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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[x] JOINT ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____ to _____
<TABLE>
<S> <C>
Commission File Number: 1-6828 Commission File Number: 1-7959
STARWOOD LODGING STARWOOD LODGING
TRUST CORPORATION
(Exact name of registrant as specified in its (Exact name of registrant as specified in its
charter) charter)
Maryland Maryland
(State or other jurisdiction (State or other jurisdiction
of incorporation or organization) of incorporation or organization)
52-0901263 52-1193298
(I.R.S. employer identification no.) (I.R.S. employer identification no.)
11835 W. Olympic Blvd., Suite 695 11835 W. Olympic Blvd., Suite 675
Los Angeles, California 90064 Los Angeles, California 90064
(Address of principal executive (Address of principal executive
offices, including zip code) offices, including zip code)
(310) 575-3900 (310) 575-3900
(Registrant's telephone number, (Registrant's telephone number,
including area code) including area code)
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Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Name of each exchange
Title of each class on which registered
------------------- -------------------
Shares of Beneficial Interest, $0.01 par value,
of Starwood Lodging Trust ("Trust Shares")
paired with New York Stock Exchange
Shares of Common Stock, $0.01 par value,
of Starwood Lodging Corporation ("Corporation
Shares")
1986 Warrants to purchase Trust Shares
paired with American Stock Exchange
1986 Warrants to purchase Corporation Shares
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrants (1) have 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
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of each Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
As of February 23, 1996, the aggregate market value of the Registrants'
voting stock held by non-affiliates(1) was $462,822,000.
As of February 23, 1996, the Registrants had outstanding 13,822,617 Trust
Shares and 13,822,617 Corporation Shares.
__________________________________
1 For purposes of this Joint Annual Report only, includes
all voting shares other than those held by the Registrants'
Trustees or Directors and executive officers.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item
Number
in Form
10-K PART I Page
---- ----
<S> <C> <C>
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . 26
PART II
5. Market for Registrants' Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . 30
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . . . . 31
8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . 39
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . 39
PART III
10. Trustees, Directors and Executive Officers of the Registrants . . . . . 39
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . 43
12. Security Ownership of Certain Beneficial Owners and Management . . . .
48
13. Certain Relationships and Related Transactions . . . . . . . . . . . . 50
PART IV
14. Exhibits, Financial Statements, Financial Statement Schedules
and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 54
</TABLE>
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PART I
ITEM 1. BUSINESS.
Starwood Lodging Trust, formerly Hotel Investors Trust (the
"Trust"), was organized in 1969 as a Maryland real estate investment trust, and
has invested in fee, ground leasehold and mortgage loan interests in hotel
properties located throughout the United States.
In order for the Trust to qualify for favorable tax status as
a real estate investment trust ("REIT") under the Internal Revenue Code of 1986
(the "Code"), the Trust leases its properties to third party operators. In
1980, Starwood Lodging Corporation, formerly Hotel Investors Corporation (the
"Corporation" and, together with the Trust, "Starwood Lodging"), was organized
as a Maryland corporation and has leased hotel properties from the Trust since
that date.
Unless the context otherwise requires, all references herein
to "Starwood Lodging" refer to the Trust and the Corporation, and all
references to the "Trust" and to the "Corporation" include the Trust and the
Corporation, respectively, and those entities respectively owned or controlled
by the Trust or the Corporation, including the Realty Partnership (defined
below) and the Operating Partnership (defined below).
Since 1980, the shares of beneficial interest of the Trust
("Trust Shares") and the shares of common stock of the Corporation
("Corporation Shares") have been "paired" on a one-for-one basis and may only
be held or transferred in units consisting of one Trust Share and one
Corporation Share ("Paired Shares"). The Code has prohibited the "pairing" of
shares between a REIT and a management company since 1983. This rule does not
apply to the Trust because its Paired Share structure has existed since 1980.
At December 31, 1995, Starwood Lodging owned equity interests
in 36 hotel properties, including two hotel/casinos, and owned mortgage
interests in another 13 hotel properties. At such date, of the 36 hotels in
which Starwood Lodging owned an equity interest (including the two
hotel/casinos), four hotels were being managed by third-party operators and
three hotels were leased to a third-party operator. For information as to such
interests and properties, see Item 2 of this Joint Annual Report.
ACQUISITION STRATEGY
Starwood Lodging intends to continue to expand and diversify
its hotel portfolio through the acquisition of primarily midscale and upscale
hotels in major metropolitan areas. Starwood Lodging believes that hotels
primarily in these segments can be purchased at prices below replacement cost
and offer better potential for cash flow growth than hotels in other market
segments. Starwood Lodging generally seeks investments in hotels where
management believes that such hotels' profits can be increased by the
introduction of more professional and efficient management techniques or the
injection of
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capital for maintenance and renovations. Properties are targeted throughout
the United States, but Starwood Lodging generally focuses on markets located
near other properties owned and operated by Starwood Lodging, markets with
significant barriers to entry or markets with stable demand generators such as
universities, government agencies or large companies.
Consistent with this strategy, Starwood Lodging acquired
equity and mortgage interests in the following hotels during 1995:
<TABLE>
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Approximate
Date of Purchase
Hotel Location Purchase Price (000s) Rooms
----- -------- -------- ------------ -----
<S> <C> <C> <C> <C>
Omni Chapel Hill, NC 4/6/95 $ 10,500 168
Sheraton Colony Square Atlanta, GA 7/18/95 34,000 462
Embassy Suites Tempe, AZ 7/27/95 19,300 224
Doral Inn New York, NY 9/20/95 43,000 652
Grand Hotel (1) Washington, DC 9/28/95 19,500 263
Terrace Garden Atlanta, GA 10/31/95 27,900 364
Lenox Inn Atlanta, GA 10/31/95 9,000 180
Holiday Inn Beltsville, MD 11/30/95 11,500 206
-------- -----
$174,700 2,519
======== =====
</TABLE>
(1) Represents a mortgage interest. The equity interest was purchased on
January 4, 1996 for approximately $13.5 million. This hotel is now
known as the Westin Washington.
In addition, during the first month of 1996, Starwood Lodging
completed the acquisition of the Grand Hotel in Washington D.C. for an
additional $13.5 million and for approximately $41.6 million, acquired a 58.2%
interest in a joint venture that acquired the 960-room Boston Park Plaza and
related real estate assets in Boston, Massachusetts.
Starwood Lodging is evaluating numerous other hotel
properties for acquisition, and as of the date of this Joint Annual Report has
entered into agreements to purchase and has made offers on eight properties in
the aggregate amount of approximately $170 million, all but one of which are
subject to the satisfaction of a number of conditions prior to closing.
Starwood Lodging has fully performed under such other agreement to purchase;
however, the closing remains subject to certain limited conditions on the part
of the other parties. Starwood Lodging intends to finance the acquisition of
these or other hotel properties through cash flow from operations, through
borrowings under credit facilities and, when market conditions warrant,
through the issuance of debt or equity securities.
The Trust and the Corporation intend that the Operating
Partnership lease and operate hotels owned or acquired by the Realty
Partnership thereby retaining for shareholders the economic benefits otherwise
retained by third party operators. During 1995, the
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Operating Partnership assumed management of 13 hotels and in January of 1996
assumed management of the Grand Hotel in Washington, D.C. (now a Westin hotel)
and the Boston Park Plaza. In addition, in early 1996, the Operating
Partnership expects to terminate two of the third-party management agreements
currently in place for three hotels which are currently majority owned by the
Realty Partnership and operated on behalf of the Operating Partnership by
third-party management companies. Upon such termination, the Operating
Partnership intends to assume the management of these hotels.
THE REORGANIZATION
On January 31, 1995 (the "Closing Date"), the Trust and the
Corporation consummated a reorganization (the "Reorganization") with Starwood
Capital Group, L.P. ("Starwood Capital") and certain affiliates of Starwood
Capital (the "Starwood Partners") effective January 1, 1995.
The Reorganization involved a number of related transactions
that occurred simultaneously on the Closing Date. Such transactions included
(i) the contribution by the Trust to SLT Realty Limited Partnership (the
"Realty Partnership"), a newly formed Delaware limited partnership, of
substantially all of the properties and assets of the Trust, subject to
substantially all of the liabilities of the Trust (including the senior debt
(the "Senior Debt") of the Trust), in exchange for an approximate 28.3%
interest as a general partner in the Realty Partnership, (ii) the contribution
by the Starwood Partners to the Realty Partnership of approximately $12.6
million in cash and certain hotel properties and first mortgage notes, in
exchange for limited partnership units representing the remaining approximate
71.7% interest in the Realty Partnership, (iii) the contribution by the
Corporation and its subsidiaries to SLC Operating Limited Partnership (the
"Operating Partnership" and together with the Realty Partnership, the
"Partnerships"), a newly formed Delaware limited partnership, of substantially
all of their properties and operating assets (except for their gaming assets,
which are to be contributed upon approval by Nevada gaming authorities),
subject to substantially all of their liabilities, in exchange for an
approximate 28.3% interest as a general partner in the Operating Partnership,
and (iv) the contribution by the Starwood Partners to the Operating Partnership
of approximately $1.4 million in cash and fixtures, furnishings and equipment
of the hotel properties, in exchange for limited partnership units representing
the remaining approximate 71.7% interest in the Operating Partnership. On
March 24, 1995, a Starwood Partner exchanged $12 million of Senior Debt for
additional limited partnership units of the Realty Partnership and the
Operating Partnership resulting in the Starwood Partners owning approximately
74.6% of each of the Partnerships.
The following equity interests and mortgage notes were
contributed to the Realty Partnership by the Starwood Partners in the
Reorganization:
Equity Interests contributed as part of the Reorganization:
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<TABLE>
<CAPTION>
Hotel Location Rooms
----- -------- -----
<S> <C> <C>
Doubletree Hotel Rancho Bernardo, California 209
Capitol Hill Suites Washington, D.C. 152
Harvey Wichita Wichita, Kansas 259
French Quarter Suites Lexington, Kentucky 155
</TABLE>
Mortgage notes contributed as part of the Reorganization:
<TABLE>
<CAPTION>
Hotel Outstanding Principal
Securing Balance on
Note January 1, 1995
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<S> <C>
Harvey Hotel Addison (1) . . . . . . $10,403,000
Harvey Hotel Bristol (1) . . . . . . 16,645,000
Harvey Hotel DFW (1) . . . . . . . . 25,892,000
Atlantic City Quality Inn (2) . . . . 11,411,000
Secaucus, New Jersey Ramada (2) . . . 12,458,000
-----------
$76,809,000
- ------------------ ===========
</TABLE>
(1) Represent first mortgage notes bearing interest at 8% payable quarterly
in arrears. The mortgage notes have a 15-year amortization period and a
balloon payment at maturity. The mortgage notes mature on December 31,
2002 and are cross-collateralized.
(2) The mortgage notes bear interest at various rates and are payable
monthly in arrears, except that for the months of November 1994 through
April 1995, debt service for the Atlantic City Quality Inn was to accrue
and be paid from excess cash flow. Commencing May 1, 1995 fixed
payments of debt service were required to be resumed. The mortgages
mature between 1996 and 2010.
As part of the Reorganization, the Realty Partnership assumed certain mortgage
notes payable, all of which were refinanced during 1995 with the proceeds of
the Prior Credit Agreement (defined below) or the Facilities (defined below).
The terms of the assumed mortgage notes are summarized as follows:
A $39,013,000 note issued in connection with the acquisition of the
Harvey mortgage notes receivable under the terms of a Loan Agreement
with a third party dated October 15, 1993. The note was nonrecourse,
was to mature on January 31, 2003 and bore interest on a monthly basis
at variable rates based on the London Interbank Offer Rate ("LIBOR")
plus 3%.
A $2,122,000 construction loan funded in 1994 and used to renovate the
Harvey Wichita Hotel. The note bore interest at 7.5%. Principal and
interest was payable monthly and the note was to mature in the year
2000.
In addition, as part of the Reorganization, the Realty Partnership assumed
other mortgage notes payable in the aggregate principal amount of $17,750,000,
which notes were refinanced with the proceeds of the Loan (defined below)
pursuant to the Prior Credit Agreement.
THE OFFERING
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On July 6, 1995, Starwood Lodging completed a public offering
(the "Offering") of 11,787,500 Paired Shares at a price of $23.00 per Paired
Share. Net proceeds of the Offering of approximately $245.7 million in
aggregate were contributed by the Trust and the Corporation to the Realty
Partnership and the Operating Partnership, respectively, thereby increasing the
general partnership interest of the Trust and the Corporation to approximately
69.9% of the Realty Partnership and the Operating Partnership, respectively,
with the Starwood Partners' limited partnership interests representing the
remaining approximate 30.1% interest in each of the Partnerships. Proceeds
from the Offering were used to repay amounts outstanding under the Prior Credit
Agreement. Shortly prior to the Offering, the Trust and the Corporation
effected a one-for-six reverse stock split of the Paired Shares in which each
six Paired Shares held on the record date for the reverse split were converted
into one Paired Share.
STRUCTURE
As of the date of this Joint Annual Report, the structure of
Starwood Lodging is as follows:
Holders of Paired Shares
Starwood Lodging Starwood Lodging
Trust Shares are Corporation
Owns 69.9% of SLT ------------------ Owns 69.9% of SLC
Realty Limited Paired Operating Limited
Partnership Partnership
SLT Realty SLT Operating
Limited Partnership Limited Partnership
Starwood Partners
Own 30.1% of each of SLT Realty
Limited Partnership and SLC Operating
Limited Partnership
The limited partnership units of the Realty Partnership and the
Operating Partnership held by the Starwood Partners are (subject to the
ownership limit provisions of the Trust and the Corporation) exchangeable by
the Starwood Partners, for, at the option of the Trust and the Corporation,
either cash, Paired Shares of Starwood Lodging representing up to approximately
30.1% of the Paired Shares after such exchange, or a combination of
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cash and such Paired Shares. The ownership limit provisions of Starwood
Lodging are designed to preserve the status of the Trust as a REIT for tax
purposes by providing that in general no shareholder may own, directly or
indirectly, more than 8% of the outstanding Paired Shares.
Since the Reorganization, the Trust has conducted substantially
all of its business and operations through the Realty Partnership. As of
December 31, 1995, the Realty Partnership held fee interests, ground leaseholds
and mortgage loan interests in 49 hotel properties containing over 10,500 rooms
located in 21 states throughout the United States and the District of Columbia.
The Trust controls the Realty Partnership as the sole general partner of the
Realty Partnership.
Since the Reorganization, the Corporation (together with its
wholly-owned subsidiaries) has conducted substantially all of its business and
operations (other than its gaming operations) through the Operating
Partnership. As of December 31, 1995, the Operating Partnership leased from
the Realty Partnership all but four of the 35 hotel properties owned in fee or
held pursuant to long-term leases by the Realty Partnership. In addition, the
Operating Partnership owns a 51% general partnership interest in a joint
venture that owns the Milwaukee Marriott hotel.
GAMING APPROVALS
Upon receipt of Nevada gaming regulatory approvals, the
Corporation will control the Operating Partnership as its managing general
partner. Prior to the receipt of such approvals, the Operating Partnership is
being managed by a management committee, the members of which are identical to
the members of the Board of Directors of the Corporation that will hold office
upon receipt of Nevada gaming regulatory approvals (see Item 10 of this Joint
Annual Report) and the gaming operations (which consist of two hotel/casinos
located in Las Vegas, Nevada) are being operated through Hotel Investors
Corporation of Nevada ("HICN") a wholly-owned subsidiary of the Corporation.
Upon receipt of such approvals (or such time as such approvals are no longer
required), HICN will become a wholly-owned subsidiary of the Operating
Partnership. Nevada gaming regulatory approvals are expected to be received by
the end of 1997.
CREDIT FACILITIES
On July 25, 1995, the Realty Partnership and the Trust, entered
into a Mortgage Loan Funding Facility Agreement (together with subsequent
amendments the "Repo Facility") with Lehman Commercial Paper Inc. ("Lehman
Commercial Paper"). Pursuant to the Repo Facility, Lehman Commercial Paper has
agreed to advance up to $71 million to the Realty Partnership for a period of
18 months ending January 25, 1997. Advances under the Repo Facility bear
interest at a rate based on one month LIBOR plus 150 basis points for the
period ending July 25, 1996 and one month LIBOR plus 175 basis points
thereafter and are secured by certain mortgage notes receivable and other
collateral of the Realty Partnership.
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On October 25, 1995, the Realty Partnership and the Trust
entered into a line of credit agreement (together with subsequent amendments,
the "Acquisition Facility") with Lehman Brothers Holdings, Inc ("Lehman
Holdings") pursuant to which Lehman Holdings agreed to make advances to the
Realty Partnership of up to $135 million for a period expiring on October 1,
1998. The Acquisition Facility superseded and replaced the Prior Credit
Agreement.
Advances under the Acquisition Facility bear interest at a rate
based upon one, two or three-month LIBOR plus 162.5 basis points and are
secured by liens on 29 of the hotel equity interests of the Realty Partnership
and may be secured by other properties, all on a cross-collateralized basis. A
$60 million portion of the Acquisition Facility is being syndicated. Up to $58
million of the obligations under the Acquisition Facility has been guaranteed
by the Operating Partnership, in consideration for the cancellation by the
Realty Partnership of intercompany indebtedness in 1994. Such guaranty is
secured by first priority liens on all of the assets of the Operating
Partnership relating to the hotels owned or leased by the Realty Partnership
which are subject to liens under the Acquisition Facility.
The Repo Facility and the Acquisition Facility (together, the
"Facilities") contain a number of covenants including (i) a requirement that
the Realty Partnership maintain a net worth equal to at least $215 million plus
75% of the net proceeds of equity offerings by the Trust; (ii) a restriction on
the ability of the Realty Partnership and the Trust to incur combined
indebtedness in excess of 55% of the net book value of their combined assets;
and (iii) maintenance of certain loan to value and debt service coverage
ratios. The Facilities also provide a right of the Trust and the Corporation,
subject to certain limitations, to pay distributions to their shareholders.
See Item 5 - Distributions of this Joint Annual Report.
In addition, on January 17, 1996, the Realty Partnership entered
into $100 million in notional amount Treasury Lock Transactions with Merrill
Lynch and Chemical Bank. The transactions have the effect of fixing the base
interest rate at 5.7 percent for up to $100 million of debt, with an assumed
term of seven years from October 15, 1996, issued by the Realty Partnership on
or before October 15, 1996. The actual rate of interest is expected to be the
base rate plus an amount determined at the time of issuance based on several
factors including, without limitation, any credit enhancements provided by
Starwood Lodging, the terms and conditions of the specific transaction, and
then existing market conditions.
PRIOR DEBT REFINANCING
On March 24, 1995, the Realty Partnership and the Trust entered
into an Amended and Restated Credit Agreement (the "Prior Credit Agreement")
pursuant to which the Realty Partnership borrowed $131.75 million (the "Loan")
primarily to refinance all outstanding Senior Debt and approximately $27
million of first mortgage debt. The Loan was to mature on April 1, 1997 and
bore interest at a rate based on LIBOR plus 300 basis points. All amounts
outstanding under the Prior Credit Agreement were repaid with a portion of the
proceeds of the Offering and the Prior Credit Agreement was superseded and
replaced by the Acquisition Facility.
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TAX STATUS OF THE TRUST
The Trust intends to elect to be taxed as a REIT, commencing
with its taxable year ended December 31, 1995. The Trust expects to make this
election for the year ended December 31, 1995 when it files its tax return for
such period, which is due no later than September 15, 1996. The Trust was
taxed as a REIT beginning in 1969 through and including its taxable year ended
December 31, 1990. During 1994, the Trust discovered that it may not have
qualified as a REIT in 1991 through 1994 due to its failure to comply with
certain procedural requirements of the Code. The Trust requested and received
a letter from the Internal Revenue Service providing that the Trust's election
to be taxed as a REIT terminated beginning with the Trust's taxable year ended
December 31, 1991 and permitting the Trust to re-elect to be taxed as a REIT
commencing with its taxable year ended December 31, 1995. Because the Trust
had net losses for tax purposes for its 1991 through 1994 taxable years, the
Trust does not owe any federal income tax for such years.
OTHER INFORMATION
Seasonality and Competition. The hotel industry is seasonal
in nature. Generally, hotel revenues are greater in the second and third
quarters than in the first and fourth quarters due to generally decreased
travel during the winter months.
The hotel industry is highly competitive. The properties of
the Trust and the Corporation compete with other hotel properties in their
geographic markets. Many of the competitors of the Trust and the Corporation
may have substantially greater marketing and financial resources than Starwood
Lodging.
The Trust and the Corporation may compete for acquisition
opportunities with entities which have substantially greater financial
resources than the Trust and the Corporation. These entities may generally be
able to accept more risk than the Trust and the Corporation can prudently
manage. Competition may generally reduce the number of suitable investment
opportunities and increase the bargaining power of property owners seeking to
sell. Further, management of the Trust believes that it will face competition
for acquisition opportunities from entities organized for purposes
substantially similar to the objectives of the Trust.
Environmental Matters. Neither the Trust, the Corporation,
the Realty Partnership nor the Operating Partnership has been identified by the
U.S. Environmental Protection Agency or any similar state agency as a
responsible or potentially responsible party for, nor have they been the
subject of any governmental proceeding with respect to, any hazardous waste
contamination. If the Trust, the Corporation, the Realty Partnership or the
Operating Partnership were to be identified as a responsible party, they would
in most circumstances be strictly liable, jointly and severally with other
responsible parties, for environmental investigation and clean-up costs
incurred by the government and, to a more limited extent, by private persons.
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In connection with the Acquisition Facility, preliminary or
"Phase I" environmental site assessments were prepared with respect to 29 of
the Trust's fee interest and ground leasehold properties. The results of the
Phase I assessments and subsequent "Phase II" assessments performed at six of
the properties led to an assessment by the Trust and its outside consultants
that the Trust's overall potential for environmental impairment was low.
A release of petroleum from an underground storage tank at the
Bay Valley Hotel and Resort was reported to the appropriate state agency in
1992. After the tank and surrounding soils were removed, additional soils and
groundwater testing was performed, which revealed environmental contamination
in a localized area. Environmental testing has been performed to identify the
vertical and horizontal extent of the contamination released from the tank.
The consultant initially proposed to remedy the contamination through
installation of a groundwater pump and treatment system to capture and treat
impacted groundwater and excavation of about 390 cubic yards of impacted soil.
Recent amendments to the relevant state environmental clean-up laws reduced the
extent of the clean-up required at the site and the Trust is now only required
to monitor the site. Any further remediation costs that are incurred will be
borne by the Realty Partnership.
With respect to the remaining majority owned fee-interest
properties, a 1991 Phase I environmental assessment and a tank leak test
conducted at the Bourbon Street Hotel in early 1992 and a Phase I environmental
assessment prepared for the Milwaukee Marriott in 1991 revealed no material
impairments. The last six properties acquired by Starwood Lodging (the Doral
Inn in New York, New York, the Terrace Garden Inn and Lenox Inn in Atlanta,
Georgia, the Holiday Inn in Beltsville, Maryland, the Grand Hotel in
Washington, D.C., and the Boston Park Plaza in Boston, Massachusetts) had Phase
I environmental assessments prepared in 1995 which evidenced no material
impairments.
Based upon the environmental reports described above, the
Trust believes that a substantial number of its hotels incorporate potentially
asbestos-containing materials. Under applicable current Federal, state and
local laws, asbestos need not be removed from or encapsulated in a hotel unless
and until the hotel is renovated or remodeled. The Trust has asbestos
operation and maintenance plans for each property testing positive for
asbestos.
Based upon the above-described environmental reports and
testing and facts known to the managements of the Trust and the Corporation,
future remediation costs are not expected to have a material adverse effect on
the results of operations, financial position or cash flows of the Trust or the
Corporation and compliance with environmental laws has not had and is not
expected to have a material effect on the capital expenditures, earnings or
competitive position of the Trust or the Corporation.
Regulation and Licensing. The ownership and operation of the
casino gaming facilities of the Corporation in Nevada are subject to extensive
licensing and regulatory control by the Nevada Gaming Commission, the Nevada
Sate Gaming Control Board and the Clark County Liquor and Gaming Licensing
Board. See Item 2, "Regulation and Licensing" of this Joint Annual Report.
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Employees. As of December 31, 1995, the Trust had four
employees and the Corporation had approximately 3,800 employees.
The Trust's executive offices are located at 11835 West
Olympic Boulevard, Suite 695, Los Angeles, California 90064 (telephone (310)
575-3900) and the Corporation's executive offices are located at 11835 West
Olympic Boulevard, Suite 675, Los Angeles, California 90064 (telephone (310)
575-3900).
Financial information with respect to the two segments of the
hospitality industry (hotels and gaming) in which the Corporation operates is
included in Note 16 of the Notes to Financial Statements included in Item 8 of
this Joint Annual Report.
ITEM 2. PROPERTIES.
At December 31, 1995, the Trust owned and the Corporation
operated and managed, a portfolio of hotel assets, including fee, ground
leasehold and first mortgage interests. At such date, all but four of the
Trust's fee and ground leasehold hotels were leased to the Corporation or its
subsidiaries pursuant to leases between the Trust and the Corporation (the
"Intercompany Leases").
As described in Item 1 of this Joint Annual Report, upon the
closing of the Reorganization, substantially all of the properties and assets
of the Trust were contributed to the Realty Partnership and substantially all
of the properties and assets of the Corporation and its subsidiaries (except
for their gaming assets, which are to be contributed upon approval by Nevada
gaming authorities) were contributed to the Operating Partnership.
Accordingly, since the Reorganization, the Trust has conducted
substantially all of its business and operations through the Realty Partnership
and the Corporation has conducted substantially all of its business and
operations (other than its gaming operations) through the Operating
Partnership. As of the date of this Joint Annual Report, the Trust had an
approximate 69.9% interest in the Realty Partnership and the Corporation had an
approximate 69.9% interest in the Operating Partnership.
THE TRUST AND THE REALTY PARTNERSHIP
Equity Investments. As of December 31, 1995, the Trust had
equity investments in 35 properties (including two hotel/casinos) containing a
total of over 7,100 guest rooms. As of that date, the Trust owned fee
interests in 30 hotels (including two hotel/casinos), held three hotels
pursuant to ground leases, owned one hotel partially in fee and partially
pursuant to a ground lease, and also had a 5% equity interest in, and was the
general partner of, a limited partnership that owns the Omaha Marriott Hotel
which contains 303 guestrooms. See Note 11 to the Financial Statements
included in Item 8 of this Joint Annual Report. Of the 35 hotels in which the
Trust had an equity interest at December 31, 1995, 23 operate under one of the
following nationally recognized names: Sheraton(R),
10
<PAGE> 14
Marriott(R), Doubletree(R), Omni(R), Radisson(R), Embassy Suites(R), Holiday
Inn(R), Residence Inn(R), Days Inn(R), Best Western(R) and Vagabond Inn(R).
Each of the Intercompany Leases provides for the lessee's
payment of annual minimum rent in a specified amount plus additional rent based
on a percentage of the gross revenues (or items thereof) of the leased
property. The Intercompany Leases have an average remaining term of four
years. The Intercompany Leases are "triple-net" - i.e., the lessee is
generally responsible for paying all operating expenses of the hotel property,
including maintenance and repair costs, insurance premiums and real estate and
personal property taxes, and for making all rental and other payments required
pursuant to any underlying ground leases. As lessee, the Operating Partnership
retains all of the profits, net of rents and other expenses, and bears all risk
of losses, generated by the hotel property's operations.
In addition to the Intercompany Leases, the three Vagabond
Inns are leased to a third party and such leases expire in 2001, 2007 and 2008,
respectively. The lease expiring in 2001 contains options to extend the term
of the lease for two additional five year periods. Each of these leases
provides for the payment of percentage rent equal to 26% of room revenues
against specified minimum rents. The leases are "triple net."
The following table sets forth the 1995, 1994, and 1993
average occupancy, room rates, revenue per available room ("REVPAR") and
certain other information concerning the hotels owned by the Trust as of
December 31, 1995:
11
<PAGE> 15
<TABLE>
<CAPTION>
Years Ended December 31,
Year Constructed/ ------------------------
Property Year Acquired (1) Property Description 1995 1994 1993
-------- ----------------- -------------------- ---- ---- ----
Average Occupancy
-----------------
Rate
----
<S> <C> <C> <C> <C> <C>
ARIZONA
Embassy Suites
Phoenix, Arizona 1981/1983 227 suites, restaurant, 80% 76% 72%
lounge and meeting
facilities
Embassy Suites 1984/1995 224 suites, restaurant, 80% 83% 82%
Tempe, Arizona lounge and meeting
facilities
Plaza Hotel 1971/1983 149 guest rooms, restaurant, 77% 77% 74%
Tucson, Arizona (2) lounge and meeting
facilities
CALIFORNIA
Doubletree Hotel 1988/1995 209 guest rooms, restaurant, 68% 66% 61%
Rancho Bernardo, California lounge and meeting facilities
Vagabond Inn 1974/1974 102 guest rooms and 33% 39% 44%
Rosemead, California (3) restaurant
Vagabond Inn 1975/1975 108 guest rooms and 52% 63% 59%
Sacramento, California (3) restaurant
Vagabond Inn 1973/1973 101 guest rooms and 52% 69% 58%
Woodland Hills, California (3) restaurant
DISTRICT OF COLUMBIA
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
Year Constructed/ -------------------------
Property Year Acquired (1) Property Description 1995 1994 1993
-------- ----------------- -------------------- ---- ---- ----
Average Room
-------------
Rate
----
<S> <C> <C> <C> <C> <C>
ARIZONA
Embassy Suites
Phoenix, Arizona 1981/1983 227 suites, restaurant, $85.14 $80.23 $74.04
lounge and meeting
facilities
Embassy Suites 1984/1995 224 suites, restaurant, $95.75 $83.37 $76.24
Tempe, Arizona lounge and meeting
facilities
Plaza Hotel 1971/1983 149 guest rooms, restaurant, $48.34 $46.12 $45.05
Tucson, Arizona (2) lounge and meeting
facilities
CALIFORNIA
Doubletree Hotel 1988/1995 209 guest rooms, restaurant, $71.02 $65.68 $63.62
Rancho Bernardo, California lounge and meeting facilities
Vagabond Inn 1974/1974 102 guest rooms and $38.09 $37.47 $38.14
Rosemead, California (3) restaurant
Vagabond Inn 1975/1975 108 guest rooms and $59.57 $55.89 $52.17
Sacramento, California (3) restaurant
Vagabond Inn 1973/1973 101 guest rooms and $48.04 $46.72 $43.68
Woodland Hills, California (3) restaurant
DISTRICT OF COLUMBIA
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
Year Constructed/ -------------------------
Property Year Acquired (1) Property Description 1995 1994 1993
-------- ----------------- -------------------- ---- ---- ----
Revenue per
-----------
Available Room
--------------
<S> <C> <C> <C> <C> <C>
ARIZONA
Embassy Suites
Phoenix, Arizona 1981/1983 227 suites, restaurant, $68.34 $60.63 $53.20
lounge and meeting
facilities
Embassy Suites 1984/1995 224 suites, restaurant, $76.78 $68.99 $62.29
Tempe, Arizona lounge and meeting
facilities
Plaza Hotel 1971/1983 149 guest rooms, restaurant, $37.37 $35.58 $33.54
Tucson, Arizona (2) lounge and meeting
facilities
CALIFORNIA
Doubletree Hotel 1988/1995 209 guest rooms, restaurant, $48.52 $43.09 $38.68
Rancho Bernardo, California lounge and meeting facilities
Vagabond Inn 1974/1974 102 guest rooms and $12.49 $14.53 $16.68
Rosemead, California (3) restaurant
Vagabond Inn 1975/1975 108 guest rooms and $31.04 $34.93 $30.49
Sacramento, California (3) restaurant
Vagabond Inn 1973/1973 101 guest rooms and $24.79 $32.26 $25.44
Woodland Hills, California (3) restaurant
DISTRICT OF COLUMBIA
</TABLE>
12
<PAGE> 16
<TABLE>
<S> <C> <C> <C> <C> <C>
Capitol Hill Suites 1955/1995 152 guest rooms 69% 64% 63%
Washington, D.C.
FLORIDA
Radisson Hotel 1974/1986 195 guest rooms, restaurant, 58% 59% 62%
Gainesville, Florida lounge and meeting
facilities
GEORGIA
Holiday Inn 1989/1989 151 guest rooms, restaurant, 77% 79% 74%
Albany, Georgia lounge and meeting
facilities
Lenox Inn 1965/1995 180 guest rooms, restaurant 79% 77% 75%
Atlanta, Georgia and meeting facilities
Sheraton Colony Square 1973/1995 462 guest rooms, restaurant, 72% 72% 67%
Atlanta, Georgia lounge and meeting facilities
Terrace Garden Inn 1975/1995 368 guest rooms, restaurant, 65% 65% 63%
Atlanta, Georgia lounge and meeting
facilities.
Best Western Riverfront Inn 1971/1986 142 guest rooms, restaurant, 64% 57% 55%
Savannah, Georgia lounge and meeting facilities
KANSAS
Harvey Wichita 1974/1995 259 guest rooms, restaurant, 64% 58% 59%
Wichita, Kansas lounge and meeting facilities
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Capitol Hill Suites 1955/1995 152 guest rooms $95.09 $91.93 $89.60
Washington, D.C.
FLORIDA
Radisson Hotel 1974/1986 195 guest rooms, restaurant, $60.43 $59.89 $56.63
Gainesville, Florida lounge and meeting
facilities
GEORGIA
Holiday Inn 1989/1989 151 guest rooms, restaurant, $59.08 $56.06 $56.96
Albany, Georgia lounge and meeting
facilities
Lenox Inn 1965/1995 180 guest rooms, restaurant $69.48 $63.57 $60.10
Atlanta, Georgia and meeting facilities
Sheraton Colony Square 1973/1995 462 guest rooms, restaurant, $89.59 $86.57 $81.47
Atlanta, Georgia lounge and meeting facilities
Terrace Garden Inn 1975/1995 368 guest rooms, restaurant, $93.51 $88.39 $82.62
Atlanta, Georgia lounge and meeting
facilities.
Best Western Riverfront Inn 1971/1986 142 guest rooms, restaurant, $46.75 $47.27 $46.21
Savannah, Georgia lounge and meeting facilities
KANSAS
Harvey Wichita 1974/1995 259 guest rooms, restaurant, $62.52 $50.62 $43.92
Wichita, Kansas lounge and meeting facilities
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Capitol Hill Suites 1955/1995 152 guest rooms $65.82 $58.93 $56.72
Washington, D.C.
FLORIDA
Radisson Hotel 1974/1986 195 guest rooms, restaurant, $35.07 $35.57 $35.21
Gainesville, Florida lounge and meeting
facilities
GEORGIA
Holiday Inn 1989/1989 151 guest rooms, restaurant, $45.59 $44.23 $41.92
Albany, Georgia lounge and meeting
facilities
Lenox Inn 1965/1995 180 guest rooms, restaurant $55.00 $49.15 $45.10
Atlanta, Georgia and meeting facilities
Sheraton Colony Square 1973/1995 462 guest rooms, restaurant, $64.84 $62.64 $54.91
Atlanta, Georgia lounge and meeting facilities
Terrace Garden Inn 1975/1995 368 guest rooms, restaurant, $61.16 $57.73 $51.98
Atlanta, Georgia lounge and meeting
facilities.
Best Western Riverfront Inn 1971/1986 142 guest rooms, restaurant, $29.78 $26.92 $25.23
Savannah, Georgia lounge and meeting facilities
KANSAS
Harvey Wichita 1974/1995 259 guest rooms, restaurant, $39.85 $29.21 $25.74
Wichita, Kansas lounge and meeting facilities
</TABLE>
13
<PAGE> 17
<TABLE>
<CAPTION>
Years Ended December 31,
Year Constructed/ ------------------------
Property Year Acquired (1) Property Description 1995 1994 1993
-------- ----------------- -------------------- ---- ---- ----
Average Occupancy
-----------------
Rate
----
<S> <C> <C> <C> <C> <C>
KENTUCKY
French Quarter Suites 1989/1995 155 guest rooms, restaurant, 75%
Lexington, Kentucky (4) lounge, meeting facilities,
retail and office space
MARYLAND
Calverton Holiday Inn 1987/1995 206 guest rooms, restaurant, 63% 58% 58%
Beltsville, Maryland lounge and meeting facilities
MICHIGAN
Bay Valley Hotel & Resort 1973/1984 151 guest rooms, restaurant, 63% 64% 52%
Bay City, Michigan lounge and meeting
facilities; 18-hole golf
course and tennis club
NEBRASKA
Omaha Marriott Hotel 1982/1982 303 guest rooms, restaurant, 80% 76% 76%
Omaha, Nebraska (5) lounge and meeting facilities
NEVADA
Bourbon Street 1975/1988 150 guest rooms, restaurant, 88% 90% 92%
Las Vegas, Nevada lounge and casino
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
Year Constructed/ -------------------------
Property Year Acquired (1) Property Description 1995 1994 1993
-------- ----------------- -------------------- ---- ---- ----
Average Room
-------------
Rate
----
<S> <C> <C> <C> <C> <C>
KENTUCKY
French Quarter Suites 1989/1995 155 guest rooms, restaurant, $82.93
Lexington, Kentucky (4) lounge, meeting facilities,
retail and office space
MARYLAND
Calverton Holiday Inn 1987/1995 206 guest rooms, restaurant, $67.49 $63.37 $56.92
Beltsville, Maryland lounge and meeting facilities
MICHIGAN
Bay Valley Hotel & Resort 1973/1984 151 guest rooms, restaurant, $62.02 $62.22 $66.39
Bay City, Michigan lounge and meeting
facilities; 18-hole golf
course and tennis club
NEBRASKA
Omaha Marriott Hotel 1982/1982 303 guest rooms, restaurant, $94.40 $87.21 $82.56
Omaha, Nebraska (5) lounge and meeting facilities
NEVADA
Bourbon Street 1975/1988 150 guest rooms, restaurant, $33.21 $32.89 $31.63
Las Vegas, Nevada lounge and casino
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
Year Constructed -------------------------
Property Year Acquired (1) Property Description 1995 1994 1993
-------- ----------------- -------------------- ---- ---- ----
Revenue per
-----------
Available Room
--------------
<S> <C> <C> <C> <C> <C>
KENTUCKY
French Quarter Suites 1989/1995 155 guest rooms, restaurant, $61.84 $58.57 $58.37
Lexington, Kentucky (4) lounge, meeting facilities,
retail and office space
MARYLAND
Calverton Holiday Inn 1987/1995 206 guest rooms, restaurant, $42.39 $36.43 $32.94
Beltsville, Maryland lounge and meeting facilities
MICHIGAN
Bay Valley Hotel & Resort 1973/1984 151 guest rooms, restaurant, $39.13 $39.53 $34.62
Bay City, Michigan lounge and meeting
facilities; 18-hole golf
course and tennis club
NEBRASKA
Omaha Marriott Hotel 1982/1982 303 guest rooms, restaurant, $75.52 $66.42 $62.75
Omaha, Nebraska (5) lounge and meeting facilities
NEVADA
Bourbon Street 1975/1988 150 guest rooms, restaurant, $29.09 $29.62 $29.16
Las Vegas, Nevada lounge and casino
</TABLE>
14
<PAGE> 18
<TABLE>
<CAPTION>
Years Ended December 31,
Year Constructed/ ------------------------
Property Year Acquired (1) Property Description 1995 1994 1993
-------- ----------------- -------------------- ---- ---- ----
Average Occupancy
-----------------
Rate
----
<S> <C> <C> <C> <C> <C>
King 8 Hotel and Gambling Hall 1974/1988 300 guest rooms, restaurant, 81% 82% 82%
Las Vegas, Nevada lounge and casino
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
Year Constructed/ -------------------------
Property Year Acquired (1) Property Description 1995 1994 1993
-------- ----------------- -------------------- ---- ---- ----
Average Room
-------------
Rate
----
<S> <C> <C> <C> <C> <C>
King 8 Hotel and Gambling Hall 1974/1988 300 guest rooms, restaurant, $31.88 $32.80 $29.46
Las Vegas, Nevada lounge and casino
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
Year Constructed/ -------------------------
Property Year Acquired (1) Property Description 1995 1994 1993
-------- ----------------- -------------------- ---- ---- ----
Revenue per
-----------
Available Room
--------------
<S> <C> <C> <C> <C> <C>
King 8 Hotel and Gambling Hall 1974/1988 300 guest rooms, restaurant, $25.77 $26.76 $24.15
Las Vegas, Nevada lounge and casino
</TABLE>
15
<PAGE> 19
<TABLE>
<CAPTION>
Years Ended December 31,
Year Constructed/ ------------------------
Property Year Acquired (1) Property Description 1995 1994 1993
-------- ----------------- -------------------- ---- ---- ----
Average Occupancy
-----------------
Rate
----
<S> <C> <C> <C> <C> <C>
NEW MEXICO
Best Western Airport Inn 1980/1984 120 guest rooms and leased 83% 86% 80%
Albuquerque, New Mexico (6) restaurant adjacent to
property
Best Western Mesilla Valley Inn 1974/1982 166 guest rooms, restaurant, 75% 71% 71%
Las Cruces, New Mexico lounge and meeting facilities
NEW YORK
Doral Inn 1927/1995 652 guest rooms, two 75% 81% 77%
New York, New York restaurants, lounge, ball
room and meeting facilities
NORTH CAROLINA
Omni Chapel Hill 1981/1995 172 guest rooms, restaurant, 71% 65% 56%
Chapel Hill, North Carolina lounge and meeting facility.
OHIO
Best Western North 1974/1992 180 guest rooms, restaurant, 65% 70% 66%
Columbus, Ohio lounge and meeting facilities
and sports club
OREGON
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
Year Constructed/ ------------------------
Property Year Acquired (1) Property Description 1995 1994 1993
-------- ----------------- -------------------- ---- ---- ----
Average Room
-------------
Rate
----
<S> <C> <C> <C> <C> <C>
NEW MEXICO
Best Western Airport Inn 1980/1984 120 guest rooms and leased $56.70 $54.45 $52.38
Albuquerque, New Mexico (6) restaurant adjacent to
property
Best Western Mesilla Valley Inn 1974/1982 166 guest rooms, restaurant, $44.94 $42.74 $41.67
Las Cruces, New Mexico lounge and meeting facilities
NEW YORK
Doral Inn 1927/1995 652 guest rooms, two $96.34 $88.31 $87.71
New York, New York restaurants, lounge, ball
room and meeting facilities
NORTH CAROLINA
Omni Chapel Hill 1981/1995 172 guest rooms, restaurant, $84.33 $74.54 $67.35
Chapel Hill, North Carolina lounge and meeting facility.
OHIO
Best Western North 1974/1992 180 guest rooms, restaurant, $44.37 $42.34 $42.12
Columbus, Ohio lounge and meeting facilities
and sports club
OREGON
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
Year Constructed/ -------------------------
Property Year Acquired (1) Property Description 1995 1994 1993
-------- ----------------- -------------------- ---- ---- ----
Revenue per
-----------
Available Room
--------------
<S> <C> <C> <C> <C> <C>
NEW MEXICO
Best Western Airport Inn 1980/1984 120 guest rooms and leased $47.02 $47.02 $41.98
Albuquerque, New Mexico (6) restaurant adjacent to
property
Best Western Mesilla Valley Inn 1974/1982 166 guest rooms, restaurant, $33.73 $30.42 $29.44
Las Cruces, New Mexico lounge and meeting facilities
NEW YORK
Doral Inn 1927/1995 652 guest rooms, two $70.15 $72.07 $67.50
New York, New York restaurants, lounge, ball
room and meeting facilities
NORTH CAROLINA
Omni Chapel Hill 1981/1995 172 guest rooms, restaurant, $59.87 $48.28 $37.99
Chapel Hill, North Carolina lounge and meeting facility.
OHIO
Best Western North 1974/1992 180 guest rooms, restaurant, $29.02 $29.76 $27.88
Columbus, Ohio lounge and meeting facilities
and sports club
OREGON
</TABLE>
16
<PAGE> 20
<TABLE>
<CAPTION>
Years Ended December 31,
Year Constructed/ ------------------------
Property Year Acquired (1) Property Description 1995 1994 1993
-------- ----------------- -------------------- ---- ---- ----
Average Occupancy
-----------------
Rate
----
<S> <C> <C> <C> <C> <C>
Days Inn City Center 1962/1984 173 guest rooms, restaurant, 78% 71% 63%
Portland, Oregon lounge and meeting facilities
Riverside Inn 1964/1984 137 guest rooms, restaurant, 78% 78% 79%
Portland, Oregon lounge and meeting facilities
TEXAS
Park Central Hotel 1972/1972 445 guest rooms, restaurant, 36% 42% 62%
Dallas, Texas lounge and meeting facilities
Best Western Airport Inn 1974/1985 175 guest rooms and leased 79% 80% 70%
El Paso, Texas restaurant adjacent to
property
VIRGINIA
Residence Inn 1984/1984 96 suites with full kitchens 85% 83% 78%
Tysons Corner, Virginia and fireplaces
WASHINGTON
Days Inn Town Center 1957/1984 90 guest rooms, restaurant and 81% 79% 75%
Seattle, Washington (7) lounge
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
Year Constructed/ -------------------------
Property Year Acquired (1) Property Description 1995 1994 1993
-------- ----------------- -------------------- ---- ---- ----
Average Room
-------------
Rate
----
<S> <C> <C> <C> <C> <C>
Days Inn City Center 1962/1984 173 guest rooms, restaurant, $60.71 $53.12 $57.50
Portland, Oregon lounge and meeting facilities
Riverside Inn 1964/1984 137 guest rooms, restaurant, $71.35 $64.69 $63.96
Portland, Oregon lounge and meeting facilities
TEXAS
Park Central Hotel 1972/1972 445 guest rooms, restaurant, $55.03 $59.97 $62.34
Dallas, Texas lounge and meeting facilities
Best Western Airport Inn 1974/1985 175 guest rooms and leased $36.12 $34.76 $35.56
El Paso, Texas restaurant adjacent to
property
VIRGINIA
Residence Inn 1984/1984 96 suites with full kitchens $103.87 $99.68 $103.07
Tysons Corner, Virginia and fireplaces
WASHINGTON
Days Inn Town Center 1957/1984 90 guest rooms, restaurant and $62.73 $60.99 $60.85
Seattle, Washington (7) lounge
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
Year Constructed/ -------------------------
Property Year Acquired (1) Property Description 1995 1994 1993
-------- ----------------- -------------------- ---- ---- ----
Revenue per
-----------
Available Room
--------------
<S> <C> <C> <C> <C> <C>
Days Inn City Center 1962/1984 173 guest rooms, restaurant, $47.25 $37.51 $36.32
Portland, Oregon lounge and meeting facilities
Riverside Inn 1964/1984 137 guest rooms, restaurant, $55.30 $50.49 $50.21
Portland, Oregon lounge and meeting facilities
TEXAS
Park Central Hotel 1972/1972 445 guest rooms, restaurant, $19.82 $25.37 $38.89
Dallas, Texas lounge and meeting facilities
Best Western Airport Inn 1974/1985 175 guest rooms and leased $28.68 $27.96 $25.01
El Paso, Texas restaurant adjacent to
property
VIRGINIA
Residence Inn 1984/1984 96 suites with full kitchens $88.25 $82.70 $80.55
Tysons Corner, Virginia and fireplaces
WASHINGTON
Days Inn Town Center 1957/1984 90 guest rooms, restaurant and $51.08 $48.40 $45.81
Seattle, Washington (7) lounge
</TABLE>
17
<PAGE> 21
<TABLE>
<CAPTION>
Years Ended December 31,
Year Constructed/ ------------------------
Property Year Acquired (1) Property Description 1995 1994 1993
-------- ----------------- -------------------- ---- ---- ----
Average Occupancy
-----------------
Rate
----
<S> <C> <C> <C> <C> <C>
Meany Tower Hotel 1932/1984 155 guest rooms, restaurant, 73% 71% 62%
Seattle, Washington lounge and meeting facilities,
including ballroom
Sixth Avenue Inn 1959/1984 166 guest rooms, restaurant, 79% 75% 62%
Seattle, Washington (8) lounge and meeting facilities
West Coast Tyee 1961/1987 155 guest rooms, restaurant, 58% 57% 62%
Tumwater, Washington lounge and meeting facilities
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
Year Constructed/ ------------------------
Property Year Acquired (1) Property Description 1995 1994 1993
-------- ----------------- -------------------- ---- ---- ----
Average Room
-------------
Rate
----
<S> <C> <C> <C> <C> <C>
Meany Tower Hotel 1932/1984 155 guest rooms, restaurant, $72.83 $70.47 $76.29
Seattle, Washington lounge and meeting facilities,
including ballroom
Sixth Avenue Inn 1959/1984 166 guest rooms, restaurant, $74.42 $70.04 $72.37
Seattle, Washington (8) lounge and meeting facilities
West Coast Tyee 1961/1987 155 guest rooms, restaurant, $61.64 $60.63 $56.28
Tumwater, Washington lounge and meeting facilities
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
Year Constructed/ -------------------------
Property Year Acquired (1) Property Description 1995 1994 1993
-------- ----------------- -------------------- ---- ---- ----
Revenue per
-----------
Available Room
--------------
<S> <C> <C> <C> <C> <C>
Meany Tower Hotel 1932/1984 155 guest rooms, restaurant, $53.07 $50.14 $46.92
Seattle, Washington lounge and meeting facilities,
including ballroom
Sixth Avenue Inn 1959/1984 166 guest rooms, restaurant, $58.53 $52.57 $44.67
Seattle, Washington (8) lounge and meeting facilities
West Coast Tyee 1961/1987 155 guest rooms, restaurant, $35.97 $34.78 $34.78
Tumwater, Washington lounge and meeting facilities
</TABLE>
18
<PAGE> 22
(1) "Year constructed" represents the calendar year in which construction
of the property was completed; "Year acquired" represents the calendar
year in which the Trust (or a predecessor) made its initial investment
in the property.
(2) Property is held subject to ground leases expiring in (assuming that
renewal options are exercised) 2019.
(3) Property is leased to Imperial Hotels Corporation.
(4) ADR and occupancy for 1993 and 1994 are not available.
(5) The Trust is the general partner of, and owns a 5% equity interest in,
the limited partnership which owns the property.
(6) Property is held subject to a ground lease expiring in 2029.
(7) Property is subject to a ground lease expiring in October 2007, which
is terminable by the ground lessor after September 1, 1999 upon six
months' notice under certain circumstances.
(8) Property is subject to a ground lease expiring in September 2008,
which is terminable by the ground lessor after September 1, 1999 upon
six months' notice under certain circumstances.
Mortgage and Other Notes Receivables. At December 31, 1995,
in addition to the three promissory notes related to the Milwaukee Marriott
referred to below, the Trust held eighteen promissory notes either contributed
by the Starwood Partners as part of the Reorganization or executed by
third-party purchasers of its hotels, all of which are secured by mortgages
(including deeds of trust) on thirteen hotels in the aggregate. Eleven of the
notes ($104.1 million in aggregate principal amount at December 31, 1995) are
secured by first mortgages; five notes ($1.6 million in aggregate principal
amount as of December 31, 1995) are secured by second mortgages; one note
($1.3 million in principal amount as of December 31, 1995) is secured by a
third mortgage; and one note ($173,000 in principal amount as of December 31,
1995) is secured by a fourth mortgage. Ten of the notes have fixed interest
rates that currently range from 7.0% to 10.0% per annum and five of the notes
have variable interest rates that range from 7.16% to 9.75% per annum at
December 31, 1995. The remaining three notes require principal payments only.
Two of the notes also provide for contingent interest based on a percentage of
the gross revenues of the properties securing such notes. The maturity dates
of the notes range from 1996 to 2017.
For additional information with respect to certain of the third-party
promissory notes and the three promissory notes held by the Trust and issued by
a partnership affiliated with the Corporation in connection with the Milwaukee
Marriott Hotel, see Notes 8 and 9 of Notes to Financial Statements included in
Item 8 of this Joint Annual Report.
In December 1987, in connection with the Corporation's acquisition of
the leasehold interest in two Atlanta, Georgia area hotels owned by the Trust
(which have been subsequently sold) from an affiliated partnership, John F.
Rothman, former president and chief executive officer of the Trust and general
partner of the partnership, assumed certain obligations of such partnership,
which obligations are evidenced by an unsecured promissory note to the Trust in
the principal amount of $800,000. Interest on the outstanding principal amount
of this note accrues interest at an annual rate of 10% and is payable annually;
the entire principal amount of the note is due in December 1999.
19
<PAGE> 23
All of the notes described above were contributed by the Trust or the
Starwood Partners to the Realty Partnership in connection with the
Reorganization.
THE CORPORATION AND THE OPERATING PARTNERSHIP
At December 31, 1995, 28 of the 31 hotel properties leased by
the Trust to the Corporation were operated directly by the Corporation, and the
remaining three were managed by three independent hotel companies. The
Operating Partnership, the general partner of the partnership that owns the
Milwaukee Marriott, also operates the Milwaukee Marriott.
The following table sets forth the 1995, 1994 and 1993 average
occupancy and room rates, REVPAR, and certain other information concerning the
hotel in which the Operating Partnership is the general partner, Milwaukee
Marriott Hotel, as of December 31, 1995.
<TABLE>
<CAPTION>
Year Constructed/
Year
Property Acquired Property Description
-------- ---------------- --------------------
<S> <C> <C>
Milwaukee Marriott 1972/1990 393 guest rooms, restaurant, lounge and
Milwaukee, WI meeting facilities.
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ---- ---- ---- ----
Average Occupancy Rate Average Room Revenue per Available
---------------------- ------------ ----------------------
Rate Room
---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
71% 70% 55% $72.19 $67.91 $71.99 $51.44 $47.42 $39.24
</TABLE>
Management Agreements. Each management agreement with a third
party provides that the management company has the exclusive right to direct
the operations of the hotel subject to that agreement. The management company
is responsible for maintaining and making all necessary repairs to the managed
hotel, hiring, training and supervising all hotel employees, and performing all
hotel bookkeeping and other administrative duties.
Each management company is required to submit to the Operating
Partnership for its approval an annual budget that includes proposed capital
expenditures, and the management company makes only those capital expenditures
that are approved by the
20
<PAGE> 24
Operating Partnership. The Realty Partnership is required to make available to
each management company sufficient working capital to permit that company to
operate the managed property.
For their services in managing the hotels, each third party
management company receives a management fee equal to a specified percentage
(generally 2% - 2-1/2%) of the gross revenues of the managed hotel, plus
additional incentive fees based upon the hotel's operating profits. Two of the
management agreements expire in 1998 and one expires in 1999. Of the remaining
four third-party management agreements currently in place, two are expected to
be terminated in early 1996 and management of the underlying properties assumed
by the Operating Partnership.
Franchise Agreements. All but twelve of the hotel properties
in which Starwood Lodging had an equity interest at December 31, 1995 are
operated pursuant to franchise or license agreements ("Franchise Agreements").
The Franchise Agreements generally require the payment of a monthly royalty fee
based on gross sales and various other marketing fees associated with certain
marketing or advertising and centralized reservation service funds, usually
based on gross sales. Such fees may vary among individual hotels within a
franchise system based on the type of marks, restaurants or other aspects of
the franchise system used.
The Franchise Agreements generally contain specific standards
for, and restrictions and limitations on, the operation and maintenance of the
hotels which are established by the franchisors to maintain uniformity in the
system created by each such franchisor. Such standards generally regulate the
appearance of the hotel, quality and type of goods and services offered,
signage, and protection of marks. Compliance with such standards could require
significant expenditures for capital improvements.
Ongoing training costs, requirements to purchase only from
approved suppliers, financial reporting requirements, insurance requirements
and various covenants not to compete imposed upon the franchisee are other
common terms in the Franchise Agreements. Required insurance usually must
cover both the franchisor and franchisee with respect to certain specified
liabilities, must fall within certain approved coverage limits and be written
by an approved insurance company.
The Franchise Agreements generally require the consent of the
franchisor to a transfer of an interest in the applicable franchise, and both
the consent of the franchisor and the execution of a new franchise agreement in
the event of a transfer of all or controlling portion of the franchisee under
the relevant Franchise Agreement. In addition, some franchise agreements may
require payment of an initial fee upon establishment of a franchise
relationship.
Mortgage Notes Payable Maturing During 1996
Six mortgage notes payable secured by two hotels mature in
1996. Five of the mortgage notes, aggregating $31.2 million at December 31,
1995, are secured by the
21
<PAGE> 25
Milwaukee Marriott, in which the Corporation holds a 51% interest. All but
$2.9 million in principal amount of these notes are held by the Trust. The net
book value of the Milwaukee Marriott is $22.1 million at December 31, 1995.
One mortgage note in the amount of $25.1 million at December 31, 1995, is
secured by the Boston Park Plaza, in which the Trust acquired a 58.2% interest
in January 1996.
Regulation and Licensing
The ownership and operation of the casino gaming facilities of
Starwood Lodging in Nevada are subject to extensive licensing and regulatory
control of the Nevada Gaming Commission (the "Nevada Commission"), the Nevada
State Gaming Control Board (the "Nevada Board") and the Clark County Liquor and
Gaming Licensing Board (the "Clark County Board" and, together with the Nevada
Commission and the Nevada Board, the "Nevada Gaming Authorities").
The gaming laws, regulations and supervisory procedures of
Nevada seek to (i) prevent unsavory or unsuitable persons from having any
direct or indirect involvement with gaming at any time or in any capacity; (ii)
establish and maintain responsible accounting practices and procedures; (iii)
maintain effective control over the financial practices of licensees, including
establishing minimum procedures for internal fiscal affairs and the
safeguarding of assets and revenues, providing reliable record keeping and
making periodic reports to the Nevada Gaming Authorities; (iv) prevent cheating
and fraudulent practices; and (v) provide a source of state and local revenues
through taxation and licensing fees. Changes in these laws, regulations and
procedures could have an adverse effect on the Corporation's gaming operations.
The Corporation is registered with the Nevada Commission as a
publicly traded corporation and has been found suitable as a holding company by
the Nevada Gaming Authorities to own all of the outstanding capital stock of
HICN. HICN which operates two hotel/casinos, the King 8 Hotel, Gambling Hall &
Truck Plaza (the "King 8") and the Bourbon Street Hotel & Casino ("Bourbon
Street") is licensed by the Nevada Gaming Authorities. The Trust was likewise
found suitable by the Nevada Gaming Authorities to be the landlord of the King
8 and Bourbon Street. No person may become a stockholder of, or receive any
percentage of profits from, HICN without first obtaining licenses and approvals
from the Nevada Gaming Authorities. Prior approval of the Nevada Commission is
required for the sale, assignment, transfer, pledge or other disposition of any
security issued by HICN.
The licenses and approvals held by HICN are not transferable
and must be renewed periodically upon the payment of appropriate taxes and
license fees. The licensing authorities have broad discretion with regard to
the renewal of the licenses. The issuing agency may at any time revoke,
suspend, condition, limit or restrict a license or approval to own stock in a
corporate licensee for any cause deemed reasonable by the issuing agency.
Substantial fines for each violation of gaming laws or regulations may be
levied against HICN, the Corporation and the individuals involved. A violation
under any one of the
22
<PAGE> 26
licenses held by HICN may be deemed a violation of one or more other licenses
or approvals held by HICN. If HICN's licenses are revoked or suspended or are
not renewed, the Nevada Commission may petition a Nevada district court to
appoint a supervisor to operate the affected property until it is sold. When
sold, the net proceeds would be paid to the Trust. The Trust could, however,
under certain circumstances, receive only the reasonable rental value of any
property earnings under the supervisor's management with any excess in earnings
over the reasonable rental value of the property being forfeited to the State
of Nevada. Suspension or revocation of the license of HICN, disapproval of the
Corporation to own the stock of HICN or court appointment of a supervisor over
operations of the King 8 or Bourbon Street could have a material adverse effect
upon the Trust and the Corporation.
Directors, officers and certain key employees of HICN must
file license applications with the Nevada Gaming Authorities. Certain
officers, directors and key employees of HICN are licensed by the Nevada Gaming
Authorities, and any required license applications of the remaining officers,
directors or key employees have been filed with the Nevada Board. An
application for licensing may be denied for any cause deemed reasonable by the
issuing agency. Changes in corporate management or executive positions must be
reported to the Nevada Gaming Authorities. In addition to its authority to
deny an application for a license, the Nevada Commission has jurisdiction to
disapprove a change in a management or executive position with a regulated
corporation. If the Nevada Gaming Authorities were to find a director, officer
or key employee unsuitable for licensing or unsuitable to continue having a
relationship with HICN or the Corporation, the Corporation and HICN would have
to sever all relationships with that person. The Corporation and HICN would
have similar obligations with regard to any person who refused to file
appropriate applications. Each gaming employee must obtain, and periodically
renew, a work permit, which may be revoked upon the occurrence of certain
specified events.
HICN must submit detailed financial and operating reports to
the Nevada Commission, which are subject to routine audit by the Nevada Board.
Substantially all loans, leases, sales of securities and similar financing
transactions entered into by HICN must be reported to or approved by the Nevada
Commission. The fiscal stability of HICN must be adequate to satisfy gaming
financial obligations such as state and local government taxes and fees, and
the payment of winning wagers to patrons. Failure to satisfy these gaming
financial obligations is grounds for the Nevada Gaming Authorities to limit,
condition, restrict, suspend or revoke the gaming licenses and approvals of
HICN and the registration and approvals of the Corporation, or to impose
administrative fines against HICN or the Corporation.
As a registered publicly traded holding company found suitable
as the sole stockholder of HICN, the Corporation is required periodically to
submit detailed financial and operating reports to the Nevada Commission and to
furnish any other information that the Nevada Commission or Nevada Board may
require. The Corporation's directors, officers and key employees who are
actively and directly engaged in the administration or supervision of gaming
are subject to licensing and findings of suitability by the Nevada Commission.
Certain directors and officers of the Corporation have filed their license
23
<PAGE> 27
applications as requested by the Nevada Board. The finding of suitability is
comparable to licensing, and both require submission of detailed personal
background and personal financial information followed by a thorough
investigation, and payment by the applicant of all investigative costs and
charges. Any individual who is found to have a material relationship to or
material involvement with the Corporation also may be required to be found
suitable or be licensed and may be investigated. Key employees, controlling
persons or others who exercise significant influence upon the management or
affairs of the Corporation, or are actively engaged in the administration or
supervision of gaming activities, may be deemed to have this type of a
relationship or involvement.
Any beneficial holder of the Corporation's voting securities,
regardless of the number of shares owned, may be required to file an
application, be investigated, and have his suitability as a beneficial holder
of the Corporation's voting securities determined if the Nevada Commission has
reason to believe that such ownership would otherwise be inconsistent with the
declared policies of the state of Nevada. The applicant must pay all costs of
investigation incurred by the Nevada Gaming Authorities in conducting any such
investigation.
Any person who acquires more than 5% of any class of voting
securities of the Corporation must report the acquisition to the Nevada
Commission. Beneficial owners of more than 10% of any class of the
Corporation's voting securities must apply to be found suitable by the Nevada
Commission within 30 days after the Chairman of the Nevada Board mails the
written notice requiring such filing, and any beneficial owner of the
Corporation's voting securities, whether or not such person is a controlling
stockholder, may be required to be found suitable if the Nevada Commission has
reason to believe that such ownership would be inconsistent with the declared
policy of the state of Nevada that licensed gaming be conducted honestly and
competitively and that the gaming industry be free from criminal and corruptive
elements.
An "institutional investor" (as defined by the Regulations of
the Nevada Commission) holding at least 10%, and in certain circumstances up to
15%, of the voting securities of the Corporation may apply for and hold a
waiver of the mandatory suitability determination requirement prescribed by the
Nevada Gaming Control Act. To qualify as an "institutional investor," a person
or entity must satisfy one of several alternative criteria under the federal
Securities Exchange Act of 1934, the Investment Company Act of 1940, or state
and federal pension and retirement laws, as well as acquire and hold the voting
securities for investment purposes in the ordinary course of business and not
for the purpose of effecting any change of control in or the management or
policies of the registered holding company or its gaming affiliates.
Activities which are not deemed to be inconsistent with holding voting
securities for investment purposes only include: (i) voting on all matters
voted on by stockholders; (ii) making financial and other inquiries of
management of the type normally made by securities analysts for informational
purposes and not to cause a change in its management, policies or operations;
and (iii) such other activities as the Nevada Commission may determine to be
consistent with such investment intent.
24
<PAGE> 28
A change in investment intent of an institutional investor
must be reported to the Chairman of the Nevada Board within two business days
of such change of intent. The Chairman of the Nevada Board may require an
institutional investor to apply for a finding of suitability upon receipt of
notice of change in investment intent, or at any time deemed necessary to
protect the public interest. An aggrieved institutional investor may apply for
Nevada Commission review of the decision of the Chairman of the Nevada Board
ordering the filing of a suitability determination application. The
Corporation or HICN must promptly report to the Nevada Commission any
information that materially affects the institutional investor's eligibility to
hold a waiver.
If the stockholder who must be found suitable is a
corporation, partnership or trust, that stockholder must submit detailed
business and financial information including a list of beneficial owners. In
addition, the Clark County Board has taken the position that it has the
authority to approve all persons owning or controlling more than two percent of
the stock of a gaming licensee or of any corporation controlling a gaming
licensee. The applicant is required to pay all costs of investigation.
Any stockholder found unsuitable by the Nevada Commission who
directly or indirectly holds any beneficial or ownership interest in the
Corporation's Common Stock beyond whatever period of time may be prescribed by
the Nevada Commission may be guilty of a criminal offense. Any person who
fails or refuses to apply for a finding of suitability or a license within 30
days after being ordered to do so by the Nevada Commission or Chairman of the
Nevada Board may be found unsuitable. The same restrictions that apply to a
security holder who is found unsuitable may be held to apply to a beneficial
owner of the Corporation's securities if the record owner, after request, fails
to identify the beneficial owner. The Corporation is subject to disciplinary
action if, after receiving notice that a person is unsuitable to be a
stockholder or to have any other relations with the Corporation or its gaming
subsidiaries, the Corporation (i) pays the unsuitable person any dividend or
interest upon any voting securities of the Corporation or makes any other
unpermitted payment or distribution of any kind whatsoever; (ii) recognizes the
exercise, directly or indirectly, of any voting rights in the Corporation's
securities by the unsuitable person; (iii) pays the unsuitable person any
remuneration in any form for services rendered or otherwise, except in certain
limited and specific circumstances; or (iv) fails to pursue all lawful efforts
to require the unsuitable person to divest himself of his voting securities,
including, if necessary, the immediate purchase by the Corporation of the
voting securities for cash at fair market value. In addition, Nevada law
requires that any holder or owner of a voting security who is found unsuitable
by the Nevada Commission immediately offer those securities to the Corporation
for purchase, which securities would be purchased by the Corporation for cash
at fair market value within 10 days from the date the securities are offered.
The Nevada Commission may, in its discretion, require the
holder of any debt security of a corporation registered under the Nevada Gaming
Control Act to file applications, be investigated and be found suitable to own
the debt security of a registered corporation. If the Nevada Commission
determines that a person is unsuitable to own such debt security, then pursuant
to the Regulations of the Nevada Commission, the registered
25
<PAGE> 29
corporation can be sanctioned, including the loss of its approvals, if without
the prior approval of the Nevada Commission it (i) pays to the unsuitable
person any dividend, interest or other distribution whatsoever; (ii) recognizes
any voting right of such unsuitable person in connection with such securities;
(iii) pays the unsuitable person remuneration in any form; or (iv) makes any
payment to the unsuitable person by way of principal, redemption, conversion,
exchange, liquidation, or similar transaction.
The Corporation is required to maintain a current and
comprehensive stock ledger in the state of Nevada, which ledger may be examined
by the Nevada Gaming Authorities at all reasonable times, but without notice.
If any securities are held in trust, by an agent or by a nominee, the owner of
record of those securities may be required to disclose the identity of the
beneficial owner to the Nevada Gaming Authorities. A failure to make this
disclosure may be grounds for finding the owner of record unsuitable. The
Corporation must render maximum assistance to the Nevada Gaming Authorities in
determining the identity of the beneficial owner.
The Nevada Commission has the power at any time to require
that the Corporation's stock certificates bear a legend to the general effect
that the securities of the Corporation are subject to the Nevada Gaming Control
Act and the regulations of the Nevada Commission. However, to date, the Nevada
Commission has not imposed such a requirement on the Corporation. The Clark
County Board also claims jurisdiction to approve or disapprove holders of the
Corporation's securities. The Nevada Gaming Authorities, through the power to
regulate licensees and otherwise by Nevada law, have the power to impose
additional restrictions on the holders of the Corporation's securities at any
time.
The Regulations of the Nevada Commission provide that changes
in the control of the Corporation or HICN through a merger, consolidation,
acquisition of assets, management or consulting agreements or any form of
takeover cannot occur without the prior approval of the Nevada Commission.
Entities seeking to acquire control of the Corporation must satisfy the Nevada
Board and Nevada Commission in a variety of stringent standards prior to
assuming control of the Corporation. The Nevada Commission may also require
controlling stockholders, officers, directors and other persons having a
material relationship or involvement with the entity proposing to acquire
control, to be investigated and licensed as part of the approval process
relating to the transaction.
The Nevada Legislature has declared that some corporate
acquisitions opposed by management, repurchases of securities and corporate
defense tactics affecting corporate gaming licensees in Nevada, and publicly
traded corporations affiliated with those licensees may be injurious to stable
and productive corporate gaming operations. The Nevada Commission has
established a regulatory scheme to ameliorate the potential adverse effects of
these business practices upon Nevada's gaming industry and to advance Nevada's
policy to (i) assure the financial stability of corporate gaming operators and
their affiliates; (ii) preserve the beneficial aspects of conducting business
in the corporate form; and (iii) promote a neutral environment for the orderly
governance of corporate affairs. Approvals may be required from the Nevada
Commission before the Corporation may make exceptional
26
<PAGE> 30
repurchases of securities above current market price (commonly referred to as
"greenmail"), and before a corporate acquisition opposed by management can be
consummated. Nevada's gaming regulations also require prior approval of the
Nevada Commission in the event of a Corporation plan of recapitalization
proposed by the board of directors in opposition to a tender offer made
directly to shareholders for the purpose of acquiring control of the
Corporation.
Nevada law prohibits the Corporation from making a public
offering of its securities without the approval of the Nevada Commission if any
part of the proceeds of the offering is to be used to finance the construction,
acquisition or operation of gaming facilities in Nevada, or to retire or extend
obligations incurred for one or more such purposes. Approval of the public
offering will not constitute a finding by the Nevada Commission as to the
accuracy, adequacy or investment merit of the securities offered to the public.
Any representation to the contrary is unlawful.
The gaming regulatory requirements discussed above apply to
certain aspects of the Reorganization. The contribution by HICN of the Gaming
Assets (and the transfer of certain liabilities to be retained by HICN) to the
Operating Partnership will occur on receipt of certain licenses or approvals by
the Nevada Gaming Authorities. Likewise, the election of the new members of
the Board of Directors of the Corporation since the Reorganization will be
effective upon receipt of certain licenses or approvals by the Nevada
Commission. Nevada gaming regulatory approvals are expected to be received by
the end of 1997. In conjunction with applying for and obtaining such licenses
and approvals, the Corporation has developed various policies and procedures
subject to review, approval and oversight by the Nevada Board. The purpose of
these corporate policies and procedures is to ensure compliance with the
regulatory requirement that prior approval of the Nevada Commission is obtained
for any transaction that would result in either Starwood Capital or Starwood
Partners acquiring control of the Corporation or its Nevada gaming operations.
The Corporation expects that these policies and procedures will be eliminated
upon receipt of certain licenses and approvals from the Nevada Commission. If
the required licenses or approvals of the Nevada Gaming Authorities are not
received on or before December 31, 1996, then on such date HICN has agreed to
contribute to the Operating Partnership cash equal to the fair value of the
Gaming Assets on such date.
License fees and taxes, computed in various ways depending on
the type of gaming involved, are payable to the State of Nevada and to the
County of Clark where HICN's gaming operations are conducted. Depending upon
the particular fee or tax involved, these assessments are payable either
monthly, quarterly, or annually and are based upon either (i) a percentage of
the gross gaming revenues received by the casino operations; (ii) the number of
slot machines or other gaming devices operated by the casino; or (iii) the
number of table games operated by the casino. A casino entertainment tax is
also paid by the licensees where entertainment is furnished in connection with
the selling of food or refreshments.
27
<PAGE> 31
The sale of alcoholic beverages by HICN is subject to
licensing, control and regulation by the Clark County Board. Such liquor
licenses are revocable and are not transferable. The Clark County Board has
full power to limit, condition, suspend or revoke any liquor license, and any
disciplinary action of this nature or license revocation would have a material
adverse effect on HICN's gaming operations.
ITEM 3. LEGAL PROCEEDINGS.
During the year ended December 31, 1995, the Trust and the
Corporation completed settlements of two purported class action complaints and
one complaint which was purportedly brought on behalf of the Trust and the
Corporation (collectively, the "Shareholder Actions"). The Shareholder Actions
were brought in 1991 and 1992 in each case in connection with the Trust's
purchase of the Ramada Inn in Indian Wells, California (which has been
subsequently sold) and its two hotel/casinos.
The two purported class actions were filed in the United
States District Court for the Southern District of California in August 1991
and February 1992 against the Trust, the Corporation and certain current and
former officers, Directors and Trustees. The complaint alleged fraud,
violations of federal and California securities laws, the federal Racketeer
Influenced and Corrupt Organizations Act and ERISA. The actions sought
compensatory damages, rescission and/or treble and exemplary damages plus
interest, costs and attorney's fees and statutory damages under ERISA. The
third action was filed in the Superior Court for the State of California for
San Diego County in March 1992 against current and former officers, Directors
and Trustees and alleged breach of fiduciary duty, gross negligence and
corporate waste. The action sought compensatory damages, certain remuneration
and costs.
The plaintiffs and defendants in the Shareholder Actions
entered into stipulations of settlement providing for the release of all claims
that were or might have been made in the Shareholder Actions and provided for a
$3,250,000 cash settlement fund which, after payment of fees and expenses of
plaintiffs' counsel, was distributed to the certified plaintiff classes. The
Trust and the Corporation paid $400,000 into the settlement fund, with the
balance of the settlement being paid by the insurance company that issued the
directors and officers policy applicable to the period to which the Shareholder
Actions relate and by two former officers and Trustees of the Trust. The Trust
and the Corporation paid the legal fees and other costs incurred prior to
October 12, 1993 by the defendants in the Shareholder Actions. Holders of an
aggregate of 199,833 Paired Shares (as adjusted for the one-for-six reverse
stock split in June 1995), all of which were owned by Mr. Leonard Ross and his
affiliates (collectively, "Ross"), opted out of the Shareholder Action and did
not share in the settlement.
As required by the stipulation, the Trust's Board of Trustees
and the Corporation's Board of Directors established a joint transaction
committee of independent Trustees and Directors to make recommendations to
those Boards with respect to any transaction proposed by management and having
a fair market value of $20 million or more.
28
<PAGE> 32
In connection with the settlement of the Shareholder Actions,
Messrs. Ronald A. Young and John F. Rothman and certain of their affiliated
partnerships terminated the management agreements (the "Management Contracts")
that existed between those partnerships and the Corporation's subsidiary,
Western Host, Inc. ("Western Host"), and Western Host agreed not to dispute
such action and withdrew as a general partner of two additional affiliated
partnerships. In satisfaction of any damages that the Trust and the
Corporation may incur as a result of the termination of the Management
Contracts, Messrs. Rothman and Young paid $800,000 to the Trust and the
Corporation. They also agreed to be responsible for a percentage of any
retroactive adjustments in worker's compensation insurance premiums. Starwood
Lodging has paid $167,041 for retroactive worker's compensation insurance
premiums and has sought reimbursement from Messrs. Young and Rothman of their
share of that amount (in an aggregate amount of approximately $56,000). In
October 1995, the Corporation commenced litigation against Messrs. Young and
Rothman to collect such amounts (Starwood Lodging Corp. v. Ronald A. Young, et
al., San Diego Superior Court Case No. 693822).
Ross, who as of December 31, 1994 held approximately 9.8% of
the outstanding Paired Shares of the Trust and Corporation (approximately 1.4%
as of December 31, 1995), opted out of the settlement of the Shareholder
Actions. Ross threatened to bring a separate action alleging similar causes of
action as those alleged in the Shareholder Actions as well as other alleged
causes of action. In November 1994, Ross assigned to Starwood Capital all of
his claims against the Trust and Corporation. In connection with such
assignment, Starwood Capital agreed to purchase all of Ross's Paired Shares at
Ross's election during a 60-day period beginning in December 1995, at a price
of $33.75 per Paired Share subject to certain adjustments. Starwood Capital,
as the assignee of Ross's claims against the Trust and the Corporation, agreed
that the maximum amount Starwood Capital may recover under such claims would
not exceed an aggregate of $1.8 million and the Trust and the Corporation
agreed to toll the statute of limitations respecting such claims until January
31, 1996. The Trust and Corporation also agreed that under certain
circumstances they may be obligated severally to indemnify Starwood Capital
with respect to Starwood Capital's obligations to Ross, up to a maximum of $1.8
million, upon receipt of a full release from Starwood Capital of all of the
claims assigned by Ross.
Ross elected to sell his Paired Shares, and in January 1996
those Paired Shares were sold to a third party through Merrill Lynch. The
Paired Shares were sold at a price of $29.625 per Paired Share; the Trust and
Corporation paid $1,375,743 in the aggregate pursuant to their indemnity
obligations, and Starwood Capital released the Trust and the Corporation from
all the claims assigned to it by Ross.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On December 7, 1995, (i) the Trust held its 1995 annual meeting of
shareholders of the Trust (the "Trust Meeting") to elect two Trustees to the
Board of Trustees of the Trust and to approve a share option plan of the Trust
and (ii) the Corporation held its 1995 annual meeting of stockholders of the
Corporation (the "Corporation Meeting") to elect four
29
<PAGE> 33
Directors to the Board of Directors of the Corporation and to approve a stock
option plan of the Corporation.
At the Trust Meeting, shareholders of the Trust voted upon and approved
(i) the election as Trustees of the Trust of Messrs. Madison F. Grose and
William E. Simms, and (ii) the adoption of the 1995 Share Option Plan of the
Trust. Messrs. Lapin, Quazzo, Duncan, Stern and Sternlicht continued as
Trustees after the Trust Meeting.
The following sets forth, with respect to each matter voted upon at the
Trust Meeting, the number of votes cast for, the number of votes cast against,
and the number of votes abstaining (or, with respect to the election of
Trustees, the number of votes withheld) with respect to such matter:
<TABLE>
<CAPTION>
Votes Votes Votes
For Against Abstentions Withheld
---------- --------- ----------- --------
<S> <C> <C> <C> <C>
Election of Trustees:
Madison F. Grose 12,336,209 0 0 209,107
William E. Simms 12,329,822 0 0 215,494
Adoption of the 1995
Share Option Plan 8,289,406 2,752,511 163,279 0
</TABLE>
At the Corporation Meeting, stockholders of the Corporation voted upon
and approved (i) the election as Directors of the Corporation of the following
nominees: Bruce M. Ford, Earle F. Jones, Graeme W. Henderson, and Daniel W.
Yih (Mr. Yih to take office upon receipt of Gaming Approval), and (ii) the
adoption of the 1995 Share Option Plan of the Corporation. Messrs. Chapus,
Goldman, Leven, Eilian and Sternlicht continued as members of the Management
Committee and Directors (to take office upon receipt of Gaming Approval) after
the Corporation Meeting.
The following sets forth, with respect to each matter voted upon at the
Corporation Meeting, the number of votes cast for, the number of votes cast
against, and the number of votes abstaining (or, with respect to the election
of Directors, the number of votes withheld) with respect to such matter:
30
<PAGE> 34
<TABLE>
<CAPTION>
Votes Votes Votes
For Against Abstentions Withheld
---------- --------- ----------- --------
<S> <C> <C> <C> <C>
Election of Directors:
Bruce M. Ford 12,354,381 0 0 204,890
Earle F. Jones 12,355,118 0 0 204,153
Graeme W. Henderson 12,355,252 0 0 204,019
Daniel W. Yih 12,354,634 0 0 204,637
Adoption of 1995 Share 7,305,949 2,742,455 185,675 0
Option Plan
</TABLE>
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information
The Paired Shares are traded principally on the New York Stock
Exchange (the "NYSE") under the symbol "HOT".
The following table sets forth, for the fiscal periods indicated,
the high and low sales prices per Paired Share on the NYSE Composite Tape (as
adjusted for the one-for-six reverse stock split in June 1995).
<TABLE>
<CAPTION>
1995
Distributions Return of Capital
High Low Made GAAP Basis (a)
---- --- ----------- ----------
<S> <C> <C> <C> <C>
First quarter $24.00 $15.75 None N/A
Second quarter $24.75 $21.00 None N/A
Third quarter $29.13 $23.63 $0.47 $0.22
Fourth quarter $30.00 $26.88 $0.47 (b) $0.07
1994
First quarter $15.00 $11.25 None N/A
Second quarter $18.00 $9.75 None N/A
Third quarter $20.25 $17.25 None N/A
Fourth quarter $20.25 $15.75 None N/A
</TABLE>
(a) Represents distributions per share in excess of net income per share
on a GAAP basis, and is not the same as return of capital on a tax
basis.
31
<PAGE> 35
(b) The Trust declared a dividend for the fourth quarter of 1995 to
shareholders of record on December 29, 1995. The dividend was paid in
January 1996.
Holders
As of February 27, 1996, there were approximately 1,276 holders of
record of Paired Shares.
Distributions Made/Declared
The Trust declared and paid a dividend of $0.47 per Paired Share
for the third quarter of 1995. In addition, the Trust declared a dividend of
$0.47 per Paired Share for the fourth quarter of 1995. This dividend was paid
in January 1996. No distributions were made by the Trust during 1994. The
Corporation has not paid any cash dividend since its organization and does not
anticipate that it will make any such distributions in the foreseeable future.
Under the terms of the Facilities, Starwood Lodging is generally permitted to
distribute to its shareholders on an annual basis an amount equal to the
greatest of (1) 100% of funds from operations for any four consecutive calendar
quarters; (2) an amount sufficient to maintain the Trust's tax status as a real
estate investment trust; (3) the amount necessary for the Trust to avoid the
payment of federal income or excise tax; and (4) through June 30, 1996, $0.47
per share per quarter.
ITEM 6. SELECTED FINANCIAL DATA.
The following data sets forth certain financial information for
each of the Trust and the Corporation, and the Trust and the Corporation on a
combined basis. This information is based on and should be read in conjunction
with the financial statements and the notes thereto appearing elsewhere in this
Joint Annual Report.
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical
Pro ----------------------------------------------------------
Forma As and for the Year Ended December 31,
------------------------------------------------------------------
1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Operating Data
Revenue:
Trust . . . . . . $ 48,953 $ 44,023 $ 21,671 $ 20,342 $ 26,784 $ 29,550
Corporation . . . 164,038 149,184 110,962 114,828 116,172 110,361
Combined (1) . . . 176,570 161,716 113,997 117,155 117,656 113,436
</TABLE>
32
<PAGE> 36
<TABLE>
<CAPTION>
Historical
Pro ----------------------------------------------------------
Forma As of and for the Year Ended December 31,
----- ----------------------------------------------------------
1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Income (Loss):
Trust (2) . . . . 23,239 10,709 (3,465) (3,889) (9,818) (10,952)
Corporation (2) . (2,094) (1,739) (1,198) (3,143) (9,925) (11,132)
Combined . . . . . 21,145 8,970 (4,663) (7,032) (19,743) (22,084)
Net Income (Loss) Per
Share:
Trust . . . . . . $ 1.68 $ 1.37 $ (1.72) $ (1.92) $ (4.86) $ (5.42)
Corporation . . . (.15) (.22) (0.59) (1.56) (4.90) (5.50)
------- ------- -------- -------- -------- --------
Combined . . . . . $ 1.53 $ 1.15 $ (2.31) $ (3.48) $ (9.76) $ (10.92)
------- ======= ======== ======== ======== ========
<CAPTION>
Historical
----------------------------------------------------------
At December 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Total Assets:
Trust . . . . . . 425,737 $162,245 $232,845 $245,540 $246,498
Corporation . . . 120,721 48,626 49,993 53,611 55,807
Combined (1) . . . 459,994 183,955 195,352 210,945 221,917
Total Debt:
Trust . . . . . . 119,200 146,734 156,526 157,541 158,295
Corporation . . . 90,749 40,664 101,846 100,246 66,873
Combined (1) . . . 123,485 160,482 170,886 170,297 171,271
Shareholders' Equity
(Deficit):
Trust . . . . . . 204,728 10,450 72,205 76,371 86,188
Corporation . . . 10,740 (1,742) (58,879) (55,752) (45,828)
Combined . . . . 215,467 8,708 13,326 20,351 40,083
Shares outstanding at
end of period . . . 13,825 2,022 2,022 2,022 2,022
</TABLE>
33
<PAGE> 37
<TABLE>
<CAPTION>
Historical
----------------------------------------------------------
As of and for the Year Ended December 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Cash Flow and Dividend
Data
Net cash provided by
(used in) operating
activities:
Trust . . . . . . $ 11,267 $ 4,455 $ 3,136 $ 2,773 $(8,812)
Corporation . . . 5,144 4,438 2,396 1,917 2,654
Combined . . . . . 16,411 8,893 5,532 4,690 (6,158)
Net cash provided by
(used in) investing
activities:
Trust . . . . . . . (175,506) $ 8,239 $ 2,474 $ (161) $12,889
Corporation . . . . (44,003) 215 (4,426) (942) 472
Combined (1) . . . (181,995) 4,489 (3,645) (1,514) 12,159
Net cash provided by
(used in) financing
activities:
Trust . . . . . . . 164,694 (13,357) (7,307) (850) (7,507)
Corporation . . . . 42,671 (4,577) (1,138) (816) (834)
Combined (1) . . . 169,851 (13,969) (6,752) (1,255) (7,139)
Dividends/Distributions
to shareholders-Trust (3) 9,265 $0 $0 $0 $0
Dividends/Distributions
per share-Trust (3) . $0.47 $0 $0 $0 $0
</TABLE>
_______________
(1) The individual amounts with respect to the Trust and Corporation do
not add to Combined amounts due to accounting elimination entries.
(2) For the Trust, includes gains (losses) on sales in the amount of
($125,000), $432,000, ($53,000), ($791,000) and $390,000 for the years
ended December 31, 1995, 1994, 1993, 1992 and 1991, respectively, and
provisions for investment losses of $759,000, $2,369,000, $3,419,000
and $8,867,000 in the years ended December 31, 1994, 1993, 1992, and
1991, respectively. For the Corporation, includes gains on sales of
$24,000, $74,000, $4,000 and $1,208,000 for the years ended December
31, 1994, 1993, 1992, and 1991, respectively, and provisions for
investment losses of $713,000 in the year ended December 31, 1991.
(3) Presented only for the Trust, as the Corporation did not pay dividends
for the periods presented.
34
<PAGE> 38
Due to the impact of the Reorganization and other transactions during 1995,
management believes that the following presentation and discussion of the pro
forma results of operations is more meaningful to the users of the financial
statements for an understanding of the comparative operating results than the
historical information which follows the discussion of the pro forma results of
operations.
UNAUDITED COMBINED PRO FORMA STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1995 1994
-------- --------
<S> <C> <C>
REVENUE
Hotel . . . . . . . . . . . . . . . . . . . $136,104,000 $118,558,000
Gaming . . . . . . . . . . . . . . . . . . . 26,929,000 27,981,000
Interest from mortgage and other notes . . . 10,905,000 10,858,000
Rents from leased hotel properties
and income from joint ventures . . . . . . 791,000 927,000
Other income . . . . . . . . . . . . . . . . 1,966,000 411,000
Gain (loss) on sales of hotel assets . . . . (125,000) 456,000
------------ ------------
176,570,000 159,191,000
------------ ------------
EXPENSES
Hotel operations . . . . . . . . . . . . . . 94,487,000 84,357,000
Gaming operations . . . . . . . . . . . . . 24,242,000 24,454,000
Interest . . . . . . . . . . . . . . . . . . 2,940,000 3,257,000
Depreciation and amortization . . . . . . . . 18,934,000 16,666,000
Administrative and operating . . . . . . . . 5,722,000 4,203,000
------------ ------------
146,325,000 132,937,000
------------ ------------
Income before minority interest . . . . . . 30,245,000 26,254,000
Minority interest in Partnerships . . . . . 9,100,000 7,900,000
------------ ------------
Net income . . . . . . . . . . . . . . . . . $ 21,145,000 $ 18,354,000
============ ============
Net income per Paired Share . . . . . . . . $1.53 $1.33
============ ============
Funds from operations . . . . . . . . . . . $ 48,634,000 $ 42,464,000
============ ============
</TABLE>
35
<PAGE> 39
NOTES TO THE UNAUDITED COMBINED PRO FORMA STATEMENTS OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31, 1995
NOTE 1. BASIS OF PRESENTATION
The Trust and the Corporation have unilateral control of the Realty Partnership
and the Operating Partnership, respectively, and, therefore, the historical
financial statements of the Realty Partnership and the Operating Partnership
are consolidated with those of the Trust and the Corporation.
Due to the impact of the Offering and the acquisition of properties acquired in
connection with the Offering, the historical results of operations and earnings
per share are not indicative of future results of operations and earnings per
share. The Unaudited Combined Pro Forma Statements of Operations for the years
ended December 31, 1995 and 1994 give effect to the Reorganization, the
Offering, and the acquisition of the Sheraton Colony Square in Atlanta,
Georgia, the Embassy Suites in Tempe, Arizona, and the Omni Europa in Chapel
Hill, North Carolina as of the beginning of each period presented. Pro forma
results include the results of the other acquired properties (the Doral Inn in
New York, New York - acquired on September 20, 1995, the Terrace Garden Inn and
Lenox Inn in Atlanta, Georgia - acquired on October 31, 1995, and the Holiday
Inn in Beltsville, Maryland - acquired on November 30, 1995) from their
respective dates of acquisition and exclude the results from properties sold in
1994. Additional pro forma information reflecting the inclusion of the Doral
Inn, Terrace Garden Inn, Lenox Inn and the Beltsville Holiday Inn (the "New
Properties") from the beginning of each respective period is included in Note
18 to the historical financial statements included in Item 8 of this Joint
Annual Report. The pro forma information is based upon historical information
and does not purport to present what actual results would have been had such
transactions, in fact, occurred at the beginning of each period presented, or
to project results for any future period.
Listed below are the combined pro forma adjustments for each contributed and
acquired hotel:
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Acquired Properties
----------------------------------------------------------------------------------
Omni Sheraton Embassy Suites
Chapel Hill Colony Square Tempe Total
----------- ------------- -------------- -----
<S> <C> <C> <C> <C>
Hotel Revenues $ 1,265,000 $ 9,557,000 $ 4,032,000 $14,854,000
Hotel Expenses . . . 887,000 7,009,000 2,271,000 10,167,000
Depreciation . . . . 163,000 2,073,000 1,229,000 3,465,000
----------- ----------- ----------- -----------
Net Income $ 215,000 $ 475,000 $ 532,000 $ 1,222,000
=========== =========== =========== ===========
</TABLE>
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Contributed by Starwood Capital
---------------------------------------------------------------------------------------
Capitol French
Hill Quarter Doubletree Wichita Total
------- ------- ---------- ------- -----
<S> <C> <C> <C> <C> <C>
Hotel Revenues $3,484,000 $5,247,000 $3,753,000 $3,983,000 $16,467,000
Hotel Expenses . 2,228,000 3,789,000 2,795,000 3,939,000 12,751,000
Depreciation . . 556,000 858,000 481,000 601,000 2,496,000
---------- ---------- ---------- ---------- -----------
Net Income $ 700,000 $ 600,000 $ 477,000 $(557,000) $ 1,220,000
========== ========== ========== ========== ===========
</TABLE>
36
<PAGE> 40
<TABLE>
<CAPTION>
Acquired Properties
----------------------------------------------------------------------------------
Omni Sheraton Embassy Suites
Chapel Hill Colony Square Tempe Total
----------- ------------- -------------- -----
<S> <C> <C> <C> <C>
Hotel Revenues $4,407,000 $16,200,000 $6,025,000 $26,632,000
Hotel Expenses 3,024,000 12,656,000 3,823,000 19,503,000
Depreciation 884,000 3,363,000 2,006,000 6,253,000
---------- ----------- ---------- -----------
Net Income $ 499,000 $ 181,000 $ 196,000 $ 876,000
========== =========== ========== ===========
</TABLE>
NOTE 2. NET INCOME PER PAIRED SHARE
Net income per Paired Share has been computed using the pro forma weighted
average number of Paired Shares and equivalent Paired Shares outstanding for
the period presented of 13,822,617 Paired Shares.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
As discussed in Item 1 of this Joint Annual Report under the
caption "The Reorganization", the Trust and the Corporation consummated the
Reorganization on the Closing Date effective as of January 1, 1995. Since the
Reorganization, the Trust has conducted substantially all of its business and
operations through the Realty Partnership and the Corporation has conducted
substantially all of its business and operations (other than its gaming
operations) through the Operating Partnership. The Trust controls the Realty
Partnership as its sole general partner. The Corporation controls the
Operating Partnership as its managing general partner, although until the
receipt of required gaming approvals, a management committee of the Operating
Partnership will manage the Operating Partnership.
As discussed in Item 1 of this Joint Annual Report under the
caption "The Offering", on July 6, 1995, the Trust and Corporation consummated
a public offering of Paired Shares and received aggregate net proceeds of
approximately $245.7 million.
As discussed in Item 1 of this Joint Annual Report under the
caption, "Credit Facilities" in 1995 the Realty Partnership entered into the
Repo Facility and the Acquisition Facility and, as of December 31, 1995, had
borrowed $119.1 million to acquire hotel assets and for general corporate
purposes.
COMBINED PRO FORMA RESULTS OF OPERATIONS
PRO FORMA NET INCOME
On a pro forma basis (see Item 6, Pro Forma Financial
Statements), combined net income for the year ended December 31, 1995 grew by
15.2 % to $21.1 million, or $1.53 per Paired Share, on combined revenues of
$176.6 million, compared to combined net income of $18.4 million, or $1.33 per
Paired Share, on combined revenues of $159.2 million for the corresponding
period in 1994. On a year-to-year basis, while occupancy rates
37
<PAGE> 41
remained relatively constant, average daily rate ("ADR") for Starwood Lodging's
owned and operated nongaming hotels for the year ended December 31, 1995
(including the New Properties in each year), increased 11.2%, from $67.43 to
$74.98, and REVPAR for such hotels increased 12.9%, from $47.61 to $53.76.
The 10.9% increase in pro forma revenues for 1995 resulted
from the impact of revenues from the New Properties together with increases in
ADR for Starwood Lodging's upscale, midscale and economy segment hotels of
14.4%, 4.4% (2.2% excluding the Dallas, Texas property which lost the benefit of
a Marriott franchise in 1994) and 10.0 percent, respectively. Management
believes that ADR increases, particularly in the upscale segment, reflect
increases in demand which continue to exceed increases in supply. The increase
in the economy segment (consisting of two hotels) primarily reflects
management's decision to reposition and flag the formerly independent Portland,
Oregon property in October of 1994.
The following tables summarize average occupancy, ADR and
REVPAR on a year-to-year basis for Starwood Lodging's owned and operated,
nongaming hotels (including the New Properties for the period beginning with
their respective dates of acquisition and ending at the end of each period) for
the years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
Years Ended
December 31,
1995 1994
---- ----
<S> <C> <C>
All Nongaming Hotels:
Occupancy rate 71.7% 70.6%
ADR $74.98 $67.43
REVPAR $53.76 $47.61
REVPAR % change 12.9%
Upscale Hotels:
Occupancy rate 73.0% 71.8%
ADR $86.39 $75.49
REVPAR $63.78 $54.20
REVPAR % change 17.7%
Midscale Hotels (excluding Dallas
Park Central):
Occupancy rate 68.8% 68.5%
ADR $58.44 $55.99
REVPAR $39.92 $38.35
REVPAR % change 4.1%
</TABLE>
38
<PAGE> 42
<TABLE>
<CAPTION>
<S> <C> <C>
Economy Hotels:
Occupancy rate 79.1% 73.6%
ADR $61.40 $55.81
REVPAR $48.57 $41.08
REVPAR % change 18.2%
</TABLE>
Management believes that the increases in REVPAR resulted
primarily from increases in demand due to more favorable economic conditions
which have created increased business and leisure travel throughout the United
States, while the supply of hotel rooms has not increased as rapidly. REVPAR
increases were greatest at the upscale hotels (16.3% increase) as well as the
Harvey Hotel in Wichita, Kansas (renovated in 1994) and the Days Inn in
Portland, Oregon, which was flagged a Days Inn in late 1994.
Management believes that there are several important factors
that have contributed to the improved profitability of Starwood Lodging's hotel
properties, including increased occupancy and average room rate and effective
cost management. Because a substantial portion of the hotels' operating costs
and expenses are generally fixed, Starwood Lodging derives substantial
operating leverage from increases in revenue. Consequently, primarily as a
result of the stronger growth in ADR than in occupancy, gross margins for the
year ended December 31, 1995 rose to 30.6% from 28.9% for the year ended
December 31, 1994.
