<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
------------------------
[X] JOINT ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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.)
2231 E. CAMELBACK ROAD, SUITE 410 2231 E. CAMELBACK ROAD, SUITE 400
PHOENIX, ARIZONA 85016 PHOENIX, ARIZONA 85016
(ADDRESS OF PRINCIPAL EXECUTIVE (ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES, INCLUDING ZIP CODE) OFFICES, INCLUDING ZIP CODE)
(602) 852-3900 (602) 852-3900
(REGISTRANT'S TELEPHONE NUMBER, (REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE) INCLUDING AREA CODE)
</TABLE>
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b)OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Shares of Beneficial Interest, $0.01 per value, of New York Stock Exchange
Starwood
Lodging Trust ("Trust Shares") paired with
Shares of Common Stock, $0.01 par value, of
Starwood Lodging Corporation ("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 March 7, 1997, the aggregate market value of the Registrants' voting stock
held by non-affiliates(1) was $1,730,804,119.
As of February 28, 1997 the Registrants had outstanding 42,975,478 Trust Shares
and 42,975,478 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.
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM
NUMBER
IN FORM
10-K PAGE
- ------- ----
<C> <S> <C>
PART I
1. Business....................................................................... 1
2. Properties..................................................................... 10
3. Legal Proceedings.............................................................. 18
4. Submission of Matters to a Vote of Security Holders............................ 18
PART II
5. Market for Registrants' Common Equity and Related Stockholder Matters.......... 19
6. Selected Financial Data........................................................ 20
Management's Discussion and Analysis of Financial Condition and Results of
7. Operations..................................................................... 22
8. Financial Statements and Supplementary Data.................................... 30
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure..................................................................... 30
PART III
10. Trustees, Directors and Executive Officers of the Registrants.................. 31
11. Executive Compensation......................................................... 37
12. Security Ownership of Certain Beneficial Owners and Management................. 44
13. Certain Relationships and Related Transactions................................. 48
PART IV
Exhibits, Financial Statements, Financial Statement Schedules and Reports on
14. Form 8-K....................................................................... 50
</TABLE>
(i)
<PAGE> 3
This Joint Annual Report of Starwood Lodging Trust (the "Trust") and
Starwood Lodging Corporation (the "Corporation" and, together with the Trust,
"Starwood Lodging" or the "Company") on Form 10-K contains statements which
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements appear in a number of
places in this Report, including, without limitation, Acquisition and
Development Strategy, Operating Strategy, Other Information, and Management's
Discussion and Analysis of Financial Condition and Results of Operations. Such
forward-looking statements include statements regarding the intent, belief or
current expectations of Starwood Lodging, its Trustees, Directors or its
officers with respect to the matters discussed in this Report. Prospective
investors are cautioned that any such forward-looking statements involve risks
and uncertainties, and that actual results may differ materially from those in
the forward-looking statements as a result of various uncertainties and other
factors, including, without limitation, those set forth below.
GENERAL FACTORS AFFECTING INVESTMENTS IN THE HOTEL INDUSTRY
Operating Risks. The properties of the Company are subject to all
operating risks common to the hotel industry. These risks include: changes in
general economic conditions; the level of demand for rooms and related services;
cyclical over-building in the hotel industry; restrictive changes in zoning and
similar land use laws and regulations or in health, safety and environmental
laws, rules and regulations; the inability to secure property and liability
insurance to fully protect against all losses or to obtain such insurance at
reasonable rates; and changes in travel patterns. In addition, the hotel
industry is highly competitive. The properties of the Company compete with other
hotel properties in their geographic markets. However, some of the Company's
competitors may have substantially greater marketing and financial resources
than the Company.
The Company may compete for acquisition opportunities with entities which
have substantially greater financial resources than the Company. These entities
may generally be able to accept more risk than the Company can prudently manage.
Competition may generally reduce the number of suitable investment opportunities
offered to the Company and increase the bargaining power of property owners
seeking to sell. Further, management believes that it will face competition for
acquisition opportunities from entities organized for purposes substantially
similar to the objectives of the Company.
Franchise Agreement Risks. The majority of the Company's hotels are
operated pursuant to existing franchise or license agreements. Franchise
agreements generally contain specific standards for, and restrictions and
limitations on, the operation and maintenance of a hotel property in order to
maintain uniformity in the system created by the franchisor. In addition,
compliance with such standards could require a franchisee to incur significant
expenses or capital expenditures. Certain of the franchise agreements require
the Company to obtain the consent of the franchisor to certain matters,
including certain securities offerings.
Seasonality of Hotel Business. 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. As a result, the Trust may be required from time
to time to borrow to provide funds necessary to make quarterly distributions.
Regulation of Gaming Operations. The Company's casino gaming facilities
located in Las Vegas, Nevada, are subject to extensive licensing and regulatory
control by the Nevada Gaming Commission and other Nevada authorities. These
regulatory authorities have broad powers with respect to the licensing of gaming
operations, and may revoke, suspend, condition or limit the gaming approvals and
licenses of the Corporation
(ii)
<PAGE> 4
and its gaming subsidiary, impose substantial fines and take other actions, any
of which could have a material adverse effect on the Corporation's business and
the going concern value of the Trust's hotel/casinos. Directors, officers and
certain key employees of the Corporation and its gaming subsidiary are subject
to licensing or suitability determinations by the Nevada Gaming Commission and
local gaming authorities. If the Nevada Gaming Commission were to find a person
occupying any such position unsuitable, the Corporation would be required to
sever its relationship with that person.
REAL ESTATE INVESTMENT RISKS
General Risks. Real property investments are subject to varying degrees of
risk. The investment returns available from equity investments in real estate
depend in large part on the amount of income earned and capital appreciation
generated by the related properties as well as the expenses incurred. If the
properties of the Company do not generate revenue sufficient to meet operating
expenses, including debt service and capital expenditures, the income of the
Company and its ability to make distributions to its shareholders will be
adversely affected. In addition, income from properties and real estate values
are also affected by a variety of other factors, such as governmental
regulations and applicable laws (including real estate, zoning and tax laws),
interest rate levels and the availability of financing. In addition, equity real
estate investments, such as the investments held by the Company and any
additional properties that may be acquired by the Company, are relatively
illiquid.
Possible Liability Relating to Environmental Matters. Under various
federal, state and local environmental laws, ordinances and regulations, a
current or previous owner or operator of real property may become liable for the
costs of removal or remediation of hazardous or toxic substances on, under or in
such property. Such laws often impose liability without regard to whether the
owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. The presence of hazardous or toxic substances, or
the failure properly to remediate such substances when present, may adversely
affect the owner's ability to sell or rent such real property or to borrow using
such real property as collateral. Persons who arrange for the disposal or
treatment of hazardous or toxic wastes may be liable for the costs of removal or
remediation of such wastes at the disposal or treatment facility, regardless of
whether such facility is owned or operated by such person. Other federal, state
and local laws, ordinances and regulations require abatement or removal of
certain asbestos-containing materials in the event of demolition or certain
renovations or remodeling and govern emissions of and exposure to asbestos
fibers in the air. The operation and subsequent removal of certain underground
storage tanks also are regulated by federal and state laws. Future remediation
costs are not expected to have a material adverse effect on the Company's
results of operations or financial position 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 Company.
RISKS OF DEBT FINANCING
As a result of incurring debt, the Company is subject to the risks normally
associated with debt financing, including the risk that cash flow from
operations will be insufficient to meet required payments of principal and
interest. A majority of the hotels are mortgaged to secure payment of certain of
this indebtedness, and if the mortgage payments cannot be made, a loss could be
sustained as a result of a foreclosure by the mortgagee.
The Company currently maintains floating rate indebtedness, and may utilize
floating rate financing in future transactions. Increases in these interest
rates could adversely affect the Company's results from operations and adversely
impact its ability to meet its debt service.
The Company is obligated to repay certain of this indebtedness in the near
future when it matures. Although the Company anticipates that it will be able to
repay or refinance such indebtedness and any other indebtedness, there can be no
assurance that it will be able to do so or that the terms of such refinancings
will be favorable to the Company.
(iii)
<PAGE> 5
PART I
ITEM 1. BUSINESS.
Starwood Lodging Trust, formerly Hotel Investors 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, 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" or the "Company" 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, 1996, Starwood Lodging owned equity interests in 62 hotel
properties and owned mortgage interests in another 14 hotel properties. At such
date, of the 62 hotels in which Starwood Lodging owned an equity interest, seven
hotels were being managed by third-party operators including four hotels being
managed pursuant to leases to third-party operators. For information as to such
interests and properties, see Item 2 of this Joint Annual Report.
At March 10, 1997 (the "date of this Joint Annual Report"), Starwood
Lodging owned equity or mortgage interests in, or managed for third-party
owners, a total of 98 hotels containing over 26,000 rooms located in 27 states
and the District of Columbia.
ACQUISITION AND DEVELOPMENT STRATEGY
Starwood Lodging intends to continue to expand and diversify its hotel
portfolio through the acquisition of primarily upscale hotels in major
metropolitan areas. Starwood Lodging believes that hotels in this segment 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 profits can be
increased by the introduction of more professional and efficient management
techniques, a change of franchise affiliation or the injection of capital for
renovating, repositioning or expanding a property. Properties are targeted
throughout the United States, but Starwood Lodging generally focuses on markets
with favorable demographic trends, significant barriers to entry or major room
demand generators such as office or retail complexes, airports, tourist
attractions, or universities.
1
<PAGE> 6
Consistent with this strategy, Starwood Lodging acquired equity interests
in the following 30 hotels during 1996 (the "1996 Properties"):
<TABLE>
<CAPTION>
APPROXIMATE
DATE APPROXIMATE PURCHASE PRICE
OF PURCHASE PRICE PER ROOM
HOTEL LOCATION PURCHASE (000'S) ROOMS (000'S)
- --------------------------------- ---------------------- -------- -------------- ------ --------------
<S> <C> <C> <C> <C> <C>
Westin Hotel..................... Washington, DC 1/04/96 $ 33,000 263 $125
Boston Park Plaza................ Boston, MA 1/24/96 96,478(1)(2) 960 85
Midland Hotel.................... Chicago, IL 3/22/96 21,000 257 82
Clarion Hotel, San Francisco
Airport........................ Milbrae, CA 4/25/96 30,000 442 68
Doubletree DFW Airport........... Irving, TX 4/26/96 28,568 308 93
Doubletree Cypress Creek......... Ft. Lauderdale, FL 4/26/96 23,220 254 91
Westin Hotel..................... Tampa, FL 4/26/96 21,462 260 83
Doubletree Guest Suites.......... Philadelphia, PA 6/03/96 18,230 251 73
Days Inn......................... Philadelphia, PA 7/01/96 3,570 177 20
The Institutional Portfolio consisting of:
Ritz Carlton..................... Philadelphia, PA 8/12/96 290
Ritz Carlton..................... Kansas City, MO 8/12/96 373
Westin Hotel..................... Waltham, MA 8/12/96 347
Westin LAX....................... Los Angeles, CA 8/12/96 739
Westin Horton Plaza.............. San Diego, CA 8/12/96 450
Westin Hotel Concourse........... Atlanta, GA 8/12/96 370
Doubletree Grand at Mall of
America........................ Bloomington, MN 8/12/96 321
The Wyndham Hotel................ Ft. Lauderdale, FL 8/12/96 251
-------- ----- ----
315,000 3,141 100
Hotels of Distinction Portfolio consisting of:
The Hotel Park Tucson............ Tucson, AZ 8/16/96 215
Embassy Suites................... Palm Desert, CA 8/16/96 198
The Marque of Atlanta............ Atlanta, GA 8/16/96 275
Arlington Park Hilton............ Arlington Heights, IL 8/16/96 422
Sheraton Needham................. Needham, MA 8/16/96 247
Embassy Suites................... St. Louis, MO 8/16/96 297
Radisson Marque.................. Winston-Salem, NC 8/16/96 293
Allentown Hilton................. Allentown, PA 8/16/96 224
Sheraton Minneapolis Metrodome... Minneapolis, MN 9/05/96 254
-------- -----
135,000 2,425 56
Marriott Forrestal Village....... Princeton, NJ 8/29/96 19,600 294 67
Doral Court...................... New York, NY 9/19/96 21,028 199 106
Doral Tuscany.................... New York, NY 9/19/96 12,888 121 107
Westwood Marquis................. Los Angeles, CA 12/31/96 35,000(3) 257 136
-------- ----- ----
$814,044 9,609 $ 85
======== ===== ====
</TABLE>
- ---------------
(1) Represents 100% interest. Starwood Lodging acquired a 58.2% interest in a
joint venture that acquired the property.
(2) Includes $14 million allocated to the purchase price of the office building
portion of the hotel property.
(3) Represents 100% interest. Starwood Lodging acquired a 93.5% interest in a
joint venture that acquired the property.
2
<PAGE> 7
In addition, as of March 10, 1997, Starwood Lodging had acquired equity
interests in 1997 in the following 13 hotels containing approximately 4,100
rooms (the "1997 Properties"):
<TABLE>
<CAPTION>
APPROXIMATE
DATE APPROXIMATE PURCHASE PRICE
OF PURCHASE PRICE PER ROOM
HOTEL LOCATION PURCHASE (000'S) ROOMS (000'S)
- -------------------------------- -------------------- -------- -------------- ----- --------------
<S> <C> <C> <C> <C> <C>
Deerfield Beach Hilton.......... Deerfield Beach, FL 1/08/97 $ 11,500 220 $ 52
Radisson Denver South........... Denver, CO 1/17/97 21,750 263 83
The HEI Portfolio of owned hotels consisting of:
The Sheraton Hotel.............. Long Beach, CA 2/14/97 460
Omni Waterside Hotel............ Norfolk, VA 2/14/97 446
BWI Airport Marriott............ Baltimore, MD 2/14/97 310
Crown Plaza Edison.............. Edison, NJ 2/14/97 274
Courtyard by Marriott Crystal
City.......................... Arlington, VA 2/14/97 272
Charleston Hilton............... Charleston, SC 2/14/97 296
Park Ridge Hotel................ King of Prussia, PA 2/14/97 265
Sonoma County Hilton............ Santa Rosa, CA 2/14/97 245
Novi Hilton..................... Novi, MI 2/14/97 239
Embassy Suites.................. Atlanta, GA 2/14/97 233
-------------- ----- ------
312,000 3,040 103
Days Inn Chicago................ Chicago, IL 2/21/97 48,000 578 83
-------------- ----- ------
$393,250 4,101 $ 96
=========== ===== ===========
</TABLE>
On February 14, 1997, in addition to the acquisition of the ten hotels
referred to above as the HEI Portfolio of owned hotels (together, the "HEI
Portfolio") from PRISA II, an institutional real estate investment fund managed
by Prudential Real Estate Investors, and HEI Hotels LLC ("HEI"), a Westport,
Connecticut based hotel operating company, the Company also completed the
acquisition of the management company, HEI ($15 million). The Company paid $112
million in cash and notes and the remainder in limited partnership interests in
the Realty Partnership and the Operating Partnership exchangeable for 6.548
million Paired Shares of the Trust and Corporation (an approximate value of $215
million). The HEI Portfolio also included contracts to manage the following nine
hotels:
<TABLE>
<CAPTION>
HOTEL LOCATION ROOMS
- ---------------------------------------------------------------- ------------------ -----
<S> <C> <C>
Sheraton Gateway Houston Airport................................ Houston, TX 418
Ontario Airport Hilton.......................................... Ontario, CA 309
Grand Junction Hilton........................................... Grand Junction, CO 264
Danbury Hilton & Towers......................................... Danbury, CT 242
Residence Inn By Marriott....................................... Princeton, NJ 208
Long Island Sheraton Hotel...................................... Smithtown, NY 211
Wilmington Hilton Hotel......................................... Wilmington, DE 193
Ramada Hotel Bethesda........................................... Bethesda, MD 160
The Pavillion Hotel............................................. Virginia Beach, VA 292
-----
2,297
=====
</TABLE>
Also, as a part of its acquisition strategy Starwood Lodging intends to
continue to acquire debt interests in hotels at discounts to their face amounts
with the intention of acquiring the hotel.
In line with this strategy, in 1996 Starwood Lodging acquired debt
interests in the 305-room Holiday Inn in Milpitas, California, for $17.0 million
and the 480-room Sheraton in Stamford, Connecticut, for $10.25 million. Also in
1996, equity interests were acquired by the Company in the Westin in Washington,
D.C., and the Doubletree Guest Suites and Days Inn, both in Philadelphia,
Pennsylvania, which combined with debt interests previously acquired by the
Company provided the Company with full equity ownership of each hotel.
Starwood Lodging also intends to develop, on a limited basis, new hotels,
either through new construction or conversion of office buildings, in certain
underserved markets. In this respect, in November 1996, the Trust
3
<PAGE> 8
paid $7.0 million to acquire a site in downtown Seattle, Washington, which has
entitlements for construction of a 410-room hotel. The Trust expects to begin
construction on this hotel in mid-1997.
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 20 properties in the aggregate
amount of approximately half a billion dollars, all of which are subject to the
satisfaction of a number of conditions prior to closing. Starwood Lodging
intends to finance the acquisition of these or other hotel properties through
cash flow from operations, through borrowings under new or existing credit
facilities and, when market conditions warrant, through the issuance of debt or
equity securities.
As part of its continuous evaluation of its portfolio and efforts to
redeploy capital in high growth assets, the Company has identified certain
properties for sale. These properties include the Company's gaming assets and
other hotels primarily in market segments that the Company believes have limited
growth potential. In 1996, the Company sold the Best Western Columbus North in
Columbus, Ohio, for approximately $3.1 million; the Bourbon Street Hotel &
Casino ("Bourbon Street") in Las Vegas, Nevada, for $7.6 million; and the real
property of the King 8 Hotel, Gambling Hall and Truck Plaza (the "King 8") in
Las Vegas, Nevada, for approximately $18.8 million. The Corporation has entered
into an agreement to sell the personal property relating to the King 8 for $3
million and expects the closing to occur in the next 18 months following receipt
by the purchaser of required gaming approvals. The Company is currently engaged
in efforts to sell the Radisson Marque in Winston-Salem, North Carolina, and the
Best Western hotels in Savannah, Georgia; El Paso, Texas; Las Cruces, New
Mexico; and Albuquerque, New Mexico.
OPERATING STRATEGY
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 captured by third-party
operators. During 1996, the Operating Partnership assumed management of 29
hotels, including 27 of the 30 hotels acquired in 1996 and, as of the date of
this Joint Annual Report, had assumed management in 1997 of an additional 22
hotels including all 13 hotels acquired in 1997 together with 9 other hotels
owned by third parties.
In 1996, the Corporation significantly expanded its operational
capabilities with the hiring of key executives and other corporate staff in the
areas of operations, sales, revenue management, food and beverage, human
resources, finance, accounting, tax, MIS and capital project management.
The Corporation intends to continue to reposition hotels in order to
increase cash flows and asset values by changing or initiating franchise
affiliations and implementing renovations, expansions and upgrades of hotel
facilities. In 1996, the Corporation entered into new franchise affiliations
with respect to seven hotels, of which six were acquired in 1996, including five
hotels converted to Westin, one converted to Wyndham and one converted to
Doubletree Guest Suites. In January 1997 the Dallas Park Central was converted
to a Radisson hotel.
The Corporation also intends to manage hotels on behalf of third-party
owners, thereby capitalizing on the enhanced operational management
infrastructure of the Corporation. The Company believes that third-party
management contracts could provide the Company with an additional source of
earnings as well as a source of potential acquisitions including minority equity
investments in hotel properties.
1995 REORGANIZATION
On January 31, 1995 (the "Reorganization Date"), the Trust and the
Corporation consummated a reorganization (the "Reorganization") with a
predecessor of Starwood Capital Group, L.L.C. ("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 Reorganization 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 senior
4
<PAGE> 9
debt of the Trust (the "Senior Debt")), 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),
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
certain 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.
STRUCTURE
As of the date of this Joint Annual Report, the structure of Starwood
Lodging is as follows:
[HOLDERS OF PAIRED SHARES CHART]
The limited partnership units of the Realty Partnership and the Operating
Partnership held by the limited partners are (subject to the ownership
limitation provisions of the Trust and the Corporation) exchangeable for, at the
option of the Trust and the Corporation, either cash, Paired Shares representing
up to approximately 22.8% of the Paired Shares after such exchange, or a
combination of cash and such Paired Shares. The ownership limitation provisions
of Starwood Lodging are designed to preserve the status of the Trust as a REIT
for tax purposes by providing in general that no shareholder may own, directly
or indirectly, more than 8% of the outstanding Paired Shares.
5
<PAGE> 10
Since the Reorganization, the Trust has conducted substantially all of its
business and operations through the Realty Partnership. As of December 31, 1996,
the Realty Partnership held fee interests, ground leaseholds and mortgage loan
interests in 76 hotel properties containing over 19,000 rooms located in 24
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, 1996, the Operating Partnership leased from the Realty Partnership
all but four of the 59 hotel properties owned in fee or held pursuant to
long-term leases by the Realty Partnership. In addition, the Operating
Partnership owns the Milwaukee Marriott hotel, the Midland Hotel, both subject
to mortgages to the Trust, and the Radisson Marque Hotel which is currently held
for sale.
GAMING APPROVALS
Upon receipt of certain 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).
The gaming operations (which, as of the date of this Joint Annual Report,
consist of one hotel/casino 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. The real property of the Company's
hotel/casino has been sold and the sale of the personal property and gaming
assets will close once the buyer or its designee has received Nevada gaming
regulatory approval. Pending receipt of such approvals, which are expected by
the end of 1997, the Corporation is operating the hotel/casino pursuant to a
lease from the buyer.
1996 OFFERINGS
APRIL 1996 OFFERING
The Company completed a public offering of 3,000,000 Paired Shares (after
giving effect to the three-for-two stock split in January 1997) in April 1996
(the "April 1996 Offering"). Net proceeds from the April 1996 Offering of
approximately $62.4 million were used, in part, to fund the acquisition of the
442-room Clarion Hotel located at the San Francisco Airport (acquired on April
24, 1996) and three Doubletree Guest Suite hotels located in Irving, Texas; Ft.
Lauderdale, Florida; and Tampa, Florida (now a Westin) (all three properties
were acquired on April 26, 1996).
AUGUST 1996 OFFERING
In August 1996, the Company completed a public offering of 15,000,000
Paired Shares (after giving effect to the three-for-two stock split in January
1997) and on August 23, 1996, the underwriter exercised its over-allotment
option to purchase 1.2 million Paired Shares (after giving effect to the
three-for-two stock split in January 1997) (together, the "August 1996 Offering"
and, with the April 1996 Offering, the "1996 Offerings"). Net proceeds from the
August 1996 Offering of approximately $367.2 million were used to fund the
acquisition of a portfolio of 8 hotels owned by an institution (the
"Institutional Portfolio") and partially fund the acquisition of a portfolio of
9 hotels owned by Hotels of Distinction Ventures, Inc. (the "HOD Portfolio").
LINES OF CREDIT AND MORTGAGES
At December 31, 1996, the Company had two loan facilities and a term loan
with Lehman Brothers, Inc., and certain of its affiliates ("Lehman Brothers")
and a loan facility with Goldman Sachs (together, the "Lines of Credit").
6
<PAGE> 11
MORTGAGE FACILITY
In October 1995, the Company amended its Mortgage Loan Funding Facility
Agreement, dated July 25, 1995 (the "Mortgage Facility"), with Lehman Brothers
to increase the amount available under this facility to $70.6 million. The
Mortgage Facility is recourse to the Realty Partnership, is secured by certain
mortgage loans owned by the Realty Partnership, bore interest at a rate equal to
1.5% plus the one-month LIBOR for the first 12 months, and bears interest at a
rate of 1.75% plus the one-month LIBOR thereafter. In August 1996, the maturity
date for the Mortgage Facility was extended to July 1997. As of December 31,
1996, the Company had borrowed $70.6 million under the Mortgage Facility.
ACQUISITION FACILITY
In October 1995, the Company entered into a three-year, $135 million
secured revolving credit facility (the "Acquisition Facility") with Lehman
Brothers. In August 1996, a portion of the Acquisition Facility was syndicated
amongst a number of banks, whereupon First National Bank of Boston became the
lead agent bank. The Acquisition Facility is recourse to the Realty Partnership,
is secured by certain properties of the Company and may be secured by other
properties acquired by the Company, all on a cross-collateralized basis within
various pools. Amounts drawn under the Acquisition Facility bear interest at a
rate equal to 1.625% plus the one, two or three-month LIBOR at the Company's
option. The Acquisition Facility matures in October 1998. As of December 31,
1996, the Company had borrowed $117.8 million under the Acquisition Facility.
BPP MORTGAGE
In March 1996, the joint venture in which the Company holds a 58.2%
interest, refinanced a mortgage secured by the Boston Park Plaza with a new
non-recourse mortgage in the amount of $25 million with the Life Insurance
Company of Georgia at an interest rate of 8.4% due July, 2003 (the "BPP
Mortgage"). As of December 31, 1996, the balance outstanding under the BPP
Mortgage was $25 million.
TERM LOAN
In March 1996, the Company entered into a $24 million one year non-recourse
secured term loan (the "Term Loan") with Lehman Brothers. In April 1996, the
Company amended the Term Loan to increase the amount available under this
facility to $94 million. The Term Loan is secured by certain properties of the
Company and bears interest at a rate equal to the one, two or three-month LIBOR,
at the Company's option, plus (a) 1.95% for the first $24 million drawn, and (b)
1.75% for the remaining balance drawn. The Term Loan matures in April 1997. As
of December 31, 1996, the Company had borrowed $94 million under the Term Loan.
GOLDMAN FACILITY
In August 1996, the Company entered into a loan facility with an affiliate
of Goldman Sachs for a one-year (extendible to 18 months) loan of up to $300
million to fund a portion of the acquisition cost of the Institutional Portfolio
and the HOD Portfolio (the "Goldman Facility"). The Goldman Facility is recourse
to the Realty Partnership, bears interest at one-month LIBOR plus 1.75% (an
extendible six month period bears interest at one-month LIBOR plus 2.75%) and is
secured by interests in the Institutional Portfolio and the HOD Portfolio. As of
December 31, 1996, the Company had borrowed $140 million under the Goldman
Facility.
DORAL MORTGAGE
In September, 1996, upon acquisition of the Doral Court and Doral Tuscany
in New York, the Company assumed liability under and amended the terms of a
mortgage with The Sumitomo Trust and Banking Co., Ltd. (the "Doral Mortgage").
As amended, the Doral Mortgage is recourse to the Realty Partnership, bears
interest at a rate of 7.64% and is due September 2001. As of December 31, 1996,
the balance outstanding under the Doral Mortgage was $27.4 million.
7
<PAGE> 12
TREASURY LOCKS
In January 1996, the Company entered into two interest-rate-hedging
agreements (the "January Treasury Locks"), which had the effect of fixing the
base rate of interest at 5.70% for debt the Company intended to issue in October
1996 with an aggregate notional principal amount of $100 million and a term to
maturity of seven years. The Company has extended the settlement date to March
31, 1997, and the base rate increased to 5.86%. The actual interest rate on debt
the Company intends to issue 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 the term of the related debt of 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
$100 million of debt in 1997, with a term to maturity of seven years, no such
gain or loss is anticipated. If the January Treasury Locks had been settled on
December 31, 1996, the Trust would have received $2.5 million.
In August 1996, the Company entered into another interest rate hedging
agreement (the "August Treasury Lock"), which has the effect of fixing the base
rate of interest at 6.67% for debt the Company had intended to issue in March
1997, with an aggregate notional principal amount of $150 million and a term to
maturity of ten years. The Company, due to other financing circumstances, has
decided to postpone the issuance of the ten year, $150 million debt to June 30,
1997. Accordingly, the Company plans to extend the settlement date in respect of
the August Treasury Lock. The actual interest rate of debt to be issued at that
time will be determined by reference to the base rate determined at the time of
extension of the settlement date.
At settlement, the Company will pay or receive an amount which will be
capitalized and amortized over the term of the related debt of ten years. Such
amount is not anticipated to have a material effect on the Company's liquidity
or operating results. If the Company 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 Company's
results from operations; however due to Management's current intention to issue
$150 million of debt with a term to maturity of ten years, no such gain or loss
is anticipated. If the August Treasury Lock had been settled on December 31,
1996, the Trust would have paid $2.96 million.
PRUDENTIAL LOAN
On February 14, 1997, in connection with the acquisition of the HEI
Portfolio, the Company entered into a short term loan with The Prudential
Insurance Company of America in the principal amount of $97.5 million (the
"Prudential Loan") in order to partially fund the acquisition of the HEI
Portfolio. As of the date of this Joint Annual Report, the Company had borrowed
$72.0 million under the Prudential Loan, which bears interest at a rate of 7.0%
and is due April 15, 1997. The Company may elect to extend the maturity date to
May 14, 1997. Presently, the Company intends to make the election to extend the
maturity date.
TAX EXEMPT BONDS
On February 20, 1997, the Company issued bonds in the principal amount of
$39.5 million due October, 2013 (the "Tax Exempt Bonds"). The Tax Exempt Bonds
bear interest at a rate of 6.5% with no principal amortization, were issued at a
discount to yield 6.7% and are secured by two hotels of the Company located at
the Philadelphia International Airport. Net proceeds from the Tax Exempt Bonds
of approximately $37.6 million were used to partially fund the acquisition of
the 578-room Days Inn in Chicago, Illinois.
TAX STATUS OF THE TRUST
The Trust elected to be taxed as a REIT, commencing with its taxable year
ended December 31, 1995. The Trust expects to also make this election for the
year ended December 31, 1996, when it files its tax return for such period,
which is due no later than September 15, 1997. 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
8
<PAGE> 13
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 winter months.
The hotel industry is highly competitive. The properties of the Company
compete with other hotel properties in their geographic markets. Many of the
Company's competitors may have substantially greater marketing and financial
resources than the Company.
The Company may compete for acquisition opportunities with entities which
have greater financial resources than the Company or which may accept more risk
than the Company. 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 Company believes that it will face
competition for acquisition opportunities from entities organized for purposes
substantially similar to the objectives of the Trust or the Company.
ENVIRONMENTAL MATTERS.
None of the Trust, the Corporation, the Realty Partnership or the Operating
Partnership has been identified by the United States 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.
Since January 1, 1995, preliminary or "Phase I" environmental site
assessments have been prepared with respect to each of the Company's 62 fee
interest and ground leasehold properties owned as of December 31, 1996. The
results of the Phase I assessments and subsequent "Phase II" assessments
performed at six of the properties has led to an assessment by the Company and
its outside consultants that the Company's overall potential for environmental
impairment is low.
Based upon the environmental reports described above, the Company 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 Company has asbestos operation
and maintenance plans for each property testing positive for asbestos.
Based upon the above-described environmental reports and testing, 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 State Gaming
9
<PAGE> 14
Control Board and the Clark County Liquor and Gaming Licensing Board. See Item
2, "Regulation and Licensing" of this Joint Annual Report.
EMPLOYEES.
As of December 31, 1996, the Trust had three employees and the Corporation
had approximately 8,900 employees.
The Trust's executive offices are located at 2231 East Camelback Road,
Suite 410, Phoenix, Arizona 85016 (telephone (602) 852-3900) and the
Corporation's executive offices are located at 2231 East Camelback Road, Suite
400, Phoenix, Arizona 85016 (telephone (602) 852-3900).
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, 1996, the Company owned, operated and managed a
geographically diverse portfolio of hotel assets, including fee, ground lease
and first mortgage interests in 76 hotel properties, comprising approximately
20,000 rooms located in 24 states and the District of Columbia. Sixty of such
hotels are operated under licensing, membership, franchise or management
agreements or leases with national hotel organizations, including Ritz
Carlton(R), Westin(R), Marriott(R), Hilton(R), Sheraton(R), Omni(R),
Doubletree(R), Embassy Suites(R), Harvey(R), Radisson(R), Clarion(R), Holiday
Inn(R), Residence Inn(R), Days Inn(R), Best Western(R) and Vagabond Inn(R).
EQUITY INVESTMENTS.
As of December 31, 1996, the Company had equity investments in 62
properties containing a total of over 16,200 guest rooms. All but three of the
properties are owned by the Trust. Of these three properties, the Operating
Partnership owns the Milwaukee Marriott hotel and the Midland Hotel, both
subject to mortgages to the Trust, and the Radisson Marque Hotel which is
currently held for sale. Of the 59 hotels owned by the Trust, all but five are
leased to the Corporation or its subsidiaries pursuant to leases between the
Trust and the Corporation (the "Intercompany Leases").
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 three 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, three Vagabond Inns (the "Vagabond
Inns") are leased by the Trust to a third-party pursuant to ground leases which
expire in 2001, 2007 and 2008, respectively. The remaining two properties, the
Doral Inn and the Marriott Forrestal Village are leased to third parties and
such leases expire in 2005 and 2007, respectively. In respect of the Doral Inn,
the Trust owns the land and holds a leasehold mortgage on the building and
personal property and the Operating Partnership operates the hotel pursuant to a
sublease. In respect of the Marriott Forrestal Village, the Trust can terminate
the lease beginning in 1999 for a stipulated fee.
The following table sets forth the 1996, 1995, and 1994 average occupancy,
room rates ("ADR"), revenue per available room ("REVPAR") and certain other
information concerning the Company's non-gaming hotels (excluding the Vagabond
Inns) as of December 31, 1996. Each hotel in the following table is owned by the
Trust and leased to the Corporation, except as noted.
10
<PAGE> 15
<TABLE>
<CAPTION>
ADR($)
--------------------------
# OF YEAR YEAR YEAR ENDED DECEMBER 31,
HOTEL/LOCATION STATE ROOMS OPENED ACQUIRED(1) 1996 1995 1994
- --------------------------------------------- ----- ------ ------ ----------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Embassy Suites -- Phoenix(6)................. AZ 227 1981 1983 97.71 85.14 80.23
Embassy Suites -- Tempe(6)................... AZ 224 1984 1995 104.96 95.75 83.37
Hotel Park -- Tucson(9)...................... AZ 215 1986 1996 79.63 74.12 69.29
Plaza Hotel & Conference
Center -- Tucson(6)........................ AZ 149 1971 1983 51.83 48.34 46.12
Clarion Hotel SFO Airport -- Milbrae(8)...... CA 442 1962 1996 73.89 60.36 55.09
Doubletree Club -- Rancho Bernardo(6)........ CA 209 1988 1995 74.63 71.02 65.68
Embassy Suites -- Palm Desert(9)............. CA 198 1985 1996 102.43 97.30 96.81
Westin Horton Plaza -- San Diego(9).......... CA 450 1987 1996 111.78 98.64 92.44
Westin LAX Airport -- Los Angeles(9)......... CA 720 1986 1996 65.68 55.82 56.87
Westwood Marquis -- Los Angeles(12).......... CA 257 1969 1996 171.09 161.83 157.02
Capitol Hill Suites -- Washington(6)......... DC 152 1955 1995 99.62 95.09 91.93
Westin Grand -- Washington(7)................ DC 263 1984 1995 135.36 127.62 N/A
Doubletree Guest Suites -- Cypress
Creek(8)................................... FL 254 1985 1996 82.16 77.10 82.07
Radisson Hotel -- Gainesville(6)............. FL 195 1974 1986 61.82 60.43 59.89
Westin Airport -- Tampa(8)................... FL 260 1987 1996 89.47 84.46 86.14
Wyndham Ft. Lauderdale Airport -- Dania(9)... FL 251 1986 1996 84.20 77.18 77.71
Best Western Historic District-
Savannah(5)(6)............................. GA 142 1971 1986 51.64 46.75 47.27
Holiday Inn -- Albany(6)..................... GA 151 1989 1989 61.61 59.08 56.06
Lenox Inn -- Atlanta(8)...................... GA 180 1965 1995 82.82 69.48 63.57
Sheraton Colony Square -- Atlanta(6)......... GA 462 1973 1995 111.01 89.59 86.57
Terrace Garden Inn -- Atlanta(8)............. GA 364 1975 1995 110.56 93.51 88.39
The Marque -- Atlanta(9)..................... GA 275 1980 1996 99.30 82.21 74.66
Westin at Concourse -- Atlanta(9)............ GA 370 1986 1996 109.40 96.25 87.32
Arlington Park Hilton -- Arlington
Heights(9)................................. IL 422 1968 1996 83.08 77.76 71.55
The Midland Hotel -- Chicago(2)(8)........... IL 257 1934 1996 127.72 111.48 107.43
Harvey Hotel -- Wichita(6)................... KS 259 1974 1995 58.07 62.52 50.62
Doubletree Guest Suites -- Lexington(6)...... KY 155 1989 1995 91.74 82.93 84.96
Park Plaza -- Boston(10)..................... MA 960 1927 1996 106.88 101.42 98.12
Sheraton Hotel -- Needham(9)................. MA 247 1986 1996 97.12 84.60 80.01
Westin Hotel -- Waltham(9)................... MA 347 1990 1996 111.28 100.15 97.17
Holiday Inn Calverton -- Beltsville(8)....... MD 206 1987 1995 71.01 67.49 63.37
Bay Valley Resort -- Bay City(6)............. MI 151 1973 1984 64.03 62.02 62.22
Doubletree Grand at MOA -- Bloomington(9).... MN 321 1975 1996 94.23 88.34 79.28
Sheraton Hotel Metrodome -- Minneapolis(9)... MN 254 1980 1996 75.22 72.00 66.96
Embassy Suites -- St. Louis(9)............... MO 297 1985 1996 96.77 88.02 86.48
Ritz Carlton -- Kansas City(9)............... MO 373 1973 1996 129.49 122.82 116.76
Omni Europa -- Chapel Hill(6)................ NC 168 1981 1995 91.34 84.33 74.54
Radisson Marque -- Winston-Salem(3)(5)(9).... NC 293 1974 1996 72.48 71.88 69.32
Marriott Forestal
Village -- Princeton(4)(8)................. NJ 294 1987 1996 102.09 94.46 89.47
Best Western -- Las Cruces(5)(6)............. NM 166 1974 1982 50.00 44.94 42.74
Best Western Airport
Inn -- Albuquerque(5)(6)................... NM 123 1980 1984 58.41 56.70 54.45
Doral Court -- New York(11).................. NY 199 1927 1996 149.43 131.57 130.25
Doral Inn -- New York(13).................... NY 652 1927 1995 108.83 96.34 88.31
Doral Tuscany -- New York(11)................ NY 121 1935 1996 189.02 178.18 175.35
Days Inn City Center -- Portland(6).......... OR 173 1962 1984 69.25 60.71 53.12
Riverside Inn -- Portland(6)................. OR 137 1964 1984 92.18 71.35 64.69
Days Inn -- Philadelphia..................... PA 177 1984 1996 65.11 67.20 66.14
Doubletree Guest Suites -- Philadelphia...... PA 251 1985 1996 89.58 95.94 91.41
Hilton Hotel -- Allentown(9)................. PA 224 1981 1996 64.68 60.57 57.96
Ritz Carlton -- Philadelphia(9).............. PA 290 1990 1996 157.96 153.28 144.13
Best Western Airport -- El Paso(5)(6)........ TX 175 1974 1985 37.42 36.12 34.76
Doubletree Guest Suites DFW -- Irving(8)..... TX 308 1985 1996 99.29 91.18 91.24
Park Central -- Dallas(6).................... TX 445 1972 1972 56.44 55.03 59.97
Residence Inn Tysons Corner -- Vienna(6)..... VA 96 1984 1984 112.44 103.87 99.68
Days Inn Town Center -- Seattle(6)........... WA 90 1957 1984 73.89 62.73 60.99
Meany Tower -- Seattle(6).................... WA 155 1932 1984 78.42 72.83 70.47
Sixth Avenue Inn -- Seattle(6)............... WA 166 1959 1984 84.08 74.42 70.04
The Tyee Hotel -- Olympia(6)................. WA 155 1961 1987 64.57 61.64 60.63
Marriott Brookfield -- Milwaukee(2)(7)....... WI 393 1972 1990 74.72 72.19 67.91
ALL HOTELS................................... 15,910 94.41 85.05 81.01
<CAPTION>
OCCUPANCY (%) REVPAR($)
---------------------- --------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
HOTEL/LOCATION 1996 1995 1994 1996 1995 1994
- --------------------------------------------- ------ ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Embassy Suites -- Phoenix(6)................. 76.5 80.3 75.6 74.73 68.37 60.65
Embassy Suites -- Tempe(6)................... 81.9 80.2 82.8 85.93 76.79 69.03
Hotel Park -- Tucson(9)...................... 67.6 70.4 71.3 53.83 52.18 49.40
Plaza Hotel & Conference
Center -- Tucson(6)........................ 71.0 77.3 77.1 36.79 37.37 35.56
Clarion Hotel SFO Airport -- Milbrae(8)...... 80.4 86.3 81.3 59.43 52.09 44.79
Doubletree Club -- Rancho Bernardo(6)........ 67.8 68.3 65.6 50.61 48.51 43.09
Embassy Suites -- Palm Desert(9)............. 71.1 72.2 69.1 72.80 70.25 66.90
Westin Horton Plaza -- San Diego(9).......... 71.0 70.0 67.9 79.38 69.05 62.77
Westin LAX Airport -- Los Angeles(9)......... 71.6 79.9 70.9 47.05 44.60 40.32
Westwood Marquis -- Los Angeles(12).......... 63.6 56.8 59.0 108.86 91.98 92.57
Capitol Hill Suites -- Washington(6)......... 67.4 69.2 64.1 67.14 65.80 58.93
Westin Grand -- Washington(7)................ 56.8 45.5 N/A 76.95 58.07 N/A
Doubletree Guest Suites -- Cypress
Creek(8)................................... 72.3 71.8 65.1 59.39 55.36 53.43
Radisson Hotel -- Gainesville(6)............. 60.1 58.0 59.4 37.13 35.05 35.57
Westin Airport -- Tampa(8)................... 69.7 63.5 62.9 62.36 53.63 54.18
Wyndham Ft. Lauderdale Airport -- Dania(9)... 75.4 82.4 76.2 63.48 63.60 59.22
Best Western Historic District-
Savannah(5)(6)............................. 63.0 63.7 56.9 32.54 29.78 26.90
Holiday Inn -- Albany(6)..................... 69.5 77.2 78.9 42.79 45.61 44.23
Lenox Inn -- Atlanta(8)...................... 76.4 79.2 77.0 63.24 55.03 48.95
Sheraton Colony Square -- Atlanta(6)......... 68.0 72.4 72.4 75.44 64.86 62.68
Terrace Garden Inn -- Atlanta(8)............. 55.9 65.4 65.2 61.82 61.16 57.63
The Marque -- Atlanta(9)..................... 63.1 69.2 68.0 62.69 56.89 50.77
Westin at Concourse -- Atlanta(9)............ 71.9 71.6 74.2 78.67 68.92 64.79
Arlington Park Hilton -- Arlington
Heights(9)................................. 69.2 69.4 64.2 57.45 53.97 45.94
The Midland Hotel -- Chicago(2)(8)........... 72.4 73.5 71.2 92.50 81.94 76.49
Harvey Hotel -- Wichita(6)................... 61.8 63.7 57.7 35.89 39.83 29.21
Doubletree Guest Suites -- Lexington(6)...... 72.8 74.6 69.4 66.82 61.87 58.96
Park Plaza -- Boston(10)..................... 80.2 76.0 76.0 85.67 77.08 74.57
Sheraton Hotel -- Needham(9)................. 76.9 74.8 73.6 74.72 63.28 58.89
Westin Hotel -- Waltham(9)................... 75.3 72.3 69.8 83.76 72.41 67.82
Holiday Inn Calverton -- Beltsville(8)....... 62.0 63.0 58.0 44.03 42.52 36.75
Bay Valley Resort -- Bay City(6)............. 61.9 63.1 63.5 39.65 39.13 39.51
Doubletree Grand at MOA -- Bloomington(9).... 76.0 77.2 74.7 71.62 68.20 59.22
Sheraton Hotel Metrodome -- Minneapolis(9)... 74.8 85.3 75.7 56.27 61.42 50.69
Embassy Suites -- St. Louis(9)............... 68.0 72.0 71.7 65.79 63.37 62.01
Ritz Carlton -- Kansas City(9)............... 76.0 74.9 73.2 98.44 91.99 85.47
Omni Europa -- Chapel Hill(6)................ 69.6 71.0 64.8 63.56 59.87 48.30
Radisson Marque -- Winston-Salem(3)(5)(9).... 50.6 54.0 51.2 36.70 38.82 35.49
Marriott Forestal
Village -- Princeton(4)(8)................. 84.1 81.8 77.3 85.91 77.27 69.16
Best Western -- Las Cruces(5)(6)............. 61.6 75.1 71.2 30.82 33.75 30.43
Best Western Airport
Inn -- Albuquerque(5)(6)................... 77.4 82.9 86.4 45.22 47.00 47.04
Doral Court -- New York(11).................. 77.9 75.9 74.8 116.46 99.86 97.43
Doral Inn -- New York(13).................... 81.8 75.0 81.0 89.04 72.26 71.53
Doral Tuscany -- New York(11)................ 70.7 65.0 63.5 133.65 115.82 111.35
Days Inn City Center -- Portland(6).......... 72.4 77.8 70.6 50.17 47.23 37.50
Riverside Inn -- Portland(6)................. 64.9 77.5 78.1 59.80 55.30 50.52
Days Inn -- Philadelphia..................... 71.9 71.5 75.7 46.82 48.05 50.07
Doubletree Guest Suites -- Philadelphia...... 74.0 70.3 73.1 66.26 67.45 66.82
Hilton Hotel -- Allentown(9)................. 77.4 77.5 73.5 50.07 46.94 42.60
Ritz Carlton -- Philadelphia(9).............. 80.0 71.7 73.3 126.35 109.90 105.65
Best Western Airport -- El Paso(5)(6)........ 62.4 79.4 80.4 23.36 28.68 27.95
Doubletree Guest Suites DFW -- Irving(8)..... 78.1 78.7 67.8 77.51 71.76 61.86
Park Central -- Dallas(6).................... 24.6 36.0 42.3 13.90 19.81 25.37
Residence Inn Tysons Corner -- Vienna(6)..... 82.5 85.0 83.0 92.80 88.29 82.73
Days Inn Town Center -- Seattle(6)........... 76.4 81.4 79.4 56.46 51.06 48.43
Meany Tower -- Seattle(6).................... 68.1 72.9 71.2 53.40 53.09 50.17
Sixth Avenue Inn -- Seattle(6)............... 75.4 78.7 75.1 63.39 58.57 52.60
The Tyee Hotel -- Olympia(6)................. 55.7 58.4 57.4 35.96 36.00 34.80
Marriott Brookfield -- Milwaukee(2)(7)....... 74.1 71.3 69.8 55.37 51.47 47.40
ALL HOTELS................................... 70.4 71.7 70.3 66.46 61.00 56.98
</TABLE>
11
<PAGE> 16
- ---------------
(1) "Year acquired" represents the calendar year in which the Trust or
Corporation (or a predecessor) made its initial investment in the property.
