tax) imposed on Lessor
or any other Person other than Lessee and Affiliates of
Lessee, (2) any net revenue tax of Lessor or any other
Person (other than Lessee or an Affiliate of Lessee), (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 any time during
the Term hereof, is totally or partially repealed, and a
tax, assessment, tax levy or charge set forth in clause
(1) through (4) is levied, assessed or imposed expressly
in lieu thereof.
Indemnified Environmental Liabiliiy. As defined in
Section 8.3(d).
Indemnified Paa: Indemnitee. Either of a Lessee
Indemnified Party or a Lessor Indemnified Party.
Indemnifying PAIU. Any party obligated to indemnify an
Indemnified Party pursuant to Section 8.3
or Article XXII.
Initial FF&E. The furniture, fixtures and equipment
listed or referred to on Exhibit C attached hereto
and incorporated by reference.
Insurance Requirements. All ten-ns of any insurance
policy required by this Lease, any Franchisor or any Legal
Requirement, and all requirements of the issuer of any
such policy as to such policy and/or the Leased Property.
In to . All inventories, supplies, guest supplies,
food and beverage inventory, and consumable merchandise
used in connection with the operation of the Facility, but
excludingall such items to the extent owned by
concessionaires, tenants, subtenants, licensees or other
Persons occupying all or a portion of the Leased Property
as permitted by this Lease.
Land. As defined in Section 1. I (a).
Lease. This Lease.
Leased Imi2rovements. As defined in Section 1. I
(b).
Leased Prol2g=. As defined in Section 1. I -
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 or not hereafter
enacted and in force, including (a) all Environinental
Laws, 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 perinits, licenses and
authorizations and regulations relating thereto and all
covenants, agreements, restrictions and encumbrances
contained in any instruments, either of record or known to
Lessee (other than encumbrances hereafter created by
Lessor without the consent of Lessee), at any time in
force affecting the Leased Property.
Lendin2 Institution. Any insurance company,
investment banking company, credit company, federally
insured commercial or savings bank, national banking
association, savings and loan association, employ . ees
welfare, pension or retirement fund or system, corporate
profit sharing or pension trust, college or university,
corporation qualified to be treated for federal tax
purposes as a real estate investment trust having a net
worth of at least $ 1 0,000,000, and RENUC conduit lender.
Lessee. The Lessee designated on this Lease and its
permitted successors and assigns.
- -9-
Lessee Indemnified Paa. Lessee and (i) any Affiliate
of Lessee, (ii) any Person against whom any liability may
be asserted as a result of a direct or indirect ownership
interest (including a shareholder's interest) in Lessee;
(iii) the officers, directors, shareholders, employees,
agents and representatives of Lessee; and (iv) the
respective heirs, personal representatives, successors and
assigns of any of the foregoing Persons.
Lessee's Personal Prol2ea. As defined in Section
6.2.
Lessor. The Lessor designated on this Lease and its
successors and assigns.
Lessor Indemnified PAIU. Lessor and (i) any Affiliate
of Lessor; (ii) any Person against whom any liability may
be asserted as a result of a direct or indirect ownership
interest (including an interest as a partner) in Lessor;
(iii) the employees, agents and representatives of Lessor;
(iv) Boykin Lodging Company, its officers, directors,
shareholders, employees and agents; and (v) the respective
heirs, personal representatives, successors and assigns of
any of the foregoing Persons.
. Mobile Travel Guide or a successor'publication
thereto.
Notice. A notice given pursuant to Article XXXII.
Officees Certificate. A certificate of Lessee in fon-
n and substance reasonably acceptable to Lessor signed by
the chief operating officer and the chief financial
officer or another officer Authorized so to sign by the
board of directors or by-laws 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 5% per annum, but in no event greater
than the maximum rate then permitted under applicable law.
Partial Fiscal Year. Any portion of a Fiscal Year
which falls during the Term hereof
Payment Date. Any due date for the payment of any
installment of Rent.
Percenta2e Rent. As defined in Section 3. l(b).
Person. Any individual, corporation, general or
limited partnership, limited liability company, limited
liability partnership, stock company or association, joint
venture, association, company, trust, bank, trust company,
land trust, business trust, or other entity and government
and agency and political subdivision thereof.
Poor Standing. Operating the Facility for any consecutive
three month period within the group of
hotels in the lowest one-third of the Franchise Rated
Hotels.
,,Predecessor. Any Person whose liabilities arising
under any Environmental Law relating to the Leased
Property have or may have been retained or assumed by
Lessee, either contractually or by operation of law
Primary Intended Use. As defined in Section 7.2(b).
- -10-
ErQceediniz. Anyjudicial action, suit or proceeding
(whether civil or criminal), any administrative proceeding
(whether forrnal or informal), any investigation by a
govenunental authority or entity (including a grand jury),
and any arbitration, mediation or other non-judicial
process for dispute resolution.
RCRA. The Resource Conservation and Recovery Act, as
amended.
Real Estate Taxes. All real estate taxes (including
any applicable interest and penalties thereon), including
general and special assessments, if any, and possessory
interest taxes which are imposed upon the Land and/or the
Leased Property.
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.
Renewal Lease. As defined in Section 1.4.
e@. Collectively, the Base Rent, Percentage Rent and
Additional Charges.
Rental Amount. As defined in Section 8.5.
REVPAR. Room Revenues (as defined in the Uniform System)
per available room in the Facility.
Room and Other Revenues. All gross revenues,
receipts and income of any kind (whether on a cash or
credit basis) paid, collected or accrued and derived
directly or indirectly by Lessee from: (i) the rental of
guest rooms; (ii) gift shop operations; (iii) fees
collected from telephone, game room and guest laundry
services; and (iv) guaranteed no show reservations, space
rentals (excluding banquet and meeting room space
rentals), discounts eamed, vending machines, valet
services, movie services, commissions eamed, and swim club
memberships; (v) any Condominium Lease Agreement Renewal
Lease or New Lease; and (vi) all other revenues eamed or
retained by Lessee in connection with the use or operation
of the Leased Property and all services or activities
provided thereon, including the gross revenues of Lessee
from subtenants, concessionaires, and licensees, all as
determined in accordance with generally accepted
accounting principles. Notwithstanding the previous
sentence, Room and Other Revenues shall not include:
(a) Food and Beverage Revenues;
(b) The amount of any credits, rebates, refunds or
adjustments to customers, guests or patrons;
(c) Sales or use taxes;
(d) Interest income;
(e) Gratuities paid or payable to Persons
other than Lessee or its Affiliate; and
(f) Gains from the sale of assets out of the
ordinary course of business.
Gross revenues will be adjusted as follows: (1)
rooms offered on a Complimentary basis (exclusive of
employees, independent contractors or consultants of
Lessee engaged in business operations relating to the
Facility) in excess of the Complimentary Rooms will be
imputed a revenue equal to the
- -II-
Average Daily Rate for that calendar month; (2) rooms
offered on a "package basis" will allocate a reasonable
portion of the gross revenues to the Room and Other
Revenues; any such rooms for which Lessee has allocated to
Rooms and Other Revenues less than 50% of the Average
Daily Rate will be imputed an amount of revenue such that
at least 50% of the Average Daily Rate is allocated to
Rooms and Other Revenues; (3) bartered or traded rooms
shall be included at the fair market value of the goods
and services so bartered or traded or, if such value is
not readily determinable, at the Average Daily Rate for
that calendar month; and (4) rooms used by Lessor or its
Affiliates on a complimentary basis will not be included
in Room and Other Revenues.
SARA. The Superfund Amendments and Reauthorization Act of
1985, as amended.
@ate. The State or Commonwealth of the United States in
which the Leased Property is located.
Subsidiaries. Corporations in which Lessee owns, directly
or indirectly, more than fifty percent
(50%) of the voting stock or control, as applicable.
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.
Tax Distribution Amount. As defined in Section 8.5.
Tenn. As defined in Section 1.2.
TSCA. The Toxic Substances Control Act, as amended.
Unavoidable Delay. A delay 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 perfonn any
obligations of such party under this Lease.
Uneconomic for its Primary Intended ULe_. A state or
condition of the Facility such that in the good faith
judgment of Lessor it is uneconomic to operate the
Facility for its Primary Intended Use, taking into
account, among.other relevant factors, the number of
usable rooms and projected revenues.
Unidentified Environmental Liabilities. Any and all
obligations to pay the amount of anyjudgment 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
Environinental Authority, the amount of any civil penalty
or fine or criminal fine, and any court costs and
reasonable amounts for attomeys fees, fees for witnesses,
consultants 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, any Predecessor or the Leased
Property to comply at any time
with all Environmental Laws;
- -12-
(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 or any off-site property or
facility;
(d) Identification of Lessee, or any Predecessor as a
potentially responsible party under
CERCLA or under any Enviromnental Law similar to CERCLA;
(e) Presence at any time of any above ground
and/or underground storage tanks as defmed in RCRA or in
any applicable Environmental Law on, in, at or under the
Leased Property or any offsite property 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; but excluding those arising out of-
(g) Identified Environmental Liabilities.
Uniform System. The Unifonn System of Accounts for Hotels
(8th Revised Edition, 1986) as
published by the Hotel Association of New York City, Inc.
as same may hereafter be revised.
Unsuitable for its Primary Intended Use. A state or
condition of the Facility such that, in the good faith
judgment of Lessor, due to casualty damage or loss through
Condemnation, the Facility cannot be operated or cannot
ftinction as an integrated hotel facility consistent with
standards applicable to a well maintained and operated
hotel.
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, (A) the higher of (i) Base Rent or (ii)
Percentage Rent, and (B) Additional Charges, during the
Term, as follows:
(a) 1998 Rent: The monthly sum of $211,523
payable in advance in consecutive monthly installments, on
or before the tenth day of each calendar month commencing
on the Commencement Date and continuing through Fiscal
Year 1998 (" 1998 Rent"); provided, however, that the
first monthly payment of 1998 Rent shall be payable on the
Commencement Date and that the first monthly payment of
1998 Rent shall be prorated as to the then current partial
month, if applicable.
(b) Base Rent: Commencing on January 1, 1999,
the annual sum of $2,200,000 (as increased by CPI in
accordance with subsection (d) below, the "Base Rent"),
payable in advance in consecutive monthly installments, on
or before the tenth day of each calendar month of the
TerTn as follows:
(i) one-twelfth of the Base Rent on the tenth day of each
January, February, March, April, May and June and
(ii) on the tenth of each July, August, September, October
November and December, the greater of (a) $50,000 or (b)
the quotient of the Base Rent for the then current Fiscal
Year divided by 12; multiplied by the number of months
elapsed year-to-date (including the then current month);
less the sum of the total Base Rent VILis Percentage Rent
paid year-to-date; provided, however, that the last
monthly payment of Base Rent
- -13-
shall be prorated as to the then current partial month, if
applicable (subject to adjustment as provided in Sections
14.5, 15.2, 15.4, and 15.5); and provided, @er, that Base
Rent for Fiscal Year 1999 and each Fiscal Year thereafter,
shall be increased by increases in CPI as set forth in
Subsection (d) below and as set forth in Subsection (e)
below.
(c) Percentap-e Rent: Commencing on January 1,
1999, for each Fiscal Year and Partial Fiscal Year during
the Term commencing with the Fiscal Year or Partial Fiscal
Year ending December 3 1, 1999, Lessee shall pay
percentage rent ("Percentage Rent"), if such Percentage
Rent is in excess of Base Rent for such Fiscal Year or
Partial Fiscal Year, in an amount calculated by the
following formula:
The amount equal to the sum of (i) the Room and Other
Revenues Computation for such Fiscal Year or Partial
Fiscal Year plus (ii) the Food and Beverage Revenues
Computation for such Fiscal Year or Partial Fiscal Year
(each as defined below and collectively, the "Revenue
Computations").
For the purpose of this formula:
(1) The Room and Other Revenues Computation
for the applicable Fiscal Year (or Partial Fiscal
Year) is equal to the sum of (A) 23% of all amounts
above $3,318,000 up to $6,315,000 in Room and Other
Revenues for such Fiscal Year or Partial Fiscal Year,
(B) 50% of all amounts above $6,315,000 up to
$9,426,000 in Room and Other Revenues for such Fiscal
Year or Partial Fiscal Year, and (C) 8 1 % of all
Room and Other Revenues in excess of $9,426,000 for
such Fiscal Year or Partial Fiscal Year (the
preceding dollar figures being referred to
hereinafter as the "Threshold Amounts", such
Threshold Amounts to be prorated on a per them basis
for any Partial Fiscal Year and increased by the
Consumer Price Index for Fiscal Year 1999 and each
Fiscal Year thereafter); and
(2) The Food and Beverage Revenues Computation is
equal to 10% of all Food
and Beverage Revenues for the applicable Fiscal Year or
portion thereof.
Commencing on January 1, 1999, Percentage Rent payable
with respect to the difference (the "Flex Rent Excess"),
if any, of (i) the portion of Room and Other Revenues
comprised of the gross rental revenue (excluding any
management or administrative fees) attributable to the
Flex Leases (including any Renewal Lease or New Lease
which is a Flex Lease) (the "Flex Lease Revenue") for the
then cuffent Fiscal Year less (ii) $376,646 (the "Flex
Lease Base Amount"), shall be payable in accordance with
the Flex Lease Formula. The Flex Lease Formula is equal
to 42.5% of the Flex Rent Excess. For each Fiscal year of
the. Term commencing on or after January 1, 1999, the
Flex Lease Base Amount shall be increased by a percentage
equal to the greater of (i) the percentage increase in
Gross Revenues in the most recently completed Fiscal Year
compared to the prior Fiscal Year or (ii) increases in the
CPI Index in accordance with Section 3. 1 (d) hereof
Commencing on January 1, 2004, Percentage Rent payable
with respect to the difference (the "Condo Rent Excess'),
if any, of (i) the portion of Room and Other Revenues
comprised of the gross rental revenue (excluding any
management or administrative fees) attributable to the
Guaranteed Leases or any Renewal Lease with respect
thereto (the 'Guaranteed Lease Revenue") for the then
current Fiscal Year less (ii) the sum of (a) the
Guaranteed Lease Revenue for Fiscal Year 2002 or 2003
(whichever is higher, the "Condo Base Amount") l@u (b) any
decrease in the Gross Revenues, excluding the Guaranteed
Lease Revenue, in
- -14-
the iiiost recently completed Fiscal Year compared to the
prior Fiscal Year, sliall be payable in ali aiiiouiit
equal to the Guaraiiteed Lease Foriiiula. The Guaraiiteed
Lease Foriiiula is equal to 42.5% of the Condo Reiit
Excess. F-OF eae4t- Fisee. ef tit@ Tef:itt e
lit
C4ross IR
- -@Venues il4
afed te tire pp.-. - setti 3ieai
- ---Of:daiiee will
(d) CPI Ad*ustmeilts to the Tliresilold
Aiiiouiits aiid Base.Reiit: For eacli Fiscal Year of the
Term begiiuiing oii or after January 1, 1999, the
Tiiresliold Aiiiouiits aiid Base Rent sliall be adjusted
from time to time as follows:
If the niost feceiitly published Coiisuiiier Price Iiidex
as of the last day of the last moiitli (tlie "Coniparisoii
Moiitli") of aiiy Fiscal Year is different than the
average Coiisuiiier Price Iiidex for the 12 iiioiltli
period prior tliefeto, eacli of Base Reiit aild the
'Fliresliold Aiiiouiit for tiie iiext Fiscal Year sliall
be adjusted by the pei-ceiitage cliaiige ill tIlC
COIISLliiier Price Iiidex calculated b), IIILIltiplyillg
the Base Iteiit aiid eacii 'I'Iii-esliold Aiiiotiiit by
the quotient obtained by dividiiity the Coiisuiiier Price
Iiidex for the iiiost feceiit Coinparisoii Moiitli by the
Coiisunier Price Iiidex for the iiiontli wliicii is
exactly 12 nioiitlis prior tliereto.