ACQUISITIONS
During 1995, excluding the properties contributed as part of
the Reorganization, Starwood Lodging acquired: the 168-room Omni Hotel in
Chapel Hill, North Carolina; the 462-room Sheraton Colony Square Hotel in
Atlanta, Georgia; the 224-room Embassy Suites in Tempe, Arizona; the 652-room
Doral Inn in New York, New York; a $19.5 million mortgage interest in the
263-room Grand Hotel in Washington, D.C.; the 364-room Terrace Garden Inn and
the 180-room Lenox Inn in Atlanta, Georgia; and the 206-room Calverton Holiday
Inn in Beltsville, Maryland. In the first month of 1996, Starwood Lodging
acquired the equity in the Grand Hotel in Washington, D.C., and a 58.2%
interest in a joint venture that acquired the Boston Park Plaza. In total,
Starwood Lodging's growth through acquisitions since the beginning of 1995 has
exceeded $250 million, including the assumption by the Operating Partnership of
the management of eight of these hotels containing over 2,800 rooms.
SELF MANAGEMENT
Consistent with its business objective to capture the economic
benefits otherwise retained by a third-party operator, the Operating
Partnership has assumed management of eight hotels acquired since the beginning
of 1995 as well as seven properties owned as of January 1, 1995. Of the
remaining four third-party management agreements currently in place, two are
expected to be terminated in early 1996 and management of the
39
<PAGE> 43
underlying properties assumed by the Operating Partnership. Management
believes that the assumption of direct control over the operations of these
hotels will allow Starwood Lodging to effectively use its experience to improve
operations and implement renovations and expansions.
RENOVATIONS AND REPOSITIONING HOTELS
Starwood Lodging has commenced an estimated $10.0 million
renovation and conversion of the Dallas property to a Radisson. Additionally,
Starwood Lodging has commenced an estimated $6.0 million renovation of the
Atlanta Sheraton Colony Square Hotel and a $2.0 million renovation of the
Portland Riverside Inn. Starwood Lodging reflagged the Grand Hotel in
Washington, D.C. as a Westin effective February 1, 1996 and is currently
negotiating the flagging of the French Quarter Suites Hotel in Lexington,
Kentucky which is expected to benefit from a national franchise affiliation and
reservation system. Starwood Lodging is currently planning renovations of the
Doral Inn, the Boston Park Plaza and certain other properties and may plan and
commence other renovations of existing and new properties as it deems
appropriate. Renovations of specific hotels are expected to have a negative
impact on the revenues of such hotels during the pendency of major renovations.
GAMING
Revenues from the two hotel/casinos in Las Vegas declined $1.1
million to $26.9 million reflecting a reduction in revenues primarily at the
Bourbon Street casino. Earnings from the two hotel/casinos declined $840,000
in line with the decrease in revenues. Both properties are currently being
marketed for sale.
INTEREST INCOME
Interest from mortgage and other notes, on a pro forma basis,
increased slightly reflecting interest received from the mortgage on the Grand
Hotel for the last three months of 1995 and which was partially offset by
overall reduced interest income for the year ended December 31, 1995, primarily
due to repayment of notes secured by mortgages on hotels in Albany, Georgia,
Irving, Texas, Stockton, California and Jefferson City, Missouri.
OTHER INCOME
Other income of $2.0 million for the year ended December 31,
1995 was $1.0 million higher than the previous year.
Included in other income for the year ended December 31, 1995
are (i) $800,000 received as a result of the termination of management
contracts in connection with the settlement of certain shareholder actions
against former officers of Starwood Lodging (see Item 3 of Part I) and (ii) the
retention of a $500,000 deposit related to the failure of the
40
<PAGE> 44
prospective purchaser of the Bourbon Street Hotel and Casino to complete the
purchase of the hotel from Starwood Lodging.
ADMINISTRATIVE AND OPERATING EXPENSES
Administrative and operating expenses for the year ended
December 31, 1995 increased to $5.7 million representing 3.2 percent of total
revenue, from $4.2 million or 2.6 percent of revenue for the corresponding
period in 1994. The increases were primarily a result of increases in payroll
costs due to additions to the corporate staffs of Starwood Lodging.
INTEREST EXPENSE
On a pro forma basis, interest expense declined approximately
$300,000 to $2.9 million in 1995, reflecting a lower amount outstanding in 1995
on notes payable secured by the Milwaukee Marriott together with lower overall
interest rates in 1995 as compared to 1994.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization on a pro forma basis increased
to $18.9 million in 1995 reflecting depreciation relating primarily to the New
Properties.
ACCOUNTING POLICIES
In March and October 1995, the Financial Accounting Standards
Board issued Statements of Financial Accounting Standards No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" and No. 123 "Accounting for Stock-Based Compensation,"
respectively. These statements are effective for financial statements for
fiscal years beginning after December 15, 1995. Management believes that
adoption of Standard No. 121 will not have a material effect on its financial
position or results of operations. Management intends to adopt the disclosure
method of Standard No. 123 and, accordingly, there will be no impact on
Starwood Lodging's financial position or results of operations.
COMBINED LIQUIDITY AND CAPITAL RESOURCES
Cash Flow Provided by Operating Activities. The principal
source of cash to be used to fund Starwood Lodging's operating expenses,
interest expense, recurring capital expenditures and dividend payments is cash
flow provided by operating activities. Starwood Lodging anticipates that its
cash flow provided by operating activities will provide the necessary funds on
a short and long term basis to meet the cash requirements described above,
including all distributions to shareholders.
41
<PAGE> 45
Cash flows from Investing and Financing Activities. Starwood
Lodging intends to finance the acquisition of additional hotel properties,
major hotel renovations and other non-recurring capital expenditures through
cash flow from operations, through borrowings under the Facilities and, when
market conditions warrant, through the issuance of equity or debt securities.
As of December 31, 1995, the Realty Partnership had borrowed approximately
$119.1 million under the Facilities to fund the acquisition of the New
Properties.
The Companies intend from time to time to use interest rate
hedging agreements to reduce exposure to fluctuations in interest rates
relative to outstanding or future intended debt obligations. Gains or losses
will be capitalized and amortized over the life of the related debt obligation.
In pursuance of this strategy, in January, 1996, the Trust
entered into two interest rate hedging agreements known as Treasury locks,
which have the effect of fixing the base rate of interest at 5.7 percent for
debt issued until October 1996 with a principal amount of $100 million and a
term to maturity of seven years. The actual interest rate will be determined
by reference to this base rate.
At settlement, the Trust will pay or receive an amount which
will be capitalized and amortized over seven years. Such amount is not
anticipated to have a material effect on the Trust's liquidity or operating
results. If the Trust did not issue any such debt, such amount would still be
payable or receivable and would be treated as a loss or gain, accordingly. Such
a gain or loss could have a material effect on the Trust's results from
operations however due to Management's current intention to issue the related
debt, no such gain or loss is anticipated.
As previously discussed, Starwood Lodging has commenced an
approximately $10.0 million renovation and conversion of the Dallas Park
Central Hotel to a Radisson, an approximately $6.0 million renovation of the
Atlanta Sheraton Colony Square Hotel and an approximately $2.0 million
renovation of the Portland Riverside Inn. Starwood Lodging is currently
planning renovations of the Doral Inn and the Boston Park Plaza and may plan
and commence other renovations of existing and new properties as it deems
appropriate. Renovations of specific hotels are expected to have a negative
impact on the revenues of such hotels during the pendency of major renovations.
Management believes the renovations should result in increases in REVPAR and
cash flow after completion.
From January 1, 1995 to the date of the filing of this Joint
Annual Report, Starwood Lodging has invested over $225 million in acquiring
hotels ($171 million plus capital expenditures of $4.2 million for the year
ended December 31, 1995). As part of its investment strategy, Starwood Lodging
plans to acquire additional hotels. Starwood Lodging intends to incur
additional indebtedness in a manner consistent with its policy of maintaining a
Ratio of Debt - to - Total Market Capitalization of not more than 50%.
Management of each of the Trust and the Corporation believes that it will have
access to capital resources sufficient to satisfy the cash requirements of each
of the Trust and of the Corporation and to expand and develop their business in
accordance with their strategy for future growth.
The Trust paid dividends in the fourth quarter of 1995 by
declaring a dividend of $0.47 per Paired Share for the quarter ended September
30, 1995 which was paid on October 27, 1995. The Trust also declared a
dividend of $0.47 per Paired Share for the fourth quarter ended December 31,
1995 which was paid in January of 1996.
Pro Forma Funds From Operations. Management believes that FFO
is one measure of financial performance of an equity REIT such as the Trust.
On a pro forma basis, combined FFO (as defined by the National Association of
Real Estate Investment Trusts ("NAREIT") (1)) for the year 1995 grew by 14.4
percent to $48.6 million, compared to combined FFO of $42.5 million, for the
corresponding period in 1994. The following table shows the calculation of pro
forma combined FFO for the indicated periods:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1995 1994
---- ----
(in thousands)
<S> <C> <C>
Income before minority interest $30,245 $26,254
</TABLE>
42
<PAGE> 46
<TABLE>
<S> <C> <C>
Real estate related depreciation and
amortization, net of amortization of financing
costs 18,264 16,666
Loss (gain) on sales of hotel assets 125 (456)
------- -------
Funds from Operations $48,634 $42,464
======= =======
</TABLE>
(1) With respect to the presentation of FFO, management elected early
adoption of the "new definition" as recommended in the March 1995
NAREIT White Paper on Funds from Operations beginning January 1,
1995. Management and industry analysts generally consider funds
from operations to be one measure of the financial performance of
an equity REIT that provides a relevant basis for comparison among
REITs and it is presented to assist investors in analyzing the
performance of Starwood Lodging. Funds from operations is defined
as income before minority interest (computed in accordance with
generally accepted accounting principles), excluding gains and
losses from debt restructuring and sales of property, and real
estate related depreciation and amortization (excluding
amortization of financing costs). Funds from operations does not
represent cash generated from operating activities in accordance
with generally accepted accounting principles and is not
necessarily indicative of cash available to fund cash needs.
Funds from operations should not be considered an alternative to
net income as an indication of Starwood Lodging's financial
performance or as an alternative to cash flows from operating
activities as a measure of liquidity.
FFO includes $1 million of interest income recognized in excess of the actual
cash received on mortgage notes receivable (as a result of the notes having
been purchased at a discount) for each of the years ended December 31, 1995 and
1994.
HISTORICAL RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
The following discussion and analysis of the historical results of
operations for the years ended December 31, 1995 and 1994 give effect to
transactions on the actual date they were consummated; in the case of the
Reorganization, as of January 1, 1995; in the case of the Offering, July 6,
1995; and in the case of acquisitions of hotel properties as of the date each
was purchased.
Combined Funds From Operations. Management believes that FFO is
one measure of financial performance of an equity REIT such as the Trust.
Combined FFO for the twelve months of 1995 rose by 379 percent to $33.1 million
compared to combined FFO of $6.9 million on combined revenues of $161.7 million
for the comparable period in 1994. The following table shows the calculation
of pro forma combined FFO for the indicated periods:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1995 1994
---- ----
(in thousands)
<S> <C> <C>
Income before minority interest and $18,138 $(4,663)
extraordinary items
</TABLE>
43
<PAGE> 47
<TABLE>
<S> <C> <C>
Shareholder litigation expense --- 2,648
Provision for loss --- 759
Real estate related depreciation and 14,799 8,161
amortization, net of amortization of financing
costs
Loss (gain) on sales of hotel assets 125
------- ------
Funds from Operations $33,062 $6,905
======= ======
</TABLE>
THE TRUST
Net income for the Trust for the year ended December 31, 1995 was
$10.7 million as compared to a loss of $3.5 million in the prior year. Rents
from the Corporation, which are primarily based on hotel revenues, increased
$9.8 million to $26.7 million for the year ended December 31, 1995, as compared
to the corresponding period in 1994. The increase was primarily the result of
rents earned by the Realty Partnership on four hotels contributed by the
Starwood Partners to the Realty Partnership and the Operating Partnership
effective January 1, 1995 and seven additional hotels acquired during the year
ended December 31, 1995. The four contributed hotels (the Doubletree Hotel
located in Rancho Bernardo, California; Capitol Hill Suites located in
Washington, DC; the Harvey Wichita located in Wichita, Kansas; and the French
Quarter Suites located in Lexington, Kentucky) and the seven hotels acquired
during the year accounted for increased rents of $9.5 million for the year. In
addition, rents earned by the Trust from continuously owned properties leased
by the Corporation increased $838,000. These increases were offset by a
decrease in rents of $543,000 resulting from the sale of hotels in Austin,
Texas (May 1994), Brunswick, Georgia (August 1994), New Port Richey, Florida
(August 1994), Fayetteville, North Carolina (November 1994) and Jacksonville,
Florida (November 1994).
Interest from the Corporation increased by $3.0 million to $4.8
million for the year ended December 31, 1995 as compared to the corresponding
period in 1994. The increase in interest income resulted primarily from (i)
interest on the intercompany mortgage note relating to the Doral Inn from
September 20, 1995 to the end of the year; (ii) interest on unsecured notes
from the Corporation having an average balance of $11.1 million and bearing
interest at prime plus two percent for the year ended December 31, 1995 (a
moratorium on the payment of interest on such unsecured notes was in effect
throughout 1994); and (iii) interest on the first mortgage of the Milwaukee
Marriott Hotel (owned by a partnership of which the Operating Partnership is
the sole general partner) which was purchased by the Realty Partnership in July
1995.
Interest from mortgage and other notes amounted to $10.8 million
for the year ended December 31, 1995, as compared to $1.5 million for the
corresponding period in 1994. The increase primarily resulted from the
contribution of notes receivable by the Starwood Partners to the Realty
Partnership in the Reorganization, together with interest earned on the
mortgage note receivable relating to the Grand Hotel purchased in September
1995.
44
<PAGE> 48
Other income for the year ended December 31, 1995 of $1.1 million
resulted primarily from the retention of a $500,000 deposit related to the
proposed sale of the Bourbon Street hotel/casino and the receipt of $289,000
and $48,000 of proceeds relating to land comprising part of the King 8
hotel/casino and Bourbon Street hotel/casino, respectively, which was
transferred pursuant to eminent domain proceedings.
The Trust and the Corporation periodically estimate the value of
their hotel assets and compare these values to the net book values of the hotel
assets. For hotel assets not held for sale, the undiscounted future cash flows
of the assets on a hotel-by-hotel basis, are compared to the net book value of
the assets; and if the undiscounted future cash flows are less than the net
book value of the assets, the excess of the net book values over the estimated
fair values is charged to current earnings. When it is the opinion of
management that the fair value of a hotel that has been identified for sale is
less than the net book value of the hotel, a reserve for losses is established.
Fair value is determined based upon the discounted cash flow of the properties
at rates (generally ranging from 11.0% to 21.0%) deemed reasonable for the type
of property and prevailing market conditions, and, if appropriate, then current
net proceeds of sale from pending offers. In determining whether to accept an
offer for the sale of a property, management considers the fairness of the
offer in comparison to the value of the property, the terms of the offer, and
whether the offer is all cash or includes seller financing.
Based on the foregoing methodology, a provision for loss in the
amount of $759,000 was recorded in 1994. No provision for loss was recorded in
1995.
Interest expense decreased by $3.8 million to $12.4 million for
the year ended December 31, 1995, as compared to the corresponding period in
1994. The decrease was due to the repayment of approximately $206.5 million of
existing indebtedness following the Offering and to the retiring of mortgage
notes in 1995, which were secured by the Embassy Suites Hotel in Phoenix,
Arizona and the Bay Valley Resort in Bay City, Michigan and was partially
offset by the assumption of additional notes payable by the Realty Partnership
in the Reorganization, three of which were also repaid during 1995.
Depreciation and amortization expense increased by $3.8 million
for the year ended December 31, 1995, as compared to the corresponding period
in 1994, principally due to the above mentioned property contributions and
acquisitions and to the amortization of reorganization and financing costs
which were partially offset by the above mentioned property sales.
Administrative and operating expenses for the year ended December
31, 1995 increased $856,000 to $2.4 million reflecting increased payroll costs
due to the growth of the Trust and costs incurred relating to the potential
acquisition of hotels which ultimately were not acquired.
Minority interest represents the interest of the Starwood Partners
in the Realty Partnership for the year ended December 31, 1995.
45
<PAGE> 49
During 1995, the Trust recognized an extraordinary loss of $2.2
million net of minority interests of $163,000 relating to two items:
(a) An extraordinary loss before minority interest of $3.6
million due to the early extinguishment of debt in respect
of the Prior Credit Agreement which was terminated during
the year; and
(b) An extraordinary gain before minority interest of $1.3
million relating to the reversal of outstanding amounts
accrued in 1993, due to the early extinguishment of debt.
THE CORPORATION
Hotel revenues increased by $38.6 million for the year ended
December 31, 1995, as compared to the corresponding period in 1994. The
addition of the four contributed properties and the seven acquired properties
as discussed above resulted in increases in hotel revenue of $42.2 million for
the year ended December 31, 1995. This increase was offset by the hotel sales
discussed above resulting in decreased revenues of $7.2 million. The remaining
increase of $3.6 million for the year ended December 31, 1995, is attributable
to other continuously owned properties.
Gaming revenues for the year ended December 31, 1995 as compared
to the year ended December 31, 1994 decreased by $1.1 million to $26.9 million.
Management believes that operating performance from its gaming assets in 1996
will be comparable to that of the prior year.
Included in other income for the year ended December 31, 1995 is
$800,000 received by the Corporation as a result of the termination of
management contracts in connection with the settlement of certain shareholder
actions against former officers of Starwood Lodging (see Item 3 of Part I).
Administrative and operating expenses increased by $653,000 for
the year ended December 31, 1995, as compared to the corresponding period in
1994. The increase was primarily the result of increases in payroll costs due
to the Corporation's growth.
Depreciation and amortization expense increased by $3.5 million
for the year ended December 31, 1995, as compared to the corresponding period
in 1994. The increase was primarily the result of the hotels contributed by
Starwood Capital in connection with the Reorganization and those hotels
acquired by Starwood Lodging and amortization of Reorganization costs as
discussed above.
Minority interest represents the interest of the Starwood Partners
in the Operating Partnership for the year ended December 31, 1995.
46
<PAGE> 50
For information with respect to rent and interest paid to the
Trust during the years ended December 31, 1995 and 1994, see "The Trust"
above.
HISTORICAL RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
THE TRUST
Rents from the Corporation totaled $16.9 million and $16.5 million
for the years ended December 31, 1994 and 1993, respectively. The increase was
due to higher hotel revenues for the hotels leased by the Corporation from the
Trust (which resulted in higher percentage rents) offset by a decrease in
rental income of $802,000 resulting from the sale of hotels in Tucker, Georgia
(June 1993), St. Louis, Missouri (December 1993), Austin, Texas (April 1994),
New Port Richey, Florida (August 1994), Brunswick, Georgia (August 1994),
Fayetteville, North Carolina (November 1994) and Jacksonville, Florida
(November 1994).
Interest from the Corporation increased to $1.7 million from $1.5
million for the years ended December 31, 1994 and 1993, respectively. The
increase in interest income was a result of the higher amounts outstanding
under the Milwaukee notes, which increased from $15.2 million at December 31,
1993 to $16.9 million at December 31, 1994. (For information pertaining to
such notes see Notes 4 and 5 of Notes to Financial Statements.) For additional
information with respect to rents and interest from the Corporation in future
periods, see "Liquidity and Capital Resources" below.
Interest from mortgage and other notes receivable increased by
$224,000 for the year ended December 31, 1994 as compared to 1993. The
increase resulted from the higher balances outstanding from the additional
notes received upon sales of the hotel properties discussed above and the
receipt of the final payment under three notes receivable relating to the
Vagabond Inns in Rosemead, Sacramento and Woodland Hills, California, the
interest on such notes having been previously deferred.
Gains on sales of hotel assets for the year ended December 31,
1994 totaling $432,000 reflected the sales of hotels discussed above and
$208,000 related to the in substance foreclosure and subsequent all cash sale
of the underlying property collateralizing the Trust's mortgage note receivable
on the Ramada Inn in Merrimack, New Hampshire.
Interest expense totaled $16.3 million and $14.0 million for the
years ended December 31, 1994 and 1993, respectively, an increase of $2.3
million. The increase was primarily due to an increase in the average interest
rate under a subsequently refinanced credit agreement, such rate varying with
the prime rate charged by one of the Senior Lenders.
The sales of the properties discussed above and an increase in the
provision for investment losses are the primary reasons for the decline in
depreciation and amortization expense of $425,000 between 1994 and 1993.
47
<PAGE> 51
Administrative and operating expenses totaled $1.6 million and
$1.9 million for the years ended December 31, 1994 and 1993, respectively, a
decrease of $365,000. The decrease was primarily the result of lower insurance
expense and professional fees unrelated to the debt restructuring.
During 1994 a provision for investment losses (a non-cash charge
to operations) totaling $759,000 was recorded. The provision included $439,000
which was recorded as a result of the acceptance of offers to sell the
Jacksonville and Fayetteville properties, which had previously been identified
for sale at amounts lower than the then current net book values. The provision
also included $320,000 which was established based upon an analysis of the net
realizable value of the underlying property collateralizing the Trust's
mortgage note receivable on the Ramada Inn in Merrimack, New Hampshire.
See Part I, Item 3, Legal Proceedings, of this Joint Annual Report
for a description of an agreement between Ross and Starwood Capital with
respect to certain claims of Ross purchased by Starwood Capital and an
agreement by Starwood Capital to purchase the Paired Shares of the Trust and
Corporation owned by Ross at a price of $33.75 per Paired Share subject to
certain adjustments. Starwood Capital also had the right to purchase such
Paired Shares at the same time and on the same terms. During 1994, the Trust
and the Corporation recorded a charge to shareholder litigation expense of $1.3
million and $1.3 million, respectively, the estimated fair market value of the
agreement, as determined by an investment banker using an option pricing model.
In 1995, Starwood Capital and Starwood Lodging agreed, among other things, that
the maximum amount Starwood Capital could recover under such claims would not
exceed an aggregate of $1.8 million. In January 1996, Ross elected to sell his
Paired Shares, which were sold at a price of $29.625 per Paired Share and the
Trust and the Corporation paid $1,375,743 in the aggregate pursuant to their
indemnity obligations. Additionally, the Trust and the Corporation are entitled
to insurance proceeds totalling $205,000 and, as a result, will recognize
approximately $629,000 of income in the first quarter of 1996.
No distributions were made by the Trust for the years ended
December 31, 1994 or 1993.
The Trust's net loss totaled $3.5 million, or $(1.72) per share,
and $3.9 million or $(1.92) per share, for the years ended December 31, 1994
and 1993, respectively.
THE CORPORATION
Hotel revenues totaled $82.7 million and $86.9 million for the
years ended December 31, 1994 and 1993, respectively, representing a decrease
of $4.2 million. The hotel sales described under the caption "The Trust" above
resulted in decreased revenue of $5.3 million. In March 1994, the franchise
agreement and management agreement with Marriott Corporation for the Dallas
property were terminated. The property was then being managed for the
Corporation by Sage Hospitality, and operated as the Dallas Park Central Hotel.
Revenues at the Dallas property decreased by $3.8 million. The decrease from
property sales and the Dallas property were offset by increased revenues of
$4.9 million at the properties which continued to be leased from the Trust by
the Corporation, including an
48
<PAGE> 52
increase of $1.5 million at the Milwaukee Marriott, which was renovated during
1993. The following table summarizes average occupancy and average room rates
for properties which were operated by the Corporation under lease from the
Trust at December 31, 1994:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1994 1993
------ ------
<S> <C> <C>
Including Dallas Park Central:
Occupancy Rate 68.03% 65.32%
Average Room Rate $59.85 $60.30
Excluding Dallas Park Central:
Occupancy Rate 71.76% 65.75%
Average Room Rate $59.84 $59.88
</TABLE>
Management of the Corporation believes that the increases in the average
occupancy rate resulted primarily from more favorable economic conditions which
created increased business and pleasure travel throughout the United States and
improved operational systems.
Gaming revenues totaled $28.0 million and $27.5 million for the
years ended December 31, 1994 and 1993, respectively.
For information regarding the carrying value of properties held
for sale, see the Trust above. Gain on sales of hotel assets totaled $24,000
and $74,000 for the years ended December 31, 1994 and 1993, respectively,
reflecting the property sales described above.
Hotel expenses totaled $60.8 million and $68.1 million or 73.6%
and 78.4% of hotel revenues, for the years ended December 31, 1994 and 1993,
respectively. The decrease in hotel expenses as a percentage of hotel revenue
are primarily due to the lower cost of operating the Dallas property (see
discussion of hotel revenues above) where operating expenses have historically
been higher than at other hotel properties, the improved operating margin
resulting from the renovation of the Milwaukee Marriott discussed above and the
effect of the sale of the properties having higher operating costs as a
percentage of revenues than properties that continue to be operated by the
Corporation.
Gaming expenses totaled $24.4 million and $24.1 million, or 87.4%
and 87.5% of gaming revenues, for the years ended December 31, 1994 and 1993,
respectively.
For information with respect to rent and interest to the Trust
during the years ended December 31, 1994 and 1993, see "The Trust - Results of
Operations for the Years Ended December 31, 1994 and 1993" above.
Administrative and operating expenses decreased by $161,000, or
6%, for the year ended December 31, 1994 as compared to 1993. The decrease was
primarily the result of a reduction in the level of corporate staff.
49
<PAGE> 53
The Corporation's net loss totaled $1.2 million, or $(0.59) per
share, in 1994, as compared to $3.1 million, or $(1.56) per share, for 1993.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data required by this
Item are included in Item 14 of this Joint Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The required disclosure has been previously reported in Starwood
Lodging's Joint Proxy Statement dated November 3, 1995.
PART III
ITEM 10. TRUSTEES, DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS.
Trustees and Executive Officers of the Trust
The following table sets forth, for each of the current members of the
Trust's Board of Trustees as of the date of this Joint Annual Report, the class
of Trustees to which such Trustee has been elected, the name and age of such
Trustee, the principal occupation or employment of such Trustee during the past
five years and the principal business of such Trustee's employer, other
directorships held by such Trustee and the year in which such Trustee first
became a Trustee of the Trust.
Trustees Whose Terms Expire at the 1996 Annual Meeting
<TABLE>
<CAPTION>
Name and Age Principal Occupation and Business Experience Trustee Since
------------ -------------------------------------------- -------------
<S> <C> <C>
Jeffrey C. Lapin (39) President and Chief Operating Officer of the Trust. September 1992
Mr. Lapin was President and Chief Executive Officer of
the Trust from May 1991 to December 1994 and has been
a Trustee since September 1992. Prior to that time,
he was Vice President (from January 1988) and
Secretary (from September 1986) of the Trust. Prior
to 1986 Mr. Lapin was a real estate attorney at
Mitchell, Silberberg & Knupp in Los Angeles. Mr.
Lapin is a director of THQ, Inc., a licensee of
Nintendo products.
Stephen R. Quazzo (36) President since April 1991 of Equity Institutional
Investors, Inc., a subsidiary of Equity Group
Investments, Inc., a Chicago based holding company
controlled by Samuel Zell. Prior to that time, Mr.
Quazzo was a Vice President of Goldman, Sachs & Co.,
responsible for the firm's real estate
</TABLE>
50
<PAGE> 54
<TABLE>
<S> <C> <C>
investment banking activities in the Midwest. Mr.
Quazzo is a member of the Urban Land Institute and is August 1995
on the advisory board of City Year Chicago.
</TABLE>
Trustees Whose Terms Expire at the 1997 Annual Meeting
<TABLE>
<CAPTION>
Name and Age Principal Occupation and Business Experience Trustee Since
------------ -------------------------------------------- -------------
<S> <C> <C>
Bruce W. Duncan (44) President and Chief Executive Officer of The Cadillac August 1995
Fairview Corporation Limited since January, 1996.
From October 1994 to December 1995, President of
Blakely Capital, Inc., a private firm focusing on
investments in real estate and telecommunications.
From 1992 to April 1994, Mr. Duncan was President and
Co-Chief Executive Officer of JMB Institutional Realty
Corporation and from 1984 to 1991 Executive Vice
President of JMB Realty Corporation. Mr. Duncan holds
an MBA from the University of Chicago. He is on the
Board of Trustees of Kenyon College.
Daniel H. Stern (34) Co-founder and President of Ziff Brothers Investments, August 1995
L.L.C., a diversified New York based investment
management firm. Prior to co-founding Ziff Brothers
Investments in December 1992, Mr.Stern was the Co-
Managing Director of William A.M. Burden & Co., a
private investment management firm where he was
responsible for asset allocation and investment
policy. Mr. Stern is a member of the Board of
Directors of Commodore Media. Inc.
Barry S. Sternlicht (35) Chairman and Chief Executive Officer of the Trust. He
is founder of Starwood Capital Group, L.P., a real
estate investment firm (and co-founder of its
predecessor entity in September 1991), and has been
the President and CEO of Starwood Capital Group, L.P.
since its formation. Prior to forming Starwood
Capital, he was Vice President and then Senior Vice
President (from 1989 to 1991) of JMB Realty
Corporation, a real estate investment firm. Mr.
Sternlicht is currently a member of the Management
Committee, a Trustee of each of Equity Residential
Properties Trust, a multi-family REIT, and Angeles
Participating Mortgage Trust, a REIT, Co-Chairman of
the board of directors of Westin Hotels & Resorts and
is a director of
</TABLE>
51
<PAGE> 55
<TABLE>
<S> <C> <C>
U.S. Franchise Systems. Mr. Sternlicht is on the December 1994
Board of Governors of NAREIT and is a member of the
Urban Land Institute and of the National Multi-Family
Housing Council.
</TABLE>
Trustees Whose Terms Expire at 1998 Annual Meeting
<TABLE>
<CAPTION>
Name and Age Principal Occupation and Business Experience Trustee Since
------------ -------------------------------------------- -------------
<S> <C> <C>
Madison F. Grose (42) Executive Vice President and General Counsel of December 1994
Starwood Capital Group, L.P. (and its predecessor
entity) since July 1992. From November 1983 through
June 1992, Partner of the law firm of Pircher, Nichols
& Meeks.
William E. Simms (51) President of the Risk Management Product Services August 1995
Group, Transamerica Life Companies, and a member of
its board of directors. Over the past 24 years, he
has held various other management positions with that
company. He is active in civic organizations; he is
Chairman of the Charlotte-Mecklenburg Urban League and
the Charlotte-Mecklenburg Arts and Science Council,
and he is a member of the board of directors of the
Mecklenburg County United Way and the Mecklenburg
Hospital Authority. He is a part owner of the
Carolina Panthers National Football League team. Mr.
Simms is a director of NationsBank N.A.
</TABLE>
The following table includes certain information with respect to the
current executive officers of the Trust other than Messrs. Sternlicht and
Lapin:
<TABLE>
<CAPTION>
Name Age Position(s) with the Trust
- ---- --- --------------------------
<S> <C> <C>
Ronald C. Brown 41 Vice President and Chief Financial Officer
</TABLE>
Ronald C. Brown. Mr. Brown has been Vice President and Chief Financial
Officer of the Trust since July 1995. Prior to joining the Trust, Mr. Brown
was President of Sonoran Hotel Advisors, a hotel REIT advisory firm. From
December 1993 to August 1994, Mr. Brown was President of Doubletree
Corporation, a public hotel operating company. From January 1991 to December
1993, Mr. Brown was Executive Vice President - Finance & Planning and then
Chairman of Doubletree
52
<PAGE> 56
Hotels Corporation. From March 1988 to April 1992, Mr. Brown was Vice
President - Finance & Accounting for Canadian Pacific Hotels Corporation.
The executive officers of the Trust serve at the pleasure of the Board of
Trustees, subject in the case of Mr. Lapin to the provisions of his employment
agreement with the Trust. (See "Employment Agreement with Executive Officer"
included in Item 11 of this Joint Annual Report.) There is no family
relationship among any of the Trustees or executive officers of the Trust.
Directors and Executive Officers of the Corporation
The current Board of Directors of the Corporation consists of Earle F.
Jones, Bruce M. Ford, and Graeme W. Henderson. In addition, the stockholders
of the Corporation have elected Mr. Sternlicht and Daniel W. Yih, Jean-Marc
Chapus, Steven R. Goldman, Michael A. Leven and Jonathan D. Eilian as directors
of the Corporation to take office upon the receipt of necessary regulatory
approvals from the Nevada Gaming Authorities ("Gaming Approval"). Gaming
Approvals are expected to be received by the end of 1997. Messrs. Henderson
and Ford have indicated their intention to resign from the Board of Directors
of the Corporation when the required Gaming Approval is received.
Pending receipt of any required Gaming Approval, the current Directors of
the Corporation are continuing as such and the Operating Partnership is being
managed by a management committee (the "Management Committee") consisting of
the current Directors of the Corporation, as well as the additional persons
elected to take office upon receipt of any required Gaming Approval. While
awaiting Gaming Approval, the Corporation's existing management and Board of
Directors will be responsible for the operation and control of the gaming
assets of the Corporation, and the other Management Committee members will be
prohibited from any influence or control of the gaming assets.
The following table sets forth, for each of the current members of the
Corporation's Board of Directors as of the date of this Joint Annual Report,
the name and age of such Director, the principal occupation or employment of
such Director during the past five years and the principal business of such
Director's employer, other directorships held by such Director and the year in
which such Director first became a Director of the Corporation. The terms of
each of such Directors will expire at the 1998 Annual Meeting.
<TABLE>
<CAPTION>
Name and Age Principal Occupation and Business Experience Director Since
------------ -------------------------------------------- --------------
<S> <C> <C>
Bruce M. Ford (56) President of FST Management Corporation and President September 1983
and Managing Partner of F.K.B. Management Corporation,
hotel and restaurant management companies, since
January 1988, and a member of Gibson 25 Associates,
LLC, a hotel developer since March 1995. President of
Ford Management Corporation, a hotel/motel management
and development company, since June 1988. Prior to
that time, Mr. Ford was Senior Vice President of
Operations of Ramada Inns.
</TABLE>
53
<PAGE> 57
<TABLE>
<S> <C> <C>
Graeme W. Henderson (62) Chairman of the Trust from July 1989 to December 1994 September 1986
and Trustee of the Trust from September 1986 to
December 1994. He has been an independent financial
consultant since January 1990. Prior to January 1990,
Mr. Henderson was President of Henderson Consulting,
Inc., a private financial consulting firm. Mr.
Henderson has been President of Capstan, Inc.
(Formerly Seymour, Inc.), a manufacturer of machine
tool controls, since 1982. Mr. Henderson is currently
a director of Capital Southwest Corporation.
Earle F. Jones (69) Chairman of the Board of Directors of the Corporation September 1985
since February 1989. Co-Chairman since 1988 of MMI
Hotel Group, a hotel company. From 1967 to 1968, Mr.
Jones was President of the International Association
of Holiday Inns and served two terms as a director.
Mr Jones is a Trustee and Chairman of Communications
Improvement Trust, whose beneficiaries are public
broadcasting and Tougaloo College, a member of the
Board of Trustees for Millsaps College and the
Catholic Foundation and Co-Chairman of the Mississippi
Olympic Committee.
</TABLE>
The following table sets forth, for each of the current members of the
Management Committee who will become Directors of the Corporation upon receipt
of any required Gaming Approval, the name and age of such member, the principal
occupation or employment of such member during the past five years and the
principal business of such member's employer, other directorships held by such
member and the year in which such member first became a member of the
Management Committee.
Members Whose Terms Expire at the 1996 Annual Meeting
<TABLE>
<CAPTION>
Member of
Management
Name and Age Principal Occupation and Business Experience Committee Since
------------ -------------------------------------------- ---------------
<S> <C> <C>
Jean-Marc Chapus (36) Managing Director and Portfolio Manager of Trust August 1995
Company of the West since March 1995. Prior to that
time he was a Managing Director and Principal of
Crescent Capital Corporation with primary
responsibility of the firm's private lending and
private placement activities. From 1986 to 1991, Mr.
Chapus served as First Vice President at Drexel
Burnham Lambert Incorporated. From
</TABLE>
54
<PAGE> 58
<TABLE>
<S> <C> <C>
1982 to 1984, Mr. Chapus was a member of the mergers
and acquisitions department at Lehman Brothers Kuhn
Loeb Incorporated.
Steven R. Goldman (34) Senior Vice President of the Corporation since March December 1994
1995. Mr. Goldman was a Vice President of Starwood
Capital Group, L.P., specializing in hotel
acquisitions and hotel asset management, from August
1993 to February 1995. From 1990 to 1993, he was
Senior Development Manger of Disney Development
Company, the real estate investment development and
management division of the Walt Disney Company. From
1986 to 1990, Mr. Goldman was Director of Development
of The Hyatt Development Corporation.
Michael A. Leven (58) President and Chief Executive Officer of U.S. August 1995
Franchise Systems, a hotel franchising and development
company, since October 1995. From November 1990 to
September 1995, Mr. Leven was President and Chief
Operating Officer of Holiday Inn Worldwide. Prior to
that time he was President of Days Inn (from 1985 to
1990), a senior executive, including President and
Chief Operating Officer, of Americana hotels (from
1976 to 1985) and an executive at Dunfey Family Hotels
(1973 to 1976) and Sonesta hotels (1961 to 1973). Mr.
Leven is also a member of the Board of Governors of
the American Red Cross.
</TABLE>
Members Whose Terms Expire at the 1997 Annual Meeting
<TABLE>
<CAPTION>
Member of
Management
Name and Age Principal Occupation and Business Experience Committee Since
------------ -------------------------------------------- ---------------
<S> <C> <C>
Jonathan D. Eilian (28) Vice President and then Senior Vice President of August 1995
Starwood Capital Group, L.P. (and its predecessor
entity) since its formation in September 1991. Prior
to 1991 he was Acquisitions Associate for JMB Realty
Corporation,a real estate investment firm, and for
The Palmer Group, L.P., a private investment firm
specializing in corporate acquisitions. Mr. Eilian
received an MBA from the Wharton Graduate School of
Business in 1991.
</TABLE>
55
<PAGE> 59
<TABLE>
<S> <C> <C>
Barry S. Sternlicht (35) Chairman and Chief Executive Officer of the Trust. He December 1994
was founder of Starwood Capital Group, L.P. (and co-
founder of its predecessor entity in September 1991)
and has been the President and CEO of Starwood Capital
Group, L.P. since its formation. Prior to forming
Starwood Capital, he was Vice President and then
Senior Vice President (from 1989 to 1991) of JMB
Realty Corporation, a real estate investment firm.
Mr. Sternlicht is currently a Trustee of the Trust, a
Trustee of each of Equity Residential Properties
Trust, a multi-family REIT, and Angeles Participating
Mortgage Trust, a REIT, Co-Chairman of the board of
directors of Westin Hotels & Resorts and is a director
of U.S. Franchise Systems. Mr. Sternlicht is on the
Board of Governors of NAREIT and is a member of the
Urban Land Institute and of the National Multi-Family
Housing Council.
</TABLE>
Members Whose Terms Expire at the 1998 Annual Meeting
<TABLE>
<CAPTION>
Member of
Management
Name and Age Principal Occupation and Business Experience Committee Since
------------ -------------------------------------------- ---------------
<S> <C> <C>
Daniel W. Yih (37) General partner of Chilmark Partners, L.P. since June August 1995
1995. Mr. Yih had served as Chief Financial Officer
of Midway Airlines Corporation (from September 1995 to
December 1995) and as President of Merco-Savory, Inc.,
a manufacturer of food preparation equipment (from
March 1995 to June 1995) and as a senior executive of
Welbilt Corporation (from September 1990 to March
1995). Prior to that time, Mr. Yih served as an
associate of Kohlberg & Co.
</TABLE>
The following table includes certain information with respect to each of
the Corporation's current executive officers other than Mr. Goldman:
<TABLE>
<CAPTION>
Name Age Position(s) with the Corporation
- ---- --- --------------------------------
<S> <C> <C>
Kevin E. Mallory 36 Executive Vice President
</TABLE>
Kevin E. Mallory. Mr. Mallory has been Executive Vice President since July
1992. From December 1991 to July 1992 he was President of Merit Hotel Group, a
hotel development and consulting company. From September 1989 to November
1991, he was Development Director, Westin Hotels & Resorts, a hotel management
company. Prior to that time he was Assistant Vice President and Asset Manager,
VMS Realty Partners, a real estate syndicator.
56
<PAGE> 60
The executive officers of the Corporation serve at the pleasure of the
Board of Directors. There is no family relationship among any of the Directors
or executive officers of the Corporation.
ITEM 11. EXECUTIVE COMPENSATION.
Summary of Cash and Certain Other Compensation
The Trust. The following table provides certain summary
information concerning the compensation paid for the fiscal years ended
December 31, 1995, 1994 and 1993 to the Trust's Chief Executive Officer and
each other executive officer of the Trust whose total compensation for 1995
exceeded $100,000 for services rendered in all capacities to the Trust.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term All Other
Annual Compensation Compensation Compensation ($)
------------------------- ------------ ----------------
Name and Securities
Principal Position Underlying
- ------------------ Year Salary ($) Bonus ($) Options/SARs (#)
---- ---------- --------- ----------------
<S> <C> <C> <C> <C> <C>
Barry S. Sternlicht 1995 91,667 150,000 417,000 (1)
Chairman and Chief
Executive Officer
Jeffrey C. Lapin 1995 199,167 75,000 73,667 (1)
President and Chief 1994 190,000 75,000 2,000 (1)(2)
Operating Officer 1993 170,834 20,000
Ronald C. Brown 1995 66,666 65,000 55,000 (1)
Vice President and
Chief Financial
Officer
Michael W. Mooney 1995 50,000 75,000 (3)
Vice President and 1994 150,000 20,000 1,500 (1)(2)
Chief Financial 1993 140,416 11,667
Officer
</TABLE>
(1) For information with respect to these options, see "Option Exercises
and Holdings" below.
(2) Adjusted for one-for-six reverse stock split which occurred in June
1995.
(3) Amount shown reflects cash paid for severance.
The Corporation. The following table provides certain summary
information concerning the compensation paid for the fiscal years ended
December 31, 1995, 1994 and
57
<PAGE> 61
1993 to each executive officer of the Corporation whose total compensation for
1995 exceeded $100,000 for services rendered in all capacities to the
Corporation.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term All Other
Annual Compensation Compensation Compensation ($)
---------------------------- ----------------- ----------------
Securities
Name and Underlying
Principal Options/
Position Year Salary($) Bonus($) SARs (#)
- -------- ---- --------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Kevin E. Mallory 1995 156,244 50,000 30,000(2)
Executive Vice 1994 150,000 37,500 1,500(1)(2)
President 1993 140,416 11,667
Steven R. Goldman 1995 114,583 75,000 46,000(2) 19,800(3)
Senior Vice
President
</TABLE>
__________________
(1) Adjusted for one-for-six reverse stock split which occurred in June
1995.
(2) For information with respect to these options, see "Option Exercises
and Holdings" below.
(3) Amount shown reflects cash paid for housing allowance.
Option Grants
The following table shows, as to each executive officer of the
Trust and the Corporation named in the Summary Compensation Tables above,
information concerning the options granted to that officer during the year
ended December 31, 1995.
58
<PAGE> 62
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
Potential Realizable
% of Total Value at Assumed
Number of Options/ Annual Rates of Stock
Securities SARs Granted Price Appreciation for
Underlying to Employees Option Term
Options/ in Last Exercise Price Expiration ----------------------
Name SARs Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
---- ---------------- ------------ -------------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Barry S. 417,000(3) 43.1 $23.00(6) June 29, 479,550 959,100
Sternlicht 2005
Jeffrey C. 36,667(1)(2) 3.79 $16.50(1)(6) January 31, 30,250 60,501
Lapin 2000
31,000(3) 3.80 $23.00(6) June 29, 35,650 71,300
2005
Ronald C. 55,000(4) 5.68 $24.375(6) July 10, 67,031 134,063
Brown 2005
Kevin E. 30,000(5) 3.0 $23.00(6) June 29, 34,500 69,000
Mallory 2005
Steven R. 46,000(3) 4.75 $23.00(6) June 29, 52,900 105,800
Goldman 2005
</TABLE>
- -----------------------------
(1) Adjusted for one-for-six reverse stock split which occurred in June
1995.
(2) Options will become exercisable as to one-third of the amount granted
on January 31, 1995, as to an additional one-third of the amount
granted on January 31, 1996 and as to the remaining amount granted on
January 31, 1997.
(3) Except for options for 6,000 shares which were exercisable upon
granting, options will become exercisable as to one-third of the
amount granted on June 29, 1996, as to an additional one-third of the
amount granted on June 29, 1997 and as to the remaining amount granted
on June 29, 1998.
(4) Options will become exercisable as to one-third of the amount granted
on July 10, 1996, as to an additional one-third of the amount granted
on July 10, 1997 and as to the remaining amount granted on July 10,
1998.
(5) Options will become exercisable as to one-third of the amount granted
on June 29, 1996, as to an additional one-third of the amount granted
on June 29, 1997 and as to the remaining amount granted on June 29,
1998.
59
<PAGE> 63
(6) The per Paired Share exercise prices are equal to the fair market
value of a Paired Share on the day the options were granted.
Option Exercises and Holdings
The following table provides information with respect to the
options held as of December 31, 1995 by the executive officers of the Trust and
the executive officers of the Corporation named in the Summary Compensation
Tables above.
60
<PAGE> 64
AGGREGATED OPTION/SAR EXERCISES IN 1995
AND DECEMBER 31, 1995 OPTION
VALUES
<TABLE>
<CAPTION>
Number of Shares Underlying
Unexercised Value of Unexercised In-the-
Options/SARs at Fiscal Money Options/SARs
Shares Year-End (#) at Fiscal Year-End ($) (1)
Acquired on Value ----------------------------- -----------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Barry S. Sternlicht 6,000 411,000 39,000 2,671,500
Jeffrey C. Lapin 8,333 194,784 20,556 54,111 228,228 540,930
Ronald C. Brown 0 55,000 0 281,875
Michael W. Mooney 4,667 1,000 110,675 13,000
Kevin E. Mallory 4,667 31,000 110,675 208,000
Steven R. Goldman 6,000 40,000 39,000 260,000
</TABLE>
_________________
(1) Value is defined as the market price of the Paired Shares at December
31, 1995 less the exercise price of the option. The average of the
high and low market prices of the Paired Shares at December 31, 1995
was $29.50.
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<PAGE> 65
Compensation of Trustees/Directors
Each Trustee, Director or member of the Management Committee who
is not also an officer of the Trust or the Corporation receives annual
Trustee's or Director's fees of $6,000 (other than Directors of the Corporation
who will continue to receive annual Director's fees of $12,000) and is
reimbursed for any out-of-pocket expenses incurred in attending meetings of the
Board of Trustees or the Board of Directors. Each Trustee, Director and member
of the Management Committee has received options to purchase 6,000 Paired
Shares and Trustees, Directors and members of the Management Committee will
each receive additional options to purchase 6,000 Paired Shares on June 30 of
each year, beginning June 30, 1996. The Chairman of each Board receives an
additional fee of $2,500 per year. In addition, each non-officer Trustee or
Director receives a fee of $750 for each meeting in which he participates (or,
in the case of telephonic meetings, $500) and a fee of $500 for each committee
meeting in which he participates ($1,000 per meeting for committee chairman).
Share Purchase Agreements
Prior to December 1989, the Trust and the Corporation maintained
share purchase plans pursuant to which Trustees, Directors, officers and
employees of the Trust or the Corporation were granted rights to purchase
Paired Shares from the Trust and the Corporation at prices based upon the then
fair market value of the Paired Shares. A purchaser of Paired Shares under a
share purchase plan made a cash down payment equal to 10% of the purchase price
and executed a promissory note in favor of the Trust or the Corporation for the
balance. Certificates evidencing Paired Shares purchased under a share
purchase plan were pledged to the Trust or the Corporation as collateral to
secure payment of the promissory note. Prior to the satisfaction of the
obligations represented by the note, the purchaser was entitled to vote the
Paired Shares held in pledge, but not to transfer the purchaser's interest in
those shares.
In 1995, the only share purchase agreements remaining in effect
were those between the Trust and each of Mr. Henderson, a former trustee of
the Trust and a director of the Corporation, and Mr. Samuels, and between the
Corporation and each of Messrs. Jones and Ford. Upon the effectiveness of the
Reorganization, the share purchase agreements with Messrs. Henderson, Samuels
and Ford were terminated and the non-recourse indebtedness thereunder was
canceled (an aggregate of $56,250 with respect to Mr. Henderson, $82,391 with
respect to Mr. Samuels, and $108,784 with respect to Mr. Ford). In addition,
the Paired Shares pledged in respect of such indebtedness were either released
from such pledge, to the extent that such Paired Shares had been paid for (an
aggregate of 223 Paired Shares for which $20,625 was paid with respect to Mr.
Henderson, 356 Paired Shares for which $32,922 was paid with respect to Mr.
Samuels, and 465 Paired Shares for which $45,279 was paid with respect to Mr.
Ford) or were forfeited by the individual, to the extent such Paired Shares had
not been paid for.
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<PAGE> 66
Employment and Compensation Agreements with Executive Officers
The Trust has an employment agreement with Mr. Lapin and the
Corporation had an employment agreement with Mr. Mallory which provide that
they receive annual salaries in 1995 of $200,000 and $150,000, respectively,
and such annual bonuses, if any, as the Boards of the Trust and the
Corporation, respectively, may determine. Mr. Lapin's employment agreement
expires on January 31, 1997 and Mr. Mallory's employment agreement expired
June, 1995. Mr. Lapin is entitled to an annual bonus of not less than $75,000
and was granted options to purchase 41,667 Paired Shares at an exercise price
equal to $16.50 per Paired Share (the fair market value of the Paired Shares on
the date of grant) which will vest at a rate no longer than the most rapid rate
of vesting of options granted to any other executive during the term of his
employment agreement. Mr. Lapin's annual salary increased to $225,000 in 1996.
Mr. Lapin also is eligible to participate in all employee benefit plans and
fringe benefits, if any, the Trust or the Corporation, respectively, makes
available to its other executive officers. Mr. Lapin may terminate his
employment for "Good Reason" as defined in his employment agreement including
an assignment of duties inconsistent with his position, a substantial
alteration of his responsibilities, a breach of the agreement by the Trust,
removal from office without cause (as defined), a change in the composition of
51% of the Trustees, a decision by the Board of Trustees that the Trust shall
merge, sell or dispose of all or substantially all of its assets, dissolve or
liquidate, or the failure of Mr. Lapin to be a member of the Board of Trustees
other than for cause (as defined). If Mr. Lapin so terminates his employment,
he will be entitled to receive a lump sum payment equal to the base salary and
bonuses that would have been payable had he continued to be employed for the
remainder of the term of the employment agreement, and all fringe benefits to
which he would have been entitled through the remainder of the term of the
employment agreement (other than stock options or stock loans not granted prior
to the date of termination).
Pursuant to Mr. Lapin's employment agreement, the Trust loaned
$250,000 to Mr. Lapin in 1995. The loan has a term of 10 years, bears interest
at the lowest applicable rate prescribed by section 1274(d) of the Code and is
unsecured. Mr. Lapin will have the right at any time to repay up to 50% of the
loan (plus 50% of accrued interest and any collection costs) by delivering
Paired Shares for credit at the rate of $11.50 per Paired Share (which is
one-half of the price to the public per Paired Share in the Offering).
In February, 1996, the Trust granted to Barry S. Sternlicht,
Chairman and Chief Executive Officer, two warrants, each to purchase up to
15,000 Paired Shares at an exercise price of $1.00 per Paired Share. One
warrant is exercisable immediately (the "1996 Warrant") and one is exercisable
only after January 1, 1997 (the "1997 Warrant"). Any Paired Shares purchased
upon exercise of such a warrant will vest ratably over the balance of the year
in which that warrant first became exercisable, to the extent Mr. Sternlicht
has not theretofore resigned or been discharged for "cause." Exercise of the
1997 Warrant is also subject to the condition that Mr. Sternlicht not have
previously resigned or been discharged for "cause." All Paired Shares
purchased upon exercise of either the 1996 Warrant or the 1997 Warrant are
non-transferable prior to February, 1998. The Board of Trustees of the Trust
and the Board of Directors of the Corporation intend to develop incentive
compensation programs for
63
<PAGE> 67
their officers and key employees which are expected to include similar grants
of warrants, options or restricted stock or other forms of incentive
compensation.
COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION
During 1995 and early 1996, the compensation committee of the Trust
(the "Trust Compensation Committee") was comprised of Messrs. Sternlicht, Grose
and Simms. Based on informal discussions, the Trust Compensation Committee made
recommendations to the Trust's Board of Trustees regarding the compensation of
the Trust's executive officers (other than with respect to Mr. Sternlicht, as to
which Messrs. Sternlicht and Grose recused themselves). Based in part on the
recommendations of the Trust Compensation Committee, the Board of Trustees of
the Trust and the executive committee of the Board of Trustees (Messrs.
Sternlicht, Lapin and Grose) made decisions with respect to the compensation of
the Trust's executive officers. Messrs. Sternlicht and Lapin, who are executive
officers of the Trust and members of the Board of Trustees of the Trust, did
not participate at the meetings related to their own compensation.
During 1995 and early 1996, the compensation committee of the
Management Committee (the "Corporation Compensation Committee") was made up of
Messrs. Sternlicht, Jones and Chapus. The Corporation Compensation Committee
met informally during 1995 and early 1996 to discuss the compensation of the
Corporation's executive officers. Based in part on the recommendations of the
Corporation Compensation Committee, the executive committee of the Management
Committee comprised of Messrs. Sternlicht, Eilian and Goldman, made decisions
with respect to the compensation of the Corporation's executive officers
(except that Mr. Goldman recused himself with respect to his own compensation).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
Certain Beneficial Owners. To the knowledge of the Trust and the
Corporation, no person owns beneficially 5% or more of the Paired Shares,
except as follows:
<TABLE>
<CAPTION>
Name and Address Amount Percent of
of Beneficial Owner Beneficially Owned Class (1)
------------------- ------------------ ----------
<S> <C> <C>
FMR Corp. 1,795,255 (2) 13.0%(2)
82 Devonshire Street
Boston, MA 02109
Starwood Capital Group, L.P. and 1,195,885 (3) 8.0%
affiliated entities
Three Pickwick Plaza, Suite 250
Greenwich, CT 06830
</TABLE>
64
<PAGE> 68
<TABLE>
<S> <C> <C>
Cohen & Steers Capital 1,033,300 (4) 7.5%
Management, Inc.
757 Third Avenue
New York, NY 10017
T. Rowe Price Associates, Inc. 799,500 (5) 5.7%
100 East Pratt Street
Baltimore, MD 21202
</TABLE>
(1) Based on the number of Paired Shares outstanding on February 23, 1996.
(2) Based on information contained in Amendment No. 1 to Schedule 13G
dated February 14, 1996, 1,472,389 Paired Shares are held by Fidelity
Management & Research Company (a wholly owned subsidiary of FMR Corp.)
and 322,866 Paired Shares are held by Fidelity Management Trust
Company (a wholly owned subsidiary of FMR Corp.). FMR Corp. has sole
voting power with respect to 316,266 Paired Shares and dispositive
power with respect to all of these Paired Shares. Based on additional
information provided to Starwood Lodging, these Paired Shares are held
by various distinct entities no one of which, directly or by
attribution, holds in excess of 8.0% of the outstanding Paired Shares.
(3) Based on additional information contained in Amendment No. 1 to
Schedule 13D dated January 23, 1996 filed by Starwood Capital, Barry S.
Sternlicht and the following Starwood Partners: Berl Holdings L.P.,
Starwood-Apollo Hotel Partners VIII, L.P., Starwood-Apollo Hotel
Partners IX, L.P., Starwood-Nomura Hotel Investors, L.P.,
Starwood/Wichita Investors, L.P., Starwood- Huntington Partners, L.P.,
Woodstar Partners I, L.P., Firebird Consolidated Partners, L.P.,
Starwood Opportunity Fund II, L.P. ("SOFI II"), Berl Holdings I, Inc.,
SAHI, Inc., SNHI, Inc., BSS Capital Partners, L.P., Sternlicht Holdings
II, Inc., and SRL Holdings, Inc. Such Schedule 13D reports that Mr.
Sternlicht has sole power to vote and dispose of 20,000 Paired Shares
held by him and that SOFI II beneficially owns 49,933 Paired Shares and
that SOFI II and Mr. Sternlicht have the power to vote and dispose of
such Paired Shares and that the Starwood Partners hold units in the
Realty Partnership and the Operating Partnership which are, subject to
the 8.0% Paired Share ownership limit, exchangeable for an aggregate of
5,944,027 Paired Shares (approximately 30.1% of the outstanding Paired
Shares after such exchange). Such units were acquired in the
Reorganization described in Part I, Item 1 of this Joint Annual Report.
Mr. Sternlicht also owns 15,000 Paired Shares, which are subject to
the terms of a presently exercisable restricted stock warrant and
may not be transferred prior to February, 1998, and 6,000 Paired Shares
subject to presently exercisable options. Such Amendment No. 1 to
Schedule 13D reports that because of the 8.0% ownership limit, the
Starwood Partners cannot beneficially own more than 8.0% of the
outstanding Paired Shares. The amount beneficially owned and the
percent of class assumes that Starwood Partners exchange units for
Paired Shares to the maximum extent permitted within the ownership
limit provision; provided, however, that prior to receipt of any
required Gaming Approval, Starwood Capital's ownership of Paired Shares
may not exceed 4.9% of the outstanding Paired Shares.
(4) Based on information contained in Schedule 13G dated January 29, 1996.
Cohen & Steers Capital Management, Inc. has sole voting power with
respect to 879,400 Paired Shares and dispositive power with respect to
all of these Paired Shares.
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<PAGE> 69
(5) Based on information contained in Schedule 13G dated February 14,
1996. T. Rowe Price Associates, Inc. has sole dispositive power with
respect to all these Paired Shares and T. Rowe Price Associates, Inc.
and T. Rowe Price Growth Stock Fund, Inc. have sole voting power with
respect to 10,200 and 700,000 Paired Shares, respectively.
Trustees and Officers of the Trust. The following table sets
forth the beneficial ownership of the Paired Shares as of February 23, 1996 by
each Trustee and each executive officer of the Trust named in the Summary Cash
Compensation Table included in Item 11 hereof who owns Paired Shares and by all
Trustees and executive officers of the Trust as a group. Except as otherwise
provided below, each beneficial owner has sole voting and investment power with
respect to all Paired Shares beneficially owned.
<TABLE>
<CAPTION>
Amount
Name of Beneficially Percent of
Beneficial Owner Owned Class (1)
---------------- ------------- ----------
<S> <C> <C>
Barry S. Sternlicht 1,195,885 (3) 8.0%
Jeffrey C. Lapin 41,680 (4) (2)
Ronald C. Brown 0 (2)
Bruce W. Duncan 12,666 (5) (2)
Stephen R. Quazzo 6,465 (5) (2)
Madison F. Grose 7,200 (5) (2)
William E. Simms 6,000 (5) (2)
Daniel H. Stern 6,000 (5) (2)
All Trustees and officers as a group 1,275,896 (6) 8.7%
</TABLE>
(1) Based on the number of Paired Shares outstanding on February 23, 1996,
including the exchange of units for Paired Shares as discussed in note
(3) below..
(2) Less than 1%.
(3) See Note (3) under "Certain Beneficial Owners" above.
(4) Includes 20,556 Paired Shares subject to presently exercisable options
and 2,166 Paired Shares owned in a pension plan of which Mr. Lapin is
sole trustee and beneficiary.
(5) Includes 6,000 Paired Shares subject to presently exercisable options.
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<PAGE> 70
(6) Includes 56,556 Paired Shares that may be acquired upon the exercise
of presently exercisable options, and 1,104,952 Paired Shares issuable
upon exchange of units of the Realty Partnership and the Operating
Partnership (see Note (3) above).
Directors and Officers of the Corporation. The following table
sets forth the beneficial ownership of Paired Shares as of February 23, 1996 by
each Director and each executive officer of the Corporation named in the
Summary Cash Compensation Table included in Item 11 hereof who owns Paired
Shares and by all Directors and executive officers of the Corporation as a
group. Except as otherwise provided below, each beneficial owner has sole
voting and investment power with respect to all Paired Shares beneficially
owned.
<TABLE>
<CAPTION>
Name of Number of Shares Percent of
Beneficial Owner Beneficially Owned Class (1)
---------------- ------------------ ---------
<S> <C> <C>
Kevin E. Mallory 6,982 (3) (2)
Bruce M. Ford 6,694 (4) (2)
Earle F. Jones 8,748 (5) (2)
Graeme W. Henderson 6,962 (6) (2)
Barry S. Sternlicht 1,195,885 (7) 8.0%
Daniel W. Yih 7,474 (8) (2)
Jean-Marc Chapus 6,000 (8) (2)
Steven R. Goldman 7,000 (8) (2)
Michael A. Leven 6,000 (8) (2)
Jonathan D. Eilian 6,000 (8) (2)
All Directors and officers as a group 1,257,745 (9) 8.6%
</TABLE>
(1) Based on the number of Paired Shares outstanding on February 23, 1996,
including the exchange of units as described in note (7) below.
(2) Less than 1%.
(3) Includes 4,667 Paired Shares subject to presently exercisable options.
(4) Includes 172 Paired Shares issuable upon exercise of paired warrants
issued by the Trust and the Corporation, 57 Paired Shares owned by Mr.
Ford's wife and 6,000 Paired Shares subject to presently exercisable
options.
(5) Includes 83 Paired Shares issuable upon exercise of paired warrants
issued by the Trust and the Corporation and 6,000 Paired Shares
subject to presently exercisable options.
(6) Includes 850 Paired Shares owned in a Keogh Plan and 6,000 Paired
Shares subject to presently exercisable options.
67
<PAGE> 71
(7) See Note (3) under "Certain Beneficial Owners" above.
(8) Includes 6,000 Paired Shares subject to presently exercisable options.
(9) Includes 58,667 Paired Shares that may be acquired upon the exercise
of presently exercisable options, 255 Paired Shares issuable upon
exercise of paired warrants issued by the Trust and the Corporation
and 1,104,952 Paired Shares issuable upon exchange of units of the
Realty Partnership and the Operating Partnership (see Note (7) above).
Compliance with the Reporting Requirements of Section 16(a).
Section 16(a) of the Exchange Act requires Starwood Lodging's Trustees,
Directors and executive officers, and persons who own more than ten percent of
a registered class of Starwood Lodging's equity securities, to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of Paired Shares and other equity securities of Starwood
Lodging. Trustees, Directors, officers and greater than ten percent
shareholders are required to furnish Starwood Lodging with copies of all
Section 16(a) forms they file.
To Starwood Lodging's knowledge, based solely on a review of
the copies of such reports furnished to Starwood Lodging and written
representations that no other reports were required, during the fiscal year
ended December 31, 1995, all Section 16(a) filing requirements applicable to
its Trustees, Directors, officers and greater than ten percent beneficial
owners were complied with; except that one report, covering one transaction
involving the purchase of Paired Shares, was filed late by Mr. Goldman, an
officer and Director of the Corporation.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Reorganization.
Pursuant to the Reorganization, the Trust contributed to the
Realty Partnership substantially all of the Trust's properties and assets,
subject to all of its liabilities, in exchange for a general partner interest
in the Realty Partnership and Starwood Capital contributed to the Realty
Partnership cash, certain hotel properties, first mortgage notes and senior
debt of the Realty Partnership in exchange for a limited partner interest in
the Realty Partnership. In addition, the Corporation and its subsidiaries
contributed to the Operating Partnership substantially all of their assets,
excluding the Gaming Assets, subject to certain liabilities, in exchange for
general partner interests in the Operating Partnership and
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<PAGE> 72
Starwood Capital contributed to the Operating Partnership cash, furnishings,
equipment and other hotel operating assets in exchange for a limited partner
interest in the Operating Partnership. The Reorganization was approved by the
shareholders of the Trust and the Corporation at meetings held on December 15,
1994. The limited partnership interests of the Realty Partnership and the
Operating Partnership held by Starwood Capital are exchangeable on a
one-for-one basis for Paired Shares. See "Security Ownership of Certain
Beneficial Owners and Management."
Barry S. Sternlicht, the President and Chief Executive Officer
of the general partners of Starwood Capital is also the Chairman and Chief
Executive Office of the Trust and is a Trustee of the Trust, is a member of the
Management Committee of the Operating Partnership and has been elected as a
Director of the Corporation to take office upon the receipt of any required
Gaming Approval. In addition, Mr. Grose, a Trustee of the Trust, is Executive
Vice President and General Counsel of Starwood Capital and Mr. Eilian, who is a
member of the Management Committee of the Operating Partnership and has been
elected as a Director of the Corporation to take office upon the receipt of any
required Gaming Approval, is Senior Vice President of Starwood Capital.
Certain Reimbursements and Payments to Starwood Capital.
Starwood Capital and Starwood Lodging have agreed that,
subject to approval by the independent Trustees or Directors, as appropriate,
Starwood Capital will be reimbursed for out-of-pocket costs and expenses for
any services provided to Starwood Lodging. Starwood Capital will also be
reimbursed for its internal cost (including allocation of overhead) for
services provided to Starwood Lodging, provided that, where such costs are
currently expensed by Starwood Lodging, such reimbursement will not exceed
$250,000 for the twelve months ending June 30, 1996. As of December 31, 1995,
Starwood Lodging has not reimbursed Starwood Capital for any of these costs
since July 1, 1995, and accordingly has included an accrual of $250,000 in
accounts payable and other liabilities at December 31, 1995.
During 1995, the Trust reimbursed Starwood Capital
approximately $1.6 million, the majority of which represented a deposit on the
Boston Park Plaza. Aside from Starwood Capital's internal cost (as referred to
above), during 1995 Starwood Capital incurred approximately $1.2 million of
additional costs which were paid directly by Starwood Lodging to third party
vendors for services provided to Starwood Lodging, representing costs
associated with the Reorganization, the Offering and hotel acquisitions.
Starwood Capital provided to the Trust a $9.6 million loan,
all of which has been repaid, in order to enable the Trust to acquire the Omni
Hotel in Chapel Hill, North Carolina. This loan bore interest at 12% per annum.
69
<PAGE> 73
The Trust also received a $5 million unsecured loan from
Starwood Capital to fund the deposit for the acquisition of the Sheraton Colony
Square Hotel in Atlanta, Georgia. This loan bore interest at 12% per annum and
was repaid in July 1995.
As part of the consideration to Starwood Capital in connection
with the Reorganization (which was approved by the shareholders of the Trust
and the Corporation in December 1994), the Partnerships agreed to pay an amount
to Starwood Capital only if the Trust and the Corporation consummated a public
offering of Paired Shares prior to June 30, 1996, which offering results in the
receipt by the Trust and the Corporation of gross proceeds of not less than
$150 million. Upon the consummation of the Offering in July 1995, the Trust
and the Corporation paid $3.7 million to Starwood Capital pursuant to such
agreement.
Westin Agreement.
Starwood Capital owns an interest in the Westin Hotel Company
and certain affiliates ("Westin"), which own equity interests in domestic and
international hotels and which manage, franchise or represent hotels worldwide.
The Trust and the Corporation have entered into an agreement with Westin
pursuant to which Westin has agreed that during the period in which an officer,
director, general partner or employee of Starwood Capital is on either the
Board of Trustees or the Board of Directors, and Starwood Capital co-controls
Westin, Westin will not acquire or seek to acquire United States hotel equity
interests, other than certain specified acquisitions, including, without
limitation, minority equity investments made in connection with Westin's
acquisition of a management company. The Trust and the Corporation have agreed
that under certain circumstances if Westin is prohibited from consummating an
opportunity which was not being independently pursued by the Trust and the
Corporation prior to such prohibition, the Trust and the Corporation will not
pursue such opportunity for 270 days after such prohibition.
Management Obligations of Western Host.
In connection with the settlement of shareholder litigation
(see Item 3 - "Legal Proceedings"), Messrs. Rothman and Young caused each of the
Western Host Partnerships (other than Western Host Santa Maria Partners) to
terminate Western Host's management obligations with respect to that
partnership's hotel, indemnified the Corporation and Western Host against all
claims that might be made against Western Host in connection with its status as
a general partner of Western Host Santa Maria Partners, Western Host Pasadena
Partners and Western Host San Francisco Partners or in connection with any fact
or circumstance occurring since January 1, 1993 with respect to any of the
Western Host Hotels, and delivered to the Corporation an irrevocable letter of
credit in the amount of $800,000. Western Host has agreed to accept the
termination of its management obligations with respect to the Western Host
Hotels and has drawn on the letter of credit for the full $800,000. In
addition, $120,000 of the management fees and all costs and amounts advanced to
the
70
<PAGE> 74
partnerships which were payable to Western Host were paid in full settlement of
such amounts due at December 31, 1993.
Messrs. Young and Rothman also agreed to be responsible for a
percentage of any retroactive adjustments in worker's compensation insurance
premiums. Starwood Lodging has paid $167,041 for retroactive worker's
compensation insurance premiums and have sought reimbursement from Messrs.
Young and Rothman of their share of that amount (approximately an aggregate of
$56,000). (See Item 3 - "Legal Proceedings.")
Senior Debt Related Transactions.
In May 1994, Starwood Capital purchased (at a discount)
approximately $21 million of the Trust's senior debt at a public auction by the
institutional holder of such debt. In August 1994, an affiliate of Merrill
Lynch (the "New Lender") purchased $74 million of the Trust's senior debt,
including the senior debt previously held by Starwood Capital, pursuant to a
privately negotiated transaction and at a discount. In conjunction with such
purchase by the New Lender, it entered into an agreement (the "Swap Agreement")
providing that (i) Starwood Capital could acquire such senior debt within a
specified period at the New Lender's cost basis and (ii) the excess of debt
service payments made on such senior debt over the New Lender's cost basis,
together with a specified return thereon, would be payable to Starwood Capital.
In March 1995, the senior debt was refinanced by the New Lender and the Swap
Agreement was terminated with Starwood Capital receiving (a) the return of
$13.1 million of cash collateral which it had deposited as security for its
obligations in respect of the Swap Agreement, (b) additional cash of $2.7
million, (c) $12 million of the senior debt and (d) certain warrants attendant
to the senior debt. Starwood Capital contributed such senior debt to the
Partnerships in exchange for 813,880 Units of the Partnerships. The Trust and
the Corporation paid $786,000 to Starwood Capital to cancel certain warrants
relating to the senior debt in accordance with the requirements of such senior
debt.
Other Relationships
Sherwin L. Samuels, the General Counsel and Secretary of the
Trust, is a partner through a professional corporation of the law firm of
Sidley & Austin. Sidley & Austin provides legal services to the Trust, the
Corporation and Starwood Capital and certain of its affiliates.
On March 24, 1995, the Realty Partnership and the Trust
entered into the Prior Credit Agreement pursuant to which the Realty
Partnership borrowed $131.75 million under the Loan which was used primarily to
refinance all outstanding Senior Debt (after the exchange by a Starwood Partner
of $12 million of Senior Debt for units of the Realty Partnership and the
Operating Partnership) and approximately $27 million of first mortgage debt.
In connection with the refinancing under the Prior Credit Agreement, the Realty
Partnership paid $514,000 to one of the Senior Lenders and a portion of the
Lender Warrants
71
<PAGE> 75
issued in connection with an existing credit agreement could be canceled upon
the payment to a Starwood Partner of a $786,000 cancellation fee. Effective
March 31, 1995, the Realty Partnership issued an unsecured note payable to the
Starwood Partner and the remaining Lender Warrants were canceled. The
transactions relating to the cancellation of Lender Warrants were recorded as a
reduction in paid-in capital.
For information with respect to the agreement with Ross, see
"Legal Proceedings" contained in Item 3 of this Joint Annual Report.
For information with respect to the Share Purchase Agreements
of Messrs. Henderson, Samuels, Jones and Ford see "Share Purchase Agreements"
contained in Item 11 of this Joint Annual Report.
For information with respect to the employment agreements of
Messrs. Lapin and Mallory see "Employment Agreements with Executive Officers"
contained in Item 11 of this Joint Annual Report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K.
(a) Documents filed.
Financial Statements and Financial Statement Schedules
The financial statements and financial statements schedules listed
in the Index to Financial Statements and Financial Statements Schedules
following the signature pages hereof are filed as part of this Joint Annual
Report.
Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
2.1 Formation Agreement dated as of November 11, 1994 among the Trust, the Corporation, Starwood Capital and the Starwood
Partners (incorporated by reference to Exhibit 2 to the Trust's and the Corporation's Joint Current Report on Form 8-K
dated November 16, 1994).2
</TABLE>
__________________________________
2 The Securities and Exchange Commission file
numbers of all filings made pursuant to the Securities Act of
1934, as amended, and referenced herein are: 1-6828 (Starwood
Lodging Trust) and 1-7959 (Starwood Lodging Corporation).
72
<PAGE> 76
<TABLE>
<S> <C>
3.1 Amended and Restated Declaration of Trust of the Trust dated June 6, 1988, as amended (incorporated by reference to Exhibit
3A to the Trust's and the Corporation's Joint Current Report on Form 8-K dated January 31, 1995).
3.2 Amendment and Restatement of Articles of Incorporation of the Corporation (incorporated by reference to Exhibit 3B to the
Trust's and the Corporation's Joint Current Report on Form 8-K dated January 31, 1995).
3.3 Trustees' Regulations of the Trust, as amended (incorporated by reference to Exhibit 3.3 to the Trust's and the
Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1994 (the "1994 Form 10-K")).
3.4 By-laws of the Corporation, as amended (incorporated by reference to Exhibit 3.4 to the 1994 Form 10-K).
</TABLE>
73
<PAGE> 77
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
4.1 Pairing Agreement dated June 25, 1986, between the Trust and the Corporation, as amended (incorporated by reference
to Exhibit 4.1 to the 1994 Form 10-K).
4.2 Amendment No. 1 to the Pairing Agreement dated as of February 1, 1995 between the Trust and the Corporation.
4.3 Form of Warrant Agreement dated as of September 16, 1986, between the Trust and City National Bank ("CNB") (incorporated
by reference to Exhibit 4.3 to the Trust's and the Corporation's Registration Statement on Form S-4 (the "S-4 Registration
Statement") filed with the Securities and Exchange Commission (the "SEC") on August 1, 1986 (Registration No. 33-7694)).
4.4 Form of Warrant Agreement dated as of September 16, 1986, between the Corporation and CNB (incorporated by
reference to Exhibit 4.3A to the S-4 Registration Statement).
10.1 Incentive and Non-Qualified Share Option Plan (1986) of the Trust (incorporated by reference to Exhibit 10.8 to the
Trust and the Corporation's Joint Annual Report on Form 10-K for the year ended August 31, 1986 (the "1986 Form 10-K")).3
10.2 Corporation Stock Non-Qualified Stock Option Plan (1986) of the Trust (incorporated by reference to Exhibit 10.9 to
the 1986 Form 10-K).2
10.3 Stock Option Plan (1986) of the Corporation (incorporated by reference to Exhibit 10.10 to the 1986 Form 10-K).2
10.4 Trust Shares Option Plan (1986) of the Corporation (incorporated by reference to Exhibit 10.11 to the 1986 Form 10-K).2
</TABLE>
__________________________________
2 Management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto pursuant to Item 14(c) of Form 10-K.
74
<PAGE> 78
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
10.5 1995 Share Option Plan of the Corporation.2
10.6 1995 Share Option Plan of the Trust.2
10.7 Form of Indemnification Agreement and Amendment No. 1 to Indemnification Agreement between the Trust and each of
Messrs. Barry S. Sternlicht, Jeffrey C. Lapin, Jonathan Eilian, Michael W. Mooney, Bruce M. Ford, Madison F. Grose, Bruce
W. Duncan, Steven R. Quazzo, William E. Simms, Daniel H. Stern and Ronald C. Brown.2
10.8 Form of Indemnification Agreement and Amendment No. 1 to Indemnification Agreement between the Corporation and each
of Messrs. Earle F. Jones, Kevin E. Mallory, Bruce M. Ford, Steven R. Goldman, Graeme W. Henderson, Barry S. Sternlicht,
Jean-Marc Chapus, Jonathan Eilian, Michael A. Leven, Daniel W. Yih and Alan M. Schnaid.2
10.9 Form of Indemnification Agreement dated as of February 3, 1992, between the Corporation and each of Messrs. Ronald
A. Young, Graeme W. Henderson, Bruce M. Ford, Earle M. Jones and William H. Ling (incorporated by reference to Exhibit
10.30 to the Trust's and the Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1991).2
10.10 Executive Employment Agreement dated as of January 31, 1995, between the Trust and Jeffrey C. Lapin (incorporated
by reference to Exhibit 10.12 to the 1994 Form 10-K).2
10.11 Form of Amended and Restated Lease Agreement entered into as of January 1, 1993, between the Trust as Lessor and
the Corporation (or a subsidiary) as Lessee (incorporated by reference to Exhibit 10.19 to the Trust's and the
Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1992).
10.12 Exchange Rights Agreement dated as of January 1, 1995 among the Trust, the Corporation, the Realty Partnership, the
Operating Partnership and the Starwood Partners (incorporated by reference to Exhibit 2B to the Trust's and the
Corporation's Joint Current Report on Form 8-K dated January 31, 1995).
10.13 Registration Rights Agreement dated as of January 1, 1995 among the Trust, the Corporation and Starwood Capital
(incorporated by reference to Exhibit 2C to the Trust's and the Corporation's Joint Current Report on Form 8-K dated
January 31, 1995).
10.14 Amended and Restated Limited Partnership Agreement for the Realty Partnership among the Trust and the Starwood
Partners dated as of December 15, 1994 (incorporated by reference to Exhibit 10.21 to the Trust's and the Corporation's
Registration Statement on Form S-2 filed with the
</TABLE>
75
<PAGE> 79
<TABLE>
<S> <C>
Securities and Exchange Commission (Registration Nos. 33-59155 and 33-59155-01) (the "S-2 Registration
Statement")).
10.15 Amended and Restated Limited Partnership Agreement for the Operating Partnership among the Corporation and the
Starwood Partners dated as of December 15, 1994 (incorporated by reference to Exhibit 10.22 to the S-2 Registration
Statement).
10.16 Mortgage Loan Funding Facility Agreement, dated as of July 25, 1995, among the Realty Partnership and SLT Realty
Company, LLC, as the borrower, and Lehman Commercial Paper, Inc., as lender, together with Amendment No. 1 thereto, dated
as of October 30, 1995.
10.17 Collateral Substitution Agreement, dated as of January 4, 1996, between the Realty Partnership and SLT Realty
Company, LLC, as borrower, and Lehman Commercial Paper, Inc., as lender.
10.18 Amended and Restated Line of Credit Agreement, dated as of October 25, 1995, among the Trust and the Realty
Partnership, as borrower, and Bankers Trust Company, as collateral agent, and Lehman Brothers Holdings, Inc., d/b/a Lehman
Capital, a division of Lehman Brothers Holdings, Inc., individually and as agent, together with First Amendment thereto,
dated as of January 3, 1996 and effective as of October 25, 1995.
10.19 Form of Amendment No. 1 to Formation Agreement among the Trust, the Corporation and the Starwood Partners
(incorporated by reference to Exhibit 10.23 to the S-2 Registration Statement).
10.20 Form of Westin/HOT Agreement among W&S Hotel L.L.C., W&S Hotel Holding Corp., Westin Hotel Company, the Realty
Partnership, the Operating Partnership, WHWE L.L.C. and Woodstar Limited Partnership (incorporated by reference to Exhibit
10.24 to the S-2 Registration Statement).
21. Subsidiaries of the Corporation.
SLC Operating Limited Partnership
Hotel Investors of Arizona, Inc.
Hotel Investors of Nebraska, Inc.
Hotel Investors of Michigan, Inc.
Hotel Investors of Missouri, Inc.
Hotel Investors Corporation of Nevada
Hotel Investors of Virginia, Inc.
Columbus Operators, Inc.
Lyntex Properties, Inc.
Western Host, Inc.
</TABLE>
76
<PAGE> 80
<TABLE>
<S> <C>
Subsidiaries of the Trust.
SLT Realty Limited Partnership
Starlex Company LLC
SLT Realty Company LLC
23. Consent of Independent Accountants.
27.1 Financial Data Schedule for Starwood Lodging Corporation.
27.2 Financial Data Schedule for Starwood Lodging Trust.
(b) Reports on Form 8-K.
-------------------
During the fourth quarter of 1995, the Trust and the Corporation filed the following Joint Current Reports on
Form 8-K:
On October 9, 1995, the Trust and Corporation filed a Joint Current Report on Form 8-K to report the purchase of
the Doral Inn in New York, New York. On December 1, 1995 the Trust and the Corporation filed an amendment to such Joint
Current Report.
On October 31, 1995, the Trust and Corporation filed a Joint Current Report on Form 8-K to report a change in
certifying accountants.
</TABLE>
77
<PAGE> 81
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
STARWOOD LODGING TRUST
(Registrant)
Date: March 27, 1996 By: /s/ Jeffrey C. Lapin
---------------------------------
Jeffrey C. Lapin, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Barry S. Sternlicht Chairman, Chief March 27, 1996
- -------------------------- Executive Officer
Barry S. Sternlicht and Trustee
(Principal Executive Officer)
/s/ Jeffrey C. Lapin President, Chief March 27, 1996
- -------------------------- Operating Officer
Jeffrey C. Lapin and Trustee
/s/ Ronald C. Brown Vice President and March 27, 1996
- -------------------------- Chief Financial Officer
Ronald C. Brown (Principal Financial
and Accounting Officer)
/s/ Madison F. Grose Trustee March 27, 1996
- --------------------------
Madison F. Grose
/s/ Stephen R. Quazzo Trustee March 27, 1996
- --------------------------
Stephen R. Quazzo
</TABLE>
78
<PAGE> 82
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
STARWOOD LODGING CORPORATION
(Registrant)
Date: March 27, 1996 By: /s/ Kevin E. Mallory
--------------------------------
Kevin E. Mallory,
Executive Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Earle F. Jones Chairman of the Board of March 27, 1996
- -----------------------
Earle F. Jones Directors and Director
/s/ Kevin E. Mallory Executive Vice President March 27, 1996
- ----------------------- (Principal Executive Officer)
Kevin E. Mallory
/s/ Alan M. Schnaid Corporate Controller March 27, 1996
- ----------------------- (Principal Accounting Officer)
Alan M. Schnaid
/s/ Bruce M. Ford Director March 27, 1996
- -----------------------
Bruce M. Ford
/s/ Graeme W. Henderson Director March 27, 1996
- -----------------------
Graeme W. Henderson
</TABLE>
79
<PAGE> 83
STARWOOD LODGING TRUST
STARWOOD LODGING CORPORATION
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
AS OF DECEMBER 31, 1995 AND 1994
AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
DECEMBER 31, 1995
<TABLE>
<S> <C>
INDEPENDENT AUDITORS' REPORT F-1, F-2
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION:
Combined Balance Sheets F-3
Combined Statements of Operations F-4
Combined Statements of Cash Flows F-5
Combined Statements of Shareholders' Equity F-6
STARWOOD LODGING TRUST:
Balance Sheets F-7
Statements of Operations F-8
Statements of Cash Flows F-9
Statements of Shareholders' Equity F-10
STARWOOD LODGING CORPORATION:
Balance Sheets F-11
Statements of Operations F-12
Statements of Cash Flows F-13
Statements of Shareholders' Deficit F-14
NOTES TO FINANCIAL STATEMENTS F-15
SCHEDULES:
Schedule III- Real Estate and Accumulated Depreciation F-36
Schedule -IV Mortgage Loans on Real Estate F-41
</TABLE>
<PAGE> 84
INDEPENDENT AUDITORS' REPORT
To the Boards of Trustees and Directors and Shareholders of
Starwood Lodging Trust and Starwood Lodging Corporation:
We have audited the accompanying separate and combined financial statements of
Starwood Lodging Trust (a Maryland real estate investment trust) (the "Trust")
and Starwood Lodging Corporation (a Maryland corporation) and its subsidiaries
(the "Corporation"), collectively the "Companies", as of December 31, 1995, and
for the year then ended, listed in the foregoing index to financial statements
and financial statement schedules. Our audit also included the financial
statement schedules listed in the foregoing index to financial statements and
financial statement schedules. These financial statements and financial
statement schedules are the responsibility of the Trust's, the Corporation's
and the Companies' managements. Our responsibility is to express an opinion on
these financial statements and financial statement schedules based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such separate and combined financial statements present fairly,
in all material respects, the financial position of the Companies and the
financial position of the Trust and the Corporation at December 31, 1995, and
the respective results of their operations and their cash flows for the year
then ended in conformity with generally accepted accounting principles. Also,
in our opinion, such financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
January 31, 1996
F-1
<PAGE> 85
INDEPENDENT AUDITORS' REPORT
To The Board Of Trustees And Directors And Shareholders of
Starwood Lodging Trust and Starwood Lodging Corporation:
We have audited the accompanying separate and combined financial statements of
Starwood Lodging Trust (a Maryland real estate investment trust) (the "Trust")
and Starwood Lodging Corporation (a Maryland corporation) and its subsidiaries
(the "Corporation"), collectively the "Companies", as of December 31, 1994, and
for each of the two years in the period ended December 31, 1994, listed in the
foregoing index to financial statements and financial statement schedules. Our
audits also included the financial statements schedules listed in the foregoing
index to financial statements and financial statement schedules. These
financial statements and financial statement schedules are the responsibility
of the Trust's, the Corporation's and the Companies' managements. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material missatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. an audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such separate and combined financial statements present fairly,
in all material respects, the financial position of the Companies and the
financial position of the Trust and the Corporation at December 31, 1994, and
the respective results of their operations and their cash flows for each of the
two years in the period ended December 31, 1994 in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Los Angeles, California
March 24, 1995
F-2
<PAGE> 86
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
------------------- -------------------
<S> <C> <C>
ASSETS
Hotel assets held for sale - net................................. $ 21,063,000 $ 8,585,000
Hotel assets - net............................................... 315,895,000 142,600,000
------------------- -------------------
336,958,000 151,185,000
Mortgage notes receivable, net................................... 79,261,000 14,049,000
Investments...................................................... 2,858,000 262,000
------------------- -------------------
Total real estate investments............................... 419,077,000 165,496,000
Cash and cash equivalents........................................ 9,332,000 5,065,000
Accounts and interest receivable................................. 9,595,000 4,040,000
Notes receivable, net............................................ 1,796,000 1,627,000
Inventories, prepaid expenses and other assets................... 20,194,000 7,727,000
------------------- -------------------
$459,994,000 $183,955,000
=================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Collateralized notes payable and revolving line of credit........ $119,100,000 $113,896,000
Mortgage and other notes payable................................. 4,385,000 46,586,000
Accounts payable and other liabilities........................... 19,022,000 14,765,000
Dividends/Distributions payable.................................. 9,284,000
------------------- -------------------
151,791,000 175,247,000
------------------- -------------------
Commitments and contingencies
MINORITY INTEREST................................................ 92,735,000
------------------- -------------------
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest at December 31, 1995 and 1994
$.01 and $6.00 par value, respectively; authorized 30,000,000
shares; outstanding 13,825,000 shares and 2,022,158 shares,
respectively.................................................. 138,000 12,133,000
Corporation common stock at December 31, 1995 and 1994, $.01 and
$.60 par value, respectively; authorized 30,000,000 shares;
outstanding 13,825,000 and 2,022,158 shares, respectively..... 138,000 1,213,000
Additional paid-in capital....................................... 434,107,000 210,251,000
Distributions in excess of earnings.............................. (218,915,000) (214,889,000)
------------------- -------------------
215,468,000 8,708,000
------------------- -------------------
$459,994,000 $183,955,000
=================== ===================
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 87
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1995 1994 1993
-------------- --------------- ---------------
<S> <C> <C> <C>
REVENUE
Hotel............................................. $121,250,000 $82,668,000 $86,903,000
Gaming............................................ 26,929,000 27,981,000 27,505,000
Interest from mortgage and other notes............ 10,905,000 1,554,000 1,412,000
Management fees and other income.................. 1,966,000 411,000 475,000
Rents from leased hotel properties
and income from investments....................... 791,000 927,000 839,000
Gain (loss) on sales of hotel assets.............. (125,000) 456,000 21,000
-------------- --------------- ---------------
161,716,000 113,997,000 117,155,000
-------------- --------------- ---------------
EXPENSES
Hotel operations.................................. 85,017,000 60,829,000 68,132,000
Gaming operations................................. 24,242,000 24,454,000 24,055,000
Interest.......................................... 13,138,000 17,606,000 15,187,000
Depreciation and amortization..................... 15,469,000 8,161,000 9,232,000
Administrative and operating...................... 5,712,000 4,203,000 4,729,000
Shareholder litigation............................ 2,648,000 483,000
Provision for losses.............................. 759,000 2,369,000
-------------- --------------- ---------------
143,578,000 118,660,000 124,187,000
-------------- --------------- ---------------
Income (loss) before extraordinary items and
minority interest................................. 18,138,000 (4,663,000) (7,032,000)
Minority interest................................. 7,013,000
-------------- --------------- ---------------
Income (loss) before extraordinary items.......... 11,125,000 (4,663,000) (7,032,000)
Extraordinary items due to early extinguishment
of debt (net of $163,000 minority interest)....... (2,155,000)
-------------- --------------- ---------------
NET INCOME (LOSS) $8,970,000 $ (4,663,000) $(7,032,000)
============== =============== ===============
EARNINGS PER PAIRED SHARE
Income (loss) before extraordinary items.......... $1.43 $(2.31) $(3.48)
Extraordinary items............................... (0.28)
-------------- --------------- ---------------
NET INCOME (LOSS) PER PAIRED SHARE $1.15 $(2.31) $(3.48)
============== =============== ===============
Weighted Average Number of Paired Shares 7,771,000 2,022,158 2,022,158
============== =============== ===============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 88
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1995 1994 1993
------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).......................................... $8,970,000 $(4,663,000) $(7,032,000)
Extraordinary items due to early extinguishment of debt.... 2,155,000
Adjustments to reconcile net income (loss ) to net cash
provided by operating activities:
Minority interest....................................... 7,013,000
Depreciation and amortization........................... 15,469,000 8,161,000 9,232,000
Accretion of discount................................... (3,285,000)
Deferred interest....................................... 649,000 3,610,000 3,287,000
(Gain) loss on sales of real estate investments......... 125,000 (456,000) (21,000)
Provision for losses.................................... 759,000 2,369,000
Changes in assets and liabilities:
Accounts receivable, inventories
and prepaid expenses.................................... (21,335,000) (86,000) 2,118,000
Accounts payable and other liabilities.................. 6,650,000 1,568,000 (4,421,000)
------------- -------------- --------------
Net cash provided by operating activities........... 16,411,000 8,893,000 5,532,000
------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to hotel assets.................................. (166,211,000) (2,941,000) (6,577,000)
Net proceeds from sales of hotel assets.................... 12,536,000 6,130,000
Purchase of mortgage notes receivable...................... (19,795,000) (6,270,000) (1,985,000)
Principal received on notes receivable..................... 6,825,000 2,451,000 409,000
Reorganization costs....................................... (2,814,000) (1,287,000)
Increase in other assets................................... (47,000)
Acquisition of minority interest/hotels.................... (1,575,000)
Net cash provided by (used in) investing activities. (181,995,000) 4,489,000 (3,645,000)
------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage and
other notes payable..................................... (104,722,000) (1,498,000) (1,666,000)
Borrowing under lines of credit............................ 119,100,000
Borrowings under mortgage and other notes.................. 9,637,000 6,000,000 632,000
Principal (payments) borrowings on secured notes payable
and revolving line of credit; net....................... (102,899,000) (18,516,000) (5,695,000)
Proceeds from offering..................................... 245,701,000
Purchase of warrants....................................... (1,300,000)
Capital contributions...................................... 13,599,000
Dividends/Distributions paid............................... (9,265,000)
Payments to minority shareholders.......................... (28,000)
Principal received on share purchase notes................. 45,000 5,000
Net cash provided by (used in) financing activities. 169,851,000 (13,969,000) (6,752,000)
------------- -------------- --------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS.................................... 4,267,000 (587,000) (4,865,000)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR.................................... 5,065,000 5,652,000 10,517,000
------------- -------------- --------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR.......................................... $9,332,000 $5,065,000 $5,652,000
============= ============== ==============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 89
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Trust Shares
of Corporation Additional Share Total
Beneficial Common Paid - in Purchase Accumulated Shareholders'
Interest Stock Capital Notes Deficit Equity
------------ ----------- ------------ ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1993.............. $ 12,133,000 $1,213,000 $210,673,000 $(474,000) $(203,194,000) $20,351,000
Principal payments and reductions
of share purchase notes......... (176,000) 183,000 7,000
Net loss.......................... (7,032,000) (7,032,000)
------------ ----------- ------------ ---------- ------------- ------------
Balance December 31, 1993............ 12,133,000 1,213,000 210,497,000 (291,000) (210,226,000) 13,326,000
Principal payments and reductions
of share purchase notes......... (246,000) 291,000 45,000
Net loss.......................... (4,663,000) (4,663,000)
------------ ----------- ------------ ---------- ------------- ------------
Balance December 31, 1994............ 12,133,000 1,213,000 210,251,000 (214,889,000) $8,708,000
Decrease in par value to $0.01.... (12,012,000) (1,092,000) 13,104,000
One for six reverse stock split... (101,000) (101,000) 202,000
Contributed Capital............... 59,120,000 59,120,000
Public Offering................... 118,000 118,000 245,465,000 245,701,000
Minority Interest................. (92,735,000) (92,735,000)
Net Income........................ 8,970,000 8,970,000
Dividends/Distributions........... (12,996,000) (12,996,000)
Warrant Purchase.................. (1,300,000) (1,300,000)
------------ ----------- ------------ ---------- -------------- ------------
Balance December 31, 1995............ $138,000 $138,000 $434,107,000 $ $(218,915,000) $215,468,000
============ =========== ============ ========== ============== ============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 90
STARWOOD LODGING TRUST
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
------------- -------------
<S> <C> <C>
ASSETS
Hotel assets held for sale - net.......................... $ 20,547,000 $ 8,281,000
Hotel assets - net........................................ 221,063,000 108,428,000
------------- -------------
241,610,000 116,709,000
Mortgage notes receivable - net........................... 79,261,000 14,049,000
Mortgage notes receivable - Corporation................... 68,486,000 16,916,000
Investments............................................... 2,841,000 240,000
------------- -------------
Total real estate investments........................ 392,198,000 147,914,000
Cash and cash equivalents................................. 710,000 255,000
Rent and interest receivable............................. 1,841,000 698,000
Notes receivable - net.................................... 1,232,000 1,004,000
Notes receivable - Corporation............................ 17,978,000 10,000,000
Prepaid expenses and other assets......................... 11,778,000 2,374,000
------------- -------------
$ 425,737,000 $ 162,245,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Collateralized notes payable and revolving line of credit. $ 119,100,000 $ 113,896,000
Mortgage and other notes payable.......................... 100,000 32,838,000
Accounts payable and other liabilities.................... 4,412,000 5,061,000
Dividends/Distributions payable........................... 9,284,000
------------- -------------
132,896,000 151,795,000
------------- -------------
Commitments and contingencies
MINORITY INTEREST......................................... 88,113,000
------------- -------------
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest at December 31, 1995
and 1994, $.01 and $6.00 par value, respectively;
authorized 30,000,000 shares; outstanding 13,825,000 and
2,022,158 shares, respectively 138,000 12,133,000
Additional paid-in capital................................ 354,619,000 146,059,000
Distributions in excess of earnings....................... (150,029,000) (147,742,000)
------------- -------------
204,728,000 10,450,000
------------- -------------
$ 425,737,000 $ 162,245,000
============= =============
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 91
STARWOOD LODGING TRUST
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1995 1994 1993
-------------- ------------- -------------
<S> <C> <C> <C>
REVENUE
Rents from Corporation...................... $26,730,000 $16,906,000 $16,481,000
Interest from Corporation................... 4,761,000 1,730,000 1,534,000
Interest from mortgage and other notes...... 10,792,000 1,512,000 1,288,000
Rents from other leased hotel properties
and income from joint ventures........... 791,000 927,000 839,000
Other income................................ 1,074,000 164,000 253,000
Gain (loss) on sales of hotel assets........ (125,000) 432,000 (53,000)
-------------- ------------- -------------
44,023,000 21,671,000 20,342,000
-------------- ------------- -------------
EXPENSES
Interest.................................... 12,429,000 16,265,000 14,020,000
Depreciation and amortization............... 8,977,000 5,205,000 5,630,000
Administrative and operating................ 2,439,000 1,583,000 1,948,000
Shareholder litigation...................... 1,324,000 264,000
Provision for losses........................ 759,000 2,369,000
-------------- ------------- -------------
23,845,000 25,136,000 24,231,000
-------------- ------------- -------------
Income (loss) before extraordinary items and
minority interest........................ 20,178,000 (3,465,000) (3,889,000)
Minority interest........................... 7,314,000
-------------- ------------- -------------
Income (loss) before extraordinary items.... 12,864,000 (3,465,000) (3,889,000)
Extraordinary items due to early
extinguishment of debt (net of $163,000
minority interest)....................... (2,155,000)
-------------- ------------- -------------
NET INCOME (LOSS) $10,709,000 $(3,465,000) $(3,889,000)
============== ============= =============
EARNINGS PER PAIRED SHARE
Income (loss) before extraordinary items.... $1.66 $(1.72) $(1.92)
Extraordinary items......................... (0.28)
NET INCOME (LOSS) PER SHARE $1.38 $(1.72) $(1.92)
============== ============= =============
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE> 92
STARWOOD LODGING TRUST
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).......................................... $10,709,000 $(3,465,000) $(3,889,000)
Extraordinary items due to early extinguishment of debt.... 2,155,000
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Minority interest....................................... 7,314,000
Depreciation and amortization........................... 8,977,000 5,205,000 5,630,000
Accretion of discount................................... (3,285,000)
Deferred interest....................................... 649,000 3,610,000 2,243,000
(Gain) loss on sales of real estate investments......... 125,000 (432,000) 53,000
Provision for losses.................................... 759,000 2,369,000
Changes in operating assets and liabilities:
Rent and interest receivable - Corporation.............. (3,012,000) (1,730,000) (1,519,000)
Accounts receivable and prepaid expenses................ (14,044,000) (54,000) 1,037,000
Accounts payable and other liabilities.................. 1,679,000 562,000 (2,788,000)
------------- ------------ ------------
Net cash provided by operating activities............ 11,267,000 4,455,000 3,136,000
------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to hotel assets.................................. (123,556,000) (2,270,000) (1,372,000)
Net proceeds from sales of hotel assets.................... 11,719,000 5,360,000
Purchase of mortgage notes receivable...................... (19,795,000) (6,270,000) (1,985,000)
Principal received on mortgage and other notes receivable.. 6,766,000 2,382,000 353,000
Reorganization costs....................................... (1,407,000) (1,287,000)
Net change in notes receivable - Corporation............... (37,514,000) 3,965,000 1,693,000
Acquisition of minority interest........................... (1,575,000)
------------- ------------ ------------
Net cash provided by (used in) investing activities.. (175,506,000) 8,239,000 2,474,000
------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage and other notes payable..... (95,259,000) (886,000) (1,594,000)
Borrowing under lines of credit............................ 119,100,000
Borrowings under mortgage and other notes payable.......... 9,637,000 6,000,000
Principal (payments) borrowings on secured notes
payable, net............................................ (102,899,000) (18,516,000) (5,695,000)
Proceeds from offering..................................... 233,418,000
Purchase of warrants....................................... (1,235,000)
Capital contributions...................................... 11,197,000
Dividends/Distributions paid............................... (9,265,000)
Payments to minority shareholders.......................... (18,000)
Principal received on share purchase notes................. 45,000
------------- ------------ ------------
Net cash provided by (used in) financing activities.. 164,694,000 (13,357,000) (7,307,000)
------------- ------------ ------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS.................................... 455,000 (663,000) (1,697,000)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR.................................... 255,000 918,000 2,615,000
------------- ------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR.......................................... $ 710,000 $ 255,000 $ 918,000
============= ============ ============
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE> 93
STARWOOD LODGING TRUST
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Shares of Additional Share Total
Beneficial Paid - in Purchase Accumulated Shareholders'
Interest Capital Notes Deficit Equity
------------ ------------ ---------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1993............... $12,133,000 $204,816,000 $(190,000) $(140,388,000) $ 76,371,000
Principal payments, reductions and
transfer of share purchase notes
from the Corporation-net........ (176,000) (101,000) (277,000)
Net loss.............................. (3,889,000) (3,889,000)
------------ ------------ --------- ------------- ------------
Balance December 31, 1993.......... 12,133,000 204,640,000 (291,000) (144,277,000) 72,205,000
Forgiveness of intercompany debt... (58,335,000) (58,335,000)
Principal payments and reductions
of share purchase notes......... (246,000) 291,000 45,000
Net loss.............................. (3,465,000) (3,465,000)
------------ ------------ --------- ------------- ------------
Balance December 31, 1994............. 12,133,000 146,059,000 (147,742,000) 10,450,000
Decrease in par value to $0.01..... (12,012,000) 12,012,000
One for six reverse stock split.... (101,000) 101,000
Contributed Capital................ 52,495,000 52,495,000
Public Offering.................... 118,000 233,300,000 233,418,000
Minority Interest.................. (88,113,000) (88,113,000)
Net Income......................... 10,709,000 10,709,000
Dividends/Distributions............ (12,996,000) (12,996,000)
Warrant Purchase................... (1,235,000) (1,235,000)
------------ ------------ --------- ------------- ------------
Balance December 31, 1995............. $ 138,000 $354,619,000 $ $(150,029,000) $204,728,000
============ ============ ========= ============= ============
</TABLE>
See accompanying notes to financial statements.