(2) Property owned by the Corporation subject to a first mortgage to the Trust.
(3) Property owned by the Corporation.
(4) Property is subject to a ground lease expiring in December, 2055, which is
terminable by the ground lessor after September, 1999, upon six months'
notice under certain circumstances.
(5) Property is an asset held for sale at December 31, 1996.
(6) Property is subject to a mortgage under the Acquisition Facility.
(7) Property is subject to a mortgage under the Mortgage Facility.
(8) Property is subject to a mortgage under the Term Loan.
(9) Property is subject to a security interest under the Goldman Facility.
(10) The Trust owns a 58.2% general partnership interest in this hotel and
property is subject to a mortgage under the BPP Mortgage.
(11) Property is subject to a mortgage under the Doral Mortgage.
(12) The Trust owns a 93.5% general partnership interest in this hotel.
(13) The Trust owns the land and holds a leasehold mortgage on the building and
personal property and the Operating Partnership operates the hotel pursuant
to a sublease.
MORTGAGE AND OTHER NOTES RECEIVABLES.
At December 31, 1996, the Trust held five intercompany promissory notes
issued by the Operating Partnership, three of which ($29.6 million in aggregate
principal amount at December 31, 1996) are related to the Marriott in Milwaukee,
Wisconsin; one note ($40.3 million in principal amount at December 31, 1996) is
secured by the Doral Inn in New York, New York; and one note ($18.2 million in
principal amount at December 31, 1996) is secured by the Midland Hotel in
Chicago, Illinois.
At December 31, 1996, the Trust held nineteen promissory notes either
contributed by the Starwood Partners as part of the Reorganization, executed by
third-party purchasers of its hotels, or purchased during 1996 by the Trust, all
of which are secured by mortgages (including deeds of trust) on fourteen hotels
in the aggregate. Of these nineteen promissory notes, thirteen notes ($112.0
million in aggregate principal amount at December 31, 1996) are secured by first
mortgages; four notes ($1.3 million in aggregate principal amount as of December
31, 1996) are secured by second mortgages; one note ($1.3 million in principal
amount as of December 31, 1996) is secured by a third mortgage; and one note
($169,000 in principal amount as of December 31, 1996) is secured by a fourth
mortgage. Of these nineteen promissory notes, nine notes have fixed interest
rates that currently range from 7.0% to 10.0% per annum; six notes have variable
interest rates that range from 6.81% to 13.5% per annum at December 31, 1996;
three notes require principal payments only; one note also provides for
contingent interest based on a percentage of the gross revenue of the property
securing such note; and one note was purchased at a significant discount with no
payment of interest expected. The maturity dates of the notes range from 1997 to
2010.
For additional information with respect to the mortgage notes receivable
held by the Trust, 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 acquisition by the Company of an
interest in two Atlanta, Georgia, area hotels (which have been subsequently
sold), John F. Rothman, a former President and Chief Executive Officer of the
Trust, assumed certain obligations of the seller, 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.
In addition, during 1995 the Trust loaned Jeffery C. Lapin, a former
President of the Trust, $250,000. During 1996, the Corporation made a $150,000
non-interest bearing bridge loan to Eric A. Danziger, the President and Chief
Executive Officer of the Corporation. The bridge loan is secured by a second
mortgage on Mr. Danziger's residence in Phoenix, Arizona. The bridge loan
matures in September 1997. During 1996, the Corporation made a $266,667
non-interest bearing bridge loan to an officer of the Corporation, Theodore W.
Darnall. The bridge loan is secured by a second mortgage on Mr. Darnall's
residence in Phoenix, Arizona. The
12
<PAGE> 17
bridge loan will mature as to $100,000 upon the sale of Mr. Darnall's home in
Pittsburgh, Pennsylvania, and the balance upon termination of his employment
with the Corporation. (see Note 15 of Notes to Financial Statements included in
Item 8 of this Joint Annual Report and Item 11 of this Joint Annual Report --
"Employment and Compensation Agreements with Executive Officers").
FRANCHISE AGREEMENTS
Forty-seven of the 62 hotel properties in which Starwood Lodging had an
equity interest at December 31, 1996, 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 room revenue and
various other fees associated with certain marketing or advertising and
centralized reservation services, also generally based on gross room revenues.
The Franchise Agreements have various durations but generally may be
terminated upon prior notice no greater than three years or upon payment of
certain specified fees.
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 may from time
to time require significant expenditures for capital improvements.
The Franchise Agreements also generally contain financial reporting
requirements relating to the calculation of royalty and other fees and insurance
requirements with respect to specified liabilities, approved coverage limits and
minimum insurance company rating.
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.
MANAGEMENT AGREEMENTS
As of December 31, 1996, four of the Company owned hotels were managed by
third-party operators: The Marriott Forrestal Village is operated by Marriott
International, Inc. ("Marriott") pursuant to a lease expiring in 2007 (subject
to earlier termination if certain annual financial performance standards are not
met or upon payment of a termination fee by the Company), the Ritz Carlton
Hotels in Philadelphia, Pennsylvania, and Kansas City, Missouri, are operated by
an affiliate of Marriott pursuant to operating agreements that terminate in 1999
(subject to earlier termination if certain annual financial performance
standards are not met) and the Harvey Hotel in Wichita, Kansas, is operated by
Bristol Hotel Company pursuant to a management agreement that terminates in 1998
(subject to earlier termination if certain annual financial performance
standards are not met or upon payment of a fee by the Company).
Each such agreement with a third-party provides that the operator has the
exclusive right to direct the operations of the hotel subject to that agreement.
The operator 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 operator is required to submit to the Company for its approval an
annual budget that includes proposed capital expenditures, and the operator
makes only those capital expenditures that are approved by Company. The Company
is required to make available to each operator sufficient working capital to
operate the hotel.
For their services in managing the hotels, each third-party operator
receives a fee equal to a specified percentage (generally 2% - 3%) of the gross
revenues of the managed hotel, plus additional incentive fees based upon the
hotel's operating profits.
As of the date of this Joint Annual Report, the Company manages nine hotels
owned by third-parties.
The management agreements have expiration dates ranging from 1997 to 2016
with management fees ranging from 2.5% of hotel revenues to 4% of hotel
revenues.
13
<PAGE> 18
REGULATION AND LICENSING
The lease and operation of the casino gaming facilities by 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 operates the King 8 pursuant to licenses granted by the Nevada Gaming
Authorities. 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.
During 1996, Starwood Lodging sold Bourbon Street and the real property
related to the King 8. The Company continues to own the personal property
related to the King 8 and to operate the King 8 pending the buyer's receipt of
the requisite licenses and approvals from the Nevada Gaming Authorities.
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
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 a new operator is licensed.
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 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.
14
<PAGE> 19
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 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.
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
15
<PAGE> 20
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 Corporation shares
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 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
16
<PAGE> 21
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 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, unless
previously received by the purchaser of the King 8. 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 the 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, 1997, 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
17
<PAGE> 22
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.
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.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On December 30, 1996, (i) the Trust held its 1996 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 the amendment and restatement of
the 1995 Share Option Plan of the Trust as the Starwood Lodging Trust 1995
Long-Term Incentive Plan and (ii) the Corporation held its 1996 annual meeting
of stockholders of the Corporation (the "Corporation Meeting") to elect three
Directors to the Board of Directors of the Corporation (to take effect upon
receipt of a Gaming Approval) and to approve the amendment and restatement of
the 1995 Stock Option Plan of the Corporation as the Starwood Lodging
Corporation 1995 Long-Term Incentive Plan.
At the Trust Meeting, shareholders of the Trust voted upon and approved (i)
the election as Trustees of the Trust of Stephen R. Quazzo and Steven R. Goldman
and (ii) the adoption of the Starwood Lodging Trust 1995 Long-Term Incentive
Plan (Amended and Restated as of August 12, 1996) (the "Trust LTIP"). Messrs.
Grose, Simms, Duncan, Stern and Sternlicht continued as Trustees.
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 and are
presented after giving effect to the three-for-two stock split in January 1997:
<TABLE>
<CAPTION>
VOTES VOTES VOTES
FOR AGAINST ABSTENTIONS WITHHELD
---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Election of Trustees:
Stephen R. Quazzo................................ 34,620,521 0 0 60,215
Steven R. Goldman................................ 34,551,746 0 0 128,990
Adoption of the Starwood Lodging Trust 1995
Long-Term Incentive Plan (Amended and Restated as
of August 12, 1996).............................. 22,737,539 7,560,834 58,995
</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: Jean-Marc Chapus, Eric A. Danziger and Michael A. Leven (Messrs.
Chapus, Danziger and Leven to take office upon receipt of Gaming Approval), and
(ii) the adoption of the Starwood Lodging Corporation 1995 Long-Term Incentive
Plan (Amended and Restated as of August 12, 1996) (the "Corporation LTIP").
Messrs. Ford, Jones and Henderson continued to serve as the Directors of the
Corporation. These three individuals, as well as Messrs. Yih, Eilian,
Sternlicht, Chapus, Danziger and Leven serve as the Management Committee of the
Operating Partnership. Messrs. Yih, Eilian, Sternlicht, Chapus, Danziger and
Leven are Directors-Elect of the Corporation and will take office as Directors
on the receipt of the Gaming Approvals or sale of all the gaming assets. Messrs.
Ford and Henderson have indicated that upon the sale of Starwood Lodging's
gaming operations or receipt of the approval of the Nevada Gaming Authorities
(see Item 2, "Regulation and Licensing" of this Joint Annual Report) by the
Directors who have not yet received such approval, they intend to resign as
Directors.
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
18
<PAGE> 23
election of Directors, the number of votes withheld) with respect to such matter
and are presented after giving effect to the three-for-two stock split in
January 1997:
<TABLE>
<CAPTION>
VOTES VOTES VOTES
FOR AGAINST ABSTENTIONS WITHHELD
---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Election of Directors:
Jean-Marc Chapus................................. 31,036,356 0 0 3,644,379
Eric A. Danziger................................. 34,551,098 0 0 129,638
Michael A. Leven................................. 34,619,913 0 0 60,822
Adoption of Starwood Lodging Corporation
1995 Long-Term Incentive Plan
(Amended and Restated as of August 12, 1996)..... 24,584,796 6,509,378 55,199
</TABLE>
PART II
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 and the three-for-two stock
split in January 1997).
<TABLE>
<CAPTION>
DISTRIBUTIONS RETURN OF CAPITAL
HIGH LOW MADE GAAP BASIS(a)
------ ------ ------------- -----------------
<S> <C> <C> <C> <C>
1996
First quarter.................................. $23.25 $19.67 $0.31 $0.11
Second quarter................................. $25.75 $21.17 $0.33 --
Third quarter.................................. $27.92 $22.08 $0.33 $0.14
Fourth quarter................................. $36.75 $27.42 $0.39(b)(c) $0.22
1995
First quarter.................................. $16.00 $10.50 None N/A
Second quarter................................. $16.50 $14.00 None N/A
Third quarter.................................. $19.42 $15.75 $0.31 $0.14
Fourth quarter................................. $20.00 $17.92 $0.31(d) $0.11
</TABLE>
- ---------------
(a) Represents distributions per Paired Share in excess of net income per Paired
Share on a GAAP basis, and is not the same as return of capital on a tax
basis.
(b) The Trust declared a distribution for the fourth quarter of 1996 to
shareholders of record on December 30, 1996. The distribution was paid in
January 1997.
(c) During the fourth quarter of 1996 the Trust and the Corporation each
declared a three-for-two stock split in the form of a 50% stock dividend
payable to shareholders of record on December 30, 1996. The stock dividend
was paid in January 1997.
(d) The Trust declared a distribution for the fourth quarter of 1995 to
shareholders of record on December 29, 1995. The distribution was paid in
January 1996.
HOLDERS
As of February 28, 1997, there were approximately 1,869 holders of record
of Paired Shares.
19
<PAGE> 24
DISTRIBUTIONS MADE/DECLARED
During the fourth quarter of 1996 the Trust and the Corporation each
declared a three-for-two stock split in the form of a 50% stock dividend payable
to shareholders of record on December 30, 1996. The stock dividend was paid in
January 1997. The Trust declared and paid dividends of $0.31, $0.33, $0.33 and
$0.39 per share (as adjusted for the three-for-two stock split in January 1997)
for the first, second, third and fourth quarters of 1996 respectively. The
fourth quarter dividend was paid in January 1997. The Trust declared and paid a
dividend of $0.31 per share (as adjusted for the three-for-two stock split in
January 1997) for the third and fourth quarters of 1995. The fourth quarter
dividend was paid in January 1996. No distributions were made by the Trust
during 1994. The Corporation has not paid any cash dividends since its
organization and does not anticipate that it will make any such distributions in
the near future. Under the terms of the Lines of Credit, Starwood Lodging is
generally permitted to distribute to its shareholders on an annual basis an
amount equal to the greatest of (1) 95% of combined 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; and (3) the amount
necessary for the Trust to avoid the payment of federal income or excise tax.
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.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Revenue:
Trust........................... $115,059 $ 44,023 $ 21,671 $ 20,342 $ 26,784
Corporation..................... 410,156 149,184 110,962 114,828 116,172
Combined(1)..................... 428,538 161,716 113,997 117,155 117,656
Net Income (Loss):
Trust(2)........................ $ 33,589 $ 10,709 $ (3,465) $ (3,889) $ (9,818)
Corporation(2).................. (6,638) (1,739) (1,198) (3,143) (9,925)
-------- -------- -------- -------- --------
Combined........................ 26,951 8,970 (4,663) (7,032) (19,743)
Net Income (Loss) Per Share/Paired
Share(3):
Trust........................... $ 1.12 $ 0.92 $ (1.14) $ (1.28) $ (3.24)
Corporation..................... (0.22) (0.15) (0.39) (1.04) (3.27)
-------- -------- -------- -------- --------
Combined........................ $ 0.90 $ 0.77 $ (1.53) $ (2.32) $ (6.51)
</TABLE>
20
<PAGE> 25
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total Assets:
Trust............................ $1,233,366 $425,737 $162,245 $232,845 $245,540
Corporation...................... 185,192 120,721 48,626 49,993 53,611
Combined(1)...................... 1,312,740 459,994 183,955 195,352 210,945
Total Debt:
Trust............................ $ 477,603 $119,200 $146,734 $156,526 $157,541
Corporation...................... 107,781 90,749 40,664 101,846 100,246
Combined(1)...................... 479,566 123,485 160,482 170,886 170,297
Shareholders' Equity (Deficit):
Trust............................ $ 569,300 $204,728 $ 10,450 $ 72,205 $ 76,371
Corporation...................... 23,361 10,740 (1,742) (58,879) (55,752)
---------- -------- -------- -------- --------
Combined......................... 592,661 215,468 8,708 13,326 20,351
Paired Shares outstanding at end of
period(3)........................ 40,078 20,697 3,033 3,033 3,033
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CASH FLOW AND DIVIDEND DATA
Net cash provided by operating
activities:
Trust............................. $ 61,589 $ 11,267 $ 4,455 $ 3,136 $ 2,773
Corporation....................... 12,578 5,144 4,438 2,396 1,917
Combined.......................... 74,167 16,411 8,893 5,532 4,690
Net cash provided by (used in)
investing activities:
Trust............................. $(726,427) $(175,506) $ 8,239 $ 2,474 $ (161)
Corporation....................... (33,774) (44,003) 215 (4,426) (942)
Combined(1)....................... (746,800) (181,995) 4,489 (3,645) (1,514)
Net cash provided by (used in)
financing activities:
Trust............................. $ 667,938 $ 164,694 $(13,357) $(7,307) $ (850)
Corporation....................... 34,190 42,671 (4,577) (1,138) (816)
Combined(1)....................... 688,727 169,851 (13,969) (6,752) (1,255)
Cash distributions to
shareholders -- Trust(4).......... 46,218 9,265 $ 0 $ 0 $ 0
Cash distributions per share --
Trust(3)(4)....................... $ 1.36 $ 0.62 $ 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 $4,290,000,
($125,000), $432,000, ($53,000) and ($791,000) for the years ended December
31, 1996, 1995, 1994, 1993 and 1992 respectively, and provisions for
investment losses of $759,000, $2,369,000 and $3,419,000 in the years ended
December 31, 1994, 1993 and 1992, respectively. For the Corporation,
includes gains on sales of $24,000, $74,000 and $4,000 for the years ended
December 31, 1994, 1993 and 1992, respectively.
21
<PAGE> 26
(3) As adjusted for a one-for-six reverse stock split in June 1995 and a
three-for-two stock split in January 1997.
(4) Presented only for the Trust, as the Corporation did not pay cash dividends
for the periods presented.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
HISTORICAL RESULTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
THE TRUST
Rents from the Corporation, which are based largely on hotel revenues,
increased $60.9 million for the year ended December 31, 1996, as compared to the
corresponding period of 1995. The increase was primarily the result of rents
earned by the Trust on 33 hotels containing approximately 9,700 rooms (the
"Acquired Hotels") acquired by the Trust since April 1995. The investment in 33
hotels (the 168-room Omni Europa acquired in April 1995; the 462-room Sheraton
Colony Square acquired in July 1995; the 224-suite Embassy Suites Tempe acquired
in July 1995; the 364-room Terrace Garden Inn, and 180-room Lenox Inn acquired
in October 1995; the 206-room Holiday Inn Calverton acquired in November 1995;
the 263-room Westin, Washington, D.C. acquired in January 1996; the 960-room
Boston Park Plaza acquired in January, 1996; the 442-room Clarion Hotel acquired
in April 1996; the three Doubletree Guest Suites hotels acquired in April 1996;
the 177-room Days Inn and 251-suite Doubletree Guest Suites acquired in July
1996; the Institutional Portfolio, the HOD Portfolio (excluding the 293-room
Radisson Marque which was acquired by the Corporation) and the 294-room Marriott
Forrestal Village acquired in August 1996, and the 121-room Doral Tuscany and
the 199-room Doral Court acquired in September 1996) accounted for increased
rents of $59.7 million for the year ended December 31, 1996, as compared to the
corresponding period in 1995. In addition, rents earned by the Trust from
continuously owned properties leased to the Corporation increased by $1.2
million for the year ended December 31, 1996, as compared to the corresponding
period in 1995.
Interest from the Corporation increased by $4.3 million for the year ended
December 31, 1996, as compared to the corresponding period of 1995. The increase
in interest income was primarily a result of interest on the mortgage interests
relating to the Milwaukee hotel which mortgage interests were purchased by the
Trust in July 1995 and interest on the first mortgage of the Midland Hotel,
which hotel was acquired by the Corporation in March 1996.
Interest from mortgage and other notes amounted to $11.2 million for the
year ended December 31, 1996 as compared to $10.8 million for the corresponding
period in 1995. The increase resulted from the purchase during the year of debt,
a portion of which is secured by the 305-room Holiday Inn in Milpitas,
California, offset in part by principal amortization.
Other income for the year ended December 31, 1996, includes a $290,000 gain
(net of related expenses) realized in conjunction with the sale of securities
which were purchased in contemplation of acquiring a portfolio of hotel
properties and $750,000 gain (net of related expenses) realized in connection
with the sale of other securities. Also included in other income is $314,500
recorded as a result of the Ross Litigation settlement (see Item 3 of Part I of
this Joint Annual Report).
Interest expense increased by $10.7 million for the year ended December 31,
1996, as compared to the corresponding period of 1995. The increase was due to
borrowings under the Lines of Credit, the Doral Mortgage and the BPP Mortgage,
used to acquire the above mentioned properties offset by the net proceeds from
the 1996 Offerings used to partially fund the acquisition of the above mentioned
properties.
Depreciation and amortization expense increased by $33.5 million during the
year ended December 31, 1996, as compared to the corresponding period of 1995,
principally due to the acquisition of the Acquired Hotels.
22
<PAGE> 27
Administrative and general expenses for the year ended December 31, 1996,
increased by $1.7 million to $4.1 million, as compared to $2.4 million for the
corresponding period of 1995. The increase resulted predominantly from expenses
incurred as a result of the Trust LTIP as well as costs incurred relating to the
investigation of hotels which ultimately were not acquired. Administrative and
general expenses includes payments of approximately $242,000 to Jeffrey C.
Lapin, a former President of the Trust pursuant to his separation agreement with
the Trust.
Minority interest represents primarily the interest of the Starwood
Partners in the Realty Partnership for the year ended December 31, 1996, and the
41.8% minority interest of a third-party in the joint venture that owns the
Boston Park Plaza hotel.
THE CORPORATION
Hotel revenues increased by $263.9 million for the year ended December 31,
1996, as compared to the corresponding period of 1995. The assumption of
management of the Acquired Hotels and the addition of the 652-room Doral Inn in
New York, New York; the 293-room Radisson Marque hotel in Winston-Salem, North
Carolina and the 257-room Midland Hotel in Chicago, Illinois resulted in
increases in hotel revenues of $249.1 million for the year ended December 31,
1996. The remaining increase of $14.8 million for the year ended December 31,
1996, is attributable to other continuously owned properties.
Hotel gross margin for the year ended December 31, 1996, was $110.1
million, or 28.6% of hotel revenues, as compared to $36.2 million, or 29.9% of
hotel revenues, for the same period of 1995. The decrease in gross margin was
primarily due to the increase in the food and beverage revenue component of
total hotel revenue resulting from the Company's continued investment in
full-service hotels offset, in part, by increases in REVPAR and the termination
of third-party management agreements.
Gaming revenues for the year ended December 31, 1996 as compared to the
corresponding period of 1995 decreased by $3.3 million to $23.6 million. Gaming
gross margin for the year ended December 31, 1996 was $1.8 million or 8% of
gaming revenues, as compared to $2.7 million or 10% of gaming revenues, for the
corresponding period in 1995.
The decrease in gaming revenues and the decline in gaming gross margin
predominately resulted from operations at Bourbon Street which was sold on
September 12, 1996. The real property of the other gaming asset, the King 8, was
also sold in 1996 for approximately $18.8 million. The sale of the personal
property of the King 8, for $3 million, will close following the receipt by the
purchaser or his designee of required gaming approval. HICN, a subsidiary of the
Corporation, leases the real property from the purchaser and has agreed to
continue to operate the hotel and casino while the purchaser obtains required
gaming licenses and approvals.
Management fees and other income for the year ended December 31, 1996,
includes $314,500 of income recorded as a result of the Ross Litigation
settlement (see Item 3 of Part I of this Joint Annual Report) and $953,500 of
management fee income from the joint venture that owns the Boston Park Plaza
hotel.
Administrative and general expenses for the year ended December 31, 1996,
increased to $12.4 million or 3.0% of revenues as compared to $3.3 million or
2.2% of revenues for the corresponding period of 1995. The increase was
primarily a result of increases in payroll costs commensurate with the Company's
growth, the assumption of management of hotels previously operated by
third-parties, and expenses incurred as a result of the Corporation LTIP.
Administrative and general expenses for the year ended December 31, 1996,
included a $1.9 million charge relating to costs relating to the relocation of
the corporate office from Los Angeles, California to Phoenix, Arizona.
Depreciation and amortization expense increased by $6.7 million for the
year ended December 31, 1996, as compared to the corresponding period of 1995.
The increase was primarily a result of depreciation relating to hotels acquired
by the Corporation.
Minority interest represents primarily the interest of the Starwood
Partners in the Operating Partnership and the 41.8% minority interest of a
third-party in the joint venture that owns the Boston Park Plaza hotel.
23
<PAGE> 28
Net income for the year ended December 31, 1996, includes an extraordinary
gain of $1.5 million before minority interest resulting from early
extinguishment of debt. The extraordinary gain resulted from the early payoff,
at a discount, of a note secured by the Milwaukee Marriott. In addition, the
Corporation purchased the remaining equity interest for $240,000 and became the
100% owner of the hotel.
For more information with respect to rent and interest paid to the Trust
during the years ended December 31, 1996 and 1995, see, "The Trust" immediately
above.
EXTERNAL GROWTH
During the year ended December 31, 1996, the Company acquired equity and
debt interests in 32 hotels containing more than 10,000 rooms at a combined cost
exceeding $840 million. Of the 32 hotels, the Company acquired equity interests
in 30 hotels as follows: the 263-room Grand Hotel (renamed the Westin Hotel) in
Washington, DC (January 1996); a 58.2% interest in the 960-room Boston Park
Plaza Hotel Complex in Boston, Massachusetts (January 1996); the 257-room
Midland Hotel in Chicago, Illinois (March 1996); the 442-room Clarion Hotel at
the San Francisco Airport in Milbrae, California (April 1996), the 260-suite
Doubletree Guest Suites hotel (renamed the Westin Hotel) in Tampa, Florida, the
254-suite Doubletree Guest Suites Hotel in Cypress Creek, Florida, and the
308-suite Doubletree Guest Suites Hotel in Irving, Texas (April 1996); the
251-suite Doubletree Guest Suites Hotel and the 177-room Days Inn, both located
at the Philadelphia Airport in Philadelphia, Pennsylvania (June 1996); the
Institutional Portfolio (August 1996); the HOD Portfolio (August 1996); the
294-room Marriott Forrestal Village in Princeton, New Jersey (August 1996); the
199-room Doral Court and 121-room Doral Tuscany in New York, New York (September
1996); and a 93.5% interest in the 257-room Westwood Marquis in Los Angeles,
California (December 1996).
INTERNAL GROWTH
On a same-store-sales basis, including the results of all hotels acquired
prior to December 31, 1996, for the period from their respective dates of
acquisition if acquired in 1996 as compared to the same period in 1995, REVPAR
for the year ended December 31, 1996, increased 9.2% (8.7% if the Dallas Park
Central, which underwent a substantial renovation in 1996 is included), from
$60.24 to $65.76 over the same period in 1995. The increase in REVPAR resulted
from an increase in ADR of 11.5%, from $82.96 to $92.54, while the occupancy
rate decreased by 1.5 percentage points.
The overall increase in REVPAR for the year ended December 31, 1996, was
largely attributable to the strong increase in REVPAR at the Company's upscale
hotels. These hotels experienced an increase in REVPAR of 10.4% for the year
ended December 31, 1996, as compared to the corresponding period of 1995. ADR
for the Company's upscale hotels increased 11%, for the year ended December 31,
1996, as compared to the corresponding period in 1995.
The following tables summarize average occupancy, ADR and REVPAR on a
year-over-year basis for the Company's 58 owned and operated (including owned
but third-party managed hotels and including the Acquired Properties and
properties acquired by the Corporation for the period beginning with their
respective dates of acquisition and ending at the end of each period; and
excluding the Westwood Marquis which was acquired on December 31, 1996),
non-gaming hotels for the year ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
57 NON-GAMING HOTELS (EXCLUDING DALLAS PARK CENTRAL): 1996 1995
--------------------------------------------------------------- ------ ------
<S> <C> <C>
Occupancy rate................................................. 71.1% 72.6%
ADR............................................................ $92.54 $82.96
REVPAR......................................................... $65.76 $60.24
REVPAR % change................................................ 9.2%
</TABLE>
24
<PAGE> 29
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
41 UPSCALE HOTELS: 1996 1995
--------------------------------------------------------------- ------ ------
<S> <C> <C>
Occupancy rate................................................. 72.1% 72.4%
ADR............................................................ $99.63 $89.73
REVPAR......................................................... $71.79 $65.00
REVPAR % change................................................ 10.4%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
16 MIDSCALE/ECONOMY HOTELS (EXCLUDING DALLAS PARK CENTRAL): 1996 1995
--------------------------------------------------------------- ------ ------
<S> <C> <C>
Occupancy rate................................................. 67.6% 73.2%
ADR............................................................ $66.52 $59.96
REVPAR......................................................... $45.00 $43.89
REVPAR % change................................................ 2.5%
</TABLE>
Management believes that increases in REVPAR resulted primarily from
increases in demand due to continued favorable economic conditions which have
resulted in increased business and leisure travel throughout the United States,
while the supply of hotel rooms has not increased as rapidly, particularly in
major urban locations. Revenue increases for the year were greatest at the
recently acquired properties in Atlanta, New York, San Diego, Chicago,
Philadelphia and Washington. REVPAR declined significantly at the Dallas Park
Central which was virtually closed for renovation. REVPAR at the Harvey Hotel in
Wichita, which is managed by a third-party, declined 10%.
Management believes that there are several important factors that have
contributed to the improved profitability of hotel properties, including
increased ADR and effective cost management. Because a substantial portion of
the hotels' operating costs and expenses are generally fixed, the Company
derives substantial operating leverage from increases in revenue. However, the
Company's continued investment in full-service properties has led to a larger
component of food and beverage revenue when compared to the same period last
year. Consequently, gross margins for the year ended December 31, 1996, declined
to 29% from 30% in the corresponding period in 1995.
During the year ended December 31, 1996, consistent with its business
objective to capture the economic benefits otherwise retained by a third-party
operator, the Company assumed management of a total of 29 hotels including 27
hotels acquired during the period and two properties acquired prior to January
1, 1996. Management believes that the assumption of direct control over the
operations of these hotels will allow the Company to effectively use the
experience of management to improve operations.
During the year ended December 31, 1996, the Company completed a $1.9
million renovation of the Riverside Inn in Portland, Oregon, and a $1.6 million
renovation of the Terrace Garden Inn in Atlanta, Georgia. The $12 million
renovation of the Dallas Park Central was substantially completed in 1996, and
on January 15, 1997, the property was renamed the Radisson Hotel. Other hotels
with significant renovations in progress at the end of the year include the
Sheraton Colony Square in Atlanta, Georgia ($6.5 million total renovation), and
the Westin in Washington, DC ($6.0 million total renovation). Both renovations
are expected to be completed by June 1997. The renovation for the Meany Tower
Hotel in Seattle, Washington, the Clarion Hotel at the San Francisco Airport,
the Radisson Hotel in Gainesville, Florida, the Doral Inn, the Doral Tuscany,
and the Doral Court in New York have also begun and should be completed in 1997
and 1998. In addition, the Boston Park Plaza's renovation is currently scheduled
to begin in November 1997, during a seasonally weak period.
SEASONALITY AND DIVERSIFICATION
Demand is affected by normally recurring seasonal patterns. Generally the
Company's portfolio of hotels as a whole has performed better in the second and
third quarters due to decreased travel in the winter months. Further
acquisitions may further affect the seasonality of the Company's current
portfolio. The Company has continued to implement a business strategy of
franchise and geographic diversification.
25
<PAGE> 30
COMBINED LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW PROVIDED BY OPERATING ACTIVITIES
The principal source of cash to be used to fund the Company's operating
expenses, interest expense, recurring capital expenditures and distribution
payments by the Trust will be cash flow provided by operating activities. The
Company anticipates that cash flow provided by operating activities will provide
the necessary funds on a short and long term basis to meet operating cash
requirements including all distributions to shareholders by the Trust. During
the first quarter of 1996, the Trust paid a distribution of $0.31 per share
(after giving effect to the three-for-two stock split in January 1997) for the
fourth quarter of 1995. During the second quarter of 1996, the Trust paid a
distribution of $0.31 per share (after giving effect to the three-for-two stock
split in January 1997) for the quarter ending March 31, 1996. During the third
quarter of 1996, the Trust paid a distribution of $0.33 per share (after giving
effect to the three-for-two stock split in January 1997) for the quarter ended
June 30, 1996. During the fourth quarter of 1996, the Trust paid a distribution
of $0.33 per share (after giving effect to the three-for-two stock split in
January 1997) for the quarter ended September 30, 1996, and declared a
distribution of $0.39 per share (after giving effect to the three-for-two stock
split in January 1997) for the quarter ended December 31, 1996. This
distribution was paid on January 27, 1997.
CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES
The Company intends to finance the acquisition of additional hotel
properties, hotel renovations and capital improvements and provide for general
corporate purposes through the Lines of Credit, through additional lines of
credit, and when market conditions warrant, to issue additional equity or debt
securities.
In March 1996, the Realty Partnership entered into the Term Loan to fund
the acquisition in March 1996 of the 257-room Midland Hotel in Chicago and, in
April 1996, the amount of the Term Loan was increased to $94 million. The Term
Loan is secured by nine properties of the Company on a cross-collateralized
basis but is non-recourse to the Realty Partnership. As of December 31, 1996,
the Realty Partnership had borrowed $94 million under the Term Loan, which
accrues interest at a rate equal to the one, two, or three-month LIBOR, at the
Company's option, plus (a) 1.95% for the first $24 million and (b) 1.75% for the
balance of the Term Loan. The Term Loan becomes due in April 1997.
In July 1996, the maturity date of the Mortgage Facility, which is secured
by six notes receivable, was extended from January 25, 1997, to July 25, 1997.
As of December 31, 1996, Realty had borrowed $70.6 million under the Mortgage
Facility.
In August 1996, the Company entered into the Goldman Facility for a
one-year (extendible to 18 months) loan of up to $300 million to fund a portion
of the acquisition cost of the HOD Portfolio and for general corporate purposes.
The Goldman Facility bears interest at one-month LIBOR plus 1.75% (2.75% during
the six month extension period) and is secured by interests in the Institutional
Portfolio and the HOD Portfolio. At December 31, 1996, the Company had borrowed
$140 million under the Goldman Facility.
On April 12, 1996, the Company completed a public offering of 3,000,000
Paired Shares at a net price to the Company of approximately $21.00 per share
(after giving effect to the three-for-two stock split in January 1997). The net
proceeds of approximately $62.4 million were used, in part, to fund the
acquisition of the 442-room Clarion Hotel at the San Francisco Airport and the
three Doubletree Guest Suite hotels located in Irving, Texas; Ft. Lauderdale,
Florida; and Tampa, Florida (renamed a Westin).
On August 12, 1996, the Company completed a public offering of 15,000,000
Paired Shares (after giving effect to the three-for-two stock split in January
1997) and on August 23, 1996, the underwriter exercised its over-allotment
option to purchase 1.2 million Paired Shares (after giving effect to the
three-for-two stock split in January 1997). Net proceeds of approximately $367.2
million were used to fund the acquisition of the Institutional Portfolio and the
balance was used to fund a portion of the acquisition of the HOD Portfolio. The
remaining portion of the HOD Portfolio was funded through the Goldman Facility.
As previously discussed, during the year, the Company completed a $1.9
million renovation of the Portland Riverside Inn, in Portland, Oregon, and a
$1.6 million renovation of the Terrace Garden Inn in Atlanta, Georgia.
26
<PAGE> 31
The $12 million renovation of the Dallas Park Central was substantially
completed in 1996, with completion expected in the first quarter of 1997. Other
hotels with significant renovations in progress at the end of 1996, include the
Sheraton Colony Square in Atlanta, Georgia; the Westin Hotel in Washington, DC;
the Meany Tower Hotel in Seattle, Washington; the Clarion Hotel at the San
Francisco Airport, the Radisson Hotel in Gainesville, Florida, the Doral Inn,
Doral Tuscany and Doral Court in New York, New York. The Company expects to
expend an aggregate of in excess of $100 million in 1997 including the hotels
mentioned above. Major and minor renovations, expansions and upgrades of other
hotels are also being contemplated. In addition, the Company intends to develop
new hotels on a selective basis. Sources of capital for major renovations,
expansions and upgrades of hotels as well as new construction are expected to
be: (i) excess funds from operations, (ii) additional debt financing, and (iii)
additional equity raised in the public and private markets.
As of the date this Joint Annual Report, since January 1, 1996, the Company
has invested over $1.2 billion in hotel assets (including approximately $27.8
million in capital expenditures for the year ended December 31, 1996). As part
of its investment strategy, the Company plans to acquire additional hotels.
Future acquisitions are expected to be funded through further draws under the
Lines of Credit, draws under new lines of credit, issuance of long-term debt on
either a secured or unsecured basis, issuance of limited partnership units in
the Realty Partnership and Operating Partnership exchangeable for Paired Shares
and the issuance of additional equity or debt securities. The Company 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%.
On February 14, 1997, the Company issued 6,548,225 limited partnership units
(valued for purposes of the transaction at approximately $215 million)
exchangeable for Paired Shares and entered into a short term loan with The
Prudential Insurance Company of America in the principal amount of $97.5 million
(the "Prudential Loan") in order to partially fund the acquisition of the HEI
Portfolio. As of the date of this Joint Annual Report, the Company had borrowed
$72.0 million under the Prudential Loan, which bears interest at a rate of 7.0%
and is due April 15, 1997. The Company may elect to extend the maturity date to
May 14, 1997. Presently, the Company intends to make the election to extend the
maturity date.
On February 20, 1997, the Company issued bonds in the principal amount of
$39.5 million due October, 2013 (the "Tax Exempt Bonds"). The Tax Exempt Bonds
bear interest at a rate of 6.5% with no principal amortization, were issued at a
discount to yield 6.7% and are secured by two hotels of the Company located at
the Philadelphia International Airport. Net proceeds from the Tax Exempt Bonds
of approximately $37.6 million were used to partially fund the acquisition of
the 578-room Days Inn in Chicago, Illinois.
Management of each of the Trust and of the Corporation believes that it
will have access to capital resources sufficient to satisfy the cash
requirements of each of the Trust and the Corporation and to expand and develop
their business in accordance with their strategy for future growth.
FUNDS FROM OPERATIONS
Management believes that funds from operations ("FFO") is one measure of
financial performance of an equity REIT such as the Trust. Combined FFO (as
defined by the National Association of Real Estate Investment Trusts)(1) for the
year ended December 31, 1996, grew by 150% to $82.7 million, compared to
- ---------------
(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 FFO 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 REIT's and it is presented to assist investors in analyzing the
performance of the Company. FFO is defined as income before minority
interest (computed in accordance with generally accepted accounting
principles), excluding gains (losses) from debt restructuring and sales of
property, and real estate related depreciation and amortization (excluding
amortization of financing costs). FFO 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. FFO should not be considered an alternative to net income as an
indication of the Company's financial performance or as an alternative to
cash flows from operating activities as a measure of liquidity.
27
<PAGE> 32
combined FFO of $33.1 million for the corresponding period in 1995. The
following table shows the calculation of historical combined FFO for the
indicated periods:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Income before extraordinary item and minority interest........... $36,112 $18,138
Real estate related depreciation and amortization, net of
amortization of financing costs................................ 51,197 14,799
Minority interest -- Boston Park Plaza........................... (2,121) --
(Gain) loss on sales of hotel assets............................. (4,290) 125
Corporate relocation costs....................................... 1,850 --
------- -------
Funds From Operations............................................ $82,748 $33,062
======= =======
</TABLE>
FFO includes $3.1 million and $3.3 million of interest income recognized in
excess of the interest received on mortgage notes receivable (as a result of the
notes having been purchased at a discount) for the years ended December 31, 1996
and 1995, respectively.
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.
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 year ended December 31,
1995, grew by 379% to $33.1 million on combined revenues of $161.7 million,
compared to combined FFO of $6.9 million on combined revenues of $114.0 million
for the comparable period in 1994. The following table shows the calculation of
historical combined FFO for the indicated periods:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Income before minority interest and extraordinary items.......... $18,138 $(4,663)
Shareholder litigation expense................................... -- 2,648
Provision for loss............................................... -- 759
Real estate related depreciation and amortization, net of
amortization of financing costs................................ 14,799 8,161
Loss 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 in Rancho
Bernardo, California; Capitol Hill Suites in Washington, DC; the Harvey Wichita
in Wichita, Kansas; and the French Quarter Suites in Lexington,
28
<PAGE> 33
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 (then
owned by a partnership of which the Operating Partnership was 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 Westin Hotel in Washington, D.C., purchased in September 1995.
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 Bourbon Street and the receipt of $289,000 and $48,000 of proceeds relating
to land comprising part of the King 8 and Bourbon Street, respectively, which
was transferred pursuant to eminent domain proceedings.
The Trust and the Corporation evaluate the carrying values of each 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 expected undiscounted future
cash flows of the assets (generally over a six-year period), are compared to the
net book value of the assets. If the expected undiscounted future cash flows are
less than the net book value of the assets, the excess of the net book value
over the estimated fair value is charged to current earnings. When an asset is
identified by management as held for sale, the Company discontinues depreciation
and estimates the fair value of such assets. If in management's opinion 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 loss is established. Fair value is
determined based upon the discounted cash flow of the properties at rates deemed
reasonable for the type of property and prevailing market conditions, 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 collectibility of the sales price and any future activities to
be performed by the Company relating to the hotel assets sold are insignificant.
Based on the foregoing methodology, a provision for loss in the amount of
$759,000 was recorded in 1994.
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 completion of a public offering on July 6, 1995, of
17,681,250 Paired Shares (after giving effect to the three-for-two stock split
in January 1997) at a price of $15.33 per Paired Share, which raised
approximately $245.7 million in net proceeds 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.
29
<PAGE> 34
Administrative and general 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.
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 a loan 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 revenues 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.
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 general 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.
For information with respect to rent and interest paid to the Trust during
the years ended December 31, 1995 and 1994, see "The Trust" immediately above.
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.
N/A
30
<PAGE> 35
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 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.
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE TRUSTEE SINCE
- ------------------------------ --------------------------------------------- --------------
<S> <C> <C>
TRUSTEES WHOSE TERMS EXPIRE AT THE 1997 ANNUAL MEETING
Bruce W. Duncan (45).......... President and Chief Executive Officer of The August 1995
Cadillac Fairview Corporation Limited since
December 1995. 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.
Daniel H. Stern (36).......... 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 Westin Hotel
Company and a Trustee of Big Apple Circus.
Barry S. Sternlicht (36)...... Chairman and Chief Executive Officer of the December 1994
Trust. He is founder and General Manager of
Starwood Capital Group, L.L.C., (and
co-founder of its predecessor entities in
1991) and has been the President and CEO of
Starwood Capital Group, L.P. since its
formation in 1991. Mr. Sternlicht is
currently a member of the Management
Committee of SLC Operating Limited
Partnership and, upon receipt of Gaming
Approval, a director of the Corporation, is a
Trustee of each of Equity Residential
Properties Trust, a multi-family REIT, and
Angeles Participating Mortgage Trust, a REIT,
and a director of Westin Hotel Company and
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. Mr.
Sternlicht is a member of the Board of
Directors of the Council for Christian and
Jewish Understanding, is a member of the
Young Presidents
</TABLE>
31
<PAGE> 36
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE TRUSTEE SINCE
- ------------------------------ --------------------------------------------- --------------
<S> <C> <C>
<-> Organization and is on the Board of Directors
of Junior Achievement for Fairfield County,
Connecticut.