Adjustnients iii the Tiiresliold Aiiiouiits aiid Base
l@eiit sliall be effective oii the first day of the first
calendar montli of flie Fiscal Year to wliicli sucli
adjusted Thresliold Aiiiouiits apply. lii the event of
casualty and corresponding payiuent of rent out of the
proceeds of rental interruption insurance provided
pursuant to Section 13. 1 (a), the Perceiitage Rent sliall
be based upoti the lliglier of (i) actual revenues, (ii)
revenues for the same period iii the previous Fiscal Year
(wliettier or iiot during the 'fet-iii), or (iii)
projected revenues used iii computing the final insurance
settleiiieiit.
Not,,vitlistaiidiiig the foregoing if the percentage
cliaiige iii the Coiisuiiier Price Iiidex, as set fortli
above, is (i) less tliaii 3% or greater diaii 7%, the
adjustiiieiit to the Base Reiit sliall be 3% or 7%,
respectively aiid (ii) greater tliati 7%, the
adjustiiieiit to the Tliresliold AiiiOLIIItS sliall be 7%.
(e) For eacii Fiscal Year of the Teriii begiiiiiiiig
oii or al'ter Jaiiuary 1, 1999, the Base
Reiit sliall be adjusted from tiiiie to tiiiie as follows:
Followiiig eacii full or I)ai-tial Fiscal Year of this
Lease, (eacii a "Base Reiit AdjusLmeiit Date"), Lessor
aiid Lessee sliall calculate the aggregate Capital
Expenditures (including, witliout Iiiiiitation, any
Capital Expeiiditures niade in connection with any
Developiiient Project)spent by Lessor from the
Comniencement Date tlirougli Deceiiiber 31 of the Fiscal
Year just coiupleted. If Lessor lias speiit itioi-e
tliaii $1.6 iiiillioit iii excess of four perceiit (4%) of
tile Gross Reveitues (tlie "Capital Expeiiditure
Maxilliulii Aiiiouiit") over sucli tiiiie period, tlieii
the Base Reiit sliall be $2,300,000 (plus increases iii
the Coiisuiiier Price Iiidex iii accordance witli the
terms liereof) until the iiext Base lteiit Adjustiiieiit
Date. If, oii aiiy Base Reiit Adjustiiiciit Date, the
Lessor lias sl)ciit lcss tliaii the Capital Expeiiditure
Maxiiiiuiii Aiiiouiit, tlieii the Base Iteiit sliall be
adjusted to eclual $2,200,000 (plus hicreases iii the
Coiisuiiier Price Iiidex iii accordance witli
- -15-
the terms hereof) plus $1.00 for each $16.00 of Capital
Expenditures made
above four percent (4%) of Gross Revenues.
Adjustments in the Base Rent for increases provided for in
this Subsection (e) shall be effective on January
I of each year.
3.2 Payment of Percentaize Rent. Percentage Rent
shall be due and payable quarterly on or before the 30th
day after the last day of each quarter during the Term.
Additionally, an Officer's Certificate, setting forth the
calculation of such rent payment for such quarter, shall
be delivered to Lessor quarterly, together with such
quarterly Percentage Rent payment after each quarter of
each Fiscal Year (or part thereof) during the Term. Such
quarterly payment shall be based on the formula set forth
in Section 3. 1 (c), but, in calculating the Revenue
Computations for each quarter, gross revenues for the year
to date shall be annualized by dividing such sum by the
number of months which have passed year to date (including
the current month) and multiplying the result by 12. The
resulting Percentage Rent amount shall be multiplied by
the number of months that have passed year-to-date
(including the current month) and divided by 12. Payments
of Base Rent and Percentage Rent for the year to date
shall be subtracted from the result to arrive at the
Percentage Rent payment due for that quarter. The Revenue
Computations sfiall be appropriately adjusted to calculate
Percentage Rent for partial years. There shall be no
reduction in the Base Rent regardless of the result of the
Revenue Computations.
In addition, on or before February I and November I of
each year, commencing with November 1, 1998, Lessee shall
deliver to Lessor an Officer's Certificate reasonably
acceptable to Lessor setting forth the computation (based
on, in the case of the February I Officer's Certificate,
audited financial statements of Lessee, if required
hereunder) of the actual Percentage Rent that accrued for
each quarter of the Fiscal Year that ended on the
immediately preceding December 31 (in the case of the
February I Officer's Certificate) and for each of the
first three calendar quarters of the then current Fiscal
Year (for the November I Officer's Certificate) and shall
pay to Lessor, with the delivery of the Officees
Certificate, the amount of Percentage Rent due and payable
for the Fiscal Year or the portion of the Fiscal Year then
ended as shown in the Officer's Certificate, if any, that
exceeds the amount actually paid as Percentage Rent by
Lessee for such Fiscal Year or portion thereof, as the
case may be. If the Percentage Rent actually due and
payable for such Fiscal Year or portion thereof is shown
by such certificate to be less than the amount actually
paid as Percentage Rent for the applicable Fiscal Year or
portion thereof, Lessor, at its optio n, shall reimburse
such amount to Lessee or credit such arnount against the
next quarter's Percentage Rent or Base Rent payments;
provided, however, that no Event of Default exists.
Any difference between the annual Percentage Rent due
and payable for any Fiscal Year or portion thereof, as the
case may be (as shown in the applicable Officees
Certificate) and the total amount of quarterly payments
for such Fiscal Year or portion thereof, as the case may
be, actually paid by Lessee shall bear interest at the
Overdue Rate. The interest payable under this paragraph
shall accrue from (i) the delivery date the Officer's
Certificate for such Fiscal Year or portion thereof was
due, in the case of an underpayment and (ii) the date
Lessor fails to credit any due and payable Rent against
such overpayment, until the amount of such difference
shall be paid or otherwise discharged by credit to Lessee.
Any such interest payable to Lessor shall be deemed to be
and shall be payable as Additional Charges.
The obligation to pay Percentage Rent shall survive
the expiration or earlier termination of the Ten-n. 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 computation of Percentage
Rent due and payable, shall be made not later than 90 days
after such expiration or termination date. Within such 90
day period, Lessee shall deliver to Lessor
- -16-
an Officer's Certificate setting forth the final
Percentage Rent amount payable to Lessor and payment of
the amount due, if any. If the final reconciliation
provides that Lessor owes Lessee a credit due to an
overpayment of Percentage Rent, Lessor shall reimburse
Lessee for-such overpayment within 30 days following
delivery of the Officer's Certificate.
3.3 Confirmation of Percentage Rent. Lessee shall
utilize, or cause to be utilized, an accounting system for
the Leased Property in accordance with generally accepted
accounting principles consistently applied and the Unifon-
n System, that will accurately record all data necessary
to compute Percentage Rent, and Lessee shall retain for at
least four years after the expiration of each Fiscal Year
(and in any event until the reconciliation described in
Section 3.2 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. In the event of a
conflict between generally accepted accounting principles
and the Uniform System, the Uniform System shall prevail.
Lessor (or its accountants or representatives), at its
expense (except as provided herein), shall have the right
from time to time to audit the information that formed the
basis for the data set forth in any Officer's Certificate
provided under Section 3.2 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. If any such audit
discloses a deficiency in the payment of Percentage Ren@
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 calculated at the Overdue Rate from the due date
for the last quarterly payment of Percentage Rent for the
Fiscal Year to the date of payment thereof; provided,
howdver, that as to any audit that is commenced more than
two 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. If any such audit discloses that the
aggregate Percentage Rent actually due from Lessee for any
Fiscal Year exceed those reported by Lessee by more than
two percent, Lessee shall pay the cost of such audit and
examination. Any proprietary infon-nation obtained by
Lessor pursuant to the provisions of this Section 3.3
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 or purchasers, their
respective attorneys, accountants and other
representatives, or pursuant to any Legal Requirements.
The obligations of Lessee contained in this Section 3.3
shall survive the expiration or earlier termination of
this Lease. The obligations of Lessor set forth in this
Section 3.3 to maintain any proprietary information as
confidential shall survive the expiration or earlier
termination of this Lease.
3.4 Additional Chary-es. 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, costs and expenses necessary to
perform its obligations hereunder and under the Franchise
Agreement, and (b) in the event of any failure on the part
of Lessee to timely pay any of those items referred to in
clause (a) of this Section 3.4, Lessee also will promptly
pay and discharge every fine, penalty, interest and cost
that may be added for nonpayment or late payment of such
items (the items refeffed to in clauses (a) and (b) of
this Section 3.4 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
- -17-
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 (which charges are not payable to Lessor), 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.
3.5 Security Deposit. Lessee shall pay to Lessor a
security deposit in the amount of $O; 12rovided, however.
in the event the obligations of Lessee or Guarantor are
assigned or transferred pursuant to a change of control
permitted under Section 23.4 hereof, such transferee shall
pay Lessor a Security deposit in the arnount of $200,000
(the "Security Deposit"). The total outstanding principal
balance under the Guaranty Agreement shall be reduced by
$200,000, or such lesser amount then outstanding under the
Guaranty Agreement, upon payment of the Security Deposit.
Lessor shall have the right to offset any amounts owing to
Lessor under this Lease against the security deposit.
Subject to this right, upon the termination of this Lease,
Lessor shall refund the security deposit to Lessee,
without interest.
3.6 Conversion of Propea. If, during the Term,
Lessee wishes to cease food and beverage operations at the
Facility, Lessee shall give notice of such desire to
Lessor, which shall require the approval of Lessor which
Lessor may grant or withhold in its sole and absolute
discretion. Lessor and Lessee shall, if such cessation is
to occur, commence negotiations to adjust Rent to reflect
the proposed change to the operation of the Facility, each
acting reasonably and in good faith; provided, however,
that any such adjustment shall confon-n with norrnal
business practice and shall not result in the creation of
a Rent formula based on the income or profits of Lessee.
All other terms of this Lease will remain substantially
the same. During negotiations, which shall not extend
beyond 60 days, Lessee shall not "convert" the Facility
and shall continue fulfilling its obligations under the
existing terms of this Lease. If no agreement is reached
after such 60-day period, Lessee shall withdraw such
notice and this Lease shall continue in full force.
3.7 Annual Revenue Pr!Qje . No later than 30 days
prior to the commencement of each Fiscal Year, Lessee
shall submit Annual Revenue Projections for such Fiscal
Year to Lessor. The Annual Revenue Projections shall be
subject to Lessor's prior approval as to form and content
and shall be in such fonn and shall contain such
information as Lessee included in its annual revenue
projections in accordance with its past practice, and
shall, in any event, include the following:
(a) Lessee's reasonable estimate of Room and
Other Revenues and Food and Beverage
Revenues for the Fiscal Year itemized on a monthly
basis; and
(b) A projection of the Percentage Rent
payable for such Fiscal Year.
Lessee will prepare, for Lessor's approval, quarterly
revisions to such projections, as necessary, to be
delivered to Lessor within 15 days after the end of the
first three calendar quarters of a Fiscal Year.
3.8 Annual Capital Expenditures Budget. Subject to
the provisions of Sections 8.1, 9.2 and
19. 1 (a), Lessor, at its sole expense, shall be
responsible for all Capital Expenditures as defmed in
this Section
3.8 and in accordance with Exhibit I attached hereto and
incorporated herein by reference, provided,
however, Lessor shall not be obligated to make any Capital
Expenditure the need for which Lessor disputes or objects
to in good faith. Not later than 60 days prior to the
commencement of each Fiscal Year or Partial Fiscal Year,
Lessee shall submit to Lessor for Lessoes approval,
Lessee's proposed Annual Capital Expenditures Budget. The
Annual Capital Expenditures Budget (the "Capital
Expenditures Budget") shall be subject to Lessoes approval
and shall contain the following:
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(a) Lessee's estimate of the amounts to be
expended during the upcoming Fiscal Year to renew, replace
or refurbish fixtures, fiimiture and equipment and a
reasonably detailed description of the expenses to be
incurred, and Lessee's estimate of the amount that will be
expended during the upcoming Fiscal Year on capital
repairs, replacements and improvements to the Leased
Improvements, including, but not limited to, the building
envelope, exterior skin and landscaping of the Facility,
together with a reasonably detailed description of the
capital repairs, replacements and improvements that will
be undertaken. The expenditures referred to in this
Section 3.8 are referred to in this Lease as "Capital
Expenditures."
(b) A capital renewal program showing the
major anticipated Capital Expenditures and that will be
incurred over the ensuing three year and five year
periods. Lessor shall have the right to comment on or
approve the Capital Expenditures Budget, which approval
shall not be unreasonably withheld. If Lessor shall not
give its approval to the Capital Expenditures Budget,
Lessee shall revise the Capital Expenditures Budget, as
may be required to obtain Lessor's consent thereto.
The Capital Expenditures Budget shall be consistent with
Lessee's policies as to Capital Expenditures as set
forth on Exhibit I.
3.9 Cal2itat Exl2enditure Reserve. Lessor shall
establish and maintain a reserve to provide for the
Capital Expenditures costs at the Facility. In addition,
Lessor shall reserve a quarterly amount equal to 4%
percent of the Gross Revenue. Subject to the provisions
of Section 19. 1 (a), such reserve shall be used to defer
the costs of Capital Expenditures at the Facility;
provided that Lessor, in its reasonable discretion, shall
be entitled to use such funds for other purposes if
adequate reserves remain for the purpose of Capital
Expenditures at the Facility.
3.10 A1212lication of Capital Exl2enditure Reserve.
When amounts are budgeted and agreed to be spent for
Capital Expenditures, Lessee shall be responsible for the
implementation of the Capital Expenditure program and
shall make periodic draws on the Capital Expenditure
Reserve by the presentation to Lessor of appropriate
documentation, as described below, establishing the
amounts to be paid in accordance with the Capital
Expenditure Budget, and including such other supporting
documentation as Lessor may reasonably require. Without
limiting the foregoing, Lessee shall submit monthly a
request for payment accompanied by waivers and releases of
liens for all subcontractors and materialmen, and a
certification by an authorized officer of Lessee that the
amount requested is within the Capital Expenditures Budget
for the item or items for which payment is being requested
and that the work and payment are strictly in accordance
with Exhibit I (the "Request"). Within five days of
Lessor's receipt of such documentation, Lessor either
shall approve or deny the Request, such approval shall not
be unreasonably withh@ld and shall not be withheld so long
as the work was performed in a workmanlike manner in
accordance with the Capital Expenditures Budget. If
Lessor approves the Request, Lessor will make the
requested payment from the Capital Expenditure Reserve
within ten days of invoice. Lessor and Lessee shall
cooperate in good faith to accomplish such implementation
as quickly as practicable in accordance with sound
business practices.
3.11 Unbudgeted Capital Expenditures. No
disbursements shall be made from the Capital Expenditure
Reserve which are not in accordance with the Capital
Expenditure Budget. However, Lessor and Lessee recognize
tha@ in certain circumstances, Capital Expenditures which
were not budgeted may be necessary. In the following
circumstances, disbursements shall be made for Capital
Expenditures from the Capital Expenditures Reserve even
though such expenditures were not included in the Capital
Expenditure Budget:
(i) When Lessor and Lessee agree to an addition to the
Capital Expenditure Budget; and
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(ii) When the Capital Expenditure is necessary on an
emergency basis for any reason
including the comfort and safety of guests or employees.
3.12 AP-ent Method for Purchases of Cal2ital
Expenditum.
(a) Lessor hereby retains Lessee as an
independent contractor on the terms contained in this
Lease to act for and on behalf of Lessor as Lessoes agent
in connection with the implementation of the Capital
Expenditure program (not to include any Development
Project as contemplated in Section 1.3 hereof) for the
Facility. Lessee's cost analysis shall be based upon the
plans and furnishings set forth in the specifications and
other written information agreed to be implemented under
the Capital Expenditure Budget. Lessee will be
responsible for negotiating purchases of Capital
Expenditures on Lessor's behalf. Lessee agrees to solicit
competitive bids for any Capital Expenditure project in
excess of $7500 and to provide copies of the bids to
Lessor, unless waived in writing by Lessor in advance.
Lessee shall obtain the Lessor's approval, which approval
may be given in its sole and absolute discretion, prior to
engaging any architect, designer, product specifier or
purchasing entity. All purchases will be based on
Lessee's or any Affiliate of Lessee's actual cost, net of
trade discounts (including cash discounts, where
applicable), absent any markup or other profit for Lessee.