F-10
<PAGE> 94
STARWOOD LODGING CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
----------------- ------------------
<S> <C> <C>
ASSETS
Hotel assets held for sale - net............... $ 516,000 $ 304,000
Hotel assets - net............................. 94,832,000 34,172,000
----------------- ------------------
95,348,000 34,476,000
Investments.................................... 17,000 22,000
----------------- ------------------
Total real estate investments................ 95,365,000 34,498,000
Cash and cash equivalents...................... 8,622,000 4,810,000
Accounts receivable............................ 7,754,000 3,342,000
Notes receivable............................... 564,000 623,000
Inventories, prepaid expenses and other assets. 8,416,000 5,353,000
----------------- ------------------
$ 120,721,000 $48,626,000
================= ==================
LIABILITIES AND SHAREHOLDERS' DEFICIT
LIABILITIES
Mortgage and other notes payable............... $ 4,285,000 $13,748,000
Mortgage notes payable - Trust................. 68,486,000 16,916,000
Notes payable - Trust.......................... 17,978,000 10,000,000
Accounts payable and other liabilities......... 14,610,000 9,704,000
----------------- ------------------
105,359,000 50,368,000
----------------- ------------------
Commitments and contingencies
MINORITY INTEREST.............................. 4,622,000
-----------------
SHAREHOLDERS' EQUITY (DEFICIT)
Corporation common stock at December 31, 1995
and 1994, $.01 and $.60 par value,
respectively; authorized 30,000,000 shares;
outstanding 13,825,000 and 2,022,158 shares,
respectively................................. 138,000 1,213,000
Additional paid-in capital..................... 79,488,000 64,192,000
Distributions in excess of earnings............ (68,886,000) (67,147,000)
----------------- ------------------
10,740,000 (1,742,000)
----------------- ------------------
$ 120,721,000 $48,626,000
================= ==================
</TABLE>
See accompanying notes to financial statements.
F-11
<PAGE> 95
STARWOOD LODGING CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------
1995 1994 1993
----------------- ----------------- -----------------
<S> <C> <C> <C>
REVENUE
Hotel............................ $121,250,000 $ 82,668,000 $ 86,903,000
Gaming........................... 26,929,000 27,981,000 27,505,000
Interest from notes receivable... 113,000 42,000 124,000
Management fees and other income. 892,000 247,000 222,000
Gain on sales of hotel assets.... 24,000 74,000
----------------- ----------------- -----------------
149,184,000 110,962,000 114,828,000
----------------- ----------------- -----------------
EXPENSES
Hotel operations................. 85,017,000 60,829,000 68,132,000
Gaming operations................ 24,242,000 24,454,000 24,055,000
Rent - Trust..................... 26,730,000 16,906,000 16,481,000
Interest - Trust................. 4,761,000 1,730,000 1,534,000
Interest - other................. 709,000 1,341,000 1,167,000
Depreciation and amortization.... 6,492,000 2,956,000 3,602,000
Administrative and operating..... 3,273,000 2,620,000 2,781,000
Shareholder litigation........... 1,324,000 219,000
----------------- ----------------- -----------------
151,224,000 112,160,000 117,971,000
----------------- ----------------- -----------------
Loss before minority interest.... (2,040,000) (1,198,000) (3,143,000)
Minority interest................ 301,000
----------------- ----------------- -----------------
NET LOSS $ (1,739,000) $ (1,198,000) $ (3,143,000)
================= ================= =================
NET LOSS PER SHARE $ (0.22) $ (0.59) $ (1.56)
================= ================= =================
</TABLE>
See accompanying notes to financial statements.
F-12
<PAGE> 96
<TABLE>
<CAPTION>
STARWOOD LODGING CORPORATION
STATEMENTS OF CASH FLOWS
Years Ended December 31,
-------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................. $ (1,739,000) $(1,198,000) $(3,143,000)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Minority interest....................................... (301,000)
Depreciation and amortization........................... 6,492,000 2,956,000 3,602,000
Deferred Interest....................................... 1,044,000
Gain on sales of real estate investments................ (24,000) (74,000)
Changes in operating assets and liabilities:
Accounts receivable, inventories
and prepaid expenses.................................. (7,291,000) (32,000) 1,081,000
Rent and interest payable - Trust...................... 3,012,000 1,730,000 1,519,000
Accounts payable and other liabilities.................. 4,971,000 1,006,000 (1,633,000)
------------- ------------- -------------
Net cash provided by operating activities............. 5,144,000 4,438,000 2,396,000
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to hotel assets................................. (42,655,000) (671,000) (5,205,000)
Net proceeds from sales of hotel assets................... 817,000 770,000
Increase in other assets.................................. (47,000)
Principal received on notes receivable.................... 59,000 69,000 56,000
Reorganization costs...................................... (1,407,000)
------------- ------------- -------------
Net cash provided by (used in) investing activities... (44,003,000) 215,000 (4,426,000)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage and other notes payable.... (9,463,000) (612,000) (72,000)
Borrowings under mortgage and other notes................. 632,000
Net change in notes payable - Trust....................... 37,514,000 (3,965,000) (1,693,000)
Proceeds from offering.................................... 12,283,000
Purchase of warrants...................................... (65,000)
Capital contributions..................................... 2,402,000
Payments to minority shareholders......................... (10,000)
Principal received on share purchase notes................ 5,000
------------- ------------- -------------
Net cash provided by (used in) financing activities... 42,671,000 (4,577,000) (1,138,000)
------------- ------------- -------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS.................................... 3,812,000 76,000 (3,168,000)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR.................................... 4,810,000 4,734,000 7,902,000
------------- ------------- -------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR.......................................... $8,622,000 $4,810,000 $4,734,000
============= ============= =============
</TABLE>
See accompanying notes to financial statements.
F-13
<PAGE> 97
STARWOOD LODGING CORPORATION
STATEMENTS OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Additional Share Total
Common Paid - in Purchase Accumulated Shareholders'
Stock Capital Notes Deficit Deficit
----------- ----------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1993.............. $1,213,000 $ 5,857,000 $(16,000) $(62,806,000) $(55,752,000)
Principal payments, reductions and
transfer of share purchase notes
to the Trust..................... 16,000 16,000
Net loss........................... (3,143,000) (3,143,000)
=========== =========== ======== ============ ===========
Balance December 31, 1993............ 1,213,000 5,857,000 (65,949,000) (58,879,000)
Forgiveness of intercompany debt... 58,335,000 58,335,000
Net loss........................... (1,198,000) (1,198,000)
----------- ----------- -------- ------------ -----------
Balance December 31, 1994............ 1,213,000 64,192,000 (67,147,000) (1,742,000)
Decrease in par value to $0.01..... (1,092,000) 1,092,000
One for six reverse stock split.... (101,000) 101,000
Contributed Capital................ 6,625,000 6,625,000
Public Offering.................... 118,000 12,165,000 12,283,000
Minority Interest.................. (4,622,000) (4,622,000)
Net Loss........................... (1,739,000) (1,739,000)
Dividends/Distributions Payable....
Warrant Purchase................... (65,000) (65,000)
----------- ----------- -------- ------------ -----------
Balance December 31, 1995............ $ 138,000 $79,488,000 $ $(68,886,000) $10,740,000
=========== =========== ======== ============ ===========
</TABLE>
See accompanying notes to financial statements.
F-14
<PAGE> 98
STARWOOD LODGING TRUST
AND STARWOOD LODGING CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies.
General
The accompanying financial statements include the accounts of Starwood
Lodging Trust (the "Trust") and Starwood Lodging Corporation and their
subsidiaries (the "Corporation"). The Trust was formed as a real estate
investment trust ("REIT") under the Internal Revenue Code in 1969. In 1980,
the Trust formed the Corporation and made a distribution to the Trust's
shareholders of one share of common stock of the Corporation for each share of
beneficial interest of the Trust. The shares of the Trust and the shares of
the Corporation are paired on a one-for-one basis, and can only be transferred
in units ("Paired Shares") consisting of the same number of shares of the Trust
and of the Corporation.
The combined financial statements include the accounts of the Trust and
the Corporation (the "Companies"). All material intercompany balances and
transactions have been eliminated in the combined and separate consolidated
financial statements. The intercompany balances and transactions which have
been eliminated in arriving at the combined balance sheets and combined
statements of operations include the elimination of notes receivable from the
Corporation recorded on the Trust's balance sheets, and the related notes
payable to the Trust recorded on the Corporation's balance sheets. Rent and
interest income recorded on the Trust's statements of operations are eliminated
against the related rent and interest expense on the Corporation's statements
of operations.
The Companies own and operate hotels located throughout the United States
and two hotel/casinos in Las Vegas, Nevada. The hotels range in size from 90
to 960 rooms and offer services to both business and leisure travelers.
Reorganization
Effective January 1, 1995 (the "Closing Date"), the Trust and the
Corporation consummated a reorganization (the "Reorganization") with Starwood
Capital Group, L.P. ("Starwood Capital") and certain affiliates of Starwood
Capital (the "Starwood Partners").
The Reorganization involved a number of related transactions that occurred
simultaneously on the Closing Date. Such transactions included (i) the
contribution by the Trust to SLT Realty Limited Partnership (the "Realty
Partnership") of substantially all of the properties and assets of the Trust,
at book values, subject to substantially all of the liabilities of the Trust
(including the Senior Debt of the Trust ), in exchange for an approximate
28.3% interest as a general partner in the Realty Partnership, (ii) the
contribution by the Starwood Partners to the Realty Partnership of
approximately $12,600,000 in cash and certain hotel properties and first
mortgage notes, at book values in exchange for limited partnership units
representing the remaining approximate 71.7% interest in the Realty
Partnership, (iii) the contribution by the Corporation and its subsidiaries to
SLC Operating Limited Partnership (the "Operating Partnership", and together
with the Realty Partnership, the "Partnerships") of all of their properties and
operating assets (except for their gaming assets, which are to be contributed
upon approval by Nevada gaming authorities), subject to substantially all of
their liabilities, in exchange for an approximate 28.3% interest as a general
partner in the Operating Partnership, and (iv) the contribution by the Starwood
Partners to the Operating Partnership of approximately $1,400,000 in cash and
furniture, fixtures and equipment of the hotel properties, at book values, in
exchange for limited partnership units representing the remaining approximate
71.7% interest in the Operating Partnership.
Immediately following the Reorganization, the Trust and the Corporation
accounted for their respective investment in the Realty Partnership and the
Operating Partnership under the equity method of accounting, in accordance with
generally accepted accounting principles. For accounting purposes, neither the
Trust nor Starwood
F-15
<PAGE> 99
Capital unilaterally controlled the Starwood Lodging Realty Partnership and
neither the Corporation nor Starwood Capital unilaterally controlled the
Starwood Lodging Operating Partnership.
In addition on March 24, 1995, a Starwood Partner exchanged $12 million of
Senior Debt for additional limited partnership units of the Realty Partnership
and the Operating Partnership. After giving effect to the Reorganization and
this exchange of Senior Debt, the Trust had an approximate 25.4% interest in
the Realty Partnership, the Corporation had an approximate 25.4% interest in
the Operating Partnership, and the Starwood Partners held limited partnership
interests representing the remaining approximate 74.6% interest in each of the
Realty Partnership and the Operating Partnership.
The Offering
On July 6, 1995, Starwood Lodging completed a public offering (the
"Offering") of 11,787,500 Paired Shares at a price of $23.00 per Paired Share.
Net proceeds of the Offering of approximately $245.7 million in aggregate were
contributed by the Trust and the Corporation to the Realty Partnership and the
Operating Partnership, respectively, thereby increasing the general partnership
interest of the Trust and the Corporation to approximately 69.9% of each of the
Realty Partnership and Operating Partnership with the Starwood Partners'
limited partnership interests representing the remaining approximate 30.1%
interest in each of the Realty Partnership and Operating Partnership. From the
completion of the Offering, the Companies have consolidated the results of the
respective Partnerships.
The 30.1% limited partnership interests of the Realty Partnership and the
Operating Partnership is reflected in the Financial Statements as Minority
Interest. The total number of operating units outstanding in the Partnership
was 19,768,000 at December 31, 1995.
Hotel assets
Hotel assets are stated at the lower of cost or the amounts described
below and are depreciated using straight-line and declining-balance methods
over estimated useful lives of five to thirty-five years for buildings and
improvements and three to twelve years for furniture, fixtures and equipment.
Amounts allocated to leasehold interests are amortized using the straight-line
method over lease terms of eight to forty-three years.
The Trust and the Corporation estimate the fair values of each of their
hotel assets on a quarterly basis. For each hotel asset not held for sale,
fair value is estimated as the expected undiscounted future cash flows of the
asset (generally over a five-year period), which is compared to the net book
values of the asset. If the expected undiscounted future cash flows are less
than the net book value of the asset, the excess of the net book value over the
estimated fair value is charged to current earnings. When it is the opinion of
management that the fair value of a hotel asset which has been identified for
sale is less than the net book value of the asset, a reserve for losses is
established. Fair value is determined based upon discounted cash flows of the
hotel assets at rates (11.0% to 21.0%) deemed reasonable for the type of
property and prevailing market conditions, appraisals and, if appropriate,
current estimated net sales proceeds from pending offers. A gain or loss is
recorded to the extent the amounts ultimately received differ from the adjusted
book values of the hotel assets. Gains on sales of hotel assets are recognized
at the time the hotel assets are sold provided there is reasonable assurance of
the collectability of the sales price and any future activities to be performed
by the Companies relating to the hotel assets sold are insignificant.
Mortgage notes receivable
If a loan becomes delinquent or upon the occurrence of other events it
becomes known that the collectability of a specific loan is uncertain, interest
income is no longer accrued and an allowance for loss is established based upon
an analysis of the net realizable value of the underlying property
collateralizing the loan.
F-16
<PAGE> 100
Provision for losses
Provision for losses for the years ended December 31, 1994 and 1993 for
the Trust are as follows:
<TABLE>
<CAPTION>
1994 1993
--------- -----------
<S> <C> <C>
Hotel assets $439,000 $2,369,000
Mortgage notes receivable 320,000
-------- ---------
$759,000 $2,369,000
======== ==========
</TABLE>
There were no provisions for losses for the year ended December 31, 1995.
Cash and cash equivalents
Cash and cash equivalents are defined as cash on hand and in banks plus
all short-term investments with a maturity, at the date of purchase, of three
months or less.
Inventories
Inventories are stated at the lower of cost or market with cost determined
on a first-in, first-out basis.
Organization Costs
Organization costs related to the formation of each of the Partnerships in
the amount of $2,891,000 and $1,672,000 for the Trust and $2,891,000 and
$1,672,000 for the Corporation are included in inventories, prepaid expenses
and other assets at December 31, 1995 and 1994, respectively. The costs are
amortized over a five-year period beginning in January 1995. Both the Trust
and the Corporation amortized $650,000 during the year ended December 31, 1995.
Hotel Revenue
Revenue is recognized as earned. Earned is generally defined as the date
upon which a guest occupies a room and/or utilizes the hotel's services.
Ongoing credit evaluations are performed and potential credit losses are
expensed at the time the account receivable is estimated to be uncollectible.
Historically, credit losses have not been material to the hotels' results of
operations. The Companies have recorded an allowance for doubtful accounts
totalling $60,000 and $100,000 at December 31, 1995 and 1994, respectively.
Gaming revenue
Gaming revenue relates to the two hotel/casinos and includes the net win
from gaming activities, as well as room, food and beverage and other revenues,
net of promotional allowances.
Fair value of financial instruments and concentration of credit risk
The following disclosure of estimated fair value was determined by
available market information and appropriate valuation methodologies. However,
considerable judgment is necessary to interpret market data and develop the
related estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that could be realized upon
disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
Cash and cash equivalents, accounts receivable and accounts payable and
other liabilities are carried at amounts which reasonably approximate their
fair value.
Investments of $2,841,000 for the Trust at December 31, 1995 had a fair
value of $2,674,000.
F-17
<PAGE> 101
At December 31, 1995, fixed rate mortgage notes receivable of $29,016,000
approximate their fair value. The Companies believe that the fair value of
mortgage notes receivable of $50,245,000 is at least $62,000,000.
Fixed rate mortgage notes receivable of $14,049,000 for the Trust at
December 31, 1994 had a fair value of $13,488,000 as estimated based upon debt
with similar terms and maturities.
The carrying value of the secured notes payable, fixed rate notes payable,
and revolving line of credit approximate fair value at December 31, 1995 and
1994, as the related interest rates are either variable or in line with market
rates.
Fixed rate notes payable with carrying values of $32,838,000 and
$13,748,000 for the Trust and Corporation, respectively, at December 31, 1994
had a fair value of $34,442,000 and $11,648,000 as estimated based on debt with
similar terms and maturities
At December 31, 1995, the Company had significant amounts in banks that
was in excess of the federally insured amounts.
Interest Rate Agreements
The Companies enter into interest rate forward contracts as a means of
managing interest rate exposure on anticipated transactions. The agreements
are with major financial institutions which are expected to fully perform under
the terms of the agreements thereby mitigating the credit risk from the
transactions. The differential to be paid or received under these agreements
is accrued consistent with the terms of the agreements and market interest
rates and is recognized in interest expense over the remaining term of the
related debt.
Net income (loss) per share
Net income (loss) per share is based on the weighted average number of
common and common equivalent shares outstanding during the year which is on a
Paired Share basis for purposes of the combined financial statements.
Outstanding options and warrants are included as common equivalent shares using
the treasury stock method when the effect is dilutive. The weighted average
number of shares and Paired Shares used in determining net income (loss) per
share and per Paired Share was 7,771,000 for the year ended December 31, 1995
and 2,022,158 for the years ended December 31, 1994 and 1993. The weighted
average number of shares and Paired Shares were determined as if the six for
one reverse stock split that occurred June 19, 1995 was effective January 1,
1993. Historical per share information has been revised accordingly.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to the 1994 and 1993 financial
statements to conform with the 1995 financial statement presentation.
Impact of recently issued accounting standards
In March and October 1995, the Financial Accounting Standards Board
issued Statements of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long Lived Assets and for Long Lived Assets to be Disposed Of"
and No. 123 "Accounting for Stock-Based Compensation", respectively. These
statements shall be effective for financial statements for fiscal years
beginning after December 15, 1995. Management believes that adoption of
Standard No. 121 will not have a material effect on its financial position or
results of operations. Management intends to adopt the disclosure method of
Standard No. 123 and, accordingly, there will be no impact on the Company's
financial position or results of operations.
2. Income Taxes.
The Trust will elect to be treated as a REIT under the provisions of the
Internal Revenue Code beginning with the 1995 year. As a result, the Trust
will not be subject to Federal income tax on its taxable income at corporate
rates to the extent it distributes annually at 95% of its taxable income to its
shareholders and complies
F-18
<PAGE> 102
with certain other requirements. The Trust is subject to state income and
franchise taxes in certain states which it operates. Therefore, a tax
provision has been reflected for these income and franchise tax amounts.
Components of deferred income taxes as of December 31, 1995 and 1994 are
as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------- ---------------------------------
Trust Corporation Trust Corporation
------------ ----------- ------------- -------------
<S> <C> <C> <C> <C>
Deferred income tax assets:
Operating loss carryforwards $ 28,084,000 $ 804,000 $ 28,910,000
Losses from investments in partnerships 2,583,000 2,133,000
Property and equipment 850,000 512,000 3,041,000 6,586,000
Other 172,000 372,000 476,000 492,000
Total deferred income tax assets 29,106,000 4,271,000 32,427,000 2,625,000
------------ ----------- ------------- -----------
Valuation allowance (29,106,000) (4,271,000) (32,427,000) (2,625,000)
------------ ----------- ------------- -----------
Net deferred income tax $ --- $ --- $ --- $ ---
============ =========== ============ ===========
</TABLE>
As of December 31, 1995, the Trust and Corporation had net operating loss
carry forwards for federal income tax purposes of approximately $83,000,000 and
$3,400,000 respectively. The NOL's expire in various years beginning in 2,006
through 2,009 for the Trust, and 2,006 through 2,010 for the Corporation.
The utilization of each entities' NOL will be limited by the provisions of
IRC Section 382, and in the case of the Trust the use of approximately $50
million of the NOL will be predicated on the recognition of gain from the sale
of certain of the assets of the Trust within 5 years of the ownership change
date which occured in July 1995. A valuation allowance is provided for the
full amount of the NOL's as the realization of tax benefits from such NOL's is
not assured.
3. Extraordinary Items.
Under the terms of a Credit Agreement dated January 28, 1993 (the "1993
Credit Agreement") the Trust restructured its debt existing at such time.
Management concluded that that restructuring represented a "troubled debt
restructuring" as defined under generally accepted accounting principles, and
accordingly, upon execution of the 1993 Credit Agreement, accrued all known
current or future identifiable debt restructuring costs as of December 31,
1992. Upon execution of an Amended and Restated Credit Agreement dated March
24, 1995 (the "Prior Credit Agreement"), the Realty Partnership recognized
extraordinary income of $1,284,000 relating to the extinguishment of debt under
the terms of the 1993 Credit Agreement, representing the remaining amount of
the accrual at March 24, 1995. Additionally, in July 1995 subsequent to the
Offering, the Realty Partnership repaid existing indebtedness borrowed under
the Prior Credit Agreement and recorded an extraordinary charge to net income
of $3,602,000 relating to the extinguishment of such debt.
4. Loan Restructuring Costs.
All restructuring costs in relation to the "troubled debt restructuring"
referred to in Note 3 have been expensed as incurred. In 1993, upon execution
of the definitive debt restructuring agreement, $700,000 was paid by the Trust
to the certain institutional lenders and $4,032,000 was added to the loan
balance under the terms of a credit agreement for restructuring costs due the
institutional lenders for legal and other experts. Previously accrued
restructuring costs of $611,000, $778,000 and $3,152,000 were paid during the
years ended December 31, 1995, 1994 and 1993, respectively. As noted above, an
additional $1,284,000 of previously accrued restructuring costs was recognized
as extraordinary income during 1995. At December 31, 1995, there are no
accrued loan restructuring costs included in accounts payable and other
liabilities.
5. Supplemental Cash Flow Disclosure.
Interest paid in cash by the Trust in the years ended December 31, 1995,
1994, and 1993 was $15,235,000 $12,736,000 and $13,205,000, respectively.
F-19
<PAGE> 103
Interest paid in cash by the Corporation in the years ended December 31,
1995, 1994, and 1993 was $1,345,000, $1,342,000 and $140,000, respectively.
The Corporation deferred interest of $3,012,000, $1,730,000 and $1,519,000
on its intercompany debt with the Trust in the years ended December 31, 1995,
1994, and 1993 respectively.
In December 1993, the Corporation transferred $278,000 of share purchase
loans to the Trust and reduced notes payable - Trust.
During 1993, $4,032,000 of accrued loan restructuring costs were added to
the loan balance of the secured notes payable and revolving line of credit.
During 1994, a charge of $246,000 to additional paid-in capital was made
relating to the cancellation of share purchase notes. Paired Shares which
secured the portion of the principal canceled on the original notes were
returned to the Companies.
In December 1994, the Trust forgave $58,335,000 of notes payable to the
Trust by the Corporation and its subsidiaries. Because of the common ownership
of the Trust and the Corporation, the Trust charged, and the Corporation
credited, the amount of debt forgiven to additional paid-in capital of the
Trust and Corporation, respectively.
In connection with the Reorganization, the Starwood Partners contributed
$30.2 million (net of $474,000 of depreciation) in land and buildings, $49.2
million (net of discounts of $24.9 million and allowances of $2.9 million) in
mortgage notes receivable, and $52.9 million (net of $6.0 million of debt
forgiven by the Starwood Partners) in long term debt obligations for
partnership units in the Realty Partnership. In addition, the Starwood
Partners contributed $3.7 million (net of $757,000 of depreciation) of
furniture, fixtures and equipment for partnership units of the Operating
Partnership.
During 1995, a Starwood Partner exchanged $12 million of Senior Debt for
partnership units of the Realty Partnership and the Operating Partnership.
In connection with the agreement with Starwood Capital relating to the
Ross litigation, the Trust and the Corporation reduced their accrued
liabilities by $848,000 and adjusted capital contributions by the same amount
(see Note 14).
During 1995, the Trust transferred approximately $7.2 million (net of
accumulated depreciation) in furniture, fixtures and equipment to the
Corporation and increased the intercompany receivable by the same amount.
In December 1995, the Companies declared approximately $9.3 million in
dividends to be paid in January 1996.
6. Senior Notes Payable and Revolving Line of Credit.
Effective March 24, 1995 the Realty Partnership and the Trust entered into
the Prior Credit Agreement pursuant to which the Realty Partnership borrowed
approximately $131.7 million which was used primarily to refinance the
outstanding Senior Debt of $113,896,000 at December 31, 1994 (after the
exchange by a Starwood Partner of $12 million of Senior Debt for units of the
Realty Partnership and the Operating Partnership) and approximately $27 million
of first mortgage debt. The Senior Debt carried an interest rate of LIBOR plus
3.00% and at December 31, 1994, the Senior Debt balance of $113,896,000 had an
interest rate of 8.69%. The Prior Credit Agreement contained a clause which
stated that upon the payment to a Starwood Partner of a $786,000 cancellation
fee, the remaining Lender Warrants issued in connection with the 1993 Credit
Agreement, would be canceled. Effective March 31, 1995 the Realty Partnership
settled the cancellation fee by issuing an unsecured note payable to the
Starwood Partner and the remaining Lender Warrants were canceled.
On July 25, 1995, the Realty Partnership entered into a Mortgage Loan
Funding Facility Agreement (the "Repo Facility") providing for advances up to
$71 million for a period of 18 months ending January 25, 1997. Advances under
the Repo Facility bear interest at a rate based on one month LIBOR plus 1.5%
for the period ending July 25, 1996 and one month LIBOR plus 1.75% thereafter
and are secured by certain mortgage notes receivable and other collateral of
the Realty Partnership.
F-20
<PAGE> 104
On October 25, 1995, the Realty Partnership entered into a Credit
Agreement (the "Acquisition Facility") providing for advances of up to $135
million for a period expiring on October 1, 1998. The Acquisition Facility
superseded and replaced the Prior Credit Agreement.
Advances under the Acquisition Facility bear interest at a rate based upon
one, two or three-month LIBOR plus 1.625 percent and are collateralized by
liens on 29 of the hotel equity interests of the Realty Partnership and may be
collateralized by other properties, all on a cross-collateralized basis. As
of December 31, 1995, borrowings under the Repo Facility and the Acquisition
Facility (together, the "Facilities") totaled $119.1 million with interest
rates ranging from 7.4% to 7.6%. The Acquisition Facility provides for an
annual fee of 0.25% of the average daily unfunded portion of the Facility
Amount.
The Facilities require the Companies to maintain a specified minimum
adjusted net worth, a specified minimum ratio of actual consolidated EBITDA to
debt service plus fixed charges and a restriction against total debt exceeding
a specified maximum percent of net book value. In addition, the Facilities
place restrictions on distributions and require the Trust to maintain its REIT
status, maintain a minimum borrowing base (defined as Net Operating Income per
Facility Agreement divided by stated interest rates) and maintain minimum
replacement reserves. As of December 31, 1995, the Companies were in
compliance with their covenants.
The Companies intend to finance the acquisition of additional hotel
properties, hotel renovations and capital improvements and provide for general
corporate purposes through the Facilities and when market conditions warrant,
to issue additional equity or debt securities.
7. Hotel Sales and Reserve for Losses.
During the year ended December 31, 1993, the Companies sold their
interests in four hotel assets, the Best Western located in Smyrna, Georgia,
the Vantage Hotel located in Tucker, Georgia, the Best Western Motor Hotel in
Santa Maria, California, and the Ramada Inn-Westport in St. Louis, Missouri.
The Smyrna property was sold for an all cash price of $1,600,000. The Tucker
property was sold for $2,485,000, consisting of approximately $500,000 in cash
and a $1,985,000 promissory note collateralized by the hotel. The Tucker note
bears interest at 9% per annum with accrued interest and principal due monthly
based upon a 25-year amortization schedule, with all unpaid principal and
interest due in June 1998. The Santa Maria property was sold for an all cash
price of $140,000. The St. Louis property was sold for an all cash price of
$2,500,000.
For the year ended December 31, 1993, the Trust recognized a loss of
$53,000 and the Corporation recognized a gain of $74,000 on sales of hotel
assets. In 1993, the Trust recorded a provision for investment losses of
$2,369,000 primarily as a result of the acceptance of offers for the sale of
hotels at amounts lower than net book value.
During the year ended December 31, 1994, the Companies sold their
interests in five hotel assets, the Best Western South located in Austin,
Texas, the Sheraton Hotel located in New Port Richey, Florida, the Holiday Inn
in Brunswick, Georgia, the Holiday Inn in Jacksonville, Florida and the Ramada
Inn in Fayetteville, North Carolina. The Austin property was sold pursuant to
eminent domain proceedings for the purpose of highway construction to an agency
of the State of Texas for an all cash price of $3,594,000. The New Port Richey
and Brunswick properties were sold together for $4,306,000, consisting of
approximately $1,236,000 in cash and a $3,070,000 promissory note
collateralized by the hotels. The New Port Richey/Brunswick note bears
interest at 8% per annum for the first twelve months and 9.25% thereafter, with
accrued interest and principal due monthly based upon a 25-year amortization
schedule, with all unpaid principal and interest due in August 2001. The
Jacksonville property was sold for $3,200,000, consisting of approximately
$900,000 in cash and a $2,300,000 promissory note collateralized by the hotel.
The Jacksonville note bears interest at 9% per annum with accrued interest and
principal due monthly based upon a 30-year amortization schedule, with all
unpaid principal and interest due in December 2001. The Fayetteville property
was sold for $1,000,000, consisting of approximately $200,000 in cash and a
$800,000 promissory note collateralized by the hotel. The Fayetteville note
bears interest at 9% per annum with accrued interest and principal due monthly
based upon a 12-year amortization schedule, with all unpaid principal and
interest due in December 2006. In connection with the Reorganization (see Note
1), the Holiday Inn located in Albany, Georgia was sold to the Starwood
Partners for an all cash purchase price of $6,000,000. The transaction
F-21
<PAGE> 105
was accounted for as a financing activity and the Starwood Partners subsequently
contributed the property to the Partnerships . No gain or loss was recorded on
the sale.
For the year ended December 31, 1994, the Trust recognized a gain of
$224,000 and the Corporation recognized a gain of $24,000 on sales of hotel
assets, including a $55,000 discount recorded by the Trust resulting from the
early payoff in 1994 of the mortgage note receivable related to the
Spartanburg, South Carolina property sold in 1992. In 1994, the Trust recorded
a provision for investment losses of $439,000 primarily as a result of the
acceptance of offers for the sale of hotels at amounts lower than net book
value.
During the year ended December 31, 1995, the Companies did not sell any of
their hotel assets.
8. Mortgage Notes Receivable.
In 1992, the Trust sold a hotel asset in Merrimack, New Hampshire and
received as partial consideration a promissory note in an original principal
amount of $1,440,000, collateralized by a first mortgage on the property. In
September 1994, the Trust initiated foreclosure proceedings and recorded a
provision for investment losses of $320,000, resulting in a net book value of
$983,000. The property was subsequently sold to a third party in December 1994
for net proceeds of $1,191,000 and the Trust recorded a gain on sale of
$208,000.
At December 31, 1995, in addition to the MHLP notes discussed in Note 9,
the Trust held eighteen promissory notes collateralized by mortgages. Eleven
notes ($78,996,000 carrying amount at December 31, 1995), representing 12
hotels, are collateralized by first mortgages, and seven notes ($365,000
carrying amount at December 31, 1995) are collateralized by second, third and
fourth mortgages. Ten of the notes have fixed interest rates ranging from 7%
to 10% per annum, and five of the notes have variable interest rates that range
from 7.16% to 9.75% per annum at December 31, 1995. Two of the notes
(representing two properties) provide for contingent interest based on a
percentage of gross revenues of the properties securing such notes. Three of
the notes are principal only. The maturity dates of the notes range from 1996
to 2017. Aggregate principal payments under the mortgage notes receivable due
within one year of December 31, 1995 are $3,266,000. As of December 31, 1995
and 1994, the reserve for investment losses for the mortgage notes receivable
amounted to $100,000 in both years.
9. Milwaukee Marriott Hotel.
In December 1985, the Trust sold its interest in the Milwaukee Marriott
Hotel to Milwaukee Brookfield Limited Partnership ("Brookfield"). In
connection with the sale, the Trust received a second mortgage note (the
"Original Trust Note") from Brookfield.
In July 1991, ownership and operation of the Milwaukee Marriott was
reorganized and ownership of the hotel was transferred from Brookfield to
Moorland Hotel Limited Partnership, ("MHLP"), a limited partnership in which
the Corporation has a 51% interest and is the sole general partner and
Brookfield is the sole limited partner. The operations of MHLP are
consolidated into the Corporation's financial statements from the date of
reorganization and, accordingly, the Trust has recorded the note receivable
from MHLP as a note receivable from the Corporation. The Corporation and MHLP
entered into an agreement for the Corporation to manage the property.
In addition, MHLP entered into an assignment and forbearance agreement
with Marriott Corporation ("Marriott"), the franchisor. This agreement, among
other things, required MHLP to renovate the hotel to Marriott standards. The
renovation was completed in January 1994.
During 1992, MHLP, Aetna Life Insurance Company ("Aetna"), the holder of
the first mortgage on the Milwaukee Marriott (the "Aetna Note"), Marriott, the
Trust, the Corporation, and Brookfield and various partners of Brookfield
reached agreements arranging financing for the renovation of the Milwaukee
Marriott and restructuring of debt for MHLP.
Effective December 1, 1992, Aetna agreed to defer for the period December
1, 1992 through November 30, 1993, the monthly principal and interest payments
on the Aetna Note, which accrues interest at 11.25% per annum, with the
deferred interest added to principal monthly. Beginning December 1, 1993, the
loan amortizes in equal monthly installments over a period of 17 years at 10%
interest per annum until January 1, 1996, at which time all
F-22
<PAGE> 106
unpaid interest and principal are due, including appreciation interest
("Appreciation Interest"). The due date of the unpaid interest and principal
was extended to June 30, 1996 by an amendment executed on December 31, 1995.
Appreciation Interest is defined as 50% of the aggregate principal reduction in
the Aetna Note from December 1, 1993 until the loan is due in full as provided
in the agreement. On July 31, 1995, the Trust purchased the Aetna Note from
Aetna. The amount of the Aetna Note outstanding totaled $9,899,000 at December
31, 1994.
In 1993, Marriott agreed to loan MHLP $750,000 collateralized by a second
deed of trust on the hotel (the "Marriott Note") for the purchase of equipment
from a Marriott subsidiary. The Marriott Note bore interest at 9% per annum,
payable monthly beginning May 31, 1993 through April 30, 1994, at which time
fixed monthly payments of principal and interest of approximately $49,000
became due until December 31, 1994, at which time all unpaid interest and
principal were due. In 1994, Marriott agreed to extend the Marriott Note with
interest at 10% per annum beginning January 1, 1995 at which time fixed monthly
payments of principal and interest of approximately $31,000 become due until
June 30, 1995. All unpaid interest and principal was paid on June 30, 1995.
In 1993, the Trust agreed to loan MHLP $1,000,000 to be used to complete
the renovation of the Milwaukee Marriott. The loan is collateralized by a
third deed of trust on the hotel (the "Renovation Note") and bears interest at
10.5% per annum, payable monthly. Under certain circumstances, interest is
deferred and added to the principal of the Renovation Note monthly. The
amounts outstanding under the Renovation Note totaled $1,000,000 and $1,225,000
as of December 31, 1995 and 1994, respectively. The Trust may declare due and
payable the principal balance and any unpaid accrued interest thereon at any
time through the maturity date of the Renovation Note on January 1, 1996. The
due date of the unpaid interest and principal was extended to June 30, 1996 by
an amendment executed on December 31, 1995. The Renovation Note became a
second mortgage following repayment of the Marriott Note in 1995.
The Original Trust Note held by the Trust of $11,000,000 was modified as
of December 31, 1992 by adding deferred and previously unpaid interest of
$1,667,000 to principal due under the note and converting the note to a fourth
mortgage note. Further, $1,790,000 and $1,607,000 of interest at 10.5% per
annum for the years ended December 31, 1995 and 1994, respectively, was
deferred monthly and added to principal due under the loan. The fourth
mortgage note outstanding totaled $17,481,000 and $15,691,000 as of December
31, 1995 and 1994, respectively. Interest is payable monthly unless deferred
under the provisions of the loan agreement until January 1, 1996, at which time
all remaining unpaid interest and principal are due. The due date of the
unpaid interest and principal was extended to June 30, 1996 by an amendment
executed on December 31, 1995. The Original Trust Note became a third mortgage
following repayment of the Marriott Note in 1995.
The Corporation agreed to defer and convert to a note up to $250,000 of
management fees due under its management agreement with MHLP for a period of up
to twelve months commencing with base management fees due after January 1,
1993. The deferred fees bear interest at 9% per annum, which were added to the
principal balance of the note through December 1, 1993. Thereafter, the note
is due in twelve equal monthly installments of principal and interest
commencing on January 1, 1994 at 12% interest per annum. All unpaid interest
and principal was due and paid December 1, 1994.
The $600,000 original loan (the "GSI Fourth Note")made by GSI Acquisition
Company, L.P., a limited partner of Brookfield, ("GSI"), was modified as of
December 31, 1992, by converting deferred and previously unpaid interest of
approximately $86,000 to principal. For the years ending December 31, 1995 and
1994 interest at 10.5% per annum was deferred monthly and added to the
principal balance, which balance totals $946,000 and $849,000 at December 31,
1995 and 1994, respectively. Thereafter, interest is payable monthly unless
deferred under the provisions of the agreement until January 1, 1996, at which
time all remaining unpaid interest and principal are due. On December 31,
1995, the due date for the unpaid interest and principal was extended to June
30, 1996.
The GSI Fourth Note became a fourth mortgage following repayment of the
Marriott Note in 1995, however it ranks pari passu with the Original Trust
Note.
As of December 31, 1992, MHLP also agreed to pay GSI $2,000,000 pursuant
to a note (the "GSI Fifth Note") bearing non-accruing interest at 12% payable
out of available monthly cash flow (as defined in the GSI Fifth
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<PAGE> 107
Note). The principal balance outstanding is $2,000,000 at December 31, 1995 and
1994. The GSI Fifth Note became a fifth mortgage following repayment of the
Marriott Note in 1995.
Of the five notes outstanding at December 31, 1995, the Trust held three -
the Aetna Note, the Renovation Note, and the Original Trust Note.
The Trust evaluates the collectability of the notes receivable
collateralized by the Milwaukee Marriott Hotel at the end of each quarter.
Factors considered by the Trust in performing the evaluations include the
discounted estimated future cash flow (at 11.0%) over a five-year period. The
Corporation evaluates the recoverability of the net book value of the property
at the end of each quarter. Factors considered by the Corporation in
performing the evaluation included the undiscounted estimated future cash flow
of the property over a five-year period. Based upon the evaluations no
provision for losses was required.
10. Hotel Properties.
A summary of hotel assets at December 31, 1995 and 1994 is as follows (in
thousands):
<TABLE>
<CAPTION>
Trust Corporation
-------------------- -------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Land and leasehold interests in land $ 65,629 $ 41,184 $13,797 $13,796
Buildings and improvements.......... 231,174 122,300 56,349 22,315
Furniture, fixtures and equipment... 8,834 25,124 64,576 15,630
Accumulated depreciation and
amortization...................... (40,827) (48,699) (38,986) (16,877)
Reserve for losses.................. (23,200) (23,200) (388) (388)
-------- -------- ------- -------
Hotel assets - net................ $241,610 $116,709 $95,348 $34,476
======== ======== ======= =======
</TABLE>
11. Real Estate Investments and Intercompany Transactions.
At December 31, 1995, the Trust owned equity interests in thirty-five
hotels, including two hotel/casinos. Of that number, thirty properties were
owned in fee, four were held pursuant to long-term leases and one was owned
through a 5% general partnership interest in a joint venture that owns the
Omaha Marriott Hotel.
Thirty-one of the Trust's hotels (including the two hotel/casinos) are
leased to the Corporation or its subsidiaries. Three hotels have been leased
to and are operated by Imperial Hotels Corporation, formerly Vagabond Inns,
Inc. The Omaha Marriott Hotel has been leased to an affiliate of the
Corporation, and is managed by Marriott pursuant to a long-term management
agreement. As of December 31, 1995, three of the hotels leased by the
Corporation from the Trust are being managed by third-party operators. Two of
the third-party management agreements are for three-year terms expiring in
1998, and one of the management agreements is a five-year term expiring in
1999. The management agreements are subject to certain cancellation
provisions. Base management fees range from 2% to 2-1/2% of gross revenues
with incentive management fees based upon hotel profitability.
The leases are generally long-term and generally provide for annual
base, or minimum rents, plus contingent, or percentage rents based on the gross
revenues of the properties and are accounted for as operating leases. The
leases are "triple-net" in that the lessee is generally responsible for paying
all operating expenses of the properties, including maintenance, insurance and
real property taxes. Total rental expense paid by the Corporation to the Trust
under such leases was $26,730,000, $16,906,000 and $16,481,000 for the years
ended December 31, 1995, 1994 and 1993, respectively, of which $5,443,000,
$2,456,000 and $1,939,000 were contingent. The lessee is also generally
responsible for any payments required pursuant to underlying ground leases.
Most leases provide for cancellation by the Trust in the event that the Trust
does not earn a specified rent, or by the lessee (including the Corporation) in
the event the lessee does not earn a specified net operating profit.
As of December 31, 1995 and 1994, the Corporation was indebted to the
Trust for an aggregate of $86,464,000 and $26,916,000, respectively, (including
the MHLP mortgage notes of $28,236,000 and $16,916,000 as of December 31, 1995
and December 31, 1994, respectively - see Note 5 and the Doral lease obligation
of
F-24
<PAGE> 108
$40,250,000-see discussion below). The Corporation borrowings were non-interest
bearing for the years ended December 31, 1994 and 1993. In December 1994, the
Trust forgave $58,335,000 of notes receivable payable to the Trust by the
Corporation and its subsidiaries. Effective January 1, 1995, the remaining
notes bear interest at prime plus 2% with interest payable monthly and are due
on January 1, 2000.
On September 20, 1995, the Realty Partnership purchased land for $3
million and mortgage notes receivable collateralized by the Doral Inn for $40.3
million. The note bears interest at 9.5% and matures on October 1, 2006. The
Realty Partnership also entered into a long-term lease agreement with SBK
Delaware Realty Holdings, L.L.C. ("SBK"), the owners of the Doral Inn, to lease
SBK the land for $240,000 per year. Simultaneously, the Operating Partnership
entered into a long-term lease agreement with SBK to lease the land and the
building for $240,000 per year, plus the debt service on the mortgage held by
the Realty Partnership. The Operating Partnership lease agreement includes a
clause under which SBK is paid a management fee of 0.5% of gross revenues. The
Realty Partnership has the option of acquiring the building for the value of
the mortgage note plus $400,000 after ten years. It is management's intention
to exercise that option. The Operating Partnership has recorded the
transaction as a capitalized lease with an intercompany obligation to the
Realty Partnership.
Rents accrued by the Trust from leased hotel properties are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Corporation:
Minimum - $14,373 $14,184
Contingent - 2,533 2,297
-------- -------- --------
- 16,906 16,481
-------- -------- --------
Other:
Minimum 437 437 437
Contingent 354 490 402
-------- -------- --------
791 927 839
-------- -------- --------
Total $791 $17,833 $17,320
======== ======== ========
</TABLE>
The Trust's minimum future rents at December 31, 1995 due under
non-cancelable operating leases for the years ending December 31 are as follows
(in thousands):
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 Thereafter
------- ------- ------- ------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Corporation $33,220 $33,220 $33,220 $33,220 $7,335 $30,315
Other ..... 437 437 437 300 300 1,150
------- ------- ------- ------- ------ -------
Total ..... $33,657 $33,657 $33,657 $33,520 $7,635 $31,465
======= ======= ======= ======= ====== =======
</TABLE>
The Corporation's future rents at December 31, 1995 payable under
noncancelable operating leases for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 Thereafter
------- ------- ------- ------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Trust .. $33,220 $33,220 $33,220 $33,220 $7,335 $30,315
Other .. 918 755 616 243 187 2,846
------- ------- ------- ------- ------ -------
Total .. $34,138 $33,975 $33,836 $33,463 $7,522 $33,161
======= ======= ======= ======= ====== =======
</TABLE>
The Corporation is committed under its leases with the Trust to pay the
rents payable with respect to four ground leases which expire in 1997 through
2029, including renewal options. The leases generally provide for a minimum
rent plus a percentage of gross revenues of the properties in excess of the
minimum rent. Future minimum lease payments under the leases are included in
"other" rents payable in the table above. The Trust is the primary obligor
under the leases; however, the Corporation as lessee/operator of the hotels
makes payments under
F-25
<PAGE> 109
these leases directly to the lessors. Rent expense incurred by the Corporation
as a lessee/operator under these ground leases was $549,000, $879,000 and
$854,000, in the years ended December 31, 1995, 1994 and 1993, respectively.
12. Mortgage and Other Notes Payable.
At December 31, 1994, the Trust had outstanding six mortgage notes payable
which were collateralized by seven of the Trust's hotels, with a net book value
at December 31, 1994 of $55,027,000.
At December 31, 1995 and 1994, the Trust had the following outstanding
debt obligations (exclusive of Senior Debt and Lines of Credit - See Note 6):
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
Mortgage Notes:
11.75% first mortgage note, due in 2015, callable
by lender in 1995, 2000, 2005, or 2010 $ 6,349,000
12.875% first mortgage note, due in 1997 9,173,000
12.625% first mortgage note, due in 1995 4,075,000
9.25% first mortgage note, due in 1995 1,854,000
10.25% first mortgage note, due in 2001 5,148,000
9.0% first mortgage note, due in 1997 139,000
-----------
Total mortgage notes payable 26,738,000
Advance from the Starwood Partners 6,000,000
Other $100,000 100,000
-----------
Total mortgage and other notes payable $100,000 $32,838,000
======== ===========
</TABLE>
As described in Note 7, in August 1994 Starwood Partners acquired the
Trust's Albany, Georgia property for $6,000,000. Interest expense of $313,000
in 1994 related to the advance was the greater of the net cash flow of the
property or 10% until the property was contributed to the Partnerships.
At December 31, 1995 and 1994, the Corporation had the following
outstanding debt obligations (exclusive of Notes Payable to Trust):
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
Collateralized by Milwaukee Marriott Hotel:
10.0% first mortgage note, due 1996 $ 9,899,000
9.0% second mortgage note, due 1995 358,000
10.5% fifth mortgage note, interest only, due 1996 $ 946,000 849,000
12.0% sixth mortgage note, interest only (to the
extent of available cash flow), due 1996 2,000,000 2,000,000
9-10% notes payable, due 1995-1996 164,000
2,946,000 13,270,000
Other:
9.75% first mortgage note, due 1997 372,000 403,000
Obligations under capital leases 967,000 75,000
Total mortgage and other notes payable $4,285,000 $13,748,000
========== ===========
</TABLE>
At December 31, 1995, the Milwaukee Marriott Hotel had a net book value of
$22,150,000.
F-26
<PAGE> 110
Minimum lease and principal payments on the Corporation's indebtedness for
the years ending December 31 are due as follows:
<TABLE>
<CAPTION>
Minimum Future Principal Payments
Year Lease Payments Due Under Notes
---- -------------- ------------------
<C> <C> <C>
1996 $ 166,000 $2,994,000
1997 166,000 324,000
1998 166,000
1999 166,000
2000 166,000
Thereafter 600,000
Total 1,430,000 $3,318,000
==========
Amount representing interest 463,000
Future minimum lease payments $ 967,000
==========
</TABLE>
At December 31, 1995 and 1994 the Corporation had $845,000 and $175,000,
respectively, in assets (less $127,000, and $117,000, respectively, in
accumulated amortization) recorded under capital leases. Such amounts are
included in furniture, fixtures and equipment.
13. Shareholders' Equity.
Warrants to purchase Paired Shares
At December 31, 1995 and 1994, there were outstanding 276,662 warrants to
purchase Paired Shares at an exercise price of $101.70 per Paired Share (as
adjusted for the one for six reverse stock split in June 1995) through
September 15, 1996. At the expiration date, each 600 warrants are convertible
into one Paired Share of stock. In lieu of fractional shares, holders will be
paid an amount equal to the same fraction of the current market value of a
single share.
Share option plans
The Trust and the Corporation each adopted Incentive and Non-Qualified
Share Option Plans in 1986 which provided for the purchase of up to an
aggregate of 116,667 Paired Shares (as adjusted for the one for six reverse
stock split in June 1995) by Trustees, Directors, officers and employees
pursuant to option grants. During the year ended December 31, 1995, the Trust
and the Corporation granted options to purchase 56,892 Paired Shares at
excercise prices ranging from $16.50 to $21.75 per Paired Share. During the
year ended December 31, 1994, the Trust and the Corporation granted options to
purchase 16,500 Paired Shares at an exercise price of $16.50 per Paired Share.
During the year ended December 31, 1993, the Trust and the Corporation granted
options to purchase 3,333 Paired Shares at an exercise price of $15.75 per
Paired Share. Such options, which are granted at fair market value on the date
of grant, vest over three years. As of December 31, 1995, 10,860 options have
been exercised.
During 1995, the Trust and the Corporation each also adopted a 1995 Share
Option Plan which provides for the purchase of Paired Shares by Trustees,
Directors, officers, employees, consultants and advisors, pursuant to option
grants. The aggregate number of Paired Shares subject to options which may be
granted under the Plans is 1,573,000 plus 8% of any additional partnership
units or Paired Shares issued subsequent to August 17, 1995 (other than Paired
Shares issued in exchange for partnership units, Paired Shares issued pursuant
to employee benefit plans or Paired Shares that were previously issued and
re-acquired by the Trust or the Corporation). During the year ended December
31, 1995, the Trust and the Corporation granted options under the 1995 Plans to
purchase 926,750 Paired Shares to Trustees, Directors, officers and employees,
at exercise prices ranging from $23.00 to $29.00 per Paired Share.
At December 31, 1995, outstanding options granted under all plans of the
Trust and Corporation (including options granted to officers and directors of a
company previously acquired by the Trust) aggregated 1,004,640 Paired Shares.
At December 31, 1995, options for 130,112 Paired Shares are fully vested with
exercise prices ranging from $4.50 to $120.00 per Paired Share.
F-27
<PAGE> 111
Share purchase plans
Prior to December 1989, the Trust and the Corporation each had a Share
Purchase Plan, whereby an aggregate of 33,333 Paired Shares (as adjusted for
the one for six reverse stock split in June 1995) were available to be
purchased by Trustees, Directors, officers and employees at their fair market
value on the date of sale with monies borrowed from the Trust or Corporation.
In December 1989, the Trust's Board of Trustees and the Corporation's
Board of Directors voted to terminate the Share Purchase Plans for purposes of
prospective eligibility, and to irrevocably waive the right of the Trust and
the Corporation to accelerate the payment of a note executed by a participating
Trustee or Director upon termination of such participant's relationship with
the Companies.
In January 1991, the Companies entered into agreements with certain
Trustees and Directors who had agreements outstanding pursuant to the Share
Purchase Plans to which each such Board member agreed to stand for re-election
as a Trustee or Director at the next annual shareholders' meeting if requested
to do so by their respective Boards, or if the Boards did not so request, to
act, for a period of up to two years and at mutually agreed upon times and
places, as an advisor to the Trust or the Corporation on matters within such
Board member's experience and expertise, and the Trust or the Corporation
agreed that any outstanding promissory note executed by such Board member in
partial payment for Paired Shares purchased under the Share Purchase Plans
would be amended to cause such promissory note to be without recourse to the
maker.
In March 1992, certain of the aforementioned notes were restructured to
bear an annual interest rate of 8% as of February 2, 1992, with such notes to
accrue interest only from February 2, 1992 until February 15, 1995, at which
time the principal and accrued interest would become payable in equal monthly
installments over a ten-year period.
The share purchase agreement between a former officer and director and the
Corporation was terminated in connection with his December 31, 1992 resignation
as an officer of the Corporation, and the 1,667 Paired Shares (as adjusted for
the one for six reverse split in June 1995) acquired pursuant to that agreement
were assigned by him to the Corporation. The share purchase note in the amount
of $112,500, was written off at December 31, 1993. The share purchase notes of
other former officers, directors and employees aggregating $63,500 were also
written off at December 31, 1993.
During 1994, the parties agreed to cancel the remaining outstanding share
purchase notes of $246,000 and during 1995 such notes were canceled and the
unpaid Paired Shares were forfeited by the purchasers.
Preferred shares
The Corporation has 10,000,000 authorized preferred shares, $0.01 par
value, none of which are issued or outstanding.
14. Commitments and Contingencies.
Litigation
In late 1991 and early 1992 three complaints were filed against the Trust
and the Corporation and certain other related persons (the "Shareholder
Actions"). As amended, two of the complaints allege that the Trust and the
Corporation, a Director and officer of the Corporation and a former
officer/Trustee of the Trust violated the Racketeer Influenced and Corrupt
Organizations Act and Federal and California securities laws and acted
fraudulently in connection with the Trust's and the Corporation's public
disclosures with respect to the Trust's purchase of its two hotel/casinos and
the Ramada Inn in Indian Wells, California. Both of these complaints sought
class action certification. The third complaint was filed purportedly on behalf
of the Trust and the Corporation and alleged that certain former and present
Trustees and Directors breached their fiduciary duties in connection with the
purchase of the Ramada Inn in Indian Wells and the two hotel/casinos
F-28
<PAGE> 112
On July 20, 1994, the United States District Court for the Southern
District of California entered a Final Judgment of Dismissal With Prejudice
(the "Final Judgment") of the two purported class actions filed in that Court.
Pursuant to the Final Judgment, the District Court, among other things,
approved the settlement set forth in stipulations of settlement (the
"Stipulation") entered into among the plaintiffs and defendants in the
Shareholder Actions, as well as the insurance company that issued the
Companies' directors and officers policy applicable to the period to which
Shareholder Actions relate.
Under the Final Judgment, all claims that were or might have been made in
the Shareholder Actions were deemed released as of the Effective Date (as
defined in the Stipulation), and a $3,250,000 cash settlement fund was
established which, after the deduction of fees and costs to plaintiffs'
counsel, was to be distributed to qualified members of the certified plaintiff
classes according to an allocation formula that includes a calculation based on
certain shares that opted out of the settlement. Of the settlement fund,
$2,500,000 was paid by the insurance company, $400,000 was paid by the
Companies, and $350,000 was paid by former officers of the Companies. Upon
completion of the claims administration process, any funds remaining, up to a
limit of $325,000, was to be returned to the parties who contributed to the
settlement fund on a pro rata basis. The parties contributing to the
settlement fund have previously established a separate $45,000 fund to be used
for purposes of notifying the classes and otherwise administering the
settlement. Legal fees and other costs incurred by the defendants in the
Shareholder Actions prior to October 12, 1993 were paid by the Companies;
subsequent defense costs were paid by the insurance company. Holders of
approximately 198,398 Paired Shares (as adjusted for the one for six reverse
stock split in June 1995) opted out of the settlement. All amounts relating to
the Shareholder Actions paid or expected to be paid, had been accrued and
expensed as of December 31, 1994.
Pursuant to the Final Judgment, notice was given to the class plaintiffs
to submit claims and claims were received. Final distribution of the Net
Settlement Fund and payment of costs and expenses was ordered by the Court on
December 15, 1995.
The Stipulation also requires that the Trust's Board of Trustees and the
Corporation's Board of Directors establish a joint transaction committee of
independent Trustees and Directors to make recommendations to those Boards with
respect to any transaction proposed in the future by management and having a
fair market value of $20 million or more.
In connection with the settlement of the Shareholder Actions, Messrs.
Young and Rothman and certain of their affiliated partnerships terminated the
management agreements (the "Management Contracts") that existed between those
partnerships and the Corporation's subsidiary, Western Host, Inc., ("Western
Host). Western Host agreed to forbear from disputing such action and withdrew
as a general partner of two additional affiliated partnerships. Messrs. Young
and Rothman paid $800,000 to Starwood Lodging in satisfaction of any damages
resulting from the termination of the management contracts. They also agreed
to be responsible for a percentage of any retroactive adjustments in worker's
compensation insurance premiums. Starwood Lodging has paid $167,041 for
retroactive worker's compensation insurance premiums and have sought
reimbursement from Messrs. Young and Rothman of their share of that amount (an
aggregate approximately $56,000). The Corporation has commenced litigation
against Messrs. Young and Rothman to collect such amounts (Starwood Lodging
Corp. v. Ronald A. Young, et al., San Diego Superior Court Case No. 693822)
Ross Settlement Agreement
Subsequent to the settlement of the Shareholder Actions, Leonard M. Ross
and his affiliates ("Ross"), who held 198,398 Paired Shares (as adjusted for
the one for six reverse split in June 1995) and opted out of the settlement,
threatened litigation against the Trust and the Corporation.
In October 1994, Starwood Capital entered into an agreement with Ross to
settle the threatened litigation in which Starwood Capital agreed, in exchange
for an assignment of Ross' claims against the Trust and the Corporation, to
purchase Ross' Paired Shares, at Ross' election, in a 60-day period beginning on
the earlier of the first anniversary of the closing of the Reorganization or
December 15, 1995 at a price of $33.75 subject to certain adjustments. Starwood
Capital also had the right to elect to purchase such Paired Shares at the same
time and on the same terms.
In light of this agreement, the Trust and the Corporation accrued a
liability as of December 31, 1994 of $2,648,000 reflecting a reasonable
estimate of the cost of settling the Ross claims.
In connection with the Reorganization, which took place in 1995, the Trust
and Corporation severally agreed that under certain circumstances they would
indemnify Starwood Capital with respect to Starwood Capital's obligations to
Ross, up to a maximum of
F-29
<PAGE> 113
$1.8 million, upon receipt of a full release from Starwood Capital of all of the
claims assigned by Ross. At December 31, 1995, the Companies had accrued $1.8
million in respect of this potential liability. The $848,000 reduction in this
liability was recorded as an adjustment to contributed capital during 1995 (see
Note 5).
Ross elected to sell his Paired Shares, and in January 1996 those Paired
Shares were sold to a third party through the New York Stock Exchange. The
Paired Shares were sold at $29.625 per Paired Share; the Trust and the
Corporation paid $1,375,743 in aggregate pursuant to their indemnity
obligations, and Starwood Capital released the Trust and the Corporation from
all claims assigned by Ross. Additionally the Trust and the Corporation are
entitled to insurance proceeds totalling $205,000 and, as a result, will
recognize approximately $629,000 of income in the first quarter of 1996.
Environmental matters
In the latter part of 1995, in connection with either the Acquisition
Facility or the purchase of the relevant hotel, preliminary or "Phase I"
environmental site assessments were prepared with respect to 35 of the Trust's
fee interest and ground leasehold properties. The results of those Phase I
assessments and subsequent Phase II assessments performed at six of the
properties revealed that the overall potential for environmental impairment was
assessed as low.
A 1991 Phase I environmental assessment and a tank leak test performed in
1992 at the Bourbon Street Hotel and Casino and a Phase I environmental
assessment prepared for the Milwaukee Marriott in 1991 revealed no material
impairments.
Neither the Trust, the Corporation, the Realty Partnership nor the
Operating Partnership has been identified by the U.S. Environmental Protection
Agency as a responsible or potentially responsible party for, nor have they
been the subject of any governmental proceeding with respect to, any hazardous
waste contamination. If the Trust, the Corporation, the Realty Partnership or
the Operating Partnership were to be identified as a responsible party, they
would in most circumstances be strictly liable, jointly and severally with
other responsible parties, for environmental investigation and clean-up costs
incurred by the government and, to a more limited extent, by private persons.
Based upon the environmental reports described above, the Trust believes
that a substantial number of its hotels incorporate potentially
asbestos-containing materials. Under applicable current Federal, state and
local laws, asbestos need not be removed from or encapsulated in a hotel unless
and until the hotel is renovated or remodeled. In that context, upon the
performance of a material renovation, the appropriate measures will need to be
taken. Meanwhile, the Trust has placed in effect an asbestos operation and
maintenance plan for all those properties testing positive for asbestos.
Based upon the above-described environmental reports and testing and facts
known to the managements of the Trust and the Corporation, future remediation
costs are not expected to have a material adverse effect on the results of
operations, financial position or cash flows of the Trust or the Corporation
and compliance with environmental laws has not had and is not expected to have
a material effect on the capital expenditures, earnings or competitive position
of the Trust or the Corporation.
Performance bonds and restricted cash
The Corporation is required to post performance bonds or cash collateral
as security for certain obligations. At December 31, 1995 and 1994, the
Corporation had posted performance bonds totaling approximately $756,000 and
$747,000, respectively, to cover such obligations; however, no amounts had been
drawn against such bonds. In addition, at December 31, 1995, the Corporation
has a $250,000 letter of credit with First Interstate Bank included in cash and
cash equivalents, which was restricted as to use.
At December 31, 1995, inventories, prepaid expenses and other assets
include $756,000 for the Corporation which was restricted as to use. At
December 31, 1994, inventories, prepaid expenses and other assets include
$246,000 and $1,606,000 for the Trust and the Corporation, respectively,
which were restricted as to use. Other than the performance bonds, the
restricted cash of the Corporation primarily is the cash of MHLP
(see Note 9).
F-30
<PAGE> 114
15. Related Party Transactions.
At December 31, 1995 and 1994, the Trust holds an $800,000
uncollateralized note receivable from John Rothman, the former President and
Chief Executive Officer of the Trust. The principal amount of the note
receivable is due in 1999 and bears interest due annually at 10%.
The Companies incurred legal fees from law firms in which a Trustee and
officer of the Trust was or currently is a partner during the years ended
December 31, 1995, 1994 and 1993 totaling $1,728,000, $940,000, and $235,000,
respectively.
The Companies and Starwood Capital have agreed that, subject to approval
by the Independent Trustees or Directors, as appropriate, Starwood Capital will
be reimbursed for out-of-pocket costs and expenses for any services provided to
the Company. Starwood Capital will also be reimbursed for its internal costs
(including allocation of overhead) for services provided to the Company,
provided that, where such costs are currently expensed by the Company, such
reimbursement will not exceed $250,000 in the year ending June 30, 1996. The
Companies have not reimbursed Starwood Capital for any of these costs since
July 1, 1995, and accordingly have included an accrual of $250,000 in accounts
payable and other liabilities at December 31, 1995.
During 1995, the Trust reimbursed Starwood Capital approximately
$1,649,000, the majority of which represented a deposit on the Boston Park
Plaza. Aside from Starwood Capital's internal cost, during 1995 Starwood
Capital incurred approximately $1,198,000 of costs paid directly by the Company
to third party vendors for services provided to the Company, representing costs
associated with the Reorganization, the Offering and hotel acquisitions.
During 1995, the Trust loaned an officer of the Trust $250,000. The loan
has a term of 10 years, bears interest, to be paid quarterly, at the lowest
applicable rate prescribed by section 1274(d) of the Internal Revenue Code. At
December 31, 1995, the loan had an applicable rate of 6.6% and was current.
F-31
<PAGE> 115
16. Industry Segment Information.
The Corporation operates in two segments of the hospitality industry,
hotel and gaming. The hotel segment consists of room, food and beverage and
other revenues recognized in connection with the operation of hotels owned by
the Corporation or under lease from the Trust, and income from management
contracts. The gaming segment consists of net win from casino operations, as
well as room, food and beverage and other revenues recognized in connection
with the operation of the two hotel/casinos under lease from the Trust. The
following information summarizes revenue and operating results by industry
segment:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
HOTEL:
Revenue:
Room................................. $ 87,270,000 $56,387,000 $58,917,000
Food and beverage.................... 26,609,000 21,603,000 23,337,000
Other................................ 7,371,000 4,678,000 4,649,000
------------ ----------- -----------
Hotel revenue........................ 121,250,000 82,668,000 86,903,000
Management fees...................... 373,000 247,000 90,000
------------ ----------- -----------
Total revenue........................ 121,623,000 82,915,000 86,993,000
------------ ----------- -----------
Expenses:
Rooms................................ 37,121,000 25,177,000 27,633,000
Food and beverage.................... 19,520,000 16,364,000 15,116,000
Other (including undistributed
operating expenses and fixed
charges)............................. 28,376,000 19,288,000 25,383,000
Rent to Trust........................ 24,330,000 14,506,000 14,081,000
Depreciation and amortization........ 5,126,000 2,072,000 3,060,000
Allocated Corporate overhead......... 1,731,000 1,001,000 950,000
------------ ----------- -----------
Total expenses....................... 116,204,000 78,408,000 86,223,000
------------ ----------- -----------
Operating income..................... $ 5,419,000 $ 4,507,000 $ 770,000
============ =========== ===========
GAMING:
Revenue:
Casino............................... 14,009,000 $15,137,000 $14,861,000
Room................................. 4,682,000 4,516,000 4,305,000
Food and beverage.................... 5,155,000 5,166,000 5,226,000
Other................................ 5,313,000 5,506,000 5,370,000
Less promotional allowances.......... (2,230,000) (2,344,000) (2,257,000)
------------ ----------- -----------
Gaming revenues...................... 26,929,000 27,981,000 27,505,000
------------ ----------- -----------
Expenses:
Casino............................... 6,156,000 6,308,000 6,019,000
Rooms................................ 2,220,000 2,156,000 2,042,000
Food and beverage.................... 4,896,000 4,514,000 4,564,000
Other (including undistributed
operating expenses and fixed
charges)............................. 10,970,000 11,476,000 11,430,000
------------ ----------- -----------
Expenses of gaming operations........ 24,242,000 24,454,000 24,055,000
Rent to Trust........................ 2,400,000 2,400,000 2,400,000
Depreciation and amortization........ 205,000 382,000 477,000
------------ ----------- -----------
Total expenses....................... 26,847,000 27,236,000 26,932,000
------------ ----------- -----------
Operating income..................... $ 82,000 $ 745,000 $ 573,000
============ =========== ===========
</TABLE>
F-32
<PAGE> 116
A reconciliation of the combined segment operating income to the net loss of
the Corporation is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Combined operating income ....... $ 5,501,000 $ 5,252,000 $ 1,343,000
Interest and other income ....... 632,000 66,000 330,000
Interest expense ................ (5,470,000) (3,071,000) (2,701,000)
Corporate expenses .............. (2,703,000) (3,445,000) (2,115,000)
------------ ------------ ------------
Loss before minority interest .. $(2,040,000) $(1,198,000) $(3,143,000)
============ ============ ============
</TABLE>
Additional financial data by industry segment for the Corporation is as
follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1995 1994 1993
-------------- ----------- -----------
<S> <C> <C> <C>
IDENTIFIABLE ASSETS:
Hotel.................... $103,304,000 $40,357,000 $41,712,000
Gaming................... 5,058,000 3,710,000 3,743,000
Corporate and other...... 12,359,000 4,559,000 4,538,000
Total.................... $120,721,000 $48,626,000 $49,993,000
============ =========== ===========
CAPITAL EXPENDITURES:
Hotel.................... $ 42,392,000 $ 421,000 $ 4,859,000
Gaming................... 191,000 221,000 220,000
Corporate and other...... 72,000 29,000 126,000
Total.................... $ 42,655,000 $ 671,000 $ 5,205,000
============ =========== ===========
DEPRECIATION AND
AMORTIZATION:
Hotel.................... $ 5,126,000 $ 2,072,000 $ 3,060,000
Gaming................... 205,000 389,000 477,000
Corporate and other...... 1,161,000 495,000 65,000
Total.................... $ 6,492,000 $ 2,956,000 $ 3,602,000
============ =========== ===========
</TABLE>
The Trust is an owner/lessor of real property and does not "operate" in
different segments, and is therefore not subject to disclosure by segment. The
Trust's net investment (initial cost less accumulated depreciation and
provision for loss) in the two Las Vegas hotel/casinos was $20,547,000, and
$21,306,000 at December 31, 1995 and 1994, respectively.
F-33
<PAGE> 117
17. Selected Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
Combined Trust Corporation
------------------------------ ---------------------------- --------------------------------
1995 1994 1995 1994 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
First Quarter
Revenue $32,138,000 $28,338,000 $8,576,000 $5,243,000 $29,492,000 $27,823,000
Net income (loss) 348,000 (335,000) 652,000 (154,000) (304,000) (181,000)
Net income (loss)
per share 0.17 (0.17) 0.32 (0.08) (0.15) (0.09)
Second Quarter
Revenue $37,630,000 $29,994,000 $9,448,000 $5,953,000 $34,789,000 $28,610,000
Net income (loss) 978,000 933,000 560,000 288,000 418,000 645,000
Net income (loss)
per share 0.49 0.46 0.28 0.14 0.21 0.32
Third Quarter
Revenue $42,379,000 $29,666,000 $11,751,000 $5,737,000 $39,007,000 $28,809,000
Net income (loss) 3,469,000(2) (2,715,000) 3,479,000(3) (2,313,000) (10,000) (402,000)
Net income (loss)
per share 0.58 (1.34) 0.58 (1.14) (0.00) (0.20)
Fourth Quarter
Revenue $49,569,000 $25,999,000 $14,248,000 $4,738,000 $45,896,000 $25,720,000
Net income (loss) 4,175,000 (2,546,000) 6,018,000 (1,286,000) (1,843,000)(1) (1,260,000)(1)
Net income (loss)
per share 0.54 (1.26) 0.77 (0.64) (0.23) (0.62)
</TABLE>
- -----------------------
(1) During the quarter ended March 31, 1995, the Trust recorded an
extraordinary gain of $363,000 (net of minority interest of $921,000)
relating to extinguishment of debt (see Note 3).
(2) During the quarter ended September 30, 1995, the Trust recorded an
extraordinary loss of $2,518,000 (net of minority interest of $1,084,000)
related to the extinguishment of debt under the 1995 Credit Agreement
which was terminated during the year (see Note 3).
(3) During the quarter ended September 30, 1994, the Trust recorded a
provision for investment losses of $759,000 (see Note 1) and the Trust and
the Corporation each recorded a provision of $1,324,000 for expenses
related to the settlement of shareholder litigation (see Note 13).
F-34
<PAGE> 118
18. Pro Forma Financial Information
Due to the impact of the Reorganization of the Companies and other
transactions in 1995, the following pro forma statements of operations are
presented to supplement the historical statements of operations. These pro
forma statements reflect the Reorganization, the Offering and certain
property acquisitions, including the acquisition of the Doral Inn in New
York, the Terrace Garden Inn and Lenox Inn in Atlanta, Georgia, and the
Holiday Inn in Beltsville, Maryland as if they occurred on January 1, 1994:
<TABLE>
<CAPTION>
Year Ended December 31, 1995
----------------------------------------
Trust Corporation Combined
----------- ------------ -------------
<S> <C> <C> <C>
Revenues $57,578,000 $193,502,000 $206,034,000
Net income (loss) $24,753,000 $ (4,836,000) $ 19,917,000
Net income (loss) per share $1.79 $(0.35) $1.44
</TABLE>
<TABLE>
<CAPTION>
Year End December 31, 1994
----------------------------------------
Trust Corporation Combined
----------- ------------ -------------
<S> <C> <C> <C>
Revenues $50,203,000 $190,522,000 $202,053,000
Net income (loss) $19,277,000 $ (4,694,000) $ 14,583,000
Net income (loss) per share $1.40 $(0.34) $1.06
</TABLE>
19. Subsequent events
On January 4, 1996, the Companies completed the purchase of the Grand
Hotel, a 263-room luxury hotel, located in Washington, D.C., for an additional
$13.5 million. The Company had purchased the mortgage interest in September
1995 for $19.5 million.
On January 17, 1996, the Trust entered into interest rate hedging
agreements known as Treasury locks. The Trust entered into these agreements to
eliminate exposure to fluctuations in seven year interest rates. The
agreements are with two large financial institutions and have the effect of
fixing a base rate (5.7 percent) at which the Trust can issue debt with a
principal amount of $100 million and a term of seven years. The agreement
extends until October 1996 at which time the difference between the current
market rate and the base rate will be determined. The resulting impact on
interest over the term of the debt will be calculated and the Trust will
accordingly pay or receive an amount equal to the calculation. Such amount
will be capitalized and amortized over the term of the debt. If the Trust did
not issue any such debt, such amount would still be payable or receivable and
would be treated as a loss or gain, accordingly.
On January 24, 1996, the Companies completed the acquisition of the
960-room Boston Park Plaza Hotel Complex in Boston, Massachusetts. The
Companies formed the Starwood Saunders Partnership (the "Partnership") with
Donald L. Saunders of Saunders Real Estate Corporation. The Trust contributed
approximately $41.6 million in exchange for a 58 percent interest in the
Partnership, while Mr. Saunders contributed his existing interest in the asset
for the remaining 42 percent interest in the Partnership.
On February 26, 1996, the Companies acquired a debt interest for $21
million and entered into an agreement to purchase the equity interest in the
251-room Doubletree Guest Suites Hotel and the 175-room Days Inn, both located
at the Philadelphia Airport in Philadelphia, PA.
F-35
<PAGE> 119
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Costs
Subsequent to
Initial Cost to Company Acquisition
----------------------------- ------------------------------
STARWOOD LODGING TRUST (1)
Building and Building and
Description Land Improvements Land Improvements
- --------------------------------------- ----------- ------------ --------- ------------
<S> <C> <C> <C> <C>
HOTEL ASSETS:
Embassy Suites - Phoenix, AZ $2,889,000 $11,658,000 $610,000
Embassy Suites - Tempe, AZ 1,000,000 14,458,000
Plaza Hotel - Tucson, AZ (2) 898,000 3,809,000 105,000
Doubletree Hotel - Rancho Bernardo, CA 1,256,000 6,275,000
Vagabond Inn - Rosemead, CA 700,000 2,100,000
Vagabond Inn - Sacramento, CA 700,000 3,200,000
Vagabond Inn - Woodland Hills, CA 1,200,000 3,200,000
Hilton Inn - Gainesville, FL 1,002,000 3,759,000 1,624,000
Holiday Inn - Albany, GA 796,000 4,980,000 189,000
Lenox Hill Inn - Atlanta, GA 4,383,000 4,197,000
Sheraton Colony Square Hotel - Atlanta,
GA 2,000,000 25,285,000
Terrace Garden Inn - Atlanta, GA 5,875,000 19,944,000 (1,000)
Best Western Riverfront Inn - Savannah,
GA 431,000 3,745,000 237,000
Harvey Wichita - Wichita, KS 341,000 3,571,000
French Quarter Suites - Lexington, KY 1,237,000 10,176,000
Calverton Holiday Inn - Beltsville, MD 1,636,000 8,489,000
Bay Valley Hotel - Bay City, MI 2,500,000 5,472,000 1,000 1,212,000
Omni Chapel Hill Hotel - Chapel Hill, NC 500,000 8,920,000
Bourbon Street Hotel and Casino -
Las Vegas, NV 8,435,000 8,668,000 5,548,000
King 8 Hotel and Casino - Las Vegas, NV 5,396,000 13,579,000 1,957,000
Best Western Airport Inn -
Albuquerque, NM (3) 285,000 4,880,000 25,000
Best Western Mesilla Valley Inn -
Las Cruces, NM 1,150,000 3,295,000 (290,000) 44,000
Doral Inn - New York, NY 3,112,000
Columbus Best Western - Columbus, OH 854,000 2,300,000 120,000
Days Inn - Portland, OR 1,900,000 3,768,000 120,000 302,000
Riverside Inn - Portland, OR 1,300,000 3,375,000 120,000 236,000
Park Central - Dallas, TX 3,814,000 8,018,000 1,829,000 621,000
Best Western Airport Inn - El Paso, TX 1,400,000 3,409,000 108,000
Residence Inn - Tysons Corner, VA 1,418,000 4,119,000 457,000
Days Inn Town Center - Seattle, WA 250,000 1,483,000 41,000
Meany Tower Hotel - Seattle, WA (3) 1,700,000 6,270,000 120,000 244,000
Sixth Avenue Inn - Seattle, WA 1,150,000 1,570,000 40,000
Tyee Inn - Tumwater, WA (3) 1,008,000 1,562,000 (63,000) 1,053,000
Capitol Hill Suites - Washington, D.C. 1,276,000 6,868,000
----------- ------------ --------- -----------
$63,792,000 $216,402,000 1,837,000 $14,772,000
----------- ------------ --------- -----------
</TABLE>
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Gross Amount
Book Value
at December 31, 1995 (4)
------------------------------
STARWOOD LODGING TRUST (1) Accumulated
Building and Depreciation & Year of Date
Description Land Improvement Amortization Construction Acquired Life
- --------------------------------------- ---------- ------------ -------------- ------------ -------- ----
<S> <C> <C> <C> <C> <C> <C>
HOTEL ASSETS:
Embassy Suites - Phoenix, AZ $2,889,000 $12,268,000 $4,040,000 1981 12/13/83 35
Embassy Suites - Tempe, AZ 1,000,000 14,458,000 409,000 1984 07/25/95 35
Plaza Hotel - Tucson, AZ (2) 898,000 3,914,000 1,023,000 1971 09/16/86 35
Doubletree Hotel - Rancho Bernardo, CA 1,256,000 6,275,000 443,000 1988 01/01/95 35
Vagabond Inn - Rosemead, CA 700,000 2,100,000 555,000 1974 09/16/86 35
Vagabond Inn - Sacramento, CA 700,000 3,200,000 797,000 1975 09/16/86 35
Vagabond Inn - Woodland Hills, CA 1,200,000 3,200,000 797,000 1973 09/16/86 35
Hilton Inn - Gainesville, FL 1,002,000 5,383,000 1,311,000 1974 11/24/86 35
Holiday Inn - Albany, GA 796,000 5,169,000 957,000 1989 06/08/89 35
Lenox Hill Inn - Atlanta, GA 4,383,000 4,197,000 35,000 1965 10/31/95 35
Sheraton Colony Square Hotel - Atlanta,
GA 2,000,000 25,285,000 913,000 1973 07/18/95 35
Terrace Garden Inn - Atlanta, GA 5,875,000 19,943,000 168,000 1975 10/31/95 35
Best Western Riverfront Inn - Savannah,
GA 431,000 3,982,000 1,802,000 1971 12/11/86 35
Harvey Wichita - Wichita, KS 341,000 3,571,000 233,000 1974 01/01/95 35
French Quarter Suites - Lexington, KY 1,237,000 10,176,000 652,000 1989 01/01/95 35
Calverton Holiday Inn - Beltsville, MD 1,636,000 8,489,000 1987 11/30/95 35
Bay Valley Hotel - Bay City, MI 2,501,000 6,684,000 2,195,000 1973 05/10/84 35
Omni Chapel Hill Hotel - Chapel Hill, NC 500,000 8,920,000 475,000 1981 04/07/95 35
Bourbon Street Hotel and Casino -
Las Vegas, NV 8,435,000 14,216,000 14,057,000 1964/1975 02/01/88 35
King 8 Hotel and Casino - Las Vegas, NV 5,396,000 15,536,000 8,480,000 1974/1979 02/01/88 35
Best Western Airport Inn -
Albuquerque, NM (3) 285,000 4,905,000 1,296,000 1980 09/16/86 35
Best Western Mesilla Valley Inn -
Las Cruces, NM 860,000 3,339,000 927,000 1974 09/16/86 35
Doral Inn - New York, NY 3,112,000 1927 09/20/95 35
Columbus Best Western - Columbus, OH 854,000 2,420,000 264,000 1971 01/24/92 35
Days Inn - Portland, OR 2,020,000 4,070,000 1,015,000 1962 09/16/86 35
Riverside Inn - Portland, OR 1,420,000 3,611,000 913,000 1964 09/16/86 35
Park Central - Dallas, TX 5,643,000 8,639,000 4,076,000 1972 09/09/88 35
Best Western Airport Inn - El Paso, TX 1,400,000 3,517,000 915,000 1974 09/16/86 35
Residence Inn - Tysons Corner, VA 1,418,000 4,576,000 1,458,000 1984 07/01/84 35
Days Inn Town Center - Seattle, WA 250,000 1,524,000 1,353,000 1957 09/16/86 13
Meany Tower Hotel - Seattle, WA (3) 1,820,000 6,514,000 1,676,000 1932 09/16/86 35
Sixth Avenue Inn - Seattle, WA 1,150,000 1,610,000 1,283,000 1959 09/16/86 13
Tyee Inn - Tumwater, WA (3) 945,000 2,615,000 602,000 1961 02/17/87 35
Capitol Hill Suites - Washington, D.C. 1,276,000 6,868,000 392,000 1955 01/01/95 35
----------- ------------ -----------
$65,629,000 $231,174,000 $55,512,000
-----------
Land 65,629,000 1,864,000
Furniture, Fixtures & Equipment 8,834,000 6,651,000
------------ -----------
Total hotels and land under lease $305,637,000 $64,027,000
============ ===========
</TABLE>
(Continued)
F-36
<PAGE> 120
(1) As of December 31, 1995, real estate and furniture, fixtures and equipment
have a cost for federal income tax purposes which reasonably approximates
their carrying value.
(2) Land cost includes costs allocated to leasehold interest in land of
$548,000 at the Tucson property.
(3) Land costs represent costs allocated to leasehold interest in land.
(4) Includes reserve for losses discussed in Notes 1 and 3 of Notes to the
Financial Statements.
F-37
<PAGE> 121
SCHEDULE III (Continued)
REAL ESTATE AND ACCUMULATED DEPRECIATION - TRUST
A reconciliation of the Trust's investment in real estate, furniture
and fixtures and related accumulated depreciation is as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
REAL ESTATE AND FURNITURE,
FIXTURES AND EQUIPMENT
Balance at beginning of period $188,608,000 $224,170,000 $246,356,000
Additions during period:
Acquisitions 100,749,000
Contributed properties 30,642,000
Improvements 4,660,000 2,270,000 1,372,000
Step-up in Basis 899,000
Deductions during period:
Sales of properties (37,832,000) (24,457,000)
Transfer of property to the
Operating Partnership (19,022,000)
============ ============ ============
Balance at end of period 305,637,000 188,608,000 224,170,000
============ ============ ============
ACCUMULATED DEPRECIATION:
Balance at beginning of period $71,899,000 $94,252,000 $105,338,000
Additions during period:
Depreciation expense 7,674,000 5,205,000 5,630,000
Contributed properties 890,000
Deductions during period:
Sale of properties (27,997,000) (19,085,000)
Transfer of properties (16,436,000)
Provision for investment losses:
St. Louis, MO 858,000(1)(2)
Dallas, TX 459,000(2)
Jacksonville, FL 389,000(2) 272,000(2)
Savannah, GA 300,000(2)
New Port Richey, FL 200,000(1)(2)
Brunswick, GA 150,000(1)(2)
Fayetteville, NC 50,000(2) 100,000(1)(2)
Rosemead, CA 30,000(2)
------------ ------------ ------------
439,000 2,369,000
------------ ------------ ------------
Balance at end of period $ 64,027,000 $ 71,899,000 $ 94,252,000
============ ============ ============
</TABLE>
(1) Provision for loss was recorded primarily as a result of all cash offers
to sell hotels, previously identified for sale, at amounts lower than
their current net book values.
(2) Provision for loss was recorded as a result of the difference between NBV
of properties which had been identified for sale and their estimated fair
value.
(Continued)
F-38
<PAGE> 122
SCHEDULE III (Continued)
REAL ESTATE AND ACCUMULATED DEPRECIATION - CORPORATION
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Costs
Subsequent to
Initial Cost to Company Acquisition
----------------------------- ------------------------
STARWOOD LODGING CORPORATION
Building and Building and
Description Land Improvements Land Improvements
- ------------------------------------------- ---------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
HOTEL ASSETS:
Embassy Suites - Phoenix, AZ $ 45,000
Plaza Hotel - Tucson, AZ (3) 595,000 383,000
Hilton Inn - Gainesville, FL 39,000
Holiday Inn - Albany, GA 64,000
Best Western Riverfront - Savannah, GA 47,000
Bay Valley Hotel - Bay City, MI 179,000
Best Western Airport Inn -
Albuquerque, NM (3) 325,000 47,000
Best Western Mesilla Valley Inn -
Las Cruces, NM 252,000
Doral Inn - New York, NY 33,948,000
Columbus Best Western - Columbus, OH 5,000 61,000
Days Inn - Portland, OR (3) 2,185,000 78,000
Riverside Inn - Portland, OR (3) 2,123,000 87,000 1,000 25,000
Best Western Airport Inn - El Paso, TX 18,000
Residence Inn - Tysons Corner, VA 33,000
Days Inn Town Center - Seattle, WA (3) 429,000 4,000 204,000
Meany Tower Hotel - Seattle, WA (3) 3,437,000 302,000 66,000
Sixth Avenue Inn - Seattle, WA (3) 1,515,000 24,000 118,000
Marriott Hotel - Milwaukee, WI (3) 2,500,000 17,422,000 3,585,000
---------- ---------- ------- ---------
13,109,000 51,787,000 688,000 4,562,000
---------- ---------- ------- ---------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION> Gross Amount
Book Value
at December 31, 1995
--------------------------- (2)
STARWOOD LODGING CORPORATION (1) (1) Accumulated
Building and Depreciation & Year of Date
Description Land Improvements Amortization Construction Acquired Life
- -------------------------------------------- ---------- ------------- -------------- ------------ -------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
HOTEL ASSETS:
Embassy Suites - Phoenix, AZ $ 45,000 9,000 1981 12/13/83 35
Plaza Hotel - Tucson, AZ (3) 978,000 214,000 1971 09/16/86 35
Hilton Inn - Gainesville, FL 39,000 14,000 1974 09/16/86 35
Holiday Inn - Albany, GA 64,000 8,000 1989 06/08/89 35
Best Western Riverfront - Savannah, GA 47,000 3,000 1971 12/11/86 35
Bay Valley Hotel - Bay City, MI 179,000 30,000 1973 05/10/84 35
Best Western Airport Inn -
Albuquerque, NM (3) 372,000 92,000 1980 09/16/86 35
Best Western Mesilla Valley Inn -
Las Cruces, NM 252,000 33,000 1974 09/16/86 35
Doral Inn - New York, NY 33,948,000 1927 09/20/95 35
Columbus Best Western - Columbus, OH 5,000 61,000 6,000 1971 01/24/92 35
Days Inn - Portland, OR (3) 2,185,000 78,000 17,000 1962 09/16/86 35
Riverside Inn - Portland, OR (3) 2,124,000 112,000 36,000 1964 09/16/86 35
Best Western Airport Inn - El Paso, TX 18,000 3,000 1974 09/16/86 35
Residence Inn - Tysons Corner, VA 33,000 10,000 1984 07/01/84 35
Days Inn Town Center - Seattle, WA (3) 429,000 208,000 45,000 1957 09/16/86 13
Meany Tower Hotel - Seattle, WA (3) 3,437,000 368,000 108,000 1932 09/16/86 35
Sixth Avenue Inn - Seattle, WA (3) 1,515,000 142,000 31,000 1959 09/16/86 13
Marriott Hotel - Milwaukee, WI (3) 2,500,000 21,007,000 2,795,000 1972
---------- ---------- ---------
13,797,000 56,349,000 3,454,000
---------- ----------
</TABLE>
<TABLE>
<S> <C> <C>
Land 13,797,000
Furniture, Fixtures & Equipment 64,576,000 35,920,000
------------ -----------
$134,722,000 $39,374,000
============ ===========
</TABLE>
(1) As of December 31, 1995, real estate and furniture, fixtures, and equipment
have a cost for federal income tax purposes which reasonably approximates
their carrying value.
(2) Includes reserve for losses discussed in Notes 1 and 3 of Notes to the
Financial Statements.
(3) Land costs represent costs allocated to leasehold interest in land.
(Continued)
F-39
<PAGE> 123
SCHEDULE III (Continued)
REAL ESTATE AND ACCUMULATED DEPRECIATION - CORPORATION
A reconciliation of the Corporation's investment in real estate, furniture
and fixtures and related accumulated depreciation is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
REAL ESTATE AND FURNITURE
AND FIXTURES:
Balance at beginning of period $51,741,000 $54,790,000 $51,972,000
Additions during period:
Acquisitions 38,396,000
Contributed properties 4,459,000
Improvements 21,104,000 671,000 5,205,000
Transfers 19,022,000
Deductions during period:
Reclassification 388,000
Sales of properties (3,720,000) (2,775,000)
------------ ----------- -----------
Balance at end of year $134,722,000 $51,741,000 $54,790,000
============ =========== ===========
ACCUMULATED DEPRECIATION:
Balance at beginning of year $17,266,000 $17,459,000 $15,413,000
Additions -
Depreciation expense 5,269,000 2,956,000 3,602,000
Transfers 16,436,000
Contributed properties 403,000
Deductions -
Sales of properties (3,149,000) (1,842,000)
Reclassifications 286,000
------------ ----------- -----------
Balance at end of period 39,374,000 17,266,000 17,459,000
============ =========== ===========
</TABLE>
(Concluded)
F-40
<PAGE> 124
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Principal
amount
of loans
subject to
STARWOOD LODGING TRUST Face Carrying delinquent
Interest Final Periodic Prior Amount of Amount of principal or
Description Rate Maturity Payment Liens Mortgages Mortgages(1) interest
- ---------------------------- -------- -------- --------------------- ----- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Mortgages:
Vagabond Inns - Modesto, CA 10.00% 1996 (2) no $1,995,000 $1,161,000
Vantage Hotel - Tucker, GA 9.00% 1998 16,700 (3) no 1,985,000 1,928,000
Sheraton - New Port Richey,
FL and Holiday Inn -
Brunswick, GA 9.25% 2001 26,200 (4) no 3,070,000 3,022,000
Ramada Inn - Fayetteville, NC 9.00% 2006 9,100 (5) no 800,000 761,000
Holiday Inn - Jacksonville, FL 9.00% 2001 18,500 (6) no 2,300,000 2,284,000
Ramada Suites - Secaucus, NJ (21) 1999 Adjustable (8) no 13,813,000 8,630,000
Bristol Suites - Dallas, TX 8.00% 2002 517,800 (9)(18) no 18,000,000 11,713,000
Harvey DFW Airport Hotel -
Dallas, TX 8.00% 2002 805,500 (9)(19) no 28,000,000 18,218,000
Harvey Hotel, Addison -
Dallas, TX 8.00% 2002 431,500 (9)(20)(22) no 15,000,000 7,331,000
Quality Inn - Atlantic
City, NJ 80% of prime 2010 Adjustable (10) no 10,000,000 4,179,000
The Grand - Washington, D.C. (11) 2000 Adjustable (11) no 22,930,000 19,769,000
Second Mortgages:
Viscount Hotel - Dallas, TX 8.72% 2017 2,800 (7) yes 264,000 231,000
Bristol Suites - Dallas, TX Prin. Only 2002 4,800 (12)(23) yes 190,000
Harvey DFW Airport Hotel -
Dallas, TX Prin. Only 2002 1,800 (13)(23) yes 73,000
Harvey Hotel, Addison -
Dallas, TX Prin. Only 2002 1,900 (14)(23) yes 100,000
Quality Inn - Atlantic City,
NJ (SCA Loan) 7.00% 1996 6,700 (15) yes 1,350,000 134,000
Third Mortgages:
Quality Inn - Atlantic City,
NJ (Guerra Loan) 1% + Prime 1996 Adjustable (16) yes 1,335,000
Fourth Mortgages:
Quality Inn - Atlantic City, NJ
(Marshall Loan) 1% + Prime 1997 Adjustable (17) yes 225,000
Allowance for loan losses (100,000)
------------ -----------
$121,430,000 $79,261,000
============ ===========
Intercompany Mortgage Loans
- ---------------------------
First Mortgages:
Milwaukee Marriott - Milwaukee,
WI (Aetna) 10.5% 1996 (24) no $10,000,000 $9,495,000
Milwaukee Marriott -
Milwaukee, WI
(Aetna Addition) 1996 (24) yes 260,000
Doral Inn - New York, NY 9.5% 2006 (25) no 40,250,000 40,250,000
Third Mortgages:
Milwaukee Marriott -
Milwaukee, WI 10.5% 1996 (24) yes 1,000,000 1,000,000
Fourth Mortgages:
Milwaukee Marriott -
Milwaukee, WI 10.5% 1996 (24) yes 12,667,000 17,481,000
------------ -----------
$ 63,917,000 $68,486,000
============ ===========
</TABLE>
(Continued)
F-41
<PAGE> 125
(1) As of December 31, 1995 the aggregate cost (before
allowance for loan losses) for federal income tax
purposes is not significantly different from that used
for book purposes.
(2) The note provides for monthly payments of interest plus
additional annual payments based on a percentage of the
hotel's sales, a portion of which is applied to
principal.
(3) Principal and interest due monthly based on a 25-year
amortization schedule with unpaid principal of
$1,857,000 due in June 1998.
(4) Principal and interest due monthly based on a 25-year
amortization schedule with unpaid principal of
$2,761,000 due in August 2001.
(5) Principal and interest due monthly based on a 12-year
amortization schedule with unpaid principal of $9,000
due in December 2006.
(6) Principal and interest due monthly based on a 30-year
amortization schedule with unpaid principal of
$2,156,000 due in December 2001.
(7) Principal and Interest, plus contingent interest of 4%
of hotel room sales, due monthly based on a 40 year
amortization schedule. Note fully amortized.
(8) Principal and interest due monthly. Principal amount
adjusts annually based on note schedule. Note carry
amount net of $3,698,000 discount.
(9) Principal and interest due quarterly based on note
schedule.
(10) Principal and interest due monthly based on note
schedule. Note carrying amount net of $4,254,000
discount.