TRUSTEES WHOSE TERMS EXPIRE AT 1998 ANNUAL MEETING
Madison F. Grose (43)......... Executive Vice President, Managing Director December 1994
and General Counsel of Starwood Capital
Group, L.L.C. (and its predecessor entities)
since July 1992. From November 1983 through
June 1992, he was a Partner in the law firm
of Pircher, Nichols & Meeks. Mr. Grose is
currently a Trustee of Angeles Participating
Mortgage Trust.
William E. Simms (52)......... President of the Risk Management Product August 1995
Services 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 County 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 part owner of the Carolina
Panthers National Football League team. Mr.
Simms is a director of NationsBank N.A.
Gary M. Mendell (40).......... President of Starwood Lodging Trust since February 1997
February 1997. Prior to joining the Trust,
Mr. Mendell co-founded HEI Hotels, L.L.C., a
hotel operating company based in Westport
Connecticut, which specializes in the
management and ownership of full-service
hotels, and served as its Chief Executive
Officer, Chairman and President from 1985
through February 1997.
TRUSTEES WHOSE TERMS EXPIRE AT 1999 ANNUAL MEETING
Steven R. Goldman (35)........ Senior Vice President of the Trust since September 1996
September 1996. Mr. Goldman served as Senior
Vice President of the Corporation from March
1995 to September 1996 and as a member of the
Management Committee of SLC Operating Limited
Partnership from December 1994 to September
1996. Mr. Goldman was a Vice President of
Starwood Capital Group, L.P. (predecessor of
Starwood Capital Group, L.L.C.), specializing
in hotel acquisitions and hotel asset
management, from August 1993 to February
1995. From 1990 to 1993, he was Senior
Development Manager of Disney Development
Company, the real estate investment
development and management division of Walt
Disney Company.
</TABLE>
32
<PAGE> 37
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE TRUSTEE SINCE
- ------------------------------ --------------------------------------------- --------------
<S> <C> <C>
Stephen R. Quazzo (37)........ Managing Director and co-founder of August 1995
Transwestern Investment Company, L.L.C., a
real estate principal investment firm, since
March 1996. Prior thereto Mr. Quazzo was
President of Equity Institutional Investors,
Inc. a subsidiary of Equity Group
Investments, Inc., a Chicago based holding
company controlled by Samuel Zell. Mr. Quazzo
is an advisory board member of City Year
Chicago, is a member of the Pension Real
Estate Association (PREA) and serves on the
Commercial and Retail Council of the Urban
Land Institute (ULI).
Roger S. Pratt (44)........... Managing Director and Senior Portfolio February 1997
Manager of Prudential Real Estate Investors.
Since January 1992, Mr. Pratt has been the
portfolio manager for PRISA II, a real estate
fund managed by Prudential Real Estate
Investors for pension fund clients. Mr. Pratt
has been with Prudential for fifteen years,
serving in a variety of roles in development,
asset management, hotel management and
administration. Mr. Pratt is a member of the
American Institute of Certified Planners and
serves on the Multi-Family Council of the
Urban Land Institute.
</TABLE>
The following table includes certain information with respect to the
current executive officers of the Trust other than Messrs. Sternlicht, Mendell,
and Goldman:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE TRUST
- ------------------------------ --- ------------------------------------------------
<S> <C> <C>
Ronald C. Brown............... 42 Senior Vice President and Chief Financial
Officer
</TABLE>
Ronald C. Brown. Mr. Brown has been Senior 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, L.L.C., a hotel REIT advisory
firm from August 1994 to July 1995. From December 1993 to August 1994, Mr. Brown
was President of Doubletree Corporation, a public hotel operating company. From
December 1990 to December 1993, Mr. Brown was Executive Vice
President -- Finance & Planning and CFO and then from April 1992, Chairman and
CEO of Doubletree Hotels Corporation. From March 1988 to April 1992, Mr. Brown
was Vice President -- Finance & Accounting and CFO, and then Executive Vice
President and CFO for Canadian Pacific Hotels Corporation, a hotel operating
company.
The executive officers of the Trust serve at the pleasure of the Board of
Trustees. 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,
Eric A. Danziger, 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 Approval is
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
33
<PAGE> 38
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 (57)............ President of FST and Associates and President September 1983
of F.K.B. Management Corporation, hotel and
restaurant management companies, since 1988.
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.
Graeme W. Henderson (63)...... Chairman of the Trust from July 1989 to September 1986
December 1994 and Trustee of the Trust from
September 1986 to December 1994. He has been
a private investor 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 (70)........... Mr. Jones is the Chairman of the Board of September 1985
Directors of the Corporation since February
1989. He is 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
Trust, a member of the Board of Trustees for
Millsaps College and the Catholic Foundation
and Co-Chairman of the Mississippi Olympic
Committee. Mr. Jones is a general partner of
Orlando Plaza Suite Hotel, Ltd-A which filed
a petition under Chapter 11 of the U.S.
Bankruptcy Code in May 1996. An order
confirming the debtor's plan of
reorganization was issued by the court on
January 27, 1997.
</TABLE>
34
<PAGE> 39
The following table sets forth, for each of the current members of the
Management Committee (other than Messrs. Ford, Henderson, and Jones) 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.
<TABLE>
<CAPTION>
MEMBER OF
PRINCIPAL OCCUPATION AND BUSINESS MANAGEMENT
NAME AND AGE EXPERIENCE COMMITTEE SINCE
- --------------------------------- ------------------------------------------- ----------------
<S> <C> <C>
MEMBERS WHOSE TERMS EXPIRE AT THE 1997 ANNUAL MEETING
Jonathan D. Eilian (29).......... Managing Director of Starwood Capital August 1995
Group, L.L.C. (and a senior executive of
its predecessor entities) since its
formation in September 1991. Prior to being
a founding member of Starwood Capital, Mr.
Eilian served as an 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.
Barry S. Sternlicht (36)......... Chairman and Chief Executive Officer of the December 1994
Trust. He is founder and General Manager of
Starwood Capital Group, L.L.C., (and
co-founder of its predecessor entities in
1991) and has been the President and CEO of
Starwood Capital Group, L.P. since its
formation. 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, and
is a director of each of Westin Hotel
Company and 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. Mr. Sternlicht is a member
of the Board of Directors of the Council
for Christian and Jewish Understanding, is
a member of the Young Presidents
Organization and is on the Board of
Directors of Junior Achievement for
Fairfield County, Connecticut.
MEMBER WHOSE TERM EXPIRES AT THE 1998 ANNUAL MEETING
Daniel W. Yih (38)............... A general partner of Chilmark Partners, August 1995
L.P. since June 1995. Mr. Yih served as
interim Chief Financial Officer of Midway
Airlines (from September 1995 to December
1995), 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 1993 to March 1995).
</TABLE>
35
<PAGE> 40
<TABLE>
<CAPTION>
MEMBER OF
PRINCIPAL OCCUPATION AND BUSINESS MANAGEMENT
NAME AND AGE EXPERIENCE COMMITTEE SINCE
- --------------------------------- ------------------------------------------- ----------------
<S> <C> <C>
MEMBERS WHOSE TERMS EXPIRE AT THE 1999 ANNUAL MEETING
Jean-Marc Chapus (37)............ Managing Director and Portfolio Manager of August 1995
Trust 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 for
the firm's private lending and private
placement activities.
Eric A. Danziger (42)............ President and Chief Executive Officer of September 1996
the Corporation since July 1996. Mr.
Danziger has been in the hotel industry for
over 26 years. Prior to joining the
Corporation, he served as the Executive
Vice President of Wyndham Hotel Corporation
and President of Wyndham Hotels and Resorts
Division from August 1990 to June 1996.
Michael A. Leven (59)............ President and Chief Executive Officer of August 1995
U.S. 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. Mr. Leven
is a director of U.S. Franchise Systems.
Mr. Leven is also a member of the Board of
Governors of the American Red Cross and a
Trustee of National Realty Trust.
</TABLE>
The following table includes certain information with respect to each of
the Corporation's current executive officers other than Mr. Danziger:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE CORPORATION
- --------------------------------- --- ------------------------------------------------------
<S> <C> <C>
Theodore W. Darnall.............. 39 Executive Vice President and Chief Operating Officer
Alan M. Schnaid.................. 30 Vice President and Corporate Controller
</TABLE>
Theodore W. Darnall. Mr. Darnall has served as the Executive Vice
President and Chief Operating Officer of the Corporation since April 1996. Prior
to joining the Corporation, Mr. Darnall served as the Senior Vice
President -- Operations of Interstate Hotel Company from August 1995 to April
1996. From 1989 to August 1995, Mr. Darnall served as the Regional Vice
President -- Operations of Interstate Hotel Company.
Alan M. Schnaid. Mr. Schnaid has been with the Corporation since August
1994 and has been a Vice President since July 1996 and Corporate Controller
since February 1996. He is a Certified Public Accountant. Mr. Schnaid was
employed by Mazars and Company, an international accounting firm from January
1993 to August 1994 and by Kenneth Leventhal and Company, a national real estate
accounting firm from January 1991 to January 1993.
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.
36
<PAGE> 41
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, 1996, 1995 and 1994 to
the Trust's Chief Executive Officer and each other executive officer of the
Trust whose total compensation for 1996 exceeded $100,000 for services rendered
in all capacities to the Trust.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION RESTRICTED ---------------------
-------------------- STOCK SECURITIES UNDERLYING
YEAR SALARY($) BONUS($) AWARD(S)($) OPTIONS/SARS(#)(1)(2) COMPENSATION($)
----- --------- -------- ----------- --------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Barry S. Sternlicht..... 1996 181,252 250,000 956,250(3) 1,554,000
Chairman and Chief 1995 91,667 150,000 625,500
Executive Officer
Jeffrey C. Lapin(4)..... 1996 281,250 7,500 75,000(5)
President and Chief 1995 199,167 75,000 110,500
Operating Officer 1994 190,000 75,000 3,000(6)
Ronald C. Brown......... 1996 175,000 100,000 540,000(7) 85,500 187,513(8)
Senior Vice President 1995 66,666 65,000 82,500
and Chief Financial
Officer
Steven R. Goldman(9).... 1996 43,750 75,000 900,000(10) 90,000 58,862(11)
Senior Vice President
</TABLE>
- ---------------
(1) For information with respect to these options, see "Option Exercises and
Holdings" below.
(2) Adjusted for three-for-two stock split which occurred in January 1997.
(3) At December 31, 1996, Mr. Sternlicht had restricted stock awards of 45,000
Paired Shares (after giving effect to the three-for-two stock split in
January 1997) with a value of $1,653,750. Mr. Sternlicht's restricted stock
awards are in the form of two warrants to purchase 22,500 Paired Shares
each at an exercise price of $0.67 per Paired Share (after giving effect to
the three-for-two stock split in January 1997). One warrant was exercisable
immediately (the "1996 Warrant") and one became exercisable on 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 the
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 21, 1998. Dividends will be paid with
respect to the Paired Shares but not the warrants subject to such
restricted stock awards. Mr. Sternlicht also has an economic interest in
the restricted stock award granted by the Trust to Starwood Capital. See
"-- Compensation Committee Interlocks and Insider Participation."
(4) Mr. Lapin resigned as an officer of the Trust in June 1996.
(5) Amount shown reflects cash paid for severance.
(6) Adjusted for one-for-six reverse stock split which occurred in June 1995.
(7) At December 31, 1996, Mr. Brown had a restricted stock award of 22,500
Paired Shares (after giving effect to the three-for-two stock split in
January 1997), with a value of $826,875. Such restricted stock award vests
as to one-third of such amount on August 12, 1997, as to an additional
one-third of such amount on August 12, 1998, and as to the remaining amount
on August 12, 1999. Dividends will be paid with respect to the Paired
Shares subject to such restricted stock award.
37
<PAGE> 42
(8) Amount shown reflects $163,963 for taxable relocation reimbursement and
$23,550 for dividends on restricted Paired Shares which were not vested at
December 31, 1996.
(9) Mr. Goldman became an officer of the Trust in September 1996. Prior to
September 1996, Mr. Goldman was an officer of the Corporation. During 1996,
the Corporation paid Mr. Goldman $131,250 in salary, a bonus of $25,000 and
$24,500 for dividends on restricted Paired Shares which were not vested at
December 31, 1996.
(10) At December 31, 1996, Mr. Goldman had a restricted stock award of 37,500
Paired Shares (after giving effect to the three-for-two stock split in
January 1997), with a value of $1,378,125. Such restricted stock award
vests as to one-third of such amount on August 12, 1997 as to an additional
one-third of such amount on August 12, 1998, and as to the remaining amount
on August 12, 1999. Dividends will be paid with respect to the Paired
Shares subject to such restricted stock award.
(11) Amount shown reflects $44,112 for taxable relocation reimbursement and
$14,750 for dividends on restricted Paired Shares which were not vested at
December 31, 1996.
THE CORPORATION
The following table provides certain summary information concerning the
compensation paid for the fiscal years ended December 31, 1996, 1995 and 1994,
to the Corporation's Chief Executive Officer and each other executive officer of
the Corporation whose total compensation for 1996 exceeded $100,000 for services
rendered in all capacities to the Corporation.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------
--------------------- RESTRICTED SECURITIES UNDERLYING
YEAR SALARY($) BONUS($) STOCK AWARD($) OPTIONS/SARs(#)(1)(2) COMPENSATION($)
----- --------- -------- -------------- --------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Eric A. Danziger(3)....... 1996 175,711 150,000 2,371,954(4) 300,000 306,212(5)
President and Chief
Executive Officer
Theodore W. Darnall(6).... 1996 191,790 137,500 1,033,946(7) 150,000 89,154(8)
Executive Vice President
and Chief Operating
Officer
Steven R. Goldman(9)...... 1996 131,250 25,000 24,500(10)
Senior Vice President 1995 114,583 75,000 69,000 19,800(11)
Alan M. Schnaid(12)....... 1996 85,228 22,500 9,750 69,918(13)
Vice President 1995 55,000 8,500 6,750
---------
1994 18,205 2,000
---------
</TABLE>
- ---------------
(1) For information with respect to these options, see "Options Exercises and
Holdings" below.
(2) Adjusted for three-for-two stock split which occurred January 1997.
(3) Mr. Danziger became an officer of the Corporation in July 1996.
(4) At December 31, 1996, Mr. Danziger had a restricted stock award of 100,222
Paired Shares (after giving effect to the three-for-two stock split in
January 1997), with a value of $3,683,158. Such restricted stock award
vests as to one-third of such amount on July 8, 1997, as to an additional
one-third of such amount on July 8, 1998, and as to the remaining amount on
July 8, 1999. Dividends will be paid with respect to the Paired Shares
subject to such restricted stock award.
(5) Amount shown reflects $201,312 for taxable relocation reimbursement and
$104,900 for dividends on restricted Paired Shares which were not vested at
December 31, 1996.
(6) Mr. Darnall became an officer of the Corporation in April 1996.
(7) At December 31, 1996, Mr. Darnall had a restricted stock award of 45,283
Paired Shares (after giving effect to the three-for-two stock split in
January 1997), with a value of $1,664,150. Such restricted stock award
vests as to one-third of such amount on May 9, 1997, as to an additional
one-third of such amount on May 9, 1998, and as to the remaining amount on
May 9, 1999. Dividends will be paid with respect to the Paired Shares
subject to such restricted stock award.
38
<PAGE> 43
(8) Amount shown reflects $41,758 for taxable relocation reimbursement and
$47,396 for dividends on restricted Paired Shares which were not vested at
December 31, 1996.
(9) Mr. Goldman resigned as an officer of the Corporation in September 1996, at
which time he became an officer of the Trust. During 1996, the Trust paid
Mr. Goldman $43,750 in salary, a bonus of $75,000, $14,750 for dividends on
restricted Paired Shares which were not vested at December 31, 1996, and
$44,112 for taxable relocation reimbursement.
(10) Amount shown reflects $24,500 for dividends on restricted Paired Shares
which were not vested at December 31, 1996.
(11) Amount shown reflects cash paid by the Corporation for housing allowance.
(12) Mr. Schnaid joined the Corporation in August 1994.
(13) Amount shown reflects $46,635 for relocation allowance and $23,303 for
taxable relocation reimbursement.
OPTION GRANTS
The following table shows, as to each executive officer of the Trust and
the Corporation named in the Summary Compensation Tables above, information
concerning the options granted to that officer during the year ended December
31, 1996.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
% OF TOTAL AT ASSUMED ANNUAL RATES
NUMBER OF OPTIONS/ OF STOCK PRICE
SECURITIES SARS GRANTED TO APPRECIATION
UNDERLYING EMPLOYEES IN FOR OPTION TERM
OPTIONS/ LAST FISCAL EXERCISE PRICE ------------------------
NAME SARS GRANTED(#)(1) YEAR ($/SH)(2) EXPIRATION DATE 5%($) 10%($)
- --------------------- ------------------ --------------- -------------- ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Barry S.
Sternlicht......... 120,000(3) 4.25 22.00 April 30, 2006 1,522,843 3,786,484
9,000(4) 0.32 24.25 June 30, 2006 128,712 321,561
975,000(5) 34.5 23.92 August 12, 2006 13,965,995 35,008,635
450,000(6) 15.9 23.92 August 12, 2006 6,445,844 16,157,832
Ronald C. Brown...... 48,000(3) 1.70 22.00 April 30, 2006 609,137 1,514,594
37,500(6) 1.33 23.92 August 12, 2006 537,154 1,346,486
Steven R. Goldman.... 52,500(3) 1.86 22.00 April 30, 2006 666,244 1,656,587
37,500(6) 1.33 23.92 August 12, 2006 537,154 1,346,486
Eric A. Danziger..... 187,500(7) 6.64 24.50 June 27, 2006 2,706,211 6,759,347
112,500(6) 3.98 23.92 August 12, 2006 1,611,461 4,039,458
Theodore W.
Darnall............ 75,000(8) 2.66 22.08 April 26, 2006 953,972 2,371,272
75,000(6) 2.66 23.92 August 12, 2006 1,074,307 2,692,972
Alan M. Schnaid...... 9,750(9) 0.35 22.00 April 30, 2006 123,731 307,652
Jeffrey C. Lapin..... 7,500(10) 0.27 25.58 June 14, 2006 112,504 280,719
</TABLE>
- ---------------
(1) Adjusted for three-for-two stock split which occurred in January 1997.
(2) The per Paired Share exercise prices are equal to the fair market value of
a Paired Share on the date the option as adjusted for a three-for-two stock
split which occurred in January 1997.
(3) Options will become exercisable as to one-third of the amount granted on
April 30, 1997, as to an additional one-third of the amount granted on
April 30, 1998 and as to the remaining amount granted on April 30, 1999.
Performance Awards were also granted to Messrs. Brown and Goldman relating
to the Paired Shares subject to these Paired Options. Such Performance
Awards provide for cash payments equal to the dividends and distributions
on such number of Paired Shares subject to the Paired Options during the
period commencing August 12, 1996, and ending on the later of the exercise
of the related Paired Option and August 12, 2001, conditioned upon the
satisfaction of certain performance measures.
(4) Options were immediately exercisable.
39
<PAGE> 44
(5) Options will become exercisable as to one-third of the amount granted on
August 12, 1997, as to an additional one-third of the amount granted on
August 12, 1998, and as to the remaining amount granted on August 12, 1999.
Performance Awards were also granted relating to the Paired Shares subject
to these Paired Options. Such Performance Awards provide for cash payments
equal to the dividends and distributions on such number of Paired Shares
subject to the Paired Options during the period commencing August 12, 1996,
and ending on the later of the exercise of the related Paired Option and
August 12, 2001, conditioned upon the satisfaction of certain performance
measures
(6) Options will become exercisable over five years as follows: as to
one-fourth of the amount on August 12, 1998, as to an additional one-fourth
of the amount on each of August 12, 1999, and August 12, 2000, and as to
the remaining amount on August 12, 2001. Performance Awards were also
granted relating to the Paired Shares subject to these Paired Options. Such
Performance Awards provide for cash payments equal to the dividends and
distributions on such number of Paired Shares subject to the Paired Options
during the period commencing August 12, 1996, and ending on the later of
the exercise of the related Paired Option and August 12, 2001, conditioned
upon the satisfaction of certain performance measures.
(7) Options will become exercisable as to one-third of the amount granted on
June 27, 1997, as to an additional one-third of the amount granted on June
27, 1998, and as to the remaining amount granted on June 27, 1999.
Performance Awards were also granted relating to the Paired Shares subject
to these Paired Options. Such Performance Awards provide for cash payments
equal to the dividends and distributions on such number of Paired Shares
subject to the Paired Options during the period commencing August 12, 1996,
and ending on the later of the exercise of the related Paired Option and
August 12, 2001, conditioned upon the satisfaction of certain performance
measures.
(8) Options will become exercisable as to one-third of the amount granted on
April 26, 1997, as to an additional one-third of the amount granted on
April 26, 1998, and as to the remaining amount granted on April 26, 1999.
Performance Awards were also granted relating to the Paired Shares subject
to these Paired Options. Such Performance Awards provide for cash payments
equal to the dividends and distributions on such number of Paired Shares
subject to the Paired Options during the period commencing August 12, 1996,
and ending on the later of the exercise of the related Paired Option and
August 12, 2001, conditioned upon the satisfaction of certain performance
measures.
(9) Options will become exercisable as to one-third of the amount granted on
April 30, 1997, as to an additional one-third of the amount granted on
April 30, 1998, and as to the remaining amount granted on April 30, 1999.
(10) Two-thirds of the amount granted were exercisable upon granting and the
remaining amount became exercisable on January 31, 1997.
40
<PAGE> 45
OPTION EXERCISES AND HOLDINGS
The following table provides information with respect to the options held
as of December 31, 1996, by the executive officers of the Trust and the
executive officers of the Corporation named in the Summary Compensation Tables
above.
AGGREGATED OPTION/SAR EXERCISED IN 1996
AND DECEMBER 31, 1996, OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF THE UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT FISCAL OPTIONS/SARS
YEAR-END(#)(1) AT FISCAL YEAR-END($)(2)
SHARES ACQUIRED VALUE REALIZED --------------------------- ---------------------------
NAME ON EXERCISE(#)(1) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- ----------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Barry S. Sternlicht...... 223,500 1,956,000 4,668,387 28,526,769
Jeffrey C. Lapin......... 31,707 610,003 35,960 46,833 689,826 1,053,198
Ronald C. Brown.......... 27,499 140,500 559,075 2,292,853
Steven R. Goldman........ 28,999 130,000 616,154 2,090,181
Eric A. Danziger......... 0 300,000 0 3,689,588
Theodore W. Darnall...... 0 150,000 0 2,037,000
Alan M. Schnaid.......... 2,250 33,188 0 14,250 0 237,767
</TABLE>
- ---------------
(1) Adjusted for three-for-two stock split which occurred in January 1997.
(2) Value is defined as the market price of the Paired Shares at December 31,
1996, less the exercise price of the option. The average of the high and low
market prices of the Paired Shares at December 31, 1996, was $36.58 as
adjusted for a three-for-two stock split which occurred in January 1997.
COMPENSATION OF TRUSTEES AND DIRECTORS
Each Trustee or Director who is not also an employee of the Trust or the
Corporation, respectively, is entitled to annual trustee's fees of $25,000 per
annum (the "Annual Fee") and is reimbursed for any out-of-
pocket expenses incurred in attending meetings of the Board of Trustees or the
Board of Directors. Commencing January 1, 1997, at least 50% of the Annual Fee
will be payable in Paired Shares (or a greater percentage at the election of the
Trustee or Director). On June 30, 1996, each non-employee Trustee and Director
received a Paired Option to purchase 9,000 Paired Shares at an exercise price of
$24.25 per Paired Share (the fair market value of a Paired Share on that date,
after giving effect to the three-for-two stock split in January 1997). On June
30 of each year, commencing June 30, 1997, each non-employee Trustee or Director
will also receive a Paired Option to purchase 4,500 Paired Shares at an exercise
price per Paired Share equal to fair market value on the date of grant. The
Chairman of each Board receives an additional fee of $2,500 per year. In
addition, each non-employee 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 chairmen).
EMPLOYMENT AND COMPENSATION AGREEMENTS WITH EXECUTIVE OFFICERS
Eric A. Danziger and the Corporation entered into an agreement dated as of
June 27, 1996, pursuant to which Mr. Danziger was employed as President and
Chief Executive Officer of the Corporation at an annual
salary of $365,000 and was guaranteed a minimum bonus of $150,000 for 1996. Mr.
Danziger also received a Paired Option to purchase 187,500 Paired Shares
exercisable at $24.50 per Paired Share (after giving effect to the three-for-two
stock split in January 1997) (the fair market value on the date of grant), which
vests in three equal annual increments from the date of grant and a Restricted
Stock Award of 100,222 Paired Shares (after giving effect to the three-for-two
stock split in January 1997) which also vests in three equal annual increments.
Mr. Danziger also received relocation expenses in connection with moving his
residence from Dallas, Texas to Phoenix, Arizona, and in connection therewith
also received a one-year non-interest bearing loan from the Corporation for
$150,000 secured by a second mortgage on his new residence in Phoenix,
41
<PAGE> 46
Arizona. Mr. Danziger's employment is terminable by the Corporation or Mr.
Danziger with or without cause. In the event his employment is terminated by the
Corporation without cause or by Mr. Danziger in the event the Corporation
assigns to him duties inappropriate for his position or reduces his
responsibilities, then Mr. Danziger is entitled to a severance package of one
year's base salary, the immediate vesting of all outstanding Paired Options and
Paired Shares subject to Restricted Stock Awards and company-paid medical
benefits for 12 months.
Theodore W. Darnall and the Corporation entered into an employment
agreement dated as of April 19, 1996, pursuant to which Mr. Darnall was employed
as Executive Vice President and Chief Operating Officer of the Corporation at an
annual salary of $275,000 and was guaranteed a minimum bonus of $137,500 for
1996. Mr. Darnall also received a Paired Option to purchase 75,000 Paired Shares
exercisable at $22.08 per Paired Share (after giving effect to the three-for-two
stock split in January 1997) (the fair market value on the date of grant), which
vests in three equal annual increments from the date of grant and a Restricted
Stock Award of 45,284 Paired Shares (after giving effect to the three-for-two
stock split in January 1997) which also vests in three equal annual increments.
Mr. Darnall also received relocation expenses in connection with moving his
residence from Pittsburgh, Pennsylvania to Phoenix, Arizona, and in connection
therewith received a non-interest bearing bridge loan of $250,000 secured by a
second mortgage on his new residence in Phoenix, Arizona. The bridge loan will
mature as to $100,000 upon the sale of Mr. Darnall's home in Pittsburgh, and the
balance upon termination of his employment with the Corporation. Mr. Darnall's
employment is terminable by the Corporation with or without cause. In the event
his employment is terminated by the Corporation without cause or by Mr. Darnall
due to breach by the Corporation, then Mr. Darnall is entitled to a severance
package of one year's base salary, the immediate vesting of all outstanding
Paired Options and Paired Shares subject to Restricted Stock Awards and
company-paid medical benefits for 12 months.
In addition, Steven R. Goldman and Ronald C. Brown each entered into
employment agreements with the Trust each dated as of February 4, 1997, at an
annual salary of $200,000 each. Each such agreement is terminable at will, and
if terminated by the Trust without cause or by the executive for breach by the
Trust, entitles the executive to a severance package of one year's base salary
and the immediate vesting of all outstanding Paired Options and Paired Shares
subject to Restricted Stock Awards and medical benefits at the Trust's expense
for 12 months.
The Trust had an employment agreement with Mr. Lapin which provided that he
would receive an annual salary in 1996 of $225,000. Mr. Lapin's employment
agreement was terminated in connection with the Separation Agreement referenced
below. Under the terms of his employment agreement Mr. Lapin was entitled to an
annual bonus of not less than $75,000 and was granted Paired Options to purchase
62,500 Paired Shares at an exercise price equal to $11.00 per Paired Share
(after giving effect to the three-for-two stock split in January 1997) (the fair
market value of a Paired Share on the date of grant) which would vest at a rate
no longer than the most rapid rate of vesting of Paired Options granted to any
other executive during the term of his employment agreement. Mr. Lapin also was
eligible to participate in all employee benefit plans and fringe benefits, if
any, the Trust made available to its other executive officers. Mr. Lapin could
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), relocation of the Trust's
principal executive offices, 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 terminated his employment, he was 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 Paired 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 $7.67 per Paired
42
<PAGE> 47
Share (after giving effect to the three-for-two stock split in January 1997)
(which is one-half of the price to the public per Paired Share in the June 1995
public offering of Paired Shares by the Trust and the Corporation).
The Trust entered into a Separation Agreement dated as of June 18, 1996
(the "Separation Agreement") with Mr. Lapin in connection with his resignation
as President and Chief Operating Officer of the Trust. The Trust agreed to
conditionally forgive, after one year, $150,000 of the $250,000 loan from the
Trust described above. The Trust also agreed to immediately vest, in part, the
Paired Options held by Mr. Lapin and to grant him an additional Paired Option to
purchase 7,500 Paired Shares exercisable at $25.25 (after giving effect to the
three-for-two stock split in January 1997), which vested as to two-thirds of
such amount on his termination date and as to the remaining amount on January
31, 1997, and upon exercise of the Paired Options, to pay to Mr. Lapin the
difference between $11.00 (after giving effect to the three-for-two stock split
in January, 1997) and the lower of the exercise price and the then market value
of a Paired Share. All Paired Options held by Mr. Lapin were amended to the
extent required to permit them to be exercised for their full maximum term. Mr.
Lapin agreed to render consulting services for 18 months for which he will be
paid $235,000, and the Trust also agreed to pay Mr. Lapin a fee of up to
$250,000 in connection with the sale within 18 months of the King 8 owned by the
Trust in Las Vegas, Nevada. The Trust paid a fee of $250,000 to Mr. Lapin in
connection with the sale of that property. Mr. Lapin agreed that for 3 years he
would not participate or be involved with others in any tender or exchange
offer, proxy contest or solicitation or purchase or be part of a group which
purchases in excess of 4.9% of the outstanding Paired Shares.
COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION
During 1996 and early 1997, 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 made decisions with respect to the compensation of the Trust's
executive officers. Messrs. Sternlicht and Goldman, who are executive officers
of the Trust and members of the Board of Trustees of the Trust, did not
participate in the discussion or voting at the meetings related to their own
compensation. Mr. Grose did not participate in the discussion or voting at the
meeting relating to Mr. Sternlicht's compensation.
During 1996 and early 1997, the Compensation Committee of the Board of
Directors and Management Committee (the "Corporation Compensation Committee")
was made up of Messrs. Sternlicht, Jones and Chapus. The Corporation
Compensation Committee met informally during 1996 and early 1997 to discuss the
compensation of the Corporation's executive officers. Based in part on the
recommendations of the Corporation Compensation Committee, the Board of
Directors and the Management Committee made decisions with respect to the
compensation of the Corporation's executive officers. Mr. Danzinger did not
participate in the discussion or voting at the meeting relating to his own
compensation.
In connection with the acquisition of the Institutional Portfolio in August
1996, the Trust granted Starwood Capital a one-time Restricted Stock Award of
250,870 Paired Shares (after giving effect to the three-for-two stock split in
January 1997).
43
<PAGE> 48
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. ................................................ 4,796,483(2) 11.2(2)%
82 Devonshire Street Boston, MA 02109
Starwood Capital Group, L.L.C.,
its affiliated entities and
Barry S. Sternlicht....................................... 3,736,998(3) 8.0%(3)
Three Pickwick Plaza, Suite 250 Greenwich, CT 06830
Prudential Real Estate Investors.......................... 3,736,998(4) 8.0%(4)
8 Campus Drive, 4th Floor Parsippany, NJ 07054
Ziff Investment Management, L.L.C.,
Ziff Investors Partnership, L.P. II,
their affiliated entities and Daniel Stern................ 2,302,819(5) 5.4%
153 East 53rd Street, 43rd Floor New York, NY 10022
</TABLE>
- ---------------
(1) Based on the number of Paired Shares outstanding on February 28, 1997.
(2) Based on information contained in Schedule 13F-E dated February 11, 1997,
and after giving effect to the three-for-two stock split in January 1997,
FMR Corp. holds 4,796,483 Paired Shares on behalf of various distinct
entities. Based on additional information provided to Starwood Lodging, no
one of such entities, directly or by attribution, holds in excess of 8.0% of
the outstanding Paired Shares.
(3) Based on information in Amendment No. 2 to Schedule 13D dated December 31,
1996, filed by Starwood Capital, Starwood Capital Group, L.L.C., Barry S.
Sternlicht and the following Starwood Partners; BSS Capital Partners, L.P.,
Sternlicht Holdings II, Inc., Harveywood Hotel Investors, L.P., Starwood
Hotel Investors II-L.P., Firebird Consolidated Partners, L.P., and Starwood
Opportunity Fund II, L.P., ("SOFI-II"). After giving effect to the
three-for-two stock split in January 1997, Mr. Sternlicht has sole power to
vote and dispose of 45,000 Paired Shares beneficially owned by him. After
giving effect to the three-for-two stock split in January 1997 SOFI-II owns
74,899 Paired Shares beneficially; SOFI-II and Mr. Sternlicht have the power
to vote and dispose of the Paired Shares owned by SOFI-II. After giving
effect to the three-for-two stock split in January 1997, Starwood Capital
Group, L.L.C., beneficially owns 225,783 Paired Shares subject to a
Restricted Stock Award; Starwood Capital Group, L.L.C., and Mr. Sternlicht
have the power to vote and dispose of the Paired Shares owned by Starwood
Capital Group L.L.C., After giving effect to the three-for-two stock split
in January 1997, Mr. Sternlicht holds, directly or through trusts created by
him for the benefit of members of his family, 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 508,120
Paired Shares. After giving effect to the three-for-two stock split in
January 1997, 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 3,102,492 Paired Shares. After
giving effect to the three-for-two stock split in January 1997, Mr.
Sternlicht also beneficially owns 22,500 Paired Shares which are subject to
the terms of a Restricted Stock Award in the form of a warrant that he
exercised in February 1996, and which may not be transferred prior to
February 1998, an additional 22,500 Paired Shares which are subject to the
terms of Restricted Stock Award in the form of a warrant that became
exercisable on January 1, 1997, and which may not be transferred prior to
February 1998 and 263,499 Paired Shares subject to presently exercisable
44
<PAGE> 49
Paired Options. Such Amendment No. 2 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 calculated assumes that Starwood Capital Group, L.L.C.,
its affiliated entities and Barry Sternlicht exchange units for Paired
Shares to the maximum extent permitted within the ownership limit
provisions; 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 in Schedule 13D dated February 14, 1997, filed by
Prudential Insurance Company of America ("Prudential"), Prudential has sole
voting and dispositive power over 2,775,000 Paired Shares beneficially owned
by Prudential on behalf of Prudential Property Investment Separate Account
II ("PRISA II") and sole voting and dispositive power over 4,500 Paired
Shares beneficially owned by Prudential on behalf of Prudential Diversified
Investment Strategies. Prudential also has sole voting and dispositive power
over units in the Realty Partnership and the Operating Partnership
beneficially owned by Prudential on behalf of PRISA II which are, subject to
the 8.0% Paired Share ownership limit, exchangeable for an aggregate of
1,754,037 Paired Shares.
(5) Based on information in Schedule 13D, dated January 10, 1997, filed by Ziff
Investment Management, L.L.C. ("ZIM"), and Ziff Investors Partnership, L.P.
II ("ZIPII"), and after giving effect to the three-for-two stock split in
January 1997, 25,087 Paired Shares are held by SIV Holdings, L.L.C. ("SIV"),
a Delaware limited liability company owned by ZIPII and ZIM. SIV has sole
voting and dispositive power with respect to these Paired Shares. After
giving effect to the three-for-two stock split in January 1997, ZIPII holds
units in the Realty Partnership and the Operating Partnership which are
exchangeable for an aggregate of 2,259,732 Paired Shares. Such Schedule 13D
reports that DHS Holdings L.L.C. ("DHS"), investment general partner of
ZIPII, may be deemed to control ZIPII, and that Daniel Stern, a trustee of
Starwood Lodging Trust, is the majority owner of DHS. After giving effect to
the three-for-two stock split in January 1997, Mr. Stern beneficially owns
18,000 Paired Shares subject to presently exercisable Paired Options.
TRUSTEES AND OFFICERS OF THE TRUST
The following table sets forth the beneficial ownership of the Paired
Shares as of February 28, 1997, after giving effect to the three-for-two stock
split in January 1997, 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
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER OWNED CLASS(1)
--------------------------------------------------------- ----------- ----------
<S> <C> <C>
Ronald C. Brown.......................................... 67,499(2) (3)
Bruce W. Duncan.......................................... 23,499(4) (3)
Steven R. Goldman........................................ 109,615(5) (3)
Madison F. Grose......................................... 97,104(6) (3)
Jeffrey C. Lapin......................................... 52,290(7) (3)
Gary M. Mendell.......................................... 635,612(8) 1.5%
Roger S. Pratt........................................... 3,736,998(9) 8.0%
Stephen R. Quazzo........................................ 19,447(10) (3)
William E. Simms......................................... 9,000(11) (3)
Daniel H. Stern.......................................... 2,302,819(12) 5.4%
Barry S. Sternlicht...................................... 3,736,998(13) 8.0%
All Trustees and officers as a group..................... 10,790,881(14) 21.4%
</TABLE>
- ---------------
(1) Based on the number of Paired Shares outstanding on February 28, 1997,
including the exchange of units for Paired Shares as discussed in Notes (9)
and (13) below.
45
<PAGE> 50
(2) Includes 22,500 Paired Shares subject to a Restricted Stock Award and
43,499 Paired Shares subject to presently exercisable options.
(3) Less than 1%.
(4) Includes 18,000 Paired Shares subject to presently exercisable options.
(5) Includes 37,500 Paired Shares subject to a Restricted Stock Award and
46,499 Paired Shares subject to presently exercisable options and units in
the Realty Partnership and the Operating Partnership which are exchangeable
for 22,616 Paired Shares.
(6) Includes 50,500 Paired Shares subject to presently exercisable options and
units in the Realty Partnership and the Operating Partnership which are
exchangeable for 43,004 Paired Shares. Does not include units in the Realty
Partnership and Operating Partnership exchangeable for 27,726 Paired
Shares, which are owned by a irrevocable trust for the benefit of members
of Mr. Grose's family.
(7) Includes 49,041 Paired Shares subject to presently exercisable options and
3,249 Paired Shares owned in a pension plan of which Mr. Lapin is sole
trustee and beneficiary. Mr. Lapin's business address is 8439 Sunset
Boulevard, West Hollywood, California 90069.
(8) Includes 36,078 units in the Realty Partnership and the Operating
Partnership held by Mr. Mendell directly and 505,778 units in the Realty
Partnership and the Operating Partnership held by a trust of which Mr.
Mendell is settlor and over which he exercises some investment control, and
93,756 units of SLC Operating Limited Partnership, all of which are
exchangeable for Paired Shares.
(9) See Note (4) under "Certain Beneficial Owners" above. Includes 2,775,000
Paired Shares and units in the Realty Partnership and the Operating
Partnership which are held by Prudential on behalf of PRISA II and which
are, subject to the 8.0% Paired Shares ownership limit, exchangeable for
1,754,037 Paired Shares. By virtue of his investment control over PRISA II,
Mr. Pratt has an indirect pecuniary interest in these units and Paired
Shares. The amount beneficially owned and the percent of class calculated
assumes Mr. Pratt exchanges units for Paired Shares to the maximum extent
permitted within the ownership limit provision.
(10) Includes 18,000 Paired Shares subject to presently exercisable options and
397 Paired Shares owned by Mr. Quazzo's wife.
(11) Includes 9,000 Paired Shares subject to presently exercisable options.
(12) See Note (5) under "Certain Beneficial Owners" above. Includes 18,000
Paired Shares subject to presently exercisable options and 25,087 Paired
Shares indirectly beneficially owned by Ziff Investors Partnership L.P. II
("ZIPII"), one of whose general partners, DHS Holdings, L.L.C., is
controlled by Mr. Stern. By virtue of his control of ZIPII, Mr. Stern also
has an indirect pecuniary interest in units in the Realty Partnership and
the Operating Partnership which are exchangeable for 2,259,732 Paired
Shares.
(13) See Note (3) under "Certain Beneficial Owners" above. Includes 263,499
Paired Shares subject to presently exercisable options and units in the
Realty Partnership and the Operating Partnership which are, subject to the
8.0% Paired Share ownership limit, exchangeable for 3,610,612 Paired
Shares. The amount beneficially owned and the percent of class calculated
assumes that Mr. Sternlicht exchanges units for Paired Shares to the
maximum extent permitted within the ownership limit provision. By virtue of
his service as both a Trustee of the Trust and a Director of the
Corporation, Mr. Sternlicht's Paired Options, Paired Shares and Realty and
Operating Partnership Units are listed and totaled both here and below.
(14) Includes 516,037 Paired Shares that may be acquired upon the exercise of
presently exercisable options, and 8,325,613 Paired Shares issuable upon
exchange of units of the Realty Partnership and the Operating Partnership,
subject to the 8.0% Paired Share ownership limit (see Notes (9) and (13)
above).
DIRECTORS AND OFFICERS OF THE CORPORATION.
The following table sets forth the beneficial ownership of Paired Shares as
of February 28, 1997, after giving effect to the three-for-two stock split in
January 1997, by each Director and each executive officer of
46
<PAGE> 51
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>
Jean-Marc Chapus.......................................... 19,500(2) (3)
Eric A. Danziger.......................................... 100,222(4) (3)
Theodore W. Darnall....................................... 71,782(5) (3)
Jonathan D. Eilian........................................ 53,500(6) (3)
Bruce M. Ford............................................. 19,832(7) (3)
Graeme W. Henderson....................................... 20,232(8) (3)
Earle F. Jones............................................ 26,998(9) (3)
Michael A. Leven.......................................... 18,000(10) (3)
Alan M. Schnaid........................................... 3,249(11) (3)
Barry S. Sternlicht....................................... 3,736,998(12) 8.0%
Daniel W. Yih............................................. 21,111(13) (3)
All Directors and officers as a group..................... 4,091,424(14) 8.8%
</TABLE>
- ---------------
(1) Based on the number of Paired Shares outstanding on February 28, 1997,
including the exchange of units as described in Note (12) below.
(2) Includes 18,000 Paired Shares subject to presently exercisable options.
(3) Less than 1%.
(4) Includes 100,222 Paired Shares subject to a Restricted Stock Award.
(5) Includes 45,283 Paired Shares subject to a Restricted Stock Award and
24,999 Paired Shares subject to presently exercisable options.
(6) Includes 50,500 Paired Shares subject to presently exercisable options.
(7) Includes 18,000 Paired Shares subject to presently exercisable options and
85 Paired Shares owned by Mr. Ford's wife.
(8) Includes 18,000 Paired Shares subject to presently exercisable options.
(9) Includes 18,000 Paired Shares subject to presently exercisable options.
(10) Includes 18,000 Paired Shares subject to presently exercisable options.
(11) Includes 3,249 Paired Shares subject to presently exercisable options.
(12) See Note (3) under "Certain Beneficial Owners" above. Includes 263,499
Paired Shares subject to presently exercisable options and units in the
Realty Partnership and the Operating Partnership which are, subject to the
8.0% Paired Share ownership limit, exchangeable for 3,610,612 Paired
Shares. The amount beneficially owned and the percent of class calculated
assumes that Mr. Sternlicht exchanges units for Paired Shares to the
maximum extent permitted within the ownership limit provision. By virtue of
his service as both a Trustee of the Trust and a Director of the
Corporation, Mr. Sternlicht's Paired Options, Paired Shares and Realty and
Operating Partnership Units are listed and totaled both here and above.
(13) Includes 18,000 Paired Shares subject to presently exercisable options.
(14) Includes 450,248 Paired Shares that may be acquired upon the exercise of
presently exercisable options, and 3,610,612 Paired Shares issuable upon
exchange of units of the Realty Partnership and the Operating Partnership,
subject to the 8.0% Paired Share ownership limit (see Note (12) above).
47
<PAGE> 52
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, 1996, 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 that should have been filed on Form 4, covering one
transaction involving the transfer of Paired Shares to a trust, was filed
instead on a timely Form 5 by Mr. Duncan, a Trustee of the Trust.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
1995 REORGANIZATION
Pursuant to the Reorganization, the Starwood Partners contributed certain
assets to the Realty Partnership and the Operating Partnership effective as of
January 1, 1995. The Reorganization was approved by the shareholders of the
Trust and the stockholders of 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 Item 1, "1995 Reorganization" and Item 12 "Security
Ownership of Certain Beneficial Owners and Management" of this Joint Annual
Report.