Lessor shall have the right to audit documents and
accounts in connection with any Capital Expenditure.
(b) Lessor acknowledges and agrees that
purchase orders relating to any Capital Expenditure for
the Project will be executed by Lessee as agent for and on
behalf of Lessor. Lessor further acknowledges and agrees
that Lessee shall have no liability under this Lease or
otherwise for payment of the Capital Expenditure or for
freight or storage related to the Capital Expenditure
provided that no expenditures shall be made except in
accordance with the Budget and as provided above.
(c) LESSOR ACKNOWLEDGES AND AGREES THAT LESSEE
MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY,
RELATING TO QUALITY, FITNESS OR CAPACITY OF THE WORK DONE
PURSUANT TO CAPITAL EXPENDITURES. Lessor, as purchaser of
the Capital Expenditure, shall have the benefit of any
guarantees and warranties, either express or implied, from
vendors and suppliers of the Capital Expenditure, but
Lessee shall have no liability for any such third party
guarantees or warranties. Lessee will use commercially
reasonable efforts on Lessoes behalf to obtain proper
service for the replacement or coffection of
unsatisfactory Capital Expenditure, but Lessee does not
warrant its ability to obtain such service and Lessee
shall have no obligation or responsibility to replace or
correct any such unsatisfactory Capital Expenditure.
3.13 Lessor's Obligation to Make Cal2ital
Expenditures. Lessor commits to fund aggregate Capital
Expenditures (which amounts shall include the 4% reserve
set forth in Section 3.9 above), as follows: (i) $750,000
during the first 16 months following the Commencement Date
and (ii) $1,500,000 during the first 36 months following
the Commencement Date. During months 37 through 48 of the
Term, Lessor commits to fund Capital Expenditures in an
amount equal to 3% of the Gross Revenues for such time
period less the amount by which the Capital Expenditures
made by Lessor during the first 36 months following the
Commencement Date exceeded 4% of the Gross Revenues over
such 3 6 month period. In addition, Lessor commits to
make aggregate Capital Expenditures (which amounts shall
include the 4% reserve set forth in Section 3.9 above)
over the four years of the Term of this Lease commencing
on the fourth anniversary of the Commencement Date and
ending on the eighth anniversary of the Commencement Date,
in an amount which is equal to or greater than 3% of the
Gross Revenues eamed over such four year period. The Base
Rent shall be increased as set forth in Section 3. 1 (e)
to the extent any such Capital Expenditures exceed the 4%
reserve described in Section 3.9 above. Capital
Expenditures shall include, without limitation, any
Capital
- -20-
Expenditures made in connection with any Development
Project. Except as specifically set forth in this
Lease, Lessor is under no obligation to make Capital
Expenditures except as specifically set forth herein.
ARTICLE IV
4.1 Pament of Taxes and Impositions. Lessee shall
pay all property taxes (except for the items in clauses
(1) through (4) of the definition of "Impositions" set
forth in Article 11 and except for Beach Refurbishment
Impositions). On an annual (Fiscal Year) basis, Lessee
shall be responsible for the first $25,000 of Beach
Refurbishment Impositions, Lessor shall be responsible for
the next $25,000 ($25,000 to $50,000), Lessee shall be
responsible for the next $25,000 ($50,000 to $75,000) and
Lessor shall be responsible for all annual Beach
Refurbishment Impositions in excess of $75,000. Subject
to Article XII relating to permitted contests, each party
will pay, or cause to be paid, all Impositions imposed on
each of them, respectively, before any fme, 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 fumish to
the other party copies of official receipts or other
satisfactory proof evidencing such payments; provided,
however, Lessee shall pay all Impositions in respect of
the Initial FF&E and the Leased Property and this Lease
(other than fees, property taxes and taxes imposed on
Lessoes income from the Leased Property). 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 retums and reports. Lessee shall
file all personal property tax retums in such
jurisdictions where it is legally required to so file.
Lessor, to the extent it possesses the same, and Lessee,
to the extent it possesses the same, will provide the
other party, upon reques@ with cost and depreciation
records necessary for filing retums for any property so
classified as personal property. Where Lessor is legally
required to file personal property tax retums, Lessor
shall provide Lessee with copies of assessment notices in
sufficient time for Lessee to file a protest. Lessee may,
upon notice to Lessor, at Lessee's option and at Lessee's
sole expense, protest, appeal, or institute such other
proceedings (in its or Lessoes name) as Lessee may deem
appropriate to effect a reduction of real estate or
personal property assessments for those Impositions to be
paid by Lessee, and Lessor, at Lessee's expense as
aforesaid, shall fully cooperate with Lessee in such
protest, appeal, or other action. 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,
although Lessee is not liable for the amount of any (i)
Real Estate Taxes or (ii) personal property taxes
attributable to personal property owned by Lessor.
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 Lessoes sole expense. Upon such notice,
Lessee, at Lessoes expense, shall cooperate fully with
such activities.
4.2 Utiliiy Charges. Lessee will be solely
responsible for obtaining 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 attributable to, or used on, under or in the
Leased Property during the Term as such charges become
due.
4.3 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. Lessor shall
pay or cause to be paid all premiupis for the insurance
coverages required to be maintained by it under Article
VIII.
I
ARTICLE V
No Termination, Abatement,Etc. Except as otherwise
specifically provided in this Lease, Lessee,
to the extent permifted by law, shall remain bound by this
Lease in accordance with its terms and shall
- -21-
neither take any action without the written consent of
Lessor to modify, surrender or terminate the saine, nor
seek nor be entitled to any abatement, deduction,
deferment or reduction of the Rent, or setoff against the
Ren@ 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) 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, (c) any bankruptcy, insolvency,
reorganization, composition, readjustment, liquidation,
dissolution, winding up or other proceedings affecting
Lessor or any assignee or transferee of Lessor, (d) any
lawful or unlawful prohibition of, or restriction upon,
Lessee's use of Leased Property, or interference with such
use, or (e) for any other cause whether similar or
dissimilar to any of the foregoing. Except as otherwise
specifically provided in this Lease, 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) abate, reduce,
suspend or defer 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.
ARTICLE VI
6.1 Ownershil2 of the Leased Propea. Lessee
acknowledges that the Leased Property is the propert7y 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 Propegy. Throughout the Term,
Lessee will acquire, own, maintain and replace such
personal property (other than Capital Expenditures) and
Inventory as is required to operate the Leased Property as
a hotel and, otherwise, in the manner contemplated by this
Lease. At all times during the Term, Lessee shall
maintain an adequate and customary supply of Inventory
consistent with historical practices and Franchisor
requirements, if any. Lessee may (and shall as provided
herein below), 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 (collectively, the
"Lessee's Personal Property"). 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 the Lessee's Personal Property. Lessee
may, subject to the conditions set forth in this Section
6.2, Section 6.3, Section 6.4 and Section 36, remove any
of Lessee's Personal Property set forth on such list
(other than any items of Initial FF&E) at any time during
the Term or upon the expiration or any prior termination
of the Term; provided, however, that any fixtures,
fumiture, equipment or capital improvement purchased by
Lessee as Capital Expenditures or in replacement of any
item of Initial FF&E shall be a part of the Facility and
the Leased Propert7y upon the acquisition, installation or
construction thereof and shall be and remain the property
of Lessor upon expiration of the Terin or earlier
termination of this Lease. All of Lessee's Personal
Property not removed by Lessee within ten 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.l(b), including
repair of all damage to the Leased Property caused by the
removal of Lessee's Personal Property, whether effected by
Lessee or Lessor. Lessee may make such financing
arrangements, title retention agreements, leases or other
agreements with respect to the Lessee's Personal
Property'as it sees fit provided that Lessee first advises
- -22-
Lessor of any such arrangement and such arrangement
expressly provides that in the event of Lessee's default
thereunder, Lessor may assume Lessee's obligations and
rights under such arrangement.
6.3 Lessoes Lien. To the fullest extent permitted
by applicable law, Lessor is granted a lien and security
interest on all of Lessee's Personal Property (including,
without limitation, the Initial FF&E) now or hereinafter
placed in or upon the Leased Property, and such lien and
security interest shall remain attached to Lessee's
Personal Property until payment in fWl of all Rent and
satisfaction of all of Lessee's obligations hereunder;
provided, however, Lessor shall subordinate its lien and
security interest to any purchase money security interest
of any non-Affiliate of Lessee which finances the purchase
of such 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,
estoppel certificates and other documents or instruments
reasonably requested by Lessor to perfect the lien and
security interests herein granted. The lien and security
interest granted hereunder shall be evidenced by a
Security Agreement executed by Lessee in favor of Lessor
in the forrn of Exhibit J attached hereto and incorporated
by reference.
6.4 Initial FF&E. Lessor acknowledges that Lessee
is the owner of the Initial FF&E. Notwithstanding the
immediately preceding sentence, for purposes of the
following provisions of this Lease, the terrn "Leased
Property," when used in such provisions shall include the
Initial FF&E: 8.1, 8.2, 8.3, 9.1, Article XI, 13.1, 13.6,
14. 1, and 14.2. Upon termination of this Lease on the
basis of a default by Lessee hereunder, Lessor shall
retain an appraiser to appraise the value, on a
liquidation basis, of any remaining Initial FF&E used in
the operation of the Leased Property (the "Appraised
Value"). Upon any such termination, Lessee shall convey
to Lessor by bill of sale and other appropriate
instruments of conveyance any Initial FF&E used in the
operation of the Leased Property (the "Conveyance"). In
consideration of the Conveyance, any damages suffered by
Lessor by reason of Lessee's default shall be offset and
reduced by the amount of the Appraised Value.
ARTICLE VII
7.1 Condition of the Leased Prope!iy. 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,"
"where is" and with "all faults," in its present
condition. Lessee waives any claim or action against
Lessor in respect of the condition of the Leased Property
existing as of the Commencement Date.
THE LEASED PROPERTY IS DEMISED IN ITS PRESENT
CONDITION WIT'HOUT REPRESENTATION OR WARRANTY (EXPRESSED
OR IMPLIED) BY LESSOR AND SUBJECT TO THE RIGHTS OF PARTIES
IN POSSESSION, AND TO THE EMSTFNG STATE OF TLTLE INCLUDING
ALL CURRENT AND FUTURE COVENANTS, CONDITIONS,
RESTRICTIONS, EASEMENTS AND OTHER MATTERS (NOT LINHTED TO
ITEMS OF RECORD) INCLUDING ALL APPLICABLE LEGAL
REQUIREMENTS, TBE LIEN OF FINANCING INSTRUMENTS,
MORTGAGES, DEEDS OF TRUST AND SECURITY DEEDS, AND
INCLUDING OTHER MAT-RERS WHICH WOULD BE DISCLOSED BY AN
INSPECTION OF THE LEASED PROPERTY OR BY AN ACCURATE SURVEY
THEREOF. LESSOR MAKES NO WARRANTY OR REPRESENTATION,
EXPRESS OR IMPLIED, IN RESPECT OF nt LEASED PROPERTY, OR
ANY PART THEREOF, EITHER AS TO ITS FIT'NESS FOR USE,
DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR
OTHERWISE, AS TO THE QUALITY OF THE MATERIAL OR WORKMANSI-
HP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL
SUCH RISKS ARE TO BE BORNE BY LESSEE. LESSEE ACKNOWLEDGES
THAT TBE LEASED PROPERTY HAS BEEN INSPECTED BY LESSEE AND
IS SATISFACTORY TO IT. Notwithstanding the foregoing,
however, to the extent permitted by law, Lessor hereby
assigns to Lessee
- -23-
all of Lessor's rights to proceed against any predecessor
in title other than Lessee (or an Affiliate of Lessee
which conveyed the Leased 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 naine, all at Lessee's sole cost and expense.
Lessee hereby agrees to indemnify, defend and hold
harinless Lessor from and against any claims, obligations
and liabilities against or incurred by Lessor in
connection with such cooperation. All amounts recovered
that are attributable to the period after the Terin shall
belong to Lessor.
7.2 Use of the Leased Pro@.
(a) Lessee covenants that it will
proceed with all due diligence and will
exercise its best
efforts (excluding the making of any extraordinary
payments) to obtain and to maintain all
approvals needed
to use and operate the Leased Property and the Facility
under applicable local, state and federal
law.
(b) Lessee shall use or cause to be used the
Leased Property only as a hotel facility (including food
and beverage operations) of a caliber consistent with its
present use, and for such other uses as may be necessary
or incidental to such use or such other use as otherwise
app@oved 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 Lessoes 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 cancellation
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 undenvriter'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 MV and XV Lessee covenants and
agrees that
during the Tenn it will (1) maintain, at a minimum, the
current ratings for the Facility by AAA
and Mobil,
if so rated, (2) operate continuously the Leased Property
as a hotel facility of the class
currently operated at
the Leased Property, (3) keep in full force and effect and
comply with all the provisions of the Franchise Agreemen@
(4) not terminate or amend the Franchise Agreement without
the consent of Lessor, (5) maintain appropriate
certifications and licenses for such use and otherwise
comply with all Legal Requirements (subject to Lessor's
obligations under Section 9.1(c)), (6) seek to maximize
the gross revenues generated therefrom consistent with
sound business practices and (7) not allow the Facility to
become in Poor Standing under a Franchisor guest
satisfaction rating system.
(d) Lessee shall not commit or suffer to be committed
any waste on the Leased Property,
or in the Facility, nor shall Lessee cause or permit any
nuisance thereon.
(e) Lessee shall neither suffer nor permit the
Leased Property or any portion thereof, or Lesspe's
Personal Property, to be used in such a manner as (1)
might reasonably tend to impair Lessor's
I
(or Lessee's, as the case may be) title thereto or to any
portion thereof, or (2) may reasonably make possible a
clairn 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, subject to
Lessor's prior consent.
(f) Neither Lessee nor an Affiliate of Lessee, nor any
of their successors or assigns shall
operate or manage any hotel, motel, resort or other
lodging facility that is within a three mile radius of the
- -24-
Hotel, other than (i) pursuant to this Lease or another
lease, agreement or arrangement with Lessor or an
Affiliate of Lessor, (ii) any hotel, motel, resort or
other lodging facility operated or managed by Lessee or an
Affiliate of Lessee on the date hereof and (iii) the
Sanibel Harbor Resort & Spa, the Outrigger Beach Resort
and Diamond Head Beach Resort.
(g) Lessee shall not use, generate, handle,
dispose or store Hazardous Materials on the Leased
Property, except in the nonnal course of operations of the
Leased Property as a hotel and in compliance with all
Environmental Laws.
(h) Lessee shall not enter into any
collective bargaining agreements with
respect to any of
the employees at the Leased Property without the prior
consent of Lessor, which shall not be
unreasonably
withheld or delayed, unless required by law.
(i) Lessee hereby assumes and agrees to perforin all of
the obligations of Lessor under all
leases in effect at the Leased Property as of the date of
commencement of the Term.
0) Lessee represents that, as of the date
hereof, its sole business activity consists of, and Lessee
covenants that, during the Tenn hereof, its sole business
activity shall consist of the lease and operation of the
Leased Property.
7.3 Lessor to Grant Easements, Etc. Lessor will,
from time to time, so long as no Event of Default has
occuffed 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 Property for
road, highway or other public purposes, (d) execute
petitions to have the Leased Property annexed to any
municipal corporation or utility distric@ (e) execute
amendments or additions to any covenants and restrictions
affecting the Leased Property and (f) execute and deliver
to any Person any instrument appropriate to confinn 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 is
beneficial to 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 Coml2liance with Legal, Insurance Requirements,
Lessoes Ins@rance and Tax Obligations, Subject to Article
XII relating to permitted contests, Lessee, at its
expense, will promptly (a) comply and cause the Leased
Property to comply with all applicable Legal Requirements
and Insurance Requirements in respect of the use,
operation, maintenance, repair and restoration of the
Leased Property; provided, however, that Lessor shall be
responsible for all Capital Expenditures and the items in
clauses (1) through (4) of the definition of "Impositions"
set forth in Article H, unless the need for such Capital
Expenditure is the result of Lessee's negligence (except
to the extent waived pursuant to Section 13.6), misconduct
or an Alteration (defined herein) made by or commenced by
Lessee other than Alterations contained in the Capital
Expenditure Budget, 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.