(11) Step rate note. Rate increases based on note
schedule. At December 31, 1995, the rate was 4%.
Note carrying amount net of $3,160,000 discount.
(12) Forty equal principal payments of $237,500 each of
which the Realty Partnership has a 2% interest.
Note carrying amount net of $152,000 allowance.
(13) Forty equal principal payments of $90,000 each of
which the Realty Partnership has a 2% interest.
Note carrying amount net of $58,000 allowance.
(14) Forty equal principal payments of $125,125 each of
which the Realty Partnership has a 2% interest.
Note carrying amount net of $70,000 allowance.
(15) Interest only, payable monthly. Note carrying
amount net of $975,000 allowance.
(16) Interest only, payable monthly. Note carrying
amount net of $1,444,000 allowance.
(17) Principal and interest payable monthly based on
note schedule. Note carrying amount net of $213,000
allowance.
(18) Note carrying amount net of $4,349,000 discount.
(19) Note carrying amount net of $6,783,000 discount.
(20) Note carrying amount net of $2,710,000 discount.
(21) Libor plus 1.25% or prime at borrower's option.
(22) A 25% participation on both the first and second
mortgages has been sold to a third party.
(23) The face amount represents the Realty
Partnership's 2% interest in the mortgage loan.
The remaining payment amounts are passed through to
participants.
(24) Principal and interest due June 30, 1996.
(25) One hundred thirty-two equal installments of
interest only. Principal and all accrued and
unpaid interest due October 1, 2006.
(Continued)
F-42
<PAGE> 126
SCHEDULE IV (Continued)
RECONCILIATION OF MORTGAGE LOANS
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of period $14,049,000 $11,642,000 $10,010,000
Additions -
New mortgage loans 71,779,000 6,270,000 1,985,000
Amortization of discount 3,285,000
Deductions -
Principal repayments (6,940,000) (2,382,000) (353,000)
Allowance for loan loss (2,912,000) (320,000)
Discount for pre-payment (55,000)(1)
Proceeds from foreclosure sale (1,106,000)(2)
----------- ----------- -----------
Balance at end of period $79,261,000 $14,049,000 $11,642,000
=========== =========== ===========
</TABLE>
Intercompany Mortgage Loans
- ---------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of period $16,916,000 $15,185,000 $12,667,000
Additions -
New mortgage loans 50,073,000 1,000,000
Amortization of discount
Other - accrued interest (3) 2,010,000 1,731,000 1,518,000
Deductions -
Principal repayments $ (513,000)
Allowance for loan loss
Discount for pre-payment
Proceeds from foreclosure sale
----------- ----------- -----------
Balance at end of period $68,486,000 $16,916,000 $15,185,000
=========== =========== ===========
</TABLE>
- ------------------
(1) In 1994, the Trust discounted the note on the Spartanburg, South Carolina
property as consideration for the early payoff of the note.
(2) In 1994, the Trust foreclosed on the Merrimack, New Hampshire property.
(3) Per mortgage loan agreement, the borrower is not required to pay monthly
interest if the cash flows are insufficient. Thus, the Trust has accrued
interest on the notes.
(Concluded)
F-43
<PAGE> 127
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit Page
<S> <C> <C>
3.1 Amended and Restated Declaration of Trust of the Trust dated June 6, 1988, as amended (incorporated by
reference to Exhibit 3A to the Trust's and the Corporation's Joint Current Report on Form 8-K dated
January 31, 1995) .........................................................................................
3.2 Amendment and Restatement of Articles of Incorporation of the Corporation (incorporated by reference to
Exhibit 3B to the Trust's and the Corporation's Joint Current Report on Form 8-K dated January 31, 1995) ..
3.3 Trustees' Regulations of the Trust, as amended (incorporated by reference to Exhibit 3.3 to the Trust's
and the Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1994
(the "1994 Form 10-K")) ...................................................................................
3.4 By-laws of the Corporation, as amended (incorporated by reference to Exhibit 3.4 to the 1994 Form 10-K) ...
4.1 Pairing Agreement dated June 25, 1986, between the Trust and the Corporation, as amended (incorporated
by reference to Exhibit 4.1 to the 1994 Form 10-K) ........................................................
4.2 Amendment No. 1 to the Pairing Agreement dated as of February 1, 1995 between the Trust and
the Corporation ...........................................................................................
4.3 Form of Warrant Agreement dated as of September 16, 1986, between the Trust and City National Bank ("CNB")
(incorporated by reference to Exhibit 4.3 to the Trust's and the Corporation's Registration Statement on
Form S-4 (the "S-4 Registration Statement") filed with the Securities and Exchange Commission (the "SEC")
on August 1, 1986 (Registration No. 33-7694)) .............................................................
4.4 Form of Warrant Agreement dated as of September 16, 1986, between the Corporation and CNB (incorporated by
reference to Exhibit 4.3A to the S-4 Registration Statement) ..............................................
10.1 Incentive and Non-Qualified Share Option Plan (1986) of the Trust (incorporated by reference to
Exhibit 10.8 to the Trust and the Corporation's Joint Annual Report on Form 10-K for the year ended
August 31, 1986 (the "1986 Form 10-K")).3 .................................................................
10.2 Corporation Stock Non-Qualified Stock Option Plan (1986) of the Trust (incorporated by reference to
Exhibit 10.9 to the 1986 Form 10-K).2 .....................................................................
10.3 Stock Option Plan (1986) of the Corporation (incorporated by reference to Exhibit 10.10 to the
1986 Form 10-K).2 .........................................................................................
10.4 Trust Shares Option Plan (1986) of the Corporation (incorporated by reference to Exhibit 10.11
to the 1986 Form 10-K).2 ..................................................................................
10.5 1995 Share Option Plan of the Corporation.2 ...............................................................
10.6 1995 Share Option Plan of the Trust.2 .....................................................................
10.7 Form of Indemnification Agreement and Amendment No. 1 to Indemnification Agreement between the Trust
and each of Messrs. Barry S. Sternlicht, Jeffrey C. Lapin, Jonathan Eilian, Michael W. Mooney,
Bruce M. Ford, Madison F. Grose, Bruce W. Duncan, Steven R. Quazzo, William E. Simms,
Daniel H. Stern and Ronald C. Brown.2 .....................................................................
10.8 Form of Indemnification Agreement and Amendment No. 1 to Indemnification Agreement between the
Corporation and each of Messrs. Earle F. Jones, Kevin E. Mallory, Bruce M. Ford, Steven R. Goldman,
Graeme W. Henderson, Barry S. Sternlicht, Jean-Marc Chapus, Jonathan Eilian, Michael A. Leven,
Daniel W. Yih and Alan M. Schnaid.2 ......................................................................
10.9 Form of Indemnification Agreement dated as of February 3, 1992, between the Corporation and each of Messrs.
Ronald A. Young, Graeme W. Henderson, Bruce M. Ford, Earle M. Jones and William H. Ling (incorporated by
reference to Exhibit 10.30 to the Trust's and the Corporation's Joint Annual Report on Form 10-K for the
year ended December 31, 1991).2 ...........................................................................
</TABLE>
__________________________________
2 Management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto pursuant to Item 14(c) of Form 10-K.
<PAGE> 128
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit Page
<S> <C> <C>
10.10 Executive Employment Agreement dated as of January 31, 1995, between the Trust and Jeffrey C. Lapin
(incorporated by reference to Exhibit 10.12 to the 1994 Form 10-K).2 .....................................
10.11 Form of Amended and Restated Lease Agreement entered into as of January 1, 1993, between the Trust
as Lessor and the Corporation (or a subsidiary) as Lessee (incorporated by reference to Exhibit 10.19
to the Trust's and the Corporation's Joint Annual Report on Form 10-K for the year ended
December 31, 1992)........................................................................................
10.12 Exchange Rights Agreement dated as of January 1, 1995 among the Trust, the Corporation, the Realty
Partnership, the Operating Partnership and the Starwood Partners (incorporated by reference to
Exhibit 2B to the Trust's and the Corporation's Joint Current Report on Form 8-K dated January 31, 1995)..
10.13 Registration Rights Agreement dated as of January 1, 1995 among the Trust, the Corporation and Starwood
Capital (incorporated by reference to Exhibit 2C to the Trust's and the Corporation's Joint Current
Report on Form 8-K dated January 31, 1995)................................................................
10.14 Amended and Restated Limited Partnership Agreement for the Realty Partnership among the Trust
and the Starwood Partners dated as of December 15, 1994 (incorporated by reference to Exhibit 10.21
to the Trust's and the Corporation's Registration Statement on Form S-2 filed with the Securities
and Exchange Commission (Registration Nos. 33-59155 and 33-59155-01) (the "S-2 Registration
Statement")) .............................................................................................
10.15 Amended and Restated Limited Partnership Agreement for the Operating Partnership among the Corporation
and the Starwood Partners dated as of December 15, 1994 (incorporated by reference to Exhibit 10.22
to the S-2 Registration Statement) .......................................................................
10.16 Mortgage Loan Funding Facility Agreement, dated as of July 25, 1995, among the Realty Partnership
and SLT Realty Company, LLC, as the borrower, and Lehman Commercial Paper, Inc., as lender, together
with Amendment No. 1 thereto, dated as of October 30, 1995 ...............................................
10.17 Collateral Substitution Agreement, dated as of January 4, 1996, between the Realty Partnership and
SLT Realty Company, LLC, as borrower, and Lehman Commercial Paper, Inc., as lender .......................
10.18 Amended and Restated Line of Credit Agreement, dated as of October 25, 1995, among the Trust and
the Realty Partnership, as borrower, and Bankers Trust Company, as collateral agent, and Lehman
Brothers Holdings, Inc., d/b/a Lehman Capital, a division of Lehman Brothers Holdings, Inc.,
individually and as agent, together with First Amendment thereto, dated as of January 3, 1996
and effective as of October 25, 1995 .....................................................................
10.19 Form of Amendment No. 1 to Formation Agreement among the Trust, the Corporation and the Starwood Partners
(incorporated by reference to Exhibit 10.23 to the S-2 Registration Statement) ...........................
10.20 Form of Westin/HOT Agreement among W&S Hotel L.L.C., W&S Hotel Holding Corp., Westin Hotel Company,
the Realty Partnership, the Operating Partnership, WHWE L.L.C. and Woodstar Limited Partnership
(incorporated by reference to Exhibit 10.24 to the S-2 Registration Statement) ...........................
21. Subsidiaries of the Corporation.
SLC Operating Limited Partnership
Hotel Investors of Arizona, Inc.
Hotel Investors of Nebraska, Inc.
Hotel Investors of Michigan, Inc.
Hotel Investors of Missouri, Inc.
Hotel Investors Corporation of Nevada
Hotel Investors of Virginia, Inc.
Columbus Operators, Inc.
Lyntex Properties, Inc.
Western Host, Inc.
Subsidiaries of the Trust.
SLT Realty Limited Partnership
Starlex Company LLC
SLT Realty Company LLC
23. Consent of Independent Accountants.
27.1 Financial Data Schedule for Starwood Lodging Corporation.
27.2 Financial Data Schedule for Starwood Lodging Trust.
</TABLE>
__________________________________
2 Management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto pursuant to Item 14(c) of Form 10-K.
<PAGE> 1
EXHIBIT 4.2
AMENDMENT NO. 1 TO
PAIRING AGREEMENT
Amendment dated as of February 1, 1995 (this "Amendment") to
the Pairing Agreement dated as of June 25, 1980 (the "Pairing Agreement")
between Starwood Lodging Trust (formerly Hotel Investors Trust), a Maryland
real estate investment trust (the "Trust"), and Starwood Lodging Corporation
(formerly Hotel Investors Corporation), a Maryland corporation (the "Company").
WHEREAS, on the date hereof (a) the Trust is, among other
things, amending the Declaration of Trust of the Trust to (i) change the name
of the Trust to "Starwood Lodging Trust", (ii) change the par value of the
shares of beneficial interest of the Trust to $.01 per share and (iii)
authorize a new class of Excess Trust Shares, par value $.01 per share, of the
Trust and a new class of Excess Preferred Shares, par value $.01 per share, of
the Trust and (b) the Company is, among other things, amending and restating
the Articles of Incorporation of the Company to (i) change the name of the
Company to "Starwood Lodging Corporation", change the par value of the shares
of common stock of the Company to $.01 per share and (iii) authorize a new
class of Excess Common Stock, par value $.01 per share, of the Company and a
new class of Excess Preferred Stock, par value $.01 per share, of the Company;
and
WHEREAS, pursuant to and in compliance with Section 11 of the
Pairing Agreement, the Trust and the Company desire to amend the Pairing
Agreement as set forth in this Amendment;
NOW, THEREFORE, in consideration of the premises and the
mutual agreements set forth herein and in the Pairing Agreement, the parties
hereto agree as follows:
SECTION 1. AMENDMENT OF PAIRING AGREEMENT. The Pairing
Agreement is hereby amended by adding thereto a new Section 12, which new
Section 12 shall read in its entirety as follows:
12. (a) In the event that (x) the Trust issues Excess Trust
Shares, par value $.01 per share, of the Trust ("Excess Trust Shares")
or the Company issues shares of Excess Common Stock, par value $.01
per share, of the Company ("Excess Common Shares"), and (y) the Shares
and the shares of common stock of the Company which were converted
into such Excess Trust Shares and such Excess Common Shares,
respectively, were paired pursuant to this Agreement, then in addition
to, and not in any respect in limitation of, the
<PAGE> 2
provisions of the Declaration of Trust of the Trust and the Amended
and Restated Articles of Incorporation of the Company (as each may be
amended from time to time):
(i) such Excess Trust Shares and such Excess Common
Shares shall not be transferable, and shall not be transferred
on the respective books of either the Trust or the Company,
unless in connection with a transfer the transferor transfers
and the transferee acquires the same number of Excess Trust
Shares and Excess Common Shares;
(ii) neither the Trust nor the Company shall issue or
transfer or agree to issue or transfer any Excess Trust Shares
or Excess Common Shares unless effective provision is made for
the issuance or transfer to the same person of the same number
of Excess Trust Shares and Excess Common Shares; and
(iii) each certificate evidencing Excess Trust Shares
shall have printed on its reverse side a certificate
evidencing the same number of Excess Common Shares. A legend
shall be placed on the face or reverse side of each
certificate evidencing ownership of Excess Trust Shares and
Excess Common Shares referring to the restrictions on transfer
of the Excess Trust Shares and Excess Common Shares.
(b) In the event that (x) the Trust issues Excess Preferred
Shares, par value $.01 per share, of the Trust ("Excess Preferred
Shares") or the Company issues shares of Excess Preferred Stock, par
value $.01 per shares, of the Company ("Excess Preferred Stock"), and
(y) the shares of beneficial interest of the Trust and the shares of
preferred stock of the Company which were converted into such Excess
Preferred Shares and such Excess Preferred Stock, respectively, were
paired pursuant to this Agreement, then in addition to, and not in any
respect in limitation of, the provisions of the Declaration of Trust
of the Trust and the Amended and Restated Articles of Incorporation of
the Company (as each may be amended from time to time):
(i) such Excess Preferred Shares and such Excess
Preferred Stock shall not be transferable, and shall not be
transferred on the respective books of either the Trust or the
Company, unless in connection with a transfer the transferor
transfers and the transferee acquires the same number of
Excess Preferred Shares and Excess Preferred Stock;
(ii) neither the Trust nor the Company shall issue or
transfer or agree to issue or transfer any Excess Preferred
Shares or Excess Preferred Stock unless
-2-
<PAGE> 3
effective provision is made for the issuance or transfer to
the same person of the same number of Excess Preferred Shares
and Excess Preferred Stock; and
(iii) each certificate evidencing Excess Preferred Shares
shall have printed on its reverse side a certificate
evidencing the same number of Excess Preferred Stock. A
legend shall be placed on the face or reverse side of each
certificate evidencing ownership of Excess Preferred Shares
and Excess Preferred Stock referring to the restrictions on
transfer of the Excess Preferred Shares and Excess Preferred
Stock.
SECTION 3. REFERENCES TO SHARES. The definition of "Shares"
contained in the second recital of the Pairing Agreement is hereby amended to
refer to shares of beneficial interest of the Trust with a par value of $.01
per share.
SECTION 4. EFFECT OF AMENDMENT. Except as expressly set
forth herein, this Amendment shall not by implication alter, modify, amend or
in any way affect any of the terms, conditions, obligations, covenants or
agreements contained in the Pairing Agreement, all of which shall continue in
full force and effect.
SECTION 5. PARTIAL INVALIDITY. In case any one or more of
the provisions contained herein shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement, but
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision or provisions had never been contained herein.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed as of the day and year first above written.
STARWOOD LODGING TRUST
By:________________________________
Name:
Title:
STARWOOD LODGING CORPORATION
By:________________________________
Name:
Title:
-4-
<PAGE> 1
EXHIBIT 10.5
STARWOOD LODGING CORPORATION
1995 SHARE OPTION PLAN
(AMENDED AND RESTATED AS OF AUGUST 17, 1995)
I. INTRODUCTION
1.1 PURPOSES AND GENERAL. The purposes of the 1995 Share Option Plan
(the "Plan") of Starwood Lodging Corporation (the "Corporation") are to align
the interests of the Corporation's shareholders and the recipients of options
under this Plan by increasing the proprietary interest of such recipients in
the Corporation's growth and success and to advance the interests of the
Corporation by attracting and retaining officers, key employees, consultants
and advisers, as well as qualified persons for service as directors of the
Corporation ("Directors"). For purposes of this Plan, references to employment
by or service as a consultant, adviser or director of the Corporation shall
also mean employment by or service as a consultant, advisor or director of a
subsidiary of the Corporation.
This Plan seeks to accomplish the foregoing purposes by providing a
means whereby options to purchase from the Corporation shares of common stock,
par value $.01 per share, of the Corporation ("Corporation Shares") and options
to purchase from the Corporation shares of beneficial interest, par value $.01
per share, of Starwood Lodging Trust ("Trust Shares") may be granted in
accordance with Section II to eligible persons and shall be granted, in
accordance with Section III, to Directors. Pursuant to an Agreement dated June
25, 1980, as amended, between the Corporation and Starwood Lodging Trust (the
"Trust"), all outstanding Corporation Shares and Trust Shares are paired on a
one-for-one basis and trade as units consisting of one Corporation Share and
one Trust Share ("Paired Shares"). Accordingly, each option to purchase
Corporation Shares (a "Corporation Share Option") shall be paired with an
option to purchase an equal number of Trust Shares (a "Trust Share Option" and
each such paired Corporation Share Option and Trust Share Option is herein
referred to as a "Paired Option").
Each Paired Option may be exercised, terminated, cancelled, forfeited,
transferred or otherwise disposed of only in units consisting of Paired Shares.
Accordingly, a Corporation Share Option, or portion thereof, may be exercised,
terminated, cancelled, forfeited, transferred or otherwise disposed of only in
connection with, and to the same extent as, the exercise, termination,
cancellation, forfeiture, transfer or other disposition of a Trust Share
Option. Each Corporation Share Option constituting part of a Paired Option may
be either an incentive share option or a non-qualified share option. An
incentive share option shall mean a Corporation Share Option that meets the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), or any successor
<PAGE> 2
provision, which is intended by the Committee (as defined below) to constitute
an incentive share option. Each Trust Share Option constituting part of a
Paired Option shall be a non-qualified share option.
1.2 ADMINISTRATION. This Plan shall be administered by a committee (the
"Committee") designated by the Board of Directors of the Corporation (the
"Board") consisting of two or more members of the Board, each of whom shall be
a "disinterested person" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and an "outside
director" within the meaning of Section 162(m) of the Code, subject to any
transition rules applicable to the definition of outside director.
The Committee may, subject to the terms of this Plan, select eligible
persons to be granted Paired Options in accordance with Section II and shall
determine the number of Paired Shares subject to each such Paired Option. The
Committee shall, subject to the terms of this Plan, determine the exercise
price of each Paired Option granted hereunder, including the portion of the
exercise price of such Paired Option which is attributable to the Corporation
Share Option and the Trust Share Option, respectively, the time and conditions
of exercise of such Paired Option and all other terms and conditions of such
Paired Option, including, without limitation, the form of the Agreement
representing such Paired Option. The Committee may, in its sole discretion and
for any reason at any time, accelerate the exercisability of any Paired Option.
The Committee shall, subject to the terms of this Plan, interpret this Plan and
the application thereof, establish rules and regulations it deems necessary or
desirable for the administration of this Plan and may impose, incidental to the
grant of a Paired Option, conditions with respect to the grant, such as
limiting competitive employment or other activities. All such interpretations,
rules, regulations and conditions shall be conclusive and binding on all
parties. Each Paired Option shall be evidenced by a written Agreement (an
"Agreement") between the Corporation and the optionee setting forth the terms
and conditions applicable to such Paired Option.
The Committee may delegate some or all of its power and authority
hereunder to the Chief Executive Officer or Chief Operating Officer or other
executive officer of the Corporation as the Committee deems appropriate;
provided, however, that the Committee may not delegate its power and authority
with regard to (i) the grant of a Paired Option to any person who is a "covered
employee" within the meaning of Section 162(m) of the Code or who, in the
Committee's judgment, is likely to be a covered employee at any time during the
period a Paired Option granted to such employee would be outstanding or (ii)
the selection for participation in this Plan of an officer or other person
subject
-2-
<PAGE> 3
to Section 16 of the Exchange Act or decisions concerning the timing, pricing
or amount of a grant of a Paired Option to such an officer or other person.
A majority of the Committee shall constitute a quorum. The acts of
the Committee shall be either (i) acts of a majority of the members of the
Committee present at any meeting at which a quorum is present or (ii) acts
approved in writing by a majority of the members of the Committee without a
meeting.
1.3 ELIGIBILITY. Participants in this Plan shall consist of such
officers, key employees, consultants, advisers and Directors of the Corporation
and its subsidiaries as the Committee in its sole discretion may select from
time to time. The Committee's selection of a person to participate in this
Plan at any time shall not require the Committee to select such person to
participate in this Plan at any other time. Directors shall be also eligible
to participate in this Plan in accordance with Section III.
1.4 SHARES AVAILABLE. The number of Paired Shares available for grants
of Paired Options under this Plan, other than a Paired Option that includes a
Corporation Share Option that is designated as an incentive share option, shall
be 1,573,000 (subject to adjustment as provided in Section 4.7) plus eight
percent (8%) of the sum of (i) the number of Paired Shares which may be issued
upon the exchange of limited partnership units ("Units") in SLT Realty Limited
Partnership, a Delaware limited partnership, and SLC Operating Limited
Partnership, a Delaware limited partnership to the extent such Units first
become outstanding after August 17, 1995 (without reduction for subsequent
repurchases, redemptions or similar events involving the Units), plus (ii) the
number of Paired Shares which first become outstanding (without reduction for
subsequent repurchases, redemptions or similar events involving Paired Shares)
after August 17, 1995 (other than by reason of (A) such exchange of Units, (B)
the issuance or delivery of Paired Shares pursuant to any employee benefit plan
of the Corporation or the Trust or (C) the issuance of Paired Shares which were
acquired and held by the Corporation or the Trust prior to their issuance),
reduced by (iii) the aggregate number of Paired Shares which become subject to
(A) outstanding Paired Options under this Plan, including each Paired Option
that includes a Corporation Share Option that is designated as an incentive
share option, or (B) outstanding options to purchase Paired Shares under the
Trust's 1995 Share Option Plan (the "Trust Plan"). Subject to adjustment as
provided in Section 4.7, the number of Paired Shares available for grants of
Paired Options that include Corporation Share Options that are designated as
incentive share options shall be 1,573,000, reduced by the aggregate number of
Paired Shares which become subject to (X) outstanding Paired Options under this
Plan, including each Paired Option that does not include a Corporation
-3-
<PAGE> 4
Share Option that is designated as an incentive share option, or (Y)
outstanding options to purchase Paired Shares under the Trust Plan. To the
extent that Paired Shares subject to an outstanding Paired Option or an
outstanding option to purchase Paired Shares under the Trust Plan are not
issued or delivered by reason of the termination, cancellation or forfeiture of
any such option or by reason of the delivery of Paired Shares to pay all or a
portion of the exercise price of any such option, or to satisfy all or a
portion of the tax withholding obligations relating to any such option, then
such Paired Shares shall again be available under this Plan.
Paired Shares to be delivered under this Plan shall be made available
(i) (A) by the Corporation from authorized and unissued Corporation Shares
issued by the Corporation directly to the optionee and (B) by the Trust from
authorized and unissued Trust Shares issued by the Trust directly to the
Corporation for delivery to the optionee, (ii) from authorized and issued
Paired Shares acquired and held by the Corporation or (iii) a combination
thereof.
To the extent required by Section 162(m) of the Code and the rules and
regulations thereunder, the maximum number of Paired Shares with respect to
which Paired Options may be granted during any calendar year to any person
shall be 500,000, subject to adjustment as provided in Section 4.7.
II. PAIRED OPTIONS
2.1 GRANTS OF PAIRED OPTIONS. The Committee may, in its discretion,
grant Paired Options to such eligible persons as may be selected by the
Committee. Each Corporation Share Option, or portion thereof, that is not an
incentive share option, shall be a non-qualified share option. Each Paired
Option that includes a Corporation Share Option that is designated as an
incentive share option shall be granted within ten years of the effective date
of this Plan. To the extent that the aggregate fair market value (determined
as of the date of grant) of Corporation Shares with respect to which
Corporation Share Options designated as incentive share options are exercisable
for the first time by a participant during any calendar year (under this Plan
or any other plan of the Corporation, or any parent or subsidiary) exceeds the
amount (currently $100,000) established by the Code, such Corporation Share
Options shall constitute non-qualified share options. The "fair market value"
of a Corporation Share shall be that portion of the fair market value of a
Paired Share which the Committee determines to be attributable to the
Corporation Share by applying in good faith a method of valuation permissible
under Section 422 of the Code. The "fair market value" of a Paired Share shall
mean the closing transaction price of a Paired Share as reported in the New
York Stock Exchange
-4-
<PAGE> 5
Composite Transactions on the date as of which such value is being determined
or, if there shall be no reported transaction on such date, on the next
preceding date for which a transaction was reported; provided that if the fair
market value of a Paired Share for any date cannot be determined as above
provided, fair market value of a Paired Share shall be determined by the
Committee by whatever means or method as the Committee, in the good faith
exercise of its discretion, shall at such time deem appropriate.
2.2 TERMS OF PAIRED OPTIONS. Paired Options shall be subject to the
following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of this Plan, as the Committee
shall deem advisable:
(a) Number of Paired Shares and Purchase Price. The number of
Paired Shares subject to a Paired Option and the purchase price per Paired
Share purchasable upon exercise of the Paired Option, including the portions of
the purchase price of a Paired Share which are attributable to a Corporation
Share and a Trust Share, respectively, shall be determined by the Committee;
provided, however, that (i) the purchase price per Paired Share shall not be
less than 100% of the fair market value of a Paired Share on the date of grant
of such Paired Option, (ii) the portion of the purchase price of a Paired Share
which the Committee determines to be attributable to a Corporation Share shall
not be less than 100% of the fair market value of a Corporation Share on the
date of grant of such Paired Option and (iii) the portion of the purchase price
of a Paired Share which the Committee determines to be attributable to a Trust
Share shall not be less than 100% of the fair market value of a Trust Share on
the date of grant of such Paired Option; provided further, that if a
Corporation Share Option designated as an incentive share option shall be
granted to any person who, at the time such incentive share option is granted,
owns capital stock possessing more than ten percent of the total combined
voting power of all classes of capital stock of the Corporation (or of any
parent or subsidiary) (a "Ten Percent Holder"), the purchase price per
Corporation Share shall be the price (currently 110% of fair market value of a
Corporation Share) required by the Code in order to constitute an incentive
share option. The "fair market value" of a Trust Share shall be that portion
of the fair market value of a Paired Share which the Committee determines to be
attributable to the Trust Share.
(b) Option Period and Exercisability. The period during which a
Paired Option may be exercised shall be determined by the Committee; provided,
however, that no Paired Option which includes a Corporation Share Option
designated as an incentive share option shall be exercised later than ten years
after its date of grant; provided further, that if a Paired Option which
includes a Corporation Share Option designated as an incentive
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share option shall be granted to a Ten Percent Holder, such Paired Option shall
not be exercised later than five years after its date of grant. The Committee
shall determine whether a Paired Option shall become exercisable in cumulative
or non-cumulative installments and in part or in full at any time. An
exercisable Paired Option, or portion thereof, may be exercised only with
respect to whole Paired Shares.
(c) Method of Exercise. A Paired Option may be exercised (i) by
giving written notice to the Corporation specifying the number of whole Paired
Shares to be purchased and accompanied by payment therefor in full (or
arrangement made for such payment to the Corporation's satisfaction) either (A)
in cash, (B) by delivery of previously owned whole Paired Shares (which the
optionee has held for at least six months prior to the delivery of such Paired
Shares or which the optionee purchased on the open market and for which the
optionee has good title, free and clear of all liens and encumbrances) having a
fair market value, determined as of the date of exercise, equal to the
aggregate purchase price payable by reason of such exercise, (C) in cash by a
broker-dealer acceptable to the Corporation to whom the optionee has submitted
an irrevocable notice of exercise or (D) a combination of (A) and (B), in each
case to the extent set forth in the Agreement relating to the Paired Option and
(ii) by executing such documents as the Corporation may reasonably request.
The Committee shall have sole discretion to disapprove of an election pursuant
to either clause (B) or (C) and in the case of an optionee who is subject to
Section 16 of the Exchange Act, the Corporation may require that the method of
making such payment be in compliance with Section 16 and the rules and
regulations thereunder. Any fraction of a Paired Share which would be required
to pay such purchase price shall be disregarded and the remaining amount due
shall be paid in cash by the optionee. No certificate representing a Paired
Share shall be delivered until the full purchase price therefor has been paid.
2.3 TERMINATION OF EMPLOYMENT OR SERVICE.
(a) Disability and Death. Subject to paragraph (e) below and unless
otherwise specified in the Agreement relating to a Paired Option, if an
optionee's employment with the Corporation or service as a consultant, adviser
or Director terminates by reason of Disability or death, each Paired Option
held by such optionee shall be fully exercisable and may thereafter be
exercised by such optionee (or such optionee's executor, administrator, legal
representative, beneficiary or similar person, as the case may be) until and
including the earliest to occur of (i) the date which is one year (or such
other period as set forth in the Agreement relating to such Paired Option)
after the effective date of such optionee's termination of employment or
service or date of death, as the case may be, and (ii) the expiration date of
the term of such Paired Option. For purposes
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of this Plan, "Disability" shall mean the inability of an optionee
substantially to perform such optionee's duties and responsibilities for a
continuous period of at least six months.
(b) Termination for Cause. Subject to paragraph (e) below and unless
otherwise specified in the Agreement relating to a Paired Option, if an
optionee's employment with the Corporation or service as a consultant, adviser
or Director terminates for Cause, each Paired Option held by such optionee,
whether or not then exercisable, shall terminate automatically on the effective
date of such optionee's termination of employment or service. For purposes of
this Plan, "Cause" shall mean embezzlement or misappropriation of funds or
other assets, other act of dishonesty, significant activities harmful to the
reputation of the Corporation or the Trust, willful refusal to perform or
substantial disregard of the duties properly assigned to the optionee (other
than as a result of Disability), significant violation of any statutory or
common law duty of loyalty to the Corporation or the Trust or a material breach
by the optionee of the optionee's employment Agreement with the Corporation, if
any.
(c) Other Termination. Subject to paragraph (e) below and unless
otherwise specified in the Agreement relating to a Paired Option, if an
optionee's employment with the Corporation or service as a consultant, adviser
or Director terminates for any reason other than Disability, death or Cause,
each Paired Option held by such optionee shall be exercisable only to the
extent that such Paired Option is exercisable on the effective date of such
optionee's termination of employment or service and may thereafter be exercised
by such optionee (or such optionee's legal representative or similar person)
until and including the earliest to occur of (i) the date which is three months
(or such other period as set forth in the Agreement relating to such Paired
Option) after the effective date of such optionee's termination of employment
or service and (ii) the expiration date of the term of such Paired Option.
(d) Death Following Termination of Employment or Service. Subject to
paragraph (e) below and unless otherwise specified in the Agreement relating to
a Paired Option, if an optionee dies during the one-year period following
termination of employment or service by reason of Disability, or if an optionee
dies during the three-month period following termination of employment or
service for any other reason other than Disability or Cause (or, in each case,
such other period as the Committee may specify in the Agreement relating to a
Paired Option), each Paired Option held by such optionee shall be exercisable
only to the extent that such Paired Option is exercisable on the date of such
optionee's death and may thereafter be exercised by such optionee's executor,
administrator, legal representative, beneficiary or similar person, as the case
may be, until and including the earliest to occur of (i) the date which is
three
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months (or such other period as set forth in the Agreement relating to such
Paired Option) after the date of death and (ii) the expiration date of the term
of such Paired Option.
(e) Termination of Employment - Incentive Share Options. Unless
otherwise specified in the Agreement relating to a Paired Option which includes
a Corporation Share Option designated as an incentive share option, if the
employment with the Corporation of a holder of such a Paired Option terminates
by reason of Permanent and Total Disability (as defined in Section 22(e)(3) of
the Code) or death, each such Paired Option shall be fully exercisable and may
thereafter be exercised by such optionee (or such optionee's executor,
administrator, legal representative, beneficiary or similar person, as the case
may be) until and including the earliest to occur of (i) the date which is one
year (or such shorter period as set forth in the Agreement relating to such
Paired Option) after the effective date of such optionee's termination of
employment by reason of Permanent and Total Disability or date of death, as the
case may be, and (ii) the expiration date of the term of such Paired Option.
Unless otherwise specified in the Agreement relating to a
Paired Option which includes a Corporation Share Option designated as an
incentive share option, if the employment with the Corporation of a holder of
such a Paired Option terminates for Cause, each such Paired Option, whether or
not then exercisable, shall terminate automatically on the effective date of
such optionee's termination of employment.
If the employment with the Corporation of a holder of a Paired
Option which includes a Corporation Share Option designated as an incentive
share option terminates for any reason other than Permanent and Total
Disability, death or Cause, each such Paired Option shall be exercisable only
to the extent such Paired Option is exercisable on the effective date of such
optionee's termination of employment and may thereafter be exercised by such
holder (or such holder's legal representative or similar person) until and
including the earliest to occur of (i) the date which is three months after the
effective date of such optionee's termination of employment and (ii) the
expiration date of the term of such Paired Option.
If the holder of a Paired Option which includes a Corporation
Share Option designated as an incentive share option dies during the one-year
period following termination of employment by reason of Permanent and Total
Disability (or such shorter period as set forth in the Agreement relating to
such Paired Option), or if the holder of such a Paired Option dies during the
three-month period following termination of employment for any reason other
than Permanent and Total Disability or Cause, each such Paired Option held by
such optionee shall be exercisable only to the extent such Paired Option is
exercisable
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<PAGE> 9
on the date of the optionee's death and may thereafter be exercised by the
optionee's executor, administrator, legal representative, beneficiary or
similar person until and including the earliest to occur of (i) the date which
is three months after the date of death and (ii) the expiration date of the
term of such Paired Option.
III. CERTAIN PROVISIONS RELATING TO DIRECTORS
3.1 ELIGIBILITY. Each Director shall be granted Paired Options in accordance
with this Section III. All Corporation Share Options and Trust Share Options
included in the Paired Options granted under this Section III shall constitute
non-qualified share options.
3.2 GRANTS OF PAIRED OPTIONS. Each Director shall be granted Paired Options
as follows:
(a) Time of Grant. On the date of the effectiveness of the
Corporation's first public offering of Corporation Shares which occurs
subsequent to the adoption of this Plan by the Board and prior to June 30,
1996, and on June 30 of each calendar year beginning in 1996 (or, if later, on
the date on which a person is first elected to serve as a Director), each
person who is a Director on such date, including each person who has been
elected a Director as of such date but who will not begin to serve as a
Director until a later date, shall be granted a Paired Option to purchase 6,000
Paired Shares (which amount shall be pro-rated if such person is first elected
to serve as a Director on a date other than such effective date or June 30 of a
calendar year, as the case may be) at a purchase price per Paired Share equal
to 100% of the fair market value of a Paired Share on the date of grant of such
Paired Option; provided, however, that the portion of the purchase price of a
Paired Share which is attributable to a Corporation Share shall be 100% of the
fair market value of a Corporation Share on the date of grant of such Paired
Option and the portion of the purchase price of a Paired Share which is
attributable to a Trust Share shall be 100% of the fair market value of a Trust
Share on the date of grant of such Paired Option.
(b) Option Period and Exercisability. Each Paired Option granted
under this Article III shall be fully exercisable on and after its date of
grant, shall expire ten years after its date of grant (notwithstanding
termination of service as a Director for any reason prior to such ten-year
anniversary date) and may be exercised in whole or in part only with respect to
whole Paired Shares. Paired Options granted under this Article III shall be
exercisable in accordance with Section 2.2(c).
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<PAGE> 10
(c) Death. If a Director dies while a Paired Option is outstanding,
such Paired Option may thereafter be exercised by such Director's executor,
administrator, legal representative, beneficiary or similar person, as the case
may be, until and including the expiration date of the term of such Paired
Option.
IV. GENERAL
4.1 EFFECTIVE DATE AND TERM OF PLAN. This Plan shall be submitted to the
shareholders of the Corporation for approval within one year after the date of
approval by the Board and, if approved by a majority of all the votes cast at a
meeting of shareholders at which a quorum is present, shall become effective as
of the date of approval by the Board. No Paired Option may be exercised prior
to the date of such shareholder approval. This Plan shall terminate ten years
after its effective date unless terminated earlier by the Board. Termination
of this Plan shall not affect the terms or conditions of any Paired Option
granted prior to termination.
Paired Options may be granted hereunder at any time prior to the
termination of this Plan, provided that no Paired Option may be granted later
than ten years after the effective date of this Plan. In the event that this
Plan is not approved by the shareholders of the Corporation within one year
after the date of approval by the Board, this Plan and any Paired Options
granted hereunder shall be null and void.
4.2 AMENDMENTS. The Board may amend this Plan as it shall deem advisable,
subject to any requirement of shareholder approval required by applicable law,
rule or regulation including Rule 16b-3 under the Exchange Act and Sections
162(m) and 422 of the Code; provided, however, that the number of Paired Shares
subject to a Paired Option granted to Directors pursuant to Article III, the
purchase price therefor, the date of grant of any such Paired Option, and the
category of persons eligible to be granted such Paired Options shall not be
amended more than once every six months, other than to comply with changes in
the Code and the Employee Retirement Income Security Act of 1974, as amended,
or the rules and regulations thereunder; and provided further, that any
amendment with respect to the persons eligible to participate in this Plan or
the number of Paired Shares available for grants of Paired Options under this
Plan shall not be effective without shareholder approval of such amendment
within 12 months before or after the date such amendment is approved by the
Board. No amendment may impair the rights of a holder of an outstanding Paired
Option without the consent of such holder.
4.3 AGREEMENT. No Paired Option may be exercised until an Agreement is
executed by the Corporation and the optionee and, upon execution by the
Corporation and the optionee and delivery
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of the Agreement to the Corporation, such Paired Option shall be effective as
of the effective date set forth in the Agreement.
4.4 NON-TRANSFERABILITY. No Paired Option hereunder shall be
transferable other than (i) by will or the laws of descent and distribution or
pursuant to beneficiary designation procedures approved by the Corporation or
(ii) in the case of a Paired Option which does not include a Corporation Share
Option designated as an incentive share option, as otherwise permitted under
Rule 16b-3 under the Exchange Act as set forth in the Agreement relating to
such Paired Option. Except to the extent permitted by the foregoing sentence,
each Paired Option may be exercised during the optionee's lifetime only by the
optionee or the optionee's legal representative or similar person. Except as
permitted by the second preceding sentence, no Paired Option shall be sold,
transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed
of (whether by operation of law or otherwise) or be subject to execution,
attachment or similar process. Upon any attempt to so sell, transfer, assign,
pledge, hypothecate, encumber or otherwise dispose of any Paired Option such
Paired Option and all rights thereunder shall immediately become null and void.
4.5 TAX WITHHOLDING. The Corporation shall have the right to require,
prior to the delivery of any Paired Shares, payment by the optionee of any
Federal, state, local or other taxes which may be required to be withheld or
paid in connection with a Paired Option hereunder. An Agreement may provide
that the optionee may satisfy any such obligation by any of the following
means: (A) a cash payment to the Corporation, (B) delivery to the Corporation
of previously owned whole Paired Shares (which the optionee has held for at
least six months prior to the delivery of such Paired Shares or which the
optionee purchased on the open market and for which the optionee has good
title, free and clear of all liens and encumbrances) having an aggregate fair
market value, determined as of the date the obligation to withhold or pay taxes
arises in connection with the Paired Option (the "Tax Date"), equal to the
amount necessary to satisfy any such obligation, (C) a cash payment by a
broker-dealer acceptable to the Corporation to whom the optionee has submitted
an irrevocable notice of exercise or (D) any combination of (A) and (B), in
each case to the extent set forth in the Agreement relating to the Paired
Option; provided, however, that the Committee shall have sole discretion to
disapprove of an election pursuant to any of clauses (B)-(D) and that in the
case of an optionee who is subject to Section 16 of the Exchange Act, the
Corporation may require that the method of satisfying any such obligation be in
compliance with Section 16 and the rules and regulations thereunder. An
Agreement may provide for Paired Shares to be delivered having a fair market
value in excess of the minimum amount required to be withheld, but not in
excess of the amount determined by applying the optionee's maximum marginal
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tax rate. Any fraction of a Paired Share which would be required to satisfy
such an obligation shall be disregarded and the remaining amount due shall be
paid in cash by the optionee.
4.6 RESTRICTIONS ON PAIRED SHARES. Each Paired Option hereunder shall be
subject to the requirement that if at any time the Corporation determines that
the listing, registration or qualification of the Paired Shares subject to such
Paired Option upon any securities exchange or under any law, or the consent or
approval of any governmental body, or the taking of any other action is
necessary or desirable as a condition of, or in connection with, the delivery
of Paired Shares thereunder, such Paired Shares shall not be delivered unless
such listing, registration, qualification, consent, approval or other action
shall have been effected or obtained, free of any conditions not acceptable to
the Corporation. The Corporation may require that certificates evidencing
Paired Shares delivered pursuant to any Paired Option bear a legend indicating
that the sale, transfer or other disposition thereof by the holder is
prohibited except in compliance with the Securities Act of 1933, as amended,
and the rules and regulations thereunder.
Notwithstanding any other provision hereunder, no Paired Option
hereunder shall be exercisable if, as a result of either the ability to
exercise or the exercise of such Paired Option, the Trust would not satisfy the
REIT Requirements in any respect. For purposes of the preceding sentence,
"REIT Requirements" shall mean the requirements for the Trust to (i) qualify as
a real estate investment trust under the Code and the rules and regulations
promulgated thereunder, (ii) retain its status as grandfathered pursuant to
Section 132(c)(3) of the Deficit Reduction Act of 1984 and (iii) retain the
benefits of that certain private letter ruling issued by the Internal Revenue
Service to the Trust dated as of January 4, 1980.
4.7 ADJUSTMENT. In the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Paired Shares other than a regular
cash dividend, the number and class of securities available under this Plan,
the number and class of securities subject to each outstanding Paired Option,
the purchase price per security, and the number of securities subject to each
Paired Option to be granted to Directors pursuant to Article III shall be
appropriately adjusted by the Committee, such adjustments to be made in the
case of outstanding Paired Options without an increase in the aggregate
purchase price. The decision of the Committee regarding any such adjustment
shall be final, binding and conclusive. If any adjustment would result in a
fractional security being (i) available under this Plan, such fractional
security shall be disregarded, or (ii) subject to a Paired Option
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under this Plan, the Company shall pay the optionee, in connection with the
first exercise of the Paired Option in whole or in part, occurring after such
adjustment, an amount in cash determined by multiplying (A) the fraction of
such security (rounded to the nearest hundredth) by (B) the excess, if any, of
(x) the fair market value of a Paired Share on the exercise date over (y) the
exercise price of the Paired Option.
With respect to any optionee who is subject to Section 16 of the
Exchange Act and notwithstanding the exercise periods set forth in paragraphs
(a), (c) and (d) of Section 2.3, paragraph (b) of Section 3.2 or as set forth
pursuant to such paragraphs in any Agreement to which such optionee is a party
(or as may be set forth in any Agreement pursuant to paragraph (b) of Section
2.3), in the event (i) the Corporation is involved in a business combination
which is intended to be treated as a pooling of interests for financial
accounting purposes (a "Pooling Transaction") or pursuant to which such
optionee receives a substitute option to purchase securities of any entity,
including an entity directly or indirectly acquiring the Corporation, and (ii)
such optionee's employment with the Corporation or service as a Director is
terminated during the nine-month period beginning three months prior to the
consummation of such business combination, then each Paired Option (or option
in substitution thereof) held by such optionee shall be exercisable to the
extent set forth in such paragraphs until and including the latest of (x) the
date set forth pursuant to the then applicable paragraph of Section 2.3 or 3.2,
as the case may be, (y) the date which is six months and one day after the
consummation of such business combination and (z) the date which is ten
business days after the date of expiration of any period during which such
optionee may not dispose of a security issued in the Pooling Transaction in
order for the Pooling Transaction to be accounted for as a pooling of
interests.
4.8 NO RIGHT OF PARTICIPATION OR EMPLOYMENT. No person shall have any right
to participate in this Plan. Neither this Plan nor any Paired Option granted
hereunder shall confer upon any person any right to continued employment by the
Corporation, any subsidiary or any affiliate of the Corporation or affect in
any manner the right of the Corporation, any subsidiary or any affiliate of the
Corporation to terminate the employment of any person at any time without
liability hereunder.
4.9 RIGHTS AS SHAREHOLDER. No person shall have any rights as a shareholder
of the Corporation with respect to any Corporation Shares or Trust Shares which
are subject to a Paired Option hereunder until such person becomes a
shareholder of record with respect to such Corporation Shares and Trust Shares.
4.10 DESIGNATION OF BENEFICIARY. If permitted by the Corporation, an optionee
may file with the Committee a written
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designation of one or more persons as such optionee's beneficiary or
beneficiaries (both primary and contingent) in the event of the optionee's
death. To the extent an outstanding Paired Option granted hereunder is
exercisable, such beneficiary or beneficiaries shall be entitled to exercise
such Paired Option.
Each beneficiary designation shall become effective only when filed in
writing with the Committee during the optionee's lifetime on a form prescribed
by the Committee. The spouse of a married optionee domiciled in a community
property jurisdiction shall join in any designation of a beneficiary other than
such spouse. The filing with the Committee of a new beneficiary designation
shall cancel all previously filed beneficiary designations.
If an optionee fails to designate a beneficiary, or if all designated
beneficiaries of an optionee predecease the optionee, then each outstanding
Paired Option hereunder held by such optionee, to the extent exercisable, may
be exercised by such optionee's executor, administrator, legal representative
or similar person.
4.11 GOVERNING LAW. This Plan, each Paired Option hereunder and the related
Agreement, and all determinations made and actions taken pursuant thereto, to
the extent not otherwise governed by the Code or the laws of the United States,
shall be governed by the laws of the State of California and construed in
accordance therewith without giving effect to principles of conflicts of laws.
4.12 TERMINATION OF PAIRING AGREEMENT. Notwithstanding anything in this Plan
to the contrary, if at any time the Agreement dated June 25, 1980, by and
between the Corporation and the Trust, pursuant to which Corporation Shares and
Trust Shares are paired on a share-for-share basis, is terminated for any
reason and as a result of such termination Corporation Shares and Trust Shares
no longer are required to be transferred together, then concurrently with such
termination (i) Paired Options will no longer be granted hereunder; (ii) only
Corporation Share Options may thereafter be granted hereunder; (iii) each then
outstanding Paired Option shall constitute a wholly separate and independent
Corporation Share Option and Trust Share Option and the Corporation, in its
discretion, may require that each Agreement evidencing a Paired Option be
returned to the Corporation for cancellation in exchange for separate
agreements evidencing the Corporation Share Option and Trust Share Option
subject to such Paired Option; (iv) Corporation Share Options and Trust Share
Options shall no longer be required to be exercised, terminated, cancelled,
forfeited, transferred or otherwise disposed of together; and (v) the "fair
market value" and the "closing price" of the Corporation Shares and Trust
Shares as used herein shall thereafter be deemed to refer, respectively, to
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the fair market value and the closing price of a Corporation Share and a Trust
Share.
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EXHIBIT 10.6
STARWOOD LODGING TRUST
1995 SHARE OPTION PLAN
(AMENDED AND RESTATED AS OF AUGUST 17, 1995)
I. INTRODUCTION
1.1 PURPOSES AND GENERAL. The purposes of the 1995 Share Option Plan
(the "Plan") of Starwood Lodging Trust (the "Trust") are to align the interests
of the Trust's shareholders and the recipients of options under this Plan by
increasing the proprietary interest of such recipients in the Trust's growth
and success and to advance the interests of the Trust by attracting and
retaining officers, key employees, consultants and advisers, as well as
qualified persons for service as trustees of the Trust ("Trustees"). For
purposes of this Plan, references to employment by or service as a consultant,
adviser or Trustee of the Trust shall also mean employment by or service as a
consultant, adviser or Trustee of a subsidiary of the Trust.
This Plan seeks to accomplish the foregoing purposes by providing a
means whereby options to purchase from the Trust shares of beneficial interest,
par value $.01 per share, of the Trust ("Trust Shares") and options to purchase
from the Trust shares of the common stock, par value $.01 per share, of
Starwood Lodging Corporation ("Corporation Shares") may be granted, in
accordance with Section II, to eligible persons and shall be granted, in
accordance with Section III, to Trustees. Pursuant to an Agreement dated June
25, 1980, as amended, between the Trust and Starwood Lodging Corporation (the
"Corporation"), all outstanding Trust Shares and Corporation Shares are paired
on a one-for-one basis and trade as units consisting of one Trust Share and one
Corporation Share ("Paired Shares"). Accordingly, each option to purchase
Trust Shares (a "Trust Share Option") shall be paired with an option to
purchase an equal number of Corporation Shares (a "Corporation Share Option"
and each such paired Trust Share Option and Corporation Share Option is herein
referred to as a "Paired Option").
Each Paired Option may be exercised, terminated, cancelled, forfeited,
transferred or otherwise disposed of only in units consisting of Paired Shares.
Accordingly, a Trust Share Option, or portion thereof, may be exercised,
terminated, cancelled, forfeited, transferred or otherwise disposed of only in
connection with, and to the same extent as, the exercise, termination,
cancellation, forfeiture, transfer or other disposition of a Corporation Share
Option. Each Trust Share Option constituting part of a Paired Option may be
either an incentive share option or a non-qualified share option. An incentive
share option shall mean a Trust Share Option that meets the requirements of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
any successor provision, which
<PAGE> 2
is intended by the Committee (as defined below) to constitute an incentive
share option. Each Corporation Share Option constituting part of a Paired
Option shall be a non-qualified share option.
1.2 ADMINISTRATION. This Plan shall be administered by a committee (the
"Committee") designated by the Board of Trustees of the Trust (the "Board")
consisting of two or more members of the Board, each of whom shall be a
"disinterested person" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and an "outside
director" within the meaning of Section 162(m) of the Code, subject to any
transition rules applicable to the definition of outside director.
The Committee may, subject to the terms of this Plan, select eligible
persons to be granted Paired Options in accordance with Section II and shall
determine the number of Paired Shares subject to each such Paired Option. The
Committee shall, subject to the terms of this Plan, determine the exercise
price of each Paired Option granted hereunder, including the portion of the
exercise price of such Paired Option which is attributable to the Trust Share
Option and the Corporation Share Option, respectively, the time and conditions
of exercise of such Paired Option and all other terms and conditions of such
Paired Option, including, without limitation, the form of the Agreement
representing such Paired Option. The Committee may, in its sole discretion and
for any reason at any time, accelerate the exercisability of any Paired Option.
The Committee shall, subject to the terms of this Plan, interpret this Plan and
the application thereof, establish rules and regulations it deems necessary or
desirable for the administration of this Plan and may impose, incidental to the
grant of a Paired Option, conditions with respect to the grant, such as
limiting competitive employment or other activities. All such interpretations,
rules, regulations and conditions shall be conclusive and binding on all
parties. Each Paired Option shall be evidenced by a written Agreement (an
"Agreement") between the Trust and the optionee setting forth the terms and
conditions applicable to such Paired Option.
The Committee may delegate some or all of its power and authority
hereunder to the Chief Executive Officer or Chief Operating Officer or other
executive officer of the Trust as the Committee deems appropriate; provided,
however, that the Committee may not delegate its power and authority with
regard to (i) the grant of a Paired Option to any person who is a "covered
employee" within the meaning of Section 162(m) of the Code or who, in the
Committee's judgment, is likely to be a covered employee at any time during the
period a Paired Option granted to such employee would be outstanding or (ii)
the selection for participation in this Plan of an officer or other person
subject to Section 16 of the Exchange Act or decisions concerning the
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timing, pricing or amount of a grant of a Paired Option to such an officer or
other person.
A majority of the Committee shall constitute a quorum. The acts of
the Committee shall be either (i) acts of a majority of the members of the
Committee present at any meeting at which a quorum is present or (ii) acts
approved in writing by a majority of the members of the Committee without a
meeting.
1.3 ELIGIBILITY. Participants in this Plan shall consist of such
officers, key employees, consultants, advisers and Trustees of the Trust and
its subsidiaries as the Committee in its sole discretion may select from time
to time. The Committee's selection of a person to participate in this Plan at
any time shall not require the Committee to select such person to participate
in this Plan at any other time. Trustees shall also be eligible to participate
in this Plan in accordance with Section III.
1.4 SHARES AVAILABLE. The number of Paired Shares available for grants
of Paired Options under this Plan, other than a Paired Option that includes a
Trust Share Option that is designated as an incentive share option, shall be
1,573,000 (subject to adjustment as provided in Section 4.7) plus eight percent
(8%) of the sum of (i) the number of Paired Shares which may be issued upon the
exchange of limited partnership units ("Units") in SLT Realty Limited
Partnership, a Delaware limited partnership, and SLC Operating Limited
Partnership, a Delaware limited partnership to the extent such Units first
become outstanding after August 17, 1995 (without reduction for subsequent
repurchases, redemptions or similar events involving the Units), plus (ii) the
number of Paired Shares which first become outstanding (without reduction for
subsequent repurchases, redemptions or similar events involving Paired Shares)
after August 17, 1995 (other than by reason of (A) such exchange of Units, (B)
the issuance or delivery of Paired Shares pursuant to any employee benefit plan
of the Trust or the Corporation or (C) the issuance of Paired Shares which were
acquired and held by the Trust or the Corporation prior to their issuance),
reduced by (iii) the aggregate number of Paired Shares which become subject to
(A) outstanding Paired Options under this Plan, including each Paired Option
that includes a Trust Share Option that is designated as an incentive share
option, or (B) outstanding options to purchase Paired Shares under the
Corporation's 1995 Share Option Plan (the "Corporation Plan"). Subject to
adjustment as provided in Section 4.7, the number of Paired Shares available
for grants of Paired Options that include Trust Share Options that are
designated as incentive share options shall be 1,573,000, reduced by the
aggregate number of Paired Shares which become subject to (X) outstanding
Paired Options under this Plan, including each Paired Option that does not
include a Trust Share Option that is designated as an incentive share option,
or (Y) outstanding options to purchase Paired Shares under the Corporation
Plan. To the extent that Paired Shares subject to an outstanding Paired
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Option or an outstanding option to purchase Paired Shares under the Corporation
Plan are not issued or delivered by reason of the termination, cancellation or
forfeiture of any such option or by reason of the delivery of Paired Shares to
pay all or a portion of the exercise price of any such option, or to satisfy
all or a portion of the tax withholding obligations relating to any such
option, then such Paired Shares shall again be available under this Plan.
Paired Shares to be delivered under this Plan shall be made available
(i) (A) by the Trust from authorized and unissued Trust Shares issued by the
Trust directly to the optionee and (B) by the Corporation from authorized and
unissued Corporation Shares issued by the Corporation directly to the Trust for
delivery to the optionee, (ii) from authorized and issued Paired Shares
acquired and held by the Trust or (iii) a combination thereof.
To the extent required by Section 162(m) of the Code and the rules and
regulations thereunder, the maximum number of Paired Shares with respect to
which Paired Options may be granted during any calendar year to any person
shall be 500,000, subject to adjustment as provided in Section 4.7.
II. PAIRED OPTIONS
2.1 GRANTS OF PAIRED OPTIONS. The Committee may, in its discretion,
grant Paired Options to such eligible persons as may be selected by the
Committee. Each Trust Share Option, or portion thereof, that is not an
incentive share option, shall be a non- qualified share option. Each Paired
Option that includes a Trust Share Option that is designated as an incentive
share option shall be granted within ten years of the effective date of this
Plan. To the extent that the aggregate fair market value (determined as of the
date of grant) of Trust Shares with respect to which Trust Share Options
designated as incentive share options are exercisable for the first time by a
participant during any calendar year (under this Plan or any other plan of the
Trust, or any parent or subsidiary) exceeds the amount (currently $100,000)
established by the Code, such Trust Share Options shall constitute
non-qualified share options. The "fair market value" of a Trust Share shall be
that portion of the fair market value of a Paired Share which the Committee
determines to be attributable to the Trust Share by applying in good faith a
method of valuation permissible under Section 422 of the Code. The "fair
market value" of a Paired Share shall mean the closing transaction price of a
Paired Share as reported in the New York Stock Exchange Composite Transactions
on the date as of which such value is being determined or, if there shall be no
reported transaction on such date, on the next preceding date for which a
transaction was reported; provided that if the fair market value of a Paired
Share for any date cannot be determined as above provided, fair market value of
a Paired Share shall be determined by the Committee by whatever means or method
as the Committee, in
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the good faith exercise of its discretion, shall at such time deem appropriate.
2.2 TERMS OF PAIRED OPTIONS. Paired Options shall be subject to the
following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of this Plan, as the Committee
shall deem advisable:
(a) Number of Paired Shares and Purchase Price. The number of
Paired Shares subject to a Paired Option and the purchase price per Paired
Share purchasable upon exercise of the Paired Option, including the portions of
the purchase price of a Paired Share which are attributable to a Trust Share
and a Corporation Share, respectively, shall be determined by the Committee;
provided, however, that (i) the purchase price per Paired Share shall not be
less than 100% of the fair market value of a Paired Share on the date of grant
of such Paired Option, (ii) the portion of the purchase price of a Paired Share
which the Committee determines to be attributable to a Trust Share shall not be
less than 100% of the fair market value of a Trust Share on the date of grant
of such Paired Option and (iii) the portion of the purchase price of a Paired
Share which the Committee determines to be attributable to a Corporation Share
shall not be less than 100% of the fair market value of a Corporation Share on
the date of grant of such Paired Option; provided further, that if a Trust
Share Option designated as an incentive share option shall be granted to any
person who, at the time such incentive share option is granted, owns capital
stock possessing more than ten percent of the total combined voting power of
all classes of capital stock of the Trust (or of any parent or subsidiary) (a
"Ten Percent Holder"), the purchase price per Trust Share shall be the price
(currently 110% of fair market value of a Trust Share) required by the Code in
order to constitute an incentive share option. The "fair market value" of a
Corporation Share shall be that portion of the fair market value of a Paired
Share which the Committee determines to be attributable to the Corporation
Share.
(b) Option Period and Exercisability. The period during which a
Paired Option may be exercised shall be determined by the Committee; provided,
however, that no Paired Option which includes a Trust Share Option designated
as an incentive share option shall be exercised later than ten years after its
date of grant; provided further, that if a Paired Option which includes a Trust
Share Option designated as an incentive share option shall be granted to a Ten
Percent Holder, such Paired Option shall not be exercised later than five years
after its date of grant. The Committee shall determine whether a Paired Option
shall become exercisable in cumulative or non-cumulative installments and in
part or in full at any time. An exercisable Paired Option, or portion thereof,
may be exercised only with respect to whole Paired Shares.
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(c) Method of Exercise. A Paired Option may be exercised (i) by
giving written notice to the Trust specifying the number of whole Paired Shares
to be purchased and accompanied by payment therefor in full (or arrangement
made for such payment to the Trust's satisfaction) either (A) in cash, (B) by
delivery of previously owned whole Paired Shares (which the optionee has held
for at least six months prior to the delivery of such Paired Shares or which
the optionee purchased on the open market and for which the optionee has good
title, free and clear of all liens and encumbrances) having a fair market
value, determined as of the date of exercise, equal to the aggregate purchase
price payable by reason of such exercise, (C) in cash by a broker-dealer
acceptable to the Trust to whom the optionee has submitted an irrevocable
notice of exercise or (D) a combination of (A) and (B), in each case to the
extent set forth in the Agreement relating to the Paired Option and (ii) by
executing such documents as the Trust may reasonably request. The Committee
shall have sole discretion to disapprove of an election pursuant to either
clause (B) or (C) and in the case of an optionee who is subject to Section 16
of the Exchange Act, the Trust may require that the method of making such
payment be in compliance with Section 16 and the rules and regulations
thereunder. Any fraction of a Paired Share which would be required to pay such
purchase price shall be disregarded and the remaining amount due shall be paid
in cash by the optionee. No certificate representing a Paired Share shall be
delivered until the full purchase price therefor has been paid.
2.3 TERMINATION OF EMPLOYMENT OR SERVICE.
(a) Disability and Death. Subject to paragraph (e) below and unless
otherwise specified in the Agreement relating to a Paired Option, if an
optionee's employment with the Trust or service as a consultant, adviser or
Trustee terminates by reason of Disability or death, each Paired Option held by
such optionee shall be fully exercisable and may thereafter be exercised by
such optionee (or such optionee's executor, administrator, legal
representative, beneficiary or similar person, as the case may be) until and
including the earliest to occur of (i) the date which is one year (or such
other period as set forth in the Agreement relating to such Paired Option)
after the effective date of such optionee's termination of employment or
service or date of death, as the case may be, and (ii) the expiration date of
the term of such Paired Option. For purposes of this Plan, "Disability" shall
mean the inability of an optionee substantially to perform such optionee's
duties and responsibilities for a continuous period of at least six months.
(b) Termination for Cause. Subject to paragraph (e) below and unless
otherwise specified in the Agreement relating to a Paired Option, if an
optionee's employment with the Trust or service as a consultant, adviser or
Trustee terminates for Cause, each Paired Option held by such optionee, whether
or not then exercisable, shall terminate automatically on the effective date
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of such optionee's termination of employment or service. For purposes of this
Plan, "Cause" shall mean embezzlement or misappropriation of funds or other
assets, other act of dishonesty, significant activities harmful to the
reputation of the Trust or the Corporation, willful refusal to perform or
substantial disregard of the duties properly assigned to the optionee (other
than as a result of Disability), significant violation of any statutory or
common law duty of loyalty to the Trust or the Corporation or a material breach
by the optionee of the optionee's employment Agreement with the Trust, if any.
(c) Other Termination. Subject to paragraph (e) below and unless
otherwise specified in the Agreement relating to a Paired Option, if an
optionee's employment with the Trust or service as a consultant, adviser or
Trustee terminates for any reason other than Disability, death or Cause, each
Paired Option held by such optionee shall be exercisable only to the extent
that such Paired Option is exercisable on the effective date of such optionee's
termination of employment or service and may thereafter be exercised by such
optionee (or such optionee's legal representative or similar person) until and
including the earliest to occur of (i) the date which is three months (or such
other period as set forth in the Agreement relating to such Paired Option)
after the effective date of such optionee's termination of employment or
service and (ii) the expiration date of the term of such Paired Option.
(d) Death Following Termination of Employment or Service. Subject to
paragraph (e) below and unless otherwise specified in the Agreement relating to
a Paired Option, if an optionee dies during the one-year period following
termination of employment or service by reason of Disability, or if an optionee
dies during the three-month period following termination of employment or
service for any other reason other than Disability or Cause (or, in each case,
such other period as the Committee may specify in the Agreement relating to a
Paired Option), each Paired Option held by such optionee shall be exercisable
only to the extent that such Paired Option is exercisable on the date of such
optionee's death and may thereafter be exercised by such optionee's executor,
administrator, legal representative, beneficiary or similar person, as the case
may be, until and including the earliest to occur of (i) the date which is
three months (or such other period as set forth in the Agreement relating to
such Paired Option) after the date of death and (ii) the expiration date of the
term of such Paired Option.
(e) Termination of Employment - Incentive Share Options. Unless
otherwise specified in the Agreement relating to a Paired Option which includes
a Trust Share Option designated as an incentive share option, if the employment
with the Trust of a holder of such a Paired Option terminates by reason of
Permanent and Total Disability (as defined in Section 22(e)(3) of the Code) or
death, each such Paired Option shall be fully exercisable and may thereafter be
exercised by such optionee (or such optionee's
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executor, administrator, legal representative, beneficiary or similar person,
as the case may be) until and including the earliest to occur of (i) the date
which is one year (or such shorter period as set forth in the Agreement
relating to such Paired Option) after the effective date of such optionee's
termination of employment by reason of Permanent and Total Disability or date
of death, as the case may be, and (ii) the expiration date of the term of such
Paired Option.
Unless otherwise specified in the Agreement relating to a
Paired Option which includes a Trust Share Option designated as an incentive
share option, if the employment with the Trust of a holder of such a Paired
Option terminates for Cause, each such Paired Option, whether or not then
exercisable, shall terminate automatically on the effective date of such
optionee's termination of employment.
If the employment with the Trust of a holder of a Paired
Option which includes a Trust Share Option designated as an incentive share
option terminates for any reason other than Permanent and Total Disability,
death or Cause, each such Paired Option shall be exercisable only to the extent
such Paired Option is exercisable on the effective date of such optionee's
termination of employment and may thereafter be exercised by such holder (or
such holder's legal representative or similar person) until and including the
earliest to occur of (i) the date which is three months after the effective
date of such optionee's termination of employment and (ii) the expiration date
of the term of such Paired Option.
If the holder of a Paired Option which includes a Trust Share
Option designated as an incentive share option dies during the one-year period
following termination of employment by reason of Permanent and Total Disability
(or such shorter period as set forth in the Agreement relating to such Paired
Option), or if the holder of such a Paired Option dies during the three-month
period following termination of employment for any reason other than Permanent
and Total Disability or Cause, each such Paired Option held by such optionee
shall be exercisable only to the extent such Paired Option is exercisable on
the date of the optionee's death and may thereafter be exercised by the
optionee's executor, administrator, legal representative, beneficiary or
similar person until and including the earliest to occur of (i) the date which
is three months after the date of death and (ii) the expiration date of the
term of such Paired Option.
III. CERTAIN PROVISIONS RELATING TO TRUSTEES
3.1 ELIGIBILITY. Each Trustee shall be granted Paired Options in
accordance with this Section III. All Trust Share Options and Corporation
Share Options included in the Paired Options granted under this Section III
shall constitute non-qualified share options.
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3.2 GRANTS OF PAIRED OPTIONS. Each Trustee shall be granted Paired
Options as follows:
(a) Time of Grant. On the date of the effectiveness of the Trust's
first public offering of Trust Shares which occurs subsequent to the adoption
of this Plan by the Board and prior to June 30, 1996, and on June 30 of each
calendar year beginning in 1996 (or, if later, on the date on which a person is
first elected to serve as a Trustee), each person who is a Trustee on such
date, including each person who has been elected a Trustee as of such date but
who will not begin to serve as a Trustee until a later date, shall be granted a
Paired Option to purchase 6,000 Paired Shares (which amount shall be pro-rated
if such person is first elected to serve as a Trustee on a date other than such
effective date or June 30 of a calendar year, as the case may be) at a purchase
price per Paired Share equal to 100% of the fair market value of a Paired Share
on the date of grant of such Paired Option; provided, however, that the portion
of the purchase price of a Paired Share which is attributable to a Trust Share
shall be 100% of the fair market value of a Trust Share on the date of grant of
such Paired Option and the portion of the purchase price of a Paired Share
which is attributable to a Corporation Share shall be 100% of the fair market
value of a Corporation Share on the date of grant of such Paired Option.
(b) Option Period and Exercisability. Each Paired Option granted
under this Article III shall be fully exercisable on and after its date of
grant, shall expire ten years after its date of grant (notwithstanding
termination of service as a Trustee for any reason prior to such ten-year
anniversary date) and may be exercised in whole or in part only with respect to
whole Paired Shares. Paired Options granted under this Article III shall be
exercisable in accordance with Section 2.2(c).
(c) Death. If a Trustee dies while a Paired Option is outstanding,
such Paired Option may thereafter be exercised by such Trustee's executor,
administrator, legal representative, beneficiary or similar person, as the case
may be, until and including the expiration date of the term of such Paired
Option.
IV. GENERAL
4.1 EFFECTIVE DATE AND TERM OF PLAN. This Plan shall be submitted to
the shareholders of the Trust for approval within one year after the date of
approval by the Board and, if approved by a majority of all the votes cast at a
meeting of shareholders at which a quorum is present, shall become effective as
of the date of approval by the Board. No Paired Option may be exercised prior
to the date of such shareholder approval. This Plan shall terminate ten years
after its effective date unless terminated earlier by the Board. Termination
of this Plan shall not affect the terms or conditions of any Paired Option
granted prior to termination.
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Paired Options may be granted hereunder at any time prior to
the termination of this Plan, provided that no Paired Option may be granted
later than ten years after the effective date of this Plan. In the event that
this Plan is not approved by the shareholders of the Trust within one year
after the date of approval by the Board, this Plan and any Paired Options
granted hereunder shall be null and void.
4.2 AMENDMENTS. The Board may amend this Plan as it shall deem advisable,
subject to any requirement of shareholder approval required by applicable law,
rule or regulation including Rule 16b-3 under the Exchange Act and Sections
162(m) and 422 of the Code; provided, however, that the number of Paired Shares
subject to a Paired Option granted to Trustees pursuant to Article III, the
purchase price therefor, the date of grant of any such Paired Option and the
category of persons eligible to be granted such Paired Options shall not be
amended more than once every six months, other than to comply with changes in
the Code and the Employee Retirement Income Security Act of 1974, as amended,
or the rules and regulations thereunder; and provided further, that any
amendment with respect to the persons eligible to participate in this Plan or
the number of Paired Shares available for grants of Paired Options under this
Plan shall not be effective without shareholder approval of such amendment
within 12 months before or after the date such amendment is approved by the
Board. No amendment may impair the rights of a holder of an outstanding Paired
Option without the consent of such holder.
4.3 AGREEMENT. No Paired Option may be exercised until an Agreement is
executed by the Trust and the optionee and, upon execution by the Trust and the
optionee and delivery of the Agreement to the Trust, such Paired Option shall
be effective as of the effective date set forth in the Agreement.
4.4 NON-TRANSFERABILITY. No Paired Option hereunder shall be
transferable other than (i) by will or the laws of descent and distribution or
pursuant to beneficiary designation procedures approved by the Trust or (ii) in
the case of a Paired Option which does not include a Trust Share Option
designated as an incentive share option, as otherwise permitted under Rule
16b-3 under the Exchange Act as set forth in the Agreement relating to such
Paired Option. Except to the extent permitted by the foregoing sentence, each
Paired Option may be exercised during the optionee's lifetime only by the
optionee or the optionee's legal representative or similar person. Except as
permitted by the second preceding sentence, no Paired Option shall be sold,
transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed
of (whether by operation of law or otherwise) or be subject to execution,
attachment or similar process. Upon any attempt to so sell, transfer, assign,
pledge, hypothecate, encumber or otherwise dispose of any Paired Option such
Paired Option and all rights thereunder shall immediately become null and void.
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4.5 TAX WITHHOLDING. The Trust shall have the right to require, prior to
the delivery of any Paired Shares, payment by the optionee of any Federal,
state, local or other taxes which may be required to be withheld or paid in
connection with a Paired Option hereunder. An Agreement may provide that the
optionee may satisfy any such obligation by any of the following means: (A) a
cash payment to the Trust, (B) delivery to the Trust of previously owned whole
Paired Shares (which the optionee has held for at least six months prior to the
delivery of such Paired Shares or which the optionee purchased on the open
market and for which the optionee has good title, free and clear of all liens
and encumbrances) having an aggregate fair market value, determined as of the
date the obligation to withhold or pay taxes arises in connection with the
Paired Option (the "Tax Date"), equal to the amount necessary to satisfy any
such obligation, (C) a cash payment by a broker-dealer acceptable to the Trust
to whom the optionee has submitted an irrevocable notice of exercise or (D) any
combination of (A) and (B), in each case to the extent set forth in the
Agreement relating to the Paired Option; provided, however, that the Committee
shall have sole discretion to disapprove of an election pursuant to any of
clauses (B)-(D) and that in the case of an optionee who is subject to Section
16 of the Exchange Act, the Trust may require that the method of satisfying any
such obligation be in compliance with Section 16 and the rules and regulations
thereunder. An Agreement may provide for Paired Shares to be delivered having
a fair market value in excess of the minimum amount required to be withheld,
but not in excess of the amount determined by applying the optionee's maximum
marginal tax rate. Any fraction of a Paired Share which would be required to
satisfy such an obligation shall be disregarded and the remaining amount due
shall be paid in cash by the optionee.
4.6 RESTRICTIONS ON PAIRED SHARES. Each Paired Option hereunder shall be
subject to the requirement that if at any time the Trust determines that the
listing, registration or qualification of the Paired Shares subject to such
Paired Option upon any securities exchange or under any law, or the consent or
approval of any governmental body, or the taking of any other action is
necessary or desirable as a condition of, or in connection with, the delivery
of Paired Shares thereunder, such Paired Shares shall not be delivered unless
such listing, registration, qualification, consent, approval or other action
shall have been effected or obtained, free of any conditions not acceptable to
the Trust. The Trust may require that certificates evidencing Paired Shares
delivered pursuant to any Paired Option bear a legend indicating that the sale,
transfer or other disposition thereof by the holder is prohibited except in
compliance with the Securities Act of 1933, as amended, and the rules and
regulations thereunder.
Notwithstanding any other provision hereunder, no Paired Option
hereunder shall be exercisable if, as a result of either the ability to
exercise or the exercise of such Paired Option,
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the Trust would not satisfy the REIT Requirements in any respect. For purposes
of the preceding sentence, "REIT Requirements" shall mean the requirements for
the Trust to (i) qualify as a real estate investment trust under the Code and
the rules and regulations promulgated thereunder, (ii) retain its status as
grandfathered pursuant to Section 132(c)(3) of the Deficit Reduction Act of
1984 and (iii) retain the benefits of that certain private letter ruling issued
by the Internal Revenue Service to the Trust dated as of January 4, 1980.
4.7 ADJUSTMENT. In the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Paired Shares other than a regular
cash dividend, the number and class of securities available under this Plan,
the number and class of securities subject to each outstanding Paired Option,
the purchase price per security, and the number of securities subject to each
Paired Option to be granted to Trustees pursuant to Article III shall be
appropriately adjusted by the Committee, such adjustments to be made in the
case of outstanding Paired Options without an increase in the aggregate
purchase price. The decision of the Committee regarding any such adjustment
shall be final, binding and conclusive. If any adjustment would result in a
fractional security being (i) available under this Plan, such fractional
security shall be disregarded, or (ii) subject to a Paired Option under this
Plan, the Company shall pay the optionee, in connection with the first exercise
of the Paired Option in whole or in part, occurring after such adjustment, an
amount in cash determined by multiplying (A) the fraction of such security
(rounded to the nearest hundredth) by (B) the excess, if any, of (x) the fair
market value of a Paired Share on the exercise date over (y) the exercise price
of the Paired Option.
With respect to any optionee who is subject to Section 16 of the
Exchange Act and notwithstanding the exercise periods set forth in paragraphs
(a), (c) and (d) of Section 2.3, paragraph (b) of Section 3.2 or as set forth
pursuant to such paragraphs in any Agreement to which such optionee is a party
(or as may be set forth pursuant to paragraph (b) of Section 2.3), in the event
(i) the Trust is involved in a business combination which is intended to be
treated as a pooling of interests for financial accounting purposes (a "Pooling
Transaction") or pursuant to which such optionee receives a substitute option
to purchase securities of any entity, including any entity directly or
indirectly acquiring the Trust, and (ii) such optionee's employment with the
Trust or service as a Trustee is terminated during the nine-month period
beginning three months prior to the consummation of such business combination,
then each Paired Option (or option in substitution thereof) held by such
optionee shall be exercisable to the extent set forth in such paragraphs until
and including the latest of (x) the date set forth pursuant to the then
applicable paragraph of Section 2.3 or 3.2, as the case may be, (y) the date
which is
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six months and one day after the consummation of such business combination and
(z) the date which is ten business days after the date of expiration of any
period during which such optionee may not dispose of a security issued in the
Pooling Transaction in order for the Pooling Transaction to be accounted for as
a pooling of interests.
4.8 NO RIGHT OF PARTICIPATION OR EMPLOYMENT. No person shall have any
right to participate in this Plan. Neither this Plan nor any Paired Option
granted hereunder shall confer upon any person any right to continued
employment by the Trust, any subsidiary or any affiliate of the Trust or affect
in any manner the right of the Trust, any subsidiary or any affiliate of the
Trust to terminate the employment of any person at any time without liability
hereunder.
4.9 RIGHTS AS SHAREHOLDER. No person shall have any rights as a
shareholder of the Trust with respect to any Trust Shares or Corporation Shares
which are subject to a Paired Option hereunder until such person becomes a
shareholder of record with respect to such Trust Shares and Corporation Shares.
4.10 DESIGNATION OF BENEFICIARY. If permitted by the Trust, an optionee may
file with the Committee a written designation of one or more persons as such
optionee's beneficiary or beneficiaries (both primary and contingent) in the
event of the optionee's death. To the extent an outstanding Paired Option
granted hereunder is exercisable, such beneficiary or beneficiaries shall be
entitled to exercise such Paired Option.
Each beneficiary designation shall become effective only when filed in
writing with the Committee during the optionee's lifetime on a form prescribed
by the Committee. The spouse of a married optionee domiciled in a community
property jurisdiction shall join in any designation of a beneficiary other than
such spouse. The filing with the Committee of a new beneficiary designation
shall cancel all previously filed beneficiary designations.
If an optionee fails to designate a beneficiary, or if all designated
beneficiaries of an optionee predecease the optionee, then each outstanding
Paired Option hereunder held by such optionee, to the extent exercisable, may
be exercised by such optionee's executor, administrator, legal representative
or similar person.
4.11 GOVERNING LAW. This Plan, each Paired Option hereunder and the related
Agreement, and all determinations made and actions taken pursuant thereto, to
the extent not otherwise governed by the Code or the laws of the United States,
shall be governed by the laws of the State of California and construed in
accordance therewith without giving effect to principles of conflicts of laws.
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4.12 TERMINATION OF PAIRING AGREEMENT. Notwithstanding anything in this
Plan to the contrary, if at any time the Agreement dated June 25, 1980, by and
between the Trust and the Corporation, pursuant to which Trust Shares and
Corporation Shares are paired on a share-for-share basis, is terminated for any
reason and as a result of such termination Trust Shares and Corporation Shares
no longer are required to be transferred together, then concurrently with such
termination (i) Paired Options will no longer be granted hereunder; (ii) only
Trust Share Options may thereafter be granted hereunder; (iii) each then
outstanding Paired Option shall constitute a wholly separate and independent
Trust Share Option and Corporation Share Option and the Trust, in its
discretion, may require that each Agreement evidencing a Paired Option be
returned to the Trust for cancellation in exchange for separate agreements
evidencing the Trust Share Option and Corporation Share Option subject to such
Paired Option; (iv) Trust Share Options and Corporation Share Options shall no
longer be required to be exercised, terminated, cancelled, forfeited,
transferred or otherwise disposed of together; and (v) the "fair market value"
and the "closing price" of the Trust Shares and Corporation Shares as used
herein shall thereafter be deemed to refer, respectively, to the fair market
value and the closing price of a Trust Share and a Corporation Share.
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<PAGE> 1
EXHIBIT 10.7
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this "Agreement") is made as
of the _____ day of __________, 1995, between Starwood Lodging Trust, a
Maryland real estate investment trust (the "Trust"), and ____________________
("Indemnitee"), with reference to the following facts and objectives:
A. Indemnitee is currently serving as a Trustee or officer of the
Trust or has been elected or appointed a Trustee or officer of the Trust to
take effect on a later date; the Trust conducts its business as general partner
of SLT Realty Limited Partnership, a Delaware limited partnership.
B. Section 7.4 of the Amended and Restated Declaration of Trust
dated as of June 6, 1988, as amended February 1, 1995, of the Trust (the "Trust
Declaration") and Section 8-301 (15) of the Maryland General Corporation Law
(the "MGCL") provide that the provisions of Section 2-418 of the MGCL shall be
fully applicable to the Trust and its Trustees (the "Trustees"), officers,
employees and other agents, and Section 7.4 of the Trust Declaration obligates
the Trust to indemnify its Trustees and officers to the fullest extent
permitted by the aforesaid Section 2-418 or other applicable law.
C. Each of Section 2-418 of the MGCL and Section 7.4 of the Trust
Declaration specifically provides that the indemnification provided for therein
is not exclusive, and each such Section thereby contemplates that agreements or
other financial arrangements may be entered into between the Trust, on the one
hand, and the Trustees or the Trust's officers, on the other hand, with respect
to the indemnification of and advancement of expenses to such persons.
D. In recognition of Indemnitee's need for substantial protection
against personal liability in order to maintain Indemnitee's continued service
to the Trust in an effective manner and Indemnitee's reliance on the Trust
Declaration, and in part to provide Indemnitee with specific contractual
assurance that the protection promised by the Trust Declaration will be
available to Indemnitee (regardless of, among other things, any limitation or
other amendment or revocation of Section 7.4 of the Trust Declaration or any
change in the composition of the Trust's Board of Trustees (the "Board of
Trustees")), the Trust desires to provide in this Agreement for the
indemnification of and the advancing of expenses to Indemnitee to the full
extent (whether partial or complete) permitted by law, as set forth in this
Agreement, and, to the extent trustees' and officers' insurance is maintained
by the Trust, for the continued coverage of Indemnitee under such policy or
policies.
NOW, THEREFORE, in consideration of the premises and of
Indemnitee's continuing to serve the Trust directly or, at its request, another
enterprise, the Trust and Indemnitee hereby agree as follows:
1. D&O Liability Insurance.
(a) Subject only to the provisions of Section
1(b) hereof, so long as Indemnitee shall continue to serve as a Trustee and/or
officer of the Trust (or shall continue at the request of the Trust to serve as
a trustee, director, officer, partner, employee or agent
<PAGE> 2
of another business trust, corporation, partnership, joint venture or other
enterprise or an employee benefit plan), and thereafter so long as Indemnitee
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that Indemnitee was a Trustee and/or
officer of the Trust or served in any of said other capacities, the Trust
shall purchase and maintain in effect, including through the obtaining or
exercise of appropriate "tail" coverage, one or more valid, binding and
enforceable insurance policies issued by a reputable insurer or insurers
protecting Trustees and Trust officers (subject to customary limitations and
exceptions) against losses, costs and expenses arising out of any such claim,
action, suit or proceeding ("D&O Insurance"), which D&O Insurance shall
provide coverage in all respects at least comparable to that presently
provided, and shall cause Indemnitee to be covered by such policy or policies.
The Trust shall not be required to maintain in effect the
policy or policies of D&O Insurance contemplated by the first paragraph of this
Section 1(a) at any time at which (i) said insurance is not generally
available, or (ii) in the reasonable business judgment of the persons then
constituting the Board of Trustees, either (I) the premium cost for such
insurance is substantially disproportionate to the amount of coverage afforded,
or (II) the coverage provided by such insurance is so limited and/or subject to
such exclusions that there is insufficient benefit to the Trust from such
insurance; provided, however, that to the extent that the Trust maintains any
D&O Insurance, Indemnitee shall be covered by such policy or policies, in
accordance with its or their terms, to the maximum extent of the coverage
available for any Trustee or Trust officer under such policy or policies, and,
further, that in the event the Trust does not purchase and maintain in effect
the policy or policies of D&O Insurance contemplated by this Section 1(a), the
Trust shall indemnify Indemnitee to the full extent of the coverage that would
otherwise have been provided for the benefit of Indemnitee pursuant to such D&O
Insurance.
(b) The Trust's obligation under this Article 1
shall terminate as of the fifth anniversary of the date on which Indemnitee
ceases to render any service or to act in any capacity specified in Article 3
hereof.
2. Basic Indemnity. The Trust hereby indemnifies
Indemnitee, whether or not he is then an officer, to the fullest extent
permitted by the provisions of Section 2-418 of the MGCL or any amendment
thereof or by any other statute permitting such indemnification that is adopted
after the date hereof.
3. Additional Indemnity. Subject only to the
limitations and exclusions set forth in Article 5 hereof, and without limiting
the provisions of the foregoing Article 2, the Trust hereby also expressly
agrees that in the event Indemnitee is or becomes a party to or witness or
other participant in, or is threatened to be made a party to or witness or
other participant in, any action, suit or proceeding, whether pending,
threatened or completed, whether civil, criminal or administrative, and whether
instituted by or in the name of the Trust or any other party, or any
investigation or inquiry or investigation that Indemnitee in good faith
believes might lead to the institution of any such action, suit or proceeding,
by reason of (or arising in part out of) the fact that Indemnitee is or was a
Trustee, officer, employee or agent of the Trust, or is or was serving at the
request of the Trust as a trustee,
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<PAGE> 3
director, officer, partner, employee, agent or fiduciary of another business
trust, corporation, partnership, joint venture or other enterprise or an
employee benefit plan, or by reason of anything done or not done by Indemnitee
in any such capacity (any such threatened, pending or completed action, suit
or proceeding, or any such inquiry or investigation, a "Claim"), the Trust
shall indemnify Indemnitee against any and all judgments, fines, penalties and
amounts paid in settlement (including all interest, assessments and other
charges paid or payable in connection with or in respect of such judgments,
fines, penalties or amounts paid in settlement), and any and all reasonable
expenses, actually paid or incurred by Indemnitee in connection with or in
respect of such Claim.
4. Advancing of Expenses. If so requested by
Indemnitee, and subject only to the limitations and exclusions of Article 5
hereof, the Trust shall pay to Indemnitee or reimburse Indemnitee for any and
all expenses actually and reasonably incurred by Indemnitee in connection with
or in respect of any Claim (an "Expense Advance") in advance of the final
determination thereof, in the manner provided in Section 11(a) hereof.
For purposes of this Agreement, "expenses" shall include
attorneys' fees and all other costs, charges and obligations paid or incurred
in connection with investigating, defending, being a witness in or
participating in (including an appeal), or preparing to defend, be a witness in
or participate in, any Claim.
5. Limitation on Additional Indemnity and Advance
Payment of Expense Advances. No indemnity pursuant to Article 3 hereof shall
be paid by the Trust, nor shall the Trust be required to make Expense Advances
under Article 4 hereof:
(a) For which and to the extent that payment or
reimbursement of such amount is made to Indemnitee under any
D&O Insurance;
(b) For which and to the extent that Indemnitee
is indemnified, receives a recovery or is reimbursed other
than pursuant to a policy of insurance or this Agreement;
(c) On account of any action, suit or proceeding
for which and to the extent that judgment is rendered against
Indemnitee (i) for an accounting of profits made from the
purchase or sale by Indemnitee of securities of the Trust
pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar provisions of
any Federal, state or local statutory law, or (ii) for a
violation of any provision of the Securities Act of 1933, as
amended, in connection with the offer or sale of securities of
the Trust pursuant to a registration statement under said
statute, unless either (I) in the opinion of counsel for the
Trust, Indemnitee is entitled to such indemnification by
controlling precedent, or (ii) a final adjudication by a court
of competent jurisdiction holds that such indemnification is
not against public policy as expressed in such statute;
(d) On account of any action, suit or proceeding
in which a court of competent jurisdiction shall enter a final
judgment that:
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<PAGE> 4
(i) The act or omission of
Indemnitee was material to the matter giving
rise to the proceeding and (I) was committed
in bad faith; or (II) was that result of
active and deliberate dishonesty; or
(ii) Indemnitee actually received an
improper personal benefit in money, property
or services; or
(iii) In the case of any criminal
proceeding, Indemnitee had reasonable cause
to believe that the act or omission was
unlawful;
(e) On account of any action, suit or proceeding
in which a court of competent jurisdiction shall enter a final
judgment in a proceeding by or in the right of the Trust that
Indemnitee is liable to the Trust; or
(f) If such payment by the Trust under this
Agreement is not otherwise permitted by applicable law.
In addition, if Maryland law in effect at the time so
requires, (i) the obligations of the Trust under Articles 3 and 4 hereof shall
be subject to the condition that any "Determining Party" (as hereinafter
defined) shall not have determined (in a written opinion in any case in which
the "Independent Legal Counsel" (as defined in Article 6 hereof) is involved)
that indemnification of Indemnitee is not permitted under applicable law or the
expenses as to which Indemnitee requests payment or reimbursement are not
reasonable, and (ii) the obligation of the Trust to make an Expense Advance
pursuant to Article 4 hereof shall be subject to the condition that if, when
and to the extent that any Determining Party determines that Indemnitee would
not be permitted to be so indemnified under applicable law, Indemnitee shall
reimburse the Trust for all expenses paid; provided, however, that if as of the
time any determination is made by the Determining Party that Indemnitee is
under certain circumstances not permitted to be indemnified and/or that certain
expenses are not reasonable, Indemnitee has commenced or thereafter commences
legal proceedings in a court of competent jurisdiction to secure a final
determination that Indemnitee should or may be indemnified under applicable law
and/or that any expenses are not reasonable shall not be binding, and
Indemnitee shall not be required to reimburse the Trust for any such expense
until a final judicial determination is made with respect thereto (as to which
all rights of appeal therefrom have been exhausted or lapsed).
If there has not been a Change in Control (as hereinafter
defined), or if such Change in Control was approved by a majority of the Board
of Trustees who were Trustees immediately prior to such Change in Control, the
"Determining Party" shall be such members of the Board of Trustees, such
Independent Legal Counsel (other than with respect to the reasonableness of
expenses), or such other person or persons as MGCL Section 2-418 (or any
successor provisions) shall require. If, on the other hand, there has been a
Change in Control not approved by such majority of the Board, the Determining
Party shall be (i) as to whether indemnification is permitted under applicable
law, the Independent Legal Counsel referred to in Article 6 hereof, and (ii) as
to the reasonableness of expenses, such members
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<PAGE> 5
of the Board of Trustees or such other person(s) as MGCL Section 2-418 (or any
successor provision) shall require.
For purposes of this Agreement, a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Securities Exchange Act"), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Trust or another business
trust or corporation owned directly or indirectly by the shareholders of the
Trust in substantially in the same proportions as their ownership shares of
beneficial interest of the Trust, becomes, directly or indirectly, the
"beneficial owner" (as defined in Rule 13(d)-3 under the Securities Exchange
Act) of securities of the Trust evidencing 8% or more of the total voting power
evidenced by the Trusts's then outstanding securities that vote generally in
the election of trustees ("Voting Securities"), or (ii) during any period of
two consecutive years, individuals who at the beginning of such period
constitute the Board of Trustees and any new Trustee whose election by the
Board of Trustees or nomination for election by the Trust's shareholders was
approved by the vote of at least two-thirds of the Trustees then still in
office who were either Trustees at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority of the Board of Trustees, or (iii) the
shareholders of the Trust approve a merger or consolidation of the Trust with
any other business trust, corporation or other entity, other than a merger or
consolidation that would result in the holders of Voting Securities outstanding
immediately prior to such merger or consolidation continuing to have (by virtue
of such Voting Securities either remaining outstanding or being converted into
securities entitled to vote generally in the election of trustees or directors
of the surviving entity) at least 80% of the total voting power evidenced by
the Voting Securities or the voting securities of such surviving entity
outstanding immediately after such merger or consolidation, or (iv) the
shareholders of the Trust approve a plan of complete liquidation of the Trust
or an agreement for the sale or disposition by the Trust of (in one transaction
or a series of affiliated transactions) all or substantially all of the Trust's
assets.
If within 15 business days after Indemnitee submits a request
for indemnification or for a payment or reimbursement of expenses hereunder,
there has been no determination by the Determining Party, or if the Determining
Party determines that Indemnitee is not permitted to be indemnified in whole or
in part under applicable law and/or that the expenses as to which payment or
reimbursement has been requested are not reasonable, Indemnitee shall have the
right to commence litigation in any court in the States of Maryland or
California having subject matter jurisdiction thereof and in which venue is
proper, seeking an initial determination by the court or challenging any such
determination by the Determining Party or any aspect thereof, including the
legal or factual bases therefor, and the Trust hereby consents to service of
process and to appear in any such proceeding.
6. Independent Legal Counsel. In the event that there
is a Change in Control (other than a Change in Control that has been approved
by a majority of the Board of Trustees immediately prior to such Change in
Control), the Trust shall seek legal advice with respect to any and all matters
thereafter arising concerning the rights of Indemnitee to indemnity payments
and payment or reimbursement of expenses under this Agreement or any other
agreement or financial arrangement or the Declaration of Trust as now or
hereafter in
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<PAGE> 6
effect only from an attorney or firm of attorneys (the "Independent Legal
Counsel") proposed by Indemnitee and selected by the Board of Trustees (or a
committee thereof), or such other person(s) as MGCL Section 2-418 (or any
successor provision) may require. Such Independent Legal Counsel, among other
things, shall render its written opinion to the Trust and Indemnitee as to
whether and to what extent Indemnitee would be permitted to be indemnified
under applicable law. The Trust shall pay the reasonable fees and expenses of
the Independent Legal Counsel and shall fully indemnify such counsel against
all expenses, claims, liabilities, losses and damages arising out of or
relating to this Agreement or such counsel's engagement pursuant hereto.
7. Indemnification for Additional Expenses. To the full
extent permitted by law, the Trust shall indemnify Indemnitee against any and
all expenses and, if requested by Indemnitee, shall (within 10 business days of
such request) advance such expenses to Indemnitee, that are incurred by
Indemnitee in connection with any Claim asserted against or action, suit or
proceeding brought by Indemnitee for (i) indemnification or payment or
reimbursement of expenses by the Trust and this Agreement, or any other
agreement or the Trust Declaration each as now or hereafter in effect, relating
to claims for indemnification or advancement of expenses, and/or (ii) recovery
under any D&O Insurance policy or policies maintained by the Trust, if
Indemnitee ultimately is determined to be entitled to such indemnification,
advance expense payment or insurance recovery, as the case may be.
8. Partial Indemnity. If Indemnitee is entitled under
any provision of this Agreement to indemnification by the Trust for some or a
portion of the expenses, judgments, fines, penalties and amounts paid in
settlement or incurred by Indemnitee in respect of a Claim, but not, however,
for all of such amount, the Trust nevertheless shall indemnify Indemnitee for
the portion thereof to which Indemnitee is entitled. Moreover, notwithstanding
any other provision of this Agreement, to the extent that Indemnitee has been
successful in the merits or otherwise in defense of any Claim, issue or matter,
including dismissal without prejudice, Indemnitee shall be indemnified against
all expenses incurred in connection with such defense.
9. No Presumptions; Burden of Proof. For purposes of
this Agreement, the termination of any action, suit or proceeding by judgment,
order or settlement (with or without court approval) shall not, of itself,
create a presumption that Indemnitee's conduct was such that indemnity is not
available pursuant to Article 3 hereof; provided, however, that the
termination of any action, suit or proceeding by conviction, or upon a plea of
nolo contendere or its equivalent, or an entry of an order of probation prior
to judgment, shall create a rebuttable such presumption, and that the
termination of any action, suit or proceeding by a settlement entered into by
the Indemnitee at the request of the Trust shall create a rebuttable
presumption that Indemnitee is entitled to indemnity hereunder.
Except as provided by the immediately preceding sentence, in
connection with any determination by the Determining Party or otherwise as to
whether Indemnitee is entitled to be indemnified hereunder, the burden of proof
shall be on the Trust to establish that Indemnitee is not so entitled. In
addition, any attorneys' fees as to which Indemnitee requests indemnification
or advancement shall be rebuttably presumed reasonable if and to
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<PAGE> 7
the extent that such fees, if charged at an hourly rate, do not exceed the
hourly rates then regularly charged by such attorney or attorneys.
10. Notification and Defense of Claims. Promptly after
receipt by Indemnitee of notice of the commencement of any Claim, Indemnitee
shall notify the Trust of the commencement thereof; provided, however, that the
failure so to notify the Trust shall relieve the Trust from any obligation or
liability that the Trust may have to Indemnitee under this Agreement only if
and to the extent that the Trust's rights hereunder are prejudiced by such
omission. If at the time the Trust receives such notice, the Trust has D&O
Insurance in effect, the Trust shall give prompt notice of the commencement of
Claim to the insurer(s) in accordance with the procedures set forth in the
policy or policies in favor of Indemnitee. The Trust thereafter shall take all
necessary or desirable action to cause such insurer(s) to pay, or advance, to
or on behalf of Indemnitee, all losses, costs and expenses payable as a result
of such Claim in accordance with the terms of such policy or policies. The
provisions of this Agreement shall in no way relieve or modify any
obligation(s) or liability or liabilities of any insurer under any D&O
Insurance or other applicable insurance policy.
With respect to any Claim as to which Indemnitee notifies the
Trust of the commencement thereof:
(a) The Trust shall be entitled to participate
therein at its own expense.