Barry S. Sternlicht, the founder, President and Chief Executive Officer and
General Manager of Starwood Capital is also the Chairman and Chief Executive
Officer of the Trust and 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, Madison Grose, a Trustee of the Trust, is a Managing Director and the
General Counsel of Starwood Capital and Jonathan 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 a founding member and Managing Director of Starwood Capital.
CERTAIN ARRANGEMENTS WITH 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 cost 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 may not exceed $250,000 for the twelve months ending June 30,
1996. In connection with the acquisition of the Institutional Portfolio in
August 1996, the Trust granted Starwood Capital a one-time Restricted Stock
Award of 250,870 Paired Shares (after giving effect to the three-for-two stock
split in January 1997) (an approximate value of $6 million). During 1996, in
addition to the one-time Restricted Stock Award, Starwood Lodging reimbursed
Starwood Capital for $414,000 of internal costs, of which $226,000 related to
1995. Effective August 12, 1996, Starwood Lodging's reimbursement arrangement
with Starwood Capital was changed so as to eliminate reimbursements for internal
costs of Starwood Capital for any services of senior management of Starwood
Capital (subject to the same annual limitation of $250,000 as set forth above
for services of employees of Starwood Capital other than such senior management)
and after one year, for any services of any employee of Starwood Capital.
In connection with the Reorganization, Starwood Capital agreed (the
"Starwood Capital Noncompete") that it would not compete within the United
States directly or indirectly with SLT Realty Limited Partnership or SLC
Operating Limited Partnership and would present to the Partnerships all
acquisitions of (i) fee or
48
<PAGE> 53
ground interests or other equity interests in hotels in the United States and
(ii) debt interests in hotels in the United States where it is anticipated that
the equity will be acquired by the debt holder within one year from the
acquisition of such debt. During the term of the Starwood Noncompete, Starwood
Capital was not to acquire any such interest. The term of the Starwood
Noncompete is until the later of July 1998 or the time at which no officer,
director, general partner or employee of Starwood Capital is on either the Board
of Trustees of the Trust or the Board of Directors of the Corporation (subject
to exception for certain reorganizations, mergers or other combination
transactions with unaffiliated parties).
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
contract. The Trust and the Corporation have each recently waived the foregoing
restriction to the extent applicable with respect to a hotel property in the
U.S. Virgin Islands. 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. During 1996 Westin made an
interest-free loan to the Company of $2.8 million to cover the costs associated
with converting five hotels to Westins.
MANAGEMENT OBLIGATIONS OF WESTERN HOST
In connection with the settlement of shareholder litigation, Messrs. Ronald
A. Young and John F. Rothman caused each of the Western Host Partnerships (other
than Western Host Santa Maria Partners) to terminate management obligations with
the Corporation's subsidiary, Western Host, Inc. ("Western Host"); 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 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
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 paid $167,041 for retroactive worker's compensation insurance
premiums and sought reimbursement from Messrs. Young and Rothman of their share
of that amount (approximately an aggregate of $56,000). In October 1995, the
Corporation commenced litigation against Messrs. Young and Rothman to collect
such amounts (Starwood Lodging Corporation Corp. v. Ronald A. Young et al., San
Diego Superior Court Case No. 693822). In April 1996, the Corporation settled
such litigation and released Messrs. Young and Rothman and their respective
affiliates with respect to premiums paid in 1995 in exchange for the payment of
$40,655, including $5,000 in attorneys' fees.
ROSS AGREEMENT
In November, 1994, Starwood Capital entered into the Ross Agreement in
settlement of the threatened litigation by Ross and provided for an assignment
to Starwood Capital of Ross's claims. See Item 3 "Legal Proceedings" of this
Joint Annual Report.
49
<PAGE> 54
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
For information with respect to the employment agreements of Messrs.
Danziger, Darnall, Goldman and Brown, see Item 11 "Employment Agreements with
Executive Officers" 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.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------------------------------------------------------------------
<C> <S>
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)
2.2 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
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")).
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 (incorporated by reference to Exhibit 4.2 to the Trust's
and the Corporation's Joint Annual Report on Form 10-K for the year ended December
31, 1995 (the "1995 Form 10-K")).
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 S4 (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).(3)
</TABLE>
50
<PAGE> 55
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------------------------------------------------------------------
<C> <S>
10.3 Stock Option Plan (1986) of the Corporation (incorporated by reference to Exhibit
10.10 to the 1986 Form 10-K).(3)
10.4 Trust Shares Option Plan (1986) of the Corporation (incorporated by reference to
Exhibit 10.11 to the 1986 Form 10-K).(3)
10.5 1995 Share Option Plan of the Trust (incorporated by reference to Exhibit 10.5 to
the 1995 Form 10-K).(3)
10.6 1995 Share Option Plan of the Corporation (incorporated by reference to Exhibit
10.6 to the 1995 Form 10-K).(3)
10.7 Starwood Lodging Trust 1995 Long-Term Incentive Plan (Amended and Restated as of
August 12, 1996) (incorporated by reference to Exhibit A to the Trust's and the
Corporation's Joint Proxy Statement dated November 25, 1996 (the "1996
Proxy")).(3)
10.8 Starwood Lodging Corporation 1995 Long-Term Incentive Plan (Amended and Restated
as of August 12, 1996) (incorporated by reference to Exhibit B to the 1996
Proxy).(3)
10.9 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, Steven R. Goldman,
Gary M. Mendell, Roger S. Pratt and Ronald C. Brown (incorporated by reference to
Exhibit 10.7 to the 1995 Form 10-K).(3)
10.10 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, Eric A.
Danziger and Alan M. Schnaid (incorporated by reference to Exhibit 10.8 to the
1995 Form 10-K).(3)
10.11 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).(3)
10.12 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).(3)
10.13 Separation Agreement between the Trust and Jeffrey C. Lapin dated June 18, 1996
(incorporated by reference to Exhibit 10.5 to the Trust's and the Corporation's
Joint Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996
(the "Second Quarter 10-Q")).(3)
10.14 Employment Agreement between the Corporation and Theodore W. Darnall dated April
19, 1996 (incorporated by reference to Exhibit 10.3 to the Second Quarter
10-Q).(3)
10.15 Employment Agreement between the Corporation and Eric A. Danziger dated June 27,
1996 (incorporated by reference to Exhibit 10.4 to the Second Quarter 10-Q).(3)
10.16 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).
10.17 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).
10.18 Exchange Rights Agreement dated June 3, 1996 (incorporated by reference to Exhibit
10.1 to the Second Quarter 10-Q).
10.19 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).
</TABLE>
51
<PAGE> 56
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------------------------------------------------------------------
<C> <S>
10.20 Registration Rights Agreement dated June 3, 1996 (incorporated by reference to
Exhibit 10.2 to the Second Quarter 10-Q).
10.21 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 S-2 Registration Statement.
10.22 Amendment to the Amended and Restated Limited Partnership Agreement for the Realty
Partnership among the Trust and the Starwood Partners dated as of May 14, 1996.
10.23 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).
10.24 Amendment to the Amended and Restated Limited Partnership Agreement for the
Operating Partnership among the Corporation and the Starwood Partners dated as of
May 14, 1996.
10.25 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 (incorporated by reference to Exhibit 10.16 to the 1995 Form
10-K).
10.26 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 (incorporated by reference to Exhibit 10.17 to the 1995 Form
10-K).
10.27 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 (incorporated by reference to Exhibit 10.18 to the 1995 Form
10-K).
10.28 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).
10.29 Asset Purchase Agreement dated as of May 3, 1996 (effective May 14, 1996)
(incorporated by reference to Exhibit 10.6 to the Second Quarter 10-Q).
10.30 Asset Purchase Agreement dated as of March 25, 1996 (effective July 3, 1996)
(incorporated by reference to Exhibit 10.7 to the Second Quarter 10-Q).
10.31 Amended and Restated Loan Agreement dated as of April 26, 1996, among the Realty
Partnership, CP Hotel Realty Limited Partnership, Midland Building Corporation,
the Trust and Lehman Brothers Holdings, Inc., d/b/a Lehman Capital, a division of
Lehman Brothers Holdings, Inc.
10.32 Letter dated July 16, 1996 from Lehman Brothers Holdings, Inc. agreeing to
extension of the Mortgage Facility to July, 1997.
10.33 Loan agreement, dated as of August 16, 1996, between the SLT Realty Limited
Partnership and Starwood Lodging Trust, as the borrower, and Goldman Sachs
Mortgage Company, as the lender.
10.34 Mortgage and Security Agreement dated May 22, 1996 made by Saunstar Land Co., LLC,
as Fee Mortgagor and Saunstar Operating Co., LLC, as Leasehold Mortgagor to Life
Insurance Company of Georgia.
</TABLE>
52
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------------------------------------------------------------------
<C> <S>
10.35 Loan agreement dated as of September 19, 1996 by and among the Sumitomo Trust and
Banking Co., LTD, as lender and Emstar Realty LLC, as borrower and Starwood
Lodging Trust, Starwood Lodging Corporation and SLT Realty Limited Partnership, as
guarantors.
21. Subsidiaries of the Corporation.
</TABLE>
<TABLE>
<CAPTION>
STATE OF
ENTITY INCORPORATION/ORGANIZATION
--------------------------------------------------------- --------------------------
<S> <C>
Alstar Operating LLC..................................... New York
Columbus Operators, Inc.................................. Ohio
Emstar Operating LLC..................................... New York
Hotel Investors Corporation of Nevada.................... Nevada
Hotel Investors of Arizona, Inc.......................... Arizona
Hotel Investors of Michigan, Inc......................... Michigan
Hotel Investors of Nebraska, Inc......................... Nebraska
Hotel Investors of Virginia, Inc......................... Virginia
Lyntex Properties, Inc................................... Delaware
Midland Building Corporation............................. Illinois
Midland Holding Corporation.............................. Illinois
Midland Hotel Corporation................................ Illinois
Milwaukee Brookfield LP.................................. Wisconsin
Moorland Hotel LP........................................ Wisconsin
Omaha Operators, Inc..................................... Maryland
Operating Philadelphia LLC............................... Delaware
Saunstar Operating Co. LLC............................... Delaware
Scoops, Inc.............................................. Kansas
SLC Allentown LLC........................................ Delaware
SLC Arlington LLC........................................ Delaware
SLC Atlanta II LLC....................................... Delaware
SLC Atlanta LLC.......................................... Delaware
SLC Bloomington LLC...................................... Delaware
SLC Calverton LP......................................... Delaware
SLC Dania LLC............................................ Delaware
SLC Kansas City LLC...................................... Delaware
SLC Los Angeles LLC...................................... Delaware
SLC Minneapolis LLC...................................... Delaware
SLC Needham LLC.......................................... Delaware
SLC Operating LP......................................... Delaware
SLC Palm Desert LLC...................................... Delaware
SLC San Diego LLC........................................ Delaware
SLC St. Louis LLC........................................ Delaware
SLC Tucson LLC........................................... Delaware
SLC Waltham LLC.......................................... Delaware
SLC Westwood Operating LLC............................... Delaware
SLC Winston-Salem LLC.................................... Delaware
Western Host, Inc........................................ California
</TABLE>
53
<PAGE> 58
22. Subsidiaries of the Trust.
<TABLE>
<CAPTION>
STATE OF
ENTITY INCORPORATION/ORGANIZATION
--------------------------------------------------------- --------------------------
<S> <C>
Alstar Realty LLC........................................ New York
CP Hotel Realty LP....................................... Maryland
Emstar Realty LLC........................................ Delaware
Omaha Hotel Venture LP................................... Maryland
Saunstar Land Co. LLC.................................... Delaware
SLT Allentown LLC........................................ Delaware
SLT Arlington LLC........................................ Delaware
SLT Bloomington LLC...................................... Delaware
SLT Dania LLC............................................ Delaware
SLT Financing Partnership LLC............................ Delaware
SLT Kansas City LLC...................................... Delaware
SLT Los Angeles LLC...................................... Delaware
SLT Minneapolis LLC...................................... Delaware
SLT Palm Desert LLC...................................... Delaware
SLT Philadelphia LLC..................................... Delaware
SLT Realty Co. LLC....................................... Delaware
SLT Realty LP............................................ Delaware
SLT San Diego LLC........................................ Delaware
SLT St Louis LLC......................................... Delaware
SLT Tucson LLC........................................... Delaware
SLT Westwood Realty LLC.................................. Delaware
SLT Winston-Salem LLC.................................... Delaware
Starlex LLC.............................................. Delaware
Starwood Atlanta II LLC.................................. Delaware
Starwood Atlanta LLC..................................... Delaware
Starwood Needham LLC..................................... Delaware
Starwood Waltham LLC..................................... Delaware
</TABLE>
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Deloitte & Touche LLP
27. Financial Data Schedule.
- ---------------
(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).
(3) Management contract or compensatory plan or arrangement required to be filed
as an exhibit hereto pursuant to Item 14(c) of Form 10-K.
(b) Reports on Form 8-K.
During the fourth quarter of 1996, the Trust and the Corporation filed the
following Joint Current Report on Form 8-K:
The Trust and Corporation filed a Joint Current Report on Form 8-K on
December 5, 1996, to report a three-for-two stock split in the form of a 50%
stock dividend effective January 27, 1997.
54
<PAGE> 59
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)
By: /s/ RONALD C. BROWN
------------------------------------
Ronald C. Brown, Senior Vice
President
Date: March 11, 1997
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 Executive Officer March 11, 1997
- ---------------------------------------- and Trustee (Principal Executive
Barry S. Sternlicht Officer)
/s/ GARY M. MENDELL President and Trustee March 11, 1997
- ----------------------------------------
Gary M. Mendell
/s/ RONALD C. BROWN Senior Vice President and Chief March 11, 1997
- ---------------------------------------- Financial Officer (Principal
Ronald C. Brown Financial and Accounting Officer)
/s/ STEVEN R. GOLDMAN Senior Vice President and Trustee March 11, 1997
- ----------------------------------------
Steven R. Goldman
/s/ BRUCE W. DUNCAN Trustee March 11, 1997
- ----------------------------------------
Bruce W. Duncan
/s/ MADISON F. GROSE Trustee March 11, 1997
- ----------------------------------------
Madison F. Grose
/s/ ROGER S. PRATT Trustee March 11, 1997
- ----------------------------------------
Roger S. Pratt
/s/ STEPHEN R. QUAZZO Trustee March 11, 1997
- ----------------------------------------
Stephen R. Quazzo
/s/ WILLIAM E. SIMMS Trustee March 11, 1997
- ----------------------------------------
William E. Simms
/s/ DANIEL H. STERN Trustee March 11, 1997
- ----------------------------------------
Daniel H. Stern
</TABLE>
55
<PAGE> 60
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 11, 1997 By: /s/ ALAN M. SCHNAID
------------------------------------
Alan M. Schnaid, 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 Directors March 11, 1997
- ---------------------------------------- and Director
Earle F. Jones
/s/ ERIC A. DANZIGER President and Chief Executive March 11, 1997
- ---------------------------------------- Officer (Principal Executive
Eric A. Danziger Officer and Director)
/s/ THEODORE W. DARNALL Executive Vice President and Chief March 11, 1997
- ---------------------------------------- Operating Officer
Theodore W. Darnall
/s/ ALAN M. SCHNAID Vice President and Corporate March 11, 1997
- ---------------------------------------- Controller (Principal Accounting
Alan M. Schnaid Officer)
/s/ JEAN-MARC CHAPUS Director March 11, 1997
- ----------------------------------------
Jean-Marc Chapus
/s/ JONATHAN D. EILIAN Director March 11, 1997
- ----------------------------------------
Jonathan D. Eilian
/s/ GRAEME W. HENDERSON Director March 11, 1997
- ----------------------------------------
Graeme W. Henderson
/s/ MICHAEL A. LEVEN Director March 11, 1997
- ----------------------------------------
Michael A. Leven
/s/ BARRY S. STERNLICHT Director March 11, 1997
- ----------------------------------------
Barry S. Sternlicht
/s/ DANIEL W. YIH Director March 11, 1997
- ----------------------------------------
Daniel W. Yih
</TABLE>
56
<PAGE> 61
STARWOOD LODGING TRUST
STARWOOD LODGING CORPORATION
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
AS OF DECEMBER 31, 1996 AND 1995
AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
DECEMBER 31, 1996
<TABLE>
<S> <C>
INDEPENDENT AUDITORS' REPORTS..................................................... F-1, F-2
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION:
Combined Consolidated Balance Sheets............................................ F-3
Combined Consolidated Statements of Operations.................................. F-4
Combined Consolidated Statements of Cash Flows.................................. F-5
Combined Consolidated Statements of Shareholders' Equity........................ F-6
STARWOOD LODGING TRUST:
Consolidated Balance Sheets..................................................... F-7
Consolidated Statements of Operations........................................... F-8
Consolidated Statements of Cash Flows........................................... F-9
Consolidated Statements of Shareholders' Equity................................. F-10
STARWOOD LODGING CORPORATION:
Consolidated Balance Sheets..................................................... F-11
Consolidated Statements of Operations........................................... F-12
Consolidated Statements of Cash Flows........................................... F-13
Consolidated Statements of Shareholders' Equity................................. F-14
NOTES TO FINANCIAL STATEMENTS..................................................... F-15
SCHEDULES:
Schedule III -- Real Estate and Accumulated Depreciation........................ F-38
Schedule IV -- Mortgage Loans on Real Estate.................................... F-44
</TABLE>
<PAGE> 62
INDEPENDENT AUDITOR'S 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
and financial statement schedules of Starwood Lodging Trust (a Maryland real
estate investment trust) and its subsidiaries (the "Trust") and Starwood Lodging
Corporation (a Maryland corporation) and its subsidiaries (the "Corporation"),
collectively the "Company", as of December 31, 1996 and 1995, and for each of
the two years in the period ended December 31, 1996, 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 and the Corporation's 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
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 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 Company and the
financial position of the Trust and the Corporation at December 31, 1996 and
1995, and the respective results of their operations and their cash flows for
each of the two years in the period ended December 31, 1996 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.
Phoenix, Arizona
February 21, 1997
F-1
<PAGE> 63
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 "Company", for the year ended
December 31, 1994, listed in the foregoing index to financial statements and
financial statement schedules. Our audit 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
Company's 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 results of operations and cash flows of
the Company, the Trust and the Corporation, respectively, for the year 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> 64
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
COMBINED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Hotel assets held for sale -- net.................................. $ 21,644 $ 21,063
Hotel assets -- net................................................ 1,100,030 315,895
---------- ---------
1,121,674 336,958
Mortgage notes receivable -- net................................... 90,741 79,261
Investments........................................................ 948 2,858
---------- ---------
Total real estate investments...................................... 1,213,363 419,077
Cash and cash equivalents.......................................... 25,426 9,332
Accounts, interest and rent receivable............................. 43,278 9,595
Notes receivable -- net............................................ 2,930 1,796
Inventories, prepaid expenses and other assets..................... 27,743 20,194
---------- ---------
$1,312,740 $ 459,994
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Collateralized notes payable and revolving lines of credit......... $ 422,334 $ 119,100
Mortgage and other notes payable................................... 57,232 4,385
Accounts payable and other liabilities............................. 57,296 19,022
Distributions payable.............................................. 19,258 9,284
---------- ---------
556,120 151,791
---------- ---------
Commitments and contingencies
MINORITY INTEREST.................................................. 163,959 92,735
---------- ---------
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest at December 31, 1996 and 1995;
$.01 par value; authorized 100,000,000 shares; outstanding
40,078,000 and 13,798,000 at December 31, 1996 and 1995,
respectively..................................................... 401 138
Corporation common stock at December 31, 1996 and 1995; $.01 par
value; authorized 100,000,000 shares; outstanding 40,078,000 and
13,798,000 at December 31, 1996 and 1995, respectively........... 401 138
Additional paid-in capital......................................... 827,760 434,107
Distributions in excess of earnings................................ (235,901) (218,915)
---------- ---------
592,661 215,468
---------- ---------
$1,312,740 $ 459,994
========== =========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 65
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
REVENUE
Rooms...................................................... $260,175 $ 87,270 $ 56,387
Food and beverage.......................................... 94,816 26,609 21,603
Other...................................................... 30,119 7,371 4,678
-------- -------- --------
Total hotel revenue.............................. 385,110 121,250 82,668
Gaming..................................................... 23,630 26,929 27,981
Interest from mortgage and other notes..................... 11,262 10,905 1,554
Rents from leased hotel properties and income from
investments.............................................. 822 791 927
Management fees and other income........................... 3,424 1,966 411
Gain (loss) on sales of real estate investments............ 4,290 (125) 456
-------- -------- --------
428,538 161,716 113,997
-------- -------- --------
EXPENSES
Rooms...................................................... 67,017 37,121 25,177
Food and beverage.......................................... 72,696 19,520 16,364
Other...................................................... 135,302 28,376 19,288
-------- -------- --------
Total hotel expenses............................. 275,015 85,017 60,829
Gaming expenses............................................ 21,834 24,242 24,454
Interest................................................... 23,337 13,138 17,606
Depreciation and amortization.............................. 55,745 15,469 8,161
Administrative and general................................. 16,495 5,712 4,203
Shareholder litigation..................................... -- -- 2,648
Provision for losses....................................... -- -- 759
-------- -------- --------
392,426 143,578 118,660
-------- -------- --------
Income (loss) before minority interest and extraordinary
items.................................................... 36,112 18,138 (4,663)
Minority interest.......................................... 10,238 7,013 --
-------- -------- --------
Income (loss) before extraordinary items................... 25,874 11,125 (4,663)
Extraordinary items due to early extinguishment of debt
(net of $413,000 and $163,000 minority interest in 1996
and 1995, respectively).................................. 1,077 (2,155) --
-------- -------- --------
NET INCOME (LOSS)................................ $ 26,951 $ 8,970 $ (4,663)
======== ======== ========
EARNINGS (LOSS) PER PAIRED SHARE
Income (loss) before extraordinary items................... $ 0.86 $ 0.95 $ (1.53)
Extraordinary items........................................ 0.04 (0.18) --
-------- -------- --------
NET INCOME (LOSS) PER PAIRED SHARE............... $ 0.90 $ 0.77 $ (1.53)
======== ======== ========
Weighted Average Number of Paired Shares......... 29,884 11,657 3,033
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 66
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................ $ 26,951 $ 8,970 $ (4,663)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Minority interest...................................... 10,238 7,013 --
Extraordinary items due to early extinguishment of
debt................................................ (1,077) 2,155 --
Depreciation and amortization.......................... 55,745 15,469 8,161
Accretion of discount.................................. (3,140) (3,285) --
Deferred interest...................................... -- 649 3,610
(Gain) loss on sales of real estate investments........ (4,290) 125 (456)
Provision for doubtful accounts........................ 1,044 470 --
Provision for losses................................... -- -- 759
Changes in operating assets and liabilities:
Increase in accounts receivable, inventories, prepaid
expenses, and other assets.......................... (46,676) (21,805) (86)
Increase in accounts payable and other liabilities..... 35,372 6,650 1,568
--------- --------- --------
Net cash provided by operating activities...... 74,167 16,411 8,893
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of hotel properties.......................... (720,969) (160,880) --
Improvements and additions to hotel assets............... (27,775) (5,331) (2,941)
Purchase of investments.................................. (1,871) -- --
Sales of investments..................................... 3,764 -- --
Net proceeds from sales of hotel and gaming assets....... 21,991 -- 12,536
Purchase of mortgage and other notes receivable.......... (25,206) (19,795) (6,270)
Principal received on mortgage and other notes
receivable............................................. 3,266 6,825 2,451
Reorganization costs..................................... -- (2,814) (1,287)
--------- --------- --------
Net cash provided by (used in) investing
activities................................... (746,800) (181,995) 4,489
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under collateralized notes payable and
revolving lines of credit.............................. 367,561 119,100 --
Borrowings under mortgage and other notes payable........ 3,497 9,637 6,000
Payments on collateralized notes payable and revolving
lines of credit........................................ (64,327) (102,899) (18,516)
Principal payments on mortgage and other notes payable... (1,535) (104,722) (1,498)
Net proceeds from equity offerings....................... 429,618 245,701 --
Contributed capital...................................... 131 13,599 --
Distributions paid....................................... (46,218) (9,265) --
Purchase of warrants..................................... -- (1,300) --
Principal received on share purchase notes............... -- -- 45
--------- --------- --------
Net cash provided by (used in) financing
activities................................... 688,727 169,851 (13,969)
--------- --------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......... 16,094 4,267 (587)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE
PERIOD................................................. 9,332 5,065 5,652
--------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD........... $ 25,426 $ 9,332 $ 5,065
========= ========= ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 67
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
COMBINED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
TRUST
SHARES OF CORPORATION ADDITIONAL SHARE DISTRIBUTIONS TOTAL
BENEFICIAL COMMON PAID-IN PURCHASE IN EXCESS OF SHAREHOLDERS'
INTEREST STOCK CAPITAL NOTES EARNINGS EQUITY
--------- ----------- ---------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1994................ $ 12,133 $ 1,213 $210,497 $ (291) $(210,226) $ 13,326
Principal payments and reductions of
share purchase notes............... -- -- (246) 291 -- 45
Net loss............................. -- -- -- -- (4,663) (4,663)
-------- ------- -------- ----- --------- --------
Balance December 31, 1994.............. 12,133 1,213 210,251 -- (214,889) 8,708
Decrease in par value to $0.01....... (12,012) (1,092) 13,104 -- -- --
One-for-six reverse stock split...... (101) (101) 202 -- -- --
Contributed capital.................. -- -- 59,120 -- -- 59,120
Equity offering...................... 118 118 245,465 -- -- 245,701
Minority interest.................... -- -- (92,735) -- -- (92,735)
Net income........................... -- -- -- -- 8,970 8,970
Distributions........................ -- -- -- -- (12,996) (12,996)
Warrant purchase..................... -- -- (1,300) -- -- (1,300)
-------- ------- -------- ----- --------- --------
Balance December 31, 1995.............. 138 138 434,107 -- (218,915) 215,468
Contributed capital.................. -- -- 7,783 -- -- 7,783
Three-for-two stock split............ 135 135 (270) -- -- --
Equity offerings..................... 128 128 429,362 -- -- 429,618
Net income........................... -- -- -- -- 26,951 26,951
Distributions........................ -- -- -- -- (43,937) (43,937)
Change in minority interest.......... -- -- (43,222) -- -- (43,222)
-------- ------- -------- ----- --------- --------
Balance December 31, 1996.............. $ 401 $ 401 $827,760 $ -- $(235,901) $592,661
======== ======= ======== ===== ========= ========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 68
STARWOOD LODGING TRUST
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER DECEMBER
31, 31,
1996 1995
---------- ---------
<S> <C> <C>
ASSETS
Hotel assets held for sale -- net................................... $ 12,615 $ 20,547
Hotel assets -- net................................................. 988,309 221,063
---------- ---------
1,000,924 241,610
Mortgage notes receivable -- net.................................... 90,741 79,261
Mortgage notes receivable -- Corporation............................ 88,077 68,486
Investments......................................................... 948 2,841
---------- ---------
Total real estate investments............................. 1,180,690 392,198
Cash and cash equivalents........................................... 3,810 710
Rent and interest receivable........................................ 12,617 1,841
Notes receivable -- net............................................. 2,237 1,232
Notes receivable -- Corporation..................................... 17,741 17,978
Prepaid expenses and other assets................................... 16,271 11,778
---------- ---------
$1,233,366 $ 425,737
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Collateralized notes payable and revolving lines of credit.......... $ 422,334 $ 119,100
Mortgage and other notes payable.................................... 55,269 100
Accounts payable and other liabilities.............................. 9,200 4,412
Distributions payable............................................... 19,258 9,284
---------- ---------
506,061 132,896
---------- ---------
Commitments and contingencies
MINORITY INTEREST................................................... 158,005 88,113
---------- ---------
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest at December 31, 1996 and 1995;
$.01 par value; authorized 100,000,000 shares; outstanding
40,078,000 and 13,798,000 at December 31, 1996 and 1995,
respectively...................................................... 401 138
Additional paid-in capital.......................................... 729,276 354,619
Distributions in excess of earnings................................. (160,377) (150,029)
---------- ---------
569,300 204,728
---------- ---------
$1,233,366 $ 425,737
========== =========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 69
STARWOOD LODGING TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
REVENUE
Rents from Corporation....................................... $ 87,593 $26,730 $16,906
Interest from Corporation.................................... 9,084 4,761 1,730
Interest from mortgage and other notes....................... 11,262 10,792 1,512
Rents from other leased hotel properties and income from
joint ventures............................................. 822 791 927
Other income................................................. 2,008 1,074 164
Gain (loss) on sales of real estate investments.............. 4,290 (125) 432
-------- ------- -------
115,059 44,023 21,671
-------- ------- -------
EXPENSES
Interest..................................................... 23,088 12,429 16,265
Depreciation and amortization................................ 42,517 8,977 5,205
Administrative and general................................... 4,134 2,439 1,583
Shareholder litigation....................................... -- -- 1,324
Provision for losses......................................... -- -- 759
-------- ------- -------
69,739 23,845 25,136
-------- ------- -------
Income (loss) before minority interest and extraordinary
items...................................................... 45,320 20,178 (3,465)
Minority interest............................................ 11,731 7,314 --
-------- ------- -------
Income (loss) before extraordinary items..................... 33,589 12,864 (3,465)
Extraordinary items due to early extinguishment of debt (net
of $163,000 minority interest)............................. -- (2,155) --
-------- ------- -------
NET INCOME (LOSS).................................. $ 33,589 $10,709 $(3,465)
======== ======= =======
EARNINGS (LOSS) PER SHARE
Income (loss) before extraordinary items..................... $ 1.12 $ 1.10 $ (1.14)
Extraordinary items.......................................... -- (0.18) --
-------- ------- -------
NET INCOME (LOSS) PER SHARE........................ $ 1.12 $ 0.92 $ (1.14)
======== ======= =======
Weighted Average Number of Shares.................. 29,884 11,657 3,033
======== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE> 70
STARWOOD LODGING TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)....................................... $ 33,589 $ 10,709 $ (3,465)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Minority interest..................................... 11,731 7,314 --
Extraordinary items due to early extinguishment of
debt............................................... -- 2,155 --
Depreciation and amortization......................... 42,517 8,977 5,205
Accretion of discount................................. (3,140) (3,285) --
Deferred interest..................................... -- 649 3,610
Deferred interest -- Corporation...................... (2,055) -- --
(Gain) loss on sales of real estate investments....... (4,290) 125 (432)
Provision for losses.................................. -- -- 759
Changes in operating assets and liabilities:
Increase in rent and interest receivable, prepaid
expenses and other assets.......................... (18,649) (17,056) (1,784)
Increase in accounts payable and other liabilities.... 1,886 1,679 562
--------- --------- ---------
Net cash provided by operating activities..... 61,589 11,267 4,455
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of hotel properties......................... (699,438) (118,896) --
Improvements and additions to hotel assets.............. (15,661) (4,660) (2,270)
Purchase of investments................................. (1,871) -- --
Sales of investments.................................... 3,764 -- --
Net proceeds from sales of hotel and gaming assets...... 21,991 -- 11,719
Purchase of mortgage and other notes receivable......... (25,012) (19,795) (6,270)
Purchase of mortgage notes receivable -- Corporation.... (18,216) -- --
Principal received on mortgage and other notes
receivable............................................ 3,201 6,766 2,382
Reorganization costs.................................... -- (1,407) (1,287)
Net change in notes receivable -- Corporation........... 4,815 (37,514) 3,965
--------- --------- ---------
Net cash provided by (used in) investing
activities.................................. (726,427) (175,506) 8,239
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under collateralized notes payable and
revolving lines of credit............................. 367,561 119,100 --
Borrowings under mortgage and other notes payable....... 2,829 9,637 6,000
Payments on collateralized notes payable and revolving
lines of credit....................................... (64,327) -- --
Principal payments on mortgage and other notes
payable............................................... (35) (198,158) (19,402)
Net proceeds from equity offerings...................... 408,000 233,418 --
Contributed capital..................................... 128 11,197 --
Distributions paid...................................... (46,218) (9,265)
Purchase of warrants.................................... -- (1,235) --
Principal received on share purchase notes.............. -- -- 45
--------- --------- ---------
Net cash provided by (used in) financing
activities.................................. 667,938 164,694 (13,357)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 3,100 455 (663)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE
PERIOD................................................ 710 255 918
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD.......... $ 3,810 $ 710 $ 255
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE> 71
STARWOOD LODGING TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
TRUST
SHARES
OF ADDITIONAL SHARE DISTRIBUTIONS TOTAL
BENEFICIAL PAID-IN PURCHASE IN EXCESS OF SHAREHOLDERS'
INTEREST CAPITAL NOTES EARNINGS EQUITY
-------- ---------- -------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1994................... $ 12,133 $ 204,640 $ (291) $ (144,277) $ 72,205
Forgiveness of intercompany debt.......... -- (58,335) -- -- (58,335)
Principal payments and reductions of
share purchase notes from............ -- (246) 291 -- 45
Net loss................................ -- -- -- (3,465) (3,465)
-------- -------- ----- --------- --------
Balance December 31, 1994................. 12,133 146,059 -- (147,742) 10,450
Decrease in par value to $0.01.......... (12,012) 12,012 -- -- --
One-for-six reverse stock split......... (101) 101 -- -- --
Contributed capital..................... -- 52,495 -- -- 52,495
Equity offering......................... 118 233,300 -- -- 233,418
Minority interest....................... -- (88,113) -- -- (88,113)
Net income.............................. -- -- -- 10,709 10,709
Distributions........................... -- -- -- (12,996) (12,996)
Warrant purchase........................ -- (1,235) -- -- (1,235)
-------- -------- ----- --------- --------
Balance December 31, 1995................. 138 354,619 -- (150,029) 204,728
Contributed capital..................... -- 7,780 -- 7,780
Three-for-two stock split............... 135 (135) -- -- --
Equity offerings........................ 128 407,872 -- -- 408,000
Net income.............................. -- -- -- 33,589 33,589
Distributions........................... -- -- -- (43,937) (43,937)
Change in minority interest............. -- (40,860) -- -- (40,860)
-------- -------- ----- --------- --------
Balance December 31, 1996................. $ 401 $ 729,276 $ -- $ (160,377) $ 569,300
======== ======== ===== ========= ========
</TABLE>
See accompanying notes to financial statements.
F-10
<PAGE> 72
STARWOOD LODGING CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Hotel assets held for sale -- net.................................. $ 9,029 $ 516
Hotel assets -- net................................................ 111,721 94,832
-------- --------
Total real estate investments................................. 120,750 95,348
Cash and cash equivalents.......................................... 21,616 8,622
Accounts receivable................................................ 30,661 7,754
Notes receivable................................................... 693 564
Inventories, prepaid expenses and other assets..................... 11,472 8,433
-------- --------
$ 185,192 $ 120,721
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage and other notes payable................................... $ 1,963 $ 4,285
Mortgage notes payable -- Trust.................................... 88,077 68,486
Notes payable -- Trust............................................. 17,741 17,978
Accounts payable and other liabilities............................. 48,096 14,610
-------- --------
155,877 105,359
-------- --------
Commitments and contingencies
MINORITY INTEREST.................................................. 5,954 4,622
-------- --------
SHAREHOLDERS' EQUITY
Corporation common stock at December 31, 1996 and 1995; $.01 par
value; authorized 100,000,000 shares; outstanding 40,078,000 and
13,798,000 at December 31, 1996 and 1995, respectively........... 401 138
Additional paid-in capital......................................... 98,484 79,488
Distributions in excess of earnings................................ (75,524) (68,886)
-------- --------
23,361 10,740
-------- --------
$ 185,192 $ 120,721
======== ========
</TABLE>
See accompanying notes to financial statements.
F-11
<PAGE> 73
STARWOOD LODGING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
REVENUE
Rooms...................................................... $260,175 $ 87,270 $ 56,387
Food and beverage.......................................... 94,816 26,609 21,603
Other...................................................... 30,119 7,371 4,678
-------- -------- --------
Total hotel revenue.............................. 385,110 121,250 82,668
Gaming..................................................... 23,630 26,929 27,981
Interest from notes receivable............................. -- 113 42
Management fees and other income........................... 1,416 892 247
Gain on sales of hotel assets.............................. -- -- 24
-------- -------- --------
410,156 149,184 110,962
-------- -------- --------
EXPENSES
Rooms...................................................... 67,017 37,121 25,177
Food and beverage.......................................... 72,696 19,520 16,364
Other...................................................... 135,302 28,376 19,288
-------- -------- --------
Total hotel expenses............................. 275,015 85,017 60,829
Gaming operations.......................................... 21,834 24,242 24,454
Rent -- Trust.............................................. 87,593 26,730 16,906
Interest -- Trust.......................................... 9,084 4,761 1,730
Interest -- other.......................................... 249 709 1,341
Depreciation and amortization.............................. 13,228 6,492 2,956
Administrative and general................................. 12,361 3,273 2,620
Shareholder litigation..................................... -- -- 1,324
-------- -------- --------
419,364 151,224 112,160
-------- -------- --------
Loss before minority interest and extraordinary item....... (9,208) (2,040) (1,198)
Minority interest.......................................... (1,493) (301) --
-------- -------- --------
Loss before extraordinary item............................. (7,715) (1,739) (1,198)
Extraordinary item due to early extinguishment of debt (net
of $413,000 minority interest)........................... 1,077 -- --
-------- -------- --------
NET LOSS......................................... $ (6,638) $ (1,739) $ (1,198)
======== ======== ========
LOSS PER SHARE
Loss before extraordinary item............................. $ (0.26) $ (0.15) $ (0.39)
Extraordinary item......................................... 0.04 -- --
-------- -------- --------
NET LOSS PER SHARE............................... $ (0.22) $ (0.15) $ (0.39)
======== ======== ========
Weighted Average Number of Shares.......................... 29,884 11,657 3,033
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-12
<PAGE> 74
STARWOOD LODGING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................... $ (6,638) $ (1,739) $(1,198)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Minority interest......................................... (1,493) (301) --
Extraordinary item due to early extinguishment of debt.... (1,077) -- --
Depreciation and amortization............................. 13,228 6,492 2,956
Deferred interest -- Trust................................ 2,055 -- --
Gain on sale.............................................. -- -- (24)
Provision for doubtful accounts........................... 1,044 470 --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable, inventories,
prepaid expenses and other assets...................... (28,027) (4,749) 1,698
Increase in accounts payable and other liabilities........ 33,486 4,971 1,006
-------- -------- -------
Net cash provided by operating activities......... 12,578 5,144 4,438
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of hotel properties............................. (21,531) (21,551) --
Improvements and additions to hotel assets.................. (12,114) (21,104) (671)
Net proceeds from sales of hotel and gaming assets.......... -- -- 817
Purchase of notes receivable................................ (194) -- --
Principal received on notes receivable...................... 65 59 69
Reorganization costs........................................ -- (1,407) --
-------- -------- -------
Net cash provided by (used in) investing
activities...................................... (33,774) (44,003) 215
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under mortgage and other notes payable........... 668 -- --
Borrowings under mortgage notes payable -- Trust............ 18,216 -- --
Principal payments on mortgage and other notes payable...... (1,500) (9,463) (612)
Net proceeds from equity offerings.......................... 21,618 12,283 --
Contributed capital......................................... 3 2,402 --
Purchase of warrants........................................ -- (65) --
Net change in notes payable -- Trust........................ (4,815) 37,514 (3,965)
-------- -------- -------
Net cash provided by (used in) financing activities.... 34,190 42,671 (4,577)
-------- -------- -------
INCREASE IN CASH AND CASH EQUIVALENTS....................... 12,994 3,812 76
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD.... 8,622 4,810 4,734
-------- -------- -------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD.............. $ 21,616 $ 8,622 $ 4,810
======== ======== =======
</TABLE>
See accompanying notes to financial statements.
F-13
<PAGE> 75
STARWOOD LODGING CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CORPORATION ADDITIONAL DISTRIBUTIONS TOTAL
COMMON PAID-IN IN EXCESS OF SHAREHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
----------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Balance January 1, 1994.................... $ 1,213 $ 5,857 $(65,949) $ (58,879)
Forgiveness of intercompany debt........... -- 58,335 -- 58,335
Net loss................................. -- -- (1,198) (1,198)
------- ------- -------- --------
Balance December 31, 1994.................. 1,213 64,192 (67,147) (1,742)
Decrease in par value to $0.01........... (1,092) 1,092 -- --
One-for-six reverse stock split.......... (101) 101 -- --
Contributed capital...................... -- 6,625 -- 6,625
Equity offering.......................... 118 12,165 -- 12,283
Minority interest........................ -- (4,622) -- (4,622)
Net loss................................. -- -- (1,739) (1,739)
Warrant purchase......................... -- (65) -- (65)
------- ------- -------- --------
Balance December 31, 1995.................. 138 79,488 (68,886) 10,740
Contributed capital...................... -- 3 -- 3
Three-for-two stock split................ 135 (135) -- --
Equity offerings......................... 128 21,490 -- 21,618
Net loss................................. -- -- (6,638) (6,638)
Change in minority interest.............. -- (2,362) -- (2,362)
------- ------- -------- --------
Balance December 31, 1996.................. $ 401 $ 98,484 $(75,524) $ 23,361
======= ======= ======== ========
</TABLE>
See accompanying notes to financial statements
F-14
<PAGE> 76
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 and its subsidiaries (the "Trust") and Starwood Lodging
Corporation and its 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 (a "Corporation
Share") for each share of beneficial interest of the Trust (a "Trust Share").
Trust Shares and Corporation Shares are paired on a one-for-one basis, and may
only be held or transferred in units ("Paired Shares") consisting one Trust
Share and one Corporation Share.
The combined consolidated financial statements include the accounts of the
Trust and the Corporation (together, the "Company"). All material intercompany
balances and transactions have been eliminated in the combined 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 Company owns and operates primarily upscale hotels located throughout
the United States and as of December 31, 1996, leases and operates one
hotel/casino 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 "Reorganization Date"), the Trust and the
Corporation consummated a reorganization (the "Reorganization") with a
predecessor of Starwood Capital Group, L.L.C. ("Starwood Capital"), and certain
affiliates of Starwood Capital (together with Starwood Capital, the "Starwood
Partners").
The Reorganization involved a number of related transactions that occurred
simultaneously on the Reorganization 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 value, 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 general partner in the Realty Partnership, (ii) the contribution by
the Starwood Partners to the Realty Partnership of approximately $12,600,000 in
cash in addition to certain hotel properties and first mortgage notes, at book
value, 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 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 in addition to furniture, fixtures and
equipment of the hotel properties, at book value, in exchange for limited
partnership units representing the remaining approximate 71.7% interest in the
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% general
partnership interest in the Realty Partnership, the Corporation had an
approximate 25.4% general partnership interest in
F-15
<PAGE> 77
STARWOOD LODGING TRUST
AND STARWOOD LODGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 Company presents the
respective results of the Realty Partnership and the Operating Partnership on a
consolidated basis.
The Offerings
On July 6, 1995, the Company completed a public offering (the "1995
Offering") of 17.7 million Paired Shares at a price of $15.33 per Paired Share
(after giving effect to the three-for-two stock split in January 1997). Net
proceeds of the 1995 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 Operating Partnership, respectively, with the Starwood Partners'
limited partnership interests representing the remaining approximate 30.1%
interest in each of the Realty Partnership and Operating Partnership.
On April 12, 1996, the Company completed a public offering of 3.0 million
Paired Shares (after giving effect to the three-for-two stock split in January
1997) (the "April Offering"). Net proceeds of the April offering of
approximately $62.4 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 72.7% of the Realty and Operating
Partnership, respectively, with the Starwood Partners' limited partnership
interests representing the remaining approximate 27.3% interest in each of the
Realty Partnership and Operating Partnership.
On August 12, 1996, the Company completed a public offering (the "August
Offering") of 16.2 million Paired Shares at a price of $23.92 per Paired Share
(after giving effect to the three-for-two stock split in January 1997). Net
proceeds of approximately $367.2 million 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 81.8% of the Realty and Operating
Partnership, respectively, with the Starwood Partners' limited partnership
interests representing predominantly the remaining approximate 18.2% interest in
each of the Realty Partnership and the Operating Partnership.