- -25-
8.2 Legal Requirements Covenants. 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 deten-
nined by a court of competentjurisdiction to be unlawful
(and Lessee shall cause all such sub-tenants, invitees or
others to so comply with all Legal Requirements). Lessee
may, however, upon prior Notice to Lessor, and subject to
the provisions of Article XI[I, 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 lien, charge or liability of any kind
against the Facility 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, may nonetheless contest as aforesaid and delay
as aforesaid provided that such delay would not subject
Lessor to criminal liability and Lessee both (a) fumishes
to Lessor security reasonably satisfactory to Lessor
against any loss or injury to Lessor by reason of such
contest or delay and (b) prosecutes the contest with due
diligence and in good faith.
8.3 Environmental Covenants. In addition to, and not
in diminution of, Lessee's covenants and
undertakings in Sections 8.1 and 8.2 hereof, Lessee
covenants and undertakes with Lessor as follows:
(a) At all times hereafter until such time as
all liabilities, duties or obligations of Lessee to the
Lessor under the Lease have been satisfied in full, Lessee
shall fully comply with all Environmental Laws applicable
to the Leased Property and the operations thereon, enforce
any O&M program adopted by Lessor relating to the
Facility, and treat encapsulated products properly during
renovations or otherwise, subject to Lessoes obligation to
pay for Capital Expenditures. Lessee agrees to give
Lessor prompt written notice of (1) all Environmental
Liabilities; (2) all pending, threatened or anticipated
Proceedings, and all notices, demands, requests or
investigations, 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 or near 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 a:ny and all Identified Environmental
Liabilities and Unidentified Enviromnental Liabilities, in
all cases, which were caused by the acts or negligent
failures to act of Lessor. Lessor' ' s responsibility to
indemnify Lessee under this subsection (b) shall survive
th.e termination of this Lease.
(c) Lessee hereby agrees to defend, indemnify
and save harmless any and all Lessor Indemnified Parties
from and against any and all Unidentified Envirom-nental
Liabilities caused by the acts or negligent failures to
act of Lessee. Notwithstanding the foregoing, to the
extent any such Environmental Liability was caused by the
acts or negligent failure to act of Lessee prior to the
Commencement Date,
- -26-
Lessee shall defend, indemnify, and save Lessor hannless
only to the extent Messrs. Bogott or Naylor, or Ms.
Camarillo knew or should have known in their capacities as
employees or officers of Lessee, Guarantor or any
Affiliate of Lessee or Guarantor, of any such act or
failure to act. Lessee's responsibility to indemnify
Lessor under this subsection (c.) shall survive the
termination of this Lease.
(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) (an
"Indemnified Environmental Liability"), 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; 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. The
Indemnifying Party shall not be liable for any settlement
of any such Proceeding made without its consent, which
shall not be unreasonably withheld, but if settled with
the consent of the Indemnifying Party, or if settled
without its consent (if its consent shall be unreasonably
withheld), or if there be a final, nonappealable judgment
for an adversarial 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.
For purposes of this Section 8.3, all amounts for
which any Indemnitee seeks indemnification shall be
computed net of (a) any actual income tax benefit
resulting therefrom to such Indemnitee, (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
Indemnitee 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
Indemnitee agrees to use its reasonable efforts to pursue,
or assign to Lessee, any claims or rights it may have
against any third party which would materially reduce the
amount of damages otherwise incurred by such Indemnitee.
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 this 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 the 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
Indemnified Environmental
Liabilities relating to or specifically affecting the
Leased Property; and
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(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.
(e) At any time any Indemnitee has reason to
believe circumstances exist which could reasonably result
in an Indemnified Enviromnental Liability, upon reasonable
prior written notice to Lessee stating such Indemnitee's
basis for such belief, an Indemnitee 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 Legal
Requirements and the safety of personnel and facilities or
to protect confidential or privileged information. All
Indemnitees 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.
8.4 Asset Management Covenants.
(a) Lessee covenants and agrees to maintain a
REVPAR of at least 122.4% of the REVPAR of the Competitive
Set for each calendar year or similar comparative period.
Lessee will not reposition the mix of customers
historically serviced by the Facility such that a Customer
Ratio increases or decreases over a Fiscal Year by more or
less than 50% of the prior year's Customer R@tio.
Notwithstanding the foregoing, Lessee shall not be in
breach of this covenant and shall not be in default
pursuant to Section 16. 1 (n) unless Lessor is in
compliance with Section 3.13 hereof
(b) Lessee shall permit Lessor, upon
reasonable notice, access to the Hotel's General Manager,
executive committee and other key personnel as Lessor may
elect to interview, to obtain information regarding the
programs and policies in effect at the Hotel, including,
without limitation, any programs or policies directly or
indirectly relating the Lessee's compliance with Section
8.4(a). Upon request by Lessor, Lessee shall promptly
fumish Lessor with any and all reports, policies or
programs in effect at the Hotel.
(c) Upon request by Lessor, Lessee will
provide Lessor with regular "flash" reports or other
reports reasonably requested by Lessor to allow Lessor to
remained informed about changing conditions at the Hotel
and in the market in which the Hotel operates.
(d) Within 20 days following the end of each
calendar month, lessee shall fumish Lessor with a
statement (in such form and detail as Lessor may require
from time to time) reflecting the computation of each rent
calculation set forth in Section 3 hereof, including any
month-end adjustments, write-offs or other items which
would impact the rent calculations.
8.5 Net Wortb Rel2resentations/Covenants.
I
(a) Lessee represents and warrants that as of
the date hereof, Lessee has a Consolidated Net Worth of at
least $2,000,000 (Consolidated Net Worth for this Section
8.5 shall exclude any Consolidated Net Worth attributable
to Lessee's $2,000,000 payment made to obtain the Initial
FF&E). Lessee shall retain such portion of the Lessee's
After Tax Eamings as is necessary to cause its
Consolidated Net Worth to remain at least equal to
$2,000,000. Lessee shall also be prohibited from paying,
or entering in to any agreement obligating it to pay, any
fee, salary or other compensation or stim to an Affiliate
of
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Lessee which would, or could, result in a reduction of the
Net Worth of the Lessee below $2,000,000 except
to the extent such payment is made pursuant to an
Operational Agreement as defined in Section 23.3 hereof.
Except as provided herein,(a) Lessee's assets
shall consist solely of cash, marketable securities,
accounts receivable relating to hotel revenues,
inventories and other assets customarily associated with
the operation of a hotel, and (b) no portion of the assets
of Lessee shall be comprised of (i) advances, accounts
receivable, or other claims against an Affiliate of the
Lessee, or (ii) any long term or illiquid asset as defined
under GAAP. Notwithstanding the preceding sentence, up to
$1,900,000 of the assets may be comprised of the Guaranty
Agreement and up to $2,000,000 of the assets may be
comprised of any asset relating to Lessee's $2,000,000
payment made to purchase the Initial FF&E (which
$2,000,000 amount will be excluded from Net Worth in any
case).
"After Tax Eamings," for any period, means the
consolidated net income of Lessee and its subsidiaries
(determined in accordance with Generally Accepted
Accounting Principles ("GAAP") for that period, less the
Tax Distribution Amount for that period.
The "Tax Distribution Amount," for any period,
means the hypothetical combined incremental federal, state
and local business, income tax liabilities of Lessee's
members and their shareholders (without duplication of
amounts) for that period, as reasonably computed by Lessee
by using the statutory rates applicable to and computed
solely upon the taxable income, gain, loss, deductions and
credits of Lessee for that period, but no liability so
computed may be less than zero. -
8.6 Room Rate Covenant. Lessee covenants and agrees
that, for any 30 day period, revenue attributable to rooms
sold at a rent below 50% of the Average Daily Rate, will
not exceed five percent of the Rooms and Other Revenues.
ARTICLE 12i
9.1 Maintenance and Rel2air.
(a) Subject to Lessor's obligation to make
Capital Expenditures and performance of Lessoes
obligations under Subsection 9. 1 (c), Lessee, at its sole
expense, shall keep the Leased Property in good order and
repair, consistent with standards for a first class,
upscale, full service hotel. Not later than 3 0 days
prior to the commencement of each Fiscal Year or Partial
Fiscal Year, Lessee shall submit to Lessor a detailed
maintenance and repair plan (the "M&R Plan") and budget.
Lessor shall have the right to require reasonable
increases to the M&R Plan in order to maintain the
Facility as a first class, upscale, full service hotel.
Lessee shall permit Lessor and its authorized
representatives, as frequently as reasonably requested by
Lessor, to inspect the Leased Property and to require
Lessee to take such reasonable actions necessary to keep
the Leased Property in good order and repair, consistent
with standards for a first class, upscale, full service
hotel and consistent with Franchisor requirements.
Except as otherwise provided in Section 9. 1
(b), Article XIV or Article X'V, and subject to Lessor's
obligation to make Capital Expenditures, Lessee shall,
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 or by
Franchisor, or by Lessor, or by any company maintaining
insurance with respect to the Leased Property. Lessee,
however, shall be permitted
- -29-
upoii prior written notice to Lessor to prosecute claii-ns
against Lessor's predecessors in title for breach of any
representation or warranty or for any latent defects in
the Leased Property to be maintained by Lessee unless
Lessor is already diligently pursuing or elects to
diligently pursue such a claim. 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) Lessee shall, 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 the Lease and
except for ordinary wear and tear (subject to the
obligation of Lessee to iiiaiiitaiii the Leased Property
iii good order and repair, as provided in Subsectioii 9. 1
(a)), dainage by casualty or Coiideiiinatioii, aiid
Lessor's obligations with respect to Capital Expenditures.
Lessee shall, upon expiration or prior termination of the
Term, restore the Inventory to the levels at or in excess
of those in existence upon the Comi-nencement Date.
(c) Lessor shall be responsible for and pay for items
of a capital nature as defined in
Exliibit I and to make Capital Expenditures, all as
required by and provided in Section 3.8
9.2 Encroachments, Restrictions, Etc. If, as a
result of any act or omission by Lessee, any of
the Leased Improvements, at any time, 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 riglit-of-way to which the Leased
Property is subject (each of the foregoing conditions
being referred to herein as an "Encroachment"), then
promptly upon the request of Lessor or at the beliest of
atiy persoii affected by any SLIcii encroachment,
violation or impairment, Lessee shall, at its expense,
subject to its right to coiitest the existence of any
encroachment, violation or impairment and in such case, in
the event of an adverse final determination, eitlier (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 of the Leased Improvements
were operated prior to tile assertion of such violation,
impairment or encroachment. If any such alteration is
required for any reason other than Lessee's willful
misconduct or gross negligence and such alteration
satisfies the definition of "Capital Expenditure" set
forth iii Sectioii 3.8, tile cost of such alteration shall
be treated as Capital Expenditures and be performed
pursuant to Section 3.8. Any such alteration shall be made
in conformity with the applicable requirements of Article
X. Nothing contained lierein shall be construed as
imposing on Lessee any liability for, or responsibility
for remedying the effects of, any Encroaciii-nent occuff
ing other than as a result of any willful iiiiscoiiduct or
gross iiegligeiice of Lessee, unless sucli liability is an
operating or maintenance aiid repair expetise. 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 Lessor.
- -30-
ARTICLE X
10.1 Alterations. Lessee shall have the right, with
the prior approval of Lessor to make additions,
modifications or improvements to the Leased Property in
connection with the Primary Intended Use (collectively,
"Alterations"), provided that such action shall not
significantly alter the character or purposes or
significantly detract from the value or operating
efficiency thereof and will not impair the
revenueproducing capability of the Leased Property or
adversely affect the ability of Lessee to comply with the
provisions of this Lease. As a condition of its approval,
Lessor may retain the right to separately approve all
plans and specifications related to any additions,
modifications or improvements. Lessor may @er require
Lessee to obtain appropriate completion bonds and to
provide for the removal of any improvements upon the
termination of this Lease. The cost of such Alterations
shall, subject to Lessoes obligations to make Capital
Expenditures, be paid by Lessee, and all such Alterations
shall be included under the terms of this Lease and upon
expiration or earlier termination of the 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 or
alterations required or permitted by Article 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 AP-reements. 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
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.
ARTICLE XI
Liens. Subject to the provision 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, if any, included
as exceptions in the title policy insuring Lessoes
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 Impositions upon Lessor which Lessee is not required
to pay hereunder, (e) subleases pen-nitted by Article
XXIII 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 under any related contract for more
than 60 days after the completion of the action giving
rise to such lie@ 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 XXXIII of this Lease, or result
from Lessoes wrongful failure to pay for Capital
Expenditures.
- -31-
ARTICLE XII
Pennitted 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 titne 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 the Leased Property, or any part thereof, or
cause Lessor or Lessee to be in default under any
mortgage, deed of trust or security deed encumbering the
Leased Propert7y 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 arnount 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 fumish Lessor and any lender of
Lessor with reasonable evidence of such deposit within
five days of the same. Lessor agrees tojoin in any such
proceedings if the same be required to legally 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
paragraph and to diligently prosecute any contest of the
same, Lessor may, upon ten days advance Notice to Lessee,
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. Lessee, at its
sole cost and ex ense, shall at all times keep
. p the
Leased Property and the Facility (including all personal
property) insured with the kinds and amounts of insurance
described below and as more specifically described on
Exhibit K hereto and in compliance with
any Franchise requirements; provided, however, that as to
both Lessoi's and Lessee's insurance requirements,
the kinds and amounts of insurance required are reasonably
available for purchase from insurance companies
(i) authorized to write insurance in the State and (ii)
with a minimum financial stability rating (A.M. Best
Rating) of "A- VII" (or as otherwise reasonably acceptable
to Lessor). The insurance shall be maintained in the
amounts set forth ' below with deductibles in amounts
reasonably acceptable to Lessor. Losses shall be payable
to Lessor and/or its lenders. Any loss adjustment shall
require the written mutual consent of Lessor and Lessee,
each acting reasonably and in good faith. Evidence of
insurance shall be provided to Lessor on the date hereof,
and evidence of renewal shall be provided, through a
binder of insurance, prior to expiration of any policy
required hereunder. Copies of all insurance policies
shall be delivered to Lessor as soon as they
are.available.
- -32-
(a) Lessee shall provide personal propert7y coverage
on Lessee's and Lessor's personal
property, including, without limitation, the Initial FF&E.
(b) Lessee shall provide loss of income/business
interruption insurance on the "special
form" with proceeds to be in the amount specified in
Exhibit K.
(c) Lessee shall provide commercial general
liability insurance, with limits of not less than
$10,000,000 per occurrence, together with excess liability
coverage with limits of not less than $50,000,000 per
occurrence covering the following: bodily injury, death or
property damage, personal and advertising injury, products
and completed operations liability, and all risk legal
liabili . ty including, but not limited to liquor law and
dram shop liability all insuring both Lessor and Lessee.
All requirements shall be in conformance with Exhibit K,
incorporated by attachment to this document. Lessee shall
add Lessor as "Additional Insured" to Lessee's policy of
insurance.
(d) Lessee shall provide insurance covering
such other hazards and in such ainounts that may be
customary for comparable properties in the vicinity of the
Leased Property and reasonably acceptable to Lessor and
available from insurance companies, authorized to do
business in the state, and each with a minirnum financial
stability rating (A.M. Best Rating) of at rates "A-Vll,"
at rates which are economically practicable in relation to
the risks covered as may be reasonably required by Lessor.
(e) Lessee shall provide fidelity bonds with
limits and deductibles which may be reasonably requested
by Lessor, covering Lessee's employees and crime and other
insurance as may be reasonably required by Lessor.
(f) Lessee shall provide Worker's Compensation
Insurance and Employees Liability
Insurance with limits of not less than $1,000,000 per
Exhibit K.
(g) Lessee shall provide automobile liability
insurance for owned, non-owned, and hired vehicles with
limits of not less than $10,000,000 per accident. In
addition, physical damage insurance on owned vehicles will
be carried.
(h) Lessee shall provide for such other
insurance as Lessor may reasonably request for facilities,
such as the Leased Property and the operation thereof,
consistent with Lessee's or Lessoes obligation hereunder.