(b) Except to the extent such Claim is brought by
or in the right of the Trust and/or as otherwise provided below, to
the extent that it may wish, the Trust, jointly with any other
indemnifying party similarly notified, shall be entitled to assume the
defense of Indemnitee in respect of such Claim, at the Trust's own
expense, with counsel approved by Indemnitee, whose approval shall not
be unreasonably withheld. After notice from the Trust to Indemnitee
of the Trust's election so to assume such defense, the Trust shall not
be liable to Indemnitee under this Agreement for any legal or other
expenses subsequently incurred by Indemnitee in connection with the
defense thereof, other than as expressly provided to the contrary
below. Indemnitee shall have the right to employ his own counsel in
connection with such Claim, but the fees and expenses of such counsel
incurred after notice from the Trust of its assumption of the defense
thereof shall be at the expense of Indemnitee unless:
(i) Such retention (or continued
retention) of counsel by Indemnitee has been authorized or
consented to by Trust;
(ii) Counsel employed by Indemnitee shall
have concluded that there is or may be a conflict of interest
between Indemnitee and the Trust with respect to such action,
in which event counsel employed by Indemnitee also shall be
entitled to participate in the defense of Indemnitee in
connection with such Claim;
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<PAGE> 8
(iii) The counsel retained by the Trust
to assume the defense of Indemnitee in such proceeding shall
also be representing in such action the Trust and/or one or
more other parties; such counsel shall have concluded that
there is an actual conflict of interest between Indemnitee and
the one or more of such other parties (including, if
applicable, the Trust); and within 10 business days after the
Trust is notified of such conflict, separate counsel shall
have been retained by the Trust to represent either the party
or parties with whom there is such conflict of interest or
Indemnitee (in which case such counsel shall be selected by
Indemnitee and approved by the Trust, whose approval shall not
be unreasonably withheld); or
(iv) The Trust shall not in fact have
retained counsel to assume the defense of Indemnitee in
connection with such action.
In each of the above cases, the fees and expenses of counsel employed
by Indemnitee shall be at the expense of the Trust.
(c) The Trust shall not be required to indemnify
Indemnitee under this Agreement for any amounts paid in settlement of
any Claim effected without the Trust's written consent. The Trust
shall not settle any Claim in any manner that would impose any penalty
or limitation on Indemnitee without Indemnitee's written consent.
Neither the Trust nor Indemnitee shall unreasonably withhold consent
to any such proposed such settlement.
11. Indemnification and Expense Advancement Requests.
(a) Advancement of Expenses.
(i) Indemnitee shall, in order to
request payment or reimbursement of expenses pursuant to
Article 4 hereof, submit to the Board of Trustees a statement
or request for advancement of expenses substantially in the
form of Exhibits 1 or 1A attached hereto and made a part
hereof (the "Expense Advancement Request").
(ii) Within 10 business days after
receipt of a properly completed Expense Advancement Request
and an invoice or other statement of the expenses to be
advanced, the President, the Chief Executive Officer, a Vice
President or General Counsel of the Trust shall authorize the
Trust's payment or reimbursement of said expenses, whereupon
such payment(s) or reimbursement(s) shall immediately be made.
No security shall be required in connection with any Expense
Advancement Request, and it shall be accepted without
reference to Indemnitee's financial ability to make repayment.
(b) Indemnification.
(i) Indemnitee, in order to request
indemnification pursuant to Article 3 hereof, shall submit to
the Board of Trustees a statement of
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<PAGE> 9
request for indemnification substantially in the form of
Exhibit 2 attached hereto and made a party hereof (the
"Indemnification Request").
(ii) Any and all payments on account of
the Trust's indemnification obligations under Article 3 hereof
shall be made within 10 business days of the Trust's receipt
of a duly completed Indemnification Request with respect
thereto.
12. Continuation of Indemnity; Indemnity Not Exclusive.
All agreements and obligations of the Trust contained herein shall continue
during the period Indemnitee is a Trustee and/or officer of the Trust (or
serves at the request of the Trust as a trustee, director, officer, partner,
employee or agent of another business trust, corporation, partnership, joint
venture or other enterprise or an employee benefit plan) and shall continue
thereafter so long as Indemnitee shall be subject to any possible Claim.
The rights and benefits of Indemnitee and the obligations of
the Trust under this Agreement shall be in addition to, and shall not
supersede, limit or be in lieu of, the provisions, if any, relating to the
indemnification of Indemnitee by the Trust in the Trust Declaration, the
Trustee's Regulations of the Trust, any resolution or resolutions of the Board
of Trustees, any other agreement or financing arrangement, the provisions of
policies of insurance of the Trust, or other applicable law.
13. Subrogation. In the event of payment or
reimbursement by the Trust under this Agreement, the Trust shall be subrogated
to the extent of such payment or reimbursement to any and all rights of
recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of any and all such documents as may be necessary to enable the Trust
effectively to enforce such rights.
14. Notice. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
(i) delivered by hand and receipted for by the party to whom such notice or
other communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which so mailed:
If to Indemnitee, to: ____________________________________
____________________________________
____________________________________
If to the Trust, to: Starwood Lodging Trust
11845 W. Olympic Boulevard
Suite 550
Los Angeles, California 90064
Attention: President
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<PAGE> 10
or to such other address as may have been furnished to Indemnitee by the Trust
or to the Trust by Indemnitee, as the case may be.
15. Severability. If any provision of this Agreement or
the application of any such provision to any person or circumstance is held by
a court of competent jurisdiction invalid, void or otherwise unenforceable, the
remainder of this Agreement and the application of such provision to other
persons or circumstances shall not be affected, and the provision so held to be
invalid, void or otherwise unenforceable shall be reformed to the extent (and
only to that extent) necessary to make it enforceable.
16. Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one
document.
17. Captions. The captions of the Articles to this
Agreement have been included herein for convenience of reference only, and this
Agreement shall not be construed by reference thereto.
18. Governing Law; Binding Effect; Amendment and
Termination.
(a) This Agreement is made and entered into
pursuant to Section 2-418 of the MGCL, and this Agreement shall be
governed by and its provisions interpreted and enforced in accordance
with the laws of the State of Maryland applicable to contracts made
and to be performed in such State without giving effect to the
principles of conflicts of laws.
(b) This Agreement shall be binding upon and
inure to the benefit of (i) the Trust and its successors and permitted
assigns (including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the
business and/or assets of the Trust), and (ii) Indemnitee, his or her
spouse, heirs, executors, personal and legal representatives and other
successors and permitted assigns. Neither this Agreement nor any
right or obligation hereunder may be assigned, delegated or otherwise
transferred by Indemnitee voluntarily during his lifetime or by the
Trust, except that the Trust shall require and cause any successor to
expressly assume and agree (by a writing in form and substance
satisfactory to Indemnitee, whose approval shall not be unreasonably
withheld) to perform this Agreement in the same manner and to the same
extent that the Trust would have been required to perform if no such
succession had taken place.
(c) No amendment, supplement or other
modification, termination of this Agreement shall be effective unless
executed in writing by both of the parties hereto. No waiver of any
provision or provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision or provisions hereof
(whether or not similar), nor shall any such waiver constitute a
continuing waiver.
19. Other Indemnification Agreements.
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<PAGE> 11
(a) This Agreement supersedes and replaces any
prior Indemnification Agreement between the Trust and Indemnitee which covers
similar rights and obligations between Indemnitee and the Trust; provided
however that Indemnitee and the Trust shall retain any and all rights and
obligations under any such prior agreement which may have accrued or be
applicable to any period prior to the date of this Agreement.
(b) If Indemnitee has entered into, or in the
future enters into, an Indemnification Agreement with Starwood Lodging
Corporation, a Maryland corporation, similar to this Agreement, then if and to
the extent that Indemnitee is entitled to indemnification against and/or
advancement of any judgement(s), fine(s), penalty(ies), amount(s) paid in
settlement, cost(s) and/or expense(s) both under this Agreement and such other
Indemnification Agreement, Indemnitee shall be entitled to seek such
indemnification and/or reimbursement under either or both said agreements, as
Indemnitee may elect, but any and all such requests for indemnification and/or
advancement or expenses shall be subject to the provisions of paragraph (b) of
Section 5 of this Agreement.
20. Disclaimer. The name "Starwood Lodging Trust" is a
designation of a Maryland real estate investment trust and its trustees (as
trustees but not personally) under an Amended and Restated Declaration of Trust
dated as of June 6, 1988, as amended, and all persons dealing with such trust
must look solely to such trust property for enforcement of any claims against
such trust, the trustees, officers, agents and security holders of such trust
assume no personal liability for obligations entered into on behalf of such
trust and the respective property shall not be subject to the claims of any
person relating to any such obligations.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on and as of the day and year first above written.
STARWOOD LODGING TRUST
By:________________________________
Its:_______________________________
___________________________________
____________________, Indemnitee
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<PAGE> 12
Exhibit 1
Expense Advancement Request
I, _______________________, do hereby affirm, undertake and
agree as follows:
1. This Expense Advancement Request is submitted
pursuant to the Indemnification Agreement dated as of ___________________, 1995
(the "Indemnification Agreement"), between Starwood Lodging Trust, a Maryland
real estate investment trust (the "Trust"), and the undersigned.
2. I am requesting that the Trust pay or reimburse to me
certain expenses that I have incurred in connection with the following civil,
criminal, administrative or investigative action, suit or proceeding to which I
am a party (the "Claim"):
_______________________________________________________________
_______________________________________________________________
3. The expenses payment or reimbursement of which is
requested are itemized below:
_______________________________________________________________
_______________________________________________________________
4. It is my good faith belief that in connection with
the matters that are the subject of the Claim, I have met the standard of
conduct necessary for indemnification by the Trust pursuant to Section 2-418 of
the Maryland General Corporation Law (a copy of which has been provided to me).
5. If it shall be ultimately determined that in
connection with the matters that are the subject of the Claim, I have not met
such standard of conduct, I will repay to the Trust the amounts paid or
reimbursed by the Trust pursuant hereto.
___________________________________
<PAGE> 13
Exhibit 1A
EXPENSE ADVANCEMENT REQUEST
I, ______________________, do hereby affirm, undertake and
agree as follows:
1. This Expense Advancement Request is submitted
pursuant to the Indemnification Agreement dated as of ____________________,
1995 (the "Indemnification Agreement"), between Starwood Lodging Trust, a
Maryland real estate investment trust (the "Trust"), and the undersigned.
2. I hereby request that the Trust pay directly the
fees, expenses and other charges of my legal counsel, ____________________, in
connection with the following civil or criminal, administrative or
investigative action, suit or proceeding to which I am a party (the "Claim"):
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
3. It is my good faith belief that in connection with
the matters that are the subject of the Claim, I have met the standard of
conduct necessary for indemnification by the Trust pursuant to Section 2-418 of
the Maryland General Corporation Law (a copy of which statute has been provided
to me).
4. If it shall be ultimately determined that in
connection with the matters that are the subject of the Claim, I have not met
such standard of conduct, I will repay to the Trust the amounts paid by the
Trust pursuant hereto.
___________________________________
<PAGE> 14
Exhibit 2
Indemnification Request
I, _________________________, do hereby affirm, undertake and
agree as follows:
1. This Indemnification Request is submitted pursuant to
the Indemnification Agreement dated as of __________________, 1995 (the
"Indemnification Agreement"), between Starwood Lodging Trust, a Maryland real
estate investment trust (the "Trust"), and the undersigned.
2. I am requesting indemnification against the following
expenses (including attorneys' fees), judgments, penalties, fines and amounts
paid in settlement, paid or incurred by me in connection with suit, action,
investigation, inquiry or other proceeding also described below:
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
3. With respect to all matters related to such
proceeding, I am entitled to be indemnified pursuant to the aforesaid
Indemnification Agreement.
___________________________________
<PAGE> 15
AMENDMENT NO. 1 TO
INDEMNIFICATION AGREEMENT
_______________
Starwood Lodging Trust
11835 West Olympic Boulevard
Suite 695
Los Angeles, CA 90064
Re: Indemnification Agreement
Gentlemen:
Please refer to the Indemnification Agreement (the "Agreement") dated as of
____________________, between Starwood Lodging Trust, a Maryland real estate
investment trust (the "Trust") and the undersigned ("Indemnitee").
Defined terms used herein have the same meaning as in the Agreement.
This confirms our understanding that nothing contained in the Agreement is
intended to, nor shall be deemed as, an agreement to indemnify or to advance
expenses to the Indemnitee to the extent that the Indemnitee brings any action,
suit or proceeding or causes any such action, suit or proceeding to be brought,
against the Trust or any of the Trustees of the Trust other than an action,
suit or proceeding against the Trust for the Trust's alleged breach of the
Agreement.
Yours very truly,
AGREED TO:
Starwood Lodging Trust,
a Maryland real estate investment trust
By:____________________
Its:___________________
<PAGE> 1
EXHIBIT 10.8
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this "Agreement") is made as of the
_____ day of __________, 1995, between Starwood Lodging Corporation, a Maryland
corporation (the "Corporation"), and ____________________ ("Indemnitee"), with
reference to the following facts and objectives:
A. Indemnitee is a Director or officer of the Corporation or one or more
of its subsidiaries or has been elected or appointed a Director or officer of
the Corporation or one or more of its subsidiaries effective at a later date;
and in the case of a person elected or appointed as a Director of the
Corporation effective at a later date is, or pending such later date is to
become, a member of the Management Committee of SLC Operating Limited
Partnership, a Delaware limited partnership (of which the Corporation is the
managing general partner) and as such is acting at the request of the
Corporation as an agent of the Corporation and an agent of SLC Operating
Limited Partnership.
B. Article Tenth of the Amended and Restated Articles of Incorporation
of the Corporation (the "Corporation Articles") provides for the
indemnification of directors ("Directors"), officers, employees and other
agents of the Corporation to the fullest extent required or permitted under of
the Maryland General Corporation Law (the "MGCL").
C. Each of the MGCL and Article Tenth of the Corporation Articles
specifically provides that the indemnification provided for therein is not
exclusive, thereby contemplate that agreements or other financial arrangements
may be entered into between the Corporation, on the one hand, and the
Corporation's Directors and officers, on the other hand, with respect to the
indemnification of and advancement of expenses to such persons.
D. In recognition of Indemnitee's need for substantial protection
against personal liability in order to maintain Indemnitee's continued service
to the Corporation in an effective manner and Indemnitee's reliance on the
Corporation Articles, and in part to provide Indemnitee with specific
contractual assurance that the protection promised by the Corporation Articles
will be available to Indemnitee (regardless of, among other things, any
limitation or other amendment or revocation of Article Tenth of the Corporation
Articles or any change in the composition of the Corporation's Board of
Directors (the "Board of Directors")), the Corporation desires to provide in
this Agreement for the indemnification of and the advancing of expenses to
Indemnitee to the full extent (whether partial or complete) permitted by law,
as set forth in this Agreement, and, to the extent directors' and officers'
insurance is maintained by the Corporation, for the continued coverage of
Indemnitee under such policy or policies.
NOW, THEREFORE, in consideration of the premises and of Indemnitee's
continuing to serve the Corporation directly or, at its request, another
enterprise, the Corporation and Indemnitee hereby agree as follows:
1. D&O Liability Insurance.
(a) Subject only to the provisions of Section 1(b) hereof, so
long as Indemnitee shall continue to serve as a Director and/or officer of
the Corporation (or
<PAGE> 2
shall continue at the request of the Corporation to serve as a
director, trustee, officer, partner, employee or agent of another
corporation, business trust, partnership, joint venture or other
enterprise or an employee benefit plan), and thereafter so long as
Indemnitee shall be subject to any possible claim or threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that Indemnitee was
a Director and/or officer of the Corporation or served in any of said
other capacities, the Corporation shall purchase and maintain in effect,
including through the obtaining or exercise of appropriate "tail"
coverage, one or more valid, binding and enforceable insurance policies
issued by a reputable insurer or insurers protecting Directors and
Corporation officers (subject to customary limitations and exceptions)
against losses, costs and expenses arising out of any such claim, action,
suit or proceeding ("D&O Insurance"), which D&O Insurance shall provide
coverage in all respects at least comparable to that presently provided,
and shall cause Indemnitee to be covered by such policy or policies.
The Corporation shall not be required to maintain in effect the
policy or policies of D&O Insurance contemplated by the first paragraph of
this Section 1(a) at any time at which (i) said insurance is not generally
available, or (ii) in the reasonable business judgment of the persons then
constituting the Board of Directors, either (I) the premium cost for such
insurance is substantially disproportionate to the amount of coverage
afforded, or (II) the coverage provided by such insurance is so limited
and/or subject to such exclusions that there is insufficient benefit to
the Corporation from such insurance; provided, however, that to the extent
that the Corporation maintains any D&O Insurance, Indemnitee shall be
covered by such policy or policies, in accordance with its or their terms,
to the maximum extent of the coverage available for any Director or
Corporation officer under such policy or policies, and, further, that in
the event the Corporation does not purchase and maintain in effect the
policy or policies of D&O Insurance contemplated by this Section 1(a), the
Corporation shall indemnify Indemnitee to the full extent of the coverage
that would otherwise have been provided for the benefit of Indemnitee
pursuant to such D&O Insurance.
(b) The Corporation's obligations under this Article 1 shall
terminate as of the fifth anniversary of the date on which Indemnitee
ceases to render any service or to act in any capacity specified in
Article 3 hereof.
2. Basic Indemnity. The Corporation hereby indemnifies Indemnitee,
whether or not he is then in office, to the fullest extent permitted by the
provisions of Section 2-418 of the MGCL or any amendment thereof or by any
other statute permitting such indemnification that is adopted after the date
hereof.
3. Additional Indemnity. Subject only to the limitations and
exclusions set forth in Article 5 hereof, and without limiting the provisions
of the foregoing Article 2, the Corporation hereby also expressly agrees that
in the event Indemnitee is or becomes a party to or witness or other
participant in, or is threatened to be made a party to or witness or other
participant in, any action, suit or proceeding, whether pending, threatened or
completed, whether civil, criminal or administrative, and whether instituted by
or in the
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<PAGE> 3
name of the Corporation or any other party, or any investigation or inquiry or
investigation that Indemnitee in good faith believes might lead to the
institution of any such action, suit or proceeding, by reason of (or arising in
part out of) the fact that Indemnitee is or was a Director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, trustee, officer, partner, employee, agent or
fiduciary of another corporation, business trust, partnership, joint venture or
other enterprise or an employee benefit plan, or by reason of anything done or
not done by Indemnitee in any such capacity (any such threatened, pending or
completed action, suit or proceeding, or any such inquiry or investigation, a
"Claim"), the Corporation shall indemnify Indemnitee against any and all
judgments, fines, penalties and amounts paid in settlement (including all
interest, assessments and other charges paid or payable in connection with or
in respect of such judgments, fines, penalties or amounts paid in settlement),
and any and all reasonable expenses, actually paid or incurred by Indemnitee in
connection with or in respect of such Claim.
4. Advancing of Expenses. If so requested by Indemnitee, and
subject only to the limitations and exclusions of Article 5 hereof, the
Corporation shall pay to Indemnitee or reimburse Indemnitee for any and all
expenses actually and reasonably incurred by Indemnitee in connection with or
in respect of any Claim (an "Expense Advance") in advance of the final
determination thereof, in the manner provided in Section 11(a) hereof.
For purposes of this Agreement, "expenses" shall include attorneys'
fees and all other costs, charges and obligations paid or incurred in
connection with investigating, defending, being a witness in or participating
in (including an appeal), or preparing to defend, be a witness in or
participate in, any Claim.
5. Limitation on Additional Indemnity and Advance Payment of
Expense Advances. No indemnity pursuant to Article 3 hereof shall be paid by
the Corporation, nor shall the Corporation be required to make any Expense
Advance under Article 4 hereof:
(a) For which and to the extent that payment or reimbursement of
such amount is made to Indemnitee under any D&O Insurance;
(b) For which and to the extent that Indemnitee is indemnified,
receives a recovery or is reimbursed other than pursuant to a policy of
insurance or this Agreement;
(c) On account of any action, suit or proceeding for which and
to the extent that judgment is rendered against Indemnitee (i) for an
accounting of profits made from the purchase or sale by Indemnitee of
securities of the Corporation pursuant to the provisions of Section 16(b)
of the Securities Exchange Act of 1934, as amended, or any similar
provision of any Federal, state or local statutory law, or (ii) for a
violation of any provision of the Securities Act of 1933, as amended, in
connection with the offer or sale of securities of the Corporation
pursuant to a registration statement under said statute, unless either (I)
in the opinion of counsel for the Corporation, Indemnitee is entitled to
such indemnification by controlling
-3-
<PAGE> 4
precedent, or (II) a final adjudication by a court of competent
jurisdiction holds that such indemnification is not against public policy
as expressed in such statute;
(d) On account of any action, suit or proceeding in which a
court of competent jurisdiction shall enter a final judgment that:
(i) The act or omissions of Indemnitee was material to the
matter giving rise to the proceeding and (I) was committed in bad
faith; or (II) was the result of active and deliberate dishonesty; or
(ii) Indemnitee actually received an improper personal
benefit in money, property or services; or
(iii) In the case of any criminal proceeding,
Indemnitee had reasonable cause to believe that the act or omission
was unlawful;
(e) On account of any action, suit or proceeding in which a
court of competent jurisdiction shall enter a final judgment in a
proceeding by or in the right of the Corporation that Indemnitee is liable
to the Corporation; or
(f) If such payment by the Corporation under this Agreement is
not otherwise permitted by applicable law.
In addition, if Maryland law in effect at the time so requires, (i)
the obligations of the Corporation under Articles 3 and 4 hereof shall be
subject to the condition that any "Determining Party" (as hereinafter defined)
shall not have determined (in a written opinion in any case in which the
"Independent Legal Counsel" (as defined in Article 6 hereof) is involved) that
indemnification of Indemnitee is not permitted under applicable law or the
expenses as to which Indemnitee requests payment or reimbursement are not
reasonable, and (ii) the obligation of the Corporation to make an Expense
Advance pursuant to Article 4 hereof shall be subject to the condition that if,
when and to the extent that any Determining Party determines that Indemnitee
would not be permitted to be so indemnified under applicable law, Indemnitee
shall reimburse the Corporation for all expenses paid; provided, however, that
if as of the time any determination is made by the Determining Party that
Indemnitee is under certain circumstances not permitted to be indemnified
and/or that certain expenses are not reasonable, Indemnitee has commenced or
thereafter commences legal proceedings in a court of competent jurisdiction to
secure a final determination that Indemnitee should or may be indemnified under
applicable law and/or that such expenses are reasonable, any determination made
by the Determining Party that Indemnitee would not be permitted to be
indemnified under applicable law and/or that any expenses are not reasonable
shall not be binding, and Indemnitee shall not be required to reimburse the
Corporation for any such expense until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed).
If there has not been a Change in Control (as hereinafter defined),
or if such Change in Control was approved by a majority of the Board of
Directors who were Directors
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<PAGE> 5
immediately prior to such Change in Control, the "Determining Party" shall be
such members of the Board of Directors, such Independent Legal Counsel (other
than with respect to the reasonableness of expenses), or such other person or
persons as MGCL Section 2-418 (or any successor provision) shall require. If,
on the other hand, there has been a Change in Control not approved by such
majority of the Board, the Determining Party shall be (i) as to whether
indemnification is permitted under applicable law, the Independent Legal
Counsel referred to in Article 6 hereof, and (ii) as to the reasonableness of
expenses, such members of the Board of Directors or such other person(s) as
MGCL Section 2-418 (or any successor provision) shall require.
For purposes of this Agreement, a "Change in Control" shall be deemed
to have occurred if (i) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the "Securities
Exchange Act")), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Corporation or another corporation or
business trust owned directly or indirectly by the stockholders of the
Corporation in substantially the same proportions as their ownership of shares
of stock of the corporation, becomes, directly or indirectly, the "beneficial
owner" (as defined in Rule 13(d)-3 under the Securities Exchange Act) of
securities of the Corporation evidencing 8% or more of the total voting power
evidenced by the Corporation's then outstanding securities that vote generally
in the election of Directors ("Voting Securities"), or (ii) during any period
of two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors and any new Director whose election by the
Board of Directors or nomination for election by the Corporation's stockholders
was approved by the vote of at least two-thirds of the Directors then still in
office who were either Directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority of the Board of Directors, or (iii) the
stockholders of the Corporation approve a merger or consolidation of the
Corporation with any other corporation, business trust or other entity, other
than a merger or consolidation that would result in the holders of Voting
Securities outstanding immediately prior to such merger or consolidation
continuing to have (by virtue of such Voting Securities either remaining
outstanding or being converted into securities entitled to vote generally in
the election of directors or trustees of the surviving entity) at least 80% of
the total voting power evidenced by the Voting Securities or the voting
securities of such surviving entity outstanding immediately after such merger
or consolidation, or (iv) the stockholders of the Corporation approve a plan of
complete liquidation of the Corporation or an agreement for the sale or
disposition by the Corporation of (in one transaction or a series of affiliated
transactions) all or substantially all of the Corporation's assets.
If within 15 business days after Indemnitee submits a request for
indemnification or for a payment or reimbursement of expenses hereunder, there
has been no determination by the Determining Party, or if the Determining Party
determines that Indemnitee is not permitted to be indemnified in whole or in
part under applicable law and/or that the expenses as to which payment or
reimbursement has been requested are not reasonable, Indemnitee shall have the
right to commence litigation in any court in the States of Maryland or
California having subject matter jurisdiction thereof and in which venue is
proper, seeking an initial determination by the court or challenging any such
determination
-5-
<PAGE> 6
by the Determining Party or any aspect thereof, including the legal or factual
bases therefor, and the Corporation hereby consents to service of process and
to appear in any such proceeding.
6. Independent Legal Counsel. In the event that there is a Change
in Control (other than a Change in Control that has been approved by a majority
of the Board of Directors immediately prior to such Change in Control), the
Corporation shall seek legal advice with respect to any and all matters
thereafter arising concerning the rights of Indemnitee to indemnity payments
and payment or reimbursement of expenses under this Agreement or any other
agreement or financial arrangement or the Corporation Articles as now or
hereafter in effect only from an attorney or firm of attorneys selected in
accordance with the provisions of this Article, which attorney or firm (the
"Independent Legal Counsel") proposed by Indemnitee and selected by the board
of Directors (or a committee thereof), or such other person(s) as MGCL Section
2-418 (or any successor provision) may require. Such Independent Legal
Counsel, among other things, shall render its written opinion to the
Corporation and Indemnitee as to whether and to what extent Indemnitee would be
permitted to be indemnified under applicable law. The Corporation shall pay
the reasonable fees and expenses of the Independent Legal Counsel and shall
fully indemnify such counsel against all expenses, claims, liabilities, losses
and damages arising out of or relating to this Agreement or such counsel's
engagement pursuant hereto.
7. Indemnification for Additional Expenses. To the full extent
permitted by law, the Corporation shall indemnify Indemnitee against any and
all expenses and, if requested by Indemnitee, shall (within 10 business days of
such request) advance such expenses to Indemnitee, that are incurred by
Indemnitee in connection with any Claim asserted against or action, suit or
proceeding brought by Indemnitee for (i) indemnification or payment or
reimbursement of expenses by the Corporation under this Agreement or any other
agreement or the Corporation Articles each as now or hereafter in effect,
relating to claims for indemnification or advancement of expenses, and/or (ii)
recovery under any D&O Insurance policy or policies maintained by the
Corporation, if Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be.
8. Partial Indemnity. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Corporation for some or a
portion of the expenses, judgments, fines, penalties and amounts paid in
settlement or incurred by Indemnitee in respect of a Claim, but not, however,
for all of such amount, the Corporation nevertheless shall indemnify Indemnitee
for the portion thereof to which Indemnitee is entitled. Moreover,
notwithstanding any other provision of this Agreement, to the extent that
Indemnitee has been successful in the merits or otherwise in defense of any
Claim, issue or matter, including dismissal without prejudice, Indemnitee shall
be indemnified against all expenses incurred in connection with such defense.
9. No Presumptions; Burden of Proof. For purposes of this
Agreement, the termination of any action, suit or proceeding by judgment, order
or settlement (with or without court approval) shall not, of itself, create a
presumption that Indemnitee's conduct
-6-
<PAGE> 7
was such that indemnity is not available pursuant to Article 3 hereof;
provided, however, that the termination of any action, suit or proceeding by
conviction, or upon a plea of nolo contendere or its equivalent, or an entry of
an order of probation prior to judgment, shall create a rebuttable such
presumption, and that the termination of any action, suit or proceeding by a
settlement entered into by Indemnitee at the request of the Corporation shall
create a rebuttable presumption that Indemnitee is entitled to indemnity
hereunder.
Except as provided by the immediately preceding sentence, in
connection with any determination by the Determining Party or otherwise as to
whether Indemnitee is entitled to be indemnified hereunder, the burden of proof
shall be on the Corporation to establish that Indemnitee is not so entitled.
In addition, any attorneys' fees as to which Indemnitee requests
indemnification or advancement shall be rebuttably presumed reasonable if and
to the extent that such fees, if charged at an hourly rate, do not exceed the
hourly rates then regularly charged by such attorney or attorneys.
10. Notification and Defense of Claims. Promptly after receipt by
Indemnitee of notice of the commencement of any Claim, Indemnitee shall notify
the Corporation of the commencement thereof; provided, however, that the
failure so to notify the Corporation shall relieve the Corporation from any
obligation or liability that the Corporation may have to Indemnitee under this
Agreement only if and to the extent that the Corporation's rights hereunder are
prejudiced by such omission. If at the time the Corporation receives such
notice, the Corporation has D&O Insurance in effect, the Corporation shall give
prompt notice of the commencement of Claim to the insurer(s) in accordance with
the procedures set forth in the policy or policies in favor of Indemnitee. The
Corporation thereafter shall take all necessary or desirable action to cause
such insurer(s) to pay, or advance, to or on behalf of Indemnitee, all losses,
costs and expenses payable as a result of such Claim in accordance with the
terms of such policy or policies. The provisions of this agreement shall in no
way relieve or modify any obligation(s) or liability or liabilities of any
insurer under any D&O Insurance or other applicable insurance policy.
With respect to any Claim as to which Indemnitee notifies the
Corporation of the commencement thereof:
(a) The Corporation shall be entitled to participate therein at
its own expense.
(b) Except to the extent such Claim is brought by or in the
right of the Corporation and/or as otherwise provided below, to the extent
that it may wish, the Corporation jointly with any other indemnifying
party similarly notified shall be entitled to assume the defense of
Indemnitee in respect of such Claim, at the Corporation's own expense,
with counsel approved by Indemnitee, whose approval shall not be
unreasonably withheld. After notice from the Corporation to Indemnitee of
the Corporation's election so to assume such defense, the Corporation
shall not be liable to Indemnitee under this agreement for any legal or
other expenses subsequently incurred by Indemnitee in connection with the
defense thereof, other than as expressly
-7-
<PAGE> 8
provided to the contrary below. Indemnitee shall have the right to employ
his own counsel in connection with such Claim, but the fees and expenses
of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Indemnitee
unless:
(i) Such retention (or continued retention) of counsel by
Indemnitee has been authorized or consented to by the Corporation;
(ii) Counsel employed by Indemnitee shall have concluded
that there is or may be a conflict of interest between Indemnitee and
the Corporation with respect to such action, in which event counsel
employed by Indemnitee also shall be entitled to participate in the
defense of Indemnitee in connection with such Claim;
(iii) The counsel retained by the Corporation to assume
the defense of Indemnitee in such proceeding shall also be
representing in such action the Corporation and/or one or more other
parties; such counsel shall have concluded that there is an actual
conflict of interest between Indemnitee and the one or more of such
other parties (including, if applicable, the Corporation); and within
10 business days after the Corporation is notified of such conflict,
separate counsel shall not have been retained by the Corporation to
represent either the party or parties with whom there is such
conflict of interest or Indemnitee (in which case such counsel shall
be selected by Indemnitee and approved by the Corporation, whose
approval shall not be unreasonably withheld); or
(iv) The Corporation shall not in fact have retained
counsel to assume the defense of Indemnitee in connection with such
action.
In each of the above cases, the fees and expenses of counsel employed by
Indemnitee shall be at the expense of the Corporation.
(c) The Corporation shall not be required to indemnify
Indemnitee under this Agreement for any amounts paid in settlement of any
Claim effected without the Corporation's written consent. The Corporation
shall not settle any Claim in any manner that would impose any penalty or
limitation on Indemnitee without Indemnitee's written consent. Neither
the Corporation nor Indemnitee shall unreasonably withhold consent to any
such proposed settlement.
11. Indemnification and Expense Advancement Requests.
(a) Advancement of Expenses.
(i) Indemnitee shall, in order to request payment or
reimbursement of expenses pursuant to Article 4 hereof, submit to the
Board of Directors a statement of request for advancement of expenses
substantially
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<PAGE> 9
in the form of Exhibits 1 or 1A attached hereto and made a part
hereof (the "Expense Advancement Request").
(ii) Within 10 business days after receipt of a properly
completed Expense Advancement Request and an invoice or other
statement of the expenses to be advanced, the President, the Chief
Executive Officer or a Vice President of the Corporation shall
authorize the Corporation's payment or reimbursement of said
expenses, whereupon such payment(s) or reimbursement(s) shall
immediately be made. No security shall be required in connection
with any Expense Advancement Request, and it shall be accepted
without reference to Indemnitee's financial ability to make
repayment.
(b) Indemnification.
(i) Indemnitee, in order to request indemnification
pursuant to Article 3 hereof, shall submit to the Board of Directors
a statement of request for indemnification substantially in the form
of Exhibit 2 attached hereto and made a part hereof (the
"Indemnification Request").
(ii) Any and all payments on account of the Corporation's
indemnification obligations under Article 3 hereof shall be made
within 10 business days of the Corporation's receipt of a duly
completed Indemnification Request with respect thereto.
12. Continuation of Indemnity; Indemnity Not Exclusive. All
agreements and obligations of the Corporation contained herein shall continue
during the period Indemnitee is a Director and/or officer of the Corporation
(or serves at the request of the Corporation as a director, trustee, officer,
partner, employee or agent of another corporation, business trust, partnership,
joint venture or other enterprise or an employee benefit plan) and shall
continue thereafter so long as Indemnitee shall be subject to any possible
Claim.
The rights and benefits of Indemnitee and the obligations of the
Corporation under this Agreement shall be in addition to, and shall not
supersede, limit or be in lieu of, the provisions, if any, relating to the
indemnification of Indemnitee by the Corporation in the Corporation Articles,
the Bylaws of the Corporation, any resolution or resolutions of the Board of
Directors, any other agreement or financing arrangement, the provisions of
policies of insurance of the Corporation, or other applicable law.
13. Subrogation. In the event of payment or reimbursement by the
Corporation under this Agreement, the Corporation shall be subrogated to the
extent of such payment or reimbursement to any and all rights of recovery of
Indemnitee, who shall execute all papers required and shall do everything that
may be necessary to secure such rights, including the execution of any and all
such documents as may be necessary to enable the Corporation effectively to
enforce such rights.
14. Notice. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given if (i) delivered by hand
and receipted
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<PAGE> 10
for by the party to whom such notice or other communication shall have been
directed, or (ii) mailed by certified or registered mail with postage prepaid,
on the third business day after the date on which so mailed:
If to Indemnitee, to: ____________________________________
____________________________________
____________________________________
If to the Corporation, to: Starwood Lodging Corporation
11845 W. Olympic Blvd.
Suite 550
Los Angeles, CA 90064
Attention: Executive Vice President
or to such other address as may have been furnished to Indemnitee by the
Corporation or to the Corporation by Indemnitee, as the case may be.
15. Severability. If any provision of this Agreement or the
application of such provision to any person or circumstance is held by a court
of competent jurisdiction invalid, void or otherwise unenforceable, the
remainder of this Agreement and the application of such provision to other
persons or circumstances shall not be affected, and the provision so held to be
invalid, void or otherwise unenforceable shall be reformed to the extent (and
only to that extent) necessary to make it enforceable.
16. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one document.
17. Captions. The captions of the Articles to this Agreement have
been included herein for convenience of reference only, and this Agreement
shall not be construed by reference thereto.
18. Governing Law; Binding Effect; Amendment and Termination.
(a) This Agreement is made and entered into pursuant to Section
2-418 of the MGCL, and this Agreement shall be governed by and its
provisions interpreted and enforced in accordance with the laws of the
State of Maryland applicable to contracts made and to be performed in such
State without giving effect to the principles of conflicts of laws.
(b) This Agreement shall be binding upon and inure to the
benefit of (i) the Corporation and its successors and permitted assigns
(including any direct or indirect successor by purchase, merger,
consolidation or otherwise to all or substantially all of the business
and/or assets of the Corporation), and (ii) Indemnitee, his or her spouse,
heirs, executors, personal and legal representatives and other successors
and permitted assigns. Neither this Agreement nor any right or obligation
hereunder may be assigned, delegated or otherwise transferred by
Indemnitee voluntarily during his lifetime or by the Corporation, except
that the Corporation shall
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<PAGE> 11
require and cause any successor to expressly assume and agree (by a
writing in form and substance satisfactory to Indemnitee, whose approval
shall not be unreasonably withheld) to perform this Agreement in the same
manner and to the same extent that the Corporation would have been
required to perform if no such succession had taken place.
(c) No amendment, supplement or other modification, termination
of this Agreement shall be effective unless executed in writing by both of
the parties hereto. No waiver of any provision or provisions of this
Agreement shall be deemed or shall constitute a waiver of any other
provision or provisions hereof (whether or not similar), nor shall any
such waiver constitute a continuing waiver.
19. Other Indemnification Agreements.
(a) This Agreement supersedes and replaces any prior Indemnification
Agreement between the Corporation and Indemnitee which covers similar rights
and obligations between Indemnitee and the Corporation; provided however that
Indemnitee and the Corporation shall retain any and all rights and obligations
under any such prior agreement which may have accrued or be applicable to any
period prior to the date of this Agreement.
(b) If Indemnitee has entered into, or in the future enters into, an
Indemnification Agreement with Starwood Lodging Trust, a Maryland real estate
investment trust, similar to this Agreement, then if and to the extent that
Indemnitee is entitled to indemnification against and/or advancement of any
judgement(s), fine(s), penalty(ies), amount(s) paid in settlement, cost(s)
and/or expense(s) both under this Agreement and such other Indemnification
Agreement, Indemnitee shall be entitled to seek such indemnification and/or
reimbursement under either or both of said agreements, as Indemnitee may elect,
but any and all such requests for indemnification and/or advancement of
expenses shall be subject to the provisions of paragraph (b) of Section 5 of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on and as of the day and year first above written.
STARWOOD LODGING CORPORATION, a Maryland
Corporation
By_______________________________________________
Its_________________________________________
_________________________________________________
_________________________, Indemnitee
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<PAGE> 12
Exhibit 1
Expense Advancement Request
I, _______________________________________, do hereby affirm,
undertake and agree as follows:
1. This Expense Advancement Request is submitted pursuant to the
Indemnification Agreement dated as of ______________, 1995 (the
"Indemnification Agreement"), between Starwood Lodging Corporation, a Maryland
corporation (the "Corporation"), and the undersigned.
2. I am requesting that the Corporation pay or reimburse to me
certain expenses that I have incurred in connection with the following civil,
criminal, administrative or investigative action, suit or proceeding to which I
am a party (the "Claim"):
_______________________________________________________
_______________________________________________________
_______________________________________________________
3. The expenses payment or reimbursement of which is requested are
itemized below:
_______________________________________________________
_______________________________________________________
_______________________________________________________
4. It is my good faith belief that in connection with the matters
that are the subject of the Claim, I have met the standard of conduct necessary
for indemnification by the Corporation pursuant to Section 2-418 of the
Maryland General Corporation Law (a copy of which has been provided to me).
5. If it shall be ultimately determined that in connection with the
matters that are the subject of the Claim, I have not met such standard of
conduct, I will repay to the Corporation the amounts paid or reimbursed
pursuant hereto.
______________________________________
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<PAGE> 13
Exhibit 1A
Expense Advancement Request
I, _______________________________________, do hereby affirm,
undertake and agree as follows:
1. This Expense Advancement Request is submitted pursuant to the
Indemnification Agreement dated as of ______________, 1995 (the
"Indemnification Agreement"), between Starwood Lodging Corporation, a Maryland
corporation (the "Corporation"), and the undersigned.
2. I am requesting that the Corporation pay directly the fees,
expenses and other charges of my legal counsel, _________________________, in
connection with the following civil, criminal, administrative or investigative
action, suit or proceeding to which I am a party (the "Claim"):
_______________________________________________________
_______________________________________________________
_______________________________________________________
3. It is my good faith belief that in connection with the matters
that are the subject of the Claim, I have met the standard of conduct necessary
for indemnification by the Corporation pursuant to Section 2-418 of the
Maryland General Corporation Law (a copy of which has been provided to me).
4. If it shall be ultimately determined that in connection with the
matters that are the subject of the Claim, I have not met such standard of
conduct, I will repay to the Corporation the amounts paid by the Corporation
pursuant hereto.
______________________________________
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<PAGE> 14
Exhibit 2
Indemnification Request
I, _______________________________________, do hereby affirm,
undertake and agree as follows:
1. This Indemnification Request is submitted pursuant to the
Indemnification Agreement dated as of _________________, 1995 (the
"Indemnification Agreement"), between Starwood Lodging Corporation, a Maryland
corporation (the "Corporation"), and the undersigned.
2. I am requesting indemnification against the following expenses
(including attorneys' fees), judgments, penalties, fines and amounts paid in
settlement, paid or incurred by me in connection with suit, action,
investigation, inquiry or other proceeding also described below:
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
3. With respect to all matters related to such proceeding, I am
entitled to be indemnified pursuant to the aforesaid Indemnification Agreement.
______________________________________
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<PAGE> 15
AMENDMENT NO. 1 TO
INDEMNIFICATION AGREEMENT
_______________
Starwood Lodging Corporation
11835 West Olympic Boulevard
Suite 675
Los Angeles, CA 90064
Re: Indemnification Agreement
Gentlemen:
Please refer to the Indemnification Agreement (the "Agreement") dated
as of ____________________, between Starwood Lodging Corporation, a Maryland
corporation (the "Corporation") and the undersigned ("Indemnitee").
Defined terms used herein have the same meaning as in the Agreement.
This confirms our understanding that nothing contained in the
Agreement is intended to, nor shall be deemed as, an agreement to indemnify or
to advance expenses to the Indemnitee to the extent that the Indemnitee brings
any action, suit or proceeding or causes any such action, suit or proceeding to
be brought, against the Corporation or any of the Directors of the Corporation
other than an action, suit or proceeding against the Corporation for the
Corporation's alleged breach of the Agreement.
Yours very truly,
AGREED TO:
Starwood Lodging Corporation,
a Maryland corporation
By:____________________
Its:___________________
<PAGE> 1
EXHIBIT 10.16
MORTGAGE LOAN FUNDING FACILITY
Dated: July 25, 1995
SLT Realty Limited Partnership and
SLT Realty Company, L.L.C.
11845 West Olympic Boulevard, Suite 550
Los Angeles, California 90064
Attention: Barry S. Sternlicht, Chairman, Trustee and Chief
Executive Officer of
Starwood Lodging Trust (the general partner of SLT Realty Limited
Partnership and 0.28% member of SLT Realty Company, L.L.C.)
Gentlemen:
Lehman Commercial Paper Inc. ("Lehman") hereby agrees to make
available to SLT Realty Limited Partnership ("SLTLP") and SLT Realty Company,
L.L.C. ("SLTLLC", together with SLTLP collectively, the "Customers") a loan
facility (this "Facility") secured by mortgage loans and a participation
interest on the terms set forth in this Mortgage Loan Funding Facility (this
"Facility Agreement"). Capitalized terms not defined herein shall have the
respective meanings given such terms in the Pledge Agreement, dated the date
hereof, between the Customers and Lehman (the "Pledge Agreement").
1. The Advances. Lehman agrees to make advances from
time to time (each an "Advance" and collectively with any Subsequent Advances,
the "Advances") to Customers and to Reset such Advances (subject to the
requirements of the Relevant Agreements) in an aggregate principal amount not
to exceed at any one time outstanding $44,600,000 (the "Maximum Credit"). The
minimum amount of each Advance or Subsequent Advance shall be one million
dollars ($1,000,000) with additional increments of one hundred thousand dollars
($100,000) thereafter. This Facility is a commitment to lend and sets forth
the procedures to be used in connection with periodic Advances. The parties
acknowledge that in the absence of an Event of Default and upon satisfaction of
all of the covenants and conditions precedent in the Relevant Agreements,
Lehman shall make any Advance requested pursuant to this Facility. All
Advances made by Lehman hereunder shall be evidenced by the Promissory Note.
Although the Promissory Note shall be dated the date of issue, interest in
respect thereof shall be payable only for the periods during which the Advances
evidenced thereby are outstanding, and although the stated amount of the
Promissory Note shall be equal to the Maximum Credit, the Promissory Note shall
be enforceable only to the extent of the unpaid aggregate principal amount of
the Advances then outstanding plus any other amounts due thereunder. Within
the limits of the Maximum Credit, Customers may borrow, repay pursuant to
Sections 3 and 4 hereof and reborrow pursuant to Section 2 hereof. Lehman shall
note and endorse on its internal records each Advance and payment thereon,
provided, however, failure to do so shall not prejudice Lehman's rights under
the Relevant Agreements.
<PAGE> 2
2. Making the Advances and Resetting of the Interest
Rate. (a) On any day no later than 2:00 P.M. (New York City time) two (2)
Business Days prior to the date on which Customers desire to borrow funds from
Lehman under this Facility or two (2) Business Days prior to the Reset Date (as
defined below) of an outstanding Advance, if the Customers desire a term until
the next Reset Date with respect to such Advance (each such term, the "Reset
Term") to be other than one month, Customers shall notify Lehman by telephone
or telecopy that Customers wish to borrow money on a specified date in a
specified principal amount and for a specified term or notify Lehman of the
desired Reset Term, if other than one month, as the case may be.
(b) Each such request by Customers shall be
evidenced by a notice (each, a "Notice of Borrowing") substantially in the form
attached hereto, with the blanks appropriately completed and duly executed,
which Notice of Borrowing shall be received no later than 4:00 PM (New York
City time) two (2) Business Days prior to the Reset Date or the date of the
requested Advance, as applicable. On the date of such Subsequent Advance, as
so agreed by Customers and Lehman, Lehman will make its Advance to Customers
upon the satisfaction of the conditions precedent to such Advance set forth in
Section 6 hereof. On the Reset Date, the Interest Rate for the requested Reset
Term shall be quoted by Lehman in accordance with Section 2(c) hereof.
Promptly after the Reset Date or the date of any Subsequent Advance, as
applicable, Lehman will send to Customers' a written confirmation of such
Subsequent Advance or Reset Term (each, a "Confirmation"), and Customers'
acceptance of the related proceeds, if applicable, or failure to object in
writing within one Business Day of receipt thereof, shall constitute Customers'
agreement to the terms thereof.
(c) The Reset Term for each Advance shall be one
month (or, in the case of the initial Reset Term related to an Advance or
Subsequent Advance, such shorter period of time from the date of such Advance
or Subsequent Advance to the immediately succeeding Reset Date), unless
otherwise requested in the Notice of Borrowing and confirmed by Lehman in the
Confirmation. In the event the Reset Term of an Advance or Subsequent Advance
is one month or less and the Reset Date or the date on which the Advance or
Subsequent Advance is made, as applicable, is (i) within the first twelve (12)
months from the date hereof, the interest rate with respect to such Advance or
Subsequent Advance shall be the LIBOR Rate, as determined by Lehman, plus one
hundred fifty (150) basis points, or (ii) after the first twelve (12) months
from the date hereof, the interest rate with respect to such Advance or
Subsequent Advance shall be the LIBOR Rate, plus one hundred seventy-five (175)
basis points (either such rate, the "Interest Rate"). In the event that
One-Month LIBOR is no longer publicly available, the Interest Rate shall be the
Prime Rate plus fifty (50) basis points. In the event that the Customers
request a Reset Term for an Advance or a Subsequent Advance which is longer
than one month, such request shall be specified on the Notice of Borrowing, and
the Interest Rate shall be the rate quoted by Lehman and agreed to by Customers
(and as specified in the Confirmation). Notwithstanding the foregoing, Lehman
shall be under no obligation to provide Customers with a quoted rate for a
Reset Term in excess of one month and, if such quoted rate is not mutually
agreeable among the Customers and Lehman or if no Notice of Borrowing is
delivered prior to the then applicable Reset Date, the Reset Term in connection
with the related Advances shall be one month. All computations
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<PAGE> 3
of interest based on the LIBOR Rate or the rate quoted by Lehman at the
Customers' request shall be made by Lehman on the basis of a year of 360 days
for the actual number of days elapsed during the applicable Interest Period
(including the first day and the last day of the Interest Period). All
computations of interest based on the Prime Rate shall be made by Lehman on the
basis of a year of 360 days and twelve 30-day months for the actual number of
days elapsed during the applicable Interest Period (including the first day and
the last day of the Interest Period). In the event that the principal and/or
interest due relating to any Collateral remains due and unpaid for more than 59
days (the "Delinquent Collateral"), then the Interest Rate with respect to the
amount of the outstanding Advances or portion thereof which are secured by such
Delinquent Collateral shall be increased by one hundred fifty (150) basis
points retroactively to the date such Delinquent Collateral became 59 days
delinquent, until the Collateral is no longer Delinquent Collateral.
Notwithstanding the above, Advances shall be deemed secured first by Collateral
which is not Delinquent Collateral and second by Delinquent Collateral, to the
fullest extent possible. Lehman shall notify the Customers in writing within
30 days following Lehman's actual notice that such Collateral has become
Delinquent Collateral of the revised Collateral Value (including the Delinquent
Collateral) and the amount of outstanding Advances which are secured by such
Delinquent Collateral, as determined in accordance with the Relevant
Agreements. Any payment to be made hereunder on a day other than a Business
Day shall be made on the applicable Business Day determined in accordance with
the provisions of the term "Interest Period" set forth herein and such
extension or reduction of time shall in such case be included in the
computation of payment of interest.
(d) The Interest Rate for each Advance and
Subsequent Advance shall Reset on each Reset Date in accordance with the terms
of this Section 2 and in accordance with the provisions of the term "Interest
Period" set forth herein. On each Reset Date, unless the Customers' have
delivered the Notice of Borrowing in accordance with Sections 2(a) and (b),
Customers shall be deemed to have elected to reset the Advance or Subsequent
Advance for the Reset Term of one month at the Interest Rate applicable to such
Reset Term in effect on the Reset Date (or if at such time One Month LIBOR is
no longer publicly available, Customers shall be deemed to have elected to
convert such Advance or Subsequent Advance into an Advance bearing interest at
the Prime Rate plus fifty (50) basis points, effective as of the Reset Date).
Lehman shall send a Confirmation to the Customers after each Reset Date
specifying the new Interest Rate with respect to the related Advances or
Subsequent Advances.
(e) Customers agree to indemnify Lehman and to
hold Lehman harmless from any loss or expense which Lehman may actually sustain
or actually incur as a consequence of (i) default by the Customers in payment
when due of the principal amount of or interest on any Advance, (ii) default by
the Customers in making a borrowing after the Customers have delivered a Notice
of Borrowing to Lehman in accordance with Section 2 hereof or (iii) prepayments
of an Advance prior to a Reset Date or the Facility Termination Date by
Customers. Lehman may fund any Advance in any manner that it in its sole
discretion chooses. This Section 2(e) shall survive termination of this
Facility and payment of all amounts outstanding under the Relevant Agreements.
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<PAGE> 4
(f)(1) In the event that, from and after the date
hereof, any change in any Requirement of Law or in the interpretation or
application thereof or compliance by Lehman with any request or directive
(whether or not having the force of law) from any central bank or other
Governmental Authority made subsequent to the date hereof:
(i) shall subject Lehman to any tax of
any kind whatsoever with respect to this Facility, any Advances made
by it, or change to the basis of taxation of payments to Lehman in
respect thereof (except for changes in the rate of tax on the overall
net income of Lehman);
(ii) shall impose, modify or hold
applicable any reserve, special deposit, compulsory loan or similar
requirement against assets held by, deposits or other liabilities in
or for the account of, advances, loans or other extensions of credit
by, or any other acquisition of funds by, any office of Lehman which
are not otherwise included in the determination of the LIBOR Rate or
the quoted rate; or
(iii) shall impose on Lehman any other
condition;
and the result of any of the foregoing is to increase the cost to Lehman, by
any amount which Lehman deems to be material, of making or maintaining Advances
or to reduce any amount receivable hereunder in respect thereof then, in any
such case, the Customers shall promptly pay Lehman, within ten (10) days
following demand therefor, any additional amounts necessary to compensate
Lehman for such additional cost or reduced amount receivable. If Lehman
becomes entitled to claim any additional amounts pursuant to this Section 2(f),
it shall promptly notify the Customers of the event by reason of which it has
become so entitled. A certificate as to any additional amounts payable
pursuant to the foregoing sentence submitted by Lehman to the Customers shall
be conclusive in the absence of manifest error. This covenant shall survive the
termination of this Facility and payment of the amounts outstanding under the
Relevant Agreements.
(2) In the event that Lehman shall have
determined that any change in any Requirement of Law regarding capital adequacy
or in the interpretation or application thereof or compliance by Lehman or any
corporation controlling Lehman with any request or directive regarding capital
adequacy (whether or not having the force of law) from any central bank or
Governmental Authority made subsequent to the date hereof does or shall have
the effect of reducing the rate of return on Lehman's or such corporation's
capital as a consequence of its obligations hereunder to a level below that
which Lehman or such corporation could have achieved but for such change or
compliance (taking into consideration Lehman's or such corporation's policies
with respect to capital adequacy) by an amount deemed by Lehman to be material,
then from time to time, after submission by Lehman to the Customers of a
written request therefor (including calculations of any such additional amounts
in reasonable detail), the Customers shall pay to Lehman such additional amount
or amounts as will compensate Lehman for such reduction.
(g) All payments made by the Customers under this
Facility and the Relevant Agreements shall be made free and clear of, and
without deduction or withholding
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<PAGE> 5
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding net income taxes and franchise taxes (imposed in lieu of
net income taxes) imposed on Lehman as a result of a present or former
connection between the jurisdiction of the government or taxing authority
imposing such tax and Lehman (excluding a connection arising solely from Lehman
having executed, delivered or performed its obligations or received a payment
under, or enforced, this Facility or the Relevant Agreements) or any political
subdivision or taxing authority thereof or therein (all such non-excluded
taxes, levies, imposts, duties, charges, fee, deductions and withholdings being
hereinafter called "Taxes"). If any Taxes are required to be withheld from any
amounts payable to Lehman hereunder or under the Relevant Agreements, the
amounts so payable to Lehman shall be increased to the extent necessary to
yield to Lehman (after payment of all Taxes) interest or any such other amounts
payable hereunder at the rates or in the amounts specified in this Facility and
the Relevant Agreements. Whenever any Taxes are payable by the Customers, as
promptly as possible thereafter the Customers shall send to Lehman for its own
account a certified copy of an original official receipt received by the
Customers showing payment thereof. If the Customers fail to pay any Taxes when
due to the appropriate taxing authority or fail to remit to Lehman the required
receipts or other required documentary evidence, the Customers shall indemnify
Lehman for any incremental taxes, interest or penalties that may become payable
by Lehman as a result of any such failure. The agreements in this Section
shall survive the termination of this Facility and the payment of the
Promissory Note and all other amounts payable under the Relevant Agreements.
The Customers agree that each transferee or assignee of Lehman or participant
who purchases a participation in this Facility (collectively, the
"Transferees") shall be entitled to the benefits of this Section 2(g) with
respect to its interest in this Facility and the Advances outstanding from time
to time as if it were "Lehman", provided that the Transferees shall not be
entitled to receive any greater amount pursuant to this Section 2(g) than
Lehman would have been entitled to receive in respect of the amount of the
interest transferred by Lehman to such Transferees had no such transfer
occurred. The Customers shall not be required to indemnify Lehman (or a
Transferee), pursuant to this Section 2(g) to the extent that the Taxes are a
result of the transfer of this Facility, to an office of Lehman (or such
Transferee) in another jurisdiction, after the date Lehman (or such Transferee)
obtains its interest hereunder.
(h) The following terms have the meanings
indicated when used herein:
"Interest Period" means with respect to any Advance or
Subsequent Advance:
(a) initially the period commencing on the date such
Advance is made and ending on the date immediately preceding the Reset Date set
forth in the related Notice of Borrowing;
(b) thereafter, each period commencing on the next
preceding Reset Date applicable to such Advance and ending one month thereafter
on the date immediately
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<PAGE> 6
preceding the next Reset Date or the date specified in the related Notice of
Borrowing, as applicable;
provided that,:
any Interest Period or Reset Date that would
otherwise extend beyond the Facility Termination Date shall end on the
Facility Termination Date or such date of final payment, as the case
may be.
"Interest Rate" means the rate of interest determined in
accordance with Section 2(c) hereof.
"LIBOR Rate" means with respect to each day during each
Interest Period pertaining to an Advance, a rate per annum determined for such
Interest Period in accordance with the following formula (rounded upwards to
the nearest 1/100th of one percent):
One-Month LIBOR
__________________________________
1.00 - LIBOR Reserve Requirements
"LIBOR Reserve Requirements" means, with respect to Lehman or
any Transferee, for any day, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on such day
applicable to Lehman or such Transferee (including, without limitation, basic,
supplemental, marginal and emergency reserves under any regulations of the
Board of Governors of the Federal Reserve System or other Governmental
Authority having jurisdiction with respect thereto), dealing with reserve
requirements prescribed for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of such Board) maintained by a
member bank of such System.
"One-Month LIBOR" shall mean, with respect to each day during
an Interest Period pertaining to an Advance or Subsequent Advance with a Reset
Term of one month or less, a rate per annum equal to (a) in the case of an
Advance or Subsequent Advance made on a date other than a Reset Date, the
interpolated rate per annum based on such rates appearing at page 314 of the
Telerate Screen on the first day of such initial Interest Period and with
durations most closely approximating the number of days from such date to the
next succeeding Reset Date, and (b) in the case of an Advance or Subsequent
Advance made on a Reset Date or reset on a Reset Date, the rate appearing at
page 3750 of the Telerate Screen as one-month LIBOR on the first day of such
Interest Period, in each case determined at or about 11:00 a.m. (London,
England time). If either such rate shall not be so quoted, the One-Month
LIBOR shall be the rate per annum at which deposits in Dollars are offered by a
prime bank in the London interbank market designated by Lehman at approximately
11:00 a.m. (London, England time) on such date and in an amount comparable to
the amount of the Advance to be outstanding during such Interest Period.
"Reset Date" shall mean the first day of a calendar month on
which commercial banks are not required to be closed in New York, New York
and/or in which dealings in U.S. dollar deposits are carried on in the London
interbank market.
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<PAGE> 7
"Telerate Screen" shall mean the screens broadcast by the Dow
Jones Telerate Service, its successors and assigns.
3. Payment of Principal and Interest. Customers shall
repay, and shall pay interest on, each Advance in accordance with the terms
hereof and of the Promissory Note, it being understood that upon each
disbursement of funds as set forth in Section 2 above Customers shall have
effected a borrowing from Lehman hereunder and shall be indebted to Lehman for
the principal amount thereof, plus interest thereon, in accordance with the
terms hereof and of the Promissory Note. Interest accrued on an Advance shall
be payable in arrears on the first Business Day of each month which such
Advance is outstanding and upon the payment or prepayment in full thereof,
except that interest payable on any amount not paid in full when due shall be
payable from time to time on demand. Customers shall have the right to prepay
any principal amount of any Advance without the prior written consent of Lehman
on any Reset Date and Customers may prepay an Advance prior to the Reset Date
of such Advance if Customers pay to Lehman on the date of such prepayment (the
"Prepayment Date") the principal of such Advance together with the related
interest on such Advance from the date of such Advance through and including
the Prepayment Date plus the amounts due to Lehman pursuant to Section 2(e)
hereof.
4. Procedures for Payments. Customers may, at their
option repay each Advance made to Customers, but in any event shall pay the
interest on each Advance, not later than 2:00 P.M. (New York City time) each
Reset Date with respect to such Advance as specified in the related
Confirmation, in United States Dollars and in same day funds, provided,
however, no Reset Date for any Advance shall occur later than the date which is
eighteen (18) months from the date hereof (the "Facility Termination Date").
Notwithstanding the foregoing, in the event that the Reset Term of an Advance
is longer than one month, Customer shall pay to Lehman no later than 2:00 P.M.
(New York City time) the accrued interest, on the first Business Day of each
month during such Reset Term while such Advance is outstanding, based upon the
applicable Interest Rate.
5. Representations, Warranties and Covenants. As of the
date hereof, and as of the date of the initial Advance and each Subsequent
Advance SLTLP and SLTLLC each hereby represents, warrants and covenants as
follows:
(a) SLTLP and SLTLLC are respectively, a limited
partnership and limited liability company, are each duly organized, validly
existing and in good standing under the laws of its respective jurisdiction of
organization and each is qualified to do business in its state of formation and
is, to the extent required by applicable law, qualified to do business in its
respective principal place of business. SLTLP is a 99% member of SLTLLC.
(b) SLTLP's and SLTLLC's execution, delivery and
performance of the Relevant Agreements are within SLTLP's and SLTLLC's
organizational documents and organizational powers, have been duly authorized
by all necessary organizational action, and do not contravene (i) SLTLP's and
SLTLLC's organizational or operating documents or (ii) any regulation, law or
contractual restriction binding on or affecting SLTLP and SLTLLC or
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<PAGE> 8
SLTLP's or SLTLLC's Property.
(c) No authorization or approval or other action
by, and no notice to or filing with, any governmental authority or regulatory
body is required for SLTLP's or SLTLLC's due execution, delivery and
performance of the Relevant Agreements.
(d) The Relevant Agreements are SLTLP's or
SLTLLC's legal, valid and binding obligations enforceable against SLTLP and
SLTLLC in accordance with their respective terms.
(e) The available audited and unaudited
consolidated balance sheets, statements of income and changes in financial
condition of Starwood Lodging Trust (the "Guarantor") and its consolidated
Subsidiaries (and in any case, SLTLP and SLTLLC) as of Guarantor's most
recently completed fiscal year and quarter, are true, correct and fairly
present Guarantor's and its consolidated Subsidiaries (and in any case, SLTLP
and SLTLLC) financial condition and results of operations for the period then
ended and are in accordance with generally accepted accounting principles
consistently applied, and copies of such statements, together with the most
recent opinion with respect to such audited statements of an independent public
accounting firm, have been provided to Lehman, and since such date there has
been no material adverse change in such financial condition, operations or
business prospects.
(f) There is no pending or, to the best of
SLTLP's and SLTLLC's knowledge, threatened action or proceeding affecting
SLTLP, SLTLLC or Guarantor before any court, governmental agency or arbitrator,
which may materially adversely affect the financial condition, operations or
business prospects of SLTLP, SLTLLC or Guarantor.
(g) SLTLP and SLTLLC are each duly licensed and
qualified in every state where each transacts business to the extent required
by applicable law.
(h) The Relevant Agreements are not entered into
in contemplation of insolvency or with intent to hinder, delay or defraud any
of SLTLP's or SLTLLC's creditors.
(i) The consummation of the transactions
contemplated by the Relevant Agreements are in the ordinary course of business
of SLTLP and SLTLLC.
(j) Neither the execution and delivery of the
Relevant Agreements, the servicing responsibilities by the Servicer or the
transactions contemplated hereby, nor the fulfillment of or compliance with the
terms and conditions of this or any of the Relevant Agreements, will in any
material respect conflict with or result in a breach of any of the terms,
conditions or provisions of the SLTLP's or SLTLLC's organizational or operating
documents or any legal restriction or any agreement or instrument to which
SLTLP or SLTLLC is now a party or by which they are bound, or constitute a
default or result in an acceleration under any of the foregoing, or result in
the violation of any law, rule, regulation, order, judgment or decree to which
SLTLP and/or SLTLLC or its property is subject, or impair the ability of the
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<PAGE> 9
Servicer to service the Mortgage Loans, or impair the value of the Mortgage
Loans and the Participation Interest.
(k) SLTLP and SLTLLC do not believe, nor do they
have any reason or cause to believe, that they cannot perform each and every
covenant contained in the Relevant Agreements.
(l) There has occurred no Material Adverse Effect.
(m) Customers are not in default with respect to
any order, writ, injunction or decree of any Governmental Authority or, in
violation of any law, statute, rule or regulation to which Customers or their
Property are subject.
(n) The information, reports, financial
statements, exhibits and schedules furnished in writing by or on behalf of
Customers in connection with the negotiation, preparation or delivery of this
Facility and the Relevant Agreements or included herein or therein or delivered
pursuant hereto or thereto, when taken as a whole, do not contain any untrue
statement of material fact or omit to state any material fact necessary to make
the statements herein or therein, in light of the circumstances under which
they were made at the time they were made, not misleading. All written
information furnished after the date hereof by Customers to Lehman in
connection with this Facility and the Relevant Agreements and the transactions
contemplated hereby and thereby will be true, complete and accurate in every
material respect, or (in the case of projections) based on reasonable
estimates, on the date as of which such information is stated or certified.
There is no fact known to either SLTLP or SLTLLC that, after due inquiry, could
reasonably be expected to have a Material Adverse Effect that has not been
disclosed herein, in the Relevant Agreements or in a report, financial
statement, exhibit, schedule, disclosure letter or other writing furnished to
Lehman for use in connection with the transactions contemplated hereby or
thereby.
(o) All of the covenants set forth in this
Facility and in the Relevant Agreements required to be complied with as of the
date hereof have been complied with.
(p) No condition which would cause an Event of
Default (as defined in the Promissory Note) exists.
(q) The Guarantor is the sole general partner of
SLTLP and is duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization and its principal place of business,
and is substantially in compliance with applicable law and the Guarantor's
execution, delivery and performance of the Relevant Agreements are within the
Guarantor's organizational documents and organizational powers, have been duly
authorized by all necessary organizational action, and do not contravene (i)
the Guarantor's organizational or operating documents or (ii) any regulation,
law or contractual restriction binding on or affecting the Guarantor or its
Property.
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<PAGE> 10
(r) The Guarantor is listed and in good standing
on the New York Stock Exchange, is qualified as a REIT and currently is in
compliance in all material respects with all provisions of the Code applicable
to the qualification of the Guarantor as a REIT.
(s) The Unfunded Liabilities of all Single
Employer Plans do not in the aggregate have a Material Adverse Effect. Neither
the Guarantor nor any other member of the Controlled Group has incurred, or is
reasonably expected to incur, any withdrawal liability to Multiemployer Plans
which in the aggregate have a Material Adverse Effect. The extent to which any
Plan fails to comply with all applicable requirements of law and regulations
does not have a Material Adverse Effect. Neither the Guarantor nor any other
members of the Controlled Group has withdrawn from any Plan or any
multiemployer plan as defined in Section 3(37) of ERISA or initiated steps to
do so, and no steps have been taken to reorganize or terminate any Plan, which
withdrawal, reorganization or termination would have a Material Adverse Effect.
6. Conditions Precedent. (a) Initial Advance.
As conditions precedent to the making of the initial Advance (1) Customers
shall reimburse Lehman for all of its costs and expenses in connection with the
closing of this Facility on the date hereof; (2) Lehman shall have completed
its due diligence review, (including without limitation, review of the Mortgage
Loan documents and pay histories, and review of mortgagor, operating
statements, appraisals, environmental and engineering reports with respect to
the Collateral); (3) all of the representations, and warranties contained in
the Relevant Agreements shall be accurate, true and correct in all material
respects and there shall exist no Event of Default thereunder; and (4) subject
to the Post Closing Agreement Lehman shall have received on or before the day
of such Advance the following, in form and substance reasonably satisfactory to
Lehman and duly executed by Customers, or the relevant Person as applicable:
(i) The Facility Documents;
(ii) Evidence that all other actions
necessary or, in the reasonable opinion of Lehman, desirable to perfect and
protect the security interests created by the Pledge Agreement have been taken
including, but not limited to, state and county Uniform Commercial Code
financing statement searches of SLTLP and SLTLLC and the Guarantor in the state
of their formation;
(iii) With respect to each Facility
Document to which SLTLP, SLTLLC and the Guarantor is a party, a certified copy
of resolutions of SLTLP, SLTLLC and Guarantor, as applicable, approving the
Facility Documents and borrowings thereunder (either specifically or by general
resolution approving borrowings of the type described in the Facility
Documents), and all documents evidencing other necessary corporate action or
governmental approvals as may be reasonably required in connection with the
Relevant Agreements;
(iv) A certificate of SLTLP's, SLTLLC's
and Guarantor's secretary certifying the names, true signatures and titles of
SLTLP's, SLTLLC's and Guarantor's officers duly authorized to request Advances
and sign the Facility Documents and the other documents to be delivered
thereunder;
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<PAGE> 11
(v) An opinion letter, dated the date
hereof, of counsel to Customers, reasonably satisfactory to Lehman;
(vi) evidence in form and substance
reasonably satisfactory to Lehman that the Guarantor and Starwood have
completed the issuance of equity which yielded a minimum of two hundred million
dollars ($200,000,000) of net proceeds;
(vii) A certified copy of the
organizational documents of SLTLP, SLTLLC and the Guarantor and satisfactory
evidence of their due organization, existence and good standing certificates
issued by their respective states of organization and in the states where
required to conduct business;
(viii) The most recent consolidated
quarterly unaudited and annual audited financial statements of the Guarantor
and its consolidated Subsidiaries, and, in any case, SLTLP and SLTLLC, which
annual audited consolidated financial statements shall be certified without
qualification by independent certified public accountants of recognized
national standing pursuant to an audit conducted in accordance with generally
accepted auditing standards;
(ix) A Comfort Letter;
(x) Customers have delivered the
original certificates and copies of policies of insurance for the Mortgagors,
Customers, and Servicer as required by and reasonably satisfactory to Lehman
under the terms and conditions of the Relevant Agreements;
(xi) Evidence, including, without
limitation, the results of a search of the records of state and local recording
offices responsible for the retention of filed financing statements in the
state in which SLTLP and SLTLLC were organized, that all filings, registrations
and recordings required to be filed under this Facility Agreement in order to
create, in favor of Lehman, a perfected first-priority security interest in the
Collateral hereunder with respect to which a security interest may be perfected
by filing under the Uniform Commercial Code as then in effect in any applicable
jurisdiction have been made;
(xii) An executed amended and restated
Intercreditor Agreement, dated as of March 23, 1995, by and between SLTLP and
Starwood-Nomura Hotel Investors, L.P.;
(xiii) A consent of the Minority Interest
to the transfer of the Participation Interest to Lehman;
(xiv) Title endorsements in favor of
Lehman with respect to each Mortgage Loan; and
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<PAGE> 12
(xv) Such other documents, instruments,
opinions and assurances in form and substance reasonably satisfactory to Lehman
and Lehman's counsel, as Lehman may reasonably require in connection herewith.
By execution of this Facility Agreement Lehman confirms that
conditions (1), (2) and (4) have been satisfied subject to the Post Closing
Agreement.
(b) Each Advance. As conditions precedent to making the
Advance and each Subsequent Advance:
(i) Customers shall reimburse Lehman for
all of its reasonable out-of-pocket costs and expenses in connection with such
Advance;
(ii) Lehman shall have received on or
before the day of such Advance, in form and substance reasonably satisfactory
to Lehman and duly executed:
(A) A Notice of Borrowing and the
related additional Collateral
Submission Summary;
(B) If the additional Collateral, if
any, being delivered in connection
with such Advance is subject to a
lien immediately prior to the
Advance, a letter from such
lienholder releasing the additional
Collateral from such lien upon
receipt of a stated sum which is
less than or equal to the related
Advance; and
(C) Such other documents as Lehman may
reasonably request;
(iii) The Collateral satisfies in all
material respects all of the representations and warranties set forth in
Exhibit A and Exhibit B to the Pledge Agreement, as applicable;
(iv) Lehman has completed its due
diligence review, (including without limitation, review of the Mortgage Loan
documents and pay histories, and review of mortgagor, operating statements,
appraisals, environmental and engineering reports with respect to any
additional Collateral) and has approved such additional Collateral;
(v) No Event of Default shall have
occurred and be continuing under any Facility Document; and
(vi) The representations and warranties
made by the Customers in Section 5 hereof, and by the Customers and the
Guarantor in each of the other Relevant Agreements shall be true and correct in
every material respect on and as of the date of the making of such Advance with
the same force and effect as if made on and as of such date (or, if any such
representation or warranty is expressly stated to have been made as of a
specific date, as of such specific date).
-12-
<PAGE> 13
7. Lehman Entitled to Rely. Lehman shall incur no
liability to Customers in acting upon any request or other communication which
Lehman believes to have been given or made by a person authorized to borrow on
Customers' behalf, whether or not such person is listed on the certificate
delivered pursuant to Section 6(a)(4)(iv) hereof.
8. Termination. This Facility shall remain in effect
until the Facility Termination Date; but no such termination shall affect the
Customers' obligations with respect to the Advances hereunder outstanding at
the time of such termination. The Customers' obligation to indemnify Lehman
pursuant to this Facility shall survive the termination hereof.
9. Assignment; Amendments, Etc. The Relevant Documents
are not assignable by the Customers. The Relevant Agreements are assignable by
Lehman in accordance with Section 13 hereof, provided, however, notwithstanding
such assignment Lehman shall remain liable to Customers for all of Lehman's
obligations in accordance with the terms of the Relevant Agreement. No
amendment or waiver of any provision of this Facility or the Promissory Note
nor consent to any departure by Customers therefrom, shall in any event be
effective unless the same shall be in writing and signed by Lehman, and then
such amendment, waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. The Facility Documents
supersede all previous letters of intent and other agreements between the
parties that deal with the same subject matter.
10. Indemnification. Customers shall indemnify Lehman
for all reasonable losses, costs and expenses which Lehman may sustain in
connection with the enforcement of Lehman's rights under or the exercise of
Lehman's remedies under the Relevant Agreements or any other instrument or
document delivered in connection therewith.
11. Notices. All written communications hereunder shall
be mailed, telecopied or delivered at the respective addresses as listed in the
Custody Agreement or at such other address as shall be designated by a party in
a written notice to the other parties. All such notices and communications
shall be effective when delivered to the party to which such notice is to be
given.
12. GOVERNING LAW; CONSENT TO JURISDICTION. THIS
FACILITY AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE
LAW OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW
PRINCIPLES THEREOF. CUSTOMERS AND LEHMAN WAIVE TRIAL BY JURY. CUSTOMERS
HEREBY IRREVOCABLY CONSENT TO THE NONEXCLUSIVE JURISDICTION OF ANY COURT OF THE
STATE OF NEW YORK, OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK, ARISING OUT OF OR RELATING TO THE RELEVANT AGREEMENTS IN
ANY ACTION OR PROCEEDING. CUSTOMERS HEREBY SUBMIT TO PERSONAL JURISDICTION AND
VENUE, IN THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES DISTRICT
COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, OVER ANY DISPUTES ARISING OUT OF
OR RELATING TO THE RELEVANT AGREEMENTS.
13. Hypothecation or Pledge of Mortgage Loans and the
Participation Interest. Nothing in the Facility Documents shall preclude
Lehman from engaging in repurchase transactions with respect to the Mortgage
Loans and Participation Interest or
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<PAGE> 14
otherwise pledging, repledging, hypothecating, or rehypothecating the Mortgage
Loans and/or Participation Interest, provided, however, notwithstanding such
pledging, repledging, hypothecating, or rehypothecating the Mortgage Loans
and/or Participation Interest Lehman shall remain liable to customers for all
of Lehman's obligations in accordance with the terms of the Relevant
Agreements. Nothing contained in this Facility shall obligate Lehman to
segregate any Mortgage Loans or Participation Interest delivered to Lehman.
Lehman agrees to indemnify Customers and hold Customers harmless from any loss
or expense which Customers may actually sustain or actually incur (including
without limitation reasonable and necessary legal fees and disbursements) in
connection with any matters arising from misrepresentations or omissions by
Lehman in connection with Lehman's participation of the Facility pursuant to
this Section 13.
14. Commitment Fee. In the event both (i) the weighted
average aggregate amount of all Advances outstanding during the first twelve
months from the date hereof is less than thirty-five million dollars
($35,000,000) for a period of not less than four months and (ii) Lehman and the
Customers fail to enter into the Line of Credit within twelve months of the
date hereof, the Customers shall promptly pay Lehman a commitment fee (the
"Commitment Fee") in the amount of one quarter of one percent (0.25%) of the
Maximum Credit within five (5) Business Days of the expiration of such twelve
month period. The provision in this Facility and the Relevant Agreements in
connection with the Line of Credit are merely an expression of interest on the
part of Lehman and nothing set forth herein and in the Relevant Agreements
shall be deemed to be a commitment on the part of Lehman to provide such Line
of Credit, or any obligation on the part of Customers to close the Line of
Credit.
15. Purpose of Facility. Advances borrowed under this
Facility may be utilized by the Customers to acquire hospitality properties,
complete renovations and capital improvements to existing hotels, and for
general corporate purposes, including, without limitation Distributions.
16. Concerning the Customers and the Guarantor. SLTLP
and SLTLLC shall be jointly and severally liable for the obligations of the
Customers hereunder and under the Relevant Agreements.
The Guarantor's name of "Starwood Lodging Trust" is a
designation of the Guarantor and its trustees (as trustees but not personally)
under a Declaration of Trust dated August 15, 1969, as amended and restated as
of June 6, 1988, as further amended on February 1, 1995, as further amended on
June 19, 1995 and as the same may be further amended from time to time, and all
persons dealing with the Guarantor shall look solely to the Guarantor's assets
for the enforcement of any claims against the Guarantor, as the trustees,
officers, agents and security holders of the Guarantor assume no personal
liability for obligations entered into on behalf of the Guarantor, and their
respective individual assets shall not be subject to the claims of any person
relating to such obligations. The foregoing shall govern all direct and
indirect obligations of the Guarantor under this Facility Agreement.
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<PAGE> 15
17. Counterparts. For the purpose of facilitating the
execution of this Facility Agreement as herein provided and for other purposes,
this Facility Agreement may be executed simultaneously in any number of
counterparts, each of which counterparts shall be deemed to be an original, and
such counterparts shall constitute and be one and the same instrument.
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<PAGE> 16
If the terms of this Facility Agreement are satisfactory to
Customers, please indicate Customers' agreement and acceptance thereof by
signing this Facility Agreement and returning it to us whereupon this Facility
Agreement shall become an agreement between us as of the date of this Facility
Agreement.
Very truly yours,
Lehman Commercial Paper Inc.
By:____________________________________
Name:_________________________________
Title:_________________________________
AGREED AND ACCEPTED:
Customers:
SLT REALTY LIMITED PARTNERSHIP
By: STARWOOD LODGING TRUST
its general partner
By: ______________________________
Name: Jeffrey C. Lapin
Title: President
SLT REALTY COMPANY, L.L.C.
By: SLT REALTY LIMITED PARTNERSHIP
its 99% member
By: STARWOOD LODGING TRUST
its general partner
By: ______________________________
Name: Jeffrey C. Lapin
Title: President
Telephone #: (310) 575-3900
Facsimile #: (310) 575-9143
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<PAGE> 17
NOTICE OF BORROWING NO. _______
Lehman Commercial Paper Inc.
3 World Financial Center
200 Vesey Street, 9th Floor
New York, New York 10285
Attention: Mr. Frank Gilhool
Facsimile (212) 528-8986
cc: Mr. John Regan
[Date]
Pursuant to the Mortgage Loan Funding Facility dated July 25,
1995 (as amended from time to time, the "Facility Agreement") between you and
the undersigned, the undersigned hereby gives notice of its election to borrow
from you an Advance and, in connection therewith, sets forth below the
following information (all capitalized terms used herein shall have the meaning
specified therefor in the Facility Agreement):
1. The principal amount of this Advance is $ _________.
2. The Interest Rate for this Advance shall equal the rate determined in
accordance with Section 2(c) of the Facility Agreement.
3. The beginning Business Day of this Advance is _______, 199_.
4. The aggregate balance of all outstanding Advances (including this
Advance) is $___________.
5. The [initial] Reset Date of this Advance is __________, 199_ and the
next Reset Date thereafter is ________, 199__].
[6. This is a request for a different Reset Term relating to the prior
Advance requested pursuant to Notice of Borrowing No. _______.]
The undersigned hereby certifies that the following statements
are true and correct on the date hereof and shall be true and correct on the
date of the Advance requested herein, before and after giving effect thereto:
A. Each of the representations and warranties contained in the Facility
Agreement and the Pledge Agreement are true and correct in all material
respects;
B. Each of the covenants contained in the Facility Agreement and the
Pledge Agreement have been complied with in all material respects.
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<PAGE> 18
C. No Event of Default (as defined in the Promissory Note) has occurred
and is continuing; and
D. Customers have either satisfied all of the conditions precedent as
specified in Section 6 of the Facility Agreement or the same have been waived
by Lehman in writing.
The Advance made pursuant hereto shall be made in connection
with the items of Collateral (as defined in the Pledge Agreement) described in
the undersigned's Collateral Submission Summary (as defined in the Pledge
Agreement) No. ____ dated ___ _________, 199_.
The Guarantor's name of "Starwood Lodging Trust" is a
designation of the Guarantor and its trustees (as trustees but not personally)
under a Declaration of Trust dated August 15, 1969, as amended and restated as
of June 6, 1988, as further amended on February 1, 1995, as further amended on
June 19, 1995 and as the same may be further amended from time to time, and all
persons dealing with the Guarantor shall look solely to the Guarantor's assets
for the enforcement of any claims against the Guarantor, as the trustees,
officers, agents and security holders of the Guarantor assume no personal
liability for obligations entered into on behalf of the Guarantor, and their
respective individual assets shall not be subject to the claims of any person
relating to such obligations. The foregoing shall govern all direct and
indirect obligations of the Guarantor under this Notice of Borrowing.
Customers:
SLT REALTY LIMITED PARTNERSHIP
By: STARWOOD LODGING TRUST
its general partner
By: ______________________________
Name:
Title:
SLT REALTY COMPANY, L.L.C.
By: SLT REALTY LIMITED PARTNERSHIP
its 99% member
By: STARWOOD LODGING TRUST
its general partner
By: ______________________________
Name:
Title:
Telephone #: ________________________
Facsimile #: _________________________
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<PAGE> 19
EXHIBIT 10.16
AMENDMENT NO. 1
TO THE MORTGAGE LOAN FUNDING FACILITY
This is Amendment No. 1 ("Amendment No. 1"), dated as of
October 31, 1995, by and between SLT Realty Limited Partnership ("SLTLP"), SLT
Realty Company, L.L.C. ("SLTLLC," together with SLTLP, the "Customers") and
Lehman Commercial Paper Inc. ("Lehman") to that certain Mortgage Loan Funding
Facility, dated July 25, 1995, between the Customers and Lehman ("Facility
Agreement").
W I T N E S S E T H
WHEREAS, heretofore Lehman entered into that certain loan
facility secured by certain mortgage loans and a participation interest
("Assets") subject to the Facility Agreement;
WHEREAS, Lehman and the Customers wish to amend the Facility
Agreement to increase the Maximum Credit thereunder as more particularly
described herein.
NOW THEREFORE, in consideration of the mutual premises and
mutual obligations set forth herein, Lehman and the Customers agree as follows:
1. All capitalized terms not defined herein shall have
the meaning assigned to them in the Facility
Agreement.
2. The Facility Agreement shall be amended as follows:
a) The Maximum Credit shall be increased from
$44,600,000 to $71,000,000;
b) In consideration for the commitment to
increase the Maximum Credit under the
Facility, Customers shall pay Lehman a
one-time fee (the "Modification Fee") in the
amount of 0.50% of $26,400,000 upon execution
of this Amendment No. 1.
3. All other terms, conditions, and provisions of the
Facility Agreement, as amended, are hereby affirmed
and shall remain in full force and effect as written.
4. THIS AMENDMENT NO. 1 SHALL BE CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH
LAWS.
<PAGE> 20
5. This Amendment No. 1 may be executed in one or more
counterparts and by different parties hereto on
separate counterparts, each of which, when so
executed, shall constitute one and the same
agreement.
6. This Amendment No. 1 shall inure to the benefit of
and be binding upon Lehman and the Customers, and
their respective successors and permitted assigns
under the Facility Agreement.
[Signatures Commence on Following Page]
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<PAGE> 21
\ IN WITNESS WHEREOF, the parties have caused their names to be
signed hereto by their respective officers thereunto duly authorized as of the
day and year first above written.
LEHMAN COMMERCIAL PAPER INC.
By:__________________________________
Name:________________________________
Title:_______________________________
Customers:
SLT REALTY LIMITED PARTNERSHIP
By: STARWOOD LODGING TRUST
its general partner
By: _________________________________
Name: ___________________________
Title: __________________________
SLT REALTY COMPANY, L.L.C.
By: SLT REALTY LIMITED PARTNERSHIP
its 99% member
By: STARWOOD LODGING TRUST
its general partner
By: _________________________________
Name: ___________________________
Title: __________________________
Telephone #: (310) 575-3900
Facsimile #: (310) 575-9143
-3-
<PAGE> 1
EXHIBIT 10.17
COLLATERAL SUBSTITUTION AGREEMENT
THIS COLLATERAL SUBSTITUTION AGREEMENT (this "Agreement"),
dated as January 4, 1996, by and among Lehman Commercial Paper Inc. ("Lehman"),
SLT Realty Limited Partnership ("SLTLP"), and SLT Realty Company, L.L.C.
("SLTLLC," together with SLTLP, the "Customers").
W I T N E S S E T H:
WHEREAS, Lehman has extended to the Customers that certain
mortgage loan funding facility secured by certain mortgage loans and a
participation interest ("Assets") pursuant to that certain Mortgage Loan
Funding Facility, dated as of July 25, 1995, between the Customers and Lehman,
as amended by that certain Amendment No. 1 to the Mortgage Loan Funding
Facility, dated as of October 31, 1995, between the Customers and Lehman (the
"Facility Agreement") and that certain Pledge Agreement, dated as of July 25,
1995, between the Customers and Lehman, as amended by that certain Amendment
No. 1 to the Pledge Agreement, dated as of October 31, 1995, between the
Customers and Lehman (the "Pledge Agreement");
WHEREAS, in connection with the Facility Agreement and the
Pledge Agreement, the Customers, Lehman and State Street Bank and Trust Company
of California, N.A. (the "Custodian") entered into that certain Mortgage Loan
Funding Program Tri-Party Custody Agreement, dated July 25, 1995, among the
Customers, Lehman and the Custodian, as amended by that certain Amendment No. 1
to Tri-Party Custody Agreement, dated as of October 31, 1995, among the
Customers, Lehman and the Custodian, as further amended on the date hereof by
that certain Amendment No. 2 to Tri-Party Custody Agreement, dated as of the
date hereof, among the Customers, Lehman and the Custodian (the "Custody
Agreement") pursuant to which the Custodian is holding certain documents in
custody for the benefit of Lehman;
WHEREAS, all Advances (as defined in the Pledge Agreement)
made by Lehman pursuant to the Facility Agreement are evidenced by that certain
Promissory Note, dated July 25, 1995, in the original principal amount of
$44,600,000, as increased, amended and restated by that certain Amended and
Restated Promissory Note, dated as of October 31, 1995, in the amount of
$71,000,000 (as amended and restated, the "Promissory Note")
WHEREAS, on the date hereof the Customers intend to
restructure the ownership and debt structure on the Mortgaged Property commonly
known as The Grand Hotel in Washington D.C. (the "Grand Hotel"), by having
SLTLP purchase the Grand Hotel and release the mortgages presently encumbering
the Grand Hotel which have been previously assigned to Lehman (the "Old
Mortgages"). SLTLP shall then mortgage the Grand Hotel to Lehman to serve as
security for all present and future Advances made by Lehman to the Customers
evidenced by the Promissory Note up to an amount of $29,360,000 (the "New
Mortgage"). The New Mortgage is also referred to herein as the "Deed of
Trust");
<PAGE> 2
WHEREAS, in connection with the acquisition of the Grand Hotel
by SLTLP, SLC Operating Limited Partnership ("SLC"), an affiliate of the
Customers, shall purchase the furniture, fixtures and equipment relating to the
Grand Hotel and operate and manage the Grand Hotel on behalf of SLTLP pursuant
to an operating lease agreement, dated December 28, 1995 (including all
amendments, modifications, supplements, restatements and renewals thereto, the
"Operating Agreement"). In connection with the purchase of the furniture,
fixtures and equipment of the Grand Hotel by SLC, SLC executed and delivered to
SLTLP a secured demand promissory note, dated January 4, 1996 in the amount of
$3,640,000 (the "SLC Note") and a leasehold deed of trust (the "Leasehold Deed
of Trust") to secure the SLC Note, and SLTLP shall pledge to Lehman the
Operating Agreement, Leasehold Deed of Trust and SLC Note as additional
security for all present and future Advances made by Lehman to the Customers
evidenced by the Promissory Note up to an amount of $3,640,000; and
WHEREAS, Lehman and the Customers wish to substitute the New
Mortgage and the pledge of the Operating Agreement, the Leasehold Deed of Trust
and SLC Note for the Old Mortgages and have the Customers restate the
representations and warranties contained in the Facility Agreement and the
Pledge Agreement.
NOW, THEREFORE, in consideration of the sum of Ten Dollars
($10.00) and other good and valuable consideration the receipt and sufficiency
of which are hereby acknowledged, the Customers and Lehman agree as follows:
1. All capitalized terms not otherwise defined herein
shall have the meaning set forth in the Pledge Agreement.
2. This Agreement shall be deemed an amendment to the
Facility Agreement and the Pledge Agreement, as applicable, in accordance with
the terms and provisions set forth herein.
3. The Customers and Lehman acknowledge and agree that
the documents listed on the "Checklist for Custodian (The Grand Hotel -
Washington, D.C.)" attached to the Initial Certification from the Custodian,
dated October 27, 1995 (the "Old Grand Hotel Documents") shall no longer serve
as security for any Advance made by Lehman to the Customers which was secured
in part by the Grand Hotel and evidenced by the Promissory Note (the "Grand
Hotel Advance").
4. The Customers and Lehman acknowledge and agree that
the New Mortgage, from SLTLP for the benefit of Lehman, dated as of the date
hereof, the Leasehold Deed of Trust, the Operating Agreement and the SLC Note
shall serve as security for the Grand Hotel Advance and replace the Old
Mortgages and the Old Grand Hotel Documents as security for the Grand Hotel
Advance. The Customers and Lehman also acknowledge and agree that in
addition to the New Mortgage, the Operating Agreement, the Leasehold Deed
of Trust and the SLC Note, SLTLP has executed with Lehman an Assignment
of Leases and Rents, UCC-1 financing statements, and such other documents
as listed on Exhibit A attached hereto as Lehman deemed necessary as
replacement security for the Old Mortgages and the Old Grand Hotel
Documents and SLTLP has obtained a Mortgagee's title insurance policy in
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<PAGE> 3
an amount equal to the amount of the New Mortgage (the documents referred to in
this Paragraph 4 are hereinafter collectively referred to as, the "New Grand
Hotel Documents").
5. Notwithstanding anything to the contrary set forth in
the Pledge Agreement, on the date hereof Lehman has instructed the Custodian to
release to the Customers the Old Grand Hotel Documents and Lehman, the
Customers and the Custodian have amended the Custody Agreement to provide for
the New Grand Hotel Documents to be held by the Custodian under the Custody
Agreement.
6. The Facility Agreement is hereby amended by adding
the following sentence immediately following the first sentence of Section 1 of
the Facility Agreement:
"The aggregate principal amount of Advances with respect to
the Grand Hotel shall not exceed $12,750,000 at any one time."
7. The Facility Agreement is hereby amended by adding
the following paragraph immediately following Section 6(b)(vi) of the Facility
Agreement:
"(vii) In the event that at the time of any Advance, the
outstanding Advances are less than $33,000,000, then, if required by Lehman in
its sole discretion, Lehman shall have received an endorsement to the title
policy obtained in connection with the New Mortgage and the Leasehold Deed of
Trust on the Grand Hotel that, as of the date of the Advance, there are no
Liens on the Grand Hotel other than the Liens existing on the date hereof and
listed on the respective title policy issued on the date hereof.
Notwithstanding the foregoing, in the event that at the time of any Advance,
the outstanding Advances are less than $33,000,000, Lehman may elect, in its
sole discretion, in lieu of the foregoing, to perform searches of title (a
"Title Search") to the Grand Hotel on a quarterly basis at Customers' sole cost
and expense, provided that at the time of each Title Search the amount of
outstanding Advances are less than $33,000,000. The results of all such Title
Searches shall be satisfactory to Lehman in its reasonable discretion and all
Title Searches shall be conducted by search firms designed by Lehman."
8. For purposes of the definition of "Collateral
Value" and "Market Value" set forth in the Pledge Agreement, the term
"Collateral" as used in such definitions shall apply only to Mortgage Loans and
Participation Interest.
9. The Pledge Agreement is hereby amended by deleting
the definition of "Facility Documents" in its entirety and substituting the
following definition in lieu thereof:
""Facility Documents" means the Facility Agreement; this
Pledge Agreement; the Promissory Note; the Guaranty; the Reaffirmation of
Guaranty dated as of October 31, 1995 by the Guarantor in favor of Lehman; the
Reaffirmation of Guaranty dated as of January 4, 1996 by the Guarantor in favor
of Lehman; the Letter Agreement; the Custody Agreement; the Post-Closing
Agreement; the Post-Closing Agreement dated as of October 31, 1995 among Lehman
and the Customers; the Post-Closing Agreement dated as of January 4, 1996 among
Lehman and the Customers; the Collateral Substitution Agreement; Deed of Trust
and Security
-3-
<PAGE> 4
Agreement from SLTLP for the benefit of Lehman dated January 4, 1996; Security
Agreement dated January 4, 1996 by and between SLTLP and Lehman; Leasehold Deed
of Trust and Security Agreement from SLC Partnership to SLTLP dated January 4,
1996; Assignment of Leases and Rents from SLTLP for the benefit of Lehman dated
January 4, 1996; Lease Agreement dated as of December 28, 1995 between SLTLP
and SLC Partnership; Assignment of Franchise Agreements, Management Agreements,
Agreements, Permits and Contracts dated January 4, 1996 by and between SLTLP
and Lehman; Environmental Indemnity Agreement dated as of January 4, 1996 by
SLTLP and the Guarantor to Lehman; Consent to Assignment of Rents,
Subordination, Estoppel and Attornment Agreement dated January 4, 1996 by and
between SLC Partnership and Lehman; Assignment of Leases and Rents from SLC
Partnership to SLTLP dated January 4, 1996; Secured Demand Promissory Note
dated January 4, 1996 in the amount of $3,640,000 from SLC Partnership, as
borrower, to SLTLP, as lender; Security Agreement dated January 4, 1996 between
SLC Partnership and SLTLP; Assignment of Franchise Agreements, Management
Agreements, Agreements, Permits and Contracts dated January 4, 1996 by and
between SLC Partnership and SLTLP; UCC financing statements; title insurance
policy with respect to the Grand Hotel in an amount equal to the amount of the
New Mortgage."
10. The Pledge Agreement is hereby amended by adding the
following paragraph to Section 2.1 of the Pledge Agreement immediately
following the end of Section 2.1 thereof:
""Collateral" shall also mean all right, title and interest of
Customers in and to the mortgaged property commonly known as The Grand Hotel in
Washington, D.C., as further described in the New Mortgage (the "Grand Hotel"),
the New Grand Hotel Documents and all of the Customers' right, title and
interest in, under and to the items listed in Section 2.1 (a)-(f) related
thereto."
11. The Pledge Agreement is hereby amended by deleting
Section 2.2 of the Pledge Agreement in its entirety and substituting the
following paragraph in lieu thereof:
"2.2 Release of Collateral. Upon the full satisfaction of
all outstanding principal, accrued interest on, and all other Obligations owing
with respect to any Advance and so long as no Event of Default has occurred and
is continuing, but subject to the rights of any holder of a lien on the items
of Collateral of which Lehman has notice, Lehman shall, and shall direct
Custodian to, release the Collateral related to such Advance. Upon receipt of
a written request from the Customers, and provided no Event of Default has
occurred and is continuing Lehman shall direct the Custodian to release
Mortgage Loans, Participation Interest and/or the New Grand Hotel Documents, as
the case may be, identified in such request prior to the Facility Termination
Date or Reset Date of an Advance provided that (a) upon release of such
Collateral, the aggregate outstanding Advances shall not exceed the sum of (i)
85% of Collateral Value with respect to the Mortgage Loans and Participation
Interest and (ii), with respect to the Grand Hotel, 50% of the most recent
appraised value of the Grand Hotel according to Lehman's internal valuation
most recently delivered or prepared (the "Loan-to-Value Ratio") (the amount
calculated in Section 2.2 (a)(ii) is hereinafter referred to as the
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<PAGE> 5
"Grand Hotel Advance Limit") and (b) the sum of 85% of the aggregate Collateral
Value and the Grand Hotel Advance Limit remaining is at least $10,000,000
(unless the Facility is paid in full). So long as an Event of Default has
occurred and is continuing, neither Lehman nor the Custodian shall be required
to release any Collateral unless and until either, (i) the entire outstanding
balance of the related Mortgage Loan or Participation Interest, or the
aggregate principal amount of the SLC Note and the New Mortgage on the Grand
Hotel, as the case may be, requested to be released is paid in full and the
requirements of Section 2.2(a) and (b) continue to be met notwithstanding the
foregoing or (ii) all outstanding principal, accrued interest on, and all other
Obligations owing with respect to any outstanding Advances has been fully
satisfied. Notwithstanding anything to the contrary set forth herein, Lehman
shall not, and shall not direct the Custodian to, release the SLC Note until
the Customers have fully complied with the provisions of this Section 2.2 and
the terms of Sections 3 and 4 of the Facility Agreement."