At December 31, 1996, minority interest includes the 18.2% limited
partnership interests of the Realty Partnership and the Operating Partnership
and the 41.8% limited partnership interest in the joint venture that owns the
Boston Park Plaza. The minority interest is adjusted to its relative ownership
interest at year end by reclassification from additional paid-in capital. The
total number of units outstanding was 49,024,452 at December 31, 1996 (after
giving effect to the three-for-two stock split in January 1997).
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 the lease terms.
The Trust and the Corporation evaluate the carrying values of each of their
hotel assets on a quarterly basis for any possible impairment. For each hotel
asset not held for sale, the expected undiscounted future cash flows of the
asset (generally over a five-year period) 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 an asset is identified by
management as held for sale, the Company discontinues depreciating the asset and
estimates the fair value
F-16
<PAGE> 78
STARWOOD LODGING TRUST
AND STARWOOD LODGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
of such asset. If in management's opinion 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 (approximately 10%) 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 collectibility of the sales price and any future
activities to be performed by the Company 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 collectibility of a specific loan is uncertain and the
fair value of the underlying property collateralizing the loan is less than the
outstanding principal and accrued interest, 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.
Provision for losses
Provision for losses for the year ended December 31, 1994, for the Trust is
as follows:
<TABLE>
<CAPTION>
1994
--------
<S> <C>
Hotel assets...................................... $439,000
Mortgage notes receivable......................... 320,000
--------
$759,000
========
</TABLE>
There were no provisions for losses for the years ended December 31, 1995
and 1996.
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, consisting primarily of food and beverage, are stated at the
lower of cost or market with cost determined on a first-in, first-out basis.
Organization Costs
Net organization costs related to the formation of each of the Partnerships
in the amount of $2,168,000 and $2,891,000 for the Trust and $2,168,000 and
$2,891,000 for the Corporation are included in inventories, prepaid expenses and
other assets at December 31, 1996 and 1995, respectively. The costs are
amortized over a five-year period beginning in January 1995. The Trust and the
Corporation each amortized $723,000 and $650,000 during the years ended December
31, 1996 and 1995, respectively.
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
F-17
<PAGE> 79
STARWOOD LODGING TRUST
AND STARWOOD LODGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
not been material to the hotels' results of operations. The Company has recorded
an allowance for doubtful accounts totaling $1,514,000 and $470,000 at December
31, 1996 and 1995, respectively.
Gaming revenue
Gaming revenue relates to 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.
Investments of $945,000 for the Trust at December 31, 1996, had a fair
value of $2,085,000.
At December 31, 1996, the Trust held $30.5 million in adjustable rate
mortgage notes receivable not subject to sale. The Company believes the carrying
amount approximates their fair value due to the interest rates being of a
variable nature. The Company believes that the fair value of fixed rate mortgage
notes receivable of $45.5 million is at least $47.8 million. The Trust has a
letter of intent to receive $8.5 million on its Atlantic City notes which have a
carrying value of $4.6 million. The Trust acquired in the current year a $10.25
million note on the Stamford Sheraton which does not accrue interest. Due to the
recent purchase, the Company believes the carrying amount approximates fair
value.
The carrying value of the fixed rate notes payable, and revolving credit
facilities approximate fair value at December 31, 1996 and 1995, as the related
interest rates are either variable or in line with market rates.
At December 31, 1996 and 1995, the Company had significant amounts in banks
that were in excess of federally insured amounts.
Interest Rate Agreements
The Company enters 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, using the effective interest method, in interest expenses
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 29,884,000 for the year ended December 31, 1996,
11,657,000 for the year ended December 31, 1995, and 3,033,000 for the year
ended December 31, 1994. 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, and the three-for-two stock split that occurred on January 27, 1997, were
both effective January 1, 1994. Historical per share and per Paired Share
information has been revised accordingly.
On a fully diluted basis, for the year ended December 31, 1996, the
weighted average number of shares and Paired Shares used in determining net
income (loss) per share and per Paired Share was 30,246,000,
F-18
<PAGE> 80
STARWOOD LODGING TRUST
AND STARWOOD LODGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
resulting in fully diluted net income (loss) per share and per Paired Share of
$1.11, ($0.22) and $0.89 for the Trust, Corporation and on a combined basis,
respectively.
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 1995 and 1994 financial
statements to conform with the 1996 financial statement presentation.
Share option plans policy
The Company has elected to apply APB Opinion 25 and related Interpretations
in accounting for its share option plans. However, the Company discloses pro
forma compensation cost consistent with FASB Statement 123 (see Note 13).
Impact of recent issued accounting standards
The Financial Accounting Standards Board issued Statement No. 128 "Earning
Per Share" that will require a change in the calculation of earnings per share
for financial statements issued for periods ending after December 15, 1997.
Early adoption is not permitted.
2. INCOME TAXES.
The Trust has elected to be treated as a REIT under the provisions of the
Internal Revenue Code ("IRC") 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 95% of its taxable income
to its shareholders and complies with certain other requirements. The Trust is
subject to state income and franchise taxes in certain states in 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, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------- ----------------------------
TRUST CORPORATION TRUST CORPORATION
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Deferred income tax assets:
Net operating loss
carryforwards................. $ 31,995,000 $ 7,574,000 $ 28,084,000 $ 804,000
Investments in partnerships...... (7,000) 2,725,000 2,583,000
Property and equipment........... 4,261,000 745,000 850,000 512,000
Allowance for write downs........ 1,422,000 -- -- --
Other............................ 1,012,000 251,000 172,000 372,000
------------ ------------ ------------ -----------
Total deferred income tax
assets................. 38,683,000 11,295,000 29,106,000 4,271,000
Valuation allowance................ (38,683,000) (11,295,000) (29,106,000) (4,271,000)
------------ ------------ ------------ -----------
Net deferred income tax............ $ -- $ -- $ -- $ --
============ ============ ============ ===========
</TABLE>
As of December 31, 1996, the Trust and Corporation had net operating loss
carry forwards ("NOL") for federal income tax purposes of approximately
$83,000,000 and $22,275,000 respectively. The NOL's expire in various years
beginning in 2006 through 2009 for the Trust, and 2006 through 2011 for the
Corporation.
F-19
<PAGE> 81
STARWOOD LODGING TRUST
AND STARWOOD LODGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The utilization of each entity 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 occurred 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.
For Federal income tax purposes, 1996 and 1995 dividends amounted to $1.36
and $0.62 per share, respectively (after giving effect to the three-for-two
stock split in January 1997), of which 11% for both years is considered return
of capital.
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 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 "1995 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 1995 Offering, the
Realty Partnership repaid existing indebtedness borrowed under the 1995 Credit
Agreement and recorded an extraordinary charge to net income of $3,602,000
relating to the extinguishment of such debt.
During 1996, the Corporation paid off a note secured by the Milwaukee
Marriott at a discount of approximately $1.5 million. As a result, the
Corporation recognized an extraordinary gain of $1.5 million before minority
interest resulting from early extinguishment of 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
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 and $778,000 were paid during the years ended December 31, 1995 and
1994, respectively. As noted above, an additional $1,284,000 of previously
accrued restructuring costs was recognized as extraordinary income during 1995.
At December 31, 1996, 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, 1996,
1995, and 1994 was $21,451,000, $15,235,000 and $12,736,000, respectively.
During 1996, the Corporation transferred approximately $3.9 million (net of
$116,000 of accumulated depreciation) in furniture, fixtures and equipment to
the Trust and increased the intercompany receivable by the same amount.
During 1996, the Trust issued approximately $1.7 million in partnership
units in conjunction with the acquisition of the Days Inn and Doubletree Guest
Suites in Philadelphia, PA.
During 1996, the Trust made a one-time grant of approximately $6.0 million
in restricted stock in conjunction with the acquisition of the Institutional
Portfolio.
During 1996, the Trust assumed $25.0 million in mortgage debt in
conjunction with the acquisition of the Boston Park Plaza.
During 1996, the Trust assumed approximately $27.4 million in mortgage debt
and $2.9 million in accounts payable and other liabilities in conjunction with
the acquisition of the Doral Court and Tuscany.
F-20
<PAGE> 82
STARWOOD LODGING TRUST
AND STARWOOD LODGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During 1996, the Trust reclassified approximately $19.8 million in mortgage
notes receivable (net of discounts of $3.4 million and allowances of $224,000)
in conjunction with the acquisition of the equity of the Westin, Washington,
D.C.
During 1996, the Trust issued approximately $7.3 million in collateralized
notes receivable in conjunction with the sale of the King 8 Hotel & Casino.
A reduction to acquisitions of hotel properties of approximately $29.5
million representing minority interest in the Boston Park Plaza has been
recognized in the Trust and Combined December 31, 1996 cash flow statements.
Interest paid in cash by the Corporation in the years ended December 31,
1996, 1995, and 1994 was $9,333,000, $1,345,000, and $1,342,000 respectively.
The Corporation deferred interest of $3,012,000, and $1,730,000 on its
intercompany debt with the Trust in the years ended December 31, 1995 and 1994,
respectively.
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
collateralized 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 in 1995, 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 limited 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 limited 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.
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 Trust declared approximately $9.3 million in
dividends and distributions paid in January 1996.
In December 1996, the Trust declared approximately $19.3 million in
dividends and distributions paid in January 1997.
6. COLLATERALIZED NOTES PAYABLE AND REVOLVING LINES OF CREDIT
The Company currently has two loan facilities and a term loan with Lehman
Brothers, Inc. and certain of its affiliates ("Lehman Brothers"). In October
1995, the Company amended its Mortgage Loan Funding Facility Agreement, dated
July 25, 1995, (the "Mortgage Facility") with Lehman Brothers to increase the
amount available under this 18-month facility to $70.6 million. The Mortgage
Facility is recourse to the Realty Partnership, is collateralized by certain
mortgage loans owned by the Realty Partnership, bore interest at a rate equal to
1.5% plus the one-month LIBOR for the first 12 months, and bears interest at a
rate of 1.75% plus the one-month LIBOR thereafter. In August 1996, the maturity
date for the Mortgage Facility was extended to July 1997. As of December 31,
1996, the Company had borrowed $70.6 million under the Mortgage Facility.
In October 1995, the Company entered into a three-year, $135 million
collateralized revolving credit facility (the "Acquisition Facility") with
Lehman Brothers. In August 1996, a portion of the Acquisition Facility was
syndicated amongst a number of banks, whereupon First National Bank of Boston
became the
F-21
<PAGE> 83
STARWOOD LODGING TRUST
AND STARWOOD LODGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
lead agent bank. The Acquisition Facility is recourse to the Realty Partnership,
is secured by certain properties of the Company and may be secured by other
properties acquired by the Company, all on a cross-collateralized basis within
various pools. Amounts drawn under the Acquisition Facility bear interest at a
rate equal to 1.625% plus the one, two or three-month LIBOR at the Company's
option. The Acquisition Facility matures in October 1998. As of December 31,
1996, the Company had borrowed $117.8 million under the Acquisition Facility.
The Acquisition Facility provides for an annual fee of 0.25% of the average
daily unfunded portion of the Acquisition Facility amount.
In March 1996, the Company entered into a $24 million one year non-recourse
collateralized term loan (the "Term Loan") with Lehman Brothers. In April 1996,
the Company amended the Term Loan to increase the amount available under this
facility to $94 million. The Term Loan is secured by certain properties of the
Company and bears interest at a rate equal to the one, two or three-month LIBOR,
at the Company's option, plus (a) 1.95% for the first $24 million drawn, and (b)
1.75% for the remaining balance drawn. The Term Loan matures in April 1997. As
of December 31, 1996 the Company had borrowed $94 million under the Term Loan.
In August 1996, the Company entered into a loan facility with an affiliate
of Goldman Sachs for a one-year (extendible to 18 months) loan of up to $300
million to fund a portion of the acquisition cost of the Institutional Portfolio
and the HOD Portfolio (the "Goldman Facility"). The Goldman Facility is recourse
to the Realty Partnership, bears interest at one-month LIBOR plus 1.75%
(extendible six month period bears interest at one-month LIBOR plus 2.75%) and
is collateralized by interests in the Institutional Portfolio and the HOD
Portfolio. As of December 31, 1996 the Company had borrowed $140 million under
the Goldman Facility.
In January 1996, the Company entered into two interest rate hedging
agreements (the "January Treasury Lock"), which have the effect of fixing the
base rate of interest at 5.7% for debt the Company intended to issue in October,
1996, with an aggregate notional 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. The Company has extended the settlement date to
March 31, 1997 and the base rate increased to 5.86%.
At settlement, the Trust will pay or receive an amount which will be
capitalized and amortized over the term of the related debt of 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
$100 million of debt in 1997, with a term to maturity of seven years, no such
gain or loss is anticipated.
In August 1996, the Company entered into another Treasury Lock (the "August
Treasury Lock"), which has the effect of fixing the base rate of interest at
6.67% for debt the Company intended to issue in March, 1997, with an aggregate
notional principal amount of $150 million and a term to maturity of ten years.
The Company, due to other financing circumstances, has decided to postpone the
issuance of the ten year, $150 million debt to June 30, 1997. The Company plans
to extend the settlement date in respect of the August Treasury Lock. The actual
interest rate of debt to be issued at that time will be determined by reference
to the base rate determined at the time of the extension of the settlement date.
At settlement, the Company will pay or receive an amount which will be
capitalized and amortized over the term of the related debt of ten years. Such
amount is not anticipated to have a material effect on the Company's liquidity
or operating results. If the Company 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 Company's
results from operations; however due to Management's current intention to issue
$150 million of debt with a term to maturity of ten years, no such gain or loss
is anticipated.
F-22
<PAGE> 84
STARWOOD LODGING TRUST
AND STARWOOD LODGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of the credit facilities (the "Facilities") as
of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
AMOUNT AMOUNT INTEREST
EXPIRATION AMOUNT OUTSTANDING OUTSTANDING RATE
FACILITY/LENDER DATE OF FACILITY AT 12/31/96 AT 12/31/95 AT 12/31/96(1)
- -------------------- ----------------- ---------------- --------------- -------------- --------------------
<S> <C> <C> <C> <C> <C>
Mortgage Facility/
Lehman Brothers... July 25, 1997 $71.0 million $70.6 million $64.5 million One Month
LIBOR+1.75% (7.125%)
Acquisition
Facility/ Lehman
Brothers.......... October 1, 1998 $135 million $117.8 million $54.6 million One, Two, or Three
Month LIBOR+1.625%
(7.0%)
Term Loan/
Lehman Brothers... April 26, 1997 $93.96 million $93.96 million -- One, Two, or Three
Month LIBOR+1.95%
for first $23.96
million and +1.75%
for $70.0 million
(7.51% and 7.06%)
Goldman Facility/
Goldman Sachs..... August 16, 1997
Extendible to
February 16, 1998 $300.0 million $140.0 million -- One month
LIBOR+1.75% to
8/16/97 and +2.75%
thereafter (7.125%)
---------------- --------------- --------------
Totals................................. $599.96 million $422.36 million $119.1 million
=============== =============== ==============
</TABLE>
- ---------------
(1) The rates below represent the rates in effect for the month of December and
are set by the lender at the beginning of the month.
The Facilities require the Company 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, 1996 and 1995, the Company was in compliance with
its convenants.
7. HOTEL SALES AND RESERVE FOR LOSSES.
During the year ended December 31, 1994, the Company sold its 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 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
F-23
<PAGE> 85
STARWOOD LODGING TRUST
AND STARWOOD LODGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 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 a property in
Spartanburg, South Carolina 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 Company did not sell any of
their hotel assets.
During the year ended December 31, 1996, the Company sold its interests in
three hotel assets, the Best Western Columbus North located in Columbus, Ohio;
the Bourbon Street Hotel & Casino located in Las Vegas, Nevada; and the King 8
Hotel & Casino located in Las Vegas, Nevada. The Columbus property was sold for
an all cash price of approximately $3.1 million. The Bourbon Street property was
sold for an all cash price of $7.6 million. The King 8 Hotel & Casino real
property was sold for $18.8 million, consisting of $11.6 million in cash and a
$7.2 million promissory note collateralized by the hotel and the casino. The
note bears interest at 13.5% per annum through November 5, 1997, 14.5% per annum
through November 5, 1998, 15.5% per annum through November 5, 1999 and 16.5% per
annum thereafter. Accrued interest on the note is due monthly with all unpaid
principal and accrued interest due in May 2000. The personal property and casino
equipment of the King 8 Hotel & Casino will be sold for $3 million following
receipt by the purchaser of required gaming approvals. A subsidiary of the
Corporation, Hotel Investors Corporation of Nevada, leases the real property
from the purchaser and has agreed to continue to operate the hotel and casino
while the purchaser or his designee obtains required gaming licenses and
approvals.
During the year ended December 31, 1996, the Company sold an office
building adjacent to the Doubletree Guest Suites located in Lexington, Kentucky
for an all cash price of $675,000.
For the year ended December 31, 1996, the Trust recognized a gain of $4.3
million and the Corporation recognized no gain or loss on sales of 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, 1996, in addition to the MHLP notes discussed in Note 9,
the Trust held nineteen promissory notes collateralized by mortgages. Thirteen
notes ($90,637,000 carrying amount at December 31, 1996), representing 14
hotels, are collateralized by first mortgages, and six notes ($134,000 carrying
amount at December 31, 1996) are collateralized by second, third and fourth
mortgages. Nine of the notes have fixed interest rates ranging from 7% to 10%
per annum, and six of the notes have variable interest rates that range from
6.81% to 13.5% per annum at December 31, 1996. One of the notes provides for
contingent interest based on a percentage of gross revenue of the property
securing such note. Three of the notes are principal only
F-24
<PAGE> 86
STARWOOD LODGING TRUST
AND STARWOOD LODGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
($337,000 face amount and fully discounted). The maturity dates of the notes
range from 1997 to 2010. Aggregate principal payments under the mortgage notes
receivable due within one year of December 31, 1996, are $3,200,000. As of
December 31, 1996 and 1995, 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 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 at such time had a 51% interest and was the sole general partner and
Brookfield was the sole limited partner. The operations of MHLP have been
consolidated into the Corporation's financial statements from the date of
reorganization and, accordingly, the Trust has recorded the notes receivable
from MHLP as notes receivable from the Corporation (see accompanying Schedule
IV).The Corporation and MHLP entered into an agreement for the Corporation to
manage the property.
During 1996, the Corporation purchased the remaining 49% interest in MHLP
for $240,000 and assumed all outstanding debt. Also in 1996, the Corporation
negotiated the payoff of all third party debt at a discount of $1.5 million. As
a result the Corporation recorded an extraordinary gain from early
extinguishment of debt (see Extraordinary Items in Note 3).
10. HOTEL PROPERTIES.
A summary of hotel assets at December 31, 1996 and 1995, is as follows (in
thousands):
<TABLE>
<CAPTION>
TRUST CORPORATION
---------------------- --------------------
1996 1995 1996 1995
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Land.................................... $ 164,472 $ 59,581 $ 3,111 $ 2,501
Buildings and improvements.............. 807,919 237,222 93,876 67,645
Furniture, fixtures and equipment....... 85,717 7,517 68,395 64,515
Construction in progress................ 16,939 1,317 3,525 61
Accumulated depreciation and
amortization.......................... (70,654) (40,827) (47,769) (38,986)
Reserve for losses...................... (3,469) (23,200) (388) (388)
---------- -------- -------- --------
Hotel assets -- net................... $1,000,924 $241,610 $120,750 $ 95,348
========== ======== ======== ========
</TABLE>
11. REAL ESTATE INVESTMENTS AND INTERCOMPANY TRANSACTIONS.
At December 31, 1996, the Trust owned equity interests in 59 hotels. Of
that number, fifty-five properties were owned in fee and four were held pursuant
to long-term leases.
Fifty-four of the Trust's hotels 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. pursuant to ground leases. As
of December 31, 1996, four 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 3% of gross revenues with incentive management fees based upon
hotel profitability.
F-25
<PAGE> 87
STARWOOD LODGING TRUST
AND STARWOOD LODGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 $87,593,000, $26,730,000 and $16,906,000 for the years ended
December 31, 1996, 1995 and 1994, respectively, of which $26,792,000, $5,443,000
and $2,456,000 was 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, 1996 and 1995, the Corporation was indebted to the Trust
for an aggregate of $105,818,000 and $86,464,000, respectively, (including the
MHLP mortgage notes of $29,611,000 and $28,236,000 as of December 31, 1996 and
December 31, 1995, respectively -- see Note 9; the Midland Hotel mortgage note
of $18,216,000 as of December 31, 1996, and the Doral lease obligation of
$40,250,000-see discussion below). The Corporation borrowings were non-interest
bearing for the year ended December 31, 1994. 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 $3.0
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. Under
certain circumstances SBK may be entitled to a share of profits above certain
thresholds. 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,
-----------------
1996 1995
---- ----
<S> <C> <C>
Corporation:
Minimum......................................................... $ -- $ --
Contingent...................................................... 510 --
----- ----
510 --
----- ----
Other:
Minimum......................................................... -- --
Contingent...................................................... 373 362
----- ----
373 362
----- ----
Total................................................... $883 $362
====== ====
</TABLE>
F-26
<PAGE> 88
STARWOOD LODGING TRUST
AND STARWOOD LODGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Trust's minimum future rents at December 31, 1996, due under
non-cancelable operating leases for the years ending December 31 are as follows
(in thousands):
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 THEREAFTER
------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Corporation................ $93,264 $94,464 $79,614 $13,335 $12,832 $ 23,001
Other...................... 437 437 300 300 300 851
------- ------- ------- ------- ------- --------
Total............ $93,701 $94,901 $79,914 $13,635 $13,132 $ 23,852
======= ======= ======= ======= ======= ========
</TABLE>
The Corporation's future rents at December 31, 1996, payable under
non-cancelable operating leases for the years ended December 31 are as follows
(in thousands):
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 THEREAFTER
------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Trust..................... $93,264 $94,464 $79,614 $13,335 $12,832 $ 23,001
Other..................... 2,842 2,264 1,599 1,371 1,141 2,682
------- ------- ------- ------- ------- --------
Total........... $96,106 $96,728 $81,213 $14,706 $13,973 $ 25,683
======= ======= ======= ======= ======= ========
</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 these leases directly to the lessors. Rent expense incurred by the
Corporation as a lessee/operator under these ground leases was $871,000,
$739,000 and $879,000, in the years ended December 31, 1996, 1995 and 1994,
respectively.
12. MORTGAGE AND OTHER NOTES PAYABLE.
At December 31, 1996 and 1995, the Trust had the following outstanding debt
obligations (exclusive of Collateralized amounts payable and Revolving Lines of
Credit -- See Note 6):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
7.64% first mortgage secured by the Doral Court and Doral
Tuscany, due 2001....................................... $27,375,000
8.42% first mortgage secured by the Boston Park Plaza, due
2003.................................................... 25,000,000
Non-interest bearing term note, due 1999.................. 2,830,000
Other..................................................... 65,000 100,000
----------- ----------
Total mortgage and other notes payable.......... $55,270,000 $ 100,000
=========== ==========
</TABLE>
F-27
<PAGE> 89
STARWOOD LODGING TRUST
AND STARWOOD LODGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1996 and 1995, the Corporation had the following
outstanding debt obligations (exclusive of amounts payable to Trust):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Collateralized by Milwaukee Marriott Hotel:
10.5% fifth mortgage note, interest only, due 1996....... $ -- $ 946,000
12.0% sixth mortgage note, interest only
(to the extent of available cash flow), due 1996...... -- 2,000,000
--------- ---------
-- 2,946,000
Other:
9.75% first mortgage note, due 1997...................... 341,000 372,000
Other notes payable...................................... 449,000
Obligations under capital leases......................... 1,173,000 967,000
--------- ---------
Total mortgage and other notes payable........... $1,963,000 $4,285,000
========= =========
</TABLE>
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
-------------------------------------------- -------------- ------------------
<S> <C> <C>
1997........................................ $ 244,000 $790,000
1998........................................ 244,000
1999........................................ 244,000
2000........................................ 244,000
2001........................................ 100,000
Thereafter.................................. 500,000
---------- -------
Total............................. 1,576,000 $790,000
=======
Amount representing interest................ (403,000)
----------
Future minimum lease payments............... $1,173,000
==========
</TABLE>
At December 31, 1996 and 1995, the Corporation had $1,190,000 and $845,000,
respectively, in assets (less $233,000 and $127,000, 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, there were outstanding 414,993 warrants to purchase
Paired Shares at an exercise price of $67.80 per Paired Share (as adjusted for
the one-for-six reverse stock split in June 1995 and the three-for-two stock
split in January 1997) through September 15, 1996. At the expiration date, each
100 warrants were convertible into one Paired Share of stock. Pursuant to the
warrant agreement, the warrants were converted into 3,954 Paired Shares (as
adjusted for the three-for-two stock split in January 1997) and 196 fractional
warrants were paid in cash at the then current market value of a single Paired
Share.
In 1996 two Restricted Stock Awards were granted in the form of warrants to
purchase 22,500 Paired Shares each at an exercise price of $.67 (as adjusted for
the three for two stock split in January 1997). One warrant was exercisable at
December 31, 1996 and one became exercisable after January 1, 1997.
F-28
<PAGE> 90
STARWOOD LODGING TRUST
AND STARWOOD LODGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Restricted Stock Award
In 1996 the Company granted a one-time restricted stock award of 250,870
Paired Shares (as adjusted for the three for two stock split in January 1997) in
connection with the acquisition of a portfolio of hotels from an institution in
August 1996. Such restricted stock award vests as to two-thirds of such amount
on August 12, 1997 and as to the remaining amount on August 12, 1998. The fair
value of the restricted stock (approximately $6 million) at the date of grant
was capitalized to hotel assets.
Share option plans
At December 31, 1996, the Company had two stock-based compensation plans,
which are described below. The Company applies APB Opinion 25 and related
Interpretations in accounting for its plans. In accordance with APB Opinion 25,
during 1996 the Company recognized approximately $811,000 in compensation
expense related to the grant of 218,714 restricted stock awards granted in 1996
with a weighted average fair value at the date of grant of $23.60 (as adjusted
for the three for two stock split in January 1997) with a three year vesting
period. No compensation cost under the provisions of FASB Statement 123 has been
recognized for its stock option plans. However, had compensation cost for the
Company's stock-based compensation plans been determined based on the fair value
at the grant dates for awards under those plans consistent with the method of
FASB Statement 123, the Company's net income and earnings per Paired Share would
have been reduced to the pro forma amounts indicated below.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used (the statement is effective for grants starting in 1995):
dividend yield of 3.9%, expected volatility of 57.21%, risk-free interest rate
of US zero coupon bonds with time to maturity approximately equal to the options
average time to exercise, and expected lives of the full vesting period for each
option.
<TABLE>
<CAPTION>
COMBINED COMBINED
1996 1995
----------- ----------
<S> <C> <C> <C>
Net Income Pro forma................... $16,908,000 $6,193,000
Primary earnings per
Paired Share Pro forma................... $ 0.57 $ 0.53
Fully diluted Earnings
per Paired Share Pro forma................... $ 0.56 $ 0.53
</TABLE>
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 175,000 Paired Shares (as adjusted for the one-for-six reverse stock split in
June 1995 and the three-for-two stock split in January 1997) 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 85,338 Paired Shares at exercise prices ranging from $11.00 to $14.50
per Paired Share. Such options, which are granted at fair market value on the
date of grant, vest over three years.
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 2,359,500 (after giving effect to the three for two
stock split in January, 1997) 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 1996, the Trust and the Corporation each adopted an amendment and
restatement of their respective 1995 Share Option Plans (as amended, the
"LTIPs"). The LTIPs increased the number of Paired Shares which may be granted
under each LTIP to approximately 6.4 million (after giving effect to the three-
F-29
<PAGE> 91
STARWOOD LODGING TRUST
AND STARWOOD LODGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
for-two stock split in January 1997) and provide for the grant of Paired Shares
that are subject to performance measures or restriction periods and performance
awards in tandem with certain Paired Options to be paid in cash subject to
performance measures. The LTIPs also reduced the automatic annual grant of
Paired Options to Trustees and Directors from 9,000 to 4,500 Paired Shares
(after giving effect to the three-for-two stock split in January 1997) and
provides for the Annual Fee of Trustees and Directors to be paid in Paired
Shares, subject to each Trustee's and Director's option to receive up to half in
cash.
During the years ended December 31, 1996 and 1995, the Trust and the
Corporation granted options under the 1995 Plans to purchase 2,889,900 and
1,399,585 Paired Shares, respectively to Trustees, Directors, officers and
employees, at exercise prices ranging from $15.33 to $26.50 per Paired Share. At
December 31, 1996, 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 4,194,674 Paired Shares. At
December 31, 1996, options for 680,953 Paired Shares are fully vested with
exercise prices ranging from $9.50 to $61.50 per Paired Share.
A summary of the Company's stock option activity, and related information
for the years ended December 31 follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------- --------------------------- ---------------------------
OPTIONS WEIGHTED- AVERAGE OPTIONS WEIGHTED- AVERAGE OPTIONS WEIGHTED- AVERAGE
(000) EXERCISE PRICE(1) (000) EXERCISE PRICE(1) (000) EXERCISE PRICE(1)
------- ----------------- ------- ----------------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of
year..................... 1,503 $ 15.70 38 $ 20.46 38 $ 20.46
Granted.................... 2,890 23.60 1,485 15.45
Exercised.................. (99) 11.96 (16) 4.66
Forfeited.................. (94) 19.57 (4) 15.33
Expired.................... (5) 84.50
-- ---
----- ------ ----- ------ ------
Outstanding-end of year.... 4,195 $ 21.06 1,503 $ 15.70 38 $ 20.46
===== ====== ===== ====== ===== ======
Exercisable at end of
year..................... 681 $ 17.39 195 $ 16.63 37 $ 20.89
===== ====== ===== ====== ===== ======
</TABLE>
(1) The weighted average exercise price equals weighted average fair value at
date of grant as all options were granted at fair market value on the date
of grant.
A summary of the Company's outstanding and exercisable options and related
information at December 31, 1996 follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ --------------------
WEIGHTED WEIGHTED
RANGES OF WEIGHTED AVERAGE AVERAGE AVERAGE
EXERCISE OPTIONS REMAINING EXERCISE OPTIONS EXERCISE
PRICES (000) CONTRACTUAL LIFE PRICE (000) PRICE
- -------------- ----- ------------------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$9.50-$11.00 38 3.03 $10.95 23 $10.92
$14.50-$19.33 1,326 8.49 $15.58 517 $15.54
$22.00-$26.50 2,827 7.95 $23.60 137 $24.21
$61.50 4 1.06 $61.50 4 $61.50
------ ---- - ---- ---- -- ---
-----
4,195 8.07 $21.06 681 $17.39
=========== ===== ==== ====== ===
</TABLE>
Preferred shares
The Corporation has 10,000,000 authorized preferred shares, $0.01 par
value, none of which are issued or outstanding.
F-30
<PAGE> 92
STARWOOD LODGING TRUST
AND STARWOOD LODGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
14. COMMITMENTS AND CONTINGENCIES.
Litigation
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"). Holders of an aggregate of 299,750
Paired Shares (as adjusted for the one-for-six reverse stock split in June 1995
and the three-for-two stock split in January 1997) (approximately 0.7% of the
outstanding Paired Shares as of December 31, 1996), all of which were owned by
Mr. Leonard Ross and his affiliates (collectively, "Ross"), opted out of the
Shareholder Actions and did not share in the settlement.
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 $22.50
per Paired Share (as adjusted for the three-for-two stock split in January 1997)
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 $19.75 per Paired Share (as adjusted for the three-for-two
stock split in January 1997); the Trust and Corporation paid Starwood Capital
approximately $1,376,000 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.
Environmental matters
In 1996, in conjunction with the purchase of thirty new hotels, preliminary
or "Phase I" environmental site assessments were prepared. The results of those
Phase I assessments revealed that the overall potential for environmental
impairment was assessed as low.
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.
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
F-31
<PAGE> 93
STARWOOD LODGING TRUST
AND STARWOOD LODGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
Franchise Agreements
Forty-seven of the sixty-two hotel properties in which Starwood Lodging had
an equity interest at December 31, 1996, 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 room revenue and
various other fees associated with certain marketing or advertising and
centralized reservation services, also generally based on gross room revenues.
The Franchise Agreements have various durations but generally may be
terminated upon prior notice no greater than three years or upon payment of
certain specified fees.
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 may from time
to time require significant expenditures for capital improvements.
The Franchise Agreements also generally contain financial reporting
requirements relating to calculation of royalty and other fees and insurance
requirements with respect to specified liabilities, approved coverage limits and
minimum insurance company rating.
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.
Performance bonds and restricted cash
The Corporation is required to post performance bonds or cash collateral
for certain obligations. At December 31, 1996 and 1995, the Corporation had
posted performance bonds totaling approximately $780,000 and $756,000,
respectively, to cover such obligations; however, no amounts had been drawn
against such bonds. These amounts are included in inventories, prepaid expenses
and other assets and are restricted as to use at December 31, 1996 and 1995.
F-32
<PAGE> 94
STARWOOD LODGING TRUST
AND STARWOOD LODGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
15. RELATED PARTY TRANSACTIONS.
At December 31, 1996 and 1995, 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 Company and Starwood Capital had 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.
In connection with the acquisition of a portfolio of eight upscale and
luxury full-service hotels containing 3,141 total rooms from an institutional
seller (the "Institutional Portfolio") in August 1996, the Trust made a one-time
grant to Starwood Capital Group, L.L.C. of a Restricted Stock Award of 250,870
Paired Shares (after giving effect to the three-for-two stock split in January,
1997) (an approximate value of $6 million). In connection with the grant of such
Restricted Stock Award effective August 12, 1996, Starwood Lodging's
reimbursement arrangement with Starwood Capital was changed so as to eliminate
reimbursement of internal costs of Starwood Capital for any services of senior
management of Starwood Capital (subject to the existing annual limitation of
$250,000 for services of employees of Starwood Capital other than such senior
management) and after one year, for any services of any employee of Starwood
Capital.
During 1996, the Trust reimbursed Starwood Capital for $414,000 of internal
cost, of which $226,000 related to 1995. Aside from Starwood Capital's internal
cost, during 1996 and 1995, Starwood Capital incurred approximately $199,000 and
$1,198,000, respectively, 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.
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. During 1996,
the Company converted five hotels to Westins. In connection with the
conversions, during 1996, Westin made an interest-free loan of $2.8 million to
cover certain conversion costs.
During 1996, the Corporation made a $150,000 non-interest bearing bridge
loan to an officer of the Corporation, Eric A. Danziger. The bridge loan is
secured by a second mortgage on Mr. Danziger's residence in Phoenix, Arizona.
The bridge loan matures in September, 1997.
During 1996, the Corporation made a $266,667 non-interest bearing bridge
loan to an officer of the Corporation, Theodore W. Darnall. The bridge loan is
secured by a second mortgage on Mr. Darnall's residence in Phoenix, Arizona. The
bridge loan will mature as to $100,000 upon the sale of Mr. Darnall's home in
Pittsburgh, and the balance upon termination of his employment with the
Corporation.
During 1995, the Trust loaned $250,000 to a former officer of the Trust,
Jeffrey C. Lapin. 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, 1996, the loan had an applicable rate of
6.6% and was current. During 1996 the Trust entered into a separation agreement
with Mr. Lapin in which the Trust agreed to forgive $150,000 of the $250,000 in
1997.
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.
F-33
<PAGE> 95
STARWOOD LODGING TRUST
AND STARWOOD LODGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company has disclosed these segments in the combined and separate statements
of operations. 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. For the year
ended December 31, 1996, the gaming segment is no longer a material component of
the Corporation's operations. As a result, 1996 segment information relating to
gaming is not disclosed. The following information summarizes revenue and
operating results for the gaming segment for the years ended December 31, 1995
and 1994:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
GAMING:
Revenue:
Casino.................................................. $14,009,000 $15,137,000
Room.................................................... 4,682,000 4,516,000
Food and beverage....................................... 5,155,000 5,166,000
Other................................................... 5,313,000 5,506,000
Less promotional allowances............................. (2,230,000) (2,344,000)
---------- ----------
Gaming revenues......................................... 26,929,000 27,981,000
---------- ----------
Expenses:
Casino.................................................. 6,156,000 6,308,000
Rooms................................................... 2,220,000 2,156,000
Food and beverage....................................... 4,896,000 4,514,000
Other (including undistributed operating expenses and
fixed charges)....................................... 10,970,000 11,476,000
---------- ----------
Expenses of gaming operations 24,242,000 24,454,000
Rent to Trust........................................... 2,400,000 2,400,000
Depreciation and amortization........................... 205,000 382,000
---------- ----------
Total expenses.......................................... 26,847,000 27,236,000
---------- ----------
Operating income.......................................... $ 82,000 $ 745,000
========== ==========
</TABLE>
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
----------- -----------
<S> <C> <C>
Hotel operating income.................................... $ 5,419,000 $ 4,507,000
Gaming operating income................................... 82,000 745,000
----------- -----------
Combined operating income................................. 5,501,000 5,252,000
Interest and other income................................. 632,000 66,000
Interest expense.......................................... (5,470,000) (3,071,000)
Corporate expenses........................................ (2,703,000) (3,445,000)
----------- -----------
Loss before minority interest................... $(2,040,000) $(1,198,000)
=========== ===========
</TABLE>
F-34
<PAGE> 96
STARWOOD LODGING TRUST
AND STARWOOD LODGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Additional financial data by industry segment for the Corporation is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
------------ -----------
<S> <C> <C>
IDENTIFIABLE ASSETS:
Hotel.................................................. $103,304,000 $40,357,000
Gaming................................................. 5,058,000 3,710,000
Corporate and other.................................... 12,359,000 4,559,000
------------ -----------
Total.......................................... $120,721,000 $48,626,000
============ ===========
CAPITAL EXPENDITURES:
Hotel.................................................. $ 42,392,000 $ 421,000
Gaming................................................. 191,000 221,000
Corporate and other.................................... 72,000 29,000
------------ -----------
Total.......................................... $ 42,655,000 $ 671,000
DEPRECIATION AND AMORTIZATION:
Hotel.................................................. $ 5,126,000 $ 2,072,000
Gaming................................................. 205,000 389,000
Corporate and other.................................... 1,161,000 495,000
------------ -----------
Total.......................................... $ 6,492,000 $ 2,956,000
============ ===========
</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 at December 31,
1995. The Trust sold its interest in the two properties during 1996.
F-35
<PAGE> 97
STARWOOD LODGING TRUST
AND STARWOOD LODGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
17. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
COMBINED TRUST CORPORATION
---------------------------- ------------------------- ----------------------------
1996 1995 1996 1995 1996 1995
------------ ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
First Quarter
Revenue........... $ 54,885,000 $32,138,000 $17,598,000 $ 8,576,000 $ 50,619,000 $29,492,000
Net income
(loss).......... 4,090,000 348,000(2) 7,142,000 652,000(2) (3,052,000) (304,000)
Net income (loss)
per share/
Paired Share.... 0.20 0.11 0.35 0.21 (0.15) (0.10)
Second Quarter
Revenue........... $ 71,502,000 $37,630,000 $17,051,000 $ 9,448,000 $ 68,116,000 $34,789,000
Net income........ 9,598,000(1) 978,000 5,600,000 560,000 3,998,000(1) 418,000
Net income
per share/
Paired Share.... 0.41 0.32 0.24 0.18 0.17 0.14
Third Quarter
Revenue........... $108,354,000 $42,379,000 $27,789,000 $11,751,000 $106,187,000 $39,007,000
Net income
(loss).......... 6,099,000 3,469,000(3) 7,608,000 3,479,000(3) (1,509,000) (10,000)
Net income (loss)
per share/
Paired Share.... 0.19 0.17 0.23 0.17 (0.05) 0.00
Fourth Quarter
Revenue........... $193,797,000 $49,569,000 $52,621,000 $14,248,000 $185,234,000 $45,896,000
Net income
(loss).......... 7,164,000 4,175,000 13,239,000 6,018,000 (6,075,000) (1,843,000)
Net income (loss)
per share/
Paired Share.... 0.17 0.20 0.32 0.29 (0.15) (0.09)
</TABLE>
- ---------------
(1) During the quarter ended June 30, 1996, the Corporation recorded an
extraordinary gain of $1,077,000 (net of minority interest of $413,000)
relating to extinguishment of debt (see Note 3).
(2) During the quarter ended March 31, 1995, the Trust recorded an extraordinary
gain of $363,000 (net of minority interest of $921,000) related to the
extinguishment of debt (see Note 3).
(3) 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).
18. COMBINED PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
Due to the impact of the 30 hotels acquired by the Company in 1996, the
April Offering, and the August Offering, the following combined pro forma
statements of operations are presented to supplement the historical statements
of operations. These combined pro forma statements reflect the 1996 Offerings
and certain property acquisitions as if they occurred on January 1, 1995:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
-------- --------
COMBINED (IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
-----------------------
<S> <C> <C>
Revenues..................................................... $602,186 $467,651
Net income (loss)............................................ 30,759 35,855
Net income (loss) per share.................................. $ 0.76 $ 1.39
</TABLE>
F-36
<PAGE> 98
STARWOOD LODGING TRUST
AND STARWOOD LODGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
19. SUBSEQUENT EVENTS (UNAUDITED)
On January 8, 1997, the Company completed the purchase of the 220-room
Deerfield Beach Hilton Hotel, located in Deerfield Beach, Florida, for $11.5
million.
On January 17, 1997, the Company completed the purchase of the 263-room
Radisson Hotel Denver South, located in Denver, Colorado, for $21.75 million.
On January 27, 1997, the Company completed a three-for-two stock split in
the form of a 50% paired share stock dividend.
On February 14, 1997, the Company acquired HEI Hotels, LLC ("HEI"), a
Westport, Connecticut-based hotel operating company, which currently manages 19
hotels, and ten hotel properties that HEI owned in a joint venture with PRISA
II, an institutional real estate investment fund managed by Prudential Real
Estate Investors. PRISA II and the owners of HEI received limited partnership
interests in the Realty Partnership and the Operating Partnership exchangeable
for approximately 6.548 million Paired Shares (after giving effect to the
three-for-two stock split in January 1997) (valued for purposes of the
transaction at approximately $215 million) of the Trust and Corporation, and
$112 million in cash and notes.
The HEI/PRISA II portfolio acquired by the Company contains ten hotel
assets with 3,040 hotel rooms, located in Long Beach, California; Norfolk,
Virginia; Baltimore, Maryland: Edison, New Jersey; Arlington, Virginia;
Charleston, South Carolina; King of Prussia, Pennsylvania; Santa Rosa,
California; Novi, Michigan; and Atlanta, Georgia. The nine additional HEI
managed hotels, aggregating 2,297 rooms are located in Houston, Texas; Ontario,
California; Grand Junction, Colorado; Danbury, Connecticut; Princeton, New
Jersey; Smithtown, New York; Wilmington, Delaware; Bethesda, Maryland and
Virginia Beach, Virginia.
On February 20, 1997, the Realty Partnership guaranteed $39.5 million of
tax exempt bonds issued by the Philadelphia authority. The Company received
approximately $37.6 million in proceeds.
On February 21, 1997, the Company completed the purchase of the 578-room
Days Inn in Chicago, Illinois for approximately $48 million.
F-37
<PAGE> 99
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION -- TRUST
DECEMBER 31, 1996
<TABLE>
<CAPTION>
GROSS AMOUNT BOOK VALUE
COSTS SUBSEQUENT TO AT DECEMBER 31, 1996
ACQUISITION -----------------------------
STARWOOD LODGING TRUST INITIAL COST TO COMPANY ------------------------ (1) (1)
--------------------------- BUILDING
BUILDING AND AND BUILDING AND
DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS
- --------------------------------------- ------------ ------------ ---------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
HOTEL ASSETS:
Embassy Suites -- Phoenix, AZ.......... $ 2,889,000 $ 11,658,000 $ 675,000 $ 2,889,000 $ 12,333,000
Embassy Suites -- Tempe, AZ............ 1,000,000 14,458,000 (82,000) 1,000,000 14,376,000
Hotel Park Tucson -- Tucson, AZ........ 1,800,000 7,911,000 1,800,000 7,911,000
Plaza Hotel & Conference
Center -- Tucson, AZ................. 350,000 4,357,000 229,000 350,000 4,586,000
Westin LAX Airport -- Los Angeles,
CA................................... 8,800,000 22,397,000 8,800,000 22,397,000
Westwood Marquis -- Los Angeles, CA.... 3,300,800 29,707,200 3,300,800 29,707,200
Embassy Suites -- Palm Desert, CA...... 2,790,000 9,309,000 2,790,000 9,309,000
Doubletree Hotel -- Rancho Bernardo,
CA................................... 1,256,000 6,275,000 1,256,000 6,275,000
Vagabond Inn -- Rosemead, CA........... 700,000 2,100,000 700,000 2,100,000
Vagabond Inn -- Sacramento, CA......... 700,000 3,200,000 700,000 3,200,000
Vagabond Inn -- Woodland Hills, CA..... 1,200,000 3,200,000 1,200,000 3,200,000
Westin Horton Plaza -- San Diego, CA... 6,500,000 35,732,000 6,500,000 35,732,000
Clarion Hotel SFO Airport -- Millbrae,
CA................................... 7,210,000 19,537,000 7,210,000 19,537,000
Doubletree Cypress Creek -- Ft.