(i) Lessee shall provide building insurance on the
"Special Fonn" (formerly "All Risk"
fonn) in an amount and covering such risks as Lessor may,
in its sole and absolute discretion, require from
time to time.
0) Lessee shall provide insurance on the
"Comprehensive Coverage Form" for loss or dainage (direct
or indirect) from steatn boilers, pressure vessels,
electrical and mechanical systems, heating, ventilation
and air conditioning ("HVAC") systems or similar
apparatus, now or hereafter installed in the Facili@, in
an amount and covering such risks as Lessor may, in its
sole and absolute discretion, require from time to time.
13.2 Increase in Limits. If either Lessor or Lessee
at any time deems the limits of bodily injury or property
damage liability under the commercial general 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; provided, however, that such
limits shall not be reduced
- -33-
below a minimum limit of $10,000,000 per occurrence.
Thereafter, such insurance shall be carried with the
limits thus agreed on until ftirther change pursuant to
the provisions of this Section 13.2.
13.3 Blanket P li@c . Notwithstanding anything to the
contrary contained in this Article XIII, Lessee's
obligations to carry the insurance provided for herein may
be brought within the coverage of a socalled blanket
policy or policies of insurance; provided, however, that
the coverage afforded will not be reduced or diminished or
otherwise be different from that which would exist under a
separate policy meeting all 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.
13.4 No Sel2arate Insurance. Lessee on its own
initiative, or pursuant to the request or requirement of
any third party, shall not (i) take out separate insurance
concuffent in form or contributing in the event of loss,
with that required in this Article XIII, or (ii) increase
the amount of any then-existing insurance by securing an
additional policy or additional policies, unless all
parties having an insurable interest in the subject matter
of the insurance, are included therein as additional
insureds, and the loss is payable under such additional
separate insurance in the same manner as losses are
payable under this Lease. The party obtaining such
separate insurance shall notify the other party of the
obtaining of any such separate insurance or of the
increasing of any of the amounts of the then-existing
insurance. Notwithstanding the foregoing, Lessee may
obtain insurance with respect to its leasehold interest
hereunder so long as such insurance will not, under any
circumstances, reduce the amount of insurance payable to
Lessor pursuant to insurance policies obtained in
accordance with Article XIII.
13.5 Rel2orts of Insurance Claims. Lessee shall
immediately investigate and make a written report to the
appropriate insurance company as to all accidents; claims
for damage relating to the ownership, operation, and
maintenance of the building and Leased Improvements; any
damage or destruction to the building and Leased
Improvements and the estimated cost of repair thereof; and
shall prepare any and all reports required by any
insurance company in connection therewith. A Proof of
Loss shall be provided to the Lessor for approval prior to
payment of above property claims. All settlements and
compromises shall be made only with the prior written
consent of Lessor.
13.6 Waiver of Subroization.
(a) All insurance policies covering the Leased
Property, the Fixtures, the Facility or any personal
property, including, without limitation, contents, fire,
property and "special perils" insurance, shall expressly
waive any right of subrogation on the part of the insurer
against the other party and each party agrees to release
the other party for any and all liability and
responsibility to the other party, or anyone claiming
through or under them by way of subrogation or otherwise,
for any loss or damage to Property caused by fire or other
casualty included in the extended coverage, even if such
casualty shall have been caused by the negligence of the
other party, or anyone for whom such party may be
responsible, but only to the extent such releasing party
is reimbursed from applicable insurance. Such policies
will include such waiver clause or endorsement so long as
the same are obtainable without unreasonable 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.
(b) All insurance policies covering loss of
income and business interruption shall expressly waive any
coinsurance penalty and resulting reduction in insurance
proceeds; provided that a waiver of coinsurance is
available with respect to a given insurance policy.
- -34-
13.7 Fonn Satisfactoiy. Etc. . All of the policies
of insurance referred to in this Article XIII shall be
written in a form satisfactory to Lessor. Each party
agrees that it will not unreasonably withhold its approval
as to the form of the policies of insurance or as to the
insurance companies selected. All premiums therefor shall
be paid and such policies or binders delivered and
followed with duplicate policies as issued thereof to the
other party prior to their effective date (and, with
respect to any renewal policy, 30 days prior to the
expiration of the existing policy), and in the event of
the failure of the party required to provide such
insurance either to effect such insurance as herein called
for or to pay the premiums therefor, or to deliver such
policies or certificates thereof at the times required,
the other party shall be entitled, but shall have no
obligation, to effect such insurance and pay the premiums
therefor, which premiums shall be repayable 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, that it will
give 30 days'written notice before the policy or policies
in question shall be materially altered, not renewed or
canceled.
13.8 - Failure to Obtain Insurance. In-the event
that Lessee shall fail to obtain or maintain any such
insurance, Lessor shall have the right but not the
obligation, to obtain such insurance and to charge the
premium cost of such to Lessee as Additional Charges.
13.9 Self-Insured Deductible. The Lessee shall
maintain or cause the Mariner Group or Guarantor to
maintain a "self-insured fund" to cover 100% of the
highest per occurrence deductible or selfinsured retention
in Lessee's insurance program. Lessee shall keep any
self-insured deductible fund fully funded at all times,
and shall replenish said fund on a regular basis if it is
depleted due to a peril insured against. The fund shall
be available to Lessee and Lessor to pay any insurance
deductible.
Lessor shall be notified immediately of any change in
deductible amount or funding amount
of any self insurance deductible fund.
Lessee agrees to contribute to said fund based
on the value of the Leased Property to the total insured
values of all properties in the insurance program;
provided, however, in the event that any of the other
contributors to the fund fail to make their respective
contributions, Lessee shall immediately contribute such
amounts necessary to replenish the fund in ftill and shall
take immediate action to recover the additional
contributions from the noncontributing parties. Any
contributions made to replenish fund on behalf of
noncontributing parties shall not reduce the Guarantor's
obligations under the Guaranty. The Mariner Group agrees
to indemnify and hold Guarantor and Lessee harmless for
any cost, expense, payment or liability incurred by
Guarantor or Lessee in connection with the payment of any
amounts into said fund on behalf of a noncontributing
party.
ARTICLE XIV
14.1 Insurance Proceeds. 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 by the payor to Lessor. If for any reason such
proceeds are paid to any Person other than Lessor,lthe
recipient shall suffender all proceeds to Lessor to be
held in trust by Lessor in an interest-bearing account
(subject to the provisions of Section 14.6). The net
proceeds shall be made available for reconstruction or
repair, as the case may be, of any damage to or
destruction of the Leased Property, or any portion
thereof, and 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. Any
excess proceeds of insurance remaining after the
completion of the restoration or reconstruction of the
Leased Property shall
- -35-
be paid to Lessor. If Lessor is not required to, and
elects not to, repair and restore, and the Lease is
terminated as described in Section 14.2(a), all such
insurance proceeds shall be retained by Lessor.
14.2 Reconstruction in the Event of Damaize or
Destruction Covered by Insurance.
(a) If during the Term the Leased Property is
totally or partially damaged or destroyed by a risk
covered by the insurance described in Article XIII and the
Facility thereby is -rendered Unsuitable for its Primary
Intended Use or following such casualty the Facility is
Uneconomic for its Primary Intended Use, Lessor shall, at
Lessor's option, either (1) restore the Facility 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) terminate
this Lease by Notice to Lessee given within 90 days of the
date of such damage or destruction. If Lessor determines
to terminate this Lease, the Lease will terminate as of
the date specified in Lessor's notice not later than 60
days after such notice without further liability hereunder
(other than liability stated to survive the expiration or
termination hereof) and Lessor shall be entitled to retain
all insurance proceeds. If Lessor determines to restore
the Facility, Lessor shall notify Lessee prior to 270 days
following the occurrence of the event rendering the
Facility Unsuitable for its Primary Intended Use (the
"Casualty Event") if the Facility will be substantially
restored prior to 365 days following the Casualty Event.
If Lessor fails to notify Lessee within such 270 day
period or notifies Lessee that Lessor will be unable to
substantially restore the Facility within such 365 day
period, then Lessee may elec@ by providing Lessor with
written notice within 30 days of the expiration of the 270
day period, to terminate this Lease upon expiration of the
365 day period. Notwithstanding the foregoing, Lessee
shall not have the option to terminate this Lease if
Lessor agrees, within ten days following its receipt of
Lessee's election to terminate under this subsection, to
abate Lessee's Rent in a manner that Lessor and Lessee
agree is fair, just and equitable to both Lessor and
Lessee taking into consideration, among other relevant
factors, the number of usable rooms, the amount of square
footage, and the Gross Revenues affected by such Casualty
Event.
(b) Except as provided in Section 14.6, if
during the Term the Leased Property is partially damaged
or destroyed by a risk covered by the insurance described
in Article XIII, but the Facility is not thereby rendered
Unsuitable for its Primary Intended Use, provided the
Facility is not Unecomonic for its Primary Intended Use,
Lessor shall restore the Facility to substantially the
same condition as existed immediately before the damage or
destruction and otherwise in accordance with the ten-ns of
this Lease to the extent it can reasonably do so with the
net insurance proceeds actually received in respect to
such damage or destruction. Such damage or destruction
shall not terminate this Lease; provided, however, that if
Lessor cannot within a reasonable time, obtain all
necessary govemm@nt approvals, including building permits,
licenses and conditional use permits (which time period
shall not be less than 180 days), after diligent efforts
to do so, in order to be able to perform all required
repair and restoration work and to operate the Facility
for its Primary Intended Use in substantially the same
manner as that existing immediately prior to such damage
or destruction and otherwise in accordance with the terms
of this Lease, this Lease shall terminate on the date
which is 30 days after Lessor shall have notified the
Lessee of the passage in such Lessor's reasonable
determination of such reasonable period of time.
1. (c) If Lessor elects to repair or restore the
Leased Property pursuant to Section 14.2(a),
and thd cost of the repair or restoration exceeds the net
amount of proceeds received by Lessor from the
insurance required under Article XIII, Lessor shall be
obligated to contribute any excess amounts needed
to restore the Leased Property.
(d) If Lessor elects to repair or restore the
Facility pursuant to Section 14.2(a) or is required to
restore the Facility'pursuant to Section 14.2(b) and the
Facility cannot be-repaired or replaced to the original
specifications due to local ordinances or building laws,
then Lessor shall have the option to
- -36-
rebuild the Facility to the specifications permitted by
such ordinances or laws and Lessor shall abate Lessee's
Rent in a manner that Lessor and Lessee agree is fair,
just and equitable to both Lessor and Lessee taking into
consideration, among other relevant factors, the number of
usable rooms, the amount of square footage, and the Gross
Revenues affected by such Casualty Event.
14.3 , Reconstruction in the Event of Damage or
Destruction Not Covered by Insurance. Except as provided
in Section 14.6 below, if during the Tenn the Facility is
totally or materially destroyed by a risk not covered by
the insurance described in Article XIII (whether or not
actually obtained or in full force), whether or not such
damage or destruction renders the Facility Unsuitable for
its Primary Intended Use, Lessor at its option shall
either (a) repair, rebuild or restore the Facility at
Lessor's sole expense 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) terminate this Lease by Notice to Lessee
given within 90 days of the date of such destruction and
this Lease will terminate as of the date specified in
Lessoes notice not later than 60 days after such notice.
If such damage or destruction is not material, Lessor
shall restore the Facility to substantially the same
condition as existed immediately before the damage or
destruction and otherwise in accordance with the terms of
the Lease.
14.4 Lessee's Personal Propedy. Notwithstanding the
foregoing, all insurance proceeds payable by reason of any
loss of or damage to any of Lessee's Personal Property
shall be paid to Lessee, except insurance proceeds payable
by reason of any loss of or damage to any of the Initial
FF&E, which shall be paid to Lessor.
14.5 Abatement of Rent. In the event of a casualty,
except as otherwise provided herein, 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 (whether through the payment of insurance
proceeds to Lessor or other%vise) shall remain unabated.
14.6 Damatze Near End of Term. Notwithstanding any
provisions of Section 14.2 or 14.3 to the contrary, if
dwnage to or destruction of the Facility occurs during the
last 24 months of the Term, and such damage or destruction
cannot be repaired or restored within the earlier of (i)
12 months, or (ii) the expiration of the Terin, then
Lessee shall have the right to terminate this Lease by
giving written notice to Lessor within 60 days after the
date of damage or destruction, whereupon all accrued Rent
shall be paid immediately.
14.7 Waiver. Lessee hereby waives any statutory
rights of termination that may arise by reason of any
damage or destruction of the Facility that Lessor is
obligated to restore or may restore under any of the
provisions of this Lease.
ARTICLE XV
15.1 Parties'Ri2hts 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.
15.2 Total Takinp-. 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 that is 30 days after the
Date of Taking, to
- -37-
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 Rent paid or payable
by Lessee hereunder shall be apportioned as of the Date of
Taking, and Lessee shall promptly pay Lessor such amounts.
15.3 Allocation of Award. The total Award made with
respect to the Leased Property or for loss of rent, or for
Lessoes loss of business beyond the Term of this Lease,
shall be solely the property of and payable to Lessor.
Any Award made 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.
15.4 Partial T If title to less than the whole of the
Leased Property is condemned, and the Leased Property is
still suitable for its Primary Intended Use, and not
Uneconomic for its Primary Intended Use, or if Lessee or
Lessor is entitled but each fails to timely elect to
terminate this Lease as provided in Section 15.2 hereof,
Lessor at its cost (not to exceed the net Condemnation
Award) shall with all reasonable dispatch after the
payment of such award to Lessor 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. During and after the restoration of the
untaken portion of the Leased Property, 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, and the
revenues affected by such partial Taking. In the event
Base Rent is abated, the Threshold Amounts shall also be
reduced accordingly. If Lessor and Lessee are unable to
agree upon the amount of such abatement and for reduction
within 30 days after such partial Taking, the matter may
be submitted by either party to a court of competent
jurisdiction for resolution.
15.5 Teml2orary Takin2. If the whole or any part of
the Leased Property or of Lessee's interest under this
Lease is condemned by any Condemnor for its temporary use
or occupancy, 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
Rent and Additional Charges, but, if the entire Leased
Property is so condemned, only to the extent of net
proceeds of condemnation awards. 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 the Lessee to be performed and observed, as though such
Condemnation had not occurred. In the event of any
Condemnation as in this Section 15.5 described, the entire
amount of any Award made for such Condemnation allocable
to the Term, whether paid by way of damages, rent or
otherwise, shall be paid to Lessee. Lessor covenants that
upon the termination of any such period of temporary use
or occupancy it will, at its sole expense, 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 Lessor shall not be required to make such
restoration.