12. The Pledge Agreement is hereby amended by adding the
following paragraph at the end of Section 4.12(c) of the Pledge Agreement :
"With respect to the Grand Hotel, SLTLP shall also provide
Lehman with quarterly and annual operating statements for the Grand Hotel,
separately disclosing the amounts paid under the Operating Agreement with
respect to the Grand Hotel and including a comparison and reconciliation with
the most recent Annual Operating Budget (as defined below), within 45 days
following the end of each calendar quarter, certified by SLTLP."
13. The Pledge Agreement is hereby amended by adding the
following section to Section 4.12 of the Pledge Agreement immediately following
Section 4.12(e) thereof:
"(f) an annual operating and capital budget for the Grand
Hotel (the "Annual Operating Budget"), including cash flow projections for the
upcoming year, presented on a monthly basis consistent with the quarterly and
annual operating statement referred to in clause (c) above at least 15 days
prior to the start of each calendar year."
14. The Pledge Agreement is hereby amended by deleting
the first sentence of the first paragraph of Section 4.19 of the Pledge
Agreement in its entirety and substituting the following sentence in lieu
thereof:
"At any time any Advance is made or shall be outstanding,
Customers shall at all times maintain the aggregate amount of all Advances in
an amount not to exceed the sum of (i) 85% of Collateral Value with respect to
the Mortgage Loans and Participation Interest and (ii), with respect to the
Grand Hotel, the Grand Hotel Advance Limit (such amount, the "Advance
Threshold")."
15. The Pledge Agreement is hereby amended by deleting
the third sentence of the first paragraph of Section 4.19 of the Pledge
Agreement in its entirety and substituting the following sentence in lieu
thereof:
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<PAGE> 6
"In the event the outstanding Advances exceed the Advance
Threshold, the Customers shall cure such excess within five (5) Business Days
from receipt of written notice by Customers from Lehman by delivering to Lehman
additional Collateral acceptable to Lehman or cash."
16. The Pledge Agreement is hereby amended by adding the
following section to Article 4 of the Pledge Agreement
"4.20 Replacement Reserve. The Customers shall spend, or
cause to have spent, a minimum spending amount (the "Minimum Spending
Requirement") for the Grand Hotel equal to 4% of the annual Gross Revenues (as
defined below) from the Grand Hotel per annum on repair, replacement and
maintenance of the Grand Hotel during the applicable calendar year, which
Minimum Spending Requirement for calendar year 1996 shall be expended to
complete the work recommended by Oldham & Seltz in the Architecture and
Engineering Report, dated as of December 1, 1995, prepared by Oldham & Seltz, a
copy of which is attached hereto as Exhibit B. The Minimum Spending
Requirement for each calendar year shall be determined annually by Lehman, and
shall be based on Gross Revenues for the immediately preceding calendar year.
In the event the Customers have spent more than the Minimum Spending
Requirement in any calendar year, Customers may apply such excess, up to an
amount equal to 2% of the annual Gross Revenues from the Grand Hotel to reduce
the amount of the Minimum Spending Requirement that must be spent in the
immediately succeeding calendar year. The Customers shall deliver evidence
reasonably satisfactory to Lehman no more frequently than monthly, but at least
quarterly, of the portion of the Minimum Spending Requirement that has been
spent; such evidence shall include copies of paid invoices or other receipts
for work done or materials provided and such other information as reasonably
requested by Lehman. For purposes of this Section 4.20, Gross Revenues shall
mean all income, rents, room rates, additional rents, revenues, issues and
profits and other items including without limitation, all revenues and credit
card receipts collected from guest rooms, restaurants, meeting rooms, bars,
mini-bars, banquet rooms, recreation facilities, vending machines and
concessions derived from the customary operation of the Grand Hotel."
17. As of the date hereof, the Customers hereby confirm,
ratify and restate in their entirety the representations and warranties
contained in Section 5 of the Facility Agreement and in Article 3 of the Pledge
Agreement.
18. The Customers acknowledge and agree that the Facility
Documents are the valid and binding obligation of the Customers, enforceable in
accordance with their respective terms and the Customers agree to be bound by
all covenants and agreements contained in the Facility Documents, as modified
or amended hereby.
19. The Customers acknowledge and agree that a default
hereunder shall constitute an Event of Default (as defined in the Promissory
Note) under the Facility Documents.
20. The Customers acknowledge and agree that an Event of
Default under the Facility Documents shall constitute a default hereunder.
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<PAGE> 7
21. All other terms, conditions, and provisions of the
Facility Agreement and the Pledge Agreement not modified or amended herein are
hereby affirmed and shall remain in full force and effect as written.
22. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF
THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
23. This Agreement may be executed in one or more
counterparts and by different parties hereto on separate counterparts, each of
which, when so executed, shall constitute one and the same agreement.
24. This Agreement shall inure to the benefit of and be
binding upon Lehman and the Customers, and their respective successors and
permitted assigns under the Facility Agreement and the Pledge Agreement.
25. No modification, amendment, extension, discharge,
termination or waiver of any provision of this Agreement or the New Grand Hotel
Documents, nor consent to any departure by the Customers therefrom, shall in
any event be effective unless the same shall be in a writing signed by the
party against whom enforcement is sought, and then such waiver or consent shall
be effective only in the specific instance, and for the purpose, for which
given. Except as otherwise expressly provided herein, no notice to, or demand
on the Customers, shall entitle the Customers to any other or future notice or
demand in the same, similar or other circumstances.
26. Neither any failure nor any delay on the part of
Lehman in insisting upon strict performance of any term, condition, covenant or
agreement, or exercising any right, power, remedy or privilege hereunder, or
under the New Grand Hotel Documents, shall operate as or constitute a waiver
thereof, nor shall a single or partial exercise thereof preclude any other
future exercise, or the exercise of any other right, power, remedy or
privilege.
27. SLTLP and SLTLLC shall be jointly and severally
liable for the obligations of the Customers hereunder.
28. The Guarantor's name of "Starwood Lodging Trust" is a
designation of Starwood Lodging Trust and its trustees (as trustees but not
personally) under a Declaration of Trust dated August 15, 1969, as amended and
restated as of June 6, 1988, as further amended on February 1, 1995, as further
amended on June 19, 1995 and as the same may be further amended from time to
time, and all persons dealing with the Guarantor shall look solely to the
Guarantor's assets for the enforcement of any claims against the Guarantor, as
the trustees, officers, agents and security holders of the Guarantor assume no
personal liability for obligations entered into on behalf of the Guarantor, and
their respective individual assets shall not be subject to the claims of any
person relating to such obligations. The foregoing shall govern all direct and
indirect obligations of the Guarantor under this Agreement.
[Signatures commence on following page]
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<PAGE> 8
IN WITNESS WHEREOF, the parties have caused their names to be
signed hereto by their respective officers thereunto duly authorized as of the
day and year first above written.
LEHMAN COMMERCIAL PAPER INC.
By:________________________________________________
Name:______________________________________________
Title:_____________________________________________
Customers:
SLT REALTY LIMITED PARTNERSHIP
By: STARWOOD LODGING TRUST
its general partner
By: ___________________________________________
Name: _____________________________________
Title: ____________________________________
SLT REALTY COMPANY, L.L.C.
By: SLT REALTY LIMITED PARTNERSHIP
its 99% member
By: STARWOOD LODGING TRUST
its general partner
By: ___________________________________________
Name: _____________________________________
Title: ____________________________________
Telephone #: (310) 575-3900
Facsimile #: (310) 575-9143
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<PAGE> 9
EXHIBIT A
Deed of Trust and Security Agreement, from SLT Realty Limited Partnership for
the benefit of Lehman Commercial Paper Inc., dated January 4, 1996
Security Agreement, dated January 4, 1996, by and between SLT Realty Limited
Partnership and Lehman Commercial Paper Inc.
Assignment of Leases and Rents, from SLT Realty Limited Partnership for the
benefit of Lehman Commercial Paper Inc.
Assignment of Franchise Agreements, Management Agreements, Agreements, Permits
and Contracts, dated January 4, 1996, by and between SLT Realty Limited
Partnership and Lehman Commercial Paper Inc.
Environmental Indemnity Agreement, dated as of January 4, 1996, by SLT Realty
Limited Partnership and Starwood Lodging Trust to Lehman Commercial Paper Inc.
Consent to Assignment of Rents, Subordination, Estoppel and Attornment
Agreement, dated January 4, 1996, by and between SLC Operating Limited
Partnership and Lehman Commercial Paper Inc.
Leasehold Deed of Trust and Security Agreement, from SLC Operating Limited
Partnership to SLT Realty Limited Partnership, dated January 4, 1996
Assignment of Leases and Rents, from SLC Operating Limited Partnership to SLT
Realty Limited Partnership
Secured Demand Promissory Note, dated January 4, 1996, in the amount of
$3,640,000.
Security Agreement, dated January 4, 1996, between SLC Operating Limited
Partnership and SLT Realty Limited Partnership
Assignment of Franchise Agreements, Management Agreements, Agreements, Permits
and Contracts, dated January 4, 1996, by and between SLC Operating Limited
Partnership and SLT Realty Limited Partnership
Lease Agreement, dated as of December 28, 1995, between SLT Realty Limited
Partnership and SLC Operating Limited Partnership
UCC financing statements
Title insurance policy
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<PAGE> 10
EXHIBIT B
Architecture and Engineering Report Dated December 1, 1995 prepared by Oldham &
Seltz
-10-
<PAGE> 1
EXHIBIT 10.18
================================================================================
AMENDED AND RESTATED LINE OF CREDIT AGREEMENT
between
SLT REALTY LIMITED PARTNERSHIP
and
STARWOOD LODGING TRUST
and
BANKERS TRUST COMPANY, AS COLLATERAL AGENT
FOR THE BENEFIT OF THE SENIOR LENDERS,
and
LEHMAN BROTHERS HOLDINGS INC.
D/B/A LEHMAN CAPITAL, A DIVISION
OF LEHMAN BROTHERS HOLDINGS INC.,
INDIVIDUALLY AND AS AGENT FOR ONE OR MORE CO-LENDERS
Dated as of October __, 1995
Initial Facility Amount of $75,000,000.00
Maximum Facility Amount of $135,000,000.00
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 1. DEFINITIONS.......................................................... 2
Section 1.1 Definitions...................................................... 2
SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT FACILITY........................ 26
Section 2.1 Advances....................................................... 26
Section 2.2 Notice of Borrowing............................................ 27
Section 2.3 Disbursement of Funds.......................................... 28
Section 2.4 The Note....................................................... 29
Section 2.5 Interest....................................................... 30
Section 2.6 Interest Periods............................................... 31
Section 2.7 Minimum Amount of Eurodollar Portions.......................... 32
Section 2.8 Conversion or Continuation..................................... 32
Section 2.9 Voluntary Reduction of Maximum Facility Amount; Termination
of Maximum Facility Amount..................................... 33
Section 2.10 Swing Line Advances............................................ 34
Section 2.11 Voluntary Prepayments.......................................... 35
Section 2.12 Mandatory Prepayments.......................................... 36
Section 2.13 Application of Payments and Prepayments........................ 36
Section 2.14 Method and Place of Payment.................................... 36
Section 2.15 Fees........................................................... 37
Section 2.16 Interest Rate Unascertainable, Increased Costs, Illegality..... 37
Section 2.17 Funding Losses................................................. 39
Section 2.18 Increased Capital.............................................. 40
Section 2.19 Taxes.......................................................... 40
Section 2.20 Use of Proceeds................................................ 42
Section 2.21 Release and Substitution of Collateral......................... 42
Section 2.22 Increasing Available Facility Amount........................... 50
Section 2.23 Breach of Available Borrowing Base Covenant or Loan to Value
Ratio Covenant................................................. 51
Section 2.24 Adjustment of Allocated Loan Amounts upon Addition of New
Property....................................................... 52
Section 2.25 Maximum Number of Transactions................................. 52
Section 2.26 Increasing Allocable Loan Amounts.............................. 52
SECTION 3. CONDITIONS PRECEDENT................................................. 53
Section 3.1 Conditions Precedent to the Initial Advance.................... 53
Section 3.2 Conditions Precedent to All Advances of the Loan............... 61
Section 3.3 Acceptance of Borrowings....................................... 63
Section 3.4 Sufficient Counterparts........................................ 63
</TABLE>
<PAGE> 3
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<TABLE>
<S> <C> <C>
SECTION 4. REPRESENTATIONS AND WARRANTIES....................................... 64
Section 4.1 Corporate/Partnership Status................................... 64
Section 4.2 Corporate/Partnership Power and Authority...................... 64
Section 4.3 No Violation................................................... 64
Section 4.4 Litigation..................................................... 65
Section 4.5 Financial Statements: Financial Condition; etc................. 65
Section 4.6 Solvency....................................................... 65
Section 4.7 Material Adverse Change........................................ 65
Section 4.8 Use of Proceeds; Margin Regulations............................ 66
Section 4.9 Governmental Approvals......................................... 66
Section 4.10 Security Interests and Liens................................... 66
Section 4.11 Tax Returns and Payments....................................... 66
Section 4.12 ERISA.......................................................... 66
Section 4.13 Intentionally Omitted.......................................... 67
Section 4.14 Representations and Warranties in Loan Documents............... 68
Section 4.15 True and Complete Disclosure................................... 68
Section 4.16 Ownership of Real Property; Existing Security Instruments...... 68
Section 4.17 No Default..................................................... 68
Section 4.18 Licenses, etc.................................................. 68
Section 4.19 Compliance With Law............................................ 69
Section 4.20 Brokers........................................................ 69
Section 4.21 Judgments...................................................... 69
Section 4.22 Property Manager............................................... 69
Section 4.23 Assets of the REIT............................................. 70
Section 4.24 REIT Status.................................................... 70
Section 4.25 The Partnership................................................ 70
Section 4.26 HIC............................................................ 70
Section 4.27 Intercompany Debt.............................................. 70
Section 4.28 Personal Property.............................................. 70
Section 4.29 Operations..................................................... 70
Section 4.30 Stock.......................................................... 70
Section 4.31 Ground Leases.................................................. 70
Section 4.32 Survival....................................................... 71
SECTION 5. AFFIRMATIVE COVENANTS................................................ 71
Section 5.1 Financial Reports.............................................. 71
Section 5.2 Books, Records and Inspections................................. 74
Section 5.3 Maintenance of Insurance....................................... 74
Section 5.4 Taxes.......................................................... 74
Section 5.5 Corporate Franchises; Conduct of Business...................... 75
</TABLE>
<PAGE> 4
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<TABLE>
<S> <C> <C>
Section 5.6 Compliance with Law............................................ 75
Section 5.7 Performance of Obligations..................................... 75
Section 5.8 Stock.......................................................... 76
Section 5.9 Maintenance of Personal Property............................... 76
Section 5.10 Maintenance of Properties...................................... 76
Section 5.11 Compliance with ERISA.......................................... 76
Section 5.12 Settlement/Judgment Notice..................................... 77
Section 5.13 Acceleration Notice............................................ 78
Section 5.14 Lien Searches; Title Searches.................................. 78
Section 5.15 Available Borrowing Base Covenant.............................. 78
Section 5.16 Minimum Net Worth.............................................. 79
Section 5.17 Total Indebtedness............................................. 80
Section 5.18 Coverage Ratios................................................ 80
Section 5.19 Replacement Reserve and Deferred Maintenance Reserve........... 80
Section 5.20 Loan to Value Ratio............................................ 82
Section 5.21 Manager........................................................ 84
Section 5.22 Further Assurances............................................. 84
Section 5.23 REIT Status.................................................... 85
Section 5.24 Mortgage Covenants............................................. 85
Section 5.25 Appraisals..................................................... 85
Section 5.26 Maintenance of Control......................................... 86
Section 5.27 Maintenance of Intercompany Debt............................... 86
Section 5.28 Transfer of Licenses........................................... 86
SECTION 6. NEGATIVE COVENANTS................................................... 87
Section 6.1 INTENTIONALLY DELETED.......................................... 87
Section 6.2 INTENTIONALLY DELETED.......................................... 87
Section 6.3 Liens.......................................................... 87
Section 6.4 Restriction on Fundamental Changes............................. 88
Section 6.5 Transactions with Affiliates................................... 88
Section 6.6 Plans.......................................................... 88
Section 6.7 Payout Ratios.................................................. 88
Section 6.8 Operating Leases............................................... 89
Section 6.9 Borrower's Partnership Agreement............................... 89
SECTION 7. EVENTS OF DEFAULT.................................................... 89
Section 7.1 Events of Default.............................................. 89
Section 7.2 Rights and Remedies............................................ 93
SECTION 8. INTENTIONALLY DELETED................................................ 94
</TABLE>
<PAGE> 5
-iv-
<TABLE>
<S> <C> <C>
SECTION 9. MISCELLANEOUS........................................................ 94
Section 9.1 Payment of Lender's, Collateral Agent's and Co-Lender's
Expenses, Indemnity, etc....................................... 94
Section 9.2 Notices........................................................ 96
Section 9.3 Successors and Assigns; Participations; Assignments............ 98
Section 9.4 Amendments and Waivers......................................... 98
Section 9.5 No Waiver; Remedies Cumulative................................. 99
Section 9.6 Governing Law; Submission to Jurisdiction...................... 99
Section 9.7 Confidentiality; Disclosure of Information..................... 99
Section 9.8 Recourse....................................................... 100
Section 9.9 Sale of Loan, Co-Lenders, Participations and Servicing......... 101
Section 9.10 Borrower's and REIT's Assignment............................... 105
Section 9.11 Counterparts................................................... 105
Section 9.12 Effectiveness.................................................. 106
Section 9.13 Headings Descriptive........................................... 106
Section 9.14 Marshaling; Recapture.......................................... 106
Section 9.15 Severability................................................... 106
Section 9.16 Survival....................................................... 106
Section 9.17 Domicile of Loan Portions...................................... 106
Section 9.18 Intentionally Omitted.......................................... 106
Section 9.19 Calculations; Computations..................................... 106
Section 9.20 WAIVER OF TRIAL BY JURY........................................ 107
Section 9.21 No Joint Venture............................................... 107
Section 9.22 Estoppel Certificates.......................................... 107
Section 9.23 No Other Agreements............................................ 107
Section 9.24 Controlling Document........................................... 108
Section 9.25 No Benefit to Third Parties.................................... 108
Section 9.26 Joint and Several.............................................. 108
</TABLE>
<PAGE> 6
-v-
SCHEDULES
Schedule 1 Allocated Loan Amounts
Schedule 2 Real Property Assets
Schedule 2A Pool 1 Real Property Assets
Schedule 2B Pool 2 Real Property Assets (California)
Schedule 2C Pool 3 Real Property Assets (Washington)
Schedule 2D Pool 4 Real Property Assets (Nevada)
Schedule 3 Franchise Agreements
Schedule 4 Required Estoppel Certificates
Schedule 5 Litigation
Schedule 6 Employee Benefit Plans
Schedule 7 Liens
Schedule 8 Ground Leases
Schedule 9 Intercompany Debt
Schedule 10 Operating Leases (including Vagabond Leases)
Schedule 11 Permitted Financing per Real Property Asset
Schedule 11A Lodge Net licensing agreements
Schedule 12 Management Agreements
Schedule 13 REIT Business Operations
Schedule 13A Corporation Business Operations
Schedule 14 Management Fees and Franchise Fees
Schedule 15 Certified Copies of Leases
Schedule 16 Initial Minimum Spending Requirement and Minimum Spending
Requirement
Schedule 17 Deferred Maintenance Spending Requirement and Deferred
Maintenance Reserve
Schedule 18 Liquor Licenses
EXHIBITS
Exhibit A-1 Notice of Borrowing
Exhibit A-2 Notice of Swing Line Advance
Exhibit B-1 Form of Note
Exhibit B-2 Form of Florida Note
Exhibit B-3 Form of Swing Line Note
Exhibit C-1 Notice Requesting Short Interest Period
Exhibit C-2 Notice of Conversion or Continuation
Exhibit D Notice of Voluntary Reduction of Maximum Facility
Amount
Exhibit E Notice of Voluntary Prepayment
Exhibit F Request For Additional Collateral
Exhibit G Form of Security Instrument
<PAGE> 7
-vi-
Exhibit H Form of Assignment of Leases and Rents
Exhibit I Form of Environmental Indemnity
Exhibit J Form of Swing Line Participation Certificate
Exhibit K Form of Ground Lease Estoppel
Exhibit L Form of Assignment of Franchise Agreement,
Agreements, Permits and Contracts
Exhibit M Form of Franchisor Estoppel and Recognition Letter
Exhibit N Form of Security Agreement
Exhibit O Form of Tenant Estoppel Certificate
Exhibit P Form of Subordination, Attornment and Non-Disturbance
Agreement
Exhibit Q Form of Intercompany Debt Subordination Agreement
Exhibit R Form of Partnership [HIC] Guaranty
Exhibit S Form of Partnership [HIC] Mortgage
Exhibit T Form of Partnership [HIC] Guaranty Security Agreement
Exhibit U Form of Partnership [HIC] Assignment of Leases and Rents
Exhibit V Form of Consent to Assignment, Subordination and Attornment
Agreement
Exhibit W Form of Vagabond Subordination and Non-Disturbance Agreement
Exhibit X Form of HIC Guaranty
Exhibit Y Form of Assignment and Assumption
<PAGE> 8
THIS AMENDED AND RESTATED LINE OF CREDIT AGREEMENT, dated as
of _______________, 1995, is made among SLT REALTY LIMITED PARTNERSHIP, a
Delaware limited partnership ("Borrower"), STARWOOD LODGING TRUST, a Maryland
real estate investment trust (the "REIT"), BANKERS TRUST COMPANY, a New York
banking organization, having an address at Three Park Plaza, 16th Floor,
Irvine, California 92714, as collateral agent (the "Collateral Agent") and
LEHMAN BROTHERS HOLDINGS INC., D/B/A LEHMAN CAPITAL, A DIVISION OF LEHMAN
BROTHERS HOLDINGS INC., a Delaware corporation, individually and as Agent for
one or more Co-Lenders and successors ("Lender").
PRELIMINARY STATEMENT
The REIT, Merrill Lynch Mortgage Capital Inc. ("Merrill") and
the Collateral Agent (each by way of its predecessor in interest) entered into
a certain Credit Agreement dated as of January 28, 1993 (the "Prior Credit
Agreement") pursuant to which certain loans were made to the REIT (the "Merrill
Facility").
On January 1, 1995, the REIT, the Corporation and Starwood
Capital Group, L.P. ("Group") consummated a transaction pursuant to which
substantially all of the assets and liabilities of the REIT and Corporation,
and certain assets and liabilities of the Group, were transferred to Borrower
and Partnership in exchange for ownership interests in the Borrower and
Partnership.
Borrower, the REIT, Merrill and Collateral Agent entered into
a certain Amended and Restated Credit Agreement dated as of March 24, 1995 (the
"Amended Credit Agreement") which amended and restated the Prior Credit
Agreement in its entirety to provide for, among other things, an additional
advance to the Borrower, the pledge of additional assets as additional security
for the Merrill Facility, and an additional acquisition credit facility.
Lender is the current owner and holder of the Amended Credit
Agreement and the Merrill Facility, as amended by that certain First Amendment
to the Amended and Restated Credit Agreement dated September 27, 1995 between
Lender, Borrower, the REIT and the Collateral Agent (the Amended Credit
Agreement, as amended, the "Credit Agreement").
Borrower, the REIT, the Collateral Agent and Lender hereby
desire to amend and restate in its entirety the Credit Agreement pursuant to
which the Borrower, the REIT, the Collateral Agent and Lender agree to
restructure the terms of the Credit Agreement and the Merrill Facility and the
obligations of Borrower and the REIT under the Credit Agreement and Lender
agrees to extend additional credit facilities to Borrower, all subject to and
upon the terms and conditions of this Agreement.
<PAGE> 9
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NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, and in and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto covenant and agree as follows:
A. Neither this Agreement nor anything contained herein
shall be construed as a substitution or novation of the indebtedness evidenced
hereby or of the Credit Agreement, which shall remain in full force and effect,
as supplemented, increased, amended and restated, as provided herein.
B. All of the terms, provisions and obligations
contained in the Credit Agreement are hereby supplemented, amended and restated
in their entirety to read as follows:
SECTION 1. DEFINITIONS.
Section 1.1 Definitions. As used herein, the following terms
shall have the meanings herein specified unless the context otherwise requires.
Defined terms in this Agreement shall include in the singular number the plural
and in the plural number the singular.
"Accounts Receivable" shall mean all income and revenues or
rights to receive all income and revenues arising from the operation of the
Real Property Assets and all payments for goods or property sold or leased or
for services rendered, whether or not yet earned by performance, and not
evidenced by an instrument or chattel paper, including, without limiting the
generality of the foregoing, (i) all accounts, contract rights, book debts, and
notes arising from the operation of a hotel on the Real Property Assets or
arising from the sale, lease or exchange of goods or other property and/or the
performance of services, (ii) Borrower's rights to payment from any consumer
credit/charge card organization or entity (such as, or similar to, the
organizations or entities which sponsor and administer the American Express
Card, the Visa Card, the Bankamericard, the Carte Blanche Card, or the
Mastercard) arising with respect to the Real Property Assets, (iii) Borrower's
rights in, to and under all purchase orders for goods, services or other
property arising with respect to the Real Property Assets, (iv) Borrower's
rights to any goods, services or other property represented by any of the
foregoing, (v) monies due to or to become due to Borrower under all contracts
for the sale, lease or exchange of goods or other property and/or the
performance of services including the right to payment of any interest or
finance charges in respect thereto (whether or not yet earned by performance on
the part of Borrower) arising with respect to the Real Property Assets and (vi)
all collateral security and guaranties of any kind given by any person or
entity with respect to any of the foregoing. Accounts Receivable shall include
those now existing or hereafter created, substitutions therefor, proceeds
(whether cash or non-cash, movable or immovable, tangible or intangible)
received upon the sale, exchange, transfer, collection or other disposition or
substitution thereof and any and all of the foregoing and proceeds therefrom.
<PAGE> 10
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"Adjusted Operating Lease Payments" shall mean, with respect
to all Operating Leases other than the Vagabond Leases, the sum of Base Rent
(as defined in the related Operating Lease) and Percentage Rent (as defined in
the related Operating Lease) that would be due and payable under the Operating
Leases if Gross Receipts and Gross Sales (as each term is defined in the
Operating Leases) were each reduced by 50% and calculated in accordance with
the provisions of this Agreement relating to Property Net Cash Flow.
"Advance" shall mean each advance and readvance of the
principal balance of the Loan, including any Swing Line Advance.
"Affiliate" shall mean, with reference to a specified Person,
any Person that directly or indirectly through one or more intermediaries
Controls or is Controlled by or is under common Control with the specified
Person and any Subsidiaries of such specified Person.
"Agent" shall have the meaning provided in Section 9.9(e).
"Aggregate Available Facility Amount" shall mean the sum of
the Available Facility Amounts for Note A, Note B, Note C and Note D; in no
event shall the Aggregate Available Facility Amount exceed the Maximum Facility
Amount.
"Agreement" shall mean this Amended and Restated Line of
Credit Agreement as the same may from time to time hereafter be modified,
supplemented or amended.
"Allocated Loan Amount" shall mean the portions of the
Available Facility Amount allocated to each Real Property Asset as set forth on
Schedule 1, as the same may be adjusted in accordance with this Agreement.
"Annual Operating Budget" shall have the meaning provided in
Section 5.1.
"Applicable Laws" shall mean all existing and future federal,
state and local laws, statutes, orders, ordinances, rules, and regulations or
orders, writs, injunctions or decrees of any court affecting Borrower or any
Real Property Asset, or the use thereof including, but not limited to, all
zoning, fire safety and building codes, the Americans with Disabilities Act,
and all Environmental Laws (as defined in the Environmental Indemnity).
"Appraisal" shall mean an appraisal prepared in accordance
with the requirements of FIRREA, prepared by an independent third party
appraiser holding an MAI designation, who is state licensed or state certified
if required under the laws of the state where the applicable Real Property
Asset is located, who meets the requirements of FIRREA and who has at least ten
(10) years real estate experience appraising properties of a similar nature and
type as the applicable Real Property Asset and who is otherwise satisfactory to
Lender.
<PAGE> 11
-4-
"Assignment and Assumption" shall have the meaning provided in
Section 9.9(a).
"Assignment of Contracts" shall have the meaning provided in
Section 3.1(a)(viii).
"Assignment of Leases and Rents" shall have meaning provided
in Section 3.1(a)(iv).
"Available Borrowing Base" shall mean, with respect to each
Note, for the period for which it is to be determined, the quotient obtained by
dividing (A) the aggregate Net Operating Income for all of the Real Property
Assets securing the related Note by (B) the product of (i) 2.0 times (ii) the
Contract Rate of interest for the related Note applicable hereunder for such
period, provided, however, that if such Contract Rate is less than the Treasury
Rate on the last day of such period, then the applicable Contract Rate shall be
deemed to be the Treasury Rate on the last day of such period, for purposes of
this calculation only.
"Available Borrowing Base Covenant" shall have the meaning
provided in Section 5.15.
"Available Facility Amount" shall mean, individually, U.S.
$70,110,000.00 with respect to Note A (of which $3,400,000.00 is with respect
to the Florida Note and $66,710,000.00 is with respect to Note A-1), U.S.
$4,890,000.00 with respect to Note B, and U.S. $0.00 with respect to Note C and
U.S. $0.00 with respect to Note D; or, if the Syndication has occurred pursuant
to Section 9.9(k) or the Lehman Additional Commitment has been provided
pursuant to the terms of the Syndication Letter, up to U.S. $107,354,000.00
with respect to Note A (of which $3,400,000.00 is with respect to the Florida
Note and $103,954,000.00 is with respect to Note A-1), U.S. $8,753,000.00 with
respect to Note B, U.S. $13,235,000.00 with respect to Note C and U.S.
$5,658,000.00 with respect to Note D, as each may be reduced pursuant to
Sections 2.9, 2.12, 2.21, 5.15, or 5.20, or otherwise pursuant to the terms of
this Agreement, or increased pursuant to Section 2.22.
"Bankruptcy Code" shall mean Title 11 of the United States
Code entitled "Bankruptcy", as amended from time to time, and any successor
statute or statutes and all rules and regulations from time to time promulgated
thereunder, and any comparable foreign laws relating to bankruptcy, insolvency
or creditors' rights.
"Base Period" shall have the meaning provided in Section
5.18(a).
"Base Rate" shall mean, at any particular date, a rate per
annum equal to the rate of interest published in The Wall Street Journal as the
"prime rate", as in effect on such day,
<PAGE> 12
-5-
with any change in the prime rate resulting from a change in said prime rate to
be effective as of the date of the relevant change in said prime rate; provided,
however, that if more than one prime rate is published in The Wall Street
Journal for a day, the average of the Prime Rates shall be used; provided,
further, however, that the Prime Rate (or the average of the prime rates) will
be rounded to the nearest 1/16 of 1% or, if there is no nearest 1/16 of 1%, to
the next higher 1/16 of 1%.
In the event that The Wall Street Journal should cease or
temporarily interrupt publication, then the Prime Rate shall mean the daily
average prime rate published in another business newspaper, or business section
of a newspaper, of national standing chosen by Lender. If The Wall Street
Journal resumes publication, the substitute index will immediately be replaced
by the prime rate published in The Wall Street Journal.
In the event that a prime rate is no longer generally
published or is limited, regulated or administered by a governmental or
quasi-governmental body, then Lender shall select a comparable interest rate
index which is readily available to Borrower and verifiable by Borrower but is
beyond the control of Lender. Lender shall give Borrower prompt written notice
of its choice of a substitute index and when the change became effective.
Such substitute index will also be rounded to the nearest 1/16
of 1% or, if there is no nearest 1/16 of 1%, to the next higher 1/16 of 1%.
The determination of the Base Rate by Lender shall be
conclusive absent manifest error.
"Base Rate Margin" shall mean 0.625% per annum.
"Base Rate Portions" shall mean each portion of the Loan made
and/or being maintained at a rate of interest based upon the Base Rate,
including any Swing Line Advances.
"Borrower" shall have the meaning provided in the first
paragraph of this Agreement and any successor Borrower expressly permitted
hereunder.
"Borrower's Partnership Agreement" means that certain Amended
and Restated Limited Partnership Agreement of SLT Realty Limited Partnership
dated _________(sic), 1995, and an Amended and Restated Certificate of Limited
Partnership of SLT Realty Limited Partnership dated July 5, 1995.
"Borrowing" shall mean a borrowing of one Type of Advance from
Lender and any Co-Lender or Swing Line Lender on a given date (or resulting
from conversions or
<PAGE> 13
-6-
continuations on a given date), having in the case of Eurodollar Portions the
same Interest Period.
"Business Day" shall mean (i) for all purposes other than as
covered by clause (ii) below, any day excluding Saturday, Sunday and any day
which shall be in New York City a legal holiday or a day on which Lender, any
Co-Lender or banking institutions are authorized or required by law or other
government actions to close, and (ii) with respect to all notices and
determinations in connection with, and payments of principal and interest on,
Eurodollar Portions, any day which is a Business Day described in clause (i)
and which is also a day for trading by and between banks for U.S. dollar
deposits in the relevant interbank Eurodollar market.
"Capitalized Lease" as to any Person shall mean (i) any lease
of property, real or personal, the obligations under which are capitalized on
the consolidated balance sheet of such Person and its Subsidiaries, and (ii)
any other such lease to the extent that the then present value of the minimum
rental commitment thereunder should, in accordance with GAAP, be capitalized on
a balance sheet of the lessee.
"Capitalized Lease Obligations" as to any Person shall mean
all obligations of such Person and its Subsidiaries under or in respect of
Capitalized Leases.
"Change in Law" shall have the meaning provided in Section
2.19(c).
"Closing Date" shall mean the date of this Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and any successor statute, together with all rules
and regulations from time to time promulgated thereunder.
"Co-Lender" shall have the meaning provided in Section 9.9.
"Collateral" shall mean all property and interests in property
now owned or hereafter acquired in or upon which a Lien has been or is
purported or intended to have been granted under any of the Security
Instruments or any of the other Loan Documents, including, without limitation,
all Operating Leases (other than the Vagabond Leases), and all New Properties
and Substitute Properties but excluding Release Properties.
"Collateral Agent" shall have the meaning provided in the
first paragraph of this Agreement and any successor thereto.
<PAGE> 14
-7-
"Collateral Agent Fees" shall mean the Custodial Fees and
Collateral Agent Fees, each as defined in the Custodial Agreement, to which the
Collateral Agent is entitled pursuant to the Custodial Agreement.
"Consent to Assignment, Subordination, Estoppel and Attornment
Agreement" shall have the meaning provided in Section 3.1(a)(xx).
"Consolidated Interest Expense" means with respect to any
Person for any period, interest accrued or payable by such Person and its
Subsidiaries during such period in respect of Total Debt determined on a
consolidated basis in accordance with GAAP.
"Contingent Obligation" as to any Person shall mean any
obligation of such Person guaranteeing or intended to guarantee any
Indebtedness, leases (including Capitalized Leases), dividends or other
obligations ("primary obligations") of any other Person (the "primary obligor")
in any manner, whether directly or indirectly, including, without limitation,
any obligation of such Person, whether or not contingent, (i) to purchase any
such primary obligation or any property constituting direct or indirect
security therefor,(ii) to advance or supply funds (x) for the purchase or
payment of any such primary obligation or (y) to maintain working capital or
equity capital of the primary obligor or otherwise to maintain the net worth,
solvency or other financial condition of the primary obligor, (iii) to purchase
property, securities or services primarily for the purpose of assuring the
owner of any such primary obligation of the ability of the primary obligor to
make payment of such primary obligation or (iv) otherwise to assure or hold
harmless the owner of such primary obligation against loss in respect thereof:
provided, however, that the term Contingent Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any accrued or accruable Contingent Obligation shall
be determined in accordance with GAAP.
"Contract Rate" shall mean the rate or rates of interest
(which rate shall include the applicable margin added thereto pursuant to the
terms of this Agreement) per annum provided for in this Agreement which are
applicable to the Loan from time to time so long as no Event of Default has
occurred and in continuing. If more than one rate of interest is applicable to
the Loan, then, unless the context indicates that the Contract Rate is to be
determined for each Loan Portion, the Contract Rate shall be the average of
such rates (rounded upwards, if necessary, to the nearest 1/100 of 1%) with
such average to be weighted according to the relative size of the Loan Portions
to which such different rates are applicable. The determination of the
Contract Rate by Lender, if made in good faith, shall be conclusive absent
manifest error.
"Control" shall mean in (a) in the case of a corporation,
ownership, directly or through ownership of other entities, of at least ten
percent (10%) of all the voting stock (exclusive of stock which is voting only
as required by applicable law or in the event of nonpayment of dividends and
pays dividends only on a nonparticipating basis at a fixed or floating rate),
<PAGE> 15
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and (b) in the case of any other entity, ownership, directly or through
ownership of other entities, of at least ten percent (10%) of all of the
beneficial equity interests therein (calculated by a method that excludes from
equity interests, ownership interests that are nonvoting (except as required by
applicable law or in the event of nonpayment of dividends or distributions) and
pay dividends or distributions only on a non-participating basis at a fixed or
floating rate) or, in any case, (c) the power directly or indirectly, to direct
or control, or cause the direction of, the management policies of another
Person, whether through the ownership of voting securities, general partnership
interests, common directors, trustees, officers by contract or otherwise. The
terms "controlled" and "controlling" shall have meanings correlative to the
foregoing definition of "Control."
"Corporation" shall mean Starwood Lodging Corporation, a
Maryland corporation.
"Corrective Action Plan" shall have the meaning provided in
Section 5.19(c).
"Custodial Agreement" shall have the meaning provided in
Section 9.9(e).
"Debt Service" means with respect to any Person for any
period, the sum (without duplication) of (a) Consolidated Interest Expense of
such Person for such period plus (b) scheduled principal amortization of Total
Debt (other than the final balloon payments in connection with Indebtedness of
such Person, unless past due) of such Person for such period (whether or not
such payments are made).
"Default" shall mean any event, act or condition which, with
the giving of notice or lapse of time, or both, would constitute an Event of
Default.
"Default Rate" shall mean for each Loan Portion the lesser of
(a) the Maximum Legal Rate or (b) with respect to all then outstanding
Eurodollar Portions, (i) the rate per annum determined by adding 2% to the
Contract Rate applicable to the Loan immediately prior to an Event of Default
until the expiration of the applicable Interest Periods and thereafter the rate
per annum determined by adding 2% to the Base Rate, as from time to time is in
effect; or (c) with respect to all then outstanding Base Rate Portions, the
rate per annum determined by adding 2% to the Base Rate as from time to time in
effect.
"Deferred Maintenance Reserve" shall have the meaning provided
in Section 5.19(b).
"Deferred Maintenance Spending Requirement" shall have the
meaning provided in Section 5.19(b).
<PAGE> 16
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"Distribution" shall mean any dividends (other than dividends
payable solely in common stock),distributions, return of capital to any
stockholders, general or limited partners or members, other payments,
distributions or delivery of property or cash to stockholders, general or
limited partners or members, or any redemption, retirement, purchase or other
acquisition, directly or indirectly, of any shares of any class of capital
stock now or hereafter outstanding (or any options or warrants issued with
respect to capital stock), any general or limited partnership interest, or the
setting aside of any funds for the foregoing.
"Dollars" and the symbol "$" each mean the lawful money of the
United States of America.
"Domestic Lending Office" shall mean the office set forth in
Section 9.2 for Lender, or such other office as may be designated from time to
time by written notice to Borrower.
"Draw Period" shall mean the period commencing on the date
hereof and expiring on the Termination Date.
"EBITDA" shall mean with respect to any Person for any period,
earnings (or losses) before interest and taxes of such Person and its
Subsidiaries for such period plus, to the extent deducted in computing such
earnings (or losses) before interest and taxes, depreciation and amortization
expense, all as determined on a consolidated basis with respect to such Person
and its Subsidiaries in accordance with GAAP; provided, however, EBITDA shall
exclude earnings or losses resulting from (i) cumulative changes in accounting
practices, (ii) discontinued operations, (iii) extraordinary items, (iv) net
income of any entity acquired in a pooling of interest transaction for the
period prior to the acquisition, (v) net income of a Subsidiary that is
unavailable to the Borrower, (vi) net income not readily convertible into
Dollars or remittable to the United States, (vii) net income from corporations,
partnerships, associations, joint ventures or other entities in which the
Borrower or a Subsidiary has a minority interest and in which Borrower does not
have Control, except to the extent actually received.
"Employee Benefit Plan" shall mean an employee benefit plan
within the meaning of Section 3(3) of ERISA (i) that is maintained by Borrower
or any other Loan Party or (ii) with respect to which any such person has any
obligation or liability, whether direct or indirect; provided, however, that
"Employee Benefit Plan" shall not include any "multiemployer plan" as defined
in section 4001(a)(3) of ERISA.
"Engineering Reports" shall have the meaning provided in
Section 3.1(o).
"Environmental Indemnity" shall have the meaning provided in
Section 3.1(a)(v).
<PAGE> 17
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"Environmental Reports" shall mean the written environmental
site assessments, prepared by independent qualified environmental professionals
acceptable to Lender in its reasonable discretion, prepared in accordance with
Lender's then current guidelines, of each of the Real Property Assets, each of
which assessments shall be in form and substance reasonably satisfactory to
Lender and contain the information set forth in Section 3.1(k).
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time and any successor statute, together with
all rules and regulations promulgated thereunder. Section references to ERISA
are to ERISA, as in effect at the date of this Agreement and any provisions of
ERISA substituted therefor.
"ERISA Controlled Group" means any corporation or entity or
trade or business or person that is a member of any group described in Section
414(b), (c), (m) or (o) of the Code of which Borrower, the REIT, the
Partnership, the Corporation, HIC or any other Loan Party is a member.
"ERISA Indemnitee" shall have the meaning provided in Section
9.9(l).
"Estoppel Certificate" shall have the meaning provided in
3.1(e).
"Eurocurrency Reserve Requirements" shall mean, with respect
to each day during an Interest Period for Eurodollar Portions, that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Federal Reserve Board or other governmental authority or agency having
jurisdiction with respect thereto for determining the maximum reserves
(including, without limitation, basic, supplemental, marginal and emergency
reserves) for eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D) maintained by a member bank of the Federal
Reserve System. The parties acknowledge that the Eurocurrency Reserve
Requirements as of the Closing Date are -0-%.
"Eurodollar Base Rate" shall mean, (a) for any Interest Period
other than a Short Interest Period, the rate per annum (rounded upwards, if
necessary, to the next higher one hundred-thousandth of a percentage point)
which appears on the Telerate Page 3750 as of 11:00 a.m. (London, England time)
two (2) Business Days prior to the first day of such Interest Period for
deposits in U.S. Dollars for a period equal to such Interest Period, and (b)
for any Short Interest Period an interpolated rate per annum based on the
closest comparable Interest Periods, which appear on the Telerate Page 314 as
of 11:00 a.m. (London, England time) two (2) Business Days prior to the first
day of such Short Interest Period. The determination of the Eurodollar Base
Rate by Lender shall be conclusive absent manifest error.
<PAGE> 18
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"Eurodollar Lending Office" shall mean the office of Lender
(or any Participant or Co-Lender) designated as such by Lender from time to
time by written notice to Borrower.
"Eurodollar Portions" shall mean each portion of the Loan made
and/or being maintained at a rate of interest calculated by reference to the
Eurodollar Rate.
"Eurodollar Rate" shall mean with respect to each day during
an Interest Period for Eurodollar Portions, a rate per annum equal to the
Eurodollar Base Rate, or, if any Co-Lender is subject to Eurocurrency Reserve
Requirements, whether or not such reserves are actually incurred or maintained,
the average of the Eurodollar Base Rate and the Adjusted Eurodollar Base Rate,
with such average to be weighted according to the percentage of the Eurodollar
Portion subject to such Co-Lender's interest in the Loan and the balance of
such Eurodollar Portion. The Adjusted Eurodollar Base Rate shall mean a rate
per annum, determined for each day during an Interest Period in accordance with
the following formula (rounded upwards to the nearest whole multiple of 1/16th
of one percent):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Eurodollar Rate Margin" shall mean 1.625% per annum.
"Event of Default" shall have the meaning provided in Section
7.
"Expense Cap" shall have the meaning provided in the
Syndication Letter.
"Fee Letter" shall mean that certain letter dated the date
hereof from Lehman Brothers Holdings Inc. to Borrower and the REIT.
"FIRREA" means the Financial Institutions Reform, Recovery and
Enforcement Act of 1989, as amended from time to time.
"Federal Reserve Board" shall mean the Board of Governors of
the Federal Reserve System as constituted from time to time, or any successor
thereto in function.
"Fees" shall mean all amounts payable pursuant to Sections
2.15, 2.17 and 9.1.
"Financing Statement" shall have the meaning provided in
Section 3.1(h).
"Fixed Charges" means the amount of scheduled lease payments
with respect to leasehold interests or obligations of the respective Person.
<PAGE> 19
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"Florida Note" shall have the meaning provided in Section
2.4(a).
"Florida Real Property Asset" shall mean that Pool 1 Real
Property Asset located in the state of Florida.
"Franchise Agreements" shall mean the franchise agreements
described in Schedule 3 (as such Schedule may be amended, from time to time)
between the Partnership or HIC and the respective Franchisors pursuant to which
the Partnership or HIC has the right to operate the hotel located on the
related Real Property Asset under a name and/or hotel system controlled by such
Franchisor and any other hotel or hospitality franchise agreement with respect
to any New or Substitute Property.
"Franchisor" shall mean each of the franchisors under the
Franchise Agreements described in Schedule 3, as such Schedule may be amended
from time to time.
"Franchisor Estoppel and Recognition Letter" shall have the
meaning provided in Section 3.1(a)(ix).
"Funding Costs" shall have the meaning provided in Section
2.17.
"Funds from Operations" shall mean consolidated net income
(loss) before extraordinary items, computed in accordance with GAAP, plus, to
the extent deducted in determining net income (loss) and without duplication,
(i) gains (or losses) from debt restructuring and sales of property, (ii)
non-recurring charges, (iii) provisions for losses, (iv) real estate related
depreciation and amortization (excluding amortization of financing costs), and
(v) amortization of organizational expenses less, to the extent included in net
income (loss), (a) non-recurring income and (b) equity income (loss) from
unconsolidated partnerships and joint ventures less the proportionate share of
funds from operations of such partnerships and joint ventures, which
adjustments shall be calculated on a consistent basis.
"Furnished Information" shall have the meaning provided in
Section 4.15.
"GAAP" shall mean United States generally accepted accounting
principles on the date hereof and as in effect from time to time during the
term of this Agreement, and consistent with those utilized in the preparation
of the financial statements referred to in Section 4.5.
"Gross Revenues" shall mean, with respect to any Real Property
Asset for any period, all income, rents, room rates, additional rents,
revenues, issues and profits (including all oil and gas or other mineral
royalties and bonuses) and other items including without limitation, all
revenues and credit card receipts collected from guest rooms, restaurants,
meeting rooms,
<PAGE> 20
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bars, mini-bars, banquet rooms, recreation facilities, vending machines and
concessions derived from the customary operation of such Real Property Asset.
"Group" shall have the meaning provided in the Preliminary
Statement.
"Ground Lease" shall mean those ground leases, together with
all amendments and modifications thereto, all as more particularly set forth on
Schedule 8 with respect to the Real Property Assets identified on such
Schedule, as such Schedule may be amended from time to time.
"Ground Lease Estoppel" shall have the meaning provided in
Section 3.1(xiv).
"HIC" shall mean Hotel Investors Corporation of Nevada, a
Nevada corporation.
"HIC Assignment of Contracts" shall have the meaning provided
in Section 3.1(a)(xxvi).
"HIC Assignment of Leases and Rents" shall have the meaning
provided in Section 3.1(a)(xxv).
"HIC Event of Default" shall have the meaning provided in
Section 7.1(j).
"HIC Guaranty" shall have the meaning provided in Section
3.1(a)(xxii).
"HIC Guaranty Security Agreement" shall have the meaning
provided in Section 3.1(a)(xxiv).
"HIC Mortgage" shall have the meaning provided in Section
3.1(a)(xxiii).
"Increased Capital Costs" shall have the meaning provided in
Section 2.18.
"Indebtedness" of any Person shall mean, without duplication,
(i) all indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services, (ii) all indebtedness of such Person
evidenced by a note, bond, debenture or similar instrument, (iii) the
outstanding amount drawn and unpaid under all letters of credit issued for the
account of such Person and, without duplication, all unreimbursed amounts drawn
thereunder, (iv) all indebtedness of any other Person secured by any Lien on
any property owned by such Person, whether or not such indebtedness has been
assumed, (v) all Contingent Obligations of such Person, (vi) all Unfunded
Benefit Liabilities of such Person, (vii) all actual payment obligations of
such Person under any interest rate protection agreement (including, without
limitation, any interest rate swaps, caps, floors, collars and similar
agreements) and currency swaps and similar
<PAGE> 21
-14-
agreements, (viii) all indebtedness and liabilities secured by any Lien or
mortgage on any property of such Person, whether or not the same would be
classified as a liability on a balance sheet, (ix) the liability of such Person
in respect of banker's acceptances and the estimated liability under any
participating mortgage, convertible mortgage or similar arrangement, (x) the
aggregate amount of rentals or other consideration payable by such Person in
accordance with GAAP over the remaining unexpired term of all Capitalized
Leases, (xi) all final, non-appealable judgments or decrees by a court or courts
of competent jurisdiction entered against such Person, (xii) all indebtedness,
payment obligations, contingent obligations, etc. of any partnership in which
such Person holds a general partnership interest, and (xiii) all obligations,
liabilities, reserves and any other items which are listed as a liability on a
balance sheet of such Person determined on a consolidated basis in accordance
with GAAP, but excluding all general contingency reserves and reserves for
deferred income taxes and investment credit.
"Indemnitee" shall have the meaning provided in Section
9.1(c).
"Initial Assets" shall mean the Real Property Assets described
on Schedule 1 as of the date hereof.
"Initial Facility Amount" shall mean U.S. $75,000,000.00.
"Initial Minimum Spending Requirement" shall have the meaning
provided in Section 5.19(a).
"Initial Replacement Reserve" shall have the meaning provided
in Section 5.19(a).
"Intercompany Debt" shall mean the indebtedness owed by the
Partnership, HIC, or any other Person listed on Schedule 9, to Borrower, all as
more particularly described in Schedule 9.
"Intercompany Debt Subordination Agreement" shall have the
meaning provided in Section 3.1(a)(xiii).
"Intercompany Loan Documents" shall mean the notes, leasehold
mortgages and other security documents evidencing and/or securing the
Intercompany Debt.
"Intercreditor Agreement" shall have the meaning provided in
Section 9.4.
"Interest Period" shall have the meaning provided in Section
2.6.
"Lehman Additional Commitment" shall have the meaning provided
in the Syndication Letter.
<PAGE> 22
-15-
"Licenses" shall have the meaning provided in Section 4.18.
"Lien" shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), or preference, priority or other security agreement of any kind or
nature whatsoever, including, without limitation, any conditional sale or other
title retention agreement, any financing lease having substantially the same
effect as any of the foregoing and the filing of any financing statement or
similar instrument under the Uniform Commercial Code or comparable law of any
jurisdiction, domestic or foreign.
"Loan" shall mean, in the aggregate, the Advances made to
Borrower under this Agreement and the Note and the Swing Line Note, without
duplication, pursuant to the terms hereof, the aggregate principal amount of
which shall not exceed the Available Facility Amount.
"Loan Documents" shall mean this Agreement, the Notes, the
Security Instruments, the Environmental Indemnity, the Assignment of Leases and
Rents, the Assignment of Contracts, each Financing Statement filed in
connection herewith, the Security Agreement, the Franchisor Estoppel and
Recognition Letter, the Intercompany Debt Subordination Agreement,
Subordination, Non-disturbance and Attornment Agreements, the Vagabond
Subordination and Non-Disturbance Agreement, the Partnership Guaranty, the
Partnership Guaranty Security Agreement, the Partnership Mortgage, the
Partnership Guaranty Assignment of Leases and Rents, the Partnership Assignment
of Contracts, the Consent to Assignment, Subordination, Estoppel and Attornment
Agreement, the HIC Guaranty, the HIC Guaranty Security Agreement, the HIC
Mortgage, the HIC Guaranty Assignment of Leases and Rents, the HIC Assignment
of Contracts, the Fee Letter, the Syndication Letter, and any other documents
or instruments evidencing, securing or guaranteeing the Loan or perfecting
Lender's Lien in the Collateral.
"Loan Party" shall mean, individually and collectively, as the
context requires, the REIT, the Partnership, the Corporation and HIC; provided,
however, that in the event that Lender has released its Liens against all of
the Collateral pledged by one or more of such parties, then such party or
parties, as of the effective date of such release, shall no longer be included
in the definition of Loan Party.
"Loan Portion" shall mean each Base Rate Portion and each
Eurodollar Portion of the Loan.
"Loan to Value Ratio" shall have the meaning provided in
Section 5.20.
"Loan to Value Ratio Covenant" shall have the meaning provided
in Section 5.20.
<PAGE> 23
-16-
"Major Lease" shall have the meaning provided in Section 3.7 of
the Security Instrument.
"Margin Stock" shall have the meaning provided such term in
Regulation U and Regulation G of the Federal Reserve Board.
"Material Adverse Effect" shall mean any condition which has a
material adverse effect upon (i) the business, operations, properties, assets,
corporate structure or financial condition of Borrower, the REIT, the
Partnership, or the Corporation, individually or taken as a whole, (ii) the
ability of Borrower, the REIT, the Partnership, or the Corporation to perform
any of the Obligations, (iii) the validity or enforceability of any of the Loan
Documents, or (iv) the ability of Borrower or the REIT to meet any of the
obligations under the Whole Loan Facility.
"Maturity Date" shall mean October 1, 1998 or such earlier
date on which the principal balance of the Loan and all other sums due in
connection with the Loan shall be due as a result of the acceleration of the
Loan.
"Maximum Facility Amount" shall mean up to U.S.
$135,000,000.00, provided that the Syndication occurs pursuant to Section
9.9(k) or the Lehman Additional Commitment is provided pursuant to the terms of
the Syndication Letter; if the Syndication does not occur pursuant to Section
9.9(k) or the Lehman Additional Commitment is not provided, the Maximum
Facility Amount shall mean $75,000,000.00; in either case, as such amount shall
be reduced pursuant to Sections 2.9 or 2.21 or otherwise pursuant to the terms
and conditions of this Agreement.
"Maximum Legal Rate" shall mean the maximum nonusurious
interest rate, if any, that at any time or from time to time may be contracted
for, taken, reserved, charged or received on the indebtedness evidenced by the
Note and as provided for herein or the Security Instruments or other Loan
Documents, under the laws of such state or states whose laws are held by any
court of competent jurisdiction to govern the interest rate provisions of the
Loan.
"Minimum Net Worth" shall have the meaning provided in Section
5.16.
"Minimum Replacement Reserve" shall have the meaning provided
in Section 5.19(a).
"Minimum Spending Requirement" shall have the meaning provided
in Section 5.19(a).
"Minimum Threshold" shall have the meaning provided in Section
3.2(g).
<PAGE> 24
-17-
"Multiemployer Plan" shall mean a "pension plan" as defined in
Section 3(2) of ERISA which is a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA.
"Net Book Value" shall mean the book value of all of a
Person's assets that is reflected on such Person's consolidated financial
statements, including adjustment or allowance for depreciation and amortization
and calculated in accordance with GAAP.
"Net Operating Income" shall mean for any period (i) with
respect to each Real Property Asset other than the Vagabond Inns, the lesser of
(a) Property Net Cash Flow or (b) 200% of Operating Lease Payments;
notwithstanding the foregoing, in the event that the Franchise Agreement with
respect to any Real Property Asset has been terminated or has expired after the
date hereof, and Borrower has not entered into a replacement Franchise
Agreement with a comparable Franchisor reasonably satisfactory to Lender, the
Net Operating Income from such Real Property Asset shall be deemed equal to the
lesser of (1) 50% of Property Net Cash Flow and (2) 200% of Adjusted Operating
Lease Payments for such Real Property Asset and (ii) with respect to the
Vagabond Inns, Operating Lease Payments.
"New Property" shall have the meaning provided in Section
2.22.
"Non-Competition Agreement" means Section 6.6 of that certain
Formation Agreement, dated as of November 11, 1994, by and among the REIT
(formerly Hotel Investors Trust), the Corporation (formerly Hotel Investors
Corporation), the Group and Berl Holdings, L.P., Starwood-Apollo Hotel Partners
VIII, L.P., Starwood-Apollo Hotel Partners IX, L.P., Starwood-Nomura Hotel
Investors, L.P., Starwood/Wichita Investors, L.P., Starwood-Huntington
Partners, L.P. and Woodstar Partners I, L.P. (collectively, the "Starwood
Partners") as amended by that certain Amendment No. 1 to Formation Agreement,
dated as of July 6, 1995, by and among the REIT, the Corporation, the Group and
the Starwood Partners.
"Non-use Fee" shall have the meaning provided in Section 2.15.
"Non-use Fee Due Date" shall mean the date which is five (5)
Business Days after the date Lender has furnished Borrower with an invoice
showing the amount of the Non-use Fee and a detailed calculation of the same.
"Note" or "Notes" shall have the meaning provided in Section
2.4(a).
"Note A" shall have the meaning provided in Section 2.4(a).
"Note B" shall have the meaning provided in Section 2.4(a).
"Note C" shall have the meaning provided in Section 2.4(a).
<PAGE> 25
-18-
"Note D" shall have the meaning provided in Section 2.4(a).
"Notice of Borrowing" shall have the meaning provided in
Section 2.2(a).
"Notice of Conversion or Continuation" shall have the meaning
provided in Section 2.8(b).
"Notice of Swing Line Advance" shall have the meaning provided
in Section 2.2(b).
"Obligations" shall mean all payment, performance and other
obligations, liabilities and indebtedness of every nature of (i) Borrower and
the REIT, without duplication, from time to time owing to Lender or any
Co-Lender under or in connection with this Agreement or any other Loan
Document, or (ii) the other Loan Parties under or in connection with the
Security Instruments or any other Loan Document.
"Operating Expenses" shall mean, with respect to any Real
Property Asset, for any given period (and shall include the pro rata portion
for such period of all such expenses attributable to, but not paid during, such
period), all expenses paid, accrued, or payable, as determined in accordance
with GAAP and the Uniform System of Accounts by Borrower and the Partnership or
HIC, as the case may be, during that period in connection with the operation of
such Real Property Asset for which it is to be determined, including without
limitation:
(i) expenses for cleaning, repair, maintenance,
decoration and painting of the such Real Property Asset (including,
without limitation, parking lots and roadways), net of any insurance
proceeds in respect of any of the foregoing;
(ii) wages (including overtime payments), benefits,
payroll taxes and all other related expenses for Borrower's, the
Partnership's or HIC's, as the case may be, on-site personnel, up to
and including (but not above) the level of the on-site manager,
engaged in the repair, operation and maintenance of such Real Property
Asset and service to tenants and on- site personnel engaged in audit
and accounting functions performed by Borrower, the Partnership or
HIC;
(iii) management fees pursuant to the Management Agreement
providing for fees not exceeding market and approved by Lender in its
reasonable discretion, but in no event less than the percentage of
Gross Revenues set forth on Schedule 14 with respect to the applicable
Real Property Asset. Such fees shall include all fees for management
services whether such services are performed at such Real Property
Asset or off-site;
<PAGE> 26
-19-
(iv) Franchise fees, reservation fees and other royalties
or similar payments due under the Franchise Agreements, not exceeding
market and approved by Lender in its reasonable discretion, but in no
event less than the percentage of gross room revenues set forth on
Schedule 14 with respect to the applicable Real Property Asset; if no
percentage is set forth, the calculation of Operating Expenses shall
be based on the actual franchise fees, if any;
(v) the cost of all electricity, oil, gas, water, steam,
heat, ventilation, air conditioning and any other energy, utility or
similar item and the cost of building and cleaning supplies;
(vi) the cost of any leasing commissions and tenant
concessions or improvements payable by Borrower, the Partnership, HIC
or any Loan Party pursuant to any leases which are in effect for such
Real Property Asset at the commencement of that period as such costs
are recognized in accordance with GAAP, but on no less than a straight
line basis over the remaining term of the respective Lease, exclusive
of any renewal or extension or similar options;
(vii) rent, liability, casualty, fidelity, errors and
omissions, dram shop liability, workmen's compensation and other
required insurance premiums;
(viii) legal, accounting and other professional fees and
expenses;
(ix) the cost (including leasing and financing) of all
equipment to be used in the ordinary course of business, which is not
capitalized in accordance with GAAP;
(x) real estate, personal property and other taxes;
(xi) advertising and other marketing costs and expenses;
(xii) casualty losses to the extent not reimbursed by an
independent third party; and
(xiii) all amounts that should be reserved, as reasonably
determined by Borrower, the Partnership or HIC, as the case may be,
with approval by Lender in its reasonable discretion, for repair or
maintenance of the Real Property Asset and to maintain the value of
the Real Property Asset including replacement reserves of no less than
4% of Gross Revenues.
Notwithstanding the foregoing, Operating Expenses shall not include (i)
depreciation or amortization or any other non-cash item of expense unless
approved by Lender; (ii) interest,
<PAGE> 27
-20-
principal, fees, costs and expense reimbursements of Lender in administering the
Loan but not in exercising any of its rights under this Agreement or the Loan
Documents; (iii) any expenditure (other than leasing and financing costs,
leasing commissions, tenant concessions and improvements, and replacement
reserves) which is properly treatable as a capital item under GAAP; or (iv)
Operating Lease Payments.
"Operating Lease Payments" shall mean the rent due and payable
to Borrower under the Operating Leases, including, without limitation, all Base
Rent, Basic Rent and all Percentage Rent but excluding Additional Rent (as each
term is defined in the Operating Leases).
"Operating Leases" shall mean those operating leases between
Borrower as lessor and the Partnership or HIC as lessee with respect to each
Real Property Asset as set forth on Schedule 10, (as such Schedule may be
amended from time to time) and any other operating lease in the same form
between Borrower and the Partnership or HIC, if applicable, with respect to any
New or Substitute Property except that with respect to the Vagabond Inns, it
shall mean the Vagabond Leases.
"Participant" shall have the meaning provided in Section 9.9.
"Partnership" means SLC Operating Limited Partnership, a
Delaware limited partnership.
"Partnership Assignment of Contracts" shall have the meaning
provided in Section 3.1(a)(xix).
"Partnership Assignment of Leases and Rents" shall have the
meaning provided in Section 3.1(a)(xviii).
"Partnership Guaranties" shall have the meaning provided in
Section 3.1(a)(xv).
"Partnership Guaranty Security Agreement" shall have the
meaning provided in Section 3.1(a)(xvii).
"Partnership Mortgage" shall have the meaning provided in
Section 3.1(a)(xvi).
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established under ERISA, or any successor thereto.
"Permitted Financing" shall mean leases, licenses or financing
arrangements with respect to signage, televisions, audio-visual equipment,
office supplies, computers, reservation systems, telephone systems, or vans for
which aggregate annual lease payments, license fees and
<PAGE> 28
-21-
debt service is less than the amount per annum set forth for each Real Property
Asset on Schedule 11. For each Real Property Asset, such amount is an
aggregate limit for that Real Property Asset on all leasing, licensing or
financing by the Partnership, HIC and Borrower. The licensing arrangement
between Lodge Net Entertainment Corporation and Hotel Investors Corporation
(the predecessor of the Corporation), dated August 30, 1994 as more fully
described on Schedule 11A, shall also be deemed a Permitted Financing and is
not subject to the per annum limitations set forth on Schedule 11.
"Permitted Liens" shall have the meaning provided in Section
6.3.
"Person" shall mean and include any individual, partnership,
joint venture, firm, corporation, limited liability company, association,
company, trust or other enterprise or any government or political subdivision
or agency, department or instrumentality thereof.
"Personal Property" shall mean all Equipment, Inventory and
Fixtures, each as defined in the Security Agreement.
"Plan" means any employee benefit plan covered by Title IV of
ERISA or subject to Section 412 of the Code or Section 302 of ERISA (i) that is
maintained by Borrower or any other Loan Party or (ii) with respect to which
any such person has or may have any obligation or liability, whether direct or
indirect; provided, however, that "Plan" shall not include any "multiemployer
plan" as defined in Section 4001(a)(3) of ERISA.
"Plan Asset Entity" shall mean any "employee benefit plan" as
defined in ERISA, any "plan" as defined in Section 4975 of the Code, and any
entity any portion or all of the assets of which are deemed pursuant to United
States Department of Labor Regulation Section 2510.3-101 or otherwise pursuant
to ERISA or the Code to be, for any purpose of ERISA or Section 4975 of the
Code, assets of any such "employee benefit plan" or "plan" which invests in
such entity.
"Pool" shall mean, individually or collectively, as the
context requires, Pool 1, Pool 2, Pool 3 and Pool 4 Real Property Assets and
the related Note.
"Pool 1 Real Property Assets" shall mean those Real Property
Assets set forth on Schedule 2A designated as such, as the same may be adjusted
in accordance with the terms of this Agreement.
"Pool 2 Real Property Assets" shall mean those Real Property
Assets set forth on Schedule 2B designated as such, as the same may be adjusted
in accordance with the terms of this Agreement.
<PAGE> 29
-22-
"Pool 3 Real Property Assets" shall mean those Real Property
Assets set forth on Schedule 2C designated as such, as the same may be adjusted
in accordance with the terms of this Agreement.
"Pool 4 Real Property Assets" shall mean those Real Property
Assets set forth on Schedule 2D designated as such, as the same may be adjusted
in accordance with the terms of this Agreement.
"Property Net Cash Flow" shall mean, with respect to any Real
Property Asset, the Gross Revenues derived from the customary operation of such
Real Property Asset during the period in question, less Operating Expenses
attributable to such Real Property Asset for such period, and shall include
only the Gross Revenues and other such income actually received and earned, in
accordance with GAAP, including any rent loss or business interruption
insurance proceeds, and laundry, parking or other vending or concession income,
which are actually received or accrued in accordance with GAAP attributable to
such Real Property Asset during the twelve (12) month period ending at the end
of the calendar month for which the Property Net Cash Flow is being calculated,
as set forth on operating statements satisfactory to Lender. Property Net Cash
Flow shall be calculated in accordance with customary accounting principles
applicable to real estate and in accordance with the Uniform System of
Accounts. Notwithstanding the foregoing, Property Net Cash Flow shall not
include (i) any condemnation or insurance proceeds (excluding rent or business
interruption insurance proceeds), (ii) any proceeds resulting from the sale,
exchange, transfer, financing or refinancing of all or any portion of the Real
Property Asset for which it is to be determined, (iii) amounts received from
tenants as security deposits, (iv) amounts received as advance reservation
deposits unless earned in accordance with GAAP, and (v) any type of income
otherwise included in Property Net Cash Flow but paid directly by any tenant to
a Person other than Borrower, or the Partnership or HIC or their respective
agents or representatives.
"Quality Assurance Reports" shall have the meaning provided in
Section 5.1(d).
"REIT" shall have the meaning set forth in the opening
paragraph of this Agreement.
"Real Property Assets" shall mean the real property described
on Schedule 2, including the Pool 1, Pool 2, Pool 3 and Pool 4 Real Property
Assets, including all of the Collateral relating to such Real Property Assets
and each New Property and Substitute Property, that, in each case is encumbered
by a Mortgage or a Substitute Mortgage and the other Loan Documents;
notwithstanding the foregoing, however, upon the release by Lender of the Lien
against all of the Collateral relating to a Real Property Asset, such Real
Property Asset, as of the effective date of such release, shall no longer be
included within the definition of all of the Real Property Assets, Pool 1, Pool
2, Pool 3 or Pool 4 Real Property Assets, as applicable.
<PAGE> 30
-23-
"Recording Taxes" shall have the meaning provided in Section
3.2(h).
"Refunded Swing Line Advances" shall have the meaning provided
in Section 2.10(a).
"Register" shall have the meaning provided in Section 9.9.
"Regulation D" shall mean Regulation D of the Federal Reserve
Board as from time to time in effect and any successor to all or any portion
thereof.
"Related Schedules" shall have the meaning provided in Section
2.21(a).
"Release Property" shall have the meaning provided in Section
2.21.
"Relevant BBC Date" shall have the meaning provided in Section
5.15.
"Relevant LTV Date" shall have the meaning provided in Section
5.20.
"Reportable Event" has the meaning set forth in Section
4043(c)(3), (5), (6) or (13) of ERISA (other than a Reportable Event as to
which the provision of 30 days' notice to the PBGC is waived under applicable
regulations).
"Required Lenders" shall mean (i) the Lender and (ii)
Co-Lenders (including the Swing Line Lender) which in the aggregate own a
direct pro rata ownership interest in the Loan of 66-2/3% or more.
"Security Agreement" shall have the meaning provided in Section
3.1(a)(x).
"Security Instruments" shall have the meaning provided in
Section 3.1(a)(iii).
"Senior Lenders" shall mean the Lender, each Co-Lender, and
their respective successors and assigns.
"Short Interest Period" shall mean any Interest Period that
begins on a day other than the first Business Day of any calendar month and
which shall end on the day that immediately precedes the first Business Day of
the next succeeding calendar month following the commencement of such Short
Interest Period.
"Solvent" as to any Person shall mean that (i) the sum of the
assets of such Person, at a fair valuation based upon appraisals or comparable
valuation, will exceed its
<PAGE> 31
-24-
liabilities, including contingent liabilities, (ii) such Person will have
sufficient capital with which to conduct its business as presently conducted
and as proposed to be conducted and (iii) such Person has not incurred debts,
and does not intend to incur debts, beyond its ability to pay such debts as
they mature. For purposes of this definition, "debt" means any liability on a
claim, and "claim" means (x) a right to payment, whether or not such right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured, or unsecured, or
(y) a right to an equitable remedy for breach of performance if such breach
gives rise to a payment, whether or not such right to an equitable remedy is
reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured, or unsecured. With respect to any such contingent
liabilities, such liabilities shall be computed in accordance with GAAP at the
amount which, in light of all the facts and circumstances existing at the time,
represents the amount which can reasonably be expected to become an actual or
matured liability.
"Subordination, Attornment and Non-Disturbance Agreement"
shall have the meaning provided in Section 3.1(a)(xi).
"Subsidiary" of any Person shall mean and include (i) any
corporation Controlled by such Person, directly or indirectly through one or
more intermediaries, and (ii) any partnership, association, joint venture or
other entity Controlled by such Person, directly or indirectly through one or
more intermediaries and (iii) all of the parties listed as Subsidiaries on
Schedule 3.
"Substitute Mortgage" shall have the meaning provided in
Section 2.21.
"Substitute Property" shall have the meaning provided in
Section 2.21.
"Swing Line Advance" shall mean any Advance (or readvance) of
the Loan that is evidenced by the Swing Line Notes.
"Swing Line Lender" shall mean the Co-Lender designated as the
Swing Line Lender upon the closing of the Syndication to provide Swing Line
Advances.
"Swing Line Note" shall mean have the meaning provided in
Section 2.4(b).
"Swing Line Participation Certificate" shall have the meaning
provided in Section 2.10(b).
"Syndication" shall have the meaning provided in Section
9.9(k).
"Syndication Letter" shall have the meaning provided in
Section 9.9(k).
<PAGE> 32
-25-
"Taxes" shall have the meaning provided in Section 2.19.
"Telerate Page 314" means the display designated as "Page 314"
on the Telerate Service (or such other page as may replace Page 314 on that
service or such other service as may be nominated by the British Bankers'
Association as the information vendor for the purpose of displaying British
Bankers' Association Interest Settlement Rates for U.S. Dollar deposits).
"Telerate Page 3750" means the display designated as "Page
3750" on the Telerate Service (or such other page as may replace Page 3750 on
that service or such other service as may be nominated by the British Bankers'
Association as the information vendor for the purpose of displaying British
Bankers' Association Interest Settlement Rates for U.S. Dollar deposits).
"Tenant Estoppel Certificate" shall have the meaning provided
in Section 3.1(a)(vii).
"Termination Date" shall mean the date on which the earliest
of the following occurs: (i) the Non-Competition Agreement expires or otherwise
terminates and the Required Lenders elect to terminate the Draw Period and make
no further advances; (ii) Borrower is in breach of the covenants contained in
Sections 5.26 and 6.4, and the Required Lenders elect to terminate the Draw
Period and make no further Advances or (iii) the Maturity Date.
"Termination Event" shall mean (i) a Reportable Event, or (ii)
the initiation of any action by Borrower, the REIT, any member of Borrower's,
the REIT's or any other Loan Party's ERISA Controlled Group or any other person
to terminate a Plan or the treatment of an amendment to Plan as a termination
under ERISA, in either case, which could result in liability to Borrower, the
REIT or any Loan Party, (iii) the institution of proceedings by the PBGC under
Section 4042 of ERISA to terminate a Plan or to appoint a trustee to administer
any Plan, (iv) any partial or total withdrawal from a Multiemployer Plan which
in either case, could result in liability to Borrower, the REIT or any Loan
Party or (v) the taking of any action that would require Security to the Plan
under Section 401(a)(29) of the Code.
"Title Policy" shall have the meaning provided in Section
3.1(i).
"Title Searches" shall have the meaning provided in Section
5.14.
"Total Debt" means with respect to any Person at any time, all
Indebtedness of such Person and its Subsidiaries as determined on a
consolidated basis in accordance with GAAP.
<PAGE> 33
-26-
"Transaction Costs" shall mean all costs and expenses paid or
payable by Borrower or any other Loan Party relating to the Transactions
including, without limitation, the costs and expenses of Lender in conducting
its due diligence with respect to the Transactions, financing fees, commitment
fees, advisory fees, appraisal fees, legal fees, accounting fees, title
insurance premiums, recording charges and taxes, mortgage recording taxes,
intangibles taxes, documentary taxes, stamp taxes or similar taxes and the
Collateral Agent Fees, whether directly or as reimbursement to Lender or to the
Collateral Agent. Borrower's and the REIT's obligation to pay Transaction
Costs which are costs and expenses of the Lender in connection with the closing
of the Initial Facility Amount and the Syndication (including any upfront fees
due to the Collateral Agent) is subject to the terms of the Syndication Letter
and the Expense Cap.
"Transactions" shall mean each of the transactions contemplated
by the Loan Documents.
"Transferee" shall have the meaning provided in Section 9.7.
"Treasury Rate" shall mean the semi-annual yield (without
de-compounding), as reported in The Wall Street Journal (of if such rate is not
published therein, in the Federal Reserve Statistical Release H.15 - Selected
Interest Rates under the heading "U.S. Government Securities/Treasury constant
maturities") on the date of the Available Borrowing Base calculation (provided,
however, if such date is not a Business Day, then on the next succeeding
Business Day) for the current U.S. Treasury security with a maturity date most
closely approximating the date which is 10 years from such date of calculation,
plus 3.25%. In the event such rate is not published in either The Wall Street
Journal or Release H.15, Lender shall select a comparable publication to
determine the Treasury Rate.
"Type" shall mean the type of any portion of the Loan
determined with respect to the interest option applicable thereto, i.e., a Base
Rate Portion or a Eurodollar Portion.
"UCC Searches" shall have the meaning provided in Section
3.1(g).
"Unfunded Benefit Liabilities" means with respect to any Plan
at a particular time, the amount (if any) by which (i) the present value of all
benefit liabilities under such Plan as defined in Section 4001(a)(16) of ERISA,
exceeds (ii) the fair market value of all Plan assets allocable to such
benefits, all determined as of the then most recent valuation date for such
Plan (on the basis of assumptions prescribed by the PBGC for the purpose of
Section 4044 of ERISA).
"Uniform System of Accounts" mean the Uniform System of
Accounts for Hotels as approved by the American Hotel and Motel Association (as
in effect from time to time) applied on a consistent basis.
<PAGE> 34
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"Vagabond Inns" shall mean those Real Property Assets
identified as Vagabond Inns on Schedule 2B.
"Vagabond Leases" shall mean those three leases described on
Schedule 10 between Borrower as lessor and Imperial Hotels Corporation as
lessee with respect to the Vagabond Inns.
"Vagabond Subordination and Non-Disturbance Agreement" shall
have the meaning provided in Section 3.1(a)(xxi).
"Whole Loan Facility" means that certain Mortgage Loan Funding
Facility made by Lehman Commercial Paper Inc. to Borrower and SLT Realty
Company, L.L.C., dated July 25, 1995.
SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT FACILITY.
Section 2.1 Advances. (a) Subject to and upon the terms
and conditions herein set forth, Lender (and each Co-Lender) agrees, at any
time and from time to time on and after the Closing Date and prior to the
Termination Date, to make its pro rata share of Advances to Borrower, and the
Swing Line Lender agrees, at any time and from time to time after the
Syndication occurs and prior to the Termination Date, to make Swing Line
Advances to the Borrower, which Advances with respect to each Note (including
all Swing Line Advances) shall not exceed in aggregate principal amount at any
time outstanding, the Available Facility Amount for such Note at such time.
(b) Advances may be voluntarily prepaid pursuant to
Section 2.11, and, subject to the other provisions of this Agreement,
including, without limitation, Sections 2.9, 2.10, 2.12 and 2.21, any amounts
so prepaid may be reborrowed prior to the Termination Date. All outstanding
Advances shall mature on the Maturity Date, without further action on the part
of Lender or any Co-Lender.
(c) Each Advance of the Loan (other than a Swing Line
Advance) shall be in the aggregate minimum amount of One Million Dollars (U.S.
$1,000,000.00) or any integral multiple of Five Hundred Thousand Dollars (U.S.
$500,000.00) in excess thereof. Each Swing Line Advance shall be in the
aggregate minimum amount of Two Hundred Fifty Thousand Dollars (U.S.
$250,000.00) or any integral multiple of Fifty Thousand Dollars (U.S.
$50,000.00) in excess thereof. No Advance shall be made after the Termination
Date.
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(d) The aggregate principal amount at any time
outstanding under all Notes shall not exceed the Aggregate Available Facility
Amount at such time for such Notes and the aggregate principal amount at any
time outstanding under each Note shall not exceed the Available Facility Amount
for such Note. Borrower may choose the Notes under which an Advance shall be
made, provided, however, that (i) the initial Advance will be made under the
Florida Note up to the principal amount of the Florida Note and under Note A-1,
up to, in the aggregate, the Available Facility Amount for Note A; and (ii) in
the event that the funding of an Advance would cause the principal amount of
the Note Borrower has designated for such Advance to exceed the Available
Facility Amount for such Note, or if Borrower fails to make such a designation,
the excess amount of such Advance shall be funded under the other Notes in the
following manner and priority: first, under Note A, up to the Available
Facility Amount for Note A, second, under Note B, up to the Available Facility
Amount for Note B, third, under Note C; up to the Available Facility Amount for
Note C, and fourth, under Note D, up to the Available Facility Amount for Note
D. The portion of the aggregate principal balance of the Aggregate Available
Facility Amount evidenced by the Swing Line Notes shall not exceed, in the
aggregate U.S. $10,000,000.00.
(e) The obligation of Lender and each Co-Lender to make
their pro rata share of each Advance of the Loan is several and not joint.
Neither Lender nor any Co-Lender shall be liable for the failure of any other
Co-Lender to fund its pro rata share of any Advance hereunder provided that such
Co-Lender has executed and delivered an Assignment and Assumption Agreement.
Except as provided in Section 2.10, no Lender or Co-Lender other than the Swing
Line Lender shall have any obligation to make a Swing Line Advance.
Section 2.2 Notice of Borrowing. (a) Whenever Borrower
desires an Advance hereunder (other than a Swing Line Advance), it shall give
Lender at Lender's Office prior to 11:00 A.M., New York City time, at least
three (3) Business Days' prior facsimile, or telephonic notice (promptly
confirmed in writing) of each Advance to be made hereunder. Each such notice
(a "Notice of Borrowing") (i) shall be irrevocable, (ii) shall be executed by
the general partner of Borrower or a senior executive officer of Borrower,
(iii) shall specify (x) the aggregate principal amount of the requested
Advance, (y) the date of the Advance, (which shall be a Business Day) and (z)
the initial Interest Period to be applicable thereto, or, if such Advance is
not a Eurodollar Portion, that such Advance shall be a Base Rate Portion, (iv)
the Note under which the Advance will be made, (v) shall certify that, taking
into account the amount of the requested Advance, no Default or Event of
Default has occurred and is continuing, and all provisions of the Loan
Documents including, but not limited to, the Available Borrowing Base Covenant
with respect to each Note and the Loan to Value Ratio Covenant with respect to
each Pool will be complied with after giving effect to such Advance, and (vi)
shall be in the form annexed hereto as Exhibit "A-1". Lender shall, upon
determining the Eurodollar Rate for any Interest Period, promptly notify
Borrower thereof. Notwithstanding the foregoing, if Borrower requests an
Advance to cure a default under the Whole Loan Facility, Borrower may request
such Advance one (1) Business
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Day prior to the date of the requested Advance provided that in addition to
compliance with the conditions of this Section 2.2(a), such Advance shall be a
Base Rate Portion and Borrower certifies, in writing, that such Advance shall be
used solely for the purpose of curing such default under the Whole Loan Facility
and authorizes and directs Lender to make such Advance directly to, or for the
account of, Lehman Commercial Paper, Inc.
(b) Whenever Borrower desires a Swing Line Advance hereunder,
it shall give Lender and Swing Line Lender at Lender's Office and Swing Line
Lender's Office prior to 11:00 A.M. New York City time, on the date that the
Swing Line Advance is to be made, which shall be a Business Day, facsimile or
telephonic notice (confirmed in writing prior to 12:00 noon, New York City Time
on the same day). Each such notice (a "Notice of Swing Line Advance") (i)
shall be irrevocable, (ii) shall be executed by the general partner of Borrower
or a senior executive officer of Borrower (iii) shall specify the aggregate
principal amount of the requested Swing Line Advance, (iv) shall specify the
date of the Swing Line Advance, which shall be a Business Day, (v) shall
certify that, taking into account the amount of the requested Swing Line
Advance, no Default or Event of Default has occurred and is continuing, and all
provisions of the Loan Documents including, but not limited to, the Available
Borrowing Base Covenant with respect to each Note and the Loan to Value Ratio
Covenant with respect to each Pool will be complied with after giving effect to
such Swing Line Advance, and (vi) shall be in the form annexed hereto as
Exhibit "A-2." Each Swing Line Advance shall be a Base Rate Portion and shall
be allocated pro-rata among the four Swing Line Notes.
Section 2.3 Disbursement of Funds. No later than 2:00
P.M., New York City time on the date specified in each Notice of Borrowing,
provided all conditions precedent to the making of such Advance have been
complied with, and further provided that Lender has received, in immediately
available federal funds, each Co-Lender's pro rata share of such Advance from
each Co-Lender, (or, in the case of a Swing Line Advance, Lender has received
in immediately available funds the amount of the Swing Line Advance from the
Swing Line Lender), Lender will make available to Borrower by disbursing to or
at the direction of Borrower, the amount of the requested Advance. If Lender
has not received from any Co-Lender such Co-Lender's pro rata share of such
Advance, Lender shall nonetheless disburse the portion of the Advance received
by Lender, together with Lender's pro rata share of such Advance, pursuant to
this Section 2.3.
Section 2.4 The Note. (a) Borrower's and the REIT's
obligation to pay the principal of, and interest on, the Loan shall be
evidenced by (i) the promissory note (as amended, modified, supplemented,
extended or consolidated, "Note A-1") duly executed and delivered by Borrower
and the REIT substantially in the form of Exhibit "B-1" hereto in a principal
amount equal to $103,954,000.00, and the amended and restated renewal note (as
amended, modified, supplemented, extended or consolidated, the "Florida Note")
duly executed and delivered by Borrower substantially in the form of Exhibit
"B-2" hereto, in a principal amount equal to
<PAGE> 37
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$3,400,000.00, (Note A-1 and the Florida Note hereinafter referred to together
as "Note A") (ii) the promissory note (as amended, modified, supplemented,
extended or consolidated, "Note B") duly executed and delivered by Borrower and
the REIT substantially in the form of Exhibit "B-1" hereto in a principal amount
equal to $8,753,000.00, (iii) the promissory note (as amended, modified,
supplemented, extended or consolidated, "Note C") duly executed and delivered by
Borrower and the REIT substantially in the form of Exhibit "B-1" hereto in a
principal amount equal to $13,235,000.00, and (iv) the promissory note (as
amended, modified, supplemented, extended or consolidated, "Note D") duly
executed and delivered by Borrower and the REIT substantially in the form of
Exhibit "B-1" hereto in a principal amount equal to $5,658,000.00 (Note A, Note
B, Note C and Note D individually a "Note" and collectively, together with any
related Swing Line Note, as the context may require, hereinafter referred to as
the "Notes") with blanks in each Note appropriately completed in conformity
herewith. Each Note shall (i) be payable to the order of Lender, (ii) be dated
the Closing Date, and (iii) mature on the Maturity Date. After the Syndication,
if required by a Co-Lender, Borrower and (except for the Florida Note) the REIT
hereby agree to execute for each Note a supplemental Note in the principal
amount of such Co-Lender's pro rata share of each Note substantially in the form
of Exhibit "B-1" hereto, with blanks appropriately completed, and each such
supplemental Note shall (i) be payable to order of Lender, as Agent, on account
of such Co-Lender, (ii) be dated as of the Closing Date, and (iii) mature on
the Maturity Date. Each such supplemental Note shall evidence a portion of the
existing indebtedness hereunder and not any new or additional indebtedness of
Borrower.
(b) Borrower's and the REIT's obligation to pay the
principal of, and interest on the Swing Line Advances shall be evidenced by a
promissory note duly executed and delivered by Borrower and the REIT,
substantially in the form of Exhibit B-2 hereto (the "Swing Line Notes"),
supplementing Note A-1, in the principal amount of $10,000,000.00. The Swing
Line Note shall be a supplemental Note with respect to Note A-1 and shall
evidence a portion of the indebtedness under Note A-1 and not evidence any new
or additional indebtedness of Borrower or the REIT. The Swing Line Note shall
(i) be payable to order of Lender, as Agent, on account of the Swing Line
Lender or, at the Swing Line Lender's option, to the order of the Swing Line
Lender, (ii) be dated as of the date the Syndication occurs, and (iii) mature
on the Maturity Date.
(c) Lender is hereby authorized, at its option, (i) to
endorse on the schedule attached to each Note (including the Swing Line Note)
(or on a continuation of such schedule attached to each such Note and made a
part thereof) an appropriate notation evidencing the date and amount of each
Advance evidenced thereby (including the Swing Line Lender in the case of Swing
Line Advances), and the date and amount of each principal and interest payment
in respect thereof, and/or (ii) to record such Advances and such payments in
its books and records. Such schedule or such books and records, as the case
may be, shall be conclusive and binding on
<PAGE> 38
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Borrower absent manifest error provided that the failure to make any notation
shall not affect the obligations of Borrower or the REIT or the rights of
Lender or any Co-Lender hereunder.
Section 2.5 Interest. (a) Borrower and (except with
respect to the Florida Note) the REIT shall pay interest in respect of the
unpaid principal amount of each Base Rate Portion from the date of the making
of such Base Rate Portion until such Base Rate Portion shall be paid in full,
or converted to a Eurodollar Portion, at a rate per annum which shall be equal
to the sum of the Base Rate Margin plus the Base Rate in effect from time to
time, such rate to change automatically and without notice as and when the Base
Rate changes.
(b) Borrower and (except with respect to the Florida
Note) the REIT shall pay interest in respect of the unpaid principal amount of
each Eurodollar Portion from the date of the making of such Eurodollar Portion
until such Eurodollar Portion shall be paid in full, continued as a Eurodollar
Portion or converted to a Base Rate Portion, at a rate per annum which shall be
equal to the sum of the Eurodollar Rate Margin plus the relevant Eurodollar
Rate.
(c) Intentionally Omitted.
(d) In the event that, and for so long as, any Event of
Default shall have occurred and be continuing, the outstanding principal amount
of the Loan and, to the extent permitted by law, overdue interest in respect of
the Loan, shall bear interest at the Default Rate, calculated from the date such
payment was due without regard to any grace or cure periods contained herein.
(e) Interest on the Loan shall accrue from and including
the date of each Borrowing thereof to but excluding the date of any repayment
thereof (provided that any Advance borrowed and repaid on the same day shall
accrue one day's interest) and Borrower and (except with respect to the Florida
Note) the REIT shall pay such interest (i) in respect of each Base Rate
Portion, (A) monthly in arrears on the first day of each month, (B) on the date
of any prepayment or conversion, (C) on the Maturity Date (whether by
acceleration or otherwise) and (D) after the Maturity Date, on demand, and (ii)
in respect of each Eurodollar Portion, in arrears (A) on the last day of the
applicable Interest Period, (B) on the date of any prepayment or conversion (on
the amount prepaid or converted), (C) on the Maturity Date (whether by
acceleration or otherwise), and (D) after the Maturity Date, on demand.
(f) Interest on the outstanding principal balance of Base
Rate Portions shall be calculated on the basis of a three hundred sixty (360)
day year based on twelve (12) thirty (30) day months, except that interest due
and payable for a period of less than a full month shall be calculated by
multiplying the actual number of days elapsed in such period by a daily rate
based on said 360-day year. Interest on the outstanding principal balance of
Eurodollar Portions shall
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be calculated on the basis of a three hundred sixty (360) day year based on the
actual number of days elapsed.
(g) This Agreement and the Note are subject to the
express condition that at no time shall Borrower or the REIT be obligated or
required to pay interest on the principal balance of the Loan at a rate which
could subject Lender or any Co-Lender (including the Swing Line Lender) to
either civil or criminal liability as a result of being in excess of the
Maximum Legal Rate. If by the terms of this Agreement or the Loan Documents,
Borrower or the REIT is at any time required or obligated to pay interest on
the principal balance due hereunder at a rate in excess of the Maximum Legal
Rate, the interest rate or the Default Rate, as the case may be, shall be
deemed to be immediately reduced to the Maximum Legal Rate and all previous
payments in excess of the Maximum Legal Rate shall be deemed to have been
payments in reduction of principal and not on account of the interest due
hereunder. All sums paid or agreed to be paid to Lender for the use,
forbearance, or detention of the sums due under the Loan, shall, to the extent
permitted by applicable law, be amortized, prorated, allocated, and spread
throughout the full stated term of the Loan until payment in full so that the
rate or amount of interest on account of the Loan does not exceed the Maximum
Legal Rate of interest from time to time in effect and applicable to the Loan
for so long as the Loan is outstanding.
Section 2.6 Interest Periods. (a) Borrower shall, in
each Notice of Borrowing or Notice of Conversion or Continuation in respect of
the making of, conversion into or continuation of a Eurodollar Portion, select
the interest period (each such period or any Short Interest Period an "Interest
Period") applicable to such Eurodollar Portion, which Interest Period, other
than a Short Interest Period, shall, at the option of Borrower, be either a one
month, two-month or three-month period subject to Section 2.6(b) below,
provided that:
(i) the Interest Period (other than a Short Interest
Period) for any Eurodollar Portion shall commence on the first Business
Day of a calendar month and shall expire on the day immediately
preceding the day that the next Interest Period (other than a Short
Interest Period) commences;
(ii) if the date of an Advance is not the first Business
Day of a calendar month, the Interest Period for such Eurodollar
Portion shall be a Short Interest Period and shall commence on the date
of the making of such Advance and expire on the day immediately
preceding the first Business Day of the next succeeding calendar month;
and
(iii) no Interest Period in respect of any Eurodollar
Portion shall extend beyond the Maturity Date.
(b) Notwithstanding the foregoing, in the event that the
last day of an Interest Period for any Eurodollar Portion occurs within the
thirty (30) day period ending on a voluntary
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prepayment date pursuant to Section 2.11 or the Maturity Date, Borrower may upon
three (3) Business Days notice to Lender, which notice shall be in the form
annexed hereto as Exhibit C-1, request a Short Interest Period for such
Eurodollar Portion. Neither Lender nor the Co-Lenders shall be under any
obligation to permit Borrower to select a Short Interest Period, and the
Eurodollar Base Rate offered to Borrower for any Short Interest Period shall be
determined by Lender and the Co-Lenders in accordance with the provisions of
this Agreement. Lender shall notify Borrower, either orally or in writing,
prior to 11:00 a.m. New York City time, on the date on which the Short Interest
Period is to begin, of the Eurodollar Base Rate, Eurodollar Portion and the
length of the Short Interest Period that would be applicable to such Short
Interest Period and Borrower shall orally confirm its acceptance of such
Eurodollar Base Rate at or prior to 11:00 a.m. New York City time and shall
deliver written confirmation of such acceptance to Lender at or prior to 2:00
p.m. New York City time on such date. If such confirmation differs in any
respect with the commencement date or length of the Short Interest Period, the
Eurodollar Base Rate or applicable Eurodollar Portion agreed to by Lender,
Lender shall be under no obligation to create such Eurodollar Portion, and
Eurodollar Portions shall be continued in accordance with Section 2.6(c).
(c) If upon the expiration of any Interest Period,
Borrower has failed to elect or confirm a new Interest Period or Eurodollar Base
Rate to be applicable to any Eurodollar Portion as provided above in Sections
2.6(a) and 2.6(b) or failed to convert such Eurodollar Portion to a Base Rate
Portion, all in accordance with Section 2.8, Borrower shall be deemed to have
elected to continue such Eurodollar Portions as Eurodollar Portions with an
Interest Period of one month (or, if at such time Eurodollar Portions are not
available pursuant to Section 2.17, Borrower shall be deemed to have elected to
convert such Eurodollar Portion into a Base Rate Portion), effective as of the
expiration date of such current Interest Period.
Section 2.7 Minimum Amount of Eurodollar Portions. All
advances, borrowings, conversions, continuations, payments, prepayments and
selection of Interest Periods hereunder shall be made or selected so that,
after giving effect thereto, each Eurodollar Portion shall (i) have a principal
amount equal to or greater than One Million Dollars (U.S. $1,000,000.00) and
(ii) be in an integral multiple of Five Hundred Thousand and 00/100 Dollars
(U.S. $500,000.00) in excess of such minimum amount. Subject to compliance
with such minimum amounts there shall be no limit on the number of Eurodollar
Portions.
Section 2.8 Conversion or Continuation. (a) Subject to
the other provisions hereof, Borrower shall have the option (i) to convert at
any time all or any part of the outstanding Base Rate Portions (other than
Swing Line Advances, but including Refunded Swing Line Advances,) to Eurodollar
Portions, (ii) to convert, at the expiration of the applicable Interest Period,
any outstanding Eurodollar Portions to Base Rate Portions, or (iii) to continue
all or any part of the outstanding Eurodollar Portions as Eurodollar Portions
for one or more additional Interest Periods, subject to Section 2.7, on the
expiration of the Interest Period applicable thereto (or
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prior to such expiration date, provided Borrower pays Funding Costs in
connection therewith pursuant to Section 2.17); provided that Borrower shall not
have the right to continue any Eurodollar Portion or convert any Base Rate
Portion into, a Eurodollar Portion when any Default with respect to the payment
of interest or principal hereunder or any Event of Default has occurred and is
continuing and in such case all outstanding Eurodollar Portions shall
automatically convert into a Base Rate Portion effective as of the expiration
date of the related Interest Period. Notwithstanding anything to the contrary
herein, all Swing Line Advances shall be Base Rate Portions, and Borrower shall
not be entitled to convert any Swing Line Advance into a Eurodollar Portion. In
the event Eurodollar Portions are not available pursuant to Section 2.16,
Borrower shall be deemed to have elected to convert such Eurodollar Portions
into Base Rate Portions, and if such conversion occurs prior to the expiration
date of the applicable Interest Period, Borrower shall also pay all Funding
Costs and other costs, expenses and losses in connection therewith pursuant to
Sections 2.16 and 2.17.
(b) In order to elect to convert or continue a Loan
Portion under this Section 2.8, Borrower shall deliver an irrevocable notice
thereof in the form annexed hereto as Exhibit "C-2" (a "Notice of Conversion or
Continuation") to Lender no later than 11:00 A.M., New York City time, (which
notice may be by facsimile transmission provided that an original is delivered
prior to the close of business on the immediately succeeding Business Day)
three (3) Business Days prior to the proposed conversion or continuation date
in the case of a conversion to, or a continuation of, a Eurodollar Portion. A
Notice of Conversion or Continuation shall specify (v) the requested conversion
or continuation date (which shall be a Business Day), (w) the amount and Type
of the Loan Portion to be converted or continued, (x) whether a conversion or
continuation is requested, (y) in the case of a conversion to, or a
continuation of, a Eurodollar Portion, the requested Interest Period and (z)
the existing Contract Rate applicable to the Loan Portion to be converted or
continued.