Lauderdale, FL....................... 3,050,000 17,718,000 3,050,000 17,718,000
Wyndham Ft. Lauderdale Airport -- Ft.
Lauderdale, FL....................... 2,910,000 17,017,000 2,910,000 17,017,000
Radisson Hotel -- Gainesville, FL...... 1,002,000 3,759,000 1,689,000 1,002,000 5,448,000
Westin Airport -- Tampa, FL............ 2,340,000 16,941,000 2,340,000 16,941,000
Holiday Inn -- Albany, GA.............. 796,000 4,980,000 187,000 796,000 5,167,000
Lenox Hill Inn -- Atlanta, GA.......... 4,383,000 4,197,000 33,000 4,383,000 4,230,000
Marque of Atlanta -- Atlanta, GA....... 3,780,000 15,777,000 3,780,000 15,777,000
Sheraton Colony Square
Hotel -- Atlanta, GA................. 2,000,000 25,285,000 64,000 2,000,000 25,349,000
Terrace Garden Inn -- Atlanta, GA...... 5,875,000 19,944,000 59,000 5,875,000 20,003,000
Westin North at Perimeter -- Atlanta,
GA................................... 5,370,000 41,977,000 5,370,000 41,977,000
Best Western Historic
District -- Savannah, GA............. 431,000 3,745,000 255,000 431,000 4,000,000
Arlington Park Hilton -- Arlington
Heights, IL.......................... 5,500,000 6,877,000 5,500,000 6,877,000
Harvey Hotel -- Wichita, KS............ 341,000 3,571,000 17,000 341,000 3,588,000
<CAPTION>
STARWOOD LODGING TRUST (3)
ACCUMULATED
DEPRECIATION & YEAR OF DATE
DESCRIPTION AMORTIZATION CONSTRUCTION ACQUIRED LIFE
- --------------------------------------- -------------- ------------ --------- ----
<S> <C> <C> <C> <C>
HOTEL ASSETS:
Embassy Suites -- Phoenix, AZ.......... $ 4,484,000 1981 12/13/83 35
Embassy Suites -- Tempe, AZ............ 981,000 1984 07/25/95 35
Hotel Park Tucson -- Tucson, AZ........ 203,000 1986 08/16/96 35
Plaza Hotel & Conference
Center -- Tucson, AZ................. 1,370,000 1971 09/16/86 35
Westin LAX Airport -- Los Angeles,
CA................................... 548,000 1986 08/12/96 35
Westwood Marquis -- Los Angeles, CA.... 1969 12/31/96 35
Embassy Suites -- Palm Desert, CA...... 266,000 1985 08/16/96 35
Doubletree Hotel -- Rancho Bernardo,
CA................................... 945,000 1988 01/01/95 35
Vagabond Inn -- Rosemead, CA........... 555,000 1974 09/16/86 35
Vagabond Inn -- Sacramento, CA......... 797,000 1975 09/16/86 35
Vagabond Inn -- Woodland Hills, CA..... 797,000 1973 09/16/86 35
Westin Horton Plaza -- San Diego, CA... 794,000 1987 08/12/96 35
Clarion Hotel SFO Airport -- Millbrae,
CA................................... 560,000 1962 04/25/96 35
Doubletree Cypress Creek -- Ft.
Lauderdale, FL....................... 817,000 1985 04/26/96 35
Wyndham Ft. Lauderdale Airport -- Ft.
Lauderdale, FL....................... 176,000 1985 08/12/96 35
Radisson Hotel -- Gainesville, FL...... 1,491,000 1974 11/24/86 35
Westin Airport -- Tampa, FL............ 659,000 1987 04/26/96 35
Holiday Inn -- Albany, GA.............. 1,118,000 1989 06/08/89 35
Lenox Hill Inn -- Atlanta, GA.......... 305,000 1965 10/31/95 35
Marque of Atlanta -- Atlanta, GA....... 570,000 1980 08/16/96 35
Sheraton Colony Square
Hotel -- Atlanta, GA................. 1,900,000 1973 07/18/95 35
Terrace Garden Inn -- Atlanta, GA...... 1,454,000 1975 10/31/95 35
Westin North at Perimeter -- Atlanta,
GA................................... 951,000 1986 08/12/96 35
Best Western Historic
District -- Savannah, GA............. 1,802,000 1971 12/11/86 35
Arlington Park Hilton -- Arlington
Heights, IL.......................... 102,000 1968 08/16/96 35
Harvey Hotel -- Wichita, KS............ 233,000 1974 01/01/95 35
</TABLE>
(continued)
F-38
<PAGE> 100
SCHEDULE III (CONTINUED)
REAL ESTATE AND ACCUMULATED DEPRECIATION -- TRUST
DECEMBER 31, 1996
<TABLE>
<CAPTION>
GROSS AMOUNT BOOK VALUE
COSTS SUBSEQUENT TO AT DECEMBER 31, 1996
ACQUISITION -----------------------------
STARWOOD LODGING TRUST INITIAL COST TO COMPANY ------------------------ (1) (1)
--------------------------- BUILDING
BUILDING AND AND BUILDING AND
DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS
- --------------------------------------- ------------ ------------ ---------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
HOTEL ASSETS:
Doubletree French Quarter Suites --
Lexington, KY........................ 1,237,000 9,573,000 8,000 1,237,000 9,581,000
Park Plaza -- Boston, MA............... 9,705,100 87,345,900 9,705,100 87,345,900
Sheraton Hotel -- Needham, MA.......... 3,040,000 14,167,000 3,040,000 14,167,000
Westin Hotel -- Waltham, MA............ 5,000,000 31,703,000 5,000,000 31,703,000
Holiday Inn Calverton -- Beltsville,
MD................................... 1,636,000 8,489,000 9,000 51,000 1,645,000 8,540,000
Bay Valley Resort -- Bay City, MI...... 2,500,000 5,472,000 1,000 1,229,000 2,501,000 6,701,000
Doubletree Mall of
America -- Bloomington, MN........... 2,890,000 30,491,000 2,890,000 30,491,000
Sheraton Hotel
Metrodome -- Minneapolis, MN......... 4,537,000 13,759,000 4,537,000 13,759,000
Embassy Suites -- St. Louis, MO........ 2,330,000 14,895,000 2,330,000 14,895,000
Ritz Carlton -- Kansas, MO............. 9,420,000 29,990,000 9,420,000 29,990,000
Omni Europa -- Chapel Hill, NC......... 500,000 8,920,000 82,000 500,000 9,002,000
Marriott Forrestal
Village -- Princeton, NJ............. 3,150,000 14,724,000 3,150,000 14,724,000
Best Western Airport
Inn -- Albuquerque,
NM................................... 5,165,000 52,000 5,217,000
Best Western -- Las Cruces, NM......... 1,150,000 3,295,000 (290,000) 53,000 860,000 3,348,000
Doral Court -- New York, NY............ 1,718,600 15,467,400 1,718,600 15,467,400
Doral Inn -- New York, NY.............. 3,112,000 3,112,000
Doral Tuscany -- New York, NY.......... 1,703,900 15,335,100 1,703,900 15,335,100
Days Inn City Center -- Portland, OR... 1,900,000 3,768,000 120,000 329,000 2,020,000 4,097,000
Riverside Inn -- Portland, OR.......... 1,300,000 3,375,000 120,000 273,000 1,420,000 3,648,000
Doubletree Guest
Suites -- Philadelphia, PA........... 2,850,000 12,400,000 2,850,000 12,400,000
Hilton Hotel -- Allentown, PA.......... 1,200,000 5,343,000 1,200,000 5,343,000
Days Inn -- Philadelphia, PA........... 1,900,000 1,672,000 1,900,000 1,672,000
Ritz Carlton -- Philadelphia, PA....... 5,220,000 25,072,000 5,220,000 25,072,000
Park Central -- Dallas, TX............. 11,832,000 1,830,000 5,831,000 1,830,000 17,663,000
Best Western Airport Inn -- El Paso,
TX................................... 1,400,000 3,409,000 113,000 1,400,000 3,522,000
Doubletree Guest Suites DFW -- Irving,
TX................................... 3,080,000 21,707,000 3,080,000 21,707,000
<CAPTION>
STARWOOD LODGING TRUST (3)
ACCUMULATED
DEPRECIATION & YEAR OF DATE
DESCRIPTION AMORTIZATION CONSTRUCTION ACQUIRED LIFE
- --------------------------------------- -------------- ------------ --------- ----
<S> <C> <C> <C> <C>
HOTEL ASSETS:
Doubletree French Quarter Suites --
Lexington, KY........................ 1,158,000 1989 01/01/95 35
Park Plaza -- Boston, MA............... 5,208,000 1927 01/24/96 35
Sheraton Hotel -- Needham, MA.......... 384,000 1986 08/16/96 35
Westin Hotel -- Waltham, MA............ 598,000 1990 08/12/96 35
Holiday Inn Calverton -- Beltsville,
MD................................... 785,000 1987 11/30/95 35
Bay Valley Resort -- Bay City, MI...... 2,202,000 1973 05/10/84 35
Doubletree Mall of
America -- Bloomington, MN........... 785,000 1975 08/12/96 35
Sheraton Hotel
Metrodome -- Minneapolis, MN......... 406,000 1980 09/05/96 35
Embassy Suites -- St. Louis, MO........ 441,000 1985 08/16/96 35
Ritz Carlton -- Kansas, MO............. 898,000 1973 08/12/96 35
Omni Europa -- Chapel Hill, NC......... 1,183,000 1981 04/07/95 35
Marriott Forrestal
Village -- Princeton, NJ............. 263,000 1987 08/29/96 35
Best Western Airport
Inn -- Albuquerque,
NM................................... 1,359,000 1980 09/16/86 35
Best Western -- Las Cruces, NM......... 927,000 1974 09/16/86 35
Doral Court -- New York, NY............ 158,000 1927 09/19/96 35
Doral Inn -- New York, NY.............. 1927 09/20/95 35
Doral Tuscany -- New York, NY.......... 97,000 1935 09/19/96 35
Days Inn City Center -- Portland, OR... 1,254,000 1962 09/16/86 35
Riverside Inn -- Portland, OR.......... 1,108,000 1964 09/16/86 35
Doubletree Guest
Suites -- Philadelphia, PA........... 396,000 1985 06/03/96 35
Hilton Hotel -- Allentown, PA.......... 167,000 1981 08/16/96 35
Days Inn -- Philadelphia, PA........... 1984 07/01/96 35
Ritz Carlton -- Philadelphia, PA....... 461,000 1990 08/12/96 35
Park Central -- Dallas, TX............. 4,924,000 1972 09/09/88 35
Best Western Airport Inn -- El Paso,
TX................................... 1,013,000 1974 09/16/86 35
Doubletree Guest Suites DFW -- Irving,
TX................................... 1,050,000 1985 04/26/96 35
</TABLE>
(continued)
F-39
<PAGE> 101
SCHEDULE III (CONTINUED)
REAL ESTATE AND ACCUMULATED DEPRECIATION -- TRUST
DECEMBER 31, 1996
<TABLE>
<CAPTION>
COSTS SUBSEQUENT TO
GROSS AMOUNT BOOK VALUE
AT DECEMBER 31, 1996
ACQUISITION -----------------------------
STARWOOD LODGING TRUST INITIAL COST TO COMPANY ------------------------ (1) (1)
--------------------------- BUILDING
BUILDING AND AND BUILDING AND
DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS
------------ ------------ ---------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
HOTEL ASSETS:
Residence Inn Tyson's Corner -- Vienna,
VA................................... 1,418,000 4,119,000 468,000 1,418,000 4,587,000
Tyee Hotel -- Olympia, WA(2)........... 1,008,000 1,562,000 (63,000) 1,065,000 945,000 2,627,000
Days Inn Town Center -- Seattle, WA.... 1,733,000 43,000 1,776,000
Meany Tower Hotel -- Seattle, WA(2).... 1,700,000 6,270,000 120,000 282,000 1,820,000 6,552,000
Sixth Avenue Inn -- Seattle, WA........ 2,720,000 48,000 2,768,000
Capitol Hill Suites -- Washington,
D.C.................................. 1,276,000 6,868,000 173,000 1,276,000 7,041,000
Westin Hotel -- Washington, D.C........ 8,470,000 22,422,000 8,470,000 22,422,000
------------ ------------ ---------- ----------- ------------ --------------
$162,625,400 $794,692,600 $1,847,000 $13,226,000 $164,472,400 $ 807,918,600
============ ============ ========== =========== ============
Land...................... 164,472,400
Furniture, fixtures & 85,717,000
equipment.................
Construction in 16,939,000
progress..................
--------------
$1,075,047,000
==============
<CAPTION>
STARWOOD LODGING TRUST (3)
ACCUMULATED
DEPRECIATION & YEAR OF DATE
DESCRIPTION AMORTIZATION CONSTRUCTION ACQUIRED LIFE
-------------- ------------ --------- ----
<S> <C> <C> <C> <C>
HOTEL ASSETS:
Residence Inn Tyson's Corner -- Vienna,
VA................................... 1,621,000 1984 07/01/84 35
Tyee Hotel -- Olympia, WA(2)........... 680,000 1961 02/17/87 35
Days Inn Town Center -- Seattle, WA.... 1,561,000 1957 09/16/86 13
Meany Tower Hotel -- Seattle, WA(2).... 1,985,000 1932 09/16/86 35
Sixth Avenue Inn -- Seattle, WA........ 2,295,000 1959 09/16/86 13
Capitol Hill Suites -- Washington,
D.C.................................. 828,000 1955 01/01/95 35
Westin Hotel -- Washington, D.C........ 1,631,000 1984 01/04/96 35
-----------
$ 61,704,000
12,419,000
-----------
$ 74,123,000
===========
</TABLE>
- ---------------
(1) As of December 31, 1996, real estate and furniture, fixtures and equipment
have a cost for federal income tax purposes which reasonably approximates
their carrying value.
(2) Land costs represent costs allocated to leasehold interest in land.
(3) Includes reserve for losses discussed in Notes 1 and 3 of Notes to the
Financial Statements.
(Continued)
F-40
<PAGE> 102
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
------------------------------------
1996 1995 1994
---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
REAL ESTATE AND FURNITURE AND FIXTURES:
Balance at beginning of period............................ $ 305,637 $188,608 $224,170
Additions during period:
Acquisitions............................................ 803,895 100,749
Contributed properties.................................. 30,642
Improvements............................................ 15,661 4,660 2,270
Transfer of Properties.................................. 4,014
Deductions during period:
Sale of properties...................................... (54,160) (37,832)
Transfer of properties.................................. (19,022)
---------- -------- --------
Balance at end of period.................................. $1,075,047 $305,637 $188,608
========== ======== ========
ACCUMULATED DEPRECIATION:
Balance at beginning of period............................ $ 64,027 $ 71,899 $ 94,252
Additions during period:
Depreciation expense.................................... 39,137 7,674 5,205
Contributed properties.................................. 890
Transfer of properties.................................. 116
Deductions during period:
Sale of properties...................................... (29,157) (27,997)
Transfer of properties.................................. (16,436)
Provision for investment losses:
Jacksonville, FL........................................ 389(1)
Fayetteville, NC........................................ 50(1)
---------- -------- --------
Balance at end of period.................................. $ 74,123 $ 64,027 $ 71,899
========== ======== ========
</TABLE>
(continued)
- ---------------
(1) 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.
F-41
<PAGE> 103
SCHEDULE III (CONTINUED)
REAL ESTATE AND ACCUMULATED DEPRECIATION -- CORPORATION
DECEMBER 31, 1996
<TABLE>
<CAPTION>
GROSS
AMOUNT
BOOK VALUE
AT
COSTS SUBSEQUENT TO DECEMBER
INITIAL COST TO COMPANY ACQUISITION 31, 1996
------------------------- --------------------- ----------
STARWOOD LODGING CORPORATION BUILDING AND BUILDING AND (1)
DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS LAND
- ------------------------------------------------------- ---------- ------------ ------ ------------ ----------
<S> <C> <C> <C> <C> <C>
HOTEL ASSETS:
Embassy Suites -- Phoenix, AZ.......................... $ 45,000
Plaza Hotel & Conference Center -- Tucson, AZ.......... 595,000 383,000
Westin Horton Plaza -- San Diego, CA................... 20,000
Radisson Hotel -- Gainesville, FL...................... 41,000
Holiday Inn -- Albany, GA.............................. 64,000
Best Western Historic District -- Savannah, GA......... 47,000
Midland Hotel -- Chicago, IL........................... 17,215,000
Doubletree French Quarter Suites -- Lexington, KY...... 207,000
Westin -- Waltham, MA.................................. 12,000
Bay Valley Resort -- Bay City, MI...................... 222,000
Omni Europa -- Chapel Hill, NC......................... 97,000
Radisson Marque -- Winston-Salem, NC................... 610,000 6,088,000 610,000
Best Western Airport Inn -- Albuquerque, NM............ 325,000 47,000
Best Western -- Las Cruces, NM......................... 252,000
Doral Inn -- New York, NY.............................. 33,948,000 50,000
Days Inn City Center -- Portland, OR................... 2,185,000 78,000
Riverside Inn -- Portland, OR.......................... 2,210,000 1,000 25,000 1,000
Doubletree Guest Suites -- Philadelphia, PA............ 177,000
Park Central -- Dallas, TX............................. 1,840,000
Best Western Airport Inn -- El Paso, TX................ 18,000
Residence Inn Tyson's Corner -- Vienna, VA............. 55,000
Tyee Hotel -- Olympia, WA.............................. 3,000
Days Inn Town Center -- Seattle, WA.................... 433,000 204,000
Meany Tower Hotel -- Seattle, WA....................... 3,739,000 96,000
Sixth Avenue Inn -- Seattle, WA........................ 1,539,000 124,000
Marriott Hotel -- Milwaukee, WI(3)..................... 2,500,000 17,422,000 3,661,000 2,500,000
Capitol Hill Suites -- Washington, D.C................. 64,000
Westin Hotel -- Washington, D.C........................ 345,000
---------- ----------- ------ ---------- ----------
$3,110,000 $86,044,000 $1,000 $7,832,000 $3,111,000
========== =========== ====== ========== ==========
<CAPTION>
GROSS
AMOUNT
BOOK VALUE
AT
DECEMBER 31,
1996
------------ (2)
(1) ACCUMULATED
STARWOOD LODGING CORPORATION BUILDING AND DEPRECIATION & YEAR OF DATE
DESCRIPTION IMPROVEMENTS AMORTIZATION CONSTRUCTION ACQUIRED LIFE
- ------------------------------------------------------- ------------ -------------- ------------ --------- ----
<S> <C> <C> <C> <C> <C>
HOTEL ASSETS:
Embassy Suites -- Phoenix, AZ.......................... $ 45,000 1981 12/13/83 35
Plaza Hotel & Conference Center -- Tucson, AZ.......... 978,000 752,000 1971 09/16/86 35
Westin Horton Plaza -- San Diego, CA................... 20,000 1987 08/12/96 35
Radisson Hotel -- Gainesville, FL...................... 41,000 1974 09/16/86 35
Holiday Inn -- Albany, GA.............................. 64,000 1989 06/08/89 35
Best Western Historic District -- Savannah, GA......... 47,000 1971 12/11/86 35
Midland Hotel -- Chicago, IL........................... 17,215,000 1,104,000 1934 03/22/96 35
Doubletree French Quarter Suites -- Lexington, KY...... 207,000 1989 01/01/95 35
Westin -- Waltham, MA.................................. 12,000 1990 08/12/96 35
Bay Valley Resort -- Bay City, MI...................... 222,000 1973 05/10/84 35
Omni Europa -- Chapel Hill, NC......................... 97,000 1981 04/07/95 35
Radisson Marque -- Winston-Salem, NC................... 6,088,000 1974 08/16/96 35
Best Western Airport Inn -- Albuquerque, NM............ 372,000 1980 09/16/86 35
Best Western -- Las Cruces, NM......................... 252,000 1974 09/16/86 35
Doral Inn -- New York, NY.............................. 33,998,000 1,000,000 1927 09/20/95 35
Days Inn City Center -- Portland, OR................... 2,263,000 608,000 1962 09/16/86 35
Riverside Inn -- Portland, OR.......................... 2,235,000 591,000 1964 09/16/86 35
Doubletree Guest Suites -- Philadelphia, PA............ 177,000 24,000 1985 06/03/96 35
Park Central -- Dallas, TX............................. 1,840,000 1972 09/09/88 35
Best Western Airport Inn -- El Paso, TX................ 18,000 1974 09/16/86 35
Residence Inn Tyson's Corner -- Vienna, VA............. 55,000 1984 07/01/84 35
Tyee Hotel -- Olympia, WA.............................. 3,000 1961 02/17/87 35
Days Inn Town Center -- Seattle, WA.................... 637,000 308,000 1957 09/16/86 13
Meany Tower Hotel -- Seattle, WA....................... 3,835,000 957,000 1932 09/16/86 35
Sixth Avenue Inn -- Seattle, WA........................ 1,663,000 1,087,000 1959 09/16/86 13
Marriott Hotel -- Milwaukee, WI(3)..................... 21,083,000 598,000 1972 07/01/91 35
Capitol Hill Suites -- Washington, D.C................. 64,000 1955 01/01/95 35
Westin Hotel -- Washington, D.C........................ 345,000 1984 01/04/96 35
------------ -----------
$ 93,876,000 $ 7,029,000
Land.............................. 3,111,000
Furniture, fixtures & equipment... 68,395,000 41,128,000
Construction in progress.......... 3,525,000
------------ -----------
$168,907,000 $ 48,157,000
============ ===========
</TABLE>
- ---------------
(1) As of December 31, 1996, 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-42
<PAGE> 104
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,
---------------------------------
1996 1995 1994
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
REAL ESTATE AND FURNITURE AND FIXTURES:
Balance at beginning of period.............................. $134,722 $ 51,741 $54,790
Additions during period:
Acquisitions.............................................. 29,939 38,396
Contributed properties.................................... 4,459
Improvements.............................................. 12,114 21,104 671
Transfer of properties.................................... 19,022
Deductions during period:
Transfer of properties.................................... (4,014)
Sale of properties........................................ (3,854) (3,720)
-------- -------- -------
Balance at end of period.................................... $168,907 $134,722 $51,741
======== ======== =======
ACCUMULATED DEPRECIATION:
Balance at beginning of year................................ $ 39,374 $ 17,266 17,459
Additions during period:
Depreciation expense...................................... 12,191 5,269 2,956
Transfer of properties.................................... 16,436
Contributed properties.................................... 403
Deductions during period:
Transfer of properties.................................... (116)
Sale of properties........................................ (3,292) (3,149)
-------- -------- -------
Balance at end of period.................................... $ 48,157 $ 39,374 $17,266
======== ======== =======
</TABLE>
F-43
<PAGE> 105
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1996
STARWOOD LODGING TRUST
<TABLE>
<CAPTION>
INTEREST FINAL PERIODIC PRIOR
DESCRIPTION RATE MATURITY PAYMENT LIENS
- ------------------------------------------------------ ------------- -------- -------------------------- -----
<S> <C> <C> <C> <C> <C>
First Mortgages:
Vagabond Inns -- Modesto, CA.......................... 10.00% 2006 (2) no
Ramada Inn -- Tucker, GA.............................. 9.00% 1998 16,700 (3) no
Quality Inn -- New Port Richey, FL and Quality Inn -- 9.25% 26,200
Brunswick, GA....................................... 2001 (4) no
Ramada Inn -- Fayetteville, NC........................ 9.00% 2006 9,100 (5) no
Ramada Inn -- Jacksonville, FL........................ 9.00% 2001 18,500 (6) no
Ramada Suites -- Secaucus, NJ......................... (19) 1999 Adjustable (7) no
Bristol Suites -- Dallas, TX.......................... 8.00% 2002 517,800 (8)(16) no
Harvey DFW Airport Hotel -- Dallas, TX................ 8.00% 2002 805,500 (8)(17) no
Harvey Hotel, Addison -- Dallas, TX................... 8.00% 2002 431,500 (8)(18)(20) no
Quality Inn -- Atlantic City, NJ...................... 80% of prime 2010 Adjustable (9) no
Holiday Inn -- Milpitas, CA........................... (24) 1997 Adjustable (25) no
King 8 -- Las Vegas, NV............................... (26) 2000 Adjustable (27) no
Sheraton -- Stamford, CT.............................. (28) (28) (28) (28) (28)
Second Mortgages:
Bristol Suites -- Dallas, TX.......................... Prin. Only 2002 4,800 (10)(21) yes
Harvey DFW Airport Hotel -- Dallas, TX................ Prin. Only 2002 1,800 (11)(21) yes
Harvey Hotel, Addison -- Dallas, TX................... Prin. Only 2002 1,900 (12)(21) yes
Quality Inn -- Atlantic City, NJ (SCA Loan)........... 7.00% 1996 6,700 (13) yes
Third Mortgages:
Quality Inn -- Atlantic City, NJ (Guerra Loan)........ 1% + Prime 1996 Adjustable (14) yes
Fourth Mortgages:
Quality Inn -- Atlantic City, NJ (Marshall Loan)...... 1% + Prime 1997 Adjustable (15) yes
Allowance for loan losses.............................
Intercompany Mortgage Loans
First Mortgages:
Milwaukee Marriott -- Milwaukee, WI (Aetna)........... 10.5% 1997 (22) no
Milwaukee Marriott -- Milwaukee, WI (Aetna
Addition)........................................... 1997 (22) yes
Doral Inn -- New York, NY............................. 9.5% 2006 (23) no
Midland Hotel -- Chicago, IL.......................... 10.0% 1999 (27) no
Third Mortgages:
Milwaukee Marriott -- Milwaukee, WI................... 10.5% 1997 (22) yes
Fourth Mortgages:
Milwaukee Marriott -- Milwaukee, WI................... 10.5% 1997 (22) yes
<CAPTION>
PRINCIPAL AMOUNT
ORIGINAL OF LOANS SUBJECT
FACE CARRYING TO DELINQUENT
AMOUNT OF AMOUNT OF PRINCIPAL OR
DESCRIPTION MORTGAGES MORTGAGES(1) INTEREST
- ------------------------------------------------------ ------------ ------------ -------------------
<S> <<C> <C> <C>
First Mortgages:
Vagabond Inns -- Modesto, CA.......................... $ 1,995,000 $ 1,144,000
Ramada Inn -- Tucker, GA.............................. 1,985,000 1,907,000
Quality Inn -- New Port Richey, FL and Quality Inn --
Brunswick, GA....................................... 3,070,000 2,985,000
Ramada Inn -- Fayetteville, NC........................ 800,000 719,000
Ramada Inn -- Jacksonville, FL........................ 2,300,000 2,270,000
Ramada Suites -- Secaucus, NJ......................... 13,813,000 9,564,000
Bristol Suites -- Dallas, TX.......................... 18,000,000 11,476,000
Harvey DFW Airport Hotel -- Dallas, TX................ 28,000,000 17,832,000
Harvey Hotel, Addison -- Dallas, TX................... 11,250,000 7,146,000
Quality Inn -- Atlantic City, NJ...................... 10,000,000 4,442,000
Holiday Inn -- Milpitas, CA........................... 16,250,000 13,741,000
King 8 -- Las Vegas, NV............................... 7,235,000 7,235,000
Sheraton -- Stamford, CT.............................. (28) 10,246,000
Second Mortgages:
Bristol Suites -- Dallas, TX.......................... 190,000
Harvey DFW Airport Hotel -- Dallas, TX................ 72,000
Harvey Hotel, Addison -- Dallas, TX................... 75,000
Quality Inn -- Atlantic City, NJ (SCA Loan)........... 1,350,000 134,000
Third Mortgages:
Quality Inn -- Atlantic City, NJ (Guerra Loan)........ 1,335,000
Fourth Mortgages:
Quality Inn -- Atlantic City, NJ (Marshall Loan)...... 225,000
Allowance for loan losses............................. (100,000)
-----------
$117,945,000 $90,741,000
===========
Intercompany Mortgage Loans
First Mortgages:
Milwaukee Marriott -- Milwaukee, WI (Aetna)........... $ 10,000,000 $ 8,824,000
Milwaukee Marriott -- Milwaukee, WI (Aetna
Addition)........................................... 421,000
Doral Inn -- New York, NY............................. 40,250,000 40,250,000
Midland Hotel -- Chicago, IL.......................... 17,000,000 18,216,000
Third Mortgages:
Milwaukee Marriott -- Milwaukee, WI................... 1,000,000 991,000
Fourth Mortgages:
Milwaukee Marriott -- Milwaukee, WI................... 12,667,000 19,375,000
-----------
$ 80,917,000 $88,077,000
===========
</TABLE>
(continued)
F-44
<PAGE> 106
- ---------------
(1) As of December 31, 1996 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. On April 29, 1996, the borrower exercised its right
under the terms of the note to extend the maturity of the note to June,
2006.
(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 due monthly. Principal amount adjusts annually based
on note schedule. Note carry amount net of $2,689,000 discount.
(8) Principal and interest due quarterly based on note schedule.
(9) Principal and interest due monthly based on note schedule. Note carrying
amount net of $3,965,000 discount.
(10) 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.
(11) 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.
(12) 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.
(13) Interest only, payable monthly. Note carrying amount net of $975,000
allowance.
(14) Interest only, payable monthly. Note carrying amount net of $1,444,000
allowance.
(15) Principal and interest payable monthly based on note schedule. Note
carrying amount net of $213,000 allowance.
(16) Note carrying amount net of $3,758,000 discount.
(17) Note carrying amount net of $5,902,000 discount.
(18) Note carrying amount net of $2,339,000 discount.
(19) 90-Day Libor plus 1.25% or prime at borrower's option. At December 31,
1996, the rate was 6.81%
(20) A 25% participation on both the first and second mortgages was sold to a
third party in 1995.
(21) The face amount represents the Realty Partnership's 2% interest in the
mortgage loan. The remaining payment amounts are passed through to
participants.
(22) On June 15, 1996 SLT extended the maturity of the notes to June 30, 1997.
(23) One hundred thirty-two equal installments of interest only. Principal and
all accrued and unpaid interest due October 1, 2006.
(24) Lower of Bank of Boston prime plus 1.50% or 9.00%. At December 31, 1996,
the rate was 9.00%
(25) Interest only, payable monthly. Note carrying amount net of $2,509,000
allowance.
(26) Step rate note, rate increases based on note schedule. At December 31, 1996
the rate was 13.50%.
(27) Interest only, payable monthly.
(28) First lien mortgage secured by the property. Note purchased at a
significant discount. Borrower is in bankruptcy, with no payments being
made under the note. The Company has not accrued any interest as of
December 31, 1996.
(Continued)
F-45
<PAGE> 107
SCHEDULE IV (CONTINUED)
RECONCILIATION OF MORTGAGE LOANS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Balance at beginning of period......................... $ 79,261,000 $14,049,000 $11,642,000
Additions --
New mortgage loans................................... 31,289,000 71,779,000 6,270,000
Amortization of discount............................. 3,140,000 3,285,000
Deductions --
Principal repayments................................. (22,949,000) (6,940,000) (2,382,000)
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............................... $ 90,741,000 $79,261,000 $14,049,000
============ =========== ===========
INTERCOMPANY MORTGAGE LOANS
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Balance at beginning of period......................... $ 68,486,000 $16,916,000 $15,185,000
Additions --
New mortgage loans................................... 18,216,000 50,073,000
Amortization of discount.............................
Other -- accrued interest(3)......................... 2,055,000 2,010,000 1,731,000
Deductions --
Principal repayments................................. (680,000) (513,000)
Allowance for loan loss..............................
Discount for pre-payment.............................
Proceeds from foreclosure sale.......................
------------ ----------- -----------
Balance at end of period............................... $ 88,077,000 $68,486,000 $16,916,000
============ =========== ===========
</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.
F-46
<PAGE> 1
Exhibit 10.22
AMENDMENT
THIS AMENDMENT ("Amendment") to the Amended and Restated Limited
Partnership Agreement of SLT Realty Limited Partnership is made and entered into
this 14th day of May, 1996, by and among Starwood Lodging Trust, a Maryland real
estate investment trust, as the general partner, and the Limited Partners of SLT
Realty Limited Partnership, a Delaware limited partnership ("Realty
Partnership"), which was formed pursuant to the provisions of that certain
Limited Partnership Agreement of the Realty Partnership dated as of December 15,
1994, and amended and restated as of June 29, 1995 ("Realty Partnership
Agreement"). All capitalized terms not defined herein shall have the same
meaning as in the Realty Partnership Agreement.
R E C I T A L S
WHEREAS, the General Partner desires to amend
the Realty Partnership Agreement as set forth in this Amendment; and
WHEREAS, the Limited Partners have been
informed and do hereby unconditionally consent to such amendments;
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, hereby
agree as follows:
SECTION 1. Effective as of the date first above written, Section 6.1
(c)(iii) is hereby amended and restated in its entirety as follows:
(iii) Allocations Respecting Section 704(c) of the
Code and Revaluations. Property contributed to the Partnership shall be
subject to Section 704(c) of the Code and the Regulations thereunder so
that, notwithstanding paragraph (b) hereof, taxable gain from disposition,
taxable loss from disposition and tax depreciation with respect to
Partnership property that is subject to Section 704(c) of the Code and/or
Section 1.704-1(b)(2)(iv)(f) of the Regulations (collectively "Section
704(c) Tax Items") shall be allocated on a property by property basis in
accordance with said Code Section and/or the Regulations thereunder, as
the case may be. The allocation of Section 704(c) Tax Items shall be made
pursuant to any reasonable method selected by the General Partner in its
discretion authorized under Section 1.704-3 of the Regulations.
Allocations pursuant to this Section 6.l(c)(iii) are solely for purposes
of federal, state, and local taxes and shall not affect, or in any way be
taken into account in computing, the Capital Account or share of Net
Income, Net Loss, other items, or distributions of any holder of Units
pursuant to any provision of this Agreement.
-1-
<PAGE> 2
SECTION 2. Effective as of the date above written, Section 11.1 is hereby
amended and restated in its entirety as follows:
11.1 Amendments
(a) This Agreement may not be amended unless such
amendment is approved by the General Partner with the Consent of the
Limited Partners, except as provided below in this Section 11.1.
(b) Notwithstanding Section 11.1(a), the General Partner
shall have the power, without the Consent of the Limited Partners but
after five (5) Business Days notice to the Limited Partners, to amend this
Agreement as may be required to facilitate or implement any of the
following purposes:
(1) to add to the obligations of the General Partner
for the benefit of the Limited Partners;
(2) to reflect the admission, substitution,
termination or withdrawal of Partners after the date hereof in accordance
with Section 4.1(d) or Article 9 of this Agreement, provided that the
General Partner shall not be required to give the notice referred to in
the first paragraph of this subsection (b) in respect of a transfer of
Partnership Interests or Units upon the exercise of Rights;
(3) to set forth the rights, powers, duties and
preferences of the holders of any additional Partnership Interests issued
pursuant to Article 4 hereof;
(4) to reflect a change that is of an inconsequential
nature and does not adversely affect the Limited Partners, or to cure any
ambiguity, correct or supplement any provision in this Agreement not
inconsistent with law or with other provisions, or make other changes with
respect to matters arising under this Agreement that will not be
inconsistent with law or with the provisions of this Agreement;
(5) to satisfy any requirements, conditions, or
guidelines contained in any order, directive, opinion, ruling or
regulation of a federal or state agency or contained in federal or state
law;
(6) to prevent all or any portion of the assets of
the Partnership from being deemed pursuant to United States Department of
Labor Regulation 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
Restricted Entity;
- 2 -
<PAGE> 3
(7) to prevent the Partnership from being
characterized as a "publicly traded partnership" pursuant to Section 7704
of the Code and Regulations;
(8) to enable the General Partner to satisfy the REIT
Requirements; and
(9) to maintain the Partnership's characterization as
a partnership for tax purposes.
(c) Notwithstanding Sections 11.1(a) and (b) hereof,
except in furtherance of Sections 11.1(b)(7), (8) or (9) hereof, this
Agreement shall not be amended without the prior written consent of each
Partner materially adversely affected if such amendment would (i) convert
a Limited Partner's interest in the Partnership into a general partner's
interest, (ii) modify the limited liability of a Limited Partner, (iii)
alter rights of the Partners to receive allocations and distributions
pursuant to Article 6 or Section 8.2 hereof (except as permitted pursuant
to Article 4 and Sections 11.1(b)(3) and 11.1(d) hereof), (iv) alter or
modify the Rights set forth in the Exchange Rights Agreement or the
Registration Rights Agreement except in compliance therewith, (v) alter
such Partner's rights to transfer its Partnership Interest; (vi) amend
Section 7.8, 7.9 or 10.8 hereof or (vii) amend Section 11.1(c) or 11.1(d)
hereof.
(d) Notwithstanding Section 11.1(c) hereof and subject
to (but not in limitation of) the rights granted to the General Partner
pursuant to Article 4 and this Article 11, this Agreement may be amended
to (i) alter the rights of any or all of the Partners to receive
allocations and distributions pursuant to Article 6 or Section 8.2 hereof
or (ii) alter the rights of any or all of the Partners to transfer their
Partnership Interests if such amendment is approved by the prior written
consent of a majority of each class of Partnership Interest that is
treated in a uniform or pro rata basis by such amendment.
SECTION 3. The location of the principal place of business of the
Partnership is hereby changed to 11835 West Olympic Boulevard, Suite 695, Los
Angeles, California 90064. The notice address of the General Partner is hereby
changed to:
11835 West Olympic Boulevard, Suite 695
Los Angeles, California 90064
Attention: Jeffrey C. Lapin, President
Fax: 310/575-9512
SECTION 4. Except as otherwise provided in this Amendment, each and every
provision of the Realty Partnership Agreement remains in full force and effect.
- 3 -
<PAGE> 4
SECTION 5. Each of the parties hereto acknowledge and agree that the name
"Starwood Lodging Trust" is a designation of the General Partner 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, and as further
amended as of February 1, 1995, and all persons dealing with the General Partner
shall look solely to the General Partner's assets for the enforcement of any
claims against the General Partner, and the Trustees, officers, agents and
security holders of the General Partner assume no personal liability for
obligations entered into on behalf of the General Partner, and their respective
individual assets shall not be subject to the claims of any person relating to
such obligations.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment or
caused this Amendment to be executed on their behalf as of the date first above
written.
GENERAL PARTNER:
STARWOOD LODGING TRUST, a Maryland real estate
investment trust
By: _____________________________________
Name:
Title:
LIMITED PARTNERS:
BERL HOLDINGS, L.P.
By BERL HOLDINGS I, INC., General Partner
By: _____________________________________
Name:
Title:
- 4 -
<PAGE> 5
STARWOOD-APOLLO HOTEL PARTNERS VIII, L.P.
By SAHI, INC., General Partner
By:____________________________________
Name:
Title:
STARWOOD-APOLLO HOTEL PARTNERS IX, L.P.
By SAHI, INC., General Partner
By: ____________________________________
Name:
Title:
STARWOOD-NOMURA HOTEL INVESTORS, L.P.
By SNHI, INC., General Partner
By: ____________________________________
Name:
Title:
- 5 -
<PAGE> 6
STARWOOD/WICHITA INVESTORS, L.P.
By STARWOOD OPPORTUNITY FUND II, L.P.
By STARWOOD CAPITAL GROUP I, L.P., General
Partner
By BSS CAPITAL PARTNERS, L.P., General
Partner
By STERNLICHT HOLDINGS, II, INC.,
General Partner
By: ____________________________
Name:
Title:
STARWOOD-HUNTINGTON PARTNERS, L.P.
By SRL HOLDINGS, INC., General Partner
By: _______________________________________
Name:
Title:
WOODSTAR PARTNERS I, L.P.
By STARWOOD CAPITAL GROUP I, L.P., General
Partner
By BSS CAPITAL PARTNERS, L.P., General
Partner
By STERNLICHT HOLDINGS, II, INC., General
Partner
By: ______________________________
Name:
Title:
- 6 -
<PAGE> 7
FIREBIRD CONSOLIDATED PARTNERS, L.P.
By STARWOOD OPPORTUNITY FUND II, L.P.,
General Partner
By STARWOOD CAPITAL GROUP I, L.P., General
Counsel
By STERNLICHT HOLDINGS, II, INC., General
Partner
By: ______________________________
Name:
Title:
- 7 -
<PAGE> 1
Exhibit 10.24
AMENDMENT
THIS AMENDMENT ("Amendment") to the Amended and Restated Limited
Partnership Agreement of SLC Operating Limited Partnership is made and entered
into this 14th day of May, 1996, by and among Starwood Lodging Corporation, a
Maryland corporation, as the managing general partner, and the General and
Limited Partners of SLC Operating Limited Partnership, a Delaware limited
partnership ("Operating Partnership"), which was formed pursuant to the
provisions of that certain Limited Partnership Agreement of the Operating
Partnership dated as of December 15, 1994, and amended and restated as of June
29, 1995 ("Operating Partnership Agreement"). All capitalized terms not defined
herein shall have the same meaning as in the Operating Partnership Agreement.
R E C I T A L S
WHEREAS, the Managing General Partner desires to amend the Operating
Partnership Agreement as set forth in this Amendment; and
WHEREAS, the General and the Limited Partners have been informed and
do hereby unconditionally consent to such amendment;
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, hereby
agree as follows:
SECTION 1. Effective as of the date first above written, Section
6.1(c)(iii) is hereby amended and restated in its entirety as follows:
(iii) Allocations Respecting Section 704(c) of the
Code and Revaluations. Property contributed to the Partnership shall be
subject to Section 704(c) of the Code and the Regulations thereunder so
that, notwithstanding paragraph (b) hereof, taxable gain from disposition,
taxable loss from disposition and tax depreciation with respect to
Partnership property that is subject to Section 704(c) of the Code and/or
Section 1.704-1(b)(2)(iv)(f) of the Regulations (collectively "Section
704(c) Tax Items") shall be allocated on a property by property basis in
accordance with said Code Section and/or the Regulations thereunder, as
the case may be. The allocation of Section 704(c) Tax Items shall be made
pursuant to any reasonable method selected by the General Partner in its
discretion authorized under Section 1.704-3 of the Regulations.
Allocations pursuant to this Section 6.1(c)(iii) are solely for purposes
of federal, state, and local taxes and shall not affect, or in any way be
taken into account
-1-
<PAGE> 2
in computing, the Capital Account or share of Net Income, Net Loss, other
items, or distributions of any holder of Units pursuant to any provision
of this Agreement.
SECTION 2. Effective as of the date first above written, Sections 4.1(f)
and 7.4 are hereby amended by replacing "1996" with "1997."
SECTION 3. Effective as of the date first above written, Section 11.1 is
hereby amended and restated in its entirety as follows:
11.1 Amendments
(a) This Agreement may not be amended unless such
amendment is approved by the Managing General Partner with the Consent of
the Limited Partners, except as provided below in this Section 11.1.
(b) Notwithstanding Section 11.1(a), the Managing
General Partner shall have the power, without the Consent of the Limited
Partners but after five (5) Business Days notice to the Partners, to amend
this Agreement as may be required to facilitate or implement any of the
following purposes:
(1) to add to the obligations of the Managing
General Partner for the benefit of the Limited Partners;
(2) to reflect the admission, substitution,
termination or withdrawal of Partners after the date hereof in accordance
with Section 4.1(d) or Article 9 of this Agreement, provided that the
Managing General Partner shall not be required to give the notice referred
to in the first paragraph of this subsection (b) in respect of a transfer
of Partnership Interests or Units upon the exercise of Rights, or in
respect of the transactions described in Section 4.1(f);
(3) to set forth the rights, powers, duties, and
preferences of the holders of any additional Partnership Interests issued
pursuant to Article 4 hereof;
(4) to reflect a change that is of an
inconsequential nature and does not adversely affect the Limited Partners,
or to cure any ambiguity, correct or supplement any provision in this
Agreement not inconsistent with law or with other provisions, or make
other changes with respect to matters arising under this Agreement that
will not be inconsistent with law or with the provisions of this
Agreement;
- 2 -
<PAGE> 3
(5) to satisfy any requirements, conditions, or
guidelines contained in any order, directive, opinion, ruling or
regulation of a federal or state agency or contained in federal or state
law;
(6) to prevent all or any portion of the assets of
the Partnership from being 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 Restricted Entity;
(7) to prevent the Partnership from being
characterized as a "publicly traded partnership" pursuant to Section 7704
of the Code and the Regulations thereunder;
(8) to enable SLT to satisfy the REIT
Requirements; and
(9) to maintain the Partnership's characterization
as a partnership for tax purposes.