ARTICLE XVI
16.1 Events of Default. If any one or more of the
following events (individually, an "Event of
Default") occurs:
- -38-
(a) Lessee fails to make payment of the Base Rent when
the same becomes due and
payable and such condition continues for a period of five
days following receipt of written notice; or
(b) Lessee fails to make payment of Percentage Rent
when the same becomes due and
payable and such condition continues for a period of five
days following receipt of written notice; or
(c) Lessee fails to maintain, the current
rating for the Facility by AAA or Mobil, if so rated, or
allows the Facility to become in Poor Standing, without
limiting Subsection (o) below; provided, however, no Event
of Default shall occur if such failure results solely from
Lessee's noncompliance with additional or more stringent
terms or conditions imposed by Mobile or AAA after the
Commencement Date in order to maintain the current ranking
or avoid becoming in Poor Standing;
(d) Lessee fails to observe or perfonn any
other term, covenant or condition of this Lease and such
failure is not cured by Lessee within a period of 30 days
after receipt by the Lessee of Notice thereof from Lessor,
unless such failure cannot with due diligence be cured
within a period of 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 180 days after
such Notice; or
(e) Lessee or Guarantor 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 the Lessee or
Guarantor 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 the Lessee or
Guarantor shall be adjudicated a bankrupt and such
adjudication shall not be vacated or set aside or stayed
within 60 days after the entry of an order in respect
thereof, or if a receiver of the Lessee or Guarantor or of
the whole or substantially all of the assets of the Lessee
or Guarantor shall be @ppointed in any proceeding brought
by the Lessee or Guarantor or if any such receiver,
trustee or liquidator shall be appointed in any proceeding
brought against the Lessee or Guarantor and shall not be
vacated or set aside or stayed within 60 days after such
appointment; or
(f) without Lessor's consent, 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) the estate or interest of Lessee in the
Leased Property (or any part thereof) or the Initial FF&E
is voluntarily or involuntarily transferred, assigned,
conveyed, levied upon or attached in an proceeding (unless
Lessee is contesting such lien or attachment in good faith
in accordance with Article XII hereof); or
(h) except as a result of damage, destruction or a
partial or complete Condemnation,
Lessee voluntarily ceases operation of the Leased Property
for a period in excess of ten days; or
(i) the Franchise Agreement with respect to
the Facility on the Leased Premises is
terminated by the Franchisor as a result of any action
or failure to act by the Lessee or any Person
with whom
1
4
the Lessee contracts for management services at the
Facility unless such termination is due directly to
Lessor's failure to ftind the Capital Expenditure
requirements of Franchisor; or
- -39-
0) aii Eveiit of Default sliall occur uiider
aiiy lease (otlier tliaii this Lease)
betweeli
Lessor aiid Lessee; or
- -
(k) Except as specifically permitted iii
Sectioii 23, a transfer of the owiiersliip or coiitrol
(in one traiisactioii or as a result of the iiiost
receiit traiisactioii iii a series of traiisactioiis) of
(i) such iiuinber of voting securities (or otlier
owiiersliip interests) of Lessee or Guaraiitor that
possesses, directly or
indirectly, the power to direct or cause the direction
of the iiiaiiageiiieiit or policies of Lessee or
Guaraiitor wlietlier dirougli owiiersliip of stock, by
contract or otlier,,vise a majority, or (ii) witli
respect to any company ,A,Iiose stock is publicly traded
oii a securities excliaiige, the solicitation for
proxies iii coiiiiectioli witli the election of the
board -of directors at a iiieetiiig of sliareliolders-,
or
I
irec o
/a,
it
tioii 7.2(f), Ai-ticle XIX,
@ 'g. 1 3 ,
C" @
24.2; or
(ni) Lessee's failure to adliere to the M&R Plaii, if
aiiy, iii aiiy material respect; or
(11) Lessee's faillire to iiiaiiitaiii a L@VI)AR of at
least 122.4% of the L@VPAR of the
Competitive Set for eacii calendar year or similar
comparative period; or
(o) Fraiiciiisor property evaluation scoi-es
drop below 800 (or, iii the event of a revision of the
scale for sucli scores, the fuiictioiial equivalent of
800) for two consecutive reporting periods; provided,
liowever, iio Eveiit of Defatilt sliall occur if Lessee's
faillire to iiiaiiitaiii aii 800 score results solely
froni Lessors failure to iiiake Capital Expeiiditures
required by the Fraiiciiisor or the Fraiiciiise
Agreeiiieiit; or
(p) Guaraiitor defaults uiider the Guaraiity
Agreeiiieiit; or
(q) Except as specifically permitted iii Sectioii 23,
a sale, assigiimeiit or transfer of
(i)substantially all of the assets of Lessee or Guaraiitor
or (ii) Lessee's interest in tlle Lease; or
(r) Lessee's removal of tile
Iiiitial FF&E fi-oiii the operation of
tite Leased Property or
Lessee graiits aiiy lieii or security interest iii or to
the Iiiitial Fl--&E (otlier tliaii to
Lessor) or otilei-wise
eiicuinbers the liiitial FF&E;
tlieii, atid iii aiiy sucli eveiit, Lessor iiiay, so loiig
as sucli Eveiit of Default coiitiiiucs, exercise one or
iiiore remedies available to it liereiii or at law oi- iii
c(luity iiicludiiig, but iiot Iiiiiited to, its riglit to
terilliliate tiiis Lease by giviiig Lessee the shortest
Notice of sucli tei-iiiiiiatioii pei-iiiitted by law.
If litigation is coniiiieiiced witli respect to
aiiy alleged default uiider tiiis Lease, the prevailing
party iii sucli litigation sliall receive, iii addition to
its damages incurred, sucli suiii as the court sliall
deteriiiiiie as its reasonable attorneys' fees, aiid all
costs aiid expenses incurred iii coiiiiection tlierewitli.
No Event of Default (otlier tliaii a failure to
iiiake a payiiieiit of iiioiiey) sliall be deeiiied to
exist under clause (c) during any tiiiie the curing
tliereof is prevented by aii Uiiavoidable Delay, provided
that upon the cessation of sucli Uiiavoidable Delay,
Lessee remedies SLIcli default or Eveiit of Default
without furtlier delay.
- -40-
16.2 Remedies.
(a) If any one or more Events of Default shall occur
and be continuing, then Lessor shall
have the right, in addition to all other rights or
remedies available at law or in equity, at its election:
(i) To give Lessee written notice of
Lessor's intention to terminate this Lease on the earliest
date permitted by law or on any later date specified in
such notice, in which case Lessee's right to possession of
the Leased Property shall cease and this Lease will be
terminated on such date, except as to liability of Lessee
expressly stated herein to survive the termination of this
Lease, including, without limitation, liability pursuant
to Section 16.2(d) and liability of Lessor expressly
stated herein to survive the termination of this Lease; or
(ii) Without further demand or notice, to
reenter and take possession of the Leased Property or any
part of the Leased Property, repossess the same, expel
Lessee and those claiming through or under Lessee, and
remove the effects of both or either, using such force for
such purposes as may be lawful and necessary, without
being liable for prosecution, without being deemed guilty
of any manner of trespass, and without prejudice to any
remedies for arrears or future payments of Base Rent,
Percentage Rent, Additional Charges or other amounts
payable under this Lease or as a result of any preceding
breach of covenants or conditions; or
(iii) To cure any Event of Default and to
charge Lessee for the cost of
effecting
such cure, including, without limitation, reasonable
attomeys, fees and interest on the amount so advanced
at the Overdue Rate, provided that Lessor shall have no
obligation to cure any such Event of Default.
(b) Should Lessor elect to reenter as provided
in Section 16.2(a)(ii), or should Lessor take possession
pursuant to legal proceedings or pursuant to any notice
provided by law while an Event of Default is continuing,
Lessor may, from time to time, without terminating this
Lease, relet the Leased Property or any part of the Leased
Property in Lessor's or Lessee's name, but for the account
of Lessee, for such term or terms (which may be greater or
less than the period which would otherwise have
constituted the balance of the Term of this Lease) and on
such conditions and upon such other terms (which may
include concessions of free rent and alteration and repair
of the Leased Improvements) as Les@or, in its reasonable
discretion, may determine and Lessor may collect and
receive the rent; provided, however, that in the event
Lessor relets the Leased Property in Lessor's or Lessee's
name, but for the account of Lessee, Lessee shall not be
responsible for any liability under the Lease pursuant to
the reletting to the extent such liability is greater than
Lessee's liability under the tenns of this Lease. No such
reentry or taking possession of the Leased Property by
Lessor will be construed as an election on Lessor's part
to terminate this Lease unless a written notice of such
intention is given to Lessee. No notice from Lessor under
this Article XVI or under a forcible or unlawful entry and
detainer statute or similar law will constitute an
election by Lessor to ten-ninate this Lease unless such
notice specifically so states. Lessor reserves the right
following any such reentry or reletting to exercise its
right to terminate this Lease by giving Lessee such
written notice, in which event this Lease will terminate
as specified in such notice.
(c) In the event that Lessor does
not elect to terminate this Lease as
permitted in Section
16.2(a)(i), but elects instead to take possession as
provided in Section 16.2(a)(ii), Lessee
shall pay to Lessor
Base Ren@ Percentage Rent, Additional Charges and other
sums as provided in this Lease which would
be
payable under this Lease if such repossession had not
occurred, less the net proceeds, if any, of any reletting
of the Leased Property, after deducting all of Lessoes
expenses in connection with such reletting, including,
without limitation, all repossession costs, brokerage
commissions, attomeys, fees, expenses of employees, repair
costs and expenses of preparation for such reletting. If,
in connection with any reletting, the new lease
- -41-
tenn extends beyond the existing Tenn of this Lease, or
the premises covered by such new lease include other
premises not part of the Leased Property, a fair
apportiorunent of the rent received from such reletting
and the expenses incurred in connection with such
reletting as provided in this Paragraph will be made in
determining the net proceeds from such reletting, and any
rent concessions will be equally apportioned over the term
of the new lease. Lessee shall pay such rent and other
sums to Lessor monthly on the date on which the Base Rent
and Additional Charges, and, in the case of Percentage
Rent, quarterly on the day on which Percentage Rent, would
have been payable under this Lease if possession had not
been retaken, and Lessor shall be entitled to receive such
rent and other sums from Lessee on each such day.
(d) If an Event of Default has occuited and
this Lease is terminated by Lessor, Lessee shall remain
liable to Lessor for damages in an amount equal to Base
Rent, Percentage Rent, Additional Charges and other
amounts which would have been owing by Lessee for the
balance of the Term of this Lease had this Lease not been
terminated, less the net proceeds, if any, of any
reletting of the Leased Property by Lessor subsequent to
such termination, after deducting all of Lessor's expenses
in connection with such reletting, including, but without
limitation, the expenses enumerated in Section 16.2(c)
(which expenses, if the reletting is for a term that will
extend beyond the existing Term, will be apportioned as
described in Section 16.2(c)). Lessor shall be entitled to
collect such damages from Lessee monthly on the day on
which Base Rent or Additional Changes, and quarterly on
the day on which Percentage Rent, would have been payable
under this Lease if this Lease had not been terminated,
and Lessor shall be entitled to receive such Base Rent and
other amounts from Lessee on each such day. Altematively,
at the option of Lessor, in the event this Lease is so
terminated, Lessor shall be entitled to recover against
Lessee as damages for loss of the bargain and not as a
penalty:
(i) The worth at the time of award of the
unpaid Base Rent and Percentage Rent which had been eamed
at the time of ten-nination;
(ii) The worth at the time of award of the
amount, if any, by which the unpaid Base Rent, Percentage
Rent and all Additional Charges which would have been
eamed after termination until the time of award exceeds
the amount of rental loss that Lessee proves could have
been reasonably avoided;
(iii) The worth at the time of award of the
amount, if any, by which the unpaid Base Rent, Percentage
Rent and Additional Charges for the balance of the Term
(had the same not been so terminated by Lessor) after the
time of award exceeds the amount of such rental loss
during such period that Lessee proves
could be reasonably avoided; and
(iv) 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 events would be
likely to result therefrom.
The "worth at the time of award" of the amounts referred
to in clauses (i) and (ii) above shall be computed by
adding interest from the date of termination until the
time of the award computed at the Overdue Rate on the date
on which this Lease is terminated. The worth at the time
of award of the amount refeffed to in clause (iii) above
shall be computed by using a discount rate of the Federal
Reserve Bank of New York at the time of the award plus one
percent.
(e) Percentage Rent for the purposes of this Section
16.2 shall be a sum equal to (i) the
average of the annual amounts of the Percentage Rent for
the three Fiscal Years immediately preceding the
- -42-
Fiscal Year in which the termination, re-entry or
repossession takes place, or (ii) if three 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 analyzing the Percentage
Rent from the effective date of this Lease.
(f) Any suit or suits for the recovery of the
amounts and damages set forth in Sections 16.2(c) or (d)
may be brought by, Lessor, from time to time, at Lessor's
election, and nothing in this Lease will be deemed to
require Lessor to await the date upon which this Lease or
the Term of this Lease would have expired had there
occurred no Event of Default. Each right and remedy
provided for in this Lease as a result of the occurrence
of a default is cumulative and is in addition to every
other right or remedy provided for in this Lease or now or
after the date of the commencement of the Term existing at
law or in equity or by statute or otherwise, and the
exercise or beginning of the exercise by Lessor of any one
or more of the rights or remedies provided for in this
Lease or now or after the date of the commencement of the
Term existing at law or in equity or by statute or
otherwise shall not preclude the simultaneous or later
exercise by Lessor of any or all other rights or remedies
provided for in this Lease or now or. after the date of
the commencement of the Term existing at law or in equity
or by statute or otherwise. All costs incurred by Lessor
in collecting any amounts and damages owing by Lessee
pursuant to the provisions of this Lease or to enforce any
provision of this Lease, including, but not limited to,
reasonable attomeys' fees and related costs, whether or
not one or more actions are commenced by Lessor, shall
also be recoverable by Lessor from Lessee.
(g) Except as required by applicable law, Lessor shall
have no obligation to mitigate
damage following the occurrence of an Event of Default.
16.3 Waiver. Lessee hereby waives, to the extent
permitted by applicable law, (a) any right to a trial
byjury in the event of summary proceedings to enforce the
remedies set forth in this Article XVI; (b)
the benefit of any laws now or hereafter in any force
exempting property from liability for rent or for
debt;
(c) any equity of redemption; and (d) except as provided
herein, any presentations, demands for payment or
for performance, or notice of non-performance.
16.4 A1212tication 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, to the extent permitted by applicable la%v, be
applied to Lessee's obligations in the order that Lessor
may determine, in Lessor's discretion.
16.5 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 to do so,
immediately uffender 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 such force permitted by law, 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 law for
service of notice to reenter the Leased Property. Lessor
shall be under no obligation ' to, but may if it so
chooses, relet the Leased Property or otherwise mitigate,
except as required by applicable law, Lessor's damages.
16.6 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
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exempting property from liability for rent or for debt and
Lessor waives any right to "pierce the corporate veil"
(including limited liability resulting from LLC status) of
Lessee other than to the extent funds shall have been
inappropriately paid any Affiliate of Lessee following a
default resulting in an Event of Default.
16.7 Notice to Guarantor Lender. Lessor shall, upon
serving Lessee with any Notice required under this Lease
with respect to a default or an Event of Default,
simultaneously provide a copy of such Notice to Guarantor
Lender in the same manner as provided to Lessee, with a
copy to English, McCaughan & O'Bryan, Fort Lauderdale
Office, I 00 Northeast Third Avenue, Suite I I 00, Fort
Lauderdale, Florida 33301, Attention: Marshall J. Emas.
Guarantor Lender shall have the right, but shall not be
required, prior to the expiration of the applicable cure
period under this Lease, if any, after receipt of Notice,
to cure any such default or Event of Default and Lessor
shall accept such performance (or payment as is
applicable) by or at the instigation of Guarantor Lender
as if the same has been performed (or paid as applicable)
by Lessee. For purposes of this section, the term
Guarantor Lender shall mean one lender of Guarantor, or
one agent on behalf of a lender to Guarantor, as
designated by Guarantor in writing to Lessor (Guarantor
hereby designates Credit Lyonnais New York Branch, Credit
Lyonnais Building, 1301 Avenue of the Americas, New York,
New York 10019-6022, Attention: Rodrich D. Rohrback);
provided, however, that Lessee may not change the identity
of the Guarantor Lender without the express written
consent of such Guarantor Lender.
ARTICLE XVII
Lessoes Rip-ht 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 the Franchise 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 Secti'on 16.2,
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 attomey's 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
Lessor, shall be paid by Lessee to Lessor on demand. 'Me
obligations of Lessee and rights of Lessor contained in
this Article shall survive the expiration or earlier
termination of this Lease.
ARTICLE XVIII
Exculpation. In the event of (a) a sale or transfer
of all or any part of the Leased Property (by operation of
law or otherwise), (b) the making of a lease of all or
substantially all of the Leased Property or (c) a sa le or
transfer (by operation of law or otherwise) of the
leasehold estate under any such lease, (i) the. seller,
transferor or lessor, as the case may be, shall be and
hereby is automatically and entirely released and
discharged, from and after the date of such sale, transfer
or lease, of all liability in respect of the performance
of any of the tenns of this Lease on the part of Lessor
thereafter to be performed and (ii) the term "Lessor"
shall thereafter mean only the purchaser, transferee or
lessee, as the case may be, and the covenants and
agreements of Lessor shall thereafter be binding upon such
purchaser, transferee or lessee.