Section 2.9 Voluntary Reduction of Maximum Facility
Amount; Termination of Maximum Facility Amount. (a) Upon at least three (3)
Business Days' prior irrevocable written notice annexed hereto as Exhibit "D"
(or telephonic notice promptly confirmed in writing) to Lender, Borrower shall
have the right, without premium or penalty, to permanently reduce the Maximum
Facility Amount, provided that (a) Borrower may not reduce the Maximum Facility
Amount below the aggregate principal amount outstanding under the Loan at the
time of such requested reduction, (b) any such partial reduction shall be in
the minimum aggregate amount of Five Million Dollars (U.S. $5,000,000.00) or
any integral multiple of One Million Dollars (U.S. $1,000,000.00) in excess
thereof, (c) notwithstanding any such voluntary reduction of the Maximum
Facility Amount, none of the Liens affecting the Collateral shall be released
unless Borrower shall have complied with the terms and conditions of Section
2.21, (d) Borrower may not reduce the Maximum Facility Amount to an amount less
than Twenty Five Million Dollars (U.S. $25,000,000.00) and (e) if the Maximum
Facility Amount shall be reduced below the Aggregate Available Facility Amount,
the Available Facility Amount for each Note shall be
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reduced at Borrower's direction, provided that such reductions do not result in
a breach of the Available Borrowing Base Covenant or the Loan to Value Covenant;
if such direction results in a breach of either the Available Borrowing Base
Covenant or the Loan to Value Covenant or if Borrower fails to specify the Note
or Notes to be reduced, the Available Facility Amount for each Note shall be
reduced pro rata, in each case so that the Aggregate Available Facility Amount
shall equal the Maximum Facility Amount. Any reduction of the Maximum Facility
Amount shall be applied pro rata to Lender's and each Co-Lender's respective
percentage interest in the Loan.
(b) Upon at least three (3) Business Days prior
irrevocable written notice to Lender, Borrower shall have the right to
terminate the Loan, this Agreement and reduce the Maximum Facility Amount to
zero, provided that Borrower, on the date specified in such notice, pays to
Lender the entire outstanding principal balance of the Loan, together with all
interest accrued and unpaid thereon, all Funding Costs, and all other sums due
under the Note (including without limitation, the Swing Line Note), this
Agreement and the other Loan Documents; upon such termination, Lender and the
Co-Lender shall have no further obligation to make any Advances.
Section 2.10 Swing Line Advances. (a) The Swing Line
Lender, at any time in its sole and absolute discretion, may on behalf of the
Borrower and the REIT (which hereby irrevocably directs the Swing Line Lender
to act on their behalf) request each Co-Lender, including the Swing Line
Lender, to make an Advance in an amount equal to such Co-Lender's pro rata
share of the amount of the Swing Line Advances (the "Refunded Swing Line
Advances") outstanding on the date such notice is given. Unless any of the
events described in Section 7.1(e) shall have occurred (in which event the
procedures of subsection 2.10(b) shall apply) each Co-Lender shall, not later
than 2:00 p.m., New York City time, on the Business Day next succeeding the
date on which such notice is given, make available to the Swing Line Lender in
immediately available funds an amount equal to the Refunded Swing Line Advance
to be made by such Co-Lender. The proceeds of such Refunded Swing Line Advance
shall be immediately applied to repay the Swing Line Advance. Upon any request
by the Swing Line Lender to the Co-Lenders pursuant to this subsection 2.10(a),
Lender shall promptly give notice to the Borrower of such request. Refunded
Swing Line Advances shall be Base Rate Portions until converted by Borrower in
accordance with Section 2.8.
(b) If prior to the making of a Refunded Swing Line
Advance pursuant to subsection 2.10(a), one of the events described in Section
7.1(e) shall have occurred, each Co-Lender will, on the date such Refunded
Swing Line Advance was to have been made, purchase an undivided participating
interest in the outstanding Swing Line Advance in an amount equal to its pro
rata share of such Swing Line Advance. Each Co-Lender will immediately
transfer to the Swing Line Lender, in immediately available funds, the amount
of its participation, and upon receipt thereof the Swing Line Lender will
deliver to such Co-Lender a participation certificate (a
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"Swing Line Participation Certificate") in the form annexed as Exhibit J,
appropriately completed by the Swing Line Lender, dated the date of receipt of
such funds and in the amount of such Co-Lender's participation.
(c) Whenever, at any time after the Swing Line Lender has
received from any Co-Lender such Co-Lender's participating interest in a Swing
Line Advance, the Swing Line Lender receives any payment on account thereof,
the Swing Line Lender will distribute to such Co-Lender its participating
interest in such amount (appropriately adjusted, in the case of interest
payments, to reflect the period of time during which such Co-Lender's
participating interest was outstanding and funded); provided, however, that in
the event that such payment was received by the Swing Line Lender and is
required to be returned, such Co-Lender will return to the Swing Line Lender
any portion thereof previously distributed by the Swing Line Lender to it.
(d) Each Co-Lender's obligation to purchase participating
interests pursuant to subsection 2.10(b) shall be absolute and unconditional
and shall not be affected by any circumstance, including, without limitation,
(a) any set-off, counterclaim, recoupment, defense or other right which such
Co-Lender or any Loan Party may have against the Swing Line Lender, any Loan
Party or anyone else for any reason whatsoever; (b) the occurrence or
continuation of any Default or Event of Default; (c) any adverse change in the
condition (financial or otherwise) of any Loan Party; (d) any breach of this
Agreement or the other Loan Documents by any Loan Party or any Co-Lender; or
(e) any other circumstance, happening or event whatsoever, whether or not
similar to any of the foregoing.
Section 2.11 Voluntary Prepayments. Borrower and the REIT
shall have the right to prepay the Loan, in whole or in part, from time to time
on the following terms and conditions: (a) Borrower shall give Lender written
notice (or telephonic notice promptly confirmed in writing), in the form
attached hereto as Exhibit E, which notice shall be irrevocable, of its intent
to prepay all or a portion of the Loan, at least three (3) Business Days prior
to a prepayment of Eurodollar Portions and Base Rate Portions, which notice
shall specify the amount of such prepayment and what Loan Portions are to be
prepaid, whether or not the prepayments shall be applied to a Swing Line
Advance, and, in the case of Eurodollar Portions, the specific Borrowing(s)
pursuant to which made, (b) each prepayment shall be in an aggregate principal
amount of One Million Dollars (U.S. $1,000,000.00) (Two Hundred Fifty Thousand
(U.S. $250,000.00) for a Swing Line Advance) or any integral multiple of Five
Hundred Thousand U.S. Dollars (U.S. $500,000.00) (Fifty Thousand (U.S.
$50,000.00) for a Swing Line Advance) in excess thereof, and (c) prepayments of
Eurodollar Portions made pursuant to this Section on a date other than the last
day of the Interest Period applicable thereto shall be accompanied by payment
of any Funding Costs which Lender and the Co-Lenders shall incur as a result of
such early payment. If any such notice is given, the amount specified in such
notice shall be due and payable on the date specified therein.
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Section 2.12 Mandatory Prepayments. (a) On each date
after the Closing Date on which Borrower or the REIT actually receives a
distribution of the proceeds of any insurance payment or condemnation award in
respect of any of the Real Property Assets, and if Lender is not obligated to
make such proceeds available to Borrower for the restoration of any Real
Property Asset or to release such proceeds to Borrower under the terms of the
Security Instruments, Borrower shall prepay the outstanding principal balance
of the related Note secured by such Real property Asset in an amount equal to
the lesser of (i) one hundred percent (100%) of such proceeds and (ii) the
Allocated Loan Amount with respect to such Real Property Asset and, in either
case, the applicable Funding Costs as a result of such payment. All
prepayments made pursuant to this subsection shall be applied in accordance
with the provisions of Section 2.13, and the Available Facility Amount for such
Note shall be reduced by such amount. The Allocated Loan Amount with respect
to such Real Property Asset will be reduced in an amount equal to such
prepayment.
(b) On each day on which the Aggregate Available Facility
Amount is reduced pursuant to the terms of this Agreement, including, without
limitation, if the Available Borrowing Base Covenant or Loan to Value Ratio
Covenant are no longer satisfied, Borrower shall prepay the Loan to the extent,
if any, that the outstanding principal amount of the Loan exceeds such reduced
Aggregate Available Facility Amount, together with any applicable Funding Costs
as a result of such payment. Such payments shall be applied to the Notes for
which the Available Borrowing Base Covenant or Loan to Value Covenant is not
met.
Section 2.13 Application of Payments and Prepayments.
Unless specifically provided otherwise, all payments and prepayments of the
Loan, whether voluntary or otherwise, shall be applied first, to unpaid Fees
and any Funding Costs, second, to pay any accrued and unpaid interest then
payable with respect to the Loan, and third, to pay the outstanding principal
amount of the Loan. Payments applied to the outstanding principal amount of
the Loan shall if voluntary be applied to the Notes and Loan Portions
(including Swing Line Advances) specified by Borrower and if not specified by
Borrower, shall be first applied to the Swing Line Advances, then the other
Base Rate Portions of the Loan and then to pay the Eurodollar Portions of the
Loan being repaid in the order of such Eurodollar Portion's maturity and
allocated to each Note on a pro rata basis; notwithstanding the foregoing, no
payments shall be allocated to the Florida Note if such payment would reduce
the outstanding principal amount of the Florida Note to less than
$3,400,000.00, unless at the time of application of such payment the
outstanding principal amount of Notes A-1 (including the Swing Line Note, if
any) B, C and D are each $0.00.
Section 2.14 Method and Place of Payment. (a) Except as
otherwise specifically provided herein, all payments and prepayments under this
Agreement and the Note shall be made to Lender not later than 12:00 noon, New
York City time, on the date when due and shall be made in lawful money of the
United States of America in immediately available funds at Lender's Office, and
any funds received by Lender after such time shall, for all purposes hereof,
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be deemed to have been paid on the next succeeding Business Day. Each payment
(including all prepayments on account of principal and interest on the Loan), to
the extent received, shall constitute payment by Borrower to each Co-Lender and
Swing Line Lender in the amount of such Co-Lender's pro rata share or the Swing
Line Lender's share of such payment.
(b) Except as expressly provided to the contrary in
Section 2.6 hereof, whenever any payment to be made hereunder or under the Note
or other Loan Documents shall be stated to be due on a day which is not an
Business Day, the due date thereof shall be extended to the next succeeding
Business Day and, with respect to payments of principal, interest shall be
payable at the applicable rate during such extension.
(c) All payments made by Borrower hereunder, under the
Note and the other Loan Documents, shall be made irrespective of, and without
any deduction for, any setoff or counterclaims.
Section 2.15 Fees. Borrower and the REIT shall pay to
Lender a fee (the "Non-use Fee"), computed at the per annum rate (based on a
year of 360 days, for the actual number of days elapsed) of one-quarter of one
percent (0.25%) on the average daily unfunded portion of the Initial Facility
Amount, or, if the Syndication has occurred, the applicable Maximum Facility
Amount from and including the Closing Date through and including the Maturity
Date, payable, in arrears, on the later of the Non-use Fee Due Date or the
first day of each calendar quarter beginning on the Closing Date through the
Maturity Date and on the Maturity Date. For purposes of calculating the
Non-use Fee, all amounts outstanding under any Swing Line Advance (but
excluding any Refunded Swing Line Advance) shall be deemed to be part of the
unfunded portion of the Initial Facility Amount or, if the Syndication has
occurred, the then applicable Maximum Facility Amount. Each payment of the
Non-use Fee, to the extent received by Lender, shall constitute payment by
Borrower and the REIT to each Co-Lender in the amount of such Co-Lender's pro
rata share of the Non-use Fee.
Section 2.16 Interest Rate Unascertainable, Increased
Costs, Illegality. (a) In the event that Lender has determined or, with
respect to any Co-Lender or Participants, has been notified that (which
determination or notice shall, if made in good faith and absent manifest error,
be final and conclusive and binding upon all parties hereto):
(i) on any date for determining the Eurodollar
Rate for any Interest Period, that by reason of any changes arising
after the date of this Agreement affecting the interbank Eurodollar
market, adequate and fair means do not exist for ascertaining the
applicable interest rate on the basis provided for in the definition
of the Eurodollar Rate; or
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(ii) at any time, that the relevant Eurodollar
Rate applicable to any of its Eurodollar Portions shall not represent
the effective pricing to Lender or any Co-Lender for funding or
maintaining its Eurodollar Portions, or Lender or any Co-Lender shall
incur increased costs or reduction in the amounts received or
receivable hereunder in respect of any Eurodollar Portion, in any such
case because of (x) any change since the date of this Agreement in any
applicable law or governmental rule, regulation, guideline, order,
request or directive or any interpretation thereof and including the
introduction of any new law or governmental rule, regulation,
guideline, order, request or directive (such as, for example, but not
limited to, a change in official reserve requirements, but, in all
events, excluding reserves required under Regulation D of the Federal
Reserve Board to the extent included in the computation of the
Eurodollar Rate), whether or not having the force of law and whether
or not failure to comply therewith would be unlawful, and/or (y) other
circumstances affecting Lender, any Co-Lender or the interbank
Eurodollar market or the position of Lender or any Co-Lender in such
market; or
(iii) at any time, that the making or continuance
by it of any Eurodollar Portion has become unlawful in order for
Lender or any Co-Lender, in good faith, to comply with any law or
governmental rule, regulation, guideline, order, request or directive
(whether or not having the force of law and whether or not failure to
comply therewith would be unlawful), or any change therein, or any
change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with
the interpretation or administration thereof, or has become
impracticable as a result of a contingency occurring after the date of
this Agreement which materially and adversely affects the interbank
Eurodollar market;
then, and in any such event, Lender shall, promptly after making such
determination or receiving notice thereof from any Co-Lender, give notice by
telephone promptly confirmed in writing to Borrower. Thereafter (x) in the
case of clause (i) above, Borrower's right to request advances, conversions or
continuations of Eurodollar Portions shall be suspended, and any Notice of
Borrowing, request for Short Interest Period or Notice of Conversion or
Continuation given by Borrower with respect to any Borrowing of Eurodollar
Portions which has not yet been made shall be deemed cancelled and rescinded by
Borrower, (y) in the case of clause (ii) above, Borrower shall pay to Lender,
within ten (10) Business Days after receipt of Lender's written demand
therefor, such additional amounts (in the form of an increased rate of
interest, or a different method of calculating interest, or otherwise, as
Lender shall determine) as shall be required to compensate Lender or any
Co-Lender for such increased costs or reduction in amounts received or
receivable hereunder (it being understood and agreed by the parties hereto that
in the event that Lender shall fail to notify Borrower within ten (10) Business
Days after such determination, then Borrower shall not be liable to pay to
Lender any additional amounts relating to the period prior to Lender's
notifying Borrower, and (z) in the case of clause (iii) above, Borrower shall
take one of the actions specified in clause (b) below as promptly as
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possible and, in any event, within the time period required by law. The written
demand provided for in clause (y) shall demonstrate in reasonable detail the
circumstances giving rise to such demand and the calculation of the amounts
demanded; provided that Borrower and the REIT shall not be obligated to pay an
amount in excess of the amount directly attributable to the Loan hereunder.
(b) In the case of any Eurodollar Portion or requested
Eurodollar Portion affected by the circumstances described in clause (a)(ii)
above, Borrower may, and in the case of any Eurodollar Portion affected by the
circumstances described in clause (a)(iii) above, Borrower shall, either (i) if
any such Eurodollar Portion has not yet been made but is then the subject of a
Notice of Borrowing, a request for Short Interest Period or a Notice of
Conversion or Continuation, be deemed to have cancelled and rescinded such
notice, or (ii) if any such Eurodollar Portion is then outstanding, require
Lender to convert each such Eurodollar Portion into a Base Rate Portion at the
end of the applicable Interest Period or such earlier time as may be required
by law, in each case by giving Lender notice (by telephone promptly confirmed
in writing) thereof within two (2) Business Days after Borrower was notified by
Lender pursuant to clause (a) above.
(c) In the event that Lender determines at any time
following the giving of notice based on the conditions described in clause
(a)(i) and (a)(iii) above that such conditions no longer exist, Lender shall
promptly give notice thereof to Borrower, whereupon Borrower's right to request
Eurodollar Portions from Lender and Lender's and any Co-Lender's obligation to
make Eurodollar Portions shall be automatically restored.
(d) The amount of any increased costs or reductions in
amounts referred to in Section 2.16(a)(ii) with respect to Lender and each
Co-Lender shall be based on the assumption that Lender and any Co-Lender funded
all of its Eurodollar Portions in the interbank Eurodollar market, although the
parties hereto agree that Lender or Co-Lender may fund all or any portion of a
Eurodollar Portion, in any manner it independently determines. For purposes of
any demand for payment made by a Lender under Sections 2.16(a)(ii) or 2.18, in
attributing Lender's or any Co-Lender's general costs relating to eurocurrency
operations or its commitments or customers, or in averaging any costs over a
period of time, Lender may use any reasonable attribution and/or averaging
method which it deems appropriate, reasonable and practical. The agreements in
this Section 2.16 shall survive the termination of this Agreement and the
payment of the Note and all other Obligations.
Section 2.17 Funding Losses. Borrower and, except with
respect to Funding Costs in connection with the Florida Note, the REIT, shall
compensate Lender, upon Lender's delivery of a written demand therefor to
Borrower and the REIT, (which demand shall set forth in detail the basis for
requesting such amounts and shall, absent manifest error, be final and
conclusive and binding upon all of the parties hereto), for all reasonable
losses, expenses and liabilities, to the
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extent actually incurred (including, without limitation, any loss, expense or
liability incurred by Lender or any Co-Lender in connection with the liquidation
or reemployment of deposits or funds required by it to make or carry its
Eurodollar Portions), excluding loss of anticipated profits ("Funding Costs"),
that Lender or any Co-Lender sustains: (a) if for any reason (other than a
default by Lender or any Co-Lender) a Borrowing of, or conversion from or into,
or a continuation of, Eurodollar Portions does not occur on a date specified
therefor in a Notice of Borrowing or Notice of Conversion or Continuation
(whether or not rescinded, cancelled or withdrawn or deemed rescinded, cancelled
or withdrawn, pursuant to Sections 2.16(a) or 2.16(b) or otherwise), (b) if any
prepayment (whether voluntary or mandatory), repayment (including, without
limitation, payment after acceleration) or conversion of any of its Eurodollar
Portions occurs on a date which is not the last day of the Interest Period
applicable thereto, (c) if any prepayment of any of its Eurodollar Portions is
not made on any date specified in a notice of prepayment given by Borrower, or
(d) as a consequence of any default by Borrower or the REIT in repaying its
Eurodollar Portions or any other amounts owing hereunder in respect of its
Eurodollar Portions when required by the terms of this Agreement. Calculation of
all amounts payable to Lender under this Section 2.17 shall be made on the
assumption that Lender and each Co-Lender has funded its relevant Eurodollar
Portion through (i) the purchase of a Eurodollar deposit bearing interest at the
Eurodollar Rate in an amount equal to the amount of such Eurodollar Portion with
a maturity equivalent to the Interest Period applicable to such Eurodollar
Portion, and (ii) the transfer of such Eurodollar deposit from an offshore
office of Lender or any Co-Lender to a domestic office of Lender or any
Co-Lender in the United States of America, provided that Lender or any Co-Lender
may fund its Eurodollar Portions in any manner that it in its sole discretion
chooses and the foregoing assumption shall only be made in order to calculate
amounts payable under this Section 2.17. The agreements in this Section 2.17
shall survive the termination of this Agreement and the payment of the Note and
all other Obligations.
Section 2.18 Increased Capital. With respect to each
Eurodollar Portion, if Lender shall have determined (or received notice from
any Co-Lender of its determination), in good faith, that compliance with any
applicable law, rule, regulation, guideline, request or directive (whether or
not having the force of law) which shall be imposed, issued or amended from and
after the date of this Agreement by any governmental authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on the capital or assets of Lender or any Co-Lender as a consequence of its
commitments or obligations hereunder, then from time to time, upon Lender's
delivering a written demand therefor to Borrower, setting forth its reasonable
calculations, Borrower and, except with respect to Increased Capital Costs in
connection with the Florida Note, the REIT, shall pay to Lender on demand such
additional amount or amounts ("Increased Capital Costs") as will compensate
Lender or any Co-Lender for such reduction. Such calculations may use any
reasonable averaging and attribution methods selected by Lender. The
agreements in this Section 2.18 shall survive the termination of this Agreement
and the payment of the Note and all other Obligations.
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Section 2.19 Taxes. (a) All payments made by Borrower or
the REIT under this Agreement shall be made free and clear of, and without
deduction or withholding for or on account of, any present or future income,
stamp or other taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or assessed
by any governmental authority excluding, in the case of Lender or any
Co-Lender, net income and franchise taxes imposed on Lender or any Co-Lender by
the jurisdiction under the laws of which Lender is organized or any political
subdivision or taxing authority thereof or therein, or by any jurisdiction in
which Lender's or Co-Lender's Domestic Lending Office or Eurodollar Lending
Office, as the case may be, is located or any political subdivision or taxing
authority thereof or therein (all such non-excluded taxes, levies, imposts,
deductions, charges or withholdings being hereinafter called "Taxes").
(b) Notwithstanding anything to the contrary herein, if
at any time or from time to time Taxes are required to be deducted or withheld
from the payments required to be made to Lender or any Co-Lender hereunder
solely by reason of a Change in Law after the date hereof (other than as a
result of any transfer or assignment of any of the obligations of Borrower and
the REIT hereunder), all payments required to be made by Borrower and, except
with respect to the Florida Note, the REIT, hereunder (including any additional
amounts that may be payable pursuant to this clause (b)) shall be increased to
the extent required so that the net amount received by Lender or any Co-Lender
after the deduction or withholding of Taxes imposed solely by reason of a
Change in Law after the date hereof will be not less than the full amount that
would otherwise have been receivable had no such deduction or withholding been
imposed by reason of such Change in Law. In the event that this clause (b)
shall be operative, Borrower and the REIT shall promptly provide to Lender
evidence of payment of such Taxes to the appropriate taxing authority and shall
promptly forward to Lender any official tax receipts or other documentation
with respect to the payment of the Taxes as may be issued by the taxing
authority. If Borrower or the REIT fails to pay any Taxes when due to the
appropriate taxing authority or fails to remit to Lender the required receipts
or other required documentary evidence, Borrower and the REIT shall indemnify
Lender and any Co-Lender for any incremental taxes, interest or penalties that
may become payable by Lender or Co-Lender as a result of any such failure. The
agreements in this Section 2.19 shall survive the termination of this Agreement
and the payment of the Note and all other Obligations.
(c) For purposes of this Section 2.19 the term "Change in
Law" shall mean the following events: (i) the enactment of any legislation by
the United States, including the enactment, amendment or modification of a
treaty; (ii) the lapse, by its terms, of any law of the United States or any
treaty to which the United States is a party; or (iii) the promulgation of any
temporary or final regulation under the Code.
(d) Each Co-Lender that is not incorporated under the
laws of the United States of America or a state thereof agrees that, prior to
the first date on which any payment is
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due to it hereunder, it will deliver to Borrower and Lender (i) two duly
completed copies of United States Internal Revenue Service Form 1001 or 4224 or
successor applicable form, as the case may be, certifying in each case that such
Co-Lender is entitled to receive payments under this Agreement and the Note
payable to it, without deduction or withholding of any United States federal
income taxes, and (ii) an Internal Revenue Service Form W-8 or W-9 or successor
applicable form, as the case may be, to establish an exemption from United
States backup withholding tax. Each Co-Lender required to deliver to Borrower
and Lender a Form 1001 or 4224 and Form W-8 or W-9 pursuant to the preceding
sentence further undertakes to deliver to Borrower and Lender two further copies
of the said letter and Form 1001 or 4224 and Form W-8 or W-9, or successor
applicable forms, or other manner of certification, as the case may be, on or
before the date that any such letter or form expires (which, in the case of the
Form 4224, is the last day of each U.S. taxable year of the non-U.S. Co-Lender)
or becomes obsolete or after the occurrence of any event requiring a change in
the most recent letter and form previously delivered by it to Borrower and
Lender, and such other extensions or renewals thereof as may reasonably be
requested by Borrower or Lender, certifying in the case of a Form 1001 or 4224
that such Co-Lender is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income taxes, unless in
any such case an event (including, without limitation, any change in treaty, law
or regulation) has occurred prior to the date on which any such delivery would
otherwise be required which renders all such forms inapplicable or which would
prevent such Co-Lender from duly completing and delivering any such letter or
form with respect to it and such Co-Lender advises Borrower and Lender that it
is not capable of receiving payments without any deduction or withholding of
United States federal income tax, and in the case of a Form W-8 or W-9,
establishing an exemption from United States backup withholding tax.
Notwithstanding clause (a), if a Co-Lender fails to provide a duly completed
Form 1001 or 4224 or other applicable form and, under applicable law, in order
to avoid liability for Taxes, Borrower is required to withhold on payments made
to such a Co-Lender that has failed to provide the applicable form, Borrower
shall be entitled to withhold the appropriate amount of Taxes. In such event,
Borrower shall promptly provide to such Co-Lender or Lender evidence of payment
of such Taxes to the appropriate taxing authority and shall promptly forward to
such Co-Lender or Lender any official tax receipts or other documentation with
respect to the payment of the Taxes as may be issued by the taxing authority.
Section 2.20 Use of Proceeds. Borrower shall use the
proceeds of the Loan to acquire interests in additional hospitality properties,
and hotels, for costs associated with the construction, renovation and
development of such hospitality properties and hotels, for working capital, for
the initial funding of capital expenditures, replacement reserves or other
escrows required hereunder, to pay various Transaction Costs and general
corporate purposes, including the payment of Distributions (subject to the
conditions of this Agreement).
Section 2.21 Release and Substitution of Collateral. (a)
Provided that no Event of Default has occurred and is continuing, Borrower
shall have the right, from time to time, to
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obtain a release of a Real Property Asset from the Lien of the related Security
Instrument and Loan Documents (a "Release Property") upon delivery to Lender of
a written request for such release at least five (5) Business Days prior to the
requested release date. In the event Borrower seeks to release a Real Property
Asset from the Lien of the related Security Instrument, Lender shall release
such Real Property Asset from the Lien of the related Security Instrument and
the Loan Documents, but only upon receipt by Lender of the following:
(i) if after giving effect to the Release, the aggregate
Allocated Loan Amounts for the remaining Real Property Assets in the
Pool to which the Release Property belonged is less than the then
outstanding principal balance of the related Note, a wire transfer of
immediately available federal funds in an amount equal to the
difference between (A) the outstanding principal balance of such Note
and (B) the aggregate Allocated Loan Amounts for such remaining Real
Property Assets; notwithstanding the foregoing, if the Non-Competition
Agreement has expired or is otherwise terminated, a wire transfer of
immediately available federal funds in an amount equal to the lesser
of (x) the outstanding principal balance of the related Note and (y)
the greater of the Allocated Loan Amount or the Available Borrowing
Base calculated for the Release Property, in either case together with
all accrued interest on the amount being prepaid, and any costs and
expenses incurred by Lender to effect the Transaction contemplated by
this Section; such payment shall be applied to the Note related to the
Release Property;
(ii) A certificate of the general partner of Borrower or
senior executive officer of Borrower certifying that (i) the
Non-Competition Agreement has either expired or terminated or is in
full force of effect, and (ii) the Real Property Assets remaining
encumbered by the Liens of the Security Instruments after giving
effect to the payment of the Allocated Loan Amount or the Available
Borrowing Base calculated for such Real Property Asset, continue to
satisfy the Available Borrowing Base Covenant and the Loan to Value
Ratio Covenant.
Simultaneously with compliance with the conditions set forth
in this Section 2.21(a), (w) Lender and any Co-Lender shall release the Lien
with respect to all Collateral relating to the applicable Release Property, (x)
Lender shall revise Schedules 1, 2, 2A, 2B, 2C, 2D, 3, 8, 10, 11, 11A, 12, 14,
16 and 17 (the "Related Schedules") and (y) the Available Facility Amount shall
be reduced to the extent of the applicable amounts prepaid hereunder. If the
Non-Competition Agreement has expired or otherwise terminated, the Maximum
Facility Amount, the Aggregate Available Facility Amount and the Available
Facility Amount for such Note shall be irrevocably reduced by the amount of
such prepayment.
(b) Provided that no Default or Event of Default has
occurred and is continuing, and the Non-Competition Agreement has not expired
or otherwise terminated, prior to the Termination Date, Borrower shall have the
right, subject to Lender's consent, which
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consent may be withheld in Lender's sole discretion, to obtain a release of a
Real Property Asset from the Lien of the related Security Instrument and Loan
Documents (a "Release Property"), if Borrower simultaneously substitutes
another fully licensed, stabilized and operating hospitality property owned in
fee simple by Borrower and leased by the Partnership pursuant to an Operating
Lease (a "Substitute Property"), and subjects such Substitute Property and
Operating Lease to the Lien of a new mortgage, deed of trust, deed to secure
debt or similar security instruments, in the same form and substance as the
Security Instruments ("Substitute Mortgage") and to the Lien of the Loan
Documents, as a first lien thereon. Lender's consent to such release and
substitution may be conditioned on, among other things, receipt by Lender of
the following:
(i) Evidence reasonably satisfactory to Lender that the
Substitute Property is fully operational, stabilized and is of similar
or higher quality or value to the Release Property.
(ii) An Appraisal (or, at the election of Lender, an
internal valuation by Lender) of the Substitute Property prepared
within six (6) months prior to delivery and reasonably satisfactory to
Lender.
(iii) Evidence reasonably satisfactory to Lender (which may
include an opinion of counsel with respect to the procedural and
substantive requirements for the enforcement of mortgages or deeds of
trust in the state where the Substitute Property is located and the
impact of an out of state enforcement action on the enforcement of the
Substitute Mortgage and related Loan Documents within the state where
the Substitute Property is located) that subjecting the Substitute
Property to the Lien of the Substitute Mortgage and the Loan Documents
does not and will not affect or impair the ability of Lender to
enforce its remedies under all of the Security Instruments and Loan
Documents with respect to the Pool to which the Substitute Property
has been added or to realize the benefits of the
cross-collateralization.
(iv) An opinion of Borrower's and the Partnership's (and
HIC's, if applicable) counsel reasonably satisfactory to Lender
stating (u) that the Substitute Mortgage and the Loan Documents by
which the Substitute Property will be encumbered have been duly
authorized, executed and delivered by Borrower and, if the Partnership
has entered into an Operating Lease with respect to the Substitute
Property, the Partnership, are valid and enforceable in accordance
with their terms, subject to bankruptcy and equitable principles, (v)
that Borrower (and the REIT, if necessary) and, if the Partnership
entered into an Operating Lease with respect to the Substitute
Property, the Partnership, are qualified to do business and in good
standing under the laws of the jurisdiction where the Substitute
Property is located, or that Borrower or the REIT or the Partnership,
as applicable, are not required by Applicable Law to qualify to do
business in such jurisdiction, (w) based on a certificate of Borrower
(or the Partnership, or HIC as the
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case may be) the encumbrance of the Substitute Property with the Liens
of the Substitute Mortgage and the Loan Documents shall not cause a
breach of, or a default under any agreement, document or instrument to
which Borrower is a party or to which it or its properties are bound or
affected and (x) the anticipated release and substitution will not
affect the status of the REIT as a qualified real estate investment
trust under Section 856 of the Code.
(v) A certification by Borrower and the REIT (w) that the
Non-Competition Agreement has not expired or otherwise terminated and
is in full force and effect, (x) that the certificates, opinions and
other instruments which have been or are therewith delivered to or
deposited with Lender in connection with such release and substitution
conform to the requirements of this Agreement and the Security
Instruments, (y) that all conditions precedent herein have been
complied with and (z) that all conditions precedent to the delivery of
the Substitute Mortgage and Loan Documents contained in this Agreement
have been fulfilled.
(vi) Evidence reasonably satisfactory to Lender that
Borrower, the REIT and the other Loan Parties are, and will remain
after the consummation of the transaction, Solvent.
(vii) Original executed counterparts of the Substitute
Mortgage and the Loan Documents encumbering the Substitute Property
and the related Operating Lease and related Collateral, including
without limitation, a Partnership Guaranty Security Agreement and a
Partnership Mortgage, or a HIC Guaranty Security Agreement and a HIC
Mortgage, financing statements or other documents necessary to grant
or perfect Lender's first priority security interest in the fixtures
and personalty located thereon and the Gross Revenues and Accounts
Receivable derived therefrom; the principal amount of such Substitute
Mortgage shall equal the face amount of the Note that such Substitute
Mortgage secures.
(viii) A title insurance policy issued by a title insurance
company reasonably satisfactory to Lender insuring the lien of the
Substitute Mortgage on the Substitute Property, in form and substance
satisfactory to Lender insuring that the Substitute Mortgage is a
valid and enforceable first lien on the good and marketable fee simple
title or leasehold estate of Borrower to the Substitute Property, as
the case may be, in an amount equal to the amount of the Loan
allocated to the Substitute Property, subject only to such exceptions
that Lender has approved together with such affirmative insurance and
other endorsements reasonably required by Lender, including a
revolving credit endorsement, together with a "tie-in" and first loss
endorsement satisfactory to Lender, or, if such endorsement is not
available in the state in which the Substitute Property is located, in
an amount equal to the greater of one hundred ten percent (110%) of
the
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amount of the Loan allocated by Lender to the Substitute Property or
the amount on which mortgage or intangibles tax was paid with respect
to the Security Instrument for the Substitute Property, together with a
"last dollar endorsement". Such title insurance policy shall not
contain any exception for any state of facts that an accurate survey
might show or that a survey made after the date of the survey referred
to in Section 2.21(b)(xii) might show.
(ix) Evidence reasonably satisfactory to Lender to the
effect that the Substitute Property and the use thereof are in
substantial compliance with the applicable zoning, subdivision, and
all other applicable federal, state or local laws and ordinances
affecting the Substitute Property, and that all material building and
operating licenses and permits necessary for the use and occupancy of
the Substitute Property as an hospitality property or hotel including,
but not limited to, current certificates of occupancy, have been
obtained and are in full force and effect.
(x) An Environmental Report dated within six (6) months
prior to delivery which states that the Substitute Property does not
contain any Hazardous Substances (as defined in the Security
Instrument) or risk of contamination from off-site Hazardous
Substance, and which otherwise shall be reasonably satisfactory to
Lender.
(xi) Payment of all Transaction Costs and other expenses
incurred by Lender and all Co-Lenders including reasonable counsel
fees and disbursements in connection with the release of any Release
Property and the Substitute Property and its inclusion as Collateral.
In the event that the jurisdiction in which the Substitute Property is
located imposes a mortgage recording or intangibles tax, or similar
tax, and does not permit the allocation of indebtedness for the
purpose of determining the amount of such tax payable, if permitted by
law in such jurisdiction, such tax shall be paid on an amount equal to
125% of the Allocated Loan Amount for the Substitute Property.
(xii) A recent survey of the Substitute Property prepared
by a land surveyor licensed in the state where the Substitute Property
is located pursuant to standards for title surveys reasonably
satisfactory to Lender and otherwise reasonably satisfactory to
Lender, provided that no structural additions to the improvements
shown on such survey or new structures have been made or built since
the date of such survey and that there has been no change in the legal
description of the Substitute Property since the date of such survey,
whether due to sales, transfers, condemnation or otherwise.
(xiii) Evidence reasonably satisfactory to Lender indicating
whether the Substitute Property is in a flood plain.
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(xiv) Payment of all recording charges, filing fees, taxes,
or other expenses, including but not limited to intangibles taxes and
documentary stamp taxes in connection with the recording of the
Substitute Mortgage and the Lien necessary to grant and perfect Lender
a first priority lien on and security interest in the Substitute
Property.
(xv) A property inspection report dated within six (6)
months of delivery prepared by an independent licensed engineer
reasonably satisfactory to Lender, prepared in accordance with
Lender's then current guidelines for property inspection reports,
stating, among other things, that the Substitute Property is in good
condition and repair and free of damage or waste and complies in all
material respects with the Americans with Disabilities Act, and is
otherwise reasonably satisfactory to Lender.
(xvi) Annual operating statements and occupancy statements
for the Substitute Property for Borrower's and the Partnership's most
recent fiscal year (and such prior fiscal years as reasonably required
by Lender in order for Lender to perform its due diligence with
respect to the Substitute Property), together with a year to date
operating statement, current occupancy statements, and a budget for
the current fiscal year, each certified by Borrower and the
Partnership, and a certificate of no adverse change since the date
thereof executed by the general partner of Borrower and the
Partnership or senior executive officer of Borrower and the
Partnership, in each case in form and substance satisfactory to
Lender.
(xvii) Original certificates and copies of policies of
insurance required by Lender under the terms of the Substitute Mortgage
for the Substitute Property.
(xviii) Evidence of the qualification and good standing of
Borrower and, if the Partnership has entered into an Operating Lease
with respect to the Substitute Property, the Partnership, in the state
where the Substitute Property is located unless such qualification is
not required in such state by Applicable Law.
(xix) Certified copies of all Leases (as defined in the
Security Instrument) with respect to the Substitute Property and
Tenant Estoppel Certificates from tenants under Major Leases, as
required by Lender, all in form and substance reasonably satisfactory
to Lender.
(xx) Certified copies of all material contracts and
agreements relating to the management, leasing and operation of the
Substitute Property, including, without limitation, if any, the
Franchise Agreement each of which shall be in form and substance
reasonably satisfactory to Lender.
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(xxi) Such evidence as Lender reasonably deems necessary to
indicate compliance in all material respects with Applicable Laws and
such evidence as Lender may deem reasonably necessary or appropriate
to evidence the availability of all utilities, including water,
sewers, gas and electricity, as may be necessary for the use of the
Substitute Property as intended.
(xxii) Access to plans and specifications for the Substitute
Property.
(xxiii) Certified copies of all material consents, licenses
and approvals, if any, required in connection with the substitution of
a Substitute Property, including liquor and gaming licenses, as
applicable and such consents, licenses and approvals shall be in full
force and effect.
(xxiv) A certification by the general partner of Borrower or
senior executive officer of Borrower and the REIT certifying that all
of the representations and warranties contained in the Security
Instruments and in the other Loan Documents, after giving effect to
the substitution of the Substitute Property, are true and correct in
all material respects with respect to the Substitute Property and that
there is no Default or Event of Default hereunder.
(xxv) A certificate of the general partner of Borrower or
senior executive officer of Borrower and the REIT together with other
evidence satisfactory to Lender (which shall include the comfort
letter or audit described in Section 5.1(b)(iii)) that, after the
substitution of a Substitute Property and the release of the Release
Property, the Available Borrowing Base Covenant and the Loan to Value
Ratio Covenant are satisfied.
(xxvi) UCC Searches with respect to the Substitute Property,
Borrower, and the Loan Parties in the state where the Substitute
Property is located and the jurisdictions where such Person has its
principal place of business.
(xxvii) A Franchisor Estoppel and Recognition Letter from the
franchisor under the Franchise Agreement, if any, for the Substitute
Property.
(xxviii) A certified copy of the Operating Lease for the
Substitute Property with the Partnership satisfactory to Lender in its
reasonable discretion or with such other entity satisfactory to Lender
in its sole discretion and which Operating Lease is subordinate to the
Lien of the Security Instrument and is otherwise satisfactory to Lender
in Lender's sole discretion.
(xxix) Lender shall have received a certificate of the
general partner of Borrower and if the Partnership has entered into an
Operating Lease with respect to the Substitute
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Property, the general partner of the Partnership, and dated
the date of the Substitution, certifying (i) the names and true
signatures of the incumbent officers of such Person authorized to sign
the applicable Loan Documents, (ii) the by-laws of such Person as in
effect on the date of the Substitution, (iii) the resolutions of such
Person's board of directors approving and authorizing the execution,
delivery and performance of all Loan Documents executed by such
Person, and (iv) that there have been no changes in the certificate of
incorporation of such Person since the date of the most recent
certification thereof by the appropriate Secretary of State.
(xxx) Certified copies of the most recent Quality Assurance
Reports, if any, which shall be reasonably satisfactory to Lender.
(xxxi) If the Borrower owns a leasehold estate in the
Substitute Property, (A) a certified copy of the Ground Lease for the
Substitute Property, together with all amendments and modifications
thereto and a recorded memorandum thereof, which Ground Lease shall be
satisfactory in all respects to Lender in its sole discretion, and
which shall provide, among other things, (i) for a remaining term of
no less than 10 years from the Maturity Date, (ii) that the Ground
Lease shall not be terminated until Lender has received notice of a
default thereunder and has had a reasonable opportunity to cure or
complete foreclosure, and fails to do so in a diligent manner, (iii)
for a new lease on the same terms to the Lender as tenant if the
Ground Lease is terminated for any reason, (iv) the non-merger of fee
and leasehold interests, and (v) that insurance proceeds and
condemnation awards (from the fee interest as well as the leasehold
interest) will be applied pursuant to the terms of the Security
Instrument, and (B) a Ground Lease Estoppel substantially in the form
of Exhibit K, executed by the fee owner and ground lessor of the
Substitute Property, which estoppel shall be satisfactory to Lender in
its sole discretion.
(xxxii) Such other certificates, opinions, documents and
instruments relating to the substitution reasonably requested by
Lender, and all corporate and other proceedings and all other
documents (including, without limitation, all documents referred to
herein and not appearing as exhibits hereto) and all legal matters in
connection with the substitution shall be satisfactory in form and
substance to Lender in its reasonable discretion.
(c) Provided that Borrower is otherwise in compliance
with the terms and conditions of Section 2.21(b), Borrower shall be permitted
to request a Release of a Real Property Asset securing one Note and provide a
Substitute Property to further secure one of the other Notes, provided,
however, that all Pool 2 Real Property Assets shall be located in California
and secure the indebtedness under Note B only, and all Pool 3 Real Property
Assets shall be located in Washington and secure the indebtedness under Note C
only and all Pool 4
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Real Property Assets shall be located in Nevada and secure the indebtedness
under Note D only and the Available Facility Amount for such Note does not
exceed the face amount of such Note.
(d) Upon such substitution, Lender shall (i) revise
Schedules 1, 2, 2A, 2B, 2C, 2D and the Related Schedules to reflect the Release
of the Release Property and the addition of the Substitute Property (ii) adjust
the Allocated Loan Amounts as Lender deems reasonably necessary among the Real
Property Assets in the applicable Pool and (iii) in the event Borrower has
requested a Release and substitution of Real Property Assets which affects two
Notes as contemplated in Section 2.21(c), Lender shall increase or decrease the
Available Facility Amount for each Note as applicable.
Section 2.22 Increasing Available Facility Amount. Borrower may,
prior to the Termination Date and subject to the limitations set forth herein,
increase the Available Facility Amount for a Note by offering to add additional
properties (in addition to the Initial Assets) as security for the Loan and
encumbering them with the Lien of the Security Instrument securing such Note and
the Loan Documents (each, a "New Property"). If Lender determines that such New
Properties are satisfactory to Lender in Lender's sole discretion, subject to
continued satisfaction of the Loan to Value Ratio Covenant and the Available
Borrowing Base Covenant (after giving effect to such New Property) with respect
to the related Note, and all the conditions in this Section 2.22 are complied
with, the Available Facility Amount for such Note shall be increased when New
Properties have been encumbered by the Lien of the Security Instrument securing
such Note and the related Loan Documents by an amount equal to the lesser of 55%
of Lender's internal valuation of the New Properties or 50% of the appraised
value of the New Properties based on Appraisals reasonably satisfactory to
Lender; or, if the Syndication has occurred, 50% of the appraised value of the
New Properties based on Appraisals reasonably satisfactory to Lender and further
subject to the condition that each New Property (including the related Operating
Lease) be encumbered by the Lien of the Security Instruments securing such Note
and the Loan Documents prior to any increase in the Available Facility Amount
for such Note and within forty-five (45) days of notification by Lender to
Borrower that such New Property is satisfactory.
In no event shall the Aggregate Available Facility Amount,
after taking into account the increase in the Available Facility Amount for
such Notes be increased to more than the Maximum Facility Amount.
In addition to the restrictions set forth above, at any time
that the Available Facility Amount for such Note is to be increased at the
request of Borrower, the following conditions precedent must be satisfied:
(a) No Default or Event of Default has occurred and is
continuing or would result from the consummation of the proposed
addition of the New Property;
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(b) The increase in the Aggregate Available Facility
Amount for each addition shall be equal to or in excess of the lesser
of $10,000,000 or the difference between the Maximum Facility Amount
and the Aggregate Available Facility Amount;
(c) Borrower, REIT, the Partnership and all other
applicable Loan Parties have executed and delivered to Lender (at
Borrower's sole cost and expense) all of the documents required under
Section 2.21(b) for a Substitute Property and have complied with all
of the conditions contained in Section 2.21(b) with respect to a
Substitute Property;
(d) If the principal amount of a Note must be increased,
Borrower and the REIT agree that they shall execute a new or amended
Note covering the amount of such increase and provide to Lender such
amendments, supplements, modifications or increases to the applicable
Security Instruments and Loan Documents as Lender may deem reasonably
necessary in connection therewith, which may include some or all of
the documents or items required under Section 2.21(b) in connection
with a Substitute Property and under Section 3.1 in connection with
the initial Advance, and it is understood that any new Note shall be
cross-defaulted with all other Notes, Security Instruments and Loan
Documents and cross collateralized with the Real Property Assets
securing such Note, such cross collateralization to be accomplished
through the recordation of a Security Instrument as a first lien on
any New Property and a modification and increase of the Security
Instruments on the existing Real Property Assets securing such Note.
(e) No increase in the Available Facility Amount for any
Note may take place after the Termination Date.
Section 2.23 Breach of Available Borrowing Base Covenant
or Loan to Value Ratio Covenant. In the event that the Available Facility
Amount for a Note shall have been reduced pursuant to Section 5.15 or 5.20, and
Borrower elects to add additional Collateral pursuant to the terms of this
Section in order to cause the Available Borrowing Base Covenant and/or the Loan
to Value Ratio Covenant to be satisfied, in addition to complying with all of
the requirements of Section 2.22, Borrower shall:
(a) deliver to Lender within five (5) Business Days
after the breach of the Available Borrowing Base Covenant or the Loan to Value
Ratio Covenant, a "Request For Additional Collateral" substantially in the
form of Exhibit "F", hereto, executed by the general partner of Borrower or a
senior executive officer of Borrower, which request shall contain a
certification that (i) the appraised value of the New Property would be
adequate to satisfy the Loan to Value Ratio Covenant if combined with the then
existing Real Property Assets, (ii) that
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in Borrower's reasonable opinion the Net Operating Income from the New Property
would be sufficient to satisfy the Available Borrowing Base Covenant if combined
with the then existing Real Property Assets, (iii) to the best of Borrower's
knowledge after due inquiry, there are no Hazardous Materials (as defined in the
Security Instruments) on or in the New Property and (iv) the New Property is
subject to an Operating Lease with the Partnership or such other entity
satisfactory to Lender in its sole discretion and which Operating Lease is
subordinate to the Lien of the Security Instrument and is otherwise satisfactory
to Lender in its sole discretion.
(b) if Lender notifies Borrower that such request has been
accepted, within 45 days of receipt of such notice, Borrower shall comply with
all of the conditions in this Section 2.23 and have consummated the addition of
the New Property to the Collateral for the Loan. During such 45 day period
Borrower shall not be entitled to any Advance under the related Note.
Section 2.24 Adjustment of Allocated Loan Amounts upon
Addition of New Property. Upon the addition of any New Property pursuant to
Section 2.22 or 2.23, Lender shall revise Schedules 1, 2, 2A,2B, 2C and 2D and
the Related Schedules to reflect the addition of such New Property or
Properties and to adjust the Allocated Loan Amounts as Lender deems necessary
among the Real Property Assets.
Section 2.25 Maximum Number of Transactions.
Notwithstanding anything to the contrary herein, the maximum aggregate number of
(a) releases and simultaneous substitutions of Substitute Properties pursuant to
Section 2.21(b) and (b) the simultaneous addition of one or more New Properties
in a single transaction pursuant to Section 2.22, in any combination during the
term of the Facility shall not exceed seven (7). With respect to clause (b)
above, it is understood and agreed that additions of more than one New Property
in any single simultaneous transaction shall constitute one transaction for
purposes of this Section 2.25.
Section 2.26 Increasing Allocable Loan Amounts. Provided
no Default or Event of Default has occurred and is continuing, Borrower shall
have the one time right, upon written notice to Lender, commencing on October
1, 1996 and ending on April 1, 1997, to request Lender to revise the Allocated
Loan Amounts on Schedule 1 with respect to the Real Property Assets identified
on Schedule 1 as the Sheraton Colony Square Atlanta, the Dallas Park Central
and the Riverside Inn, Portland. Such notice shall be accompanied by an
Appraisal, reasonably satisfactory to Lender, for the related Real Property
Asset. All such Appraisals shall be prepared on an "as is" basis and be based
on the then existing condition of the Real Property Asset, and shall not assume
the completion or performance of any renovations or maintenance work in the
calculation of value. Borrower shall also provide such additional information
regarding the related Real Property Asset as Lender shall reasonably request in
connection with Lender's review of the related Allocated Loan Amounts. Lender
shall notify Borrower within 45 Business Days of its receipt of the Appraisal
and all required information that the Allocated Loan Amounts for the Related
Real Property Assets will not be revised or of the revised Allocated
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Loan Amounts, and shall revise Schedule 1 accordingly. Any revision of such
Allocated Loan Amounts shall be in Lender's reasonable discretion and shall be
based, in part, on 50% of the value of the related Real Property Asset as
indicated in the Appraisal delivered by Borrower in connection with the notice.
After any such revision the Available Borrowing Base Covenant and Loan to Value
Ratio Covenant shall continue to be satisfied. Notwithstanding the foregoing,
in no event shall the Allocated Loan Amounts for Sheraton Colony Square
Atlanta, Dallas Park Central and Riverside Inn Portland exceed $18,000,000.00,
$6,200,000.00 and $8,800,000.00, respectively. No revision of the Allocated
Loan Amounts shall increase the Maximum Facility Amount, the Aggregate
Available Facility Amount or the Available Facility Amount with respect to any
Note.
SECTION 3. CONDITIONS PRECEDENT.
Section 3.1 Conditions Precedent to the Initial Advance.
The obligation of Lender and, after the Syndication, each Co-Lender to make the
initial Advance of the Loan (or its pro rata share thereof) on the Closing Date
and the first Advance after the Syndication is subject to the satisfaction by
Borrower on the Closing Date and on the date of Syndication of the following
conditions precedent:
(a) Loan Documents.
(i) Amended and Restated Line of Credit Agreement.
Borrower and the REIT shall have executed and delivered this Agreement
to Lender.
(ii) The Notes. Borrower and the REIT shall have
executed and delivered to Lender the Notes in the amount, maturity and
as otherwise provided herein.
(iii) Security Instruments. Borrower shall have
executed and delivered to Lender mortgages, deeds of trust, deeds to
secure debt or other security instruments substantially in the form
set forth as Exhibit "G" hereto (as amended, restated, modified or
supplemented from time to time, collectively, the "Security
Instruments"), with respect to each of the Real Property Assets.
(iv) Assignment of Leases and Rents. Borrower shall
have executed and delivered the Assignment of Leases and Rents
substantially in the form set forth as Exhibit "H" hereto with respect
to each Real Property Asset (as amended, restated, modified or
supplemented from time to time, the "Assignment of Leases and Rents").
(v) Environmental Indemnity. Borrower and the
REIT shall have executed and delivered to Lender the Environmental
Indemnity substantially in the form set forth
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as Exhibit "I" hereto, (as amended, restated, modified or supplemented
from time to time the "Environmental Indemnity").
(vi) Swing Line Note. Prior to the first Swing
Line Advance, Borrower and the REIT shall have executed and delivered
to Lender and the Swing Line Lender the Swing Line Note in the amount,
maturity and as otherwise provided herein.
(vii) Tenant Estoppel Certificates. Borrower, the
Partnership or HIC, as the case may be, shall have delivered to Lender
with respect to each tenant identified on Schedule 4, a tenant
estoppel certificate substantially in the form of Exhibit "O" hereto
or in a form otherwise satisfactory to Lender in its reasonable
discretion, executed by such tenant (as amended, restated, modified or
supplemented, the "Tenant Estoppel Certificate").
(viii) Assignment of Contracts. Borrower shall have
executed and delivered to Lender the Assignment of Franchise Agreement,
Agreements, Permits and Contracts substantially in the form set forth
as Exhibit "L" hereto, (as amended, restated, modified or supplemented
from time to time, the "Assignment of Contracts").
(ix) Franchisor Estoppel and Recognition Letter.
Borrower, or the Partnership, or HIC, as applicable, shall have
delivered to Lender with respect to each Real Property Asset subject
to a Franchise Agreement, a franchisor estoppel and recognition letter
substantially in the form set forth as Exhibit "M" hereto or in a form
otherwise satisfactory to Lender in its reasonable discretion,
executed by Franchisor, (as amended, restated, modified or
supplemented from time to time, the "Franchisor Estoppel and
Recognition Letter").
(x) Security Agreement. Borrower shall have
executed and delivered to Lender the Security Agreement with respect to
each Real Property Asset substantially in the form of Exhibit "N"
hereto, (as amended, restated, modified or supplemented from time to
time, the "Security Agreement").
(xi) Subordination, Attornment and Non-Disturbance
Agreements. Borrower shall have delivered a Subordination, Attornment
and Non-disturbance Agreement substantially in the form of Exhibit "P"
hereto with respect to each tenant identified on Schedule 4, fully
executed by such tenant (as amended, restated, modified or
supplemented from time to time, the "Subordination, Attornment and
Non-Disturbance Agreement").
(xii) Termination of Borrower's and the
Corporation's Security Interest in the Collateral. Borrower and the
Corporation shall have executed and delivered an
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agreement terminating all security interests either party may have in
the Collateral with respect to the Intercompany Debt and releasing the
Collateral from such security interest in a form reasonably
satisfactory to Lender.
(xiii) Intercompany Debt Subordination Agreement.
Borrower and the Partnership and HIC, as the case may be, shall have
executed and delivered an Intercompany Debt Subordination Agreement
substantially in the form of Exhibit "Q" hereto with respect to all
Intercompany Debt (as amended and restated, modified or supplemented
from time to time, the "Intercompany Debt Subordination Agreement").
(xiv) Ground Leases. If the Borrower owns a
leasehold estate in Real Property Asset, (A) a certified copy of the
Ground Lease for such Real Property Asset, together with all
amendments and modifications thereto and a recorded memorandum
thereof, which Ground Lease shall be satisfactory in all respects to
Lender in its sole discretion and (B) a Ground Lease Estoppel
substantially in the form of Exhibit K, executed by the fee owner and
ground lessor of such Real Property Asset, which estoppel shall be
satisfactory to Lender in its sole discretion.
(xv) Partnership Guaranties. The Partnership shall
have executed and delivered to Lender partnership guaranties
substantially in the form of Exhibit "R" hereto with respect to each of
Note A, Note B and Note C (as amended, restated, modified or
supplemented, the "Partnership Guaranties").
(xvi) Partnership Mortgage. The Partnership shall
have executed and delivered to Lender mortgages, deeds of trust, deeds
to secure debt or other security instruments substantially in the form
of Exhibit "S" hereto with respect to each Operating Lease under which
the Partnership is the lessee (as amended, restated, modified or
supplemented, the "Partnership Mortgage"), provided that, with respect
to Real Property Assets located in the District of Columbia, Florida
and Virginia, the related Partnership Mortgage shall not be recorded
unless an Event of Default shall have occurred.
(xvii) Partnership Guaranty Security Agreements.
The Partnership shall have executed and delivered to Lender a security
agreement substantially in the form of Exhibit "T" hereto with respect
to each Partnership Guaranty (as amended, restated, modified or
supplemented, the "Partnership Guaranty Security Agreement").
(xviii) Partnership Assignment of Leases and Rents.
The Partnership shall have executed and delivered an assignment of
leases and rents substantially in the form of Exhibit "U" hereto with
respect to each Operating Lease under which the Partnership is the
lessee (as amended, restated, modified or supplemented, the
"Partnership Agreement of Leases and Rents"), provided that, with
respect to Real Property Assets located in the
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District of Columbia, Florida and Virginia, the related Partnership
Assignment of Leases and Rents shall not be recorded unless an Event of
Default shall have occurred.
(xix) Partnership Assignment of Contracts. The
Partnership shall have executed and delivered to Lender an assignment
of franchise agreement, agreements, permits and contracts
substantially in the form of Exhibit "L" hereto with respect to each
Partnership Guaranty (as amended, restated, modified or supplemented,
the "Partnership Assignment of Contracts").
(xx) Consent To Assignment, Subordination,
Estoppel and Attornment Agreement. Borrower and Partnership and HIC,
as applicable, shall have executed and delivered to Lender a consent
to assignment, subordination, estoppel and attornment agreement to
each Real Property Asset other than the Vagabond Inns substantially in
the form of Exhibit "V" hereto (as amended, restated, modified or
supplemented, the "Consent To Assignment, Subordination, Estoppel and
Attornment Agreement").
(xxi) Vagabond Subordination and Non-Disturbance
Agreement. Borrower shall have delivered a subordination and
non-disturbance agreement substantially in the form of Exhibit "W"
hereto executed by Imperial Hotels Corporation for each of the
Vagabond Inns (as amended, restated, modified or supplemented, the
"Vagabond Subordination and Non-Disturbance Agreement").
(xxii) HIC Guaranty. HIC shall have executed and
delivered to Lender a partnership guaranty substantially in the form of
Exhibit "X" hereto with respect to Note D (as amended, restated,
modified or supplemented, the "HIC Guaranty").
(xxiii) HIC Mortgage. The HIC shall have executed
and delivered to Lender mortgages, deeds of trust, deeds to secure debt
or other security, instruments substantially in the form of Exhibit "S"
hereto with respect to each of the Pool 4 Real Property Assets (as
amended, restated, modified or supplemented, the "HIC Mortgage").
(xxiv) HIC Guaranty Security Agreements. The HIC
shall have executed and delivered to Lender a security agreement
substantially in the form of Exhibit "T" hereto with respect to the
HIC Guaranty (as amended, restated, modified or supplemented, the "HIC
Guaranty Security Agreement").
(xxv) HIC Assignment of Leases and Rents. The HIC
shall have executed and delivered an assignment of leases and rents
substantially in the form of Exhibit "U" hereto with respect to each of
the Pool 4 Real Property Assets (as amended, restated, modified or
supplemented, the "HIC Agreement of Leases and Rents").
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(xxvi) HIC Assignment of Contracts. The HIC shall
have executed and delivered to Lender an assignment of franchise
agreements, permits and contracts substantially in the form of Exhibit
"L" hereto with respect to the HIC Guaranty (as amended, restated,
modified or supplemented, the "HIC Assignment of Contracts").
(xxvii) Termination of Participation. Borrower shall
have executed and delivered a termination of its participation interest
in the Merrill Facility in a form reasonably satisfactory to Lender.
(b) Opinions of Counsel.
Lender shall have received legal opinions, dated the Closing
Date, from counsel to Borrower, the REIT, the Partnership, the Corporation and
HIC, in form and substance reasonably satisfactory to Lender and its counsel,
that, among other things: (i) this Agreement and the Loan Documents have been
duly authorized, executed and delivered by Borrower and are valid and
enforceable in accordance with their terms, subject to bankruptcy and equitable
principles; (ii) that Borrower and the Partnership and HIC are qualified to do
business and in good standing under the laws of the jurisdiction in which it is
organized and where the Real Property Assets are located, or that they are not
required by Applicable Law to qualify to do business in such jurisdiction; (iii)
based upon a certificate of Borrower and the other Loan Parties, the encumbrance
of the Real Property Assets with the liens of the Loan Documents shall not cause
a breach of, or a default under, any material agreement, document or instrument
to which Borrower, the REIT, the Partnership, HIC or the Corporation is a party
or to which they or any of their properties are bound or affected; (iv) Lender
has a valid and perfected Lien in the Collateral; and (v) the Loan does not
violate any usury laws.
(c) Organizational Documents. Lender shall have received
(i) with respect to HIC and the Corporation, the certificate of incorporation
of such Loan Party, as amended, modified or supplemented to the Closing Date,
certified to be true, correct and complete by the Borrower and such Loan Party
together with a good standing certificate from the appropriate Secretary of
State and a good standing certificate from the Secretaries of State (or the
equivalent thereof) of each other State in which each Real Property Asset is
located and in which each of them is required to be qualified to transact
business, each to be dated a date not more than ten (10) days prior to the
Closing Date, (ii) with respect to Borrower and the Partnership, the agreement
of limited partnership of such Person, as amended, modified or supplemented to
the Closing Date, together with a copy of the certificate of limited
partnership of such entity, as amended, modified or supplemented to the Closing
Date, certified to be true, correct and complete by a general partner of such
Person, together with a good standing certificate from the appropriate
Secretary of State and a good standing certificate from the Secretaries of
State (or the equivalent thereof) of each other State in which each Real
Property Asset is located and in which each of them is required to be qualified
to transact business, each to be dated not more than ten (10) days prior to the
Closing Date and (iii) with respect to the REIT, its declaration of trust, as
amended, modified or supplemented to the Closing Date, certified to be true,
complete and correct by a senior executive officer of the REIT, together with a
copy of a good standing certificate (or the equivalent thereof), from the
appropriate Secretary of State as of a date not more than ten
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(10) days prior to the Closing Date and a good standing certificate (or its
equivalent) from the Secretaries of State (or the equivalent thereof) or each
state in which the REIT is required to be qualified in order to transact
business.
(d) Certified Resolutions, etc. Lender shall have
received a certificate of the secretary or assistant secretary of Borrower and
each of the Loan Parties which is a corporation and dated the Closing Date,
certifying (i) the names and true signatures of the incumbent officers of such
Person authorized to sign the applicable Loan Documents, (ii) the by-laws of
such Person as in effect on the Closing Date, (iii) the resolutions of such
Person's board of directors approving and authorizing the execution, delivery
and performance of all Loan Documents executed by such Person, and (iv) that
there have been no changes in the certificate of incorporation of such Person
since the date of the most recent certification thereof by the appropriate
Secretary of State.
(e) Estoppel Certificates. Lender shall have received
executed estoppel letters or certificates substantially in the form of Exhibit
"O" hereto from each of the parties listed on Schedule 4, with respect to the
leases set forth on such schedule (each, an "Estoppel Certificate").
(f) Insurance. Lender shall have received certificates of
insurance demonstrating insurance coverage in respect of each of the Real
Property Assets of types, in amounts, and with insurers satisfactory to Lender
and otherwise in compliance with the terms, provisions and conditions of the
Mortgage.
(g) UCC Searches. Lender shall have received
satisfactory (i.e., showing no Liens other than Permitted Liens) UCC searches,
together with tax lien, judgment and litigation searches conducted in the
appropriate jurisdictions and as requested by Lender, performed by a search
firm acceptable to Lender with respect to the Real Property Assets, Accounts
Receivable, Borrower and each of the other Loan Parties (collectively, the "UCC
Searches").
(h) Financing Statements. Lender shall have received
UCC-1 financing statements signed by Borrower or other applicable Loan Party,
as debtor, naming the Collateral Agent as secured party, in form suitable for
filing in the appropriate offices of each jurisdiction where the Real Property
Assets and Borrower and the applicable Loan Parties are located (each, a
"Financing Statement").
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(i) Title Insurance Policies; Surveys. Lender shall have
received (i) title insurance policies issued by a title insurance company
satisfactory to Lender insuring the lien of the Security Instruments on the
Real Property Assets, in form and substance reasonably satisfactory to Lender
insuring that the Security Instruments are a first lien on the good and
marketable fee simple title or leasehold estate of Borrower to the Real
Property Asset, as the case may be, in an amount equal to the amount of the
Allocated Loan Amount for each Real Property Asset, subject only to such
exceptions that Lender has approved together with such affirmative insurance
and other endorsements reasonably required by Lender, including a revolving
credit endorsement, together with a "tie-in" and first loss endorsement
satisfactory to Lender, or, if such endorsement is not available in the state
in which such Real Property Asset is located, in an amount equal to the greater
of one hundred ten percent (110%) of the Allocated Loan Amount for such Real
Property Asset or the amount on which mortgage or intangibles tax was paid with
respect to the Security Instrument for such Real Property Asset, together with
a "last dollar endorsement" (the "Title Policy"); such title insurance policy
shall not contain any exception for any state of facts that an accurate survey
might show or that a survey made after the date of the survey referred to in
clause (ii) below might show; and (ii) a recent survey with respect to each of
the Real Property Assets prepared by a land surveyor licensed in each of the
states where the Real Property Assets are located pursuant to standards for
title surveys reasonably satisfactory to Lender and otherwise reasonably
satisfactory to Lender, provided that no structural additions to the
improvements shown on such survey or new structures have been made or built
since the date of such survey and that there has been no change in the legal
description of the Property since the date of such survey, whether due to sale,
transfer, condemnation or otherwise.
(j) Financial Statements. Lender shall have received the
(i) financial reports described in Section 5.1(a) for the most recently ended
fiscal year of Borrower and the relevant Loan Parties and the unaudited
consolidated financial statements of Borrower and the relevant Loan Parties for
each fiscal quarter of Borrower and such Loan Parties ending since the end of
such entity's most recent fiscal year and (ii) for each Real Property Asset,
annual operating statements and occupancy statements for Borrower's, the
Partnership's and HIC's most recent fiscal year together with current year to
date operating statements, current occupancy statements and the approved
operating and capital budget for the current fiscal year. Such financial
statements shall be acceptable to Lender in its sole discretion.
(k) Environmental Matters. Lender shall have received the
Environmental Reports dated within six (6) months prior to the Closing Date
each of which shall be in form and substance satisfactory to Lender and shall
include, without limitation, the following: (i) a Phase I environmental site
assessment analyzing the presence of environmental contaminants,
polychlorinated biphenyls or storage tanks and other Hazardous Substances at
each of the Real Property Assets, the risk of contamination from off-site
Hazardous Substances and compliance with Environmental Laws, such assessments
shall be conducted in accordance with ASTM Standard E 1527-93, or any successor
thereto published by ASTM, (ii) an asbestos survey of
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each of the Real Property Assets, which shall include random sampling of
materials and air quality testing, and (iii) such further site assessments
Lender may require due to the results obtained in (i) or (ii) hereof or in its
reasonable discretion.
(l) Fees and Operating Expenses. Lender shall have
received, for its account, all fees and expenses due and payable pursuant to
the Syndication Letter on or before the Closing Date.
(m) Consents, Licenses, Approvals, etc. Lender shall have
received certified copies of all material consents, licenses and approvals, if
any, required in connection with the execution, delivery and performance by
Borrower and the other Loan Parties, and the validity and enforceability, of
the Loan Documents, or in connection with any of the Transactions, and such
consents, licenses (including without limitation, liquor and gaming licenses,
as applicable) and approvals shall be in full force and effect.
(n) Appraisals. With respect to the Closing Date, Lender
shall have completed its internal valuation of the Real Property Assets or have
received Appraisals reasonably acceptable to Lender and the value of the Real
Property Assets as determined pursuant to Lender's internal valuations, or the
Appraisals, as the case may be, shall be reasonably satisfactory to Lender.
With respect to the first Advance after the Syndication, Lender shall have
received Appraisals reasonably acceptable to Lender for each of the Real
Property Assets and the value of the Real Property Assets, as determined
pursuant to the Appraisals, shall be reasonably satisfactory to Lender.
(o) Engineering Reports. Lender shall have received
engineering reports dated within six (6) months prior to the Closing Date and
in form and substance reasonably satisfactory to Lender with respect to each of
the Real Property Assets; such engineering reports shall be prepared in
accordance with Lender's then current guidelines for property inspection
reports by licensed engineers acceptable to Lender, and such report should
state, among other things, that each Real Property Asset is in good condition
and repair, free from damage and waste and, to the best of such engineer's
knowledge, complies in all material respects with the Americans with
Disabilities Act (the "Engineering Reports").
(p) Zoning Compliance. Lender shall have received
evidence reasonably satisfactory to Lender to the effect that each of the Real
Property Assets and the use thereof are in substantial compliance with the
applicable zoning, subdivision, and all other applicable federal, state or
local laws and ordinances affecting each of the Real Property Assets, and that
all building and operating licenses and permits necessary for the use and
occupancy of each of the Real Property Assets as hospitality properties or
hotels including, but not limited to, current certificates of occupancy, have
been obtained and are in full force and effect.
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(q) Leases. Lender shall have received certified copies
of all Operating Leases and the Leases identified on Schedule 15 with respect
to each Real Property Asset which shall be reasonably satisfactory to Lender.
(r) Contracts and Agreements. Lender shall have received
certified copies of all Franchise Agreements and all material contracts and
agreements relating to the management, leasing and operation of each of the
Real Property Assets, each of which shall be reasonably satisfactory to Lender.
(s) Plans and Specifications. Lender shall have had
access to copies of plans and specifications for each of the Real Property
Assets.
(t) Representations and Warranties. Lender shall have
received a certification by the general partner of Borrower or senior executive
officer of Borrower and the REIT certifying that all of the representations and
warranties contained in this Agreement, the Security Instruments and the other
Loan Documents are true and correct with respect to each of the Real Property
Assets, Borrower and each Loan Party, and that there is no Default or Event of
Default hereunder.
(u) Certification as to Covenants. Lender shall have
received a certificate of the general partner of Borrower or senior executive
officer of Borrower and the REIT together with other evidence reasonably
satisfactory to Lender (which shall include the comfort letter or audit
described in Section 5.1(b)(iii) with respect to the Net Operating Income of
each Real Property Asset and the calculation of financial covenants) that, as
of the Closing Date, the Available Borrowing Base Covenant and the Loan to
Value Ratio Covenant are satisfied for each Pool and that, as of the Closing
Date and after giving effect to the Transaction to be consummated thereon, the
financial covenants will be met, and there is no Default or Event of Default
hereunder.
(v) Certification as to Applicable Laws. Lender shall
have received such evidence as Lender shall deem reasonably necessary to
establish (including, without limitation, a certificate of the general partner
of Borrower, the Partnership or HIC, as applicable, or of a senior executive
officer of Borrower, the Partnership or HIC, as applicable, certifying) that
each Real Property Asset complies in all material respects with Applicable Laws
as of the Closing Date.
(w) Quality Assurance Reports. Lender shall have
received certified copies of the most recent Quality Assurance Reports, each of
which shall be reasonably satisfactory to Lender.
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(x) Intercompany Debt. Lender shall have received
certified copies of all Intercompany Loan Documents.
(y) Flood Plain. Lender shall have received reasonably
satisfactory evidence indicating which of the Real Property Assets are in a
flood plain.
(z) Additional Matters. Lender shall have received such
other certificates, opinions, documents and instruments relating to the
Transactions as may have been reasonably requested by Lender, and all corporate
and other proceedings and all other documents (including, without limitation,
all documents referred to herein and not appearing as exhibits hereto) and all
legal matters in connection with the Transactions shall be satisfactory in form
and substance to Lender.
Section 3.2 Conditions Precedent to All Advances of the
Loan. The obligation of Lender and, after the Syndication, each Co-Lender, to
make any Advance under the Loan (including the initial Advance made on or after
the Closing Date, the first Advance after the date of Syndication, and any
Swing Line Advances by the Swing Line Lender) (or its pro rata share thereof)
is subject to the satisfaction on the date such Advance is made of the
following conditions precedent:
(a) Representations and Warranties. The representations
and warranties contained herein and in the other Loan Documents (other than
representations and warranties which expressly speak only as of a different
date) shall be true and correct in all material respects on such date both
before and after giving effect to the making of such Advance or, if such
representations and warranties are not true and correct in all material
respects, the facts giving rise to the breach have been disclosed to Lender in
writing and Lender, has approved, in its sole discretion, such facts.
(b) No Event of Default. No Event of Default shall have
occurred and be continuing on such date either before or after giving effect to
the making of such Advance, and Borrower shall be in compliance with the
Available Borrowing Base Covenant and the Loan to Value Covenant.
(c) No Injunction. No law or regulation shall have been
adopted, no order, judgment or decree of any governmental authority shall have
been issued, and no litigation shall be pending or threatened, which in the
good faith judgment of Lender would enjoin, prohibit or restrain, or impose or
result in the imposition of any material adverse condition upon, the making of
the Advances or Borrower's obligation to pay (or Lender or any Co-Lender's or
the Swing Line Lender's rights to receive payment) of the Loan and the other
Obligations or the consummation of the Transactions.
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(d) No Material Adverse Change. No event, act or
condition shall have occurred after the Closing Date which, in the judgment of
Lender has had or could have a Material Adverse Effect.
(e) Notice of Borrowing. Lender shall have received a
fully executed Notice of Borrowing, Notice of Conversion or Continuation, or
Notice of Swing Line Advance, as the case may be, in respect of the Advance to
be made on such date.
(f) No Litigation. Except for matters identified on
Schedule 5 (as the same may be amended or supplemented), no actions, suits or
proceedings shall be pending or threatened with respect to the Transactions or
the Loan Documents, Borrower or any of the other Loan Parties, or with respect
to the Real Property Assets, that could, individually or in the aggregate,
likely be expected to result in a Material Adverse Effect and matters
identified on Schedule 5, individually or in the aggregate, do not result in a
Material Adverse Effect.
(g) Title Insurance Policies. If the amount of principal
outstanding at the time of any Advance (other than the initial Advance with
respect to any of the Notes) (and excluding the portion of such Advance, if
any, that is a Swing Line Advance) is less than $35,000,000.00 under Note A,
$8,753,000.00 under Note B, $13,235,000.00 under Note C or $5,658,000.00 under
Note D (the "Minimum Threshold"), then, with respect to an Advance under the
Note or Notes which have principal then outstanding of less than the respective
Minimum Threshold, if required by Lender in its sole discretion, Lender shall
have received an endorsement to each of the Title Policies insuring Lender with
respect to the Real Property Assets in the Pool securing such Note (or if such
Title Policy contains an endorsement that insures Lender that all future
Advances shall have the same priority as the initial Advance of the Loan, a
Title Search with respect to the related Real Property Asset securing such Note
indicating) that as of the date of the Advance, there are no Liens on the Real
Property Assets securing such Note other than the Liens existing on the Closing
Date and listed in the respective Title Policy issued on the Closing Date.
Notwithstanding the foregoing, Lender may elect, in its sole discretion, in
lieu of the foregoing, to perform Title Searches with respect to some or all of
the Real Property Assets with respect to Note A on a quarterly basis at
Borrower's sole cost and expense, provided that (i) Advances (other than Swing
Line Advances) aggregating $25,000,000.00 or more have been made during the
immediately preceding Quarter, or (ii) Advances (other than Swing Line
Advances) aggregating $25,000,000.00 or more have been made since the date of
the last Title Search. The results of all such Title Searches shall be
satisfactory to Lender in its reasonable discretion. Notwithstanding the
foregoing, provided that the outstanding principal amount under each Note is
equal to or greater than the respective Minimum Threshold, no endorsements or
Title Searches shall be required with respect to any Swing Line Advance.
(h) Payment of Recording Taxes. Lender shall have
received proof of payment of any required recording fees, mortgage recording
taxes, documentary stamp taxes,
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intangibles taxes or other similar costs ("Recording Taxes") in connection with
the making of such Advance. Borrower and the REIT acknowledge that if the
outstanding principal under the Florida Note is at any time less than
$3,400,000.00, no further Advance shall be permitted under the Florida Note
until Borrower has delivered proof of payment of all Recording Taxes in
connection with such Advance.
(i) Appraisals. Prior to the first Advance in connection
with or after the occurrence of the Syndication, Lender shall have received
satisfactory Appraisals of all of the Real Property Assets.
(j) Additional Matters. Lender shall have received such
other certificates, opinions, documents and instruments relating to the
Transactions as may have been reasonably requested by Lender, and all corporate
and other proceedings and all other documents (including, without limitation,
all documents referred to herein and not appearing as exhibits hereto) and all
legal matters in connection with the Transactions shall be reasonably
satisfactory in form and substance to Lender.
Section 3.3 Acceptance of Borrowings. The acceptance by
Borrower of the proceeds of each Advance shall constitute a representation and
warranty by Borrower to Lender that all of the conditions required to be
satisfied under this Section 3 in connection with the making of such Advance
and all of the terms and provisions of this Agreement have been satisfied.
Section 3.4 Sufficient Counterparts. All certificates,
agreements, legal opinions and other documents and papers referred to in this
Section 3, unless otherwise specified, shall be delivered to Lender and shall
be reasonably satisfactory in form and substance to Lender (unless the form
thereof is prescribed herein) and Borrower shall deliver sufficient
counterparts of all such materials for distribution to Lender and each
Co-Lender.
SECTION 4. REPRESENTATIONS AND WARRANTIES.
In order to induce Lender to enter into this Agreement and to
make the Loan, Borrower and the REIT make the following representations and
warranties, which shall survive the execution and delivery of this Agreement
and the Note and the making of the Loan and each Advance:
Section 4.1 Corporate/Partnership Status. Each of
Borrower and the other Loan Parties (a) is a duly organized and validly
existing corporation or partnership, as the case may be, in good standing under
the laws of the jurisdiction of its incorporation or formation, (b) has all
requisite corporate or partnership power and authority, as the case may be, to
own its property and assets (including the Real Property Assets) and to
transact the business in which it is engaged or presently proposes to engage
(including this Transaction) and (c) has duly qualified
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and is authorized to do business and is in good standing as a foreign
corporation or foreign partnership, as the case may be, in every jurisdiction in
which the Real Property Assets are located, unless it is not required to so
qualify by Applicable Law, or in which the nature of its business requires it to
be so qualified.
Section 4.2 Corporate/Partnership Power and Authority.
Each of Borrower and the other Loan Parties has the corporate or partnership
power and authority, as the case may be, to execute, deliver and carry out the
terms and provisions of each of the Loan Documents to which it is a party and
has taken all necessary corporate or partnership action, as the case may be, to
authorize the execution, delivery and performance by it of such Loan Documents.
Each of Borrower and the other Loan Parties has duly executed and delivered
each such Loan Document, and each such Loan Document constitutes its legal,
valid and binding obligation, enforceable in accordance with its terms, except
as enforcement may be limited by applicable insolvency, bankruptcy or other
laws affecting creditors' rights generally, or general principles of equity
whether enforcement is sought in a proceeding in equity or at law.
Section 4.3 No Violation. Neither the execution,
delivery or performance by Borrower or any other Loan Party of the Loan
Documents to which it is a party, nor the compliance by such Person with the
terms and provisions thereof nor the consummation of the Transactions, (a)
will, to the best of Borrower's or the REIT's knowledge, contravene any
applicable provision of any law, statute, rule, regulation, order, writ,
injunction or decree of any court or governmental instrumentality, which
contravention would have a Material Adverse Effect on the value of the
Collateral as a whole, or (b) will conflict in any material respect with or
result in any breach of, any of the terms, covenants, conditions or provisions
of, or constitute a default under, or result in the creation or imposition of
(or the obligation to create or impose) any Lien (except pursuant to the
Security Instruments and the Loan Documents) upon any of the property or assets
(including the Real Property Assets) of Borrower or any of the other Loan
Parties pursuant to the terms of any indenture, mortgage, deed of trust, or
other material agreement or instrument to which Borrower or any of the other
Loan Parties is a party or by which it or any of its property or assets
(including the Real Property Assets) is bound or to which it may be subject,
which contravention would have a Material Adverse Effect on the value of the
Collateral as a whole, or (c) will, with respect to Borrower or any Loan Party
which is a partnership, violate in any material respect any provisions of the
partnership agreement of such Person, or (d) will, with respect to the Borrower
or any of the Loan Parties which is a corporation, violate in any material
respect any provision of the Certificate of Incorporation or By-Laws of such
Person.
Section 4.4 Litigation. Except as set forth on Schedule
5, there are no actions, suits or proceedings, judicial, administrative or
otherwise (including any condemnation or similar proceeding) pending or, to the
best of Borrower's or the REIT's knowledge, threatened with respect to any of
the Transactions or Loan Documents, Borrower, its Subsidiaries, or any of the
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other Loan Parties or their respective Subsidiaries, or with respect to the
Real Property Assets, that could, individually or in the aggregate, result in a
Material Adverse Effect. All matters set forth on Schedule 5 do not,
individually or in the aggregate, result in a Material Adverse Effect.
Section 4.5 Financial Statements: Financial Condition;
etc. The financial statements delivered pursuant to Section 3.1(j) were
prepared in accordance with GAAP consistently applied and fairly present the
financial condition and the results of operations of Borrower, the Loan Parties
and the Real Property Assets covered thereby on the dates and for the periods
covered thereby, except as disclosed in the notes thereto and, with respect to
interim financial statements, subject to normally recurring year-end
adjustments. There is no material liability (contingent or otherwise) not
reflected in such financial statements or in the notes thereto. There has been
no material adverse change in any condition, fact, circumstance or event that
would make any such information inaccurate, incomplete or otherwise misleading
or would affect Borrower's or the REIT's ability to perform its obligations
under this Agreement or Borrower's, the REIT's, the Partnership's, the
Corporation's or HIC's ability to perform its obligations under the Loan
Documents.
Section 4.6 Solvency. On the Closing Date and after and
giving effect to the Transactions, Borrower and the Loan Parties will be
Solvent.
Section 4.7 Material Adverse Change. Since the date of
the most recent audited financial statements delivered pursuant to Section
3.1(j), there has occurred no event, act or condition, and to the best of
Borrower's or the REIT's knowledge, there is no prospective event or condition
which has had, or could have, a Material Adverse Effect.
Section 4.8 Use of Proceeds; Margin Regulations. All
proceeds of each Advance will be used by Borrower only in accordance with the
provisions of Section 2.20. No part of the proceeds of any Advance will be
used by Borrower to purchase or carry any Margin Stock or to extend credit to
others for the purpose of purchasing or carrying any Margin Stock. Neither the
making of any Advance nor the use of the proceeds thereof will violate or be
inconsistent with the provisions of Regulations G, T, U or X of the Federal
Reserve Board.
Section 4.9 Governmental Approvals. To the best of
Borrower's or the REIT's knowledge, no order, consent, approval, license,
authorization, or validation of, or filing, recording or registration with, or
exemption by, any governmental or public body or authority, or any subdivision
thereof, is required (or, if required, has been obtained) to authorize, or in
connection with (i) the execution, delivery and performance of any Loan
Document or the consummation of any of the Transactions or (ii) the legality,
validity, binding effect or enforceability of any Loan Document, except for
such orders, consents, approvals, licenses, authorizations, filings, recording,
registration or exemption that would not have a Material Adverse Effect.
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Section 4.10 Security Interests and Liens. The Security
Instruments and the related Loan Documents create, as security for the
Obligations, valid and enforceable Liens on all of the Collateral, in favor of
Lender and subject to no other liens (except for Permitted Liens), except as
enforceability may be limited by applicable insolvency, bankruptcy or other
laws affecting creditors rights generally, or general principles of equity,
whether such enforceability is considered in a proceeding in equity or at law.
Section 4.11 Tax Returns and Payments. Borrower, the REIT
and the other Loan Parties filed all tax returns required to be filed by it for
which the filing date has passed and not been extended and has paid all taxes
and assessments payable by such Persons which have become due, other than (a)
those not yet delinquent or (b) those that are reserved against in accordance
with GAAP which are being diligently contested in good faith by appropriate
proceedings.
Section 4.12 ERISA. As of the Closing Date or disclosed
prior to an Advance, neither Borrower or any of the other Loan Parties has any
Plans other than those listed on Schedule 6. No accumulated funding deficiency
(as defined in Section 412 of the Code or Section 302 of ERISA) still
outstanding, or Reportable Event, which exceeds $5,000,000.00 or which has or
could reasonably be expected to have a Material Adverse Effect has occurred
with respect to any Plan and there is no lien outstanding under Section 412 of
the Code or Section 302 of ERISA with respect to any Loan Party's assets. As
of the Closing Date, the Unfunded Benefit Liabilities do not in the aggregate
exceed $1,000,000.00. Borrower and the other Loan Parties have not failed to
comply in all material respects with the requirements of ERISA and the Code and
plan documents for any Employee Benefit Plan which has or could reasonably be
expected to have a Material Adverse Effect and are not in default (as defined
in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer
Plan which has or could reasonably be expected to have a Material Adverse
Effect. Neither Borrower nor any of the other Loan Parties, nor any member of
their respective ERISA Controlled Groups (determined without reference to
Section 414(m) or (o) of the Code, if liabilities of entities in Borrower or
the other Loan Parties' ERISA Controlled Group solely by reason of Section
414(m) or (o) could not result in liability to Borrower or any Loan Parties) is
subject to any present or potential withdrawal liability pursuant to Section
4201 or 4204 of ERISA which, individually or in the aggregate is in excess of
$5,000,000.00 or has or could reasonably be expected to have a Material Adverse
Effect. To the best knowledge of Borrower and the other Loan Parties, no
Multiemployer Plan is or is likely to be disqualified for tax purposes, in
reorganization (within the meaning of Section 4241 of ERISA or Section 418 of
the Code) or is insolvent (as defined in Section 4245 of ERISA), which event
would have a Material Adverse Effect. No liability to the PBGC (other than
required premium payments), the Internal Revenue Service (with respect to an
Employee Benefit Plan), any Plan or any trust established under Section 4049 of
ERISA has been, or is expected by Borrower or the other Loan Parties to be,
incurred by Borrower or the
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other Loan Parties (other than annual contributions) which is in excess of
$5,000,000.00 or would have a Material Adverse Effect. Except as otherwise
disclosed on Schedule 6 hereto or disclosed prior to an Advance, none of
Borrower or the other Loan Parties has any contingent liability with respect to
any post-retirement benefits under any "welfare plan" (as defined in Section
3(1) of ERISA) or withdrawal liability or exit fee or charge with respect to any
"welfare plan" (as defined in Section 3(1) of ERISA), other than liability for
continuation coverage under Part 6 of Title I of ERISA or state laws which
require similar continuation coverage for which the employee pays approximately
the full cost of coverage, and other than such liability that is both not more
than $5,000,000.00 and that would not have a Material Adverse Effect. No lien
under Section 412(n) of the Code or 302(f) of ERISA or requirement to provide
security under Section 401(a)(29) of the Code or Section 307 of ERISA has been
or is reasonably expected by Borrower or the other Loan Parties to be imposed on
the assets of Borrower or the other Loan Parties. Except as disclosed on
Schedule 6 or disclosed prior to an Advance neither Borrower nor any other Loan
Party is a party to any collective bargaining agreement. Neither Borrower nor
any Loan Party has engaged in any transaction prohibited by Section 408 of ERISA
or Section 4975 of the Code which has a Material Adverse Effect. As of the
Closing Date and throughout the term of the Loan, neither Borrower nor any other
Loan Party is or will be an "employee benefit plan" as defined in Section 3(3)
of ERISA, which is subject to Title I of ERISA, and none of the assets of
Borrower or any other Loan Party will constitute "plan assets" of one or more
such plans for purposes of Title I of ERISA. As of the Closing Date and
throughout the term of the Loan, neither Borrower nor any other Loan Party is or
will be a "governmental plan" within the meaning of Section 3(3) of ERISA and
neither Borrower nor any other Loan Party will be subject to state statutes
applicable to Borrower or such Loan Party regulating investments and fiduciary
obligations, of Borrower or any Loan Party with respect to governmental plans.
Section 4.13 Intentionally Omitted.
Section 4.14 Representations and Warranties in Loan
Documents. All representations and warranties made by Borrower or any other
Loan Party in the Loan Documents are true and correct in all material respects.
Section 4.15 True and Complete Disclosure. All factual
information (taken as a whole) furnished by or on behalf of Borrower or any
other Loan Party in writing to Lender on or prior to the Closing Date, for
purposes of or in connection with this Agreement or any of the Transactions
(the "Furnished Information") is, and all other such factual information (taken
as a whole) hereafter furnished by or on behalf of Borrower or any other Loan
Party in writing to Lender will be, true, accurate and complete in all material
respects and will not omit any material fact necessary to make such information
(taken as a whole) not misleading on the date as of which such information is
dated or furnished. As of the Closing Date, and as of the date of Syndication,
there are no facts, events or conditions directly and specifically affecting
Borrower,
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or any other Loan Party known to Borrower and not disclosed to Lender, in the
Furnished Information, in the Schedules attached hereto or in the other Loan
Documents, which, individually or in the aggregate, have or could be expected to
have a Material Adverse Effect.
Section 4.16 Ownership of Real Property; Existing Security
Instruments. Borrower has good and marketable fee simple title or a leasehold
estate, as the case may be, subject to any Permitted Liens, in all of the Real
Property Assets and Borrower, Partnership and HIC each have good title to all
of their personal property subject to no Lien of any kind except for Permitted
Liens. As of the date of this Agreement, there are no options or other rights
to acquire any of the Real Property Assets that run in favor of any Person and
there are no mortgages, deeds of trust, indentures, debt instruments or other
agreements creating a Lien against any of the Real Property Assets, other than
Permitted Liens.
Section 4.17 No Default. To the best of the Borrower's or
the REIT's knowledge, no Default or Event of Default exists under or with
respect to any Loan Document. No Default or Event of Default exists under or
with respect to the Operating Leases, the Intercompany Debt, the Franchise
Agreements or the Whole Loan Facility. To the best of Borrower's or the REIT's
knowledge, neither Borrower, any Loan Party nor any of their respective
Subsidiaries is in default in any material respect beyond any applicable grace
period under or with respect to any other material agreement, instrument or
undertaking to which it is a party or by which it or any of its properties or
assets is bound in any respect, the existence of which default could result in
a Material Adverse Effect.
Section 4.18 Licenses, etc. To the best of the Borrower's
or the REIT's knowledge, Borrower, the Partnership, and HIC for each Real
Property Asset other than the Vagabond Inns, have obtained and hold in full
force and effect, all material franchises, trademarks, tradenames, copyrights,
licenses, permits, certificates, authorizations, qualifications,
accreditations, easements, rights of way and other rights, consents and
approvals which are necessary for the operation of the Real Property Assets
(other than the Vagabond Inns) and their respective businesses as presently
conducted, including without limitation, liquor and gaming licenses, as
applicable ("Licenses"). Other than as indicated on Schedule 18, all liquor
licenses are issued in either the name of (i) the Corporation, (ii) an entity
wholly owned and controlled by the Corporation which has entered into a
management agreement or lease agreement with respect to such liquor license
with the Partnership or the Corporation, on terms and conditions reasonably
satisfactory to Lender, or (iii) an individual who is both a resident of the
state in which the related Real Property Asset is located and is an employee of
either Borrower, the Partnership, the Corporation or the REIT at the level of
general manager for the Real Property Assets in such state or higher.
Section 4.19 Compliance With Law. To the best of the
Borrower's or the REIT's knowledge, Borrower and each Loan Party is in
compliance in all material respects with all
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Applicable Laws and other laws, rules, regulations, orders, judgments,
writs and decrees, noncompliance with which could result in a Material Adverse
Effect.
Section 4.20 Brokers. Borrower, each Loan Party, Lender
and each Co-Lender hereby represent and warrant that no brokers or finders were
used in connection with procuring the financing contemplated hereby and
Borrower hereby agrees to indemnify and save Lender and each Co-Lender harmless
from and against any and all liabilities, losses, costs and expenses (including
attorneys' fees or court costs) suffered or incurred by Lender or any Co-Lender
as a result of any claim or assertion by any party claiming by, through or
under Borrower, that it is entitled to compensation in connection with the
financing contemplated hereby, and Lender and each Co-Lender hereby agrees to
indemnify and save Borrower harmless from and against any and all liabilities,
losses, costs and expenses (including attorneys' fees or court costs) suffered
or incurred by Borrower as a result of any claim or assertion by any party
claiming by, through or under Lender or any Co-Lender that it is entitled to
compensation in connection with the financing contemplated hereby.
Section 4.21 Judgments. To the best of the Borrower's or
the REIT's knowledge, (i) there are no judgments, decrees, or orders of any
kind against Borrower or any Loan Party unpaid of record which would materially
or adversely affect the ability of Borrower or any Loan Party to comply with
its obligations under the Loan or this Agreement in a timely manner, (ii) there
are no federal tax claims or liens assessed or filed against Borrower or any
Loan Party, (iii) there are no material judgments against Borrower or any Loan
Party unsatisfied of record or docketed in any court of the States in which the
Real Property Assets are located or in any other court located in the United
States, (iv) no petition in bankruptcy or similar insolvency proceeding has
ever been filed by or against Borrower or any Loan Party, and (v) neither
Borrower nor any Loan Party has ever made any assignment for the benefit of
creditors or taken advantage of any insolvency act or any act for the benefit
of debtors.
Section 4.22 Property Manager. As of the date hereof, the
managers of the Real Property Assets are the entities described on Schedule 12
(the "Managers").
Section 4.23 Assets of the REIT. The sole asset of the
general partner of Borrower is its general partnership interest in Borrower and
such other assets that may be incidental to or required in connection with the
ownership of such general partnership interest, or as set forth in Schedule 13.
Section 4.24 REIT Status. The REIT intends to qualify for
its taxable year ending December 31, 1995, and intends thereafter to remain
qualified as a "real estate investment trust" as defined in Section 856 of the
Code and is grandfathered from the application of Section 269B of the Code
pursuant to Section 132(c)(3) of the Deficit Reduction Act of 1984.
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Section 4.25 The Partnership. The Corporation and
entities wholly owned and Controlled by the Corporation are the sole general
partners of the Partnership.
Section 4.26 HIC. The Corporation is the owner and holder
of all of the issued and outstanding stock of HIC.
Section 4.27 Intercompany Debt. No Intercompany Debt is
secured by any Collateral.
Section 4.28 Personal Property. For all Real Property
Assets other than the Vagabond Inns, Borrower, the Partnership and HIC, own,
lease or license adequate Personal Property to maintain and operate each Real
Property Asset as a hotel in accordance with the standards of this Agreement,
the Loan Documents, the related Operating Leases and the related Franchise
Agreements. The Personal Property is not subject to any liens, leases or
financing arrangements other than Permitted Liens.
Section 4.29 Operations. The REIT conducts its business
only through Borrower, except as described on Schedule 13 and the Corporation
conducts its business only through the Partnership and HIC, except as described
on Schedule 13A.
Section 4.30 Stock. The REIT and the Corporation list all
of their outstanding shares of stock on the New York Stock Exchange and such
shares trade as "paired shares" subject to a pairing agreement between the REIT
and the Corporation.
Section 4.31 Ground Leases. With respect to those Real
Property Assets in which Borrower holds a leasehold estate under a Ground
Lease, with respect to each such Ground Lease (except as may be set forth on
Schedule 8) (i) Borrower is the owner of a valid and subsisting interest as
tenant under the Ground Lease; (ii) the Ground Lease is in full force and
effect, unmodified and not supplemented by any writing or otherwise; (iii) all
rent, additional rent and other charges reserved therein have been paid to the
extent they are payable to the date hereof; (iv) Borrower enjoys the quiet and
peaceful possession of the estate demised thereby, subject to any sublease; (v)
the Borrower is not in default under any of the terms thereof and there are no
circumstances which, with the passage of time or the giving of notice or both,
would constitute an event of default thereunder; (vi) the lessor under the
Ground Lease is not in default under any of the terms or provisions thereof on
the part of the lessor to be observed or performed; (vii) the lessor under the
Ground Lease has satisfied all of its repair or construction obligations, if
any, to date pursuant to the terms of the Ground Lease; (viii) the execution,
delivery and performance of the Security Instrument do not require the consent
(other than those consents which have been obtained and are in full force and
effect) under, and will not contravene any provision of or cause a default
under, the Ground Lease; (ix) Schedule 8 lists all the Ground Leases to which
any of the Real Property Assets are subject and all amendments and
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modifications thereto; and (x) the lessor indicated on Schedule 8 for each
Ground Lease is the current lessor under the related Ground Lease.
Section 4.32 Survival. The foregoing representations and
warranties shall survive the execution and delivery of this Agreement and shall
continue in full force and effect until the indebtedness evidenced by the Note
has been fully paid and satisfied and Lender and the Co-Lenders have no further
commitment to advance funds hereunder. The request for any Advance under this
Agreement by Borrower or on its behalf shall constitute a certification that
the aforesaid representations and warranties are true and correct as of the
date of such request, except to the extent any such representation or warranty
shall relate solely to an earlier date.
SECTION 5. AFFIRMATIVE COVENANTS.
Borrower and the REIT covenant and agree that on and after the
Closing Date and until the Obligations are paid in full:
Section 5.1 Financial Reports. (a) Borrower and the REIT
will furnish to Lender: (i) annual audited consolidated or combined, as the
case may be, financial statements of (A) Borrower and REIT, (B) the
Partnership, HIC and the Corporation and (C) Borrower, the REIT, the
Partnership and the Corporation, each prepared in accordance with GAAP within
90 days of the end of Borrower's fiscal year prepared by nationally recognized
independent public accountants (which accountant's opinion shall be
unqualified), reasonably satisfactory to Lender; (ii) within 45 days after the
close of each quarterly accounting period in each fiscal year, the consolidated
or combined, as the case may be, balance sheet of (A) Borrower and REIT, (B)
the Partnership, HIC and the Corporation and (C) Borrower, the REIT, the
Partnership, HIC and the Corporation, each as of the end of such quarterly
period and the related consolidated statements of income, cash flow and
shareholders' equity for such quarterly period and for the elapsed portion of
the fiscal year ended with the last day of such quarterly period, each prepared
in accordance with GAAP certified by Borrower, the Partnership and HIC, as
applicable; (iii) quarterly and annual operating statements (prepared on a
basis consistent with that used in the preparation of the GAAP consolidated or
combined, as the case may be, financial statements of Borrower, the REIT, the
Partnership, the Corporation and HIC, and in compliance with the Uniform System
of Accounts) for each Real Property Asset, separately disclosing the amounts
paid under the related Operating Lease and including a comparison and
reconciliation with the most recent Annual Operating Budget, within 45 days of
the end of each calendar quarter, certified by the Borrower, the Partnership
and HIC (iv) copies of all of Borrower's, REIT's, the Partnership's, the
Corporation's and HIC's quarterly and annual filings with the Securities and
Exchange Commission and all shareholder reports and letters to the REIT's,
HIC's and the Corporation's shareholders and all other publicly released
information promptly after their filing or mailing, and (v) an annual operating
and capital budget for each of the Real Property Assets (the "Annual Operating
Budget"), including cash flow projections for the upcoming year,
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presented on a monthly basis consistent with the quarterly and annual operating
statements referred to in clause (iii) above at least 15 days prior to the start
of each calendar year. Borrower will furnish or cause to be furnished such
additional reports or data, but no more often than on a quarterly basis, as
Lender may reasonably request including, without limitation management and
marketing reports for each Real Property Asset. Borrower and each Loan Party
shall maintain a system of accounting capable of furnishing all such information
and data, and shall maintain its respective books and records respecting
financial and accounting matters in a proper manner and on a basis consistent
with that used in the preparation of the GAAP consolidated financial statements
of Borrower. Unless otherwise specified above financial reports requested by
Lender of Borrower shall be provided to Lender no later than 15 days after such
request.