(c) Notwithstanding Sections 11.1(a) and (b) hereof,
except in furtherance of Sections 11.1(b)(7), (8) or (9) hereof, this
Agreement shall not be amended without the prior written consent of each
Partner materially adversely affected if such amendment would (i) convert
a Limited Partner's interest in the Partnership into a general partner's
interest, (ii) modify the limited liability of a Limited Partner, (iii)
alter rights of the Partners to receive allocations and distributions
pursuant to Article 6 or Section 8.2 hereof (except as permitted pursuant
to Article 4 and Sections 11.1(b)(3) and 11.1(d) hereof), (iv) alter or
modify the Rights set forth in the Exchange Rights Agreement or the
Registration Rights Agreement except in compliance therewith, (v) alter
such Partner's right to transfer its Partnership Interest, (vi) amend
Section 7.8, 7.9 or 10.8 hereof or (vii) amend Section 11.1(c) or 11.1(d)
hereof.
SECTION 4. The location of the principal place of business of the
Partnership is hereby changed to 11835 West Olympic Boulevard, Suite 675, Los
Angeles, California 90064. The notice address of each of the General Partners is
hereby changed to
11835 West Olympic Boulevard, Suite 675
Los Angeles, California 90064
Attention: Kevin E. Mallory, Executive Vice President
Fax: 310/575-9143
SECTION 5. Except as otherwise provided in this Amendment, each and every
provision of the Operating Partnership Agreement remains in full force and
effect.
- 3 -
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
or caused this Amendment to be executed on their behalf as of the date first
above written.
MANAGING GENERAL PARTNER:
STARWOOD LODGING CORPORATION, a Maryland
corporation
By: ____________________________________
Name:
Title:
GENERAL PARTNERS:
COLUMBUS OPERATORS, INC.
By: ____________________________________
Name:
Title:
HOTEL INVESTORS OF ARIZONA, INC.
By: ____________________________________
Name:
Title:
HOTEL INVESTORS OF MICHIGAN, INC.
By: ____________________________________
Name:
Title:
HOTEL INVESTORS OF VIRGINIA, INC.
By: ____________________________________
Name:
Title:
- 4 -
<PAGE> 5
WESTERN HOST, INC.
By: ____________________________________
Name:
Title:
HOTEL INVESTORS CORPORATION OF NEVADA
By: ____________________________________
Name:
Title:
HOTEL INVESTORS OF NEBRASKA, INC.
By: ____________________________________
Name:
Title:
LIMITED PARTNERS:
-----------------
BERL HOLDINGS, L.P.
By BERL HOLDINGS I, INC., General Partner
By: ____________________________________
Name:
Title:
STARWOOD-APOLLO HOTEL PARTNERS VIII, L.P.
By SAHI, INC., General Partner
By: ____________________________________
Name:
Title:
- 5 -
<PAGE> 6
STARWOOD-APOLLO HOTEL PARTNERS IX, L.P.
By SAHI, INC., General Partner
By: ____________________________________
Name:
Title:
STARWOOD-NOMURA HOTEL INVESTORS, L.P.
By SNHI, INC., General Partner
By: ____________________________________
Name:
Title:
STARWOOD/WICHITA INVESTORS, L.P.
By STARWOOD OPPORTUNITY FUND II, L.P.
By STARWOOD CAPITAL GROUP, L.P., General
Partner
By BSS CAPITAL PARTNERS, L.P., General
Partner
By STERNLICHT HOLDINGS, II, INC.,
General Partner
By: ________________________________
Name:
Title:
STARWOOD-HUNTINGTON PARTNERS, L.P.
By SRL HOLDINGS, INC., General Partner
By: ____________________________________
Name:
Title:
- 6 -
<PAGE> 7
WOODSTAR PARTNERS I, L.P.
By STARWOOD CAPITAL GROUP, L.P., General Partner
By BSS CAPITAL PARTNERS, L.P., General Partner
By STERNLICHT HOLDINGS, II, INC., General
Partner
By: ____________________________________
Name:
Title:
FIREBIRD CONSOLIDATED PARTNERS, L.P.,
By STARWOOD OPPORTUNITY FUND II, L.P., General
Partner
By STARWOOD CAPITAL GROUP, L.P., General
Partner
By BSS CAPITAL PARTNERS, L.P., General
Partner
By STERNLICHT HOLDINGS, II, INC.,
General Partner
By: ________________________________
Name:
Title:
- 7 -
<PAGE> 1
Exhibit 10.31
AMENDED AND RESTATED LOAN AGREEMENT
between
SLT REALTY LIMITED PARTNERSHIP
and
CP HOTEL REALTY LIMITED PARTNERSHIP
and
MIDLAND BUILDING CORPORATION
and
STARWOOD LODGING TRUST
and
LEHMAN BROTHERS HOLDINGS INC.
D/B/A LEHMAN CAPITAL, A DIVISION
OF LEHMAN BROTHERS HOLDINGS INC.
Dated as of April 26, 1996
Loan Amount of $93,960,000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 1. DEFINITIONS.................................................................-1-
Section 1.1 Definitions.................................................................-1-
SECTION 2. THE LOAN...................................................................-19-
Section 2.1 Intentionally Deleted......................................................-19-
Section 2.2 Intentionally Deleted......................................................-20-
Section 2.3 Intentionally Deleted......................................................-20-
Section 2.4 The Note...................................................................-20-
Section 2.5 Interest...................................................................-20-
Section 2.6 Interest Periods...........................................................-21-
Section 2.7 Minimum Amount of Eurodollar Portions......................................-22-
Section 2.8 Conversion or Continuation.................................................-22-
Section 2.9 Intentionally Deleted......................................................-23-
Section 2.10 Intentionally Deleted......................................................-23-
Section 2.11 Voluntary Prepayments......................................................-23-
Section 2.12 Mandatory Prepayments......................................................-23-
Section 2.13 Application of Payments and Prepayments....................................-23-
Section 2.14 Method and Place of Payment................................................-23-
Section 2.15 Intentionally Deleted......................................................-24-
Section 2.16 Interest Rate Unascertainable, Increased Costs, Illegality.................-24-
Section 2.17 Funding Losses.............................................................-26-
Section 2.18 Increased Capital..........................................................-26-
Section 2.19 Taxes......................................................................-26-
Section 2.20 Use of Proceeds............................................................-27-
Section 2.21 Intentionally Deleted......................................................-27-
Section 2.22 Intentionally Deleted......................................................-27-
Section 2.23 Intentionally Deleted......................................................-27-
Section 2.24 Intentionally Deleted......................................................-27-
Section 2.25 Intentionally Deleted......................................................-28-
Section 2.26 Intentionally Deleted......................................................-28-
SECTION 3. CONDITIONS PRECEDENT.......................................................-28-
Section 3.1 Conditions Precedent to the Initial Advance................................-28-
Section 3.2 Conditions Precedent to the Final Advance..................................-34-
Section 3.3 Acceptance of the Loan.....................................................-36-
Section 3.4 Sufficient Counterparts....................................................-36-
SECTION 4. REPRESENTATIONS AND WARRANTIES.............................................-36-
Section 4.1 Corporate/Partnership Status...............................................-36-
Section 4.2 Corporate/Partnership Power and Authority..................................-36-
Section 4.3 No Violation...............................................................-37-
Section 4.4 Litigation.................................................................-37-
Section 4.5 Financial Statements: Financial Condition; etc.............................-37-
Section 4.6 Solvency...................................................................-38-
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
Section 4.7 Material Adverse Change....................................................-38-
Section 4.8 Use of Proceeds; Margin Regulations........................................-38-
Section 4.9 Governmental Approvals.....................................................-38-
Section 4.10 Security Interests and Liens...............................................-38-
Section 4.11 Tax Returns and Payments...................................................-38-
Section 4.12 ERISA......................................................................-38-
Section 4.13 Intentionally Omitted......................................................-40-
Section 4.14 Representations and Warranties in Loan Documents...........................-40-
Section 4.15 True and Complete Disclosure...............................................-40-
Section 4.16 Ownership of Real Property; Existing Security Instruments..................-40-
Section 4.17 No Default.................................................................-40-
Section 4.18 Licenses, etc..............................................................-40-
Section 4.19 Compliance With Law........................................................-41-
Section 4.20 Brokers....................................................................-41-
Section 4.21 Judgments..................................................................-41-
Section 4.22 Property Manager...........................................................-41-
Section 4.23 Assets of the REIT.........................................................-41-
Section 4.24 REIT Status................................................................-42-
Section 4.25 The Partnership............................................................-42-
Section 4.26 Maryland Guarantor and the Maryland Partnership............................-42-
Section 4.27 Intercompany Debt..........................................................-42-
Section 4.28 Personal Property..........................................................-42-
Section 4.29 Operations.................................................................-42-
Section 4.30 Stock......................................................................-42-
Section 4.31 Intentionally Deleted......................................................-42-
Section 4.32 Status of Maryland Guarantor and Maryland Partnership......................-42-
Section 4.33 Survival...................................................................-43-
Section 4.34 Illinois Guarantor and Midland Hotel.......................................-43-
Section 4.35 Status of Illinois Guarantor and Midland Hotel.............................-43-
SECTION 5. AFFIRMATIVE COVENANTS......................................................-43-
Section 5.1 Financial Reports..........................................................-43-
Section 5.2 Books, Records and Inspections.............................................-46-
Section 5.3 Maintenance of Insurance...................................................-46-
Section 5.4 Taxes......................................................................-46-
Section 5.5 Corporate Franchises; Conduct of Business..................................-46-
Section 5.6 Compliance with Law........................................................-47-
Section 5.7 Performance of Obligations.................................................-47-
Section 5.8 Stock......................................................................-47-
Section 5.9 Maintenance of Personal Property...........................................-47-
Section 5.10 Maintenance of Properties..................................................-47-
Section 5.11 Compliance with ERISA......................................................-47-
Section 5.12 Settlement/Judgment Notice.................................................-49-
Section 5.13 Acceleration Notice........................................................-49-
Section 5.14 Intentionally Deleted......................................................-49-
Section 5.15 Intentionally Deleted......................................................-49-
Section 5.16 Intentionally Deleted......................................................-49-
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
Section 5.17 Intentionally Deleted......................................................-49-
Section 5.18 Intentionally Deleted......................................................-49-
Section 5.19 Minimum Spending Requirement and Deferred Maintenance
Spending Requirement................................................................-49-
Section 5.20 Intentionally Deleted......................................................-50-
Section 5.21 Manager....................................................................-50-
Section 5.22 Further Assurances.........................................................-50-
Section 5.23 REIT Status................................................................-50-
Section 5.24 Mortgage Covenants.........................................................-50-
Section 5.25 Intentionally Deleted......................................................-51-
Section 5.26 Maintenance of Control.....................................................-51-
Section 5.27 Maintenance of Intercompany Debt...........................................-51-
Section 5.28 Transfer of Licenses.......................................................-51-
Section 5.29 Environmental Monitoring...................................................-51-
Section 5.30 Keep Well Covenants........................................................-51-
SECTION 6. NEGATIVE COVENANTS.........................................................-52-
Section 6.1 Intentionally Deleted......................................................-52-
Section 6.2 Intentionally Deleted......................................................-52-
Section 6.3 Liens......................................................................-52-
Section 6.4 Restriction on Fundamental Changes.........................................-53-
Section 6.5 Transactions with Affiliates...............................................-53-
Section 6.6 Plans......................................................................-53-
Section 6.7 Intentionally Deleted......................................................-54-
Section 6.8 Operating Leases...........................................................-54-
Section 6.9 Borrower's Partnership Agreement...........................................-54-
SECTION 7. EVENTS OF DEFAULT..........................................................-54-
Section 7.1 Events of Default..........................................................-54-
Section 7.2 Rights and Remedies........................................................-57-
SECTION 8. Intentionally Deleted......................................................-58-
SECTION 9. MISCELLANEOUS..............................................................-58-
Section 9.1 Payment of Lender's Expenses, Indemnity, etc...............................-58-
Section 9.2 Notices....................................................................-59-
Section 9.3 Successors and Assigns; Participations; Assignments........................-61-
Section 9.4 Amendments and Waivers.....................................................-61-
Section 9.5 No Waiver; Remedies Cumulative.............................................-61-
Section 9.6 Governing Law; Submission to Jurisdiction..................................-62-
Section 9.7 Confidentiality; Disclosure of Information.................................-62-
Section 9.8 Non-Recourse...............................................................-62-
Section 9.9 Intentionally Deleted......................................................-64-
Section 9.10 Borrower's, Guarantor's and REIT's Assignment..............................-64-
Section 9.11 Counterparts...............................................................-65-
Section 9.12 Effectiveness..............................................................-65-
Section 9.13 Headings Descriptive.......................................................-65-
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C> <C>
Section 9.14 Marshaling; Recapture......................................................-65-
Section 9.15 Severability...............................................................-65-
Section 9.16 Survival...................................................................-65-
Section 9.17 Domicile of Loan Portions..................................................-65-
Section 9.18 Intentionally Omitted......................................................-65-
Section 9.19 Calculations; Computations.................................................-65-
Section 9.20 WAIVER OF TRIAL BY JURY....................................................-66-
Section 9.21 No Joint Venture...........................................................-66-
Section 9.22 Estoppel Certificates......................................................-66-
Section 9.23 No Other Agreements........................................................-66-
Section 9.24 Controlling Document.......................................................-66-
Section 9.25 No Benefit to Third Parties................................................-67-
Section 9.26 Joint and Several..........................................................-67-
</TABLE>
iv
<PAGE> 6
EXHIBITS
Exhibit A Notice of Continuation [Borrower]
Exhibit B Notice of Voluntary Prepayment [Borrower]
Exhibit C Form of Tenant Estoppel
Exhibit D Form of Franchisor Estoppel
v
<PAGE> 7
SCHEDULES
Schedule 1 Allocated Loan Amounts
Schedule 2 Real Property Assets
Schedule 3 Franchise Agreements
Schedule 4 Required Estoppel Certificates
Schedule 5 Litigation
Schedule 6 Employee Benefit Plans
Schedule 7 Liens
Schedule 8 INTENTIONALLY DELETED
Schedule 9 Intercompany Debt
Schedule 10 Operating Leases
Schedule 11 Permitted Financing per Real Property Asset
Schedule 12 INTENTIONALLY DELETED
Schedule 13 REIT Business Operations
Schedule 13A Corporation Business Operations
Schedule 14 Management Fees and Franchise Fees
Schedule 15 INTENTIONALLY DELETED
Schedule 16 Minimum Spending Requirement
Schedule 17 Deferred Maintenance Spending Requirement
Schedule 18 Liquor Licenses
Schedule 19 Holiday Inn Property Improvement Plan
EXHIBITS
Exhibit A Notice of Conversion or Continuation
Exhibit B Notice of Voluntary Prepayment
Exhibit C Form of Tenant Estoppel Certificate
Exhibit D Form of Franchisor Estoppel and Recognition Letter
vi
<PAGE> 8
THIS AMENDED AND RESTATED LOAN AGREEMENT, dated as of April
26, 1996, is made among SLT REALTY LIMITED PARTNERSHIP, a Delaware limited
partnership ("Borrower"), CP HOTEL REALTY LIMITED PARTNERSHIP, a Maryland
limited partnership ("Maryland Guarantor"), MIDLAND BUILDING CORPORATION, an
Illinois corporation ("Illinois Guarantor"; Maryland Guarantor and Illinois
Guarantor being hereinafter collectively referred to as "Guarantor"), STARWOOD
LODGING TRUST, a Maryland real estate investment trust (the "REIT"), and LEHMAN
BROTHERS HOLDINGS INC., D/B/A LEHMAN CAPITAL, A DIVISION OF LEHMAN BROTHERS
HOLDINGS INC., a Delaware corporation, ("Lender").
PRELIMINARY STATEMENT
Borrower, Maryland Guarantor, the REIT and Lender entered into a
certain Loan Agreement dated as of March 22, 1996 (the "Prior Loan Agreement").
Borrower, Guarantor, the REIT and Lender desire to amend and restate
the Prior Loan Agreement in its entirety.
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 Prior Loan 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 Prior Loan 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 and Guarantor'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
<PAGE> 9
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
and Guarantor'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 and Guarantor'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 or Guarantor 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 or Guarantor) 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.
"Adjusted Operating Lease Payments" shall mean, with respect
to all Operating 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.
"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.
"Agreement" shall mean this Amended and Restated Loan
Agreement as the same may from time to time hereafter be modified, supplemented
or amended.
"Allocated Loan Amount" shall mean (a) with respect to the
Real Property Assets other than the California Property the portions of the Loan
evidenced by the Note allocated to each Real Property Asset as set forth on
Schedule 1, as the same may be adjusted in accordance with this Agreement, and
(b) with respect to the California Property, the amount evidenced by the
California Note, as set forth on Schedule 1A.
"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
-2-
<PAGE> 10
(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.
"Assignments of Contracts" shall mean those certain
assignments of franchise agreement, agreements, permits and contracts given by
Borrower or Guarantor, as the case may be, to Lender with respect to each Real
Property Asset, as the same may have been or may be amended, restated, modified,
increased or supplemented.
"Assignments of Leases and Rents" shall mean those certain
assignments of leases and rents given by Borrower or Guarantor, as the case may
be, to Lender with respect to each Real Property Asset, as the same may have
been or may be amended, restated, modified, increased or supplemented.
"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 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, 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.
-3-
<PAGE> 11
"Base Rate Portions" shall mean each portion of the Note or
the California Note, as applicable, made and/or being maintained at a rate of
interest based upon the Base Rate.
"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.
"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 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.
"California Guaranty" shall mean that certain guaranty dated
the date hereof given by the Partnership to Lender with respect to the
California Property, as the same may be amended, restated, modified, increased
or supplemented.
"California Note" shall have the meaning provided in Section
2.4 as the same may be amended, restated, modified, increased or supplemented.
"California Property" shall mean the Real Property Asset
identified on Schedule 2 as Clarion Hotel, Millbrae, California.
"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).
"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.
"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
-4-
<PAGE> 12
granted under any of the Security Instruments or any of the other Loan
Documents, including, without limitation, all Operating Leases and all Personal
Property.
"Consents to Assignment, Subordination, Estoppel and
Attornment Agreement" shall mean those certain consents to assignment,
subordination and attornment agreements, between the Partnership or Midland
Hotel, as the case may be, and Lender with respect to each Real Property Asset,
as the same may have been or may be amended, restated, modified, increased or
supplemented.
"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),
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,
-5-
<PAGE> 13
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.
"Debt Service Coverage Ratio" shall mean for any Real Property
Asset, the ratio of (a) the Net Operating Income for such Real Property Asset
for the immediately preceding twelve (12) month period, to (b) the projected
monthly payments of principal and interest that would be due with respect to the
Allocated Loan Amount applicable to such Real Property Asset for the twelve (12)
calendar month period immediately following the calculation, calculated at the
average Contract Rate for such period, provided that if the average Contract
Rate is less than the Treasury Rate at the time of such calculation, the average
Contract Rate shall be deemed to be the Treasury Rate at the time of such
calculation, for the purposes of this definition only.
"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 Spending Requirement" shall have the
meaning provided in Section 5.19(b).
"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.
"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
-6-
<PAGE> 14
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 mean that certain
environmental indemnity agreement dated March 22, 1996 given by the REIT,
Guarantor and Borrower to Lender, as the same has been amended and restated as
of the date hereof, and as the same may be further amended, restated, modified,
increased or supplemented.
"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 or any other Loan Party is a member.
"ERISA Indemnitee" shall have the meaning provided in Section
9.9(l).
"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 date hereof are -0%-.
"Eurodollar Base Rate" shall mean for any 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. The determination of the Eurodollar Base Rate by
Lender shall be conclusive absent manifest error.
"Eurodollar Lending Office" shall mean the office of Lender
designated as such by Lender from time to time by written notice to Borrower.
-7-
<PAGE> 15
"Eurodollar Portions" shall mean each portion of the Note or
the California Note, as applicable, 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 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.
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 l/16th of one percent):
Eurodollar Base Rate
------------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Eurodollar Rate Margin" shall mean with respect to all
Eurodollar Portions outstanding at any given time up to an aggregate maximum
principal amount of $23,960,000.00 under the Note the Eurodollar Rate Margin
shall equal 1.95% per annum (the "First Eurodollar Portion"); and with respect
to all Eurodollar Portions in the aggregate outstanding principal amount in
excess of $23,960,000.00, the Eurodollar Rate Margin shall equal 1.75% per annum
(the "Second Eurodollar Portion"). With respect to all Eurodollar Portions
outstanding under the California Note, the Eurodollar Rate Margin shall equal
1.75% per annum.
"Event of Default" shall have the meaning provided in Section
7.
Fee Letter" shall mean that certain letter dated March 22,
1996 from Lender to Borrower and the REIT, as the same may have been or may be
amended, restated, modified or supplemented.
"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
2.17 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.
"Florida Properties" shall mean the Real Property Assets
identified on Schedule 2 as Doubletree Guest Suites in Fort Lauderdale, Florida
and Tampa, 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
-8-
<PAGE> 16
Midland Hotel, as the case may be, and the respective Franchisors pursuant to
which the Partnership or Midland Hotel, as the case may be, 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.
"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 Estoppels and Recognition Letters" shall have the
meaning provided in Section 3.1(a)(ix).
"Funding Costs" shall have the meaning provided in Section
2.17.
"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.
"Georgia Properties" shall mean the Real Property Assets
identified on Schedule 2 as Lenox Inn, Atlanta, Georgia and Terrace Garden Inn,
Atlanta, Georgia.
"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, bars,
mini-bars, banquet rooms, recreation facilities, vending machines and
concessions derived from the customary operation of such Real Property Asset.
"Group" shall mean Starwood Capital Group L.P., a Delaware
limited partnership.
"Guarantor" shall collectively mean CP Hotel Realty Limited
Partnership, a Maryland limited partnership and Midland Building Corporation, an
Illinois corporation.
"Illinois Guarantor" shall mean Midland Building Corporation,
an Illinois corporation.
"Illinois Guaranty" shall mean that certain guaranty dated the
date hereof given by Illinois Guarantor and Midland Hotel to Lender with respect
to the Illinois Property, as the same may be amended, restated, modified
increased or supplemented.
"Illinois Property" shall mean the Real Property Asset
identified on Schedule 2 as Midland Hotel, Chicago, Illinois.
"Increased Capital Costs" shall have the meaning provided in
Section 2.18.
-9-
<PAGE> 17
"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 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).
"Intercompany Debt" shall mean the indebtedness owed by the
Partnership, the Maryland Partnership, Midland Hotel, the Guarantor or any other
Person listed on Schedule 9, to Borrower or the REIT, all as more particularly
described in Schedule 9.
"Intercompany Debt Subordination Agreement" shall mean that
certain Intercompany Debt Subordination Agreement dated March 22, 1996 between
Borrower, the Partnership and Lender as the same may have been or may be
amended, restated, modified, increased or supplemented.
"Intercompany Loan Documents" shall mean the notes, leasehold
mortgages and other security documents evidencing and/or securing the
Intercompany Debt.
"Interest Period" shall have the meaning provided in Section
2.6.
"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
-10-
<PAGE> 18
instrument under the Uniform Commercial Code or comparable law of any
jurisdiction, domestic or foreign.
"Loan" shall collectively mean (a) the principal balance
outstanding at any time under the Note and all other sums due under this
Agreement and the Loan Documents related to the Real Estate Assets other than
the California Property, and (b) the principal balance outstanding at any time
under the California Note and all other sums due under this Agreement and the
Loan Documents related to the California Property.
"Loan Amount" shall mean $93,960,000.00.
"Loan Documents" shall mean this Agreement, the Note, the
California Note, the Security Instruments, the Environmental Indemnity, the
California Environmental Indemnity, the Assignments of Leases and Rents, the
Assignments of Contracts, each Financing Statement filed in connection herewith,
the Security Agreements, the Maryland Guaranty Security Agreement, the
Franchisor Estoppels and Recognition Letters, the Maryland Guaranty, the
California Guaranty, the Illinois Guaranty, the Intercompany Debt Subordination
Agreement, the Partnership Guaranty, the Partnership Guaranty Security
Agreements, the Partnership Mortgages, the Partnership Guaranty Assignments of
Leases and Rents, the Partnership Assignments of Contracts, the Consents to
Assignment, Subordination, Estoppel and Attornment Agreements, the Fee 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, Guarantor, the Partnership, Midland Hotel, the
Corporation, the Maryland Partnership; 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 Note or the California Note, as applicable.
"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.
"Maryland FF&E Lease" shall mean that certain Lease Agreement
dated January 5, 1996 between the Maryland Partnership as lessor and the
Partnership as lessee.
"Maryland Guarantor" shall mean CP Hotel Realty Limited
Partnership, a Maryland limited partnership.
"Maryland Guaranty" shall mean that certain guaranty dated
March 22, 1996 given by Maryland Guarantor to Lender with respect to the
Maryland Property, as the same may have been or may be amended, restated,
modified, increased or supplemented.
-11-
<PAGE> 19
"Maryland Guaranty Security Agreement" shall mean that certain
security agreement dated March 22, 1996 given by Maryland Guarantor to Lender
with respect to the Maryland Guaranty, as the same may have been or may be
amended, restated, modified, increased or supplemented.
"Maryland Partnership" shall mean SLC-Calverton Limited
Partnership, a Delaware limited partnership.
"Maryland Property" shall mean the Real Property Asset
identified as the Holiday Inn - Calverton, Beltsville, Maryland, on Schedule 2.
"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, Guarantor, the REIT, the
Partnership, the Maryland Partnership, Midland Hotel or the Corporation,
individually or taken as a whole, (ii) the ability of Borrower, Guarantor, the
REIT, the Partnership, the Maryland Partnership, Midland Hotel or the
Corporation to perform any of the Obligations, or (iii) the validity or
enforceability of any of the Loan Documents.
"Maturity Date" shall mean April 26, 1997 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 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 or the California 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.
"Midland Hotel" shall mean Midland Hotel Corporation, an
Illinois corporation.
"Minimum Spending Requirement" shall have the meaning provided
in Section 5.19(a).
"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 Operating Income" shall mean for any period (i) with
respect to each Real Property Asset, 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.
-12-
<PAGE> 20
"New Jersey Environmental Indemnity" shall mean that certain
environmental indemnity agreement with respect to the New Jersey Property to be
given by the REIT and Borrower to Lender, as the same may be amended, restated,
modified, increased or supplemented.
"New Jersey Property" shall mean the Real Property Asset
identified as the Marriott Hotel, Princeton, New Jersey, on Schedule 2.
"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.
"Note" shall have the meaning provided in Section 2.4 as the
same may be amended, restated, modified, increased or supplemented.
"Notice of Conversion or Continuation" shall have the meaning
provided in Section 2.8(b).
"Obligations" shall mean all payment, performance and other
obligations, liabilities and indebtedness of every nature of (i) Borrower,
Guarantor and the REIT, without duplication, from time to time owing to 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 Guarantor, and the
Partnership, the Maryland Partnership and Midland Hotel, 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,
Guarantor's, the Partnership's, the Maryland Partnership's and Midland
Hotel'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
-13-
<PAGE> 21
personnel engaged in audit and accounting functions performed by
Borrower, Guarantor, the Partnership, the Maryland Partnership and
Midland Hotel;
(iii) management fees pursuant to a management agreement,
if any, 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, and the minimum management fees shall be
deemed paid even if there is no management agreement for purposes of
calculating Operating Expenses;
(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, Guarantor, the
Partnership, the Maryland Partnership, Midland Hotel or any other 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
-14-
<PAGE> 22
(xiii) all amounts that should be reserved, as reasonably
determined by Borrower, Guarantor, the Partnership, the Maryland
Partnership or Midland Hotel, 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, 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 and Guarantor 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 or Guarantor as lessor and the Partnership or Midland Hotel 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).
"Partnership" means SLC Operating Limited Partnership, a
Delaware limited partnership.
"Partnership Assignments of Contracts" shall mean those
certain assignments of franchise agreement, agreements, permits and contracts
given by the Partnership, the Maryland Partnership and/or Midland Hotel, as the
case may be, with respect to each Real Property Asset, to Lender, as the same
may have been or may be amended, restated, modified, increased or supplemented.
"Partnership Assignments of Leases and Rents" shall mean those
certain assignments of leases and rents given by the Partnership, the Maryland
Partnership and/or Midland Hotel, as the case may be, with respect to each Real
Property Asset, to Lender, as the same may have been or may be amended,
restated, modified, increased or supplemented.
"Partnership Guaranty" shall mean that certain Guaranty of
Payment given by the Partnership and the Maryland Partnership to Lender as the
same may have been or may be amended, restated, modified, increased or
supplemented.
"Partnership Guaranty Security Agreements" shall mean those
certain security agreements given by the Partnership and/or the Maryland
Partnership or Midland Hotel, as the case may be, with respect to each Real
Property Asset to Lender as the same may have been or may be amended, restated,
modified, increased or supplemented.
-15-
<PAGE> 23
"Partnership Loan Documents" shall mean the Partnership
Assignments of Contracts, the Partnership Assignments of Leases and Rents, the
Partnership Guaranty, the Illinois Guaranty, the California Guaranty, the
Partnership Guaranty Security Agreements, the Partnership Mortgages and any
other documents or instruments, executed and delivered by the Partnership, the
Maryland Partnership or Midland Hotel in connection with the Loan.
"Partnership Mortgages" shall mean those certain leasehold
mortgages, deeds of trust, indemnity deeds of trust, deeds to secure debt or
similar real estate security instruments with respect to a Real Property Asset
granted by the Partnership or Midland Hotel, as the case may be, as the same may
have been or may be amended, restated, modified, increased or supplemented.
"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 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,
Guarantor, the Maryland Partnership, Midland Hotel and Borrower.
"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 related 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.
"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
-16-
<PAGE> 24
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, Guarantor,
the Partnership, the Maryland Partnership or Midland Hotel 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 all of the Collateral relating to such Real Property
Assets; provided, however, that the New Jersey Property shall not be deemed to
be a Real Property Asset until such time as the date of the final advance
pursuant to Section 3.2, and from and after the date of such final advance, the
New Jersey Property shall be deemed to be a Real Property Asset for all purposes
hereof.
"Recording Taxes" shall have the meaning provided in Section
3.2(h).
"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.
"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).
"Security Agreements" shall mean those certain security
agreements given by Borrower or Guarantor, as the case may be, to Lender with
respect to the Real Property Assets, as the same may have been or may be
amended, restated, modified, increased or supplemented.
"Security Instruments" shall mean those certain mortgages,
deeds of trust, indemnity deeds of trust, deeds to secure debt or similar real
estate security instruments granted by Borrower or Guarantor, as the case may
be, to Lender with respect to a Real Property Asset, as the same may have been
or may be amended, restated, modified, increased or supplemented.
-17-
<PAGE> 25
"SLT Realty Company, L.L.C." shall mean SLT Realty Company,
L.L.C., a Delaware limited liability company.
"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 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.
"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.
"Taxes" shall have the meaning provided in Section 2.19.
"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).
"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.
"Texas Property" shall mean the Real Property Asset identified
on Schedule 2 as Doubletree Guest Suites, Irving, Texas.
"Title Policy" shall have the meaning provided in Section
3.1(i).
-18-
<PAGE> 26
"Tenant Estoppel Certificate" shall have the meaning provided
in Section 3.1(a)(vii).
"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, whether
directly or as reimbursement to Lender.
"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 Debt Service Coverage Ratio 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.
SECTION 2. THE LOAN.
Section 2.1 Intentionally Deleted.
-19-
<PAGE> 27
Section 2.2 Intentionally Deleted.
Section 2.3 Intentionally Deleted.
Section 2.4 The Note. Borrower's and the REIT's obligation to
pay the principal of, and interest on, the Loan shall be evidenced by (a) that
certain promissory note dated March 22, 1996 and made by Borrower and the REIT
to Lender in the original principal amount of $23,960,000.00 as amended,
restated and increased to the principal amount of $81,460,000.00 as of the date
hereof (as the same may further be amended, modified, supplemented, restated,
increased, extended or consolidated, the "Note"); and (b) that certain
promissory note dated the date hereof and made by Borrower and the REIT to
Lender in the principal amount of $12,500,000.00 (as the same may be amended,
modified, supplemented, restated, increased, extended or consolidated, the
"California Note").
Section 2.5 Interest. (a) Borrower and 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 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 hereof to but excluding the date of any repayment thereof and Borrower and
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
-20-
<PAGE> 28
(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 be calculated on
the basis of a three hundred sixty (360) day year based on the actual number of
days elapsed.
(g) This Agreement, the Note and the California 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 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 Conversion or Continuation in respect of the making of, conversion
into or continuation of a Eurodollar Portion, select the interest period (each
an "Interest Period") applicable to such Eurodollar Portion, which Interest
Period shall, at the option of Borrower, be either a one month, two-month or
three-month period, provided that:
(i) the initial Interest Period for any new Eurodollar
Portion shall commence on the date hereof and each Interest Period
occurring thereafter in respect of such Portion shall commence on the
date on which the next preceding Interest Period expires;
(ii) if any Interest Period would otherwise expire on a
day which is not an Business Day, such Interest Period shall expire on
the next succeeding Business Day;
(iii) if any Interest Period begins on a day for which
there is no numerically corresponding day in the calendar month at the
end of such Interest Period, such Interest Period shall end on the last
Business Day of such calendar month; and
(iv) no Interest Period in respect of any Eurodollar Portion
shall extend beyond the Maturity Date.
(b) 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
-21-
<PAGE> 29
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
conversions, continuations, payments, prepayments and selection of Interest
Periods hereunder shall be made or selected so that, after giving effect
thereto, each Eurodollar Portion of the Note and each Eurodollar Portion of the
California Note 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 except for the balance of the First Eurodollar Portion, the Second
Eurodollar Portion, the Note or the California Note, as the case may be,
necessary to have the entire principal sum of the First Eurodollar Portion, the
Second Eurodollar Portion, the Note or the California Note, as the case may be,
constitute Eurodollar Portions. There shall be no more than three Eurodollar
Portions outstanding at any time.
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 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 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. 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 "A" (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 (u) the requested conversion or
continuation date (which shall be a Business Day), (v) the amount and Type of
the Loan Portion to be converted or continued, (w) whether the Loan portion to
be converted or continued is evidenced by the Note or the California Note, (x)
whether a conversion or continuation is requested, (y) in the case of a
conversion to, or a continuation of,
-22-
<PAGE> 30
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 Intentionally Deleted.
Section 2.10 Intentionally Deleted.
Section 2.11 Voluntary Prepayments. Subject to the terms and
provisions of the Fee Letter, Borrower and the REIT shall have the right to
prepay the Loan, in whole but not in part, by giving Lender written notice (or
telephonic notice promptly confirmed in writing), in the form attached hereto as
Exhibit "B", which notice shall be irrevocable, of its intent to prepay the
entire outstanding principal balance of the Loan, at least three (3) Business
Days prior to the date of prepayment. 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 shall incur as a result of such early payment. If any such notice
is given, the entire principal balance of the Loan shall be due and payable on
the date specified therein.
Section 2.12 Mandatory Prepayments. Subject to the terms and
provisions of the Fee Letter, on each date on which Borrower, Guarantor 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 or Guarantor
for the restoration of any Real Property Asset or to release such proceeds to
Borrower or Guarantor 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. The Allocated Loan
Amount with respect to such Real Property Asset will be reduced in an amount
equal to such prepayment.
Section 2.13 Application of Payments and Prepayments. Unless
specifically provided otherwise herein or in the Fee Letter, 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.
Section 2.14 Method and Place of Payment. (a) Except as
otherwise specifically provided herein, all payments and prepayments under this
Agreement, the Note and the California 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, be deemed to have been paid on the next succeeding Business
Day.
-23-
<PAGE> 31
(b) Except as expressly provided to the contrary in Section
2.6 hereof, whenever any payment to be made hereunder, under the Note, the
California 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,
the California Note and the other Loan Documents, shall be made irrespective of,
and without any deduction for, any setoff or counterclaims.
Section 2.15 Intentionally Deleted.
Section 2.16 Interest Rate Unascertainable, Increased Costs,
Illegality. (a) In the event that Lender has determined (which determination
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
(ii) at any time, that the relevant Eurodollar Rate
applicable to any of its Eurodollar Portions shall not represent the
effective pricing to Lender for funding or maintaining its Eurodollar
Portions, or 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 or the interbank Eurodollar
market or the position of 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, 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;
-24-
<PAGE> 32
then, and in any such event, Lender shall, promptly after making such
determination, give notice by telephone promptly confirmed in writing to
Borrower. Thereafter (x) in the case of clause (i) above, Borrower's right to
request conversions or continuations of Eurodollar Portions shall be suspended,
and any Notice of Conversion or Continuation given by Borrower with respect to
any 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 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 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 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 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 shall be based on the
assumption that Lender had funded all of the Eurodollar Portions in the
interbank Eurodollar market, although the parties hereto agree that 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 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, the California Note and all other Obligations.
-25-
<PAGE> 33
Section 2.17 Funding Losses. Borrower and 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 extent actually incurred (including,
without limitation, any loss, expense or liability incurred by 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 sustains: (a) if for any reason (other
than a default by Lender) a conversion from or into, or a continuation of,
Eurodollar Portions does not occur on a date specified therefor in a 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 has funded the applicable
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 to a domestic office of Lender in the United
States of America, provided that Lender may fund the 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, the California Note and all other Obligations.
Section 2.18 Increased Capital. With respect to each
Eurodollar Portion, if Lender shall have determined, 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 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 the REIT, shall pay to Lender on demand
such additional amount or amounts ("Increased Capital Costs") as will compensate
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, the
California Note and all other Obligations.
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, net income and
-26-
<PAGE> 34
franchise taxes imposed on 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 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 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 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 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 for any
incremental taxes, interest or penalties that may become payable by 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, the California
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.
Section 2.20 Use of Proceeds. Borrower shall use the proceeds
of the Loan to acquire interests in additional hotel or hospitality properties,
for costs associated with the operation, maintenance, renovation and development
of the Real Property Assets, for working capital, for the initial funding of
capital expenditures, replacement reserves or other escrows required hereunder,
to pay various Transaction Costs and other general corporate purposes, including
the payment of Distributions (subject to the conditions of this Agreement).
Section 2.21 Intentionally Deleted.
Section 2.22 Intentionally Deleted.
Section 2.23 Intentionally Deleted.
Section 2.24 Intentionally Deleted.
-27-
<PAGE> 35
Section 2.25 Intentionally Deleted.
Section 2.26 Intentionally Deleted.
SECTION 3. CONDITIONS PRECEDENT.
Section 3.1 Conditions Precedent to the Initial Advance. The
obligation of Lender to make the initial advance of the Loan (inclusive of the
principal sum of $23,960,000.00 previously advanced under the Prior Loan
Agreement) in the amount of $73,960,000.00, $61,460,000.00 of which is evidenced
by the Note and $12,500,000.00 of which is evidenced by the California Note on
the date hereof is subject to the satisfaction by Borrower on or before the date
hereof the following conditions precedent:
(a) Loan Documents.
(i) Loan Agreement. Borrower, Guarantor 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 Note and the California Note.
(iii) Security Instruments. Borrower and Guarantor
shall have executed and delivered to Lender the Security Instruments
with respect to each of the Real Property Assets other than the New
Jersey Property.
(iv) Assignments of Leases and Rents. Borrower and
Guarantor shall have executed and delivered to Lender the Assignments
of Leases and Rents with respect to each Real Property Asset other than
the New Jersey Property.
(v) Environmental Indemnity. Borrower, the REIT and
Guarantor shall have executed and delivered to Lender the Environmental
Indemnity.
(vi) Maryland Guaranty. Maryland Guarantor shall have
executed and delivered the Maryland Guaranty and the Maryland Guaranty
Security Agreement to Lender.
(vii) Tenant Estoppel Certificates. Borrower,
Guarantor, the Partnership or Midland Hotel, 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 "C" 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) Assignments of Contracts. Borrower and Guarantor
shall have executed and delivered to Lender the Assignments of
Contracts with respect to each Real Property Asset other than the New
Jersey Property.
-28-
<PAGE> 36
(ix) Franchisor Estoppels and Recognition Letters.
Borrower, Guarantor, the Partnership or Midland Hotel, 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 "D" 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 Estoppels and Recognition Letters").
Notwithstanding the foregoing, (a) the Franchisor Estoppels and
Recognition Letters with respect to the Florida Property located in
Fort Lauderdale and the Texas Property shall be delivered to Lender
within ninety (90) days of the date hereof, and (b) the Franchisor
Estoppel and Recognition Letter with respect to the New Jersey Property
(if the New Jersey Property is subject to a Franchise Agreement) shall
be delivered on or before the date of the final advance of the Loan.
(x) Security Agreements. Borrower and Guarantor shall
have executed and delivered to Lender the Security Agreements with
respect to each Real Property Asset other than the New Jersey Property.
(xi) Intentionally Deleted.
(xii) Intentionally Deleted.
(xiii) Intercompany Debt Subordination Agreement.
Borrower and the Partnership shall have executed and delivered to
Lender the Intercompany Debt Subordination Agreement.
(xiv) Intentionally Deleted.
(xv) Partnership Guaranty. The Partnership and the
Maryland Partnership shall have executed and delivered to Lender the
Partnership Guaranty.
(xvi) Partnership Mortgages. The Partnership or Midland
Hotel, as applicable, shall have executed and delivered to Lender the
Partnership Mortgages with respect to each Operating Lease under which
the Partnership or Midland Hotel is the lessee other than the Operating
Lease affecting the New Jersey Property. With respect to the Maryland
Property and the Florida Properties, the related Partnership Mortgage
shall not be recorded unless an Event of Default shall have occurred.
(xvii) Partnership Guaranty Security Agreements. The
Partnership and/or the Maryland Partnership or Midland Hotel, as
applicable, shall have executed and delivered to Lender the Partnership
Guaranty Security Agreements with respect to the Partnership Guaranty
or the Illinois Guaranty, as the case may be, for each Real Property
Asset other than the New Jersey Property.
(xviii) Partnership Assignments of Leases and Rents.
The Partnership and/or Midland Hotel, as applicable, shall have
executed and delivered to Lender the Partnership Assignments of Leases
and Rents with respect to each Operating Lease under
-29-
<PAGE> 37
which the Partnership and/or Midland Hotel is the lessee other than the
Operating Lease affecting the New Jersey Property. With respect to the
Maryland Property and the Florida Properties, the related Partnership
Assignment of Leases and Rents shall not be recorded unless an Event of
Default shall have occurred.
(xix) Partnership Assignments of Contracts. The
Partnership, the Maryland Partnership and Midland Hotel shall have
executed and delivered the Partnership Assignments of Contract to
Lender with respect to the Partnership Guaranty and the Illinois
Guaranty, for each Real Property Asset other than the New Jersey
Property.
(xx) Consents To Assignment, Subordination, Estoppel
and Attornment Agreements. Borrower, Guarantor, the Partnership and
Midland Hotel, as applicable, shall have executed and delivered to
Lender the Consents to Assignment, Subordination, Estoppel and
Attornment Agreements with respect to each Real Property Asset other
than the New Jersey Property.
(xxi) California Environmental Indemnity. Borrower and
the REIT shall have executed and delivered to Lender the California
Environmental Indemnity.
(xxii) California Guaranty. The Partnership shall have
executed and delivered to Lender the California Guaranty.
(xxiii) Illinois Guaranty. Illinois Guarantor and
Midland Hotel shall have executed and delivered to Lender the Illinois
Guaranty.
(b) Opinions of Counsel.