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Lessee shall look solely to Lessor's estate and
interest in the Leased Property for the satisfaction of
any right of Lessee for the collection of a judgment or
other judicial process or arbitration award requiring the
payment of money by Lessor, and no other propert7y or
assets of Lessor. Lessoes agents, incorporators,
subscribers, shareholders, officers, directors, members,
partners, principals (disclosed or undisclosed) an
affiliates, whether directly or through Lessor or through
any receiver, assignee, trustee in bankruptcy or through
anyone else, shall not be subject to levy, lien,
execution, attachment, or other enforcement procedure for
the satisfaction of Lessee's rights and remedies under of
with respect to or arising from or in connection with this
Lease.
ARTICLE XIX
19.1 REIT Compliance. Lessee acknowledges that the
general partner of Lessor intends to qualify as a real
estate investment trust under the Code, and that pursuant
to Lessor's limited partnership agreement, Lessor may not
take or omit to take any action, or engage in any business
or business transaction or relationship, that would or
could result in the REIT being disqualified from treatment
as a real estate investment trust. As a material
inducement to Lessor to enter into this Lease, Lessee
hereby agrees that it shall not knowingly take or omit to
take any action, or engage in any business or business
transaction or relationship, that would or could result in
the REIT being disqualified from treatment as a real
estate investment trust under the Code. Without limiting
the generality of the foregoing, Lessee agrees that:
(a) Personal Prol2ea 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 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(a)
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 similar or successor provisions
thereto, and shall be interpreted in a manner consistent
with such intent.
(b) 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
(i) the income or profits derived by the business
activities of the sublessee, or (ii) any other fonnula
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.
19.2 Sublease Lessee Limitation. Anything contained
in this Lease to the contrary notwithstanding, Lessee
shall not sublease the Leased Property to any Person in
which Boykin Lodging Company, owns, directly or indirectly
a ten percent or more interest, within the meaning of
Section 856(d)(2)(B) of the Code, or any similar or
successor provisions thereto.
19.3 Lessee Ownership Limitation. Anything contained
in this Ledse to the contrary
notwithstanding, neither Lessee or an Affiliate of Lessee
shall acquire, directly or in irect a ten percent or more
interest in Boykin Lodging Company, within the meaning of
Section 856(d)(2)(B) of the Code, or any similar or
successor provision thereto.
19.4 Lessee Officer and Empiovee Limitation. Anything
contained in this Lease to the contrary
notwithstanding, without the prior written consent of
Lessor, no officer or employee of Lessee (or any Person
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who fumishes or renders services to the tenants of the
Leased Property, or manages or operates the Leased
Property) shall at the same time be an officer of Lessor.
19.5 Payments to Affiliates of Lessee. Except for
payments as permitted in Section 8.5 hereof, Lessee shall
not pay any amount to any Affiliate of Lessee for any
purpose during the Tenn in connection with the Facility.
19.6 Third-PajU Manaizement Activities. Neither
Lessee nor an Affiliate of Lessee, or their respective
successors or assigns, may provide management services
with respect to any hotel, motel, resort or other lodging
facility located within a three mile radius of the Hotel
except for (i) any hotel, motel, resort or other lodging
facility managed by Lessee or an Affiliate of Lessee as of
the date of this Lease and (ii) the Sanibel Harbor Resort
& Spa, the Outrigger Beach Resort and Diamond Head Beach
Resort.
ARTICLE XX
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 the agoregate of 105% of (a) one-
t-vvelfth of the aggregate Base Rent and Percentage Rent
payable with respect to the last Fiscal Year of the Tenn,
(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 la,,v to tenants at
sufferance, to continued occupancy and use of the Leased
Property. Nothing contained herein 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
Risk of Loss. During the Term, the risk of loss or
of decrease in the enjoyment and beneficial use of the
Leased Property in consequences of the damage or
destruction thereof by fire, the elements, casualties,
thefts, riots, wars or othenvise, or in consequences of
foreclosures, attachments, levies or executions is
retained by Lessor, and, in the absence of negligence,
misconduct or breach of this Lease by Lessee, Lessee shall
in no event be answerable or accountable therefore.
ARTICLE XXII
Indemnification. Notwithstanding the existence of
any insurance provided for in Article XIII, and without
regard to the policy limits of any such insurance, Lessee
will, except to the extent waived pursuant to waiver the
subrogation set forth in Section 13.6 hereof, protec@
indemnify, hold hannless and defend any Lessor indemnified
Party 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 any
Lessor Indemnified Party 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 past, present or future use, misuse, non-
use, condition, management, maintenance or repair or
negligence by Lessee, its agents, invitees, employees or
guests, of
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the Leased Property or Lessee's Personal Property or any
litigation, proceeding or claim by governmental entities
or other third parties to which Lessor is made a party or
participant related to such use, misuse, nonuse,
condition, management maintenance, or repair thereof by
Lessee, including Lessee's failure to perform obligations
(other than 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, (e) the nonperformance 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, and (f) the sale of or consumption of
alcoholic beverages on or in the Leased Property, (g)
claims of Franchisor and Managers. Any amounts that
become payable by Lessee under this Article shall be paid
within ten days after demand therefor by Lessor, and if
not timely paid, shall bear a late charge (to the extent
permifted by law) at the Overdue Rate from the expiration
of such ten day period date of such determination to the
date of payment. Lessee, at its expense, shall contest,
resist and defend any such claim, action or proceeding
asserted or instituted against any Lessor Indemnified
Party or may compromise or otherwise dispose of the same
as Lessee sees fit. Nothing herein shall be construed as
indemnifying any Lessor Indemnified Party against its own
grossly negligent acts or omissions or willful misconduct.
Lessor shall indemnify and hold any Lessee
Indemnified Party from and against any and all
liabilities, losses, interest, damages, costs or expenses
(including, without limitation, reasonable attomeys' fees)
assessed against, levied upon or collected from any Lessee
Indemnified Party arising out of the negligence,
misconduct or breach of this Lease by Lessor, its agents
or employees.
Lessee's and Lessoes liability under the provisions of
this Article shall survive any
termination of this Lease.
ARTICLE XXIII
23.1 Subletting and Assiiznment. Except as expressly
permitted herein, Lessee shall not mortgage, assign,
sublet, or otherwise transfer its interest in the Facility
and, 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 prior written
consent of Lessor, which may be granted or withheld in
Lessor's sole and absolute discretion, (a) assign this
Lease, (b) sublet all or any part of the Leased Property,
or (c) 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 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 assigm-nent, the assignee
shall assume in writing and agree to keep and perform all
of the terins 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.
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. 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 prqmpt payment of the Rent and for the performance and
observance of all of the covenants and conditions to be
performed by Lessee hereunder.
23.2 Attomment. 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, attom to Lessor and waive any
right the sublessee may have
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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 written 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.
23.3 Manatzement Atzreement. Notwithstanding
anything contained in this Article XXIII to the contrary,
Lessee may not, without the prior written consent of
Lessor (which consent may be withheld in the sole and
absolute discretion of Lessor), enter into an agreement (a
"Management Agreement") with any Affiliate or third party,
to assign responsibility for the management and/or
operation of all or any part of the Leased Property,
including any retail or restaurant portion of the Leased
Improvements. In addition, Lessee may not without the
prior written consent of Lessor (which consent may be
withheld in the sole and absolute discretion of Lessor),
enter into any agreement with any Affiliate in connection
with the provision of any goods or services in connection
with any or all of the Leased Property and the operation
thereof (each, a "Service Agreement," and together with
the Management Agreement, the "Operational Agreements").
Notwithstanding the foregoing, Lessee may enter into an
Operational Agreement with an Affiliate or third party to
the extent that the services provided pursuant to such
Operational Agreement are provided at the lesser of (x)
the actual cost to Lessee or Lessee's Affiliate (whichever
is lower) of such providing such services and (y) the cost
charged by third-party providers for comparable services.
All payments, under such Operational Agreement are (a)
subordinate to all payments owing to Lessor under this
Lease, and (b) are payable only out of After Tax Eamings
of Lessee and the Maximum Amount (as defined in the
Guaranty);
ided however, that the Maximum Amount shall not be
reduced to the extent that the aggregate payments for all
services rendered pursuant to Operating Agreements exceeds
the aggregate budget for such services as set forth on
Exhibit N hereto, which amounts shall be adjusted for
increases in the CPI Index (with a maximum adjustment of
7% for each Fiscal Year) in accordance with Section 3. 1
(d) hereof and may be further adjusted with the prior
approval of Lessor, which approval shall be in Lessor's
sole discretion.
23.4 Chanize of Control of Guarantor or Lessee: Sale of
Substantially All of the Assets of
Guarantor or Lessee.
Notwithstanding anything contained in this Lease
to the contrary, including, without limitation, the Events
of Default set forth in Subsections 16. 1 (k) and (q)
hereof and the restrictions set forth in this Section 23,
Guarantor may (i) sell, assign or transfer all or any part
of its assets and (ii) enter into a change of control
transaction as described in Subsection 16. 1 (k) so long
as (x) no default or Event of Default exists under the
Lease or would result from such sale, assignment or
transfer, (y) Lessor approves such sale, assignment or
transfer (which approval is required only if such sale,
assignment or transfer would be an Event of Default
pursuant to Subsections 16. 1 (k) or (q) hereof), which
approval shall not be unreasonably withheld or delayed and
(z) if the sale, assignment or transfer includes the sale
of Le ' ssee's interest in the Lease, the buyer, assignee
or transferee assumes all of Lessee's obligations under
this Lease. Lessor agrees that it, if its approval is
required under this Section 23.4, will not withhold its
approval if the buyer, assignee or transferee (1) has a
minimum net worth not less than $250,000,000, (2) is a
public company listed on NYSE ' @ NASDAQ or AMEX or is
wholly owned by such an entity, (3) in Lessor's judgment,
has resort management, capability, systems, and experience
comparable to Guarantor,(4) has no prior history of
bankruptcy or of litigation pertaining to criminal or
financial misconduct, (5) has no material direct conflicts
of interest with Lessor which could reasonably be expected
to limit it from fulfilling its obligations under the
Lease or which could reasonably be expected to cause
Lessor or its Affiliates financial harm, and (6) in
Lessor's judgment, is not of bad character or reputation.
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ARTICLE XXIV
24.1 Officers'Certificates: Financial Statements: Lessor's
Estopl2el Certificates and Covenants.
(a) At any time and from time to time upon '
not less than 20 days Notice by Lessor, Lessee will fumish
to Lessor an Officees 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
thereunder by Lessor or Lessee, and such other information
as may be reasonably requested by Lessor or Lessoes
lender. Any such certificate furnished pursuant to this
Article 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) on or before 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, a detailed
accounting of revenues for the Leased Property for the
preceding month, detailed statistical information
regarding accounting by segment, F&B information, average
daily revenue by segment, STAR reports, profit and loss
variance reports, Capital Expenditures report comparison
to budget, profit and loss comparison to budoet,
forecasting information for balance of Fiscal Year and
next 12 month forecast, and such other information as may
be requested by Lessor.or required by Lessoes lender, each
in fonn acceptable to Lessor; and
(2) the most recent Consolidated Financials of
Lessee within 30 days after each quarter of any Fiscal
Year (or, in the case of the final quarter in any Fiscal
Year, the most recent Consolidated Financials of Lessee
within 60 days) after such final quarter; provided,
however, in the event the Lessor notifies Lessee that
Lessor requires Audited Consolidated Financials from
Lessee in order to comply with the requirements of the
Securities and Exchange Commission, any lender of Lessor
or by law, Lessee shall deliver Audited Consolidated
Financials to Lessor within 60 days of the end of the then
current Fiscal Year; and
(3) the most recent audited Consolidated Financials of
Guarantor within 75
days after the final quarter of each Fiscal Year; and
(4) with reasonable promptness, such information
respecting the financial
condition and affairs of Lessee or Guarantor as may be
requested by Lessor.
(c) At any time and from time to time upon not
less than 20 days notice by Lessee, Lessor will fumish 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.
24.2 Lessee's Financial Covenants. Lessee shall not
mortgage, pledge, hypothecate, assign, encumber, or grant
a preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever
in the legal or beneficial ownership (including without
limitation, the right to
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distributions) in the Leased Property or the Initial FF&E.
Lessee shall not pay any dividends to its shareholders,
except in the amount necessary for such shareholders to
pay their respective federal, state and local income taxes
to the extent such taxes are allocable to Lessee's taxable
income and reportable as such on such shareholders' tax
retums, until such time as Lessee has fully complied with
the terms and provisions of Section 8.5. Lessee shall not
incur any indebtedness (other than ordinary trade
payables) unless required (i) to pay ren@ (ii) to maintain
and repair the Leased Property in accordance with Article
IX, or (iii) to make Alterations in accordance with
Axticle X, provided that Lessee shall thereafter retire
such indebtedness prior to making any dividend payments to
its shareholders except to the extent needed to pay
federal, state or local income tax on their respective
shares of Lessee's taxable income.
ARTICLE XXV
Books and Records: Lessoes Right to InWect. Lessee
shall keep full and adequate books of account and other
records reflecting the results of operation of the
Facility on an accrual basis, all in accordance with the
Uniform System and generally accepted accounting
principles. The books of account and all other records
relating to or reflecting the operation of the Facility
shall be kept either at the Facility or at Lessee's
offices in Ft Myers, Florida, and shall be available to
Lessor and its representatives and its auditors or
accountants, at all reasonable times, upon forty-eight
hours notice, for examination, audit, inspection and
transcription. All of such books and records pertaining
to the Facility including, without limitation, books of
account, guest records and front office records, at all
times shall be the property of Lessee (subject to the
terms of Section 34.2), but shall not be removed from the
Facility or Lessee's offices by Lessee without Lessor
approval.
Lessee shall permit Lessor and its authorized
representatives as frequently as reasonably requested by
Lessor and upon termination of this Lease to inspect the
Leased Propert7y 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. Lessee shall provide
accommodations to Lessor for such periodic inspections at
no cost to Lessor.
ARTICLE XXVI
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
Remedies Cumulative. To the extent permitted by law,
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.
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ARTICLE XXVIII
Accel2tance 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
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
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.
ARTICLE XXXI
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 Tenn hereof, free of any claim or
other action by Lessor or anyone claiming by, through or
under Lessor, but subject to all liens and encumbrances
subject to which the Leased Property was conveyed to
Lessor 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
Notim. All notices, demands, requests, consents,
approvals and other communications ("Notice" or "Noiices")
hereunder shall be in writing and personally served,
mailed (by registered or certified mail, return receipt
requested and postage prepaid) or sent by facsimile
transmission, addressed to Lessor at 50 Public Square,
Suite 1500, Cleveland, Ohio 44113, Attention: Robert W.
Boykin through February 28, 1998 and at Guildhall
Building, 45 W. Prospect Ave., Suite 1500, Cleveland, Ohio
44115, Attention: Robert W. Boykin on and after March 1,
1998, and addressed to Lessee at 12800 University Drive,
Suite 350, Fort Myers, Florida 33908, Attention: Tim
Bogott with a copy to Calfee, Halter & Griswold, 1400
McDonald Investment Center, 800 Superior Avenue,
Cleveland, Ohio 44114-2688, Attention: Jack Batt or to
such other
- -51-
address or addresses as either party may hereafter
designate. Notice by personal delivery or facsimile
transmission shall be effective upon receipt, and Notice
given by mail shall be complete at the time of deposit in
the U.S. Mail system, 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 mail shall be extended
five days.
ARTICLE XXXIII
33.1 Lessor May Grant Liens, Subordination. Without
the consent of Lessee (but with prior notice to Lessee),
Lessor may, from time to time, directly or indirectly,
create or otherwise cause to exist, modify or extend any
lien, encumbrance, superior lease 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.
This Lease and Lessee's interest herein shall be
subordinate to each and every Encumbrance unless the
holder thereof elects otherwise provided Lessor causes
such holder to execute a nondisturbance agreement
substantially in the forin of Exhibit M attached hereto.