(b) Officer's Certificates; Comfort Letters. (i) At the
time of the delivery of the financial statements under clause (a) above,
Borrower shall provide a certificate of the general partner of Borrower or a
senior executive officer of Borrower and the REIT that such financial
statements have been prepared in accordance with GAAP (unless such financial
statements are not required to be prepared in accordance with GAAP pursuant to
this Agreement) and fairly present the financial condition and the results of
operations of Borrower, REIT, the Partnership, HIC, the Corporation and the
Real Property Assets on the dates and for the periods indicated, subject, in
the case of interim financial statements, to normally recurring year end
adjustments, (y) to the best knowledge of such general partner or senior
executive officer of Borrower and the REIT that no Default or Event of Default
has occurred on the date of such certificate or, if any Default or Event of
Default has occurred and is continuing on such date, specifying the nature and
extent thereof and the action Borrower proposes to take in respect thereof and
(z) that since the date of the prior financial statements delivered pursuant to
such clause no change has occurred in the financial position of Borrower, REIT,
the Partnership, HIC, the Corporation which change could result in a Material
Adverse Effect, and (ii) at the time of delivery of the Annual Operating Budget
pursuant to Section 5.1(a)(v), a written statement of the assumptions used in
connection with respect to the Annual Operating Budget, together with a
certificate of the general partner of Borrower or a senior executive officer of
Borrower and the REIT to the effect that such budget and assumptions are
reasonable and represent Borrower's, Partnership's and HIC's good faith
estimate of such Property Net Cash Flow and anticipated capital expenditures,
it being understood and agreed that there may often be a difference between
financial projections and actual results.
(ii) Within 45 days of the end of each calendar quarter,
Borrower shall provide a certificate of the general partner of Borrower or of a
senior executive officer of Borrower and the REIT certifying that no Default or
Event of Default has occurred, that there has been no change in the REIT's tax
status as a real estate investment trust as defined under Section 856 of the
Code, confirming compliance with the covenant in Sections 5.3, 5.4, 5.5, 5.8,
5.9, 5.19 and 5.27 and demonstrating compliance with the financial covenants
set forth in
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Sections 5.15, 5.16, 5.17, 5.18, 5.20, 6.3, 6.4 and 6.7 hereof (including
providing copies of the most recently available unaudited operating statements
of the Real Property Assets) and the provisions of Sections 5.12, 5.13, 5.19(a),
(b) and (c), 5.21, 5.26, 5.27 and 5.28 and such other Sections as reasonably
requested by Lender and containing calculations verifying such compliance
commencing with the calendar quarter ending on December 31, 1995; provided that
the certificate for the last calendar quarter with respect to Sections 5.16,
5.17, 5.18 and 6.7 may be delivered within 90 days after the end of such fiscal
year with the audited financial statements for the year then ended. A similar
certificate with respect to covenants set forth in Sections 5.21, 6.3 and 6.4,
shall be provided by the Partnership and HIC at the same times that the
Borrower's and the REIT's certificate is required hereunder. In the event the
Available Borrowing Base is less than 102.5% of the Available Facility Amount
with respect to any Note, and until such time as the Available Borrowing Base is
equal to or greater than 102.5% of the Available Facility Amount for each of the
Notes, Lender may request that a certificate of the general partner of Borrower
or a senior executive officer of Borrower and the REIT certifying compliance
with the Available Borrowing Base Covenant set forth in Section 5.15 (and
containing calculations demonstrating such compliance) be delivered to Lender on
a monthly basis.
(iii) Within 90 days of the end of Borrower's fiscal year
through the Maturity Date, and prior to any increase of the Available Facility
Amount pursuant to Section 2.22, the addition of any New Property pursuant to
Section 2.23, the Release of any Collateral pursuant to Section 2.21(a) and the
substitution of any Substitute Properties pursuant to Section 2.21(b), Borrower
and the REIT, at Borrower and the REIT's sole cost and expense, shall provide a
comfort letter or audit prepared by a nationally recognized independent
certified public accounting firm satisfactory to Lender verifying that the
covenants contained in Sections 5.15, 5.16, 5.17, 5.18, 5.19(a), (b) and (c),
and 6.7 are complied with at the end of such period and will be in compliance
with such covenants after giving effect to such increase, addition, release or
substitution, as the case may be.
(c) Notice of Default or Litigation. Promptly after
Borrower or any other Loan Party obtains actual knowledge thereof, Borrower
shall give Lender notice of (i) the occurrence of a Default or any Event of
Default, (ii) the occurrence of (x) any default that is not cured, or any event
of default, under any partnership agreement of Borrower, any mortgage, deed of
trust, indenture or other debt or security instrument, covering any of the
assets of Borrower or (y) any event of default under any Franchise Agreement,
Operating Lease, Intercompany Debt or any other material agreement relating to
the Real Property Assets, to which Borrower, the Partnership or HIC is a party,
which, if not cured could result in a Material Adverse Effect, (iii) any
litigation or governmental proceeding pending or threatened (in writing)
against Borrower, any other Loan Party which could result in a Material Adverse
Effect and (iv) any other event, act or condition which could result in a
Material Adverse Effect. Each notice delivered pursuant to this Section 5.1(c)
shall be accompanied by a certificate of a general
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partner or senior executive officer of Borrower setting forth the details of
the occurrence referred to therein and describing the actions Borrower proposes
to take with respect thereto.
(d) Quality Assurance. Promptly after Borrower or the
Partnership or any other Loan Party receives any quality assurance reports or
similar reports of inspection or compliance from the Franchisor under any
Franchise Agreement ("Quality Assurance Reports"), Borrower shall deliver
copies thereof to Lender, but in no event later than thirty days after receipt.
(e) Other Information. From time to time, Borrower and
the REIT shall provide such other information and financial documents relating
to Borrower, the REIT or the other Loan Parties as Lender may reasonably
request.
Section 5.2 Books, Records and Inspections. Borrower,
the Partnership and HIC shall, at their respective principal places of business
or at each Real Property Asset, keep proper books of record and account in
which full, true and correct entries shall be made. Borrower, the Partnership
and HIC shall permit or cause to be permitted officers and designated
representatives of Lender and any Co-Lender to visit and inspect any of the
Real Property Assets, and to examine and copy the books of record and account
of Borrower, the Partnership and HIC and the Real Property Assets (including,
without limitation, leases, statements, bills and invoices), discuss the
affairs, finances and accounts of Borrower, the Partnership and HIC and be
advised as to the same by, its and their officers and independent accountants,
all upon reasonable notice and at such reasonable times as Lender or any
Co-Lender may desire.
Section 5.3 Maintenance of Insurance. Borrower and the
other Loan Parties shall (a) maintain with financially sound and reputable
insurance companies insurance on itself and its properties in commercially
reasonable amounts and with respect to the Real Property Assets in at least
such amounts and against at least such risks as are required, under the
Security Instruments, (b) maintain Lender as named additional insured in
respect of any such liability insurance required to be maintained under the
Security Instruments, and (c) furnish to Lender from time to time, upon written
request, certificates of insurance or certified copies or abstracts of all
insurance policies required under this Agreement and the other Loan Documents
and such other information relating to such insurance as Lender may reasonably
request.
Section 5.4 Taxes. Borrower and the other Loan Parties
shall pay or cause to be paid, when due (i.e., before any penalty or fine could
be levied or charged), all taxes, charges and assessments and all other lawful
claims required to be paid by Borrower, the other Loan Parties, except as
contested in good faith and by appropriate proceedings diligently conducted, if
adequate reserves have been established with respect thereto in accordance with
GAAP. Upon request from Lender, Borrower shall provide evidence to Lender of
payment of such taxes, charges, assessments and other lawful claims.
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Section 5.5 Corporate Franchises; Conduct of Business.
(a) Borrower and each Loan Party shall do or cause to be done, all things
necessary to preserve and keep in full force and effect its existence and good
standing (i) in the State of its organization and (ii) in each state in which a
Real Property Asset is located, unless such Person is not required to qualify
in such State by Applicable Law, and its respective franchises, tradenames
licenses, permits, certificates, authorizations, qualifications,
accreditations, easements, rights of way and other rights, consents and
approvals, except where the failure to so preserve any of the foregoing (other
than existence and good standing) could not, individually or in the aggregate,
result in a Material Adverse Effect.
(b) Borrower, the Partnership and HIC shall carry on and
conduct their businesses in substantially the same manner and substantially the
same field of enterprise as they are presently conducted.
(c) The REIT shall carry on and conduct its business in
substantially the same manner and substantially the same field of enterprise as
it is presently conducted and only through Borrower, except as described in
Schedule 13.
(d) The Corporation shall carry on and conduct its
business in substantially the same manner and substantially the same field of
enterprise as it is presently conducted and only through the Partnership and
HIC, except as described in Schedule 13A.
Section 5.6 Compliance with Law. Borrower and the other
Loan Parties shall comply in all material respects with all Applicable Laws, in
respect of the conduct of their business and the ownership of their property
(including the Real Property Assets), except for such Applicable Laws, (a)
which Borrower or such other Loan Party are contesting in good faith and in
compliance with and pursuant to appropriate proceedings diligently prosecuted
(provided that such contest does not and cannot (i) expose any of Lender, any
Co-Lender, Borrower, the other Loan Parties to any criminal liability or
penalty, (ii) give rise to a Lien against any of the Collateral or any Real
Property Asset, or (iii) otherwise materially adversely affect any of the
Collateral or the value thereof), or (b) the failure to observe which, taken
individually or in the aggregate, could not result in a Material Adverse
Effect.
Section 5.7 Performance of Obligations. Borrower and the
REIT shall perform all of their respective material obligations under the terms
of each mortgage, indenture, security agreement, debt instrument, lease,
undertaking and contract relating to any Real Property Assets, or by which it
or any of the Real Property Assets is bound.
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Section 5.8 Stock. REIT and the Corporation shall
maintain in good standing their listing of all outstanding shares of stock on
the New York Stock Exchange and such shares shall continue to trade as "paired
shares".
Section 5.9 Maintenance of Personal Property. Borrower,
the Partnership and HIC shall own, lease or license Personal Property adequate
to maintain and operate each Real Property Asset as a hotel in accordance with
the standards of this Agreement, the Loan Documents, the related Operating
Leases and the related Franchise Agreements, including compliance with the Loan
to Value Ratio Covenant for each Pool. Neither Borrower, the Partnership nor
HIC shall lease, license, encumber or enter into any other financing
arrangements with respect to any of the Personal Property in excess of the
Permitted Financing. With respect to the Real Property Asset identified on
Schedule 2 as Doubletree, California, and on all other California Real Property
Assets (other than the Vagabond Inns) which are owned, leased, or operated by
any Loan Party or an Affiliate thereof, all Personal Property shall be owned by
Borrower.
Section 5.10 Maintenance of Properties. Borrower and the
other Loan Parties shall ensure that the Real Property Assets are maintained in
a manner consistent with their current condition and repair, normal wear and
tear and casualty damage in the process of being repaired or restored excepted.
Section 5.11 Compliance with ERISA. (a) Borrower and the
other Loan Parties shall maintain each Employee Benefit Plan in compliance with
all material applicable requirements of ERISA and the Code and with all
material applicable regulations promulgated thereunder so that no failure to so
comply will cause liability to Borrower or any Loan Party in excess of
$5,000,000.00 or have a Material Adverse Effect. Borrower and the other Loan
Parties shall provide to Lender, within ten (10) days of Lender's request, any
document, filing or correspondence relating to an Employee Benefit Plan which
the Lender reasonably requests. Borrower and the other Loan Parties shall also
provide to Lender, with ten (10) days of filing or receipt, (i) any notice from
the Department of Labor or Internal Revenue Service of assessment or
investigation regarding a prohibited transaction under Section 4975 of the Code
or Section 406 of ERISA, (ii) any notice from a Multiemployer Plan of
withdrawal with respect to a Multiemployer Plan, (iii) notice from the Internal
Revenue Service of imposition of excise tax with respect to an Employee Benefit
Plan, (iv) any Form 5500 filed by any Borrower or Loan Party with respect to an
Employee Benefit Plan which includes a qualified accountant's opinion, or (v)
notice regarding a proposed termination from the PBGC; provided, however, that
items in (i)-(iii) need only be provided if the events could result in Material
Adverse Effect.
(b) Neither Borrower nor any other Loan Party shall engage in
any transaction which would cause any obligation, or action taken or to be
taken, hereunder (or the exercise by Lender of any of its rights under this
Agreement or the other Loan Documents) to be a non-
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exempt (under a statutory or administrative class exemption) prohibited
transaction under ERISA or result in a violation of a state statute regulating
governmental plans that would subject Lender to liability for a violation of
ERISA or such a state statute.
(c) Borrower and the REIT further covenant and agree to
deliver to Lender such certifications or other evidence from time to time
throughout the term of the Loan, as reasonably requested by Lender in its sole
discretion, that (i) neither Borrower or any other Loan Party is an "employee
benefit plan" as defined in Section 3(3) of ERISA, which is subject to Title I
of ERISA, or a "governmental plan" within the meaning of Section 3(3) of ERISA;
(ii) neither Borrower or any other Loan Party is subject to state statutes
applicable to Borrower or any Loan Party regulating investments and fiduciary
obligations of Borrower or any Loan Party with respect to governmental plans;
and (iii) with respect to each Loan Party and Borrower, at least one of the
following circumstances is true:
(1) Equity interests in Borrower or such Loan
Party are publicly offered securities, within the meaning of
29 C.F.R. Section 2510.3-101(b)(2);
(2) Less than 25 percent of each outstanding
class of equity interests in Borrower or such Loan Party are
held by "benefit plan investors" within the meaning of 29
C.F.R. Section 2510.3-101(f)(2); or
(3) Borrower or such Loan Party qualifies as an
"operating company" or a "real estate operating company"
within the meaning of 29 C.F.R. Section 2510.3-101(c) or (e)
or an investment company registered under The Investment
Company Act of 1940.
Section 5.12 Settlement/Judgment Notice. Borrower and the
REIT agree that they shall, within ten (10) days after a settlement of any
obligation in excess of $1,000,000.00 provide written notice to Lender of such
settlement together with a certification signed by a senior executive officer of
Borrower and the REIT certifying based upon the most recent quarterly
consolidated financial statements of Borrower and the REIT, such settlement will
not cause Borrower or the REIT to violate the financial covenants set forth in
Sections 5.16, 5.17 and 5.18 hereof. Borrower and the REIT further agree that
they shall, within ten (10) days after entry of a final judgment in excess of
$1,000,000.00 or final judgments in excess of $1,000,000.00 in the aggregate
during the immediately preceding twelve (12) month period, provide written
notice to Lender of such judgment together with a certification signed by a
senior executive officer of Borrower and the REIT certifying, based upon the
most recent quarterly consolidated financial statements of Borrower and the
REIT, such judgment will not cause Borrower or the REIT to violate the financial
covenants set forth in Sections 5.16 and 5.17 hereof. Borrower and the REIT
further agree that they will provide written notice to Lender after entry of any
judgment in excess of $1,000,000.00.
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Section 5.13 Acceleration Notice. Borrower and the REIT
agree that they shall, within ten (10) days after receipt of written notice that
any Indebtedness of Borrower or the REIT hereof has been accelerated, provide
written notice to Lender of such acceleration.
Section 5.14 Lien Searches; Title Searches. In addition
to searches and endorsements required in connection with an Advance, Borrower
shall, upon Lender's request therefor given from time to time, and at Lender's
expense, deliver (a) reports of UCC, tax lien, judgment and litigation searches
with respect to Borrower, each of the other Loan Parties, and (b) searches of
title to each of the Real Property Assets (each, a "Title Search"). Such Title
Searches and lien searches required under this Agreement shall be conducted by
search firms designated by Lender in each of the locations designated by
Lender.
Section 5.15 Available Borrowing Base Covenant. Borrower
shall at all times maintain an Available Borrowing Base for each Note for the
aggregate of all Real Property Assets applicable to each such Note (measured on
a monthly basis based on a trailing twelve month analysis) greater than or
equal to the Available Facility Amount for each such Note; provided, however,
that to the extent the available borrowing base covenant (the "Available
Borrowing Base Covenant") set forth in the preceding clause is not met at the
end of any calendar month for a particular Note, then:
(a) the Available Facility Amount for such Note and the
Aggregate Available Facility Amount shall be immediately and
automatically, without any act or notice by Lender, reduced to the
extent necessary to cause the Available Borrowing Base Covenant to be
satisfied; and
(b) to the extent that the then outstanding principal
balance of the Loan (including outstanding Swing Line Advances)
exceeds the Available Facility Amount for such Note as reduced as a
result of a reduction of the Available Facility Amount for such Note
pursuant to clause (a) above, Borrower shall repay, without penalty or
premium (other than as provided in Section 2.17), that portion of the
outstanding principal balance of the Note which is in excess of the
Available Facility Amount for such Note within five (5) Business Days
of the earliest of (i) Borrower's receipt of written notice that the
Available Borrowing Base Covenant is no longer satisfied, (ii)
Borrower's delivery of the Section 5.1(b)(ii) certificate indicating
that the Available Borrowing Base Covenant is no longer satisfied (or,
if such certificate is not delivered on or prior to the date provided
for in Section 5.1(b)(ii), the date on which such certificate was
required to be delivered thereunder) and (iii) Borrower's
determination that the Available Borrowing Base Covenant is no longer
satisfied.
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(c) Neither the Aggregate Available Facility Amount nor
the Available Facility Amount with respect to such Note shall be
reduced pursuant to Section 5.15(a) above if (i) Borrower shall
provide Lender, within five Business Days of the earliest date in
clause (i), (ii) or (iii) of Section 5.15(b) (the "Relevant BBC
Date"), with (A) a certificate of the general partner or a senior
executive officer of Borrower substantially in the form of Exhibit F
stating that it intends to provide an additional real property or
properties to Lender pursuant to Section 2.23 within 45 days of the
Relevant BBC Date and (B) evidence, reasonably satisfactory to Lender,
that the Net Operating Income for such additional real property or
properties for the twelve (12) month period most recently ended
together with the Net Operating Income of the other Real Property
Assets securing such Note, would have enabled Borrower to meet the
Available Borrowing Base Covenant on the Relevant BBC Date with
respect to such Note and (C) such additional real property or
properties shall be satisfactory to Lender in its sole discretion and
(ii) Borrower shall have provided Lender within 45 days of the
Relevant BBC Date with such additional collateral pursuant to Section
2.23 hereof and such additional collateral, in the aggregate with the
other Real Property Assets securing the Loan, is capable of meeting
the Available Borrowing Base Covenant with respect to such Note at
such time. In the event that (I) Borrower shall fail to deliver to
Lender the items set forth in clause 5.15(c)(i) above within five (5)
Business Days of the Relevant BBC Date, (II) the additional property
or properties offered by Borrower are not satisfactory to Lender or
(III) Borrower shall fail to subject such additional property or
properties to the Liens of the Loan Documents pursuant to Section 2.23
or comply with any other provision of Section 2.23 within the time
period provided above, then the Aggregate Available Facility Amount
and the Available Facility Amount with respect to such Note shall
immediately be reduced without any further action on the part of
Borrower or Lender pursuant to Section 5.15(b) and Borrower shall
prepay the Loan to the extent, if any, required pursuant to Section
5.15(b).
(d) In the event that the Aggregate Available Facility
Amount and the Available Facility Amount with respect to such Note is
reduced pursuant to the terms of this Section 5.15, Borrower shall
have the ability to partially or fully reinstate the Aggregate
Available Facility Amount and the Available Facility Amount for such
Note to its previous level by delivering to Lender, with respect to
periods ending at the end of any calendar month (but no sooner than
one month following a Relevant BBC Date), a certificate of a general
partner or a senior executive officer of Borrower, in the form of the
quarterly certificate required pursuant to Section 5.1(b)(ii),
demonstrating that as of the end of such month, Borrower is in
compliance with the Available Borrowing Base Covenant to the extent of
the requested reinstatement of the Aggregate Available Facility Amount
and the Available Facility Amount with respect to such Note.
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Section 5.16 Minimum Net Worth. The minimum net worth of
Borrower shall not, at any time, be less than $215,000,000.00 plus 75% of the
net proceeds (after payment of underwriter and placement fees and other
expenses directly related to such equity offering) received from subsequent
equity offerings by the REIT, calculated on a GAAP basis; however, the
conversion or exchange of existing operating partnership units in Borrower for
shares in the REIT for which the REIT does not receive cash compensation shall
not be deemed an equity offering for purposes of this Section 5.16.
Section 5.17 Total Indebtedness. (a) The maximum
combined Total Debt of Borrower and the REIT shall not exceed at any time 55%
of the combined Net Book Value of Borrower and the REIT, calculated without
duplication.
(b) The maximum combined Total Debt of Borrower and the
Partnership shall not exceed at any time 55% of the combined Net Book Value of
Borrower and the Partnership, calculated without duplication, provided that
Total Debt and Net Book Value shall exclude amounts related to the Intercompany
Debt between (i) the Corporation and the Partnership and their consolidated
Subsidiaries and (ii) the REIT and Borrower and their consolidated
Subsidiaries.
Section 5.18 Coverage Ratios. (a) The ratio of (x) actual
consolidated EBITDA of Borrower and the REIT (without duplication) for any
period of twelve consecutive months (or if twelve consecutive months have not
passed since July 6, 1995, the period of time from July 6, 1995) (in either
case the "Base Period"), to (y) the sum of Debt Service plus Fixed Charges of
the Borrower and the REIT for such Base Period shall not at any time be less
than (i) 2.15 to 1 at any time during the nine month period commencing on July
6, 1995 and (ii) 2.25 to 1 for any period thereafter.
(b) The ratio of (x) actual EBITDA (adjusted to include
replacement reserves of 4% of gross hotel revenues) of Borrower and the
Partnership for the applicable Base Period, to (y) the sum of Debt Service plus
Fixed Charges of Borrower and the Partnership for the same Base Period shall
not at any time be less than (i) 2.40 to 1 at any time during the nine month
period commencing on July 6, 1995 and (ii) 2.50 to 1 thereafter. For purposes
of this Section 5.18(b), EBITDA and Debt Service shall exclude amounts related
to the Operating Leases with the Partnership as tenant and intercompany debt
between (A) the Corporation and the Partnership and their consolidated
Subsidiaries and (B) the REIT and the Borrower and their consolidated
Subsidiaries.
Section 5.19 Replacement Reserve and Deferred Maintenance
Reserve. (a) After the Closing Date Borrower shall spend at least the amounts
set forth on Schedule 16 for each Real Property Asset on or before December 31,
1996 (the "Initial Minimum Spending Requirement"). For the calendar year
commencing on January 1, 1997 and for each calendar year thereafter,
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Borrower shall spend, or cause to have spent, a minimum spending amount (the
"Minimum Spending Requirement") for each Real Property Asset equal to 4% of the
annual Gross Revenues from each Real Property Asset per annum on repair,
replacement and maintenance of the related Real Property Asset during the
applicable calendar year. The Minimum Spending Requirement for each calendar
year shall be determined annually by Lender, and shall be based on Gross
Revenues for the immediately preceding calendar year, and Lender shall revise
Schedule 16 accordingly. In the event that Borrower has spent more than the
Minimum Spending Requirement for a Real Property Asset in any calendar year,
Borrower may apply such excess, up to an amount equal to 2% of the annual Gross
Revenues from the Real Property Asset, to reduce the amount of the Minimum
Spending Requirement that must be spent in the immediately succeeding calendar
year. Borrower shall deliver evidence reasonably satisfactory to Lender no more
frequently than monthly, but at least quarterly, of the portion of the Initial
Minimum Spending Requirement and the Minimum Spending Requirement, as the case
may be, for each Real Property Asset that has been spent; such evidence shall
include copies of paid invoices or other receipts for work done or materials
provided and such other information as reasonably requested by Lender. On July
1, 1996, and on the first day of July of each year thereafter, Lender shall
determine the portion of the Initial Minimum Spending Requirement or the Minimum
Spending Requirement for that calendar year that has not been spent and
determine the amount to be reserved for such repair, replacement and maintenance
as provided below (such amount, the "Initial Replacement Reserve" or the
"Minimum Replacement Reserve", as the case may be). Such amount to be reserved
shall equal the difference between (i) the portion of the Minimum Spending
Requirement for the applicable year that has not been spent and (ii) the
difference between (A) (1) the lesser of 55% of the value of the related Real
Property Asset according to Lender's internal valuation or 50% of the value
according to an Appraisal of the related Real Property Asset, or (2) if the
Syndication has occurred, 50% of the value according to the Appraisal of such
Real Property Asset and (B) the Allocated Loan Amount for such Real Property
Asset. Borrower shall maintain, from the date of notice of the Initial
Replacement Reserve or the Minimum Replacement Reserve, as the case may be,
until such time as the Initial Minimum Spending Requirements or the Minimum
Spending Requirement, as the case may be, for such calendar year have been spent
in full, an amount equal to the Initial Replacement Reserve and the Minimum
Replacement Reserve for such calendar year, as the case may be, in the form of
(x) readily available and unrestricted cash held in a segregated account or (y)
borrowing capacity under this Agreement, as measured by the unfunded portion of
the Aggregate Available Facility Amount; provided however, that during any given
calendar year the amounts required to be maintained as the Initial Replacement
Reserve or the Minimum Replacement Reserve shall be reduced from time to time to
the extent that such sums were actually spent on repair, replacement and
maintenance of the Real Property Assets as determined by Lender in its
reasonable discretion.
(b) Borrower shall spend the amounts shown on Schedule 17
(as the same may be amended from time to time) for each Real Property Asset
listed on such Schedule prior to
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January 1, 1997 to perform the specified maintenance set forth on such
Schedule (the "Deferred Maintenance Spending Requirement"). Borrower shall
deliver evidence reasonably satisfactory to Lender on or prior to December 31,
1996 that such work has been completed; such evidence shall include copies of
paid invoices or other receipts for work done or materials provided, and may
include an updated Engineering Report. Borrower shall maintain an amount (the
"Deferred Maintenance Reserve") equal to the difference between (i) the
Deferred Maintenance Spending Requirement and (ii) the difference between (A)
(1) the lesser of 55% of the value of the related Real Property Asset according
to Lender's internal valuation or 50% of the value according to an Appraisal of
the related Real Property Asset, or (2) if the Syndication has occurred, 50% of
the value according to the Appraisal of such Real Property Asset and (B) the
Allocated Loan Amount for such Real Property Asset in the form of (x) readily
available and unrestricted cash held in a segregated account or (y) borrowing
capacity under this Agreement, as measured by the unfunded portion of the
Aggregate Available Facility Amount. The Deferred Maintenance Reserve shall be
reduced, from time to time, to the extent that such sums were actually spent to
perform the required work as determined by Lender in its reasonable discretion.
(c) With respect to the Real Property Asset identified as
Bay Valley, Michigan on Schedule 1, Borrower shall complete the soil excavation
and replacement as described in and pursuant to the Corrective Action Plan for
Bay Valley Resort Facility, 2470 Old Bridge Road, Bay City, Michigan prepared
for Hotel Investors Trust, Los Angeles, California, by Earth Tech, dated
January 1995, Project 22424.03 as modified by the Options Update for Bay Valley
Resort, Bay City, Michigan prepared by Earth Tech and dated October 18, 1995
(the "Corrective Action Plan") on or prior to October 1, 1996, and shall comply
with the ground water monitoring program as described in and pursuant to the
Corrective Action Plan throughout the term of the Loan. Borrower shall deliver
a quarterly report to Lender with respect to the status of the soil excavation
and replacement and the ground water monitoring; upon the completion of the
soil excavation and replacement, Borrower shall deliver a report with respect
to the gound water monitoring every second quarter, in each case, concurrently
with the report delivered pursuant to Section 5.1(b)(ii). Until such time as
Lender receives a report from Earth Tech or another environmental consultant
reasonably satisfactory to Lender that the soil excavation and replacement has
been completed and the ground water monitoring has commenced, each in
accordance with Applicable Law and the Corrective Action Plan, Borrower shall
maintain the amount set forth on Schedule 17 with respect to such Real Property
Asset for soil excavation and remediation as part of the Deferred Maintenance
Reserve pursuant to Section 5.19(b); provided, however, that such amount shall
be reduced from time to time to the extent that such sums were actually spent
on the soil excavation and replacement, or on the ground water monitoring, as
determined by Lender in its reasonable discretion.
Section 5.20 Loan to Value Ratio. Borrower shall at all
times maintain the ratio of Available Facility Amount for each Note to the most
recent aggregate appraised value according to the Appraisals, updates to
existing Appraisals or Lender's internal valuation most recently
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delivered or prepared, as the case may be, pursuant to Section 5.25 or, if no
such updated appraisal has been prepared and delivered to Borrower with respect
to a Real Property Asset, according to the Appraisal or internal valuation
completed for such Real Property Asset on or before the Closing Date, unless
Borrower or Lender reasonably believes that the value is less, of not more than
50% of the value according to an Appraisal or 55% of the value according to
Lender's internal valuation, provided, however, that all determinations of Loan
to Value Ratios from and after the Syndication shall be based on 50% of
appraised value determined by Appraisals reasonably satisfactory to the Lender
of all Real Property Assets securing each such Note, measured in the aggregate
(the "Loan to Value Ratio"); provided, however, that to the extent the loan to
value ratio covenant (the "Loan to Value Ratio Covenant") set forth in the
preceding clause is not satisfied for a particular Note, then:
(a) the Available Facility Amount for such Note and the
Aggregate Available Facility Amount shall be immediately and
automatically, without any act or notice by Lender, reduced to the
extent necessary to cause the Loan to Value Ratio Covenant to be
satisfied; and
(b) to the extent that the then outstanding principal
balance of the Loan (including outstanding Swing Line Advances)
exceeds the Available Facility Amount for such Note as reduced as a
result of a reduction of the Available Facility Amount for such Note
pursuant to clause (a) above, Borrower shall repay, without penalty or
premium (other than as provided in Section 2.17), that portion of the
outstanding principal balance of the Note which is in excess of the
Available Facility Amount for such Note within five (5) Business Days
after the earlier to occur of (i) Borrower's receipt of the Section
5.25 Appraisal(s) or Lender's internal valuations, provided that, if
the Syndication has occurred, only Appraisals delivered in connection
with the Syndication or Section 5.25 shall be used, (ii) Borrower's
receipt of Lender's written notice that the Loan to Value Ratio
Covenant is no longer satisfied and (iii) Borrower's delivery of the
Section 5.1(b)(ii) certification indicating that the Loan to Value
Ratio Covenant is no longer satisfied;
provided, however, that Borrower has the option of returning the Aggregate
Available Facility Amount and the Available Facility Amount for such Note to its
level prior to the impact of clause (a) above, by (i) providing Lender with
evidence satisfactory to Lender respecting the value of the Real Property Assets
securing such Note (such as a new Appraisal) which would cause Lender, in its
sole discretion, or, if such evidence is a new Appraisal, in its reasonable
discretion, to modify its determination respecting the Loan to Value Ratio
Covenant, or (ii) providing Lender, within 45 days of the earliest date in
clause (i), (ii), or (iii) of Section 5.20(b), with additional collateral
satisfactory to Lender pursuant to Section 2.23 hereof which, in the aggregate
with the other Real Property Assets securing the Loan is capable of meeting the
Loan to Value Ratio Covenant and otherwise in compliance with Section 5.20(c).
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(c) Neither the Aggregate Available Facility Amount nor
the Available Facility Amount with respect to such Note shall be
reduced pursuant to Section 5.20(a) above if (i) Borrower shall
provide Lender within five Business Days of the earliest date in
clause (i), (ii) or (iii) of Section 5.20(b) (the "Relevant LTV
Date"), with (A) a certificate of the general partner or a senior
executive officer of Borrower substantially in the form of Exhibit F
stating that it intends to provide an additional real property or
properties to Lender pursuant to Section 2.23 within 45 days of the
Relevant LTV Date and (B) evidence, reasonably satisfactory to Lender
that the appraised value of such additional real property or
properties as determined by Appraisals satisfactory to Lender together
with the values of the other Real Property Assets securing the Loan
(as determined in accordance with this Section 5.20), would have
enabled Borrower to meet the Loan to Value Ratio Covenant on the
Relevant LTV Date and (C) such additional real property or properties
shall be satisfactory to Lender in its sole discretion and (ii)
Borrower shall have provided to Lender within 45 days of the Relevant
LTV Date with such additional collateral pursuant to Section 2.23
hereof and such additional collateral in the aggregate with the other
Real Property Assets securing the Loan is capable of meeting the Loan
to Value Ratio Covenant at such time. In the event that (I) Borrower
shall fail to deliver to Lender the items set forth in clause
5.20(c)(i) above within five (5) Business Days of the Relevant LTV
Date, (II) the additional property or properties offered by Borrower
are not satisfactory to Lender or (III) Borrower shall fail to subject
such additional property or properties to the Liens of the Loan
Documents pursuant to Section 2.23 or comply with any other provision
of Section 2.23 within the time period provided above, then the
Aggregate Available Facility Amount and the Available Facility Amount
with respect to such Note shall immediately be reduced without any
further action on the part of Borrower or Lender pursuant to Section
5.20(b) and Borrower shall prepay the Loan to the extent, if any,
required pursuant to Section 5.20(b).
(d) In the event that the Aggregate Available Facility
Amount and the Available Facility Amount with respect to such Note is
reduced pursuant to the terms of this Section 5.20, Borrower has the
ability to partially or fully reinstate the Aggregate Available
Facility Amount and the Available Facility Amount with respect to such
Note to its level prior to such reduction by providing Lender with
evidence satisfactory to Lender respecting the value of the Real
Property Assets (such as a new Appraisal) which would cause Lender, in
its sole discretion, or, if such evidence is a new Appraisal, in its
reasonable discretion, to modify its determination respecting the Loan
to Value Ratio Covenant.
Section 5.21 Manager. Borrower shall terminate
the management agreements listed on Schedule 12 (other than the
management agreement with respect to the Real Property Asset
identified on such Schedule as Harvey Wichita) prior to December 31,
1995 and the Partnership
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shall manage such Real Property Asset thereafter pursuant to the Operating
Lease; however, the Partnership may enter into a new management agreement for
any Real Property Asset with Lender's consent, which consent shall not be
unreasonably withheld, and provided that such management agreement shall be on
market terms and at market rates with a bona fide independent third party
manager that is in the business of managing hotels and otherwise reasonably
satisfactory to Lender.
Section 5.22 Further Assurances. Borrower and the REIT
will, at Borrower's and the REIT's sole cost and expense, at any time and from
time to time upon request of Lender take or cause to be taken any action and
execute, acknowledge, deliver or record any further documents, opinions, deeds
of trust, deeds to secure debt, mortgages, security agreements or other
instruments which Lender in its reasonable discretion deems necessary or
appropriate to carry out the purposes of this Agreement and the other Loan
Documents including (i) to consummate the transfer or sale of the Loan or any
portion thereof, provided that Borrower's, the REIT's and each other Loan
Party's obligations hereunder and under the Loan Documents shall not be
increased or their rights diminished or abridged without their consent, (ii) to
preserve, protect and perfect the security intended to be created and preserved
in the Real Property Assets and (iii) to establish, preserve and protect the
security interest of Lender in and to the Accounts Receivable and any personal
property owned by Borrower, the Partnership on HIC installed in, furnished to
or used or intended to be used in connection with any construction in
connection with the Real Property Assets or the operation thereof.
Section 5.23 REIT Status. The REIT shall elect to be
treated as a "real estate investment trust" for the taxable year ending on
December 31, 1995 and thereafter shall at all times maintain its status as and
continue to elect to be treated as, a "real estate investment trust" under
Section 856 of the Code and shall at all times maintain its status as
grandfathered from the application of Section 269B of the Code pursuant to
Section 132(c)(3) of the Deficit Reduction Act of 1984.
Section 5.24 Mortgage Covenants. Borrower shall comply
with all of the terms and conditions and covenants in the Security Instruments,
the Environmental Indemnity and the other Loan Documents.
Section 5.25 Appraisals. Lender shall have the right
during the term of the Loan to commission new Appraisals or updates to existing
Appraisals for one or more Real Property Assets. Prior to the first Advance
after the Syndication, Borrower shall have delivered satisfactory Appraisals
for all of the Real Property Assets (the cost of which, with respect to the
Initial Assets only, shall be subject to the Expense Cap). Borrower shall only
be obligated to pay for Appraisals or updated Appraisals or Lender's internal
valuations or updates thereof in connection with (i) an increase in the
Available Facility Amount (other than as a result of the Syndication, provided
that such increase is based on the Initial Assets), (ii) the addition of a
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Substitute Property or New Property, (iii) a Default or an Event of Default,
(iv) the first update of any Appraisal and (v) any Appraisal delivered pursuant
to Section 2.26. All other Appraisals, updates of Appraisals, internal
valuations or updates thereof shall be performed at Lender's sole cost and
expense. Borrower shall reasonably cooperate with the appraisers performing
the Appraisals of the Real Property Assets and, with respect to those
Appraisals requested by Lender, any Co- Lender or any Participant, shall
deliver copies of such Appraisals to Lender promptly after receipt but in no
event later than five days after written notice from Lender (provided Borrower
has theretofore received such Appraisal). In Lender's sole discretion, Lender
may elect to update and review its own internal valuation, or prepare its own
internal valuation in lieu of one or more of the Appraisals which may be
required under this Section 5.25. Borrower shall pay, to the extent required
pursuant to the provisions of this Section 5.25, within five (5) Business Days
of Lender's request therefor, Lender's out-of-pocket costs and expenses for
each such internal valuation or review or update thereof and each Appraisal or
update thereof for each Real Property Asset. Borrower shall reimburse Lender
for its out-of-pocket costs and expenses in accordance with the preceding
sentence in connection with the internal valuations done pursuant to Section
3.1(n) no later than the Closing Date (subject to the Expense Cap).
Notwithstanding the foregoing, however, if an internal valuation has been
prepared and the Loan to Value Ratio is in dispute, Borrower shall deliver to
Lender Appraisals, at Borrower's sole cost and expense, of each Real Property
Asset.
Section 5.26 Maintenance of Control. An officer,
director, employee or general partner of the Group shall at all times remain a
Trustee of the REIT and a Director of the Corporation (it being acknowledged by
Lender that changes in composition of REIT's Trustees or Corporation's
Directors shall not constitute a change in control).
Section 5.27 Maintenance of Intercompany Debt. Except as
set forth on Schedule 9, no Intercompany Debt shall be secured by any of the
Collateral.
Section 5.28 Transfer of Licenses. With respect to all of
the Real Property Assets (other than the Vagabond Inns but only for so long as
the Vagabond Inns are not leased or operated by a Loan Party or an Affiliate of
any Loan Party), to the extent that any Licenses are not in the name of the
applicable Loan Party, Borrower and the REIT shall promptly commence or cause
the applicable Loan Party to commence, and diligently proceed to have all such
Licenses issued in the name of the applicable Loan Party or deliver evidence
reasonably satisfactory to Lender that the failure to have such License in the
name of the applicable Loan Party does not materially adversely affect the
operation and use of the related Real Property Asset. Borrower shall notify
Lender within 10 Business Days of the end of each calendar quarter of the
status of the various Licenses that have not been transferred to the applicable
Loan Party. Notwithstanding the foregoing, Borrower shall have all liquor
licenses (other than with respect to the liquor licenses held by Imperial
Hotels Corporation with respect to the Vagabond Inns and the liquor license
held by the Currency Club as tenant under a restaurant lease on the
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Real Property Asset identified as Dallas Park Central on Schedule 2) issued and
maintained in either the name of (i) the Corporation, (ii) an entity wholly
owned and controlled by the Corporation which has entered into a management
agreement or lease agreement with respect to such liquor licenses with the
Partnership or the Corporation on terms and conditions reasonably satisfactory
to Lender or (iii) an individual who is both a resident of the state in which
the related Real Property Asset is located and is an employee of either
Borrower, the Partnership, the Corporation or the REIT at the level of general
manager for the Real Property Assets in such state or higher within ninety (90)
days of the date hereof.
SECTION 6. NEGATIVE COVENANTS.
Borrower covenants and agrees for itself and on behalf of the
other Loan Parties that on and after the Closing Date until the Obligations are
paid in full:
Section 6.1 INTENTIONALLY DELETED.
Section 6.2 INTENTIONALLY DELETED.
Section 6.3 Liens. Borrower, the Partnership and HIC
shall not, create, incur, assume or suffer to exist, directly or indirectly,
any Lien on any of the Collateral, or any of the Real Property Assets, other
than the following (collectively, the "Permitted Liens"):
(a) Liens existing on the Closing Date and set forth on
Schedule 7 hereto or listed in the Title Policies issued on the
Closing Date;
(b) Liens for taxes not yet due or which are being
contested in good faith by appropriate proceedings diligently
conducted and with respect to which adequate reserves are being
maintained in accordance with GAAP;
(c) Statutory Liens of landlords and Liens of mechanics,
materialmen and other Liens imposed by Law (other than any Lien
imposed by ERISA) created in the ordinary course of business for
amounts not yet due or (i) which are being contested in good faith by
appropriate proceedings diligently conducted, and with respect to
which adequate bonds have been posted if required to do so by
Applicable Law or the terms of the Mortgage;
(d) Easements, rights-of-way, zoning and similar
restrictions and other similar charges or encumbrances not interfering
with the ordinary conduct of the business of Borrower and which do not
detract materially from the value of any of the Real Property Assets
to which they attach or impair materially the use thereof by Borrower
or materially adversely affect the security interests of Lender in the
Collateral;
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(e) Permitted Financing; and
(f) Liens granted to Lender pursuant to the Security
Instruments securing the Obligations.
Section 6.4 Restriction on Fundamental Changes. Without
the prior written consent of Lender, which consent may be withheld in the sole
and absolute discretion of Lender, (a) Borrower and the other Loan Parties
shall not enter into any merger or consolidation following which the REIT or an
entity wholly owned by the REIT is no longer the sole general partner of the
Borrower; or a merger or consolidation following which the Corporation or
entities wholly owned by the Corporation are no longer the sole general
partners of the Partnership or the Corporation is no longer the sole
shareholder of HIC; if such events occur without the prior written consent of
Lender, all Advances shall be due and payable in full, including all principal,
interest and Fees, on the earliest to occur of the expiration of each related
Interest Period with respect to Eurodollar Portions or the next payment date
with respect to Base Rate Portions, or the Maturity Date; and (b) the REIT
shall not sell, transfer, pledge, assign or encumber its general partnership
interest in Borrower and the Corporation shall not sell, transfer, pledge,
assign or encumber its (i) general partnership interest in the Partnership or
(ii) its stock in HIC, except to an entity wholly owned by the Corporation.
Section 6.5 Transactions with Affiliates. Borrower and
the other Loan Parties shall not enter into any material transaction or series
of related transactions, whether or not in the ordinary course of business,
with any Affiliate of Borrower, other than on terms and conditions
substantially as favorable as would be obtainable at the time in a comparable
arm's-length transaction with a Person other than an Affiliate of Borrower.
Section 6.6 Plans. Borrower and the other Loan Parties
shall not, and shall make reasonable efforts under the circumstances not to
permit any member of their respective ERISA Controlled Group to, (i) take any
action which would (A) increase the aggregate present value of the Unfunded
Benefit Liabilities under all Plans, or withdrawal liability under a
Multiemployer Plan for which Borrower or any Loan Party or any member of their
respective ERISA Controlled Groups (determined without reference to Section
414(m) or (o) of the Code, if liabilities of entities in Borrower or the Loan
Parties' ERISA Controlled Group solely by reason of Section 414(m) or (o) of
the Code could not result in liability to Borrower or any Loan Party) could
reasonably be expected to be liable, to an amount in excess of $5,000,000.00 or
which has or could be reasonably expected to have a Material Adverse Effect or
(B) result in liability to Borrower or any Loan Party for any post-retirement
benefit under any "welfare plan" (as defined in Section 3(1) of ERISA) or any
withdrawal liability or exit fee or charge with respect to any "welfare plan"
(as defined in Section 3(1) of ERISA), other than liability for continuation
coverage under Part 6 of Title I of ERISA or state laws which require similar
continuation
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coverage for which the employee pays approximately the full cost
of coverage, and other than such liability would not be in excess of
$5,000,000.00 or have a Material Adverse Effect or (ii) engage in any
transaction prohibited by Section 408 of ERISA or Section 4975 of the Code
which has a Material Adverse Effect.
Section 6.7 Payout Ratios. (a) The REIT and the
Corporation (without duplication) shall not pay or declare Distributions that
exceed the greatest of (i) (A) 105% for the first three quarters commencing on
July 6, 1995, and (B) 100% for any period thereafter, of the Funds From
Operations of the REIT and the Corporation (without duplication) in any four
consecutive calendar quarters (or if four consecutive calendar quarters have
not passed since July 6, 1995, the quarterly periods from July 6, 1995);
provided that notwithstanding the foregoing, the REIT may pay or declare
Distributions during the period of time from July 1, 1995 through June 30, 1996
up to $0.47 per share of stock of the REIT per quarter without violating this
covenant, (ii) the amount necessary to maintain the REIT's status as a real
estate investment trust under Section 856 of the Code, or (iii) the amount
necessary for the REIT to avoid the payment of any federal income or excise tax
(the "Maximum Combined Payout Ratio").
(b) The REIT shall not pay or declare Distributions that
exceed the greatest of (i) (A) 105% for the first three quarters commencing on
July 6, 1995, and (B) 100% for any period thereafter of the combined Funds From
Operating of the REIT in any four consecutive calendar quarters (or if four
consecutive calendar quarters have nor passed since July 6, 1995, the quarterly
periods of time from July 6, 1995); provided that, notwithstanding the
foregoing, the REIT may pay or declare Distributions during the period of time
from July 1, 1995 through June 30, 1996 up to $0.47 per share of stock of the
REIT per quarter without violating this covenant, (ii) the amount necessary to
maintain the REIT's status as a real estate investment trust under Section 856
of the Code or (iii) the amount necessary for the REIT to avoid the payment of
any federal income or excise tax (the "Maximum REIT Payment Ratio").
Section 6.8 Operating Leases. Borrower shall not
terminate any Operating Lease, and shall not, without the prior written consent
of Lender, modify or amend any Operating Lease (other than modifications of a
ministerial nature which do not amend or modify any economic terms or terms
that would have an adverse effect on the value of the Collateral or Lender's
security interest therein).
Section 6.9 Borrower's Partnership Agreement. Neither
Borrower nor the REIT shall amend or modify Section 7.4 of Borrower's
Partnership Agreement or default under any of its obligations under Borrower's
Partnership Agreement.
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SECTION 7. EVENTS OF DEFAULT
Section 7.1 Events of Default. Each of the following
events, acts, occurrences or conditions shall constitute an Event of Default
under this Agreement, regardless of whether such event, act, occurrence or
condition is voluntary or involuntary or results from the operation of law or
pursuant to or as a result of compliance by any Person with any judgment,
decree, order, rule or regulation of any court or administrative or
governmental body:
(a) Failure to Make Payments. Borrower or the REIT shall
(i) default in the payment when due of any principal of the Loan, or
(ii) default in the payment within five (5) days after the due date of
(x) any interest on the Loan or (y) any Fees, Transaction Costs or any
other amounts owing hereunder; provided, however, that any interest
payable with respect to any delinquent payment shall be calculated at
the Default Rate from the date such payment was actually due as if
there were no grace period.
(b) Breach of Representation or Warranty. Any
representation or warranty made by Borrower the REIT or any other Loan
Party herein or in any other Loan Document or in any certificate or
statement delivered pursuant hereto or thereto shall prove to be false
or misleading in any material respect on the date as of which made or
deemed made: provided, however, that if such breach is capable of
being cured, then Borrower and the REIT shall have a period of thirty
(30) days after the earlier of (i) the actual knowledge of such breach
by Borrower or the REIT or (ii) delivery of notice from Lender of such
breach, to cure any such breach.
(c) Breach of Covenants.
(i) Borrower or the REIT or any other Loan Party shall
fail to perform or observe any agreement, covenant or obligation arising under
Sections 5.1, 5.8, 5.15, 5.20, 5.23, 6.4(b), 6.6, 6.8 and 6.9, the Fee Letter,
or fail to pay all sums when due pursuant to Section 6.4(a).
(ii) Borrower or any of the Loan Parties shall fail to
perform or observe any agreement, covenant or obligation arising under Sections
5.9, 5.16, 5.17, 5.18, 5.28, 6.3 and 6.7 and such failure shall continue
uncured for thirty (30) days after the earlier of (A) the actual knowledge of
such failure by Borrower or such Loan Party or (B) delivery of notice from
Lender thereof.
(iii) Borrower or any of the Loan Parties shall fail to
perform or observe any agreement, covenant or obligation arising under this
Agreement (except those described in subsections (a), (b) and (c)(i) and
(c)(ii) above and (d), (e), (f), (g), (h), (i) and (j) below), other than
Section 5.26, the breach of which shall not be deemed an Event of Default, and
such failure
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shall continue uncured for thirty (30) days after delivery of notice thereof,
or such longer period of time as is reasonably necessary to cure such Default,
provided that Borrower or such Loan Party has commenced and is diligently
prosecuting the cure of such Default and cures it within ninety (90) days.
(iv) An Event of Default shall occur under any of the Loan
Documents other than this Agreement.
(d) Default Under Other Agreements.
(i) Borrower, the REIT or any other Loan Party shall
default beyond any applicable grace period in the payment, performance or
observance of any obligation or condition with respect to any recourse
Indebtedness (other than the Whole Loan Facility) or any other event shall
occur or condition exist, if the effect of such default, event or condition is
to accelerate the maturity of any such recourse Indebtedness (other than the
Whole Loan Facility) or to permit (without regard to any required notice or
lapse of time) the holder or holders thereof, or any trustee or agent for such
holders, to accelerate the maturity of any such recourse Indebtedness (other
than the Whole Loan Facility), or any such recourse Indebtedness (other than
the Whole Loan Facility) shall become or be declared to be due and payable
prior to its stated maturity; or an Event of Default (as defined therein) shall
occur under the Whole Loan Facility.
(ii) Borrower or the REIT or HIC is in default under (A)
any non-recourse Indebtedness of Borrower that is equal to or in excess of
$10,000,000, which default results in accelerated Indebtedness or (B) any other
non-recourse Indebtedness that could have a Material Adverse Effect on
Borrower's ability to perform its obligations in connection with the Loan.
(iii) Borrower, the Partnership, HIC, or Imperial Hotels
Corporation, as the case may be, is in default under any material term of the
applicable Operating Lease beyond any applicable grace periods provided
therein.
(e) Bankruptcy, etc. (i) Borrower or any other Loan Party
shall commence a voluntary case concerning itself under the Bankruptcy Code; or
(ii) an involuntary case is commenced against Borrower or any other Loan Party
and the petition is not dismissed within ninety (90) days, after commencement
of the case or (iii) a custodian (as defined in the Bankruptcy Code) is
appointed for, or takes charge of, all or substantially all of the property of
Borrower, any other Loan Party or Borrower or any other Loan Party commences
any other proceedings under any reorganization, arrangement, adjustment of
debt, relief of debtors, dissolution, insolvency or liquidation or similar law
of any jurisdiction whether now or hereafter in effect relating to Borrower,
any other Loan Party or there is commenced against Borrower or any other Loan
Party any such proceeding which remains undismissed for a period of ninety (90)
days; or (iv) any order of relief or other order approving any such case or
proceeding is entered;
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or (v) Borrower or any other Loan Party is adjudicated insolvent or bankrupt;
or (vi) Borrower or any other Loan Party suffers any appointment of any
custodian or the like for it or any substantial part of its property to
continue undischarged or unstayed for a period of ninety (90) days; or (vii)
Borrower or any other Loan Party makes a general assignment for the benefit of
creditors; or (viii) Borrower, any other Loan Party shall fail to pay, or
shall state that it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or (ix) Borrower or any other Loan Party shall
call a meeting of its creditors with a view to arranging a composition or
adjustment of its debt; or (x) Borrower or any other Loan Party shall by any
act or failure to act consent to, approve of or acquiesce in any of the
foregoing; or (xi) any corporate or partnership action is taken by Borrower or
any other Loan Party for the purpose of effecting any of the foregoing.
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(f) ERISA. (i) Any Termination Event shall occur, or (ii)
any Plan shall incur an accumulated funding deficiency (as defined in Section
412 of the Code or Section 302 of ERISA), whether or not waived, or fail to
make a required installment payment on or before the due date under Section 412
of the Code or Section 302 of ERISA, or (iii) Borrower or any of the Loan
Parties or a member of their respective ERISA Controlled Group shall have
engaged in a transaction which is prohibited under Section 4975 of the Code or
Section 406 of ERISA and an exemption shall not be applicable or have been
obtained under Section 408 of ERISA or Section 4975 of the Code, or (iv)
Borrower or any of the other Loan Parties or any member of their respective
ERISA Controlled Group shall fail to pay when due an amount which it shall have
become liable to pay to the PBGC, any Plan, any Multiemployer Plan, or a trust
established under Section 4049 of ERISA, or (v) Borrower shall have received a
notice from the PBGC of its intention to terminate a Plan or to appoint a
trustee to administer such Plan, or Multiemployer Plan which notice shall not
have been withdrawn within fourteen (14) days after the date thereof, or (vi) a
condition shall exist by reason of which the PBGC would be entitled to obtain a
decree adjudicating that a Plan must be terminated or have a trustee appointed
to administer any Plan, or (vii) Borrower or any of the other Loan Parties or a
member of their respective ERISA Controlled Group suffers a partial or complete
withdrawal from a Multiemployer Plan or is in default (as defined in Section
4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan, or
(viii) a proceeding shall be instituted against any of Borrower or any of the
other Loan Parties, which proceeding is reasonably likely to succeed, to
enforce Section 515 of ERISA, or (ix) any other event or condition shall occur
or exist with respect to any Employee Benefit Plan or Plan, any Multiemployer
Plan, which could reasonably be expected to subject Borrower or any of the
other Loan Parties or any member of their respective ERISA Controlled Group to
any tax, penalty or other liability (other than annual contributions or which
is not an Event of Default otherwise under this Section 7.1) or the imposition
of any lien or security interest on Borrower or any of the other Loan Parties
or any member of their respective ERISA Controlled Group, or (x) with respect
to any Multiemployer Plan, the institution of a proceeding to enforce Section
515 of ERISA, which proceeding is reasonably likely to succeed, to terminate
such Plan, the receipt of a notice of reorganization or insolvency under
Sections 4241 or 4245 of ERISA, in any event; provided, however, that events or
circumstances in Sections 7.1(f)(i) through (x) shall only be an Event of
Default if it results in or is reasonably expected to result in liability to
Borrower or any Loan Party in excess of $5,000,000.00 or if it has or is likely
to have a Material Adverse Effect; or (xi) the assets of Borrower or any other
Loan Party become or are deemed to be assets of an Employee Benefit Plan. No
Event of Default under this Section 7.1(f) shall be deemed to have been or be
waived or corrected because of any disclosure by Borrower or any Loan Party.
(g) Judgments. One or more judgments or decrees (i) in an
aggregate amount of $5,000,000 or more are entered against Borrower or the REIT
or any Loan Party since the Closing Date or (ii) which, with respect to
Borrower, the REIT and the other Loan Parties, could result in a Material
Adverse Effect, shall be entered by a court or courts of competent
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jurisdiction against any of such Persons (other than any judgment as to which,
and only to the extent, a reputable insurance company has acknowledged coverage
of such claim in writing) and (x) any such judgments or decrees shall not be
stayed (by appeal or otherwise), discharged, paid, satisfied, bonded or vacated
within thirty (30) days.
(h) REIT. (i) The REIT fails to remain a publicly-traded
real estate investment trust or the REIT and the Corporation fail to remain in
good standing with the New York Stock Exchange and with the Securities and
Exchange Commission or (ii) their shares fail to continue to trade as "paired
shares" and such failure is not cured within thirty (30) days, if a cure is
permitted under Applicable Law.
(i) First Priority Lien. The Loan Documents after
delivery thereof shall for any reason (other than pursuant to the terms
thereof) cease to create a valid and perfected first priority lien on the
Collateral (subject to the Permitted Liens) purported to be covered, hereby or
thereby.
(j) HIC. Notwithstanding anything to the contrary
contained herein, if an Event of Default has occurred solely with respect to
HIC or with respect to any Real Property Asset in Pool 4 or the related Loan
Document, (an "HIC Event of Default"), the Available Facility Amount for Note D
shall be immediately reduced to $0.00, and such HIC Event of Default shall not
be deemed an Event of Default under this Agreement unless Borrower has failed
to repay, without penalty or premium (other than as provided in Section 2.17)
the outstanding principal balance of Note D together with all accrued and
unpaid interest thereon and all Fees and Funding Costs within five (5) Business
Days of the date of the HIC Event of Default.
Section 7.2 Rights and Remedies. (a) Upon the occurrence
of any Event of Default described in Section 7.1(e), the Aggregate Available
Facility Amount, the Available Facility Amount with respect to each Note and
the Maximum Facility Amount shall automatically and immediately terminate and
the unpaid principal amount of and any and all accrued interest on the Loan and
any and all accrued Fees and other Obligations shall automatically become
immediately due and payable, with all additional interest thereon calculated at
the Default Rate from the occurrence of the Default until the Loan is paid in
full and without presentation, demand, or protest or other requirements of any
kind (including, without limitation, valuation and appraisement, diligence,
presentment, notice of intent to demand or accelerate and notice of
acceleration), all of which are hereby expressly waived by Borrower, the REIT
and the other Loan Parties, and the obligation of Lender and all Co-Lenders
(including the Swing Line Lender) to make any Advances hereunder shall
thereupon terminate; and upon the occurrence and during the continuance of any
other Event of Default, Lender may, by written notice to Borrower, (i) declare
that the Aggregate Available Facility Amount, the Available Facility Amount for
each Note and the Maximum Facility Amount is terminated, whereupon the
Aggregate Available
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Facility Amount, the Available Facility Amount for each Note and the Maximum
Facility Amount and the obligation of Lender and all Co-Lenders (including the
Swing Line Lender) to make any Advances (or their pro rata share thereof)
hereunder shall immediately terminate, and (ii) declare the unpaid principal
amount of and any and all accrued and unpaid interest on the Loan and any and
all accrued Fees and other Obligations to be, and the same shall thereupon be,
immediately due and payable with all additional interest thereon calculated at
the Default Rate from the occurrence of the Default until the Loan is paid in
full and without presentation, demand, or protest or other requirements of any
kind (including, without limitation, valuation and appraisement, diligence,
presentment, notice of intent to demand or accelerate and notice of
acceleration), all of which are hereby expressly waived by Borrower, the REIT
and the other Loan Parties.
(b) Upon the occurrence of any Event of Default and
during its continuance, Lender shall have the right to record the Partnership
Mortgages and the Partnership Assignments of Leases and Rents with respect to
the Real Property Assets located in the District of Columbia, Florida, and
Virginia, and Borrower and the REIT shall pay all Transaction Costs in
connection therewith.
(c) Lender and any Co-Lender (including the Swing Line
Lender) may offset any indebtedness, obligations or liabilities owed to
Borrower against any indebtedness, obligations or liabilities of Borrower to
it.
(d) Lender and any Co-Lender may avail itself of any
remedies available to it under the Loan Documents or at law or equity.
SECTION 8. INTENTIONALLY DELETED.
SECTION 9. MISCELLANEOUS.
Section 9.1 Payment of Lender's, Collateral Agent's and
Co-Lender's Expenses, Indemnity, etc. Borrower and the REIT shall:
(a) whether or not the Transactions hereby contemplated
are consummated, pay (i) all reasonable out-of-pocket costs and expenses of
Lender in connection with Lender's due diligence review of the Collateral, the
negotiation, preparation, execution and delivery of the Loan Documents, the
creation, perfection or protection of Lender's, the Collateral Agent and Co-
Lender's Liens in the Collateral (including, without limitation, fees and
expenses for title insurance, property inspections, consultants, surveys, lien
searches, filing and recording fees, and escrow fees and expenses), all
internal valuations and Appraisals of the Real Property Assets made by Lender
(subject to the provisions of Section 5.25) in connection with the
administration of the Loan and any amendment, waiver or consent relating to any
of the Loan Documents
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including Releases, substitutions of Substitute Properties and the addition of
New Properties (including, without limitation, as to each of the foregoing, the
reasonable fees and disbursements of any outside or special counsel to Agent,
Lender or the Collateral Agent) and of Agent, Lender, the Collateral Agent and
Co-Lenders in connection with the preservation of rights under, any amendment,
waiver or consent relating to, and enforcement of, the Loan Documents and the
documents and instruments referred to therein or in connection with any
restructuring or rescheduling of the Obligations (including, without
limitation, the reasonable fees and disbursements of counsel for Agent, Lender
and the Collateral Agent). Notwithstanding anything to the contrary contained
herein or in any other Loan Document, Borrower's and the REIT's obligation to
pay Lender's and the Collateral Agent's (other than the Collateral Agent Fees
but including the Collateral Agent's transition fee) reasonable out-of-pocket
costs and expenses in connection with the closing of the Loan and the
Syndication for legal fees, internal due diligence, Appraisals (subject to the
provisions of Section 5.25) and Engineering Reports and Environmental Reports
with respect to the Initial Assets only shall not exceed the Expense Cap.
(b) pay, and hold Agent, Lender and each Co-Lender
harmless from and against, any and all present and future stamp, excise and
other similar taxes with respect to the foregoing matters and hold Agent,
Lender and each Co-Lender harmless from and against any and all liabilities
with respect to or resulting from any delay or omission (other than to the
extent attributable to Lender or such Co-Lender) to pay such taxes; and
(c) indemnify Agent, Lender (in its capacity as Lender
and as Agent) and each Co-Lender, its officers, directors, employees,
representatives and agents (each an "Indemnitee") from, and hold each of them
harmless against, any and all losses, liabilities, claims, damages, expenses,
obligations, penalties, actions, judgments, suits, costs or disbursements of
any kind or nature whatsoever (including, without limitation, the reasonable
fees and disbursements of counsel for such Indemnitee in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not such Indemnitee shall be designated a party thereto) that may at
any time (including, without limitation, at any time following the payment of
the Obligations) be imposed on, asserted against or incurred by any Indemnitee
as a result of, or arising in any manner out of, or in any way related to or by
reason of, (i) any of the Transactions or the execution, delivery or
performance of any Loan Document, (ii) the breach of any of Borrower's, the
REIT's or other Loan Party's representations and warranties or of any of
Borrower's, the REIT's or other Loan Party's Obligations, (iii) a default under
Sections 4.12 or 5.11, including, without limitation, attorneys' fees and costs
incurred in the investigation, defense, and settlement of losses incurred in
correcting any prohibited transaction or in the sale of a prohibited loan, and
in obtaining any individual prohibited transaction exemption under ERISA that
may be required, and (iv) the exercise by Agent, Lender and the Co-Lenders of
their rights and remedies (including, without limitation, foreclosure) under
any agreements creating any such Lien (but excluding, as to any Indemnitee, any
such losses, liabilities, claims, damages, expenses, obligations, penalties,
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actions, judgments, suits, costs or disbursements to the extent incurred by
reason of the gross negligence or willful misconduct of such Indemnitee as
finally determined by a court of competent jurisdiction) (collectively,
"Indemnified Liabilities"). Borrower and the REIT further agree that, without
Lender's prior written consent, which shall not be unreasonably withheld, they
will not enter into any settlement of a lawsuit, claim or other proceeding
arising or relating to any Indemnified Liability unless such settlement
includes an explicit and unconditional release from the party bringing such
lawsuit, claim or other proceeding of each Indemnitee. Notwithstanding
anything contained herein to the contrary, neither Borrower nor the REIT shall
be liable to pay to Agent, Lender or any Co-Lender any amounts with respect to
a Real Property Asset for claims, other than Environmental Claims (as defined
in the Environmental Indemnity), based upon an event occurring after the
consummation of a transfer by or in lieu of foreclosure of all of the
Collateral relating to such Real Property Asset to the extent such amounts
relate solely to the period after the date of the consummation of such transfer
of Collateral. Borrower's and the REIT's obligations under this Section shall
survive the termination of this Agreement and the payment of the Obligations.
Section 9.2 Notices. Except as otherwise by expressly
provided herein, all notices, requests and demands to or upon the respective
parties hereto to be effective shall be in writing (including by facsimile, or
cable communication), and shall be deemed to have been duly given or made when
delivered by hand, or five (5) days after being deposited in the United States
mail, certified or registered, postage prepaid, or, in the case of facsimile
notice, when sent, answerback received, or, in the case of a nationally
recognized overnight courier service, one (1) Business Day after delivery to
such courier service, addressed, in the case of Borrower and Lender, at the
addresses specified below, or to such other addresses as may be designated by
any party in a written notice to the other parties hereto.
If to Lender, as follows:
For all notices given in accordance with Sections 2.2, 2.6(b),
2.8(b), 2.9(a) and 2.11 of this Agreement to:
Lehman Brothers Holdings Inc.
d/b/a Lehman Capital, a division of
Lehman Brothers Holdings Inc.
Three World Financial Center, 9th Floor
New York, New York 10285
Telephone Number: (212) 526-6970
Telecopier Number: (212) 528-8986
Attention: Frank Gilhool
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with copies thereof to:
Lehman Brothers Holdings Inc.
d/b/a Lehman Capital, a division of
Lehman Brothers Holdings Inc.
Three World Financial Center, 29th Floor
New York, New York 10285
Telephone Number: (212) 526-3140
Telecopier Number: (212) 528-9696
Attention: Donald Petrow
Lehman Brothers Holdings Inc.
d/b/a Lehman Capital, a division of
Lehman Brothers Holdings Inc.
Three World Financial Center, 7th Floor
New York, New York 10285
Telecopier Number: (212) 526-3721
Attention: Scott Kimmel and Annette Nazareth
For all other notices to:
Lehman Brothers Holdings Inc.
d/b/a Lehman Capital, a division of
Lehman Brothers Holdings Inc.
Three World Financial Center, 29th Floor
New York, New York 10285
Telephone Number: (212) 526-3140
Telecopier Number: (212) 528-9696
Attention: Donald Petrow
with a copy thereof to:
Lehman Brothers Holdings Inc.
d/b/a Lehman Capital, a division of
Lehman Brothers Holdings Inc.
Three World Financial Center, 7th Floor
New York, New York 10285
Telecopier Number: (212) 526-3721
Attention: Scott Kimmel and Annette Nazareth
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If to Borrower, as follows:
SLT Realty Limited Partnership,
c/o Starwood Lodging Trust
11845 West Olympic Boulevard, Suite 550
Los Angeles, California 90064
Telephone Number: (310) 575-3900
Telecopier Number: (310) 575-9143
Attention: Mr. Ronald C. Brown
with copies thereof to:
Sidley & Austin
555 West Fifth Street
Los Angeles, California 90013-1010
Telephone Number: (213) 896-6031
Telecopier Number: (213) 896-6600
Attention: Sherwin L. Samuels, Esq.
Section 9.3 Successors and Assigns; Participations;
Assignments. This Agreement shall be binding upon and inure to the benefit of
Borrower, the REIT, Lender, the Co-Lenders, all future holders of the Note and
their respective successors and assigns.
Section 9.4 Amendments and Waivers. (a) Neither this
Agreement, the Note, any other Loan Document to which Borrower, the REIT or any
Loan Party is a party nor any terms hereof or thereof may be amended,
supplemented, modified or waived other than in a writing executed by Borrower,
the REIT, such Loan Party and Lender. If all or a portion of the Loan and the
Maximum Facility Amount is sold to a Co-Lender pursuant to Section 9.9(k), the
Borrower and the REIT acknowledge and agree that any amendment, modification
approval, waiver or request to be granted regarding the terms of this Agreement
shall be given in accordance with the terms, provisions and conditions of the
intercreditor agreement (the "Intercreditor Agreement") to be entered into
between Lender, as agent, and each Co-Lender (the "Intercreditor Agreement"),
provided that such terms, provisions and conditions shall have been disclosed
to Borrower and the REIT; Lender agrees that the terms of such Intercreditor
Agreement shall not be inconsistent with this Agreement, the other Loan
Documents or the Assignment and Assumption.
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(b) In the case of any waiver, Borrower, the REIT, Lender
and all Co-Lenders shall be restored to their former position and rights
hereunder and under the outstanding Note and any other Loan Documents, and any
Default or Event of Default waived shall be deemed to be cured and not
continuing; but no such waiver shall extend to any subsequent or other Default
or Event of Default, or impair any right consequent thereon.
Section 9.5 No Waiver; Remedies Cumulative. No failure or
delay on the part of Lender or any Co-Lender in exercising any right, power or
privilege hereunder or under any other Loan Document and no course of dealing
between Borrower, the REIT or any other Loan Party and Lender or any Co-Lender
shall operate as a waiver thereof nor shall any single or partial exercise of
any right, power or privilege hereunder or under any other Loan Document
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder or thereunder. The rights and remedies
herein expressly provided are cumulative and not exclusive of any rights or
remedies which Lender or any Co-Lender would otherwise have. No notice to or
demand on Borrower, the REIT or any other Loan Party in any case shall entitle
Borrower, the REIT or any other Loan Party to any other or further notice or
demand in similar or other circumstances or constitute a waiver of the rights
of Lender or any Co-Lender, to any other or further action in any circumstances
without notice or demand.
Section 9.6 Governing Law; Submission to Jurisdiction.
(a) This Agreement shall be deemed to be a contract entered into pursuant to
the laws of the State of New York and shall in all respects be governed,
construed, applied and enforced in accordance with the laws of the State of New
York, provided however, that with respect to the creation, perfection, priority
and enforcement of the lien of the Security Instruments, and the determination
of deficiency judgments, the laws of the State where the Real Property Asset is
located shall apply.
(b) Any legal action or proceeding with respect to this
Agreement or any other Loan Document and any action for enforcement of any
judgment in respect thereof may be brought in the courts of the State of New
York or of the United States of America for the Southern District of New York,
and Lender, and each Co-Lender, and, by execution and delivery of this
Agreement, Borrower and the REIT hereby accept for themselves and in respect of
its property, generally and unconditionally, the non-exclusive jurisdiction of
the aforesaid courts and appellate courts from any thereof. Borrower and the
REIT irrevocably consent to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, to Borrower and the
REIT at its address set forth in Section 9.2. Borrower and the REIT and Lender
and each Co-Lender hereby irrevocably waive any objection which they may now or
hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement or any other
Loan Document brought in the courts referred to above and hereby further
irrevocably waive and agree not to plead or claim in any such court that any
such
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action or proceeding brought in any such court has been brought in an
inconvenient forum. Nothing herein shall affect the right of Lender or any
Co-Lender, to serve process in any other manner permitted by law or to commence
legal proceedings or otherwise proceed against Borrower or the REIT in any
other jurisdiction.
Section 9.7 Confidentiality; Disclosure of Information.
Each party hereto shall treat the transactions contemplated hereby and all
financial and other information furnished to it about Borrower, the other Loan
Parties and the Real Property Assets, as confidential; provided, however, that
such confidential information may be disclosed (a) as required by law or
pursuant to generally accepted accounting procedures, (b) to officers,
directors, employees, agents, partners, attorneys, accountants, engineers and
other consultants of the parties hereto who need to know such information,
provided such Persons are instructed to treat such information confidentially,
(c) by Lender to any Participant, Co-Lender, servicer, or assignee
("Transferee"), which disclosure to Transferees and prospective Transferees may
include any and all information which has been delivered to Lender by Borrower
pursuant to this Agreement or the other Loan Documents or which has been
delivered to Lender in connection with Lender's credit evaluation of Borrower
prior to entering into this Agreement, provided that such Transferee agrees to
be bound by the provisions of this Section 9.7, or (d) upon the written consent
of the party whose otherwise confidential information would be disclosed.
Borrower and the REIT acknowledge and agree that Lender may
provide to the Co-Lenders, and that Lender and each of the Co-Lenders may
provide to any Participant, originals or copies of this Agreement, all Loan
Documents and all other documents, instruments, certificates, opinions,
insurance policies, letters of credit, reports, requisitions and other
materials and information of every nature or description, and may communicate
all oral information, at any time submitted by or on behalf of Borrower or the
REIT or received by Lender in connection with the Loan or Borrower or the REIT.
Section 9.8 Recourse. The Loan and the Obligations shall
be fully recourse to Borrower; however, no personal liability or personal
deficiency judgment shall be asserted or enforced against the REIT except as a
result and to the extent of (i) fraud or intentional misrepresentation by
Borrower or any other Loan Party; (ii) Borrower's or any other Loan Party's
misapplication or misappropriation of Gross Revenues or Accounts Receivable
received by Borrower after the occurrence of an Event of Default; (iii) the
misapplication or the misappropriation of insurance proceeds or condemnation
awards; or (iv) the occurrence of an Event of Default under Section 7.1(f) of
this Agreement and nothing contained in this Section 9.8 shall limit, affect or
impair any of Lender's rights or remedies against the REIT under the
Environmental Indemnity Agreement. Notwithstanding the foregoing, the
agreement of Lender to not assert or enforce personal liability or a personal
deficiency judgment against the REIT SHALL BECOME NULL AND VOID and shall be of
no further force and effect in the event that there is any breach of Section
7.4 of Borrower's Partnership Agreement or of Sections
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5.5(c), 6.4(b) or 6.9 of this Agreement. Lender and each Co-Lender
acknowledges and agrees that the name "Starwood Lodging Trust" is a designation
of the REIT and its Trustees (as Trustees but not personally) under a
Declaration of Trust dated August 25, 1969, as amended and restated as of June
6, 1988, as further amended on February 1, 1995 and as further amended on June
19, 1995 and as the same may be further amended from time to time, and all
persons dealing with the REIT shall look solely to the REIT's assets for the
enforcement of any claims against the REIT, as the Trustees, officers, agents
and security holders of the REIT assume no personal liability for obligations
entered into on behalf of the REIT, and their respective individual assets
shall not be subject to the claims of any person relating to such obligations.
The foregoing shall govern all direct and indirect obligations of the REIT
under this Agreement and the Loan Documents.
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Section 9.9 Sale of Loan, Co-Lenders, Participations and
Servicing.
(a) After the earliest to occur of (or simultaneously
with) (i) the Syndication, (ii) January 31, 1996 or (iii) Borrower's rejection
of a Syndication, Lender may, at its option, sell with novation all or any part
of its right, title and interest in, and to, and under the Loan, including,
without limitation, all or a portion of its obligation to make Advances, and
its interest in the outstanding principal balance of the Loan, to one or more
entities (any entity that purchases an interest in the Loan with novation, a
"Co-Lender"); notwithstanding the foregoing, provided that no Event of Default
has occurred and is continuing, any such sale with novation during the Draw
Period to any Co-Lender that is not an Affiliate of Lender shall be subject to
Borrower's prior written approval, which approval shall not be unreasonably
withheld or delayed. Each Co-Lender shall purchase an interest in the Loan of
at least $5,000,000.00. Lender and each Co-Lender shall enter into an
assignment and assumption agreement substantially in the form attached hereto
as Exhibit "Y" (the "Assignment and Assumption") assigning a portion of
Lender's rights and obligations under the Loan, and pursuant to which the
Co-Lender accepts such assignment and assumes the assigned obligations. From
and after the effective date specified in the Assignment and Assumption (A)
each Co-Lender shall be a party hereto and to each Loan Document to the extent
of the applicable percentage or percentages set forth in the Assignment and
Assumption and, except as specified otherwise herein, shall succeed to the
rights and obligations of Lender hereunder and thereunder in respect of the
Loan (including, without limitation, its pro rata share of Lender's obligations
to make Advances hereunder), and (B) Lender, as lender shall, to the extent
such rights and obligations have been assigned pursuant to such Assignment and
Assumption, relinquish its rights and be released from its obligations
hereunder and under the Loan Documents. The liabilities of Lender and each of
the Co-Lenders shall be several and not joint, and Lender's obligations to
Borrower under this Agreement shall be reduced by the amount of each such
Assignment and Assumption. Neither Lender nor any Co-Lender shall be
responsible for the obligations of any other Co- Lender. Lender and each
Co-Lender shall be liable to Borrower only for their respective proportionate
shares of the Loan. If for any reason any of the Co-Lenders shall fail or
refuse to abide by their obligations under this Agreement, Lender and the other
Co- Lenders shall not be relieved of their obligations, if any, hereunder,
including their obligations to make their pro rata share of any Advance on the
date set forth for such Advance in the Notice of Borrowing.
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(b) Intentionally Omitted.
(c) Borrower and the REIT agree that they shall, in
connection with any sale of all or any portion of the Loan, whether in whole,
subject to Section 9.9(d), or to a Co-Lender or Participant, within ten (10)
business days after requested by Lender, furnish Lender with the certificates
required under Section 9.22(a) and (b) and such other information as reasonably
requested by any Co-Lender or Participant in performing its due diligence in
connection with its purchase of an interest in the Loan.
(d) During the Draw Period and provided that no Default
or Event of Default has occurred and is continuing, Lender shall retain at
least a ten percent (10%) direct ownership interest in the Loan and in the
Maximum Facility Amount.
(e) Unless the entire Loan has been sold to a single
entity other than an Affiliate of Lender, Lender (or an Affiliate of Lender)
shall act as administrative agent for itself and the Co-Lenders (together with
any successor administrative agent, the "Agent") pursuant to this Section
9.9(e). Subsequent to the Syndication, Lender shall have the right to appoint
a successor administrative agent for the Loan or delegate any portion of the
administrative agent's duties. Borrower acknowledges that Lender, as Agent
shall have the sole and exclusive authority to execute and perform this
Agreement and each Loan Document on behalf of itself, as Lender and as agent
for itself and the Co-Lenders. Borrower may rely conclusively on the actions
of Lender as Agent to bind Lender and the Co-Lenders, notwithstanding that the
particular action in question may, pursuant to this Agreement or any
Intercreditor Agreement among Lender and the Co-Lenders, be subject to the
consent or direction of the Co-Lenders. Lender may resign as Agent of the
Co-Lenders, in its sole discretion, without the consent of Borrower; provided
however, that prior to the Syndication, Lender may only resign as Agent (i)
after an Event of Default has occurred or (ii) if required to by the
Co-Lenders. Upon any such resignation, the Co-Lenders shall have the right to
appoint a successor Agent. If, within thirty (30) days of the Agent's
resignation, a successor Agent has not been appointed or such successor has not
accepted such appointment, then the retiring Agent may, on behalf of the
Co-Lenders, appoint a successor Agent. Upon appointment of a successor Agent,
the successor Agent shall succeed to the rights, powers and duties of the Agent
hereunder and the retiring Agent's rights, powers and duties as Agent shall be
terminated without any other or further act or deed on the part of the retiring
Agent, Borrower, or the Co-Lenders.
The Collateral Agent shall have no duties or obligations with
respect to Borrower or the Loan other than to serve as a custodian of the
Collateral as agent of Lender and the Co-Lenders and to serve as mortgagee,
beneficiary or secured party, as the case may be, of record with respect to the
Loan Documents for the benefit of Lender and the Co-Lenders pursuant to a
Custodial Agreement dated the date hereof between Lender as Agent, and the
Collateral Agent
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(the "Custodial Agreement"). Lender and the Co-Lenders shall have the right to
terminate or change the Collateral Agent and enter into a new Custodial
Agreement, provided that the Collateral Fees to be paid by Borrower hereunder
are not significantly increased.
(f) Except to the extent its obligations hereunder and
its interest in the Loan have been assigned pursuant to one or more Assignments
and Assumption, Lehman Brothers Holdings Inc. ("Lehman") as Lender, shall have
the same rights and powers under this Agreement as any other Co-Lender and may
exercise the same as though it were not the Agent. The term "Co-Lender" or
"Co- Lenders" shall, unless otherwise expressly indicated, include Lehman in
its individual capacity. Lehman and the other Co-Lenders and their respective
affiliates may accept deposits from, lend money to, act as trustee under
indentures of, and generally engage in any kind of business with, Borrower,
Loan Party or any Affiliate of Borrower or Loan Party and any Person or entity
who may do business with or own securities of Borrower or Loan Party or any
Affiliate of Borrower or Loan Party or any Subsidiary thereof, all as if they
were not serving in such capacities hereunder and without any duty to account
therefor to each other.
(g) This Agreement is being entered into by Lender
individually and as agent for one or more Co-Lenders, and upon the execution
and delivery of each Assignment and Assumption, privity of contract shall be
created as between (i) Lender and each Co-Lender and (ii) Borrower and each
Co-Lender.
(h) Lender, as Agent shall maintain at its domestic
lending office or at such other location as Lender, as Agent shall designate in
writing to each Co-Lender and Borrower a copy of each Assignment and Assumption
delivered to and accepted by it and a register for the recordation of the names
and addresses of the Co-Lenders, the amount of each Co-Lender's proportionate
share of the Maximum Facility Amount and the Loan and the name and address of
each Co-Lender's agent for service of process (the "Register"). The entries in
the Register shall be conclusive and binding for all purposes, absent manifest
error, and Borrower, Lender, as Agent and the Co-Lenders may treat each person
or entity whose name is recorded in the Register as a Co-Lender hereunder for
all purposes of this Agreement. The Register shall be available for inspection
and copying by Borrower or any Co-Lender during normal business hours upon
reasonable prior notice to the Agent. A Co-Lender may change its address and
its agent for service of process upon written notice to Lender, as Agent and
Borrower, which notice shall only be effective upon actual receipt by Lender
and Borrower, which receipt will be acknowledged by Lender as Agent, and
Borrower upon request.
(i) Notwithstanding anything herein to the contrary, any
financial institution or other entity may be sold a participation interest in
the Loan by Lender or any Co-Lender without Borrower's consent (such financial
institution or entity, a "Participant") (x) if such sale is without novation
and (y) if the other conditions set forth in this paragraph are met. No
Participant shall be considered a Lender or Co-Lender hereunder or under any
Note or the Loan
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Documents. No Participant shall have any rights under this Agreement, the
Notes or any of the Loan Documents and the Participant's rights in respect of
such participation shall be solely against Lender or Co-Lender, as the case may
be, as set forth in the participation agreement executed by and between Lender
or Co-Lender, as the case may be, and such Participant. The terms of any
participation agreement between Lender or Co-Lender, as the case may be, and
its Participant shall not grant the Participant any consent rights except for
consent to (i) changes in the interest rate and term of the Loan, (ii) increase
in the principal amount of the Loan (except for protective advances and
increases made in accordance with Sections 2.22, 2.23 and 2.24 hereof), (iii)
release of collateral (except for Section 2.21 hereof), (iv) release of any
party liable for repayment of the Loan, (v) forbearance, (vi) consents to
subordinate financing of the Real Property Asset(s), (vii) the acceleration of
the Loan or commencement of foreclosure, (viii) the acquisition of foreclosed
property and (ix) the management of, and ultimate sale of, real estate owned.
No participation shall relieve Lender or Co-Lender, as the case may be, from
its obligations hereunder or under the Notes or the Loan Documents and Lender
or Co-Lender, as the case may be,shall remain solely responsible for the
performance of its obligations hereunder.
(j) Notwithstanding any other provision set forth in this
Agreement, the Lender or any Co-Lender may at any time create a security
interest in all or any portion of its rights under this Agreement (including,
without limitation, amounts owing to it in favor of any Federal Reserve Bank in
accordance with Regulation A of the Board of Governors of the Federal Reserve
System), provided that no such security interest or the exercise by the secured
party of any of its rights thereunder shall release Lender or Co-Lender from
its funding obligations hereunder.
(k) If prior to January 31, 1996, Lender receives written
commitments from one or more Co-lenders to fund, in the aggregate, up to an
additional $60,000,000.00 under the Loan, pursuant to the terms and conditions
of the Syndication Letter dated the date hereof between Lender and Borrower and
the REIT (the "Syndication Letter"), the Maximum Facility Amount shall, upon
execution and delivery of Assignment and Assumption Agreements and
Intercreditor Agreements satisfactory to Lender, upon payment of all Commitment
Fees pursuant to and as defined in the Fee Letter and the Syndication Letter,
and upon notice to and acceptance by Borrower, increase the Maximum Facility
Amount up to $135,000,000.00 without any further action on the part of Lender
or any Co- Lender (the "Syndication"). Any such increase in the Maximum
Facility Amount is subject to the terms and conditions of the Syndication
Letter. Upon Syndication, Borrower may elect to have a portion of the Maximum
Facility Amount, up to an aggregate amount of $10,000,000.00, consist of Swing
Line Advances from one designated Co-Lender (the "Swing Line Lender").
Notwithstanding anything to the contrary contained herein, but
subject to the terms and conditions of the Syndication Letter, Lender shall be
under no obligation to advance
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other proceeding arising or relating to such a liability unless such settlement
includes an explicit and unconditional release from the party bringing such
lawsuit, claim or more than $75,000,000.00 from its own funds. The sale of pro
rata interests in the initial $75,000,000.00 Initial Facility Amount to
Co-lenders shall not be deemed a Syndication.
(l) Each Lender, Co-Lender and Participant represents,
warrants and covenants, and each person to whom a Lender or Co-Lender or
Participant directly or indirectly sells or assigns or otherwise transfers all
or any part of its right, title or interest in, or to, or under the Loan (i.e.,
a Transferee), shall be deemed to represent, warrant and covenant, to Borrower
and each of the Loan Parties that they and each other Person to whom all or any
part of any Lender, Co-Lender, Participant or Transferee's right, title or
interest in, or to, or under the Loan is directly or indirectly sold or
assigned or otherwise transferred are not, and shall not be, a Plan Asset
Entity at any time any Lender, Co-Lender, Participant, Transferee or other
Person has any right, title or interest in, or to, or under the Loan, unless
such person being a Plan Asset Entity would not result in a non-exempt
prohibited transaction under section 406 of ERISA or Section 4975 of the Code
because of an exemption or otherwise. Notwithstanding any provision of this
Agreement or any Loan Document, if this representation, warranty and covenant
is breached and a prohibited transaction under Section 406 of ERISA in Section
4975 of the Code results, (i) neither Borrower nor any Loan Party shall be
considered to be in breach of any representation, warranty or covenant of this
Agreement or of any Loan Document that is breached or becomes untrue as a
result of a prohibited transaction caused by a sale or assignment or other
transfer in violation of the preceding sentence, (ii) no Event of Default or
Default shall be considered to occur pursuant to this Agreement as a result of
a prohibited transaction caused by a sale or assignment or other transfer in
violation of the preceding sentence, and similarly no default to the detriment
of Borrower or any Loan Party shall be deemed to occur pursuant to any other
Loan Document as a result of a prohibited transaction caused by a sale or
assignment or other transfer in violation of the preceding sentence and (iii)
the Person breaching the representation, warranty and covenant shall indemnify
and hold harmless Borrower and each Loan Party from any and all actual, but in
no event consequential, losses, expenses, and liabilities resulting to Borrower
and any Loan Party resulting therefrom or in connection therewith.
In the event that liability is sought to be imposed on any
Person pursuant to the indemnification in the subsection (iii) of the preceding
sentence ("ERISA Indemnitee"), then such ERISA Indemnitee shall have the right,
if it so chooses, to control any litigation or arbitration involving potential
liability, loss or expenses under such subsection (iii) and if such ERISA
Indemnitee is not timely informed of a claim for liability and given the right
to exercise such control, then indemnification under subsection (iii) in the
preceding sentence shall be null and void. Borrower and the Loan Parties agree
that, without the prior written consent of the ERISA Indemnitee, which shall
not unreasonably be withheld, they shall not enter into any settlement of a
lawsuit, claim or other proceeding arising or relating to such a liability
unless such settlement includes an explicit and unconditional release from the
party bringing such lawsuit, claim or
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other proceeding of each Lender, Co-Lender, Participant and any Transferee,
including each ERISA Indemnitee.
Section 9.10 Borrower's and REIT's Assignment. Neither
Borrower nor the REIT may assign its rights or obligations hereunder without
the prior written consent of Lender.
Section 9.11 Counterparts. This Agreement may be executed
in any number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument.
Section 9.12 Effectiveness. This Agreement shall become
effective on the date on which all of the parties hereto shall have signed a
counterpart hereof and shall have delivered the same to Lender.
Section 9.13 Headings Descriptive. The heading of the
several Sections and subsections of this Agreement are inserted for convenience
only and shall not in any way affect the meaning or construction of any
provision of this Agreement.
Section 9.14 Marshaling; Recapture. Lender shall be under
no obligation to marshal any assets in favor of Borrower, the REIT, any other
Loan Party or any other party or against or in payment of any or all of the
Obligations. To the extent Lender receives any payment by or on behalf of
Borrower, the REIT or any other Loan Party, which payment or any part thereof
is subsequently invalidated, declared to be fraudulent or preferential, set
aside or required to be repaid to Borrower, the REIT or such other Loan Party
or its estate, trustee, receiver, custodian or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then to
the extent of such payment or repayment, the obligation or part thereof which
has been paid, reduced or satisfied by the amount so repaid shall be reinstated
by the amount so repaid and shall be included within the liabilities of
Borrower, the REIT or such other Loan Party to Lender as of the date such
initial payment, reduction or satisfaction occurred.
Section 9.15 Severability. In case any provision in or
obligation under this Agreement or the Note or the other Loan Documents shall
be invalid, illegal or unenforceable in any jurisdiction, the validity,
legality and enforceability of the remaining provisions or obligations, or of
such provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
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Section 9.16 Survival. Except as expressly provided to
the contrary herein, all indemnities set forth herein including, without
limitation, in Sections 2.16, 2.17, 2.18, 2.19 and 9.1 shall survive the
execution and delivery of this Agreement, the Note and the Loan Documents and
the making and repayment of the Loan hereunder.
Section 9.17 Domicile of Loan Portions. Lender may
transfer and carry any Loan Portion at, to or for the account of any domestic
or foreign branch office, subsidiary or affiliate, subject to Sections 2.19 and
9.9, and provided that such transfer does not result in any increase in the
costs to be paid by Borrower and the REIT under Sections 2.16, 2.18 or 2.19.
Section 9.18 Intentionally Omitted.
Section 9.19 Calculations; Computations. Except as
otherwise expressly provided herein, the financial statements to be furnished
to Lender pursuant hereto shall be made and prepared in accordance with GAAP
consistently applied throughout the periods involved and consistent with GAAP
as used in the preparation of the financial statements referred to in Section
4.5.
SECTION 9.20 WAIVER OF TRIAL BY JURY. TO THE EXTENT
PERMITTED BY APPLICABLE LAW, BORROWER, THE REIT, LENDER AND ALL CO-LENDERS EACH
HEREBY IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT OR ANY MATTER ARISING HEREUNDER OR THEREUNDER.
Section 9.21 No Joint Venture. Notwithstanding anything
to the contrary herein contained, Lender by entering into this Agreement or by
taking any action pursuant hereto, will not be deemed a partner or joint
venturer with Borrower or the REIT and Borrower and the REIT agree to hold
Lender harmless from any damages and expenses resulting from such a
construction of the relationship of the parties hereto or any assertion
thereof.
Section 9.22 Estoppel Certificates. (a) Borrower, the
REIT and Lender each hereby agree at any time and from time to time upon not
less than ten (10) Business Days prior written notice by Borrower or Lender to
execute, acknowledge and deliver to the party specified in such notice, a
statement, in writing, certifying whether this Agreement is unmodified and in
full force and effect (or if there have been modifications, whether the same,
as modified, is in full force and effect and stating the modifications hereto),
and stating whether or not, to the best knowledge of such certifying party, any
Default or Event of Default has occurred and is then continuing, and, if so,
specifying each such Default or Event of Default; provided, however, that it
shall be a condition precedent to Lender's obligation to deliver the statement
pursuant to this
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Section, that Lender shall receive, together with Borrower's request for such
statement, a certificate of a general partner or senior executive officer of
Borrower and the REIT stating that no Default or Event of Default exists as of
the date of such certificate (or specifying such Default or Event of Default).
(b) Within ten (10) Business Days of Lender's request,
Borrower shall execute and deliver a certificate of the general partner of
Borrower or senior executive officer of Borrower and the REIT confirming the
then aggregate outstanding principal balance of the Loan, the outstanding
principal balance with respect to each Note of each Eurodollar Portion and each
Base Rate Portion, the Contract Rate for each Loan Portion, the dates to which
all interest has been paid, and the Interest Period for each Eurodollar
Portion. Such statement shall be binding and conclusive on Borrower absent
manifest error.
Section 9.23 No Other Agreements. This Agreement, the
Loan Documents, the Fee Letter and the Syndication Letter constitute the entire
understanding of the parties with respect to the transactions contemplated
hereby, and all prior understandings with respect thereto, whether written or
oral, shall be of no force and effect.
Section 9.24 Controlling Document. In the event of a
conflict between the provisions of this Agreement and the other Loan Documents
the provisions of this Agreement shall control and govern the conflicting
provisions of the other Loan Documents.
Section 9.25 No Benefit to Third Parties. This Agreement
is for the sole and exclusive benefit of Borrower, the REIT and Lender and the
Co-Lenders and the Swing Line Lender and all conditions of the obligation of
Lender and the Co-Lenders and the Swing Line Lender to make Advances hereunder
are imposed solely and exclusively for the benefit of Lender and the Co-Lenders
and the Swing Line Lender and their respective assigns and no other person
shall have standing to require satisfaction of such conditions in accordance
with their terms or be entitled to assume that Lender and any Co-Lender and the
Swing Line Lender will refuse to make Advances in the absence of strict
compliance with any and all thereof and no other person shall under any
circumstances be deemed to be a beneficiary of such conditions, any or all of
which may be freely waived in whole or in part by Lender at any time if it in
its sole discretion deems it advisable to do so. Without limiting the
generality of the foregoing, Lender shall not have any duty or obligation to
anyone to ascertain that funds advanced hereunder are used as required by the
terms hereof or to pay the cost of constructing the improvements on any of the
Real Property Assets or to acquire materials and supplies to be used in
connection therewith or to pay costs of owning, operating and maintaining same.
Section 9.26 Joint and Several. Subject to the terms and
conditions of Section 9.8, Borrower and the REIT are each jointly and severally
liable for the payment in full of the Loan
<PAGE> 120
-113-
and all other sums owing under this Agreement, the Note, the Security
Instruments and any other Loan Documents and the performance of all of the
Obligations.
<PAGE> 121
-114-
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
SLT REALTY LIMITED PARTNERSHIP
By: Starwood Lodging Trust, its general
partner
By:
-------------------------------
Name:
Title:
STARWOOD LODGING TRUST
By:
-------------------------------------
Name:
Title:
LEHMAN BROTHERS HOLDINGS INC.
D/B/A LEHMAN CAPITAL, A DIVISION
OF LEHMAN BROTHERS HOLDINGS
INC., a Delaware corporation
By:
-------------------------------------
Name:
Title:
BANKERS TRUST COMPANY, AS
COLLATERAL AGENT FOR THE
BENEFIT OF THE SENIOR LENDERS
By:
-------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE CORPORATION
-------------------------------
SLC Operating Limited Partnership
Hotel Investors of Arizona, Inc.
Hotel Investors of Nebraska, Inc.
Hotel Investors of Michigan, Inc.
Hotel Investors of Missouri, Inc.
Hotel Investors Corporation of Nevada
Hotel Investors of Virginia, Inc.
Columbus Operators, Inc.
Lyntex Properties, Inc.
Western Host, Inc.
SUBSIDIARIES OF THE TRUST
-------------------------
SLT Realty Limited Partnership
Starlex Company LLC
SLT Realty Company LLC
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-64335 and 33-64335-01 of Starwood Lodging Trust and Starwood Lodging
Corporation on Form S-3, of our report dated March 24, 1995, appearing in this
Annual Report on Form 10-K of Starwood Lodging Trust and Starwood Lodging
Corporation for the year ended December 31, 1995.
DELOITTE & TOUCHE LLP
Los Angeles, California
March 27, 1996
<PAGE> 2
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-64335 and 33-64335-01 of Starwood Lodging Trust and Starwood Lodging
Corporation on Form S-3 of our report dated January 31, 1996 appearing in the
Annual Report on Form 10-K of Starwood Lodging Trust and Starwood Lodging
Corporation for the year ended December 31, 1995.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Los Angeles, California
March 27, 1996
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RELATED
BALANCE SHEETS AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ON THE JOINT ANNUAL REPORT ON FORM 10K.
</LEGEND>
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<NAME> STARWOOD LODGING CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
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<PERIOD-START> JAN-01-1995
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<INCOME-TAX> (1,739,000)
<INCOME-CONTINUING> (1,739,000)
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<EPS-PRIMARY> (0.22)
<EPS-DILUTED> 0.00
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RELATED
BALANCE SHEETS AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ON THE JOINT ANNUAL REPORT ON FORM 10K.
</LEGEND>
<CIK> 0000048595
<NAME> STARWOOD LODGING TRUST
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
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<DISCONTINUED> 0
<EXTRAORDINARY> (2,155,000)
<CHANGES> 0
<NET-INCOME> 10,709,000
<EPS-PRIMARY> 1.35
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