(a) The subordination provisions herein
contained shall be self-operative and no further
instrument of subordination shall be required. In
confirmation of such subordination, Lessee shall execute
and deliver promptly any certificate that Lessor or its
successors in interest may request which does not affect
in any material respect, Lessee's rights or obligations
under this Lease. Lessee hereby constitutes and appoints
Lessor or its successors in interest as Lessee's attorney-
in-fact to execute and deliver any such certificate or
certificates for and on behalf of Lessee. Notwithstanding
any provision in this Lease or any separate agreement with
Lessee, Lessee covenants and agrees that Lessee shall not
do any act, or refrain from doing any act, if doing such
act, or refraining from doing such act, would constitute a
default or breach of any Encumbrance.
(b) This Lease has been, or may be, assigned
as collateral security. After Lessee receives notice of
such assignment and so long as the obligations secured by
such assignment remain outstanding, Lessee (i) will not
pay any Rent under this Lease more than 30 days in advance
of its due date without the prior written consent of the
holder of any such assignment (the "Assignee"), (ii) will
not surrender or consent to the modification of any of the
terms of the Lease nor to the termination hereof by Lessor
without the Assignee's prior written consent, (iii) will
continue to pay Rent under this Lease to the Lessor or as
directed by Lessor in accordance with the terms of this
Lease (unless and until notified otherwise in writing by
the Assignee in case of an event of default under the
Assignee's mortgage or other Encumbrance, in which event
Lessee will pay the rent due under this Lease directly to
the Assignee or the Assignee's designee) and (iv) will not
seek to terminate this Lease or seek or assert any set-off
or counterclaim against Rent by reason of any act or
omission of the Lessor, until Lessee shall have given
written notice of such act or omission to the Assignee (at
the Assignee's last address fumished to Lessee) and until
a reasonable period of time shall have elapsed following
the giving of such notice, during which period the
Assignee shall have the right, but shall not be obligated,
to remedy such act or omission. Any payments made to the
Assignee by Lessee shall not affect or impair the other
rights and remedies the Assignde may have under said
mortgage or Encumbrance or otherwise against the Lessor.
(c) Lessee agrees, at the election of the
holder of any interest superior to this
Lease
pursuant to the terms hereof ("Holder") to fully and
completely attom to, from time to time, and to recognize
Holder or any person, or such person's successors or
assigns, who acquires the interest of Lessor under the
Lease as Lessee's lessor under this Lease (collectively,
"Successor Landlord") upon the then executory terms of
this Lease. The foregoing provisions of this paragraph
shall inure to the benefit of any such Successor
- -52-
Landlord shall be self-operative upon any such demand, and
no further instrument shall be required to give effect to
said provisions. Lessee however, upon demand of any such
Successor Landlord agrees to execute, from time to time,
any reasonable instruments to evidence and confirm the
provisions of this paragraph, satisfactory to Lessor or
any such Successor Landlord. Upon such attornment and the
acceptance thereof in writing by such Successor Landlord '
this Lease shall continue in full force and effect as a
direct lease between such Successor Landlord and Lessee
upon all of the then executory tenns of the Lease, except
that such Successor Landlord shall not be:
(i) liable for any act or omission of any prior lessor
(including Lessor); or
(ii) liable for the return of any security deposit (unless
actually received by such Successor
Lessor); or
(iii) bound by any waiver or forbearance of any prior
lessor (including Lessor); or
(iv) liable for any damages or other relief attributable
to any latent or patent defects in
construction; or
(v) bound by any covenant to perform or
complete any construction or to pay any sum to Lessee
except for Lessor's obligations with respect to Capital
Expenditures and payment of the early termination payments
set forth in Section 37.2 hereof); or
(vi) subject to any offsets or defenses which might have
against any prior Lessor (including
Lessor); or
(vii) bound by any Rent which Lessee might have
paid for more than the current q . uarter to any prior
lessor (including Lessor), except for any overpayment of
Percentage Rent which shall be paid or credited to Lessee
in accordance with Section 3.2; or
(viii) bound by any amendment or modification of the Lease
made without its consent.
(d) If a lender or prospective lender shall
request modifications to this Lease, Lessee shall not
unreasonably withhold, delay or defer Lessee consent
thereto unless such modification would affect, in any
material respect, Lessee's rights or obligations under
this Lease.
(e) To the extent the terms of this Article
XXXIII conflict with the terins contained in any
nondisturbance agreement with the holder of an Encumbrance
on the Leased Property, the terms contained in such
nondisturbance agreement shall govem.
33.2 Lessee's Right to Cure. Subject to the
provisions of Section 33.3, 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 fimitation,
reasonable attomeys' 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 fmal, nonappealable judgment against
Lessor for such sums, may be offset by Lessee against the
Base Rent payments next accruing or coming due. The
rights of Lessee
- -53-
hereunder to cure and to secure payment from Lessor in
accordance with this Section 33.2 shall survive the
termination of this Lease with respect to the Leased
Property.
33.3 Breach by Lessor. It shall be a breach of this
Lease if Lessor fails to observe or perforrn any terin,
covenant or condition of this Lease on its part to be
performed and such failure continues for a period of 30
days after Notice thereof from Lessee, unless such failure
cannot with due diligence be cured within a period of 30
days, in which case such failure shall not be deemed to
continue if Lessor, within such 30 day period, proceeds
promptly and with due diligence to cure the failure and
diligently completes the curing thereof.
33.4 Lessee's Cooperation. In connection with the
termination of this Lease due to the expiration of the
Term or otherwise, Lessee shall cooperate with Lessor in
transfeff ing possession of the Leased Property to a new
tenant, including, without limitation, cooperating with
the transfer of any licenses or perinits necessary for the
operation of the Facility.
ARTICLE XXXIV
34.1 Miscellaneous. Anvthin contained in this Lease
to the contrary notwithstanding, all claims
9
against, and liabilities of, Lessee or Lessor arising
prior to any date of termination of this Lease shall
survive such termination. If any ten-n 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, tile 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
terrns 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 govemed by and construed in accordance with the
laws of the State, but not including its conflicts of laws
rules.
34.2 Transition Procedures. Upon the expiration or
termination of the Term of this Lease, for whatever
reason, Lessor and Lessee shall do the following (and the
provisions of this Section 34.2 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 of the Facility.
(a) Transfer of Licenses. Upon the expiration
or earlier termination of the Term, Lessee shall use its
reasonable efforts (i) to transfer to Lessor or Lessoes
nominee, to the extent assignable or ftwsferable, the
Franchise Agreement, any liquor licenses, and all other
licenses, operating pennits and other govenunental
authorizations and all contracts, including contracts with
governmental or quasi-govenunental entities, that may be
necessary for the operation of the Facility (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 of Lessoes nominee of any applications for, all
Licenses; provided, in either case, except in the case of
a termination resulting from an Event of Default by
Lessee, 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.
- -54-
(b) Leases and Concessions. Lessee shall
assign to Lessor or Lessol's nominee simultaneously with
the termination of this Lease, and the assignee shall
assume any and all subleases and concession agreements in
effect with respect to the Facility which Lessor elects to
have assigned and to assume.
(c) Books and Records. Any and all books,
records files and keys for the Facility kept by Lessee
pursuant to this Lease or otherwise 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 three years and Lessee may
retain (on a confidential basis) copies or computer
records thereof.
(d) Transition Adjustments. Lessee shall pay
all accounts payable and accrued expenses relating to the
Leased Property as of the date of termination of this
Lease, to the extent such accounts payable and accrued
expenses are required to be paid by Lessee under this
Lease, and Lessee shall be entitled to receive and retain
all accounts receivable, and an amount equal to all
prepaid expenses paid by Lessee, as of the date of this
termination. All advance bookings deposits and credits
shall be paid to Lessor.
(e) The provisions of this Section 34.2 shall survive
the termination or expiration of this
Lease.
34.3 Chanize of Franchise. Lessee may change the
existing franchise covering the Leased Property with the
prior written consent of Lessor, which consent may be
withheld in sole and absolute discretion of Lessor.
34.4 Waiver of Presentment, tc. Lessee waives all
presentments, demands for performance,
E
notices of nonperformance, protests, notices of protest,
notices of dishonor, and notices of acceptance and waives
all notices of the existence, creation or incurring of new
or additional obligations, except as expressly granted
herein.
ARTICLE XXXV
Memorandum of Lease. Lessor and Lessee shall promptly
upon the request of either 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 XXXVI
Lessor's 012tion to Purchase Assets of Lessee.
Subject to Section 6.4 hereof, effective on not less than
60 days' prior Notice given at any time within 90 days
before the expiration of the Term, 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 some or all of the assets of
Lessee, tangible and intangible, relating to the Leased
Property (other than this Lease and those matters covered
by Section 6.4 and Section 34.2), at the expiration or
earlier termination of this Lease for an amount (payable
in cash on the expiration or earlier termination date of
this Lease) equal to the lower of fair market value or the
then book value thereof. Notwithstanding any such
purchase, Lessor shall obtain no rights to any trade name
or logo used in
- -55-
connection with the Franchise Agreement unless separate
agreement as to such use is reached with the
applicable franchisor.
ARTICLE XXXVII
37.1 Lessor's 012tion to Terminate Lease. Except as
specifically provided in this Lease, Lessor
may not terminate this Lease.
37.2 Early Termination Payments.
(a) Sale of Leased Propeit. In the event
Lessor enters into a bona fide contract to
sell
the Leased Property, Lessor may terminate this Lease by
giving not less than thirty (30) days' prior notice to
Lessee of Lessor's election to terminate this Lease
effective upon closing of the sale contemplated by such
contract. If Lessor sells the Leased Property to a
purchaser and Lessee is not retained, within one calendar
year of such sale, to either lease or manage the Leased
Property after the sale, Lessor shall pay, subject to
Section 6.4 hereof, the Lessee, upon closing of such sale,
an amount (the "Ten-nination Amount") determined as
follows:
Year of Lease Amount of Payment Mo
1
2
3
4
5
6
7
8
9
10
I I and thereafter (including any renewal term)
In the event Lessee is retained to either lease
or manage the Leased Property within one year following
the sale of the Leased Property, Lessee shall pay Lessor
the Tennination Amount paid to Lessee upon closing of the
sale immediately upon commencement of the lease or
management contract, as the case may be. This provision
shall survive termination of this Lease.
The above-listed percentages refer to the percentage of
the immed ' iately precedin g Fiscal
Year's gross revenues for the Leased Property.
I
in addition, if this Lease is terminated due to
the circumstances described in Articles XIV or XV hereof,
Lessor shall pay Lessee the Termination Amount within 30
days of Lessor's receipt of the proceeds from the event
causing such termination.
(b) Casualiy or Condemnation. In the event the Lease
is terminated by reason of the
circumstances described in Articles XIV or XV hereof,
Lessee shall only be entitled to the early termination
- -56-
payment described above to the extent that the insurance
proceeds or the condemnation proceeds, as the case may be,
arising from such circumstances exceed the total cost of
the Leased Property on Lessor's books calculated in
accordance with GAAP, adding thereto any and all
accumulated depreciation and amortization. In addition,
Lessee shall only be entitled to an early termination
payment arising from such circumstances to the extent it
fails to recover condemnation proceeds after diligently
pursuing the recovery thereof through all levels of
appeal, for the losses and damages suffered by it due to
the early termination.
(c) Default. Lessee shall not be entitled to any
payments, fees or damages for
termination of this Lease due to Lessee's Event of Default
hereunder.
(d) Development. In the event Lessor
pursues a Development Project in
accordance
with Section 1.3 hereof and Lessee and Lessor fail to
agree upon the terms of a revised
percentage lease
agreement in accordance with Section 1.3 hereof, then
Lessor may terminate the lease in
accordance with
Section 1.3. Upon such termination, Lessor shall pay,
s4bject to Section 6.4 hereof, the Lessee, within 90 days
of the closing of the percentage lease with another party,
one-half of the Termination Amount; provided, however, if
the percentage lease entered into by Lessor with respect
to the Leased Property is with an Affiliate of Lessor or
is with Capstar Hotel Company or an Affiliate of Capstar
Hotel Company, Lessor shall pay Lessee the entire
Tennination Amount then payable.
Any amount payable by Lessor to Lessee under
this Section 37.2 shall be reduced and offset by any
amount payable by Lessee to Lessor under this Lease,
including, without limitation, any amount payable under
Section 6.4 hereof.
ARTICLE XXXVIII
Compliance with Franchise Agreement. To the extent
any of the provisions of the Franchise Agreement impose a
greater obligation on Lessee than the coffesponding
provisions of this Lease, then Lessee shall be obligated
to comply with, and the provisions of this Lease are
deemed modified to the extent necessary to comply with,
the provisions of the Franchise Acreement, it being the
intent of the parties hereto that Lessee comply in every
respect with the provisions of the Franchise Agreement so
as to avoid any default thereunder.
AR'NCLE XXXIX
Guaraniy AP-reement. Lessee shall cause the Guarantor
to,execute and deliver the Guaranty
Agreement in the form of Exhibit L.
[Signature Pages to Follow]
- -57-
IN WITNESS WHEREOF, the parties have executed this Lease
under seal by their duly
authorized officers as of the date first above written.
"LESSOR"
BOYKIN HOTEL PROPERTIES, L.P.
/@@ 4, d
By:
I
Title: @,@
"LESSEE"
SOUTH SEAS ESTERO ISLAND, LTD.
By: South Seas Estero, L.L.C.,
an Ohio Limited Liability Company, its General Partner
(?,D w 10&', y
By: South Seas Properties@i@ted Partnership, its Sole
Member
By: T&T
its
@rts, L.C.,
nerli Partner
Taylor
By: Robert Taylor
Title: Chairman and Manager
"GUARANTOR"
SOUTH SEAS @SE)R ERTIES
COMPANY LIMITED PARTNERSIUP
By: T&T
&T
its G
By: Robert M. Tay I r
Title: Chairman and Manger
- -58-
[CORPORATE SEAL]
The Mariner Group's execution below isfor the sole purpose
ofmaking representations and warranties and
being obligated with respect to the covenants contained in
4rticle XIII hereof.
STATE OF OIRO
) SS:
By- I I . -T/7,
Its: @l Yrol) t ->
COUNTY OF CUYAHOGA )
The fore rument was a before me this 19 day of
1998, by
,@oing inst cknowledged
M4@-) @ [-. t@ttccl as 'I @ of Boykin Hotel
Properties, L.P., an
Ohio Limited Partnership ("Lessee").
Mycommissionexpires: M@@ 2L@ 2C@-Z--
Notary Public
ALLISON O. BROZ
D , v/ NotarY Public-State ol
Ohio, Cuya. Cty.
.c w- C, r., @-Z my
commission Expires 0 2-c@@
STATE OF
V ) SS:
COUNTY &)eC GA
The foregoing instrument was acknowledged before me
this.U Way of @ r@ r!i, 1998, by Robert M. Taylor, as
Chairinan and Manager of T&T Resorts, L.C. which is the
General Partner of South Seas Properties Limited
Partnership, the Sole Member of South Seas Estero, L.L.C.,
an Ohio Limited Liability Company, the General Partner of
South Seas Estero Island, Ltd., ("Lessee").
My commission expires: 4S.4 Lt 5 t )-2, -2
O'o Z -
i I
EDMNA L. VEILLETRE
MY COMMISSION # CC 670150
EXPIRES: August 12, 2DOI
- -59-
@, 0
Notary Public
IlytI
STATE OFGM 4 , lo f i d @ )
) SS:
COUNTY CFI
The foregoing instrument was acknowledged before me
this o@ay of @ britt ir %/, 1998, by Robert M. Taylor as
Chainnan and Manager of T&T Reso rts, L.C., the General
Partner of SouthSeas Resorts Properties Company Limited
Partnership ("Guarantor").
My commission expires: Ak c ks t /.? 0
u
....... . EDWINA L. VEILLETRE
- -1@ ., I MY COMMISSION # CC 670160
@-i
EXPIRES: August 12, 2DOI
, B=W Thru NOW Pubk Underwftm
@,IV
STATE OF @
@. I
Notary Public
STATE OF
. I)ey SS:
COUNTY OF C GA )
The foregoing instrument was acknowledged before me
thisIMMay of iCe- @ r " CL r @, 1998 by
0 b ec @A o r as -
P VKA- @ -of The Mariner Group.
My commission expires: Lt-S f 1.2. -P po@
MISSION # CC 670150
PIRES: August 12, 2001
- -60-
Notary Public