Lender shall have received legal opinions from counsel to
Borrower, the REIT, Guarantor, the Partnership, the Maryland Partnership,
Midland Hotel or the Corporation 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
the respective Loan Parties, and are valid and enforceable in accordance with
their terms, subject to bankruptcy and equitable principles; (ii) that Borrower,
Guarantor, the Partnership, the Maryland Partnership and Midland Hotel 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, Guarantor, the REIT, the
Partnership, the Maryland Partnership, Midland Hotel 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 the Corporation, Illinois Guarantor and Midland Hotel the
certificate of incorporation of each
-30-
<PAGE> 38
such Person, as amended, modified or supplemented to the date hereof, certified
to be true, correct and complete by the Borrower and the Corporation, Illinois
Guarantor or Midland Hotel, as the case may be, 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 date hereof, (ii) with respect to
Borrower, Maryland Guarantor, the Partnership and the Maryland Partnership, the
agreement of limited partnership of such Person, as amended, modified or
supplemented to the date hereof, together with a copy of the certificate of
limited partnership of such entity, as amended, modified or supplemented to the
date hereof, 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
date hereof and (iii) with respect to the REIT, its declaration of trust, as
amended, modified or supplemented to the date hereof, 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 (10) days prior to
the date hereof 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 date hereof, 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 hereof, (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) Intentionally Deleted.
(f) Insurance. Lender shall have received certificates of
insurance demonstrating insurance coverage in respect of each of the Real
Property Assets other than the New Jersey Property 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 other than the New Jersey
Property, Accounts Receivable, Borrower and each of the other Loan Parties
(collectively, the "UCC Searches").
-31-
<PAGE> 39
(h) Financing Statements. Lender shall have received UCC-l
financing statements signed by Borrower or other applicable Loan Party, as
debtor, naming the Lender as secured party, in form suitable for filing in the
appropriate offices of each jurisdiction where the Real Property Assets other
than the New Jersey Property and Borrower and the applicable Loan Parties are
located (each, a "Financing Statement").
(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 other than the New Jersey Property, 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 of Borrower or Guarantor,
as applicable, to such Real Property Asset (or, with respect to the New Jersey
Property only a ground- leasehold estate), in an amount equal to the amount of
the Allocated Loan Amount for such Real Property Asset, subject only to such
exceptions that Lender has approved together with such affirmative insurance and
other endorsements reasonably required by Lender, together with, for such Real
Property Asset other than the California Property, 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 Allocated Loan Amount 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 other than the New Jersey Property 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 Real Property Asset 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 other than the New
Jersey Property, annual operating statements and occupancy statements for
Borrower's, Guarantor's, the Partnership's, the Maryland Partnership's and
Midland Hotel'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 for each of the Real Property Assets other than the New
Jersey Property, 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
-32-
<PAGE> 40
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 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 Expenses. Lender shall have received, for its
account, all fees and expenses due and payable pursuant to the Fee Letter on or
before the date hereof.
(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 licenses) and approvals
shall be in full force and effect.
(n) Appraisals. Prior to the date hereof, Lender shall have
completed its internal valuation of the Real Property Assets other than the New
Jersey Property 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.
(o) Engineering Reports. Lender shall have received
engineering reports in form and substance reasonably satisfactory to Lender with
respect to each of the Real Property Assets other than the New Jersey Property;
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 other than the New Jersey 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 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.
(q) Leases. Lender shall have received certified copies of all
Operating Leases and the Maryland FF&E Lease with respect to each Real Property
Asset other than the New Jersey Property 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,
-33-
<PAGE> 41
leasing and operation of each of the Real Property Assets other than the New
Jersey Property, 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 other
than the New Jersey Property.
(t) Certification as to Applicable Laws. Lender shall have
received such evidence as Lender shall deem reasonably necessary to establish
that each Real Property Asset other than the New Jersey Property complies in all
material respects with Applicable Laws.
(u) Quality Assurance Reports. Lender shall have received
certified copies of the most recent Quality Assurance Reports for each Real
Property Asset other than the New Jersey Property, each of which shall be
reasonably satisfactory to Lender.
(v) Intercompany Debt. Lender shall have received certified
copies of all Intercompany Loan Documents.
(w) Flood Plain. Lender shall have received reasonably
satisfactory evidence indicating which of the Real Property Assets are in a
flood plain.
(x) 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 Loan
or Borrower's obligation to pay (or Lender's right to receive payment) of the
Loan and the other Obligations or the consummation of the Transactions.
(y) Payment of Recording Taxes. Lender shall have received
proof of payment of any required recording fees, mortgage recording taxes,
documentary stamp taxes, intangibles taxes or other similar costs ("Recording
Taxes") in connection with the making of the Loan.
(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 the Final Advance. The
obligation of Lender to make the final advance under the Note in the amount of
$20,000,000.00 is subject to the satisfaction by Borrower on or before the date
of said final advance of the following conditions precedent:
(a) Loan Documents. Borrower, Guarantor, the REIT and/or the
other Loan Parties, as applicable, shall have executed and delivered to Lender
the New Jersey Environmental Indemnity and the Loan Documents described in
subsections 3.1(a)(iii), (iv),
-34-
<PAGE> 42
(vii), (viii), (ix), (x), (xvi), (xvii), (xviii), (xix) and (xx) hereof with
respect to the New Jersey Property.
(b) Additional Documents. Lender shall have received all of the
legal opinions, organizational documents, resolutions, certificates, evidence of
insurance, title insurance, survey, environmental reports, payments, appraisals,
engineering reports, evidence of zoning compliance and other matters as
described in subsections 3.1(b), (c), (d), (f), (g), (h), (i), (j), (k), (l),
(m), (n), (o), (p), (q), (r), (s), (t), (u), (v), (w), (x), (y) and (z) hereof
with respect to the New Jersey Property.
(c) Title Insurance. Lender shall have received (i) a Title Policy
and survey for the New Jersey Property that meets the requirements of subsection
3.1(i) hereof, (ii) a continuation of the Title Policies for each of the Real
Estate Assets other than the California Property showing title to such Real
Estate Asset to be vested in Borrower or Guarantor, as the case may be, and no
exceptions to the Title Policies other than those exceptions previously approved
by Lender in writing, (iii) endorsements to each Title Policy other than the one
for the California Property insuring the priority of the liens of the Security
Instruments, subject only to exceptions previously approved by Lender in
writing, and (iv) such other endorsements to each Title Policy as may be
necessary to "tie-in" the Title Policy for the New Jersey Property with the
Title Policies for the other Real Estate Assets (other than the California
Property).
(d) Lender shall have received not less than thirty (30) days prior
written notice of Borrower's request for the final advance pursuant to this
Section 3.2.
(e) The final advance shall have been made on or prior to June 15,
1996.
(f) If the Borrower shall own a ground-leasehold estate in the New
Jersey Property, Borrower shall have delivered to Lender (A) a certified copy of
the ground lease for the New Jersey 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 covering the New Jersey
Property, and (B) a ground lease estoppel executed by the fee owner and ground
lessor of the New Jersey Property, which estoppel shall be satisfactory to
Lender in its sole discretion.
(g) Upon the final advance, Lender shall revise Schedules 3 through
18, inclusive, to reflect the addition of the New Jersey Property.
(h) 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 re-
-35-
<PAGE> 43
spects on such date both before and after giving effect to the making of such
final 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.
(i) 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 final advance.
(j) No Material Adverse Change. No event, act or condition shall
have occurred after the closing date of this Agreement which, in the judgment of
Lender, has had or could have a Material Adverse Effect.
Section 3.3 Acceptance of the Loan. The acceptance by Borrower of
the proceeds of the initial advance of the Loan shall constitute a
representation and warranty by Borrower, Guarantor and the REIT to Lender that
all of the conditions required to be satisfied under this Section 3 in
connection with the making of the Loan 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).
SECTION 4. REPRESENTATIONS AND WARRANTIES.
In order to induce Lender to enter into this Agreement and to make
the Loan, Borrower, Guarantor and the REIT make the following representations
and warranties as of the date hereof, which shall survive the execution and
delivery of this Agreement, the Note and the California Note and the making of
the Loan:
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 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
-36-
<PAGE> 44
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, Guarantor'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, Guarantor's or the REIT's knowledge, threatened with respect to any
of the Transactions or Loan Documents, Borrower, Guarantor, their respective
Subsidiaries, or any of the 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, Guarantor's or the REIT's ability to perform its obligations under
this Agreement or Borrower's, Guarantor's the REIT's, the Partnership's, the
Maryland
-37-
<PAGE> 45
Partnership's, Midland Hotel's or the Corporation's ability to perform its
obligations under the Loan Documents.
Section 4.6 Solvency. On the date hereof 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,
Guarantor'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 the
Loan will be used by Borrower and the Loan Parties only in accordance with the
provisions of Section 2.20. No part of the proceeds of the Loan will be used by
Borrower or any other Loan Party 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 the Loan 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,
Guarantor'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.
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 date hereof, 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
-38-
<PAGE> 46
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 date hereof, 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 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 date
hereof 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 date hereof 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.
-39-
<PAGE> 47
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 this
Agreement and in the other 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 date hereof, 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 date hereof, there are no facts, events or conditions
directly and specifically affecting Borrower, 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. With respect to the California Property, Florida Properties,
Georgia Properties, Texas Property, and from and after the date of the final
advance under Section 3.2, the New Jersey Property, Borrower, with respect to
the Maryland Property, Maryland Guarantor, and with respect to the Illinois
Property, Illinois Guarantor, has good and marketable fee simple title (or with
respect to the New Jersey Property, a ground-leasehold estate, as the case may
be, subject to any Permitted Liens, and Borrower, Guarantor, Partnership), with
respect to the Maryland Property, the Maryland Partnership, and with respect to
the Illinois Property, Midland Hotel, 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, Guarantor'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, or the Franchise
Agreements. To the best of Borrower's, Guarantor'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,
Guarantor's or the REIT's knowledge, Borrower, Guarantor, the Partnership, the
Maryland Partnership and Midland Hotel have, for each Real Property Asset,
obtained and hold in full force and effect, all material franchises, trademarks,
tradenames, copyrights, licenses, permits, certificates,
-40-
<PAGE> 48
authorizations, qualifications, accreditations, easements, rights of way and
other rights, consents and approvals which are necessary for the operation of
the Real Property Assets and their respective businesses as presently conducted,
including without limitation, liquor 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, Midland Hotel 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 Maryland Partnership, the Corporation, Midland Hotel 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,
Guarantor's or the REIT's knowledge, Borrower and each Loan Party is in
compliance in all material respects with all 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 and 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 harmless from and against any and all liabilities,
losses, costs and expenses (including attorneys' fees or court costs) suffered
or incurred by Lender as a result of any claim or assertion by any party
claiming by, through or under Borrower or any other Loan Party, that it is
entitled to compensation in connection with the financing contemplated hereby,
and 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 that it
is entitled to compensation in connection with the financing contemplated
hereby.
Section 4.21 Judgments. To the best of the Borrower's, Guarantor'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, all of the
Real Property Assets are managed by the Partnership or Midland Hotel pursuant to
the Operating Leases.
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
-41-
<PAGE> 49
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.
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 Maryland Guarantor and the Maryland Partnership.
Borrower, Maryland Guarantor and the REIT represent and warrant that (a)
Borrower is the sole general partner of Maryland Guarantor and owns a 1% general
partnership interest and a 98% limited partnership interest in Maryland
Guarantor and SLT Realty Company LLC owns a 1% limited partnership interest in
Maryland Guarantor, and (b) the Partnership is the sole general partner of the
Maryland Partnership and owns a 1% general partnership interest and a 98%
limited partnership in the Maryland Partnership and the Corporation owns a 1%
limited partnership in the Maryland Partnership.
Section 4.27 Intercompany Debt. No Intercompany Debt is secured by
any Collateral.
Section 4.28 Personal Property. For all Real Property Assets,
Borrower, Guarantor, the Partnership and (a) with respect to the Maryland
Property, the Maryland Partnership, and (b) with respect to the Illinois
Property, Midland Hotel, 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. With respect to the Maryland Property, the
Partnership leases the Personal Property from the Maryland Partnership pursuant
to the Maryland FF&E Lease. Borrower, Guarantor and the REIT represent and
warrant that the Maryland FF&E Lease is in full force and effect and that there
is no default thereunder. 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, 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 Intentionally Deleted.
Section 4.32 Status of Maryland Guarantor and Maryland Partnership.
As of the date hereof, before and after giving effect to the Transactions,
Maryland Guarantor and the
-42-
<PAGE> 50
Maryland Partnership are each Solvent. The sole asset of Maryland Guarantor is
the Maryland Property, and the sole liabilities of Maryland Guarantor are the
Maryland Guaranty, the Loan Documents related to the Maryland Property and the
ordinary Operating Expenses in connection with the Maryland Property. The sole
asset of the Maryland Partnership is the Personal Property described in the
Maryland FF&E Lease, and the sole liabilities of the Maryland Partnership are
the Partnership Guaranty with respect to the Maryland Property and the
Partnership Loan Documents and the ordinary Operating Expenses with respect to
the Maryland Property.
Section 4.33 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 and the
California Note has been fully paid and satisfied.
Section 4.34 Illinois Guarantor and Midland Hotel. Borrower,
Illinois Guarantor and the REIT represent and warrant that (a) Partnership is
the sole shareholder of Midland Holding Corp., an Illinois corporation ("Midland
Holding") and (b) Midland Holding is the sole shareholder of Illinois Guarantor
and of Midland Hotel.
Section 4.35 Status of Illinois Guarantor and Midland Hotel. As of
the date hereof, before and after giving effect to the Transactions, Illinois
Guarantor, Midland Holding and Midland Hotel are each Solvent. The sole asset of
Illinois Guarantor is the Illinois Property, and the sole liabilities of
Illinois Guarantor are the Illinois Guaranty, the Loan Documents related to the
Illinois Property and the ordinary Operating Expenses in connection with the
Illinois Property. The sole asset of Midland Hotel is the lessee's interest in
the Operating Lease and the Personal Property relating to the Illinois Property,
and the sole liabilities of Midland Hotel are the Illinois Guaranty, the
Partnership Loan Documents and the ordinary Operating Expenses with respect to
the Illinois Property. The sole assets of Midland Holding are the shares of
stock of Midland Hotel and of Illinois Guarantor and the sole liabilities of
Midland Holding are the ordinary and customary administrative expenses in
conducting its business of acting as sole shareholder of Midland Hotel and
Illinois Guarantor.
SECTION 5. AFFIRMATIVE COVENANTS.
Borrower, Guarantor and the REIT covenant and agree that on and
after the date hereof and until the Obligations are paid in full:
Section 5.1 Financial Reports. (a) Borrower, Guarantor and the REIT
will furnish to Lender: (i) annual audited consolidated or combined, as the case
may be, financial statements of (A) Borrower, Guarantor and REIT, (B) the
Partnership, the Maryland Partnership, Midland Hotel and the Corporation and (C)
Borrower, the REIT, Guarantor, the Partnership, the Maryland Partnership,
Midland Hotel 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
-43-
<PAGE> 51
be, balance sheet of (A) Borrower, Guarantor and REIT, (B) the Partnership, the
Maryland Partnership, Midland Hotel and the Corporation and (C) Borrower, the
REIT, the Partnership, Guarantor, the Maryland Partnership, Midland Hotel 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, the Maryland Partnership, Midland Hotel
and Guarantor, 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 Maryland Partnership, Midland Hotel, the
Corporation and Guarantor, 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, the Maryland
Partnership, Midland Hotel and Guarantor; (iv) copies of all of Borrower's,
REIT's, the Partnership's, the Maryland Partnership's, the Corporation's,
Midland Hotel's and Guarantor's quarterly and annual filings with the Securities
and Exchange Commission and all shareholder reports and letters to the REIT'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, 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 or
any other Loan Party shall be provided to Lender no later than 15 days after
such request.
(b) Officer's Certificates. (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, Guarantor, the Maryland Partnership, the Corporation, Midland Hotel
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,
-44-
<PAGE> 52
REIT, the Partnership, the Maryland Partnership, Guarantor, Midland Hotel or 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, the Partnership's, the Maryland Partnership's, Midland Hotel's and
Guarantor'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 Section 5.19 and the provisions of
Sections 5.12, 5.13, 5.27 and 5.29 and such other Sections as reasonably
requested by Lender and containing calculations verifying such compliance
commencing with the calendar quarter ending on June 30, 1996.
(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 or other organizational documents of Borrower or
Guarantor, any mortgage, deed of trust, indenture or other debt or security
instrument, covering any of the assets of Borrower or Guarantor or (y) any event
of default under any Franchise Agreement, Operating Lease, the Maryland FF&E
Lease, Intercompany Debt or any other material agreement relating to the Real
Property Assets, to which Borrower, the Partnership, the Maryland Partnership,
Midland Hotel or Guarantor 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 or 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
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, Guarantor, the
Partnership, Midland Hotel 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, Guarantor 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.
-45-
<PAGE> 53
Section 5.2 Books, Records and Inspections. Borrower, the
Partnership, the Maryland Partnership, Midland Hotel and Guarantor 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, the Maryland Partnership, Midland
Hotel and Guarantor shall permit or cause to be permitted officers and
designated representatives of 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, the Maryland Partnership, Midland Hotel or Guarantor
and the Real Property Assets (including, without limitation, leases, statements,
bills and invoices), discuss the affairs, finances and accounts of Borrower, the
Partnership, the Maryland Partnership, Midland Hotel and Guarantor 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 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.
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, the Maryland Partnership, Midland
Hotel and Guarantor shall carry on and conduct their businesses in substantially
the same manner and substantially the same field of enterprise as they are
presently conducted.
-46-
<PAGE> 54
(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, 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, 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, Guarantor 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.
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, Guarantor,
the Partnership, Midland Hotel and the Maryland Partnership 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, the Maryland FF&E Lease, and the
related Franchise Agreements. Neither Borrower, the Partnership, Midland Hotel
and the Maryland Partnership nor Guarantor 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. Notwithstanding anything to the
contrary contained herein, Lender shall not unreasonably withhold its consent to
a replacement of the existing Franchise Agreements for the Florida Property
located in Fort Lauderdale and the Texas Property with Franchise Agreements with
Embassy Suites.
Section 5.10 Maintenance of Properties. Borrower, Guarantor 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
-47-
<PAGE> 55
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-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.
-48-
<PAGE> 56
Section 5.12 Settlement/Judgment Notice. Borrower, Guarantor and the
REIT agree that they shall, within ten (10) days after a settlement of any
obligation in excess of $1,000,000.00 or after entry of any judgment in excess
of $1,000,000.00, in ether case, individually or in the aggregate, provide
written notice to Lender of such settlement or judgment.
Section 5.13 Acceleration Notice. Borrower, Guarantor and the REIT
agree that they shall, within ten (10) days after receipt of written notice that
any Indebtedness of Borrower, Guarantor or the REIT hereof has been accelerated,
provide written notice to Lender of such acceleration.
Section 5.14 Intentionally Deleted.
Section 5.15 Intentionally Deleted.
Section 5.16 Intentionally Deleted.
Section 5.17 Intentionally Deleted.
Section 5.18 Intentionally Deleted
Section 5.19 Minimum Spending Requirement and Deferred Maintenance
Spending Requirement. (a) After the date hereof, Borrower and/or Guarantor shall
spend at least the amounts set forth on Schedule 16 for each Real Property Asset
for repairs, replacement, or maintenance of such Real Property Asset, on or
before the Maturity Date (the "Minimum Spending Requirement"). Borrower and/or
Guarantor shall deliver evidence reasonably satisfactory to Lender no more
frequently than monthly, but at least quarterly, of the portion of the Minimum
Spending Requirement 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.
(b) Borrower and/or Guarantor 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 the Maturity Date to perform the
specified maintenance set forth on such Schedule (the "Deferred Maintenance
Spending Requirement"). Borrower shall deliver evidence reasonably satisfactory
to Lender no more frequently than monthly, but at least quarterly, of the
portion of the Deferred Maintenance Spending Requirement that has been spent;
such evidence shall include copies of paid invoices or other receipts for work
done or materials provided, and may include an updated Engineering Report.
(c) With respect to the Maryland Property, Borrower and Guarantor
shall deliver evidence reasonably satisfactory to Lender, which shall include an
estoppel or similar acknowledgement from Holiday Inn, that all of the work
required under the "Change of Ownership of the Holiday Inn, Calverton, Maryland,
Location #1494 Property Improvement Plan", dated July 26, 1995, and prepared by
Holiday Inn (a copy of which is attached hereto as Schedule 19) has been
completed to Holiday Inn's satisfaction prior to January 1, 1997.
-49-
<PAGE> 57
(d) Borrower, Guarantor and the REIT jointly and severally, and
unconditionally and irrespective of the lack of enforceability or validity of
the Note or the California Note, the other Loan Documents or any other provision
of this Agreement, and irrespective of any other circumstances which may
constitute a defense to the agreements contained in this clause (d), hereby
guarantee that Borrower and Guarantor shall perform and pay for each of the
obligations and agreements contained in subsections (a), (b) and (c) of this
Section 5.19, in strict accordance with the provisions thereof. The obligations
and liabilities of Borrower, Guarantor and the REIT contained in this Section
5.19 shall be fully recourse and shall not be subject to the limitations
contained in Section 9.8 or any similar provision contained in any other Loan
Document other than subsection 9.8(f).
Section 5.20 Intentionally Deleted.
Section 5.21 Manager. The Partnership or Midland Hotel, as the case
may be, shall manage such Real Property Asset thereafter pursuant to the
Operating Lease; however, the Partnership or Midland Hotel, as the case may be,
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, Guarantor and the REIT
will, at Borrower's, Guarantor'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, Guarantor'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, Guarantor, the Partnership, Midland
Hotel or the Maryland Partnership 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 and Guarantor shall comply
with all of the terms and conditions and covenants in the Security Instruments,
the Environmental Indemnity and the other Loan Documents.
-50-
<PAGE> 58
Section 5.25 Intentionally Deleted.
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. 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, 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
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, Midland Hotel 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, Midland Hotel 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. Borrower shall not
be required to have the liquor license held by the American Cafe issued in the
name of one of the entities described in clauses (i), (ii) and (iii) above for
so long as the American Cafe is a tenant under a restaurant lease on the
Maryland Property; however, if such lease is terminated, expires or rejected by
the tenant in a bankruptcy proceeding, Borrower shall, or cause Guarantor to,
have the tenant thereunder execute a transfer application for the liquor license
to Borrower or Guarantor or one of the entities described in clauses (i), (ii)
and (iii) above pursuant to the terms of the lease.
Section 5.29 Environmental Monitoring. With respect to the Maryland
Property, Borrower or Maryland Guarantor shall deliver to Lender a copy of the
results of the annual pressure testing required by Applicable Law of the
underground storage tanks within thirty (30) days after such testing has been
done, but in no event later than January 31, 1997.
Section 5.30 Keep Well Covenants.
(a) Borrower and the REIT shall (i) cause Maryland
Guarantor to be operated and managed in such a manner that it will
fulfill its obligations under the Loan Documents to which it is a
party; (ii) not file any petition for relief under the Bankruptcy
Code or under any similar federal or state law against Maryland
Guarantor; and (iii) provide funding to Maryland Guarantor to the
-51-
<PAGE> 59
extent necessary to enable Maryland Guarantor to fulfill its
obligations under the Loan Documents and to remain Solvent.
(b) Borrower and the REIT shall: (i) cause the Maryland
Partnership to be operated and managed in such a manner that it will
fulfill its obligations under the Loan Documents to which it is a
party; (ii) not file any petition for relief under the Bankruptcy
Code or under any similar federal or state law against the Maryland
Partnership; and (iii) provide funding to the Maryland Partnership
to the extent necessary to enable the Maryland Partnership to
fulfill its obligations under the Loan Documents and to remain
Solvent.
SECTION 6. NEGATIVE COVENANTS.
Borrower, the REIT and Guarantor covenants and agrees for itself and
on behalf of the other Loan Parties that on and after the date hereof until the
Obligations are paid in full: -
Section 6.1 Intentionally Deleted.
Section 6.2 Intentionally Deleted.
Section 6.3 Liens. Borrower, the Partnership, the Maryland
Partnership, Midland Hotel and Guarantor 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 date hereof and set forth on Schedule 7
hereto or listed in the Title Policies issued on March 22, 1996 or the
date hereof, as the case may be, for each Real Property Asset;
(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 Security
Instruments;
(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 or Guarantor, as applicable, 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 Guarantor, as applicable, or materially adversely affect the
security interests of Lender in the Collateral;
-52-
<PAGE> 60
(e) Permitted Financing; and
(f) Liens granted to Lender pursuant to the Security Instruments
securing the Obligations.
Section 6.4 Restriction on Fundamental Changes. (a) Without the
prior written consent of Lender, which consent may be withheld in the sole and
absolute discretion of Lender, (i) 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; 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 (ii) 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 general partnership interest in the Partnership, except to an
entity wholly owned by the Corporation.
(b) Without the prior written consent of Lender, which consent may
be withheld in the sole and absolute discretion of Lender, (i) Borrower shall
not sell, transfer, pledge, assign or encumber its general partnership or
limited partnership interest in Maryland Guarantor, (ii) SLT Realty Company
L.L.C. shall not sell, transfer, pledge, assign or encumber its limited
partnership or other ownership interest in Guarantor, (iii) the Corporation
shall not sell, transfer, pledge, assign or encumber its general partnership or
limited partnership interest in the Maryland Partnership, (iv) the Partnership
shall not sell, transfer, assign or encumber its limited partnership interest in
the Maryland Property, (v) the Partnership shall not sell, transfer, pledge,
assign or encumber any of its shares of stock in Midland Holding, (vi) Midland
Holding shall not sell, transfer, pledge assign or encumber any of its shares of
stock in Illinois Guarantor or Midland Hotel, and (vii) none of the Loan Parties
shall enter into or permit any merger or consolidation following which (A)
Midland Holding shall not be wholly owned by the Partnership, (B) Illinois
Guarantor shall not be wholly owned by Midland Holding, or (C) Midland Hotel
shall not be wholly owned by Midland Holding.
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
-53-
<PAGE> 61
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 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 Intentionally Deleted.
Section 6.8 Operating Leases. Neither Borrower, the Partnership, the
Maryland Partnership, Midland Hotel nor Guarantor shall terminate any Operating
Lease or the Maryland FF&E Lease, and shall not, without the prior written
consent of Lender, modify or amend any Operating Lease or the Maryland FF&E
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.
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, Guarantor, 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, Guarantor and the REIT shall have a period of thirty (30) days
after the
-54-
<PAGE> 62
earlier of (i) the actual knowledge of such breach by Borrower, Guarantor
or the REIT or (ii) delivery of notice from Lender of such breach, to cure
any such breach.
(c) Breach of Covenants.
(i) Borrower, Guarantor, 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, 5.23, 6.4(a)(i) and (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)(i).
(ii) Borrower or any of the Loan Parties shall fail to perform
or observe any agreement, covenant or obligation arising under
Sections 5.9, 5.28 and 6.3 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 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, Guarantor, the Maryland Partnership, Midland
Hotel, the REIT or the Partnership is in default under (A) any
Indebtedness of such Person that is equal to or in excess of
$1,000,000.00, which default results in accelerated Indebtedness or
(B) any other Indebtedness that could have a Material Adverse Effect
on such Person's ability to perform its obligations in connection
with the Loan.
(ii) Borrower, Guarantor, the Maryland Partnership, Midland
Hotel or the Partnership, as the case may be, is in default under
any material term of the applicable Operating Lease or the Maryland
FF&E 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,
-55-
<PAGE> 63
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; 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.
(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
-56-
<PAGE> 64
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 $1,000,000 or more are entered against Borrower or the REIT or any
Loan Party since March 22, 1996 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 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) Failure to Deliver Franchisor Estoppels and Recognition Letters.
Lender shall not have received the Franchisor Estoppels and Recognition Letters
for the Florida Property located in Fort Lauderdale or the Texas Property within
ninety (90) days of the date hereof.
Section 7.2 Rights and Remedies. (a) Upon the occurrence of any
Event of Default described in Section 7.1(e), 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 upon the occurrence
and during the continuance of any other Event of Default, Lender may, by written
notice to Borrower 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.
-57-
<PAGE> 65
(b) Lender may offset any indebtedness, obligations or liabilities
owed to Borrower against any indebtedness, obligations or liabilities of
Borrower to it.
(c) 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 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, 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 in connection with the administration of the Loan
and any amendment, waiver or consent relating to any of the Loan Documents
(including, without limitation, as to each of the foregoing, the reasonable fees
and disbursements of any outside or special counsel to Lender) and of Lender 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 Lender).
(b) pay, and hold 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 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) to pay such taxes; and
(c) indemnify 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
-58-
<PAGE> 66
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
Lender of its 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, 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 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 expressly provided herein,
all notices, requests and demands to or upon the respective parties hereto 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, Guarantor 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 2.8(b) 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
-59-
<PAGE> 67
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) 526-5849
Telecopier Number: (212) 528-6659/6521
Attention: Allyson Bailey
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) 526-5849
Telecopier Number: (212) 528-6659/6521
Attention: Allyson Bailey
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
-60-
<PAGE> 68
If to Borrower or Guarantor, as follows:
SLT Realty Limited Partnership,
c/o Starwood Lodging Trust
11835 Olympic Boulevard, Suite 675
Los Angeles, California 90064
Telephone Number: (310) 575-3900
Telecopier Number: (310) 575-3764
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,
Guarantor, the REIT, Lender, all future holders of the Note and the California
Note and their respective successors and assigns.
Section 9.4 Amendments and Waivers. (a) Neither this Agreement, the
Note, the California 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.
(b) In the case of any waiver, Borrower, Guarantor, the REIT and
Lender shall be restored to their former position and rights hereunder, under
the outstanding Note, the California 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 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 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 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, to any other or further action in any circumstances without
notice or demand.
-61-
<PAGE> 69
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,
by execution and delivery of this Agreement, Borrower, Guarantor 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, Guarantor 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, Guarantor and the REIT at its
address set forth in Section 9.2. Borrower, Guarantor and the REIT and 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 action or proceeding brought
in any such court has been brought in an inconvenient forum. Nothing herein
shall affect the right of Lender, to serve process in any other manner permitted
by law or to commence legal proceedings or otherwise proceed against Borrower,
Guarantor 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 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 or any other Loan Party 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 or any other Loan Party 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.
Section 9.8 Non-Recourse. (a) Except as otherwise provided, Lender
shall not enforce the Loan, the Security Instruments or any other Loan Document
by any action or proceeding wherein a money judgment, deficiency judgment or
other judgment for personal liability shall be sought against Borrower,
Guarantor or the REIT, or any officer, director, shareholder, partner, trustee,
member, successor or assign of Borrower, Guarantor or the REIT,
-62-
<PAGE> 70
or any person or entity holding a direct or indirect interest in Borrower,
Guarantor or the REIT (each of the foregoing, an "Exculpated Party") and Lender
for itself, its successors and assigns irrevocably waives any and all right to
sue for, seek or demand any such damages, money judgment, deficiency judgment or
personal judgment against any of the Exculpated Parties under or in connection
with the Loan, the Security Instruments or any other Loan Document and agrees to
look solely to the Collateral for the enforcement of any liability or obligation
of any Exculpated Party, provided that nothing contained herein shall be
construed to prevent Lender from bringing a foreclosure action, action for
specific performance or other appropriate action or proceeding to enable Lender
to enforce and realize upon this Agreement, the Security Instruments or any
other Loan Document, and the interest in the Real Property Assets, the Rents,
the Accounts Receivable and any other Collateral given to Lender created by this
Agreement, the Security Instruments or any other Loan Document; provided,
further, however, that any judgment in any action or proceeding shall be
enforceable against any Exculpated Party only to the extent of such Person's
interest in the Real Property Assets, in the Rents, in the Accounts Receivable
and in any other Collateral given to Lender. Lender, by accepting this
Agreement, the Security Instruments or any other Loan Documents, agrees that it
shall not, except as otherwise provided in this Section 9.8, sue for, seek or
demand any deficiency judgment against any Exculpated Party in any action or
proceeding, under or by reason of or in connection with this Agreement, the
Security Instruments or any other Loan Document.
(b) The provisions of Section 9.8 shall not (i) constitute a waiver,
release or impairment of any obligation evidenced or secured by this Agreement,
the Security Instruments or any other Loan Document; (ii) impair the right of
Lender to obtain a deficiency judgment in any action or proceeding in order to
preserve its rights and remedies, including, without limitation, an action
against any Exculpated Party under the Note or the California Note, foreclosure,
non-judicial foreclosure, or the exercise of a power of sale under the
Additional Security Instruments (as defined in the Security Instruments);
however, Lender agrees that it shall not enforce such deficiency judgment
against any assets of any Exculpated Party other than the Additional Properties
(as defined in the Security Instruments) or in the exercise of its rights and
remedies under the Additional Security Instruments; (iii) impair the right of
Lender to name any Exculpated Party as a party defendant in any action or suit
for judicial foreclosure and sale under the Security Instruments; (iv) affect
the validity or enforceability of, or impair the right of lender to enforce, the
Environmental Indemnity or any indemnity, guaranty, master lease or similar
instrument made in connection with this Agreement, the Security Instruments or
any other Loan Document; (v) impair the right of Lender to obtain the
appointment of a receiver; (vi) impair the enforcement of any of the Assignments
of Leases and Rents executed in connection herewith, however Lender shall not
enforce any judgment thereunder against any assets of any Exculpated Party other
than the Rents and Accounts Receivable or such Person's interest in the Rents
and Accounts Receivable; (vii) affect the validity or enforceability of, or
impair the right of Lender to enforce the Partnership Loan Documents in
accordance with their terms; or (viii) impair the right of Lender to enforce the
provisions of Section 9.1(c)(iii) hereof or Section 13.2 of the Security
Instruments.
(c) Notwithstanding the provisions of Section 9.8(a) to the
contrary, Borrower, Guarantor and the REIT shall be personally liable to Lender
for any loss or damage it incurs due to: (i) fraud or intentional
misrepresentation by Borrower, Guarantor and the REIT or any Loan Party in
connection with the execution and the delivery of this Agreement, the Security
-63-
<PAGE> 71
Instruments or any other Loan Document; (ii) Borrower's, Guarantor's, the REIT's
or any other Loan Party's misapplication or misappropriation of Rents or
Accounts Receivable received by such parties after the occurrence of an Event of
Default; (iii) Borrower's, Guarantor's, the REIT's or any other Loan Party's
misappropriation of tenant security deposits or Rents collected in advance; (iv)
the misapplication or the misappropriation of insurance proceeds or condemnation
awards; (v) any act of actual waste or arson by Borrower, Guarantor, the REIT or
any other Loan Party; (vi) Borrower's, Guarantor's, the REIT's or any other Loan
Party's failure to comply with the provisions of Sections 4.12 and 5.11 of this
Agreement.
(d) Notwithstanding the foregoing, the agreement of Lender not to
pursue recourse liability as set forth in Section 9.8 above SHALL BECOME NULL
AND VOID and shall be of no further force and effect in the event of a Default
under Section 6.4 of this Agreement or Article 8 of the Security Instruments or
if the Real Property Assets or any Personal Property or any part thereof shall
become an asset in (a) a voluntary bankruptcy or insolvency proceeding, or (b)
an involuntary bankruptcy or insolvency proceeding which is not dismissed within
ninety (90) days of filing.
(e) Nothing herein shall be deemed to be a waiver of any right which
Lender may have under Sections 506(a), 506(b), 1111(b) or any other provisions
of the U.S. Bankruptcy Code to file a claim for the full amount of the Debt (as
defined in the Security Instruments) secured by the Security Instruments or to
require that all Collateral shall continue to secure all of the Debt owing to
Lender in accordance with this Agreement, the Security Instruments or any other
Loan Document.
(f) Except for subsection (g) of this Section 9.8, the provisions of
this Section 9.8 shall not apply to the obligations and liabilities of Borrower,
Guarantor or the REIT under Section 5.19 and such obligations and liabilities
shall be fully recourse to Borrower, Guarantor and the REIT, jointly and
severally.
(g) 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.
Section 9.9 Intentionally Deleted.
Section 9.10 Borrower's, Guarantor's and REIT's Assignment. Neither
Borrower, Guarantor nor the REIT may assign its rights or obligations hereunder
without the prior written consent of Lender.
-64-
<PAGE> 72
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, the Note, the California 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.
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, the California 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 Section 2.19, 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
-65-
<PAGE> 73
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, GUARANTOR AND LENDER 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, Guarantor or the REIT and Borrower, Guarantor 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, Guarantor, 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 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 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
and the Fee 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.
-66-
<PAGE> 74
Section 9.25 No Benefit to Third Parties. This Agreement is for the
sole and exclusive benefit of Borrower, Guarantor, the REIT and Lender. 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, Guarantor and the REIT are each jointly and severally
liable for the payment in full of the Loan and all other sums owing under this
Agreement, the Note, the California Note, the Security Instruments and any other
Loan Documents and the performance of all of the Obligations.
[NO FURTHER TEXT ON THIS PAGE]
-67-
<PAGE> 75
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: /s/ Ronald C. Brown
---------------------------------
Name: Ronald C. Brown
Title: Vice President and Chief
Financial Officer
STARWOOD LODGING TRUST
By: /s/ Ronald C. Brown
---------------------------------
Name: Ronald C. Brown
Title: Vice President and Chief
Financial Officer
CP HOTEL REALTY LIMITED PARTNERSHIP
By: SLT Realty Limited Partnership, its general
partner
By: Starwood Lodging Trust, its general
partner
By: /s/ Ronald C. Brown
--------------------------------
Name: Ronald C. Brown
Title: Vice President and Chief
Financial Officer
MIDLAND BUILDING CORPORATION
By: /s/ Steven R. Goldman
----------------------------------
Name: Steven R. Goldman
Title: Vice President
<PAGE> 76
LEHMAN BROTHERS HOLDINGS INC. D/B/A
LEHMAN CAPITAL, A DIVISION OF LEHMAN
BROTHERS HOLDINGS INC.
By: /s/ Joseph J. Flannery
__________________________________
Name: Joseph J. Flannery
Title: Authorized Signatory
<PAGE> 1
EXHIBIT 10.32
LEHMAN BROTHERS HOLDINGS, INC.
200 Vesey Street
New York, NY 10285
July 16, 1996
Mr. Barry Sternlicht
Chairman and Chief Executive Officer
Starwood Lodging Trust
11845 West Olympic Boulevard
Suite 550
Los Angeles, CA 90064
RE: SLT REALTY LIMITED PARTNERSHIP
Dear Barry:
We hereby agree to extend the maturity of the Mortgage Loan Funding
Facility in the amount of approximately $71 million, dated July 25, 1995 and as
amended October 1995, due January 1997 for a six month period, to July 1997,
upon terms and conditions to be documented at a later date.
Sincerely,
LEHMAN BROTHERS HOLDINGS, INC.
By /s/ Michael Mazz
---------------------------
Its Managing Director
--------------------------
<PAGE> 1
EXHIBIT 10.33
LOAN AGREEMENT
between
SLT REALTY LIMITED PARTNERSHIP
and
STARWOOD LODGING TRUST
and
GOLDMAN SACHS MORTGAGE COMPANY,
INDIVIDUALLY AND AS AGENT FOR ONE OR
MORE CO-LENDERS
Dated as of August 16, 1996
Facility Amount of $300,000,000.00
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1. DEFINITIONS...........................................................................- 1 -
Section 1.1 Definitions.......................................................- 1 -
SECTION 2. AMOUNT AND TERMS OF LOAN.............................................................- 20 -
Section 2.1 Advances.........................................................- 20 -
Section 2.2 Notice of Borrowing..............................................- 20 -
Section 2.3 Disbursement of Funds............................................- 20 -
Section 2.4 The Note.........................................................- 21 -
Section 2.5 Interest.........................................................- 21 -
Section 2.6 Interest Periods.................................................- 22 -
Section 2.7 Minimum Amount of Eurodollar Portions............................- 23 -
Section 2.8 Intentionally Deleted............................................- 23 -
Section 2.9 Reduction of Facility Amount.....................................- 23 -
Section 2.10 Extension of Maturity Date.......................................- 23 -
Section 2.11 Voluntary Prepayments............................................- 23 -
Section 2.12 Intentionally Deleted............................................- 24 -
Section 2.13 Application of Payments and Prepayments..........................- 24 -
Section 2.14 Method and Place of Payment......................................- 24 -
Section 2.15 Fees.............................................................- 24 -
Section 2.16 Interest Rate Unascertainable, Increased Costs, Illegality.......- 25 -
Section 2.17 Funding Losses...................................................- 27 -
Section 2.18 Increased Capital................................................- 27 -
Section 2.19 Taxes............................................................- 28 -
Section 2.20 Use of Proceeds..................................................- 29 -
Section 2.21 Release of Collateral............................................- 29 -
Section 2.22 Intentionally Deleted............................................- 30 -
Section 2.23 Intentionally Deleted............................................- 31 -
Section 2.24 Decision Making by Agent.........................................- 31 -
SECTION 3. CONDITIONS PRECEDENT.................................................................- 31 -
Section 3.1 Conditions Precedent to the Initial Advance......................- 31 -
Section 3.2 Conditions Precedent to All Advances of the Loan.................- 37 -
Section 3.3 Acceptance of Borrowings.........................................- 38 -
Section 3.4 Sufficient Counterparts..........................................- 38 -
SECTION 4. REPRESENTATIONS AND WARRANTIES.......................................................- 38 -
Section 4.1 Corporate/Partnership Status.....................................- 38 -
Section 4.2 Corporate/Partnership Power and Authority........................- 39 -
Section 4.3 No Violation.....................................................- 39 -
Section 4.4 Litigation.......................................................- 39 -
Section 4.5 Financial Statements: Financial Condition; etc...................- 39 -
Section 4.6 Solvency.........................................................- 40 -
Section 4.7 Material Adverse Change..........................................- 40 -
Section 4.8 Use of Proceeds; Margin Regulations..............................- 40 -
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 4.9 Governmental Approvals...........................................- 40 -
Section 4.10 Security Interests and Liens.....................................- 40 -
Section 4.11 Tax Returns and Payments.........................................- 41 -
Section 4.12 ERISA............................................................- 41 -
Section 4.13 Intentionally Omitted............................................- 42 -
Section 4.14 Representations and Warranties in Loan Documents.................- 42 -
Section 4.15 True and Complete Disclosure.....................................- 42 -
Section 4.16 Ownership of Real Property.......................................- 42 -
Section 4.17 No Default.......................................................- 42 -
Section 4.18 Licenses, etc....................................................- 43 -
Section 4.19 Compliance With Law..............................................- 43 -
Section 4.20 Brokers..........................................................- 43 -
Section 4.21 Judgments........................................................- 43 -
Section 4.22 Intentionally Omitted............................................- 44 -
Section 4.23 Assets of the REIT...............................................- 44 -
Section 4.24 REIT Status......................................................- 44 -
Section 4.25 SLC..............................................................- 44 -
Section 4.26 Owners...........................................................- 44 -
Section 4.27 Operating Entities...............................................- 44 -
Section 4.28 Personal Property................................................- 44 -
Section 4.29 Intentionally Deleted............................................- 44 -
Section 4.30 Stock............................................................- 44 -
Section 4.31 Ground Leases....................................................- 44 -
Section 4.32 Status of Property...............................................- 45 -
Section 4.33 Affiliate Debt and Intercompany Debt.............................- 46 -
Section 4.34 Survival.........................................................- 46 -
SECTION 5. AFFIRMATIVE COVENANTS................................................................- 47 -
Section 5.1 Financial Reports................................................- 47 -
Section 5.2 Books, Records and Inspections...................................- 49 -
Section 5.3 Maintenance of Insurance.........................................- 50 -
Section 5.4 Taxes............................................................- 54 -
Section 5.5 Corporate Franchises; Conduct of Business........................- 54 -
Section 5.6 Compliance with Law..............................................- 54 -
Section 5.7 Performance of Obligations.......................................- 54 -
Section 5.8 Stock............................................................- 54 -
Section 5.9 Maintenance of Personal Property.................................- 55 -
Section 5.10 Maintenance and Operation of Real Property Assets................- 55 -
Section 5.11 Compliance with ERISA............................................- 55 -
Section 5.12 Settlement/Judgment Notice.......................................- 56 -
Section 5.13 Acceleration Notice..............................................- 56 -
Section 5.14 Lien Searches; Title Searches....................................- 56 -
Section 5.15 Intentionally Deleted............................................- 56 -
Section 5.16 Minimum Net Worth................................................- 57 -
Section 5.17 Total Indebtedness...............................................- 57 -
Section 5.18 Coverage Ratios..................................................- 57 -
Section 5.19 Replacement Reserve..............................................- 58 -
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 5.20 Management.......................................................- 58 -
Section 5.21 Further Assurances...............................................- 58 -
Section 5.22 REIT Status......................................................- 58 -
Section 5.23 Loan Documents...................................................- 58 -
Section 5.24 Appraisals.......................................................- 58 -
Section 5.25 Maintenance of Control...........................................- 59 -
Section 5.26 Intentionally Deleted............................................- 59 -
Section 5.27 Transfer of Licenses.............................................- 59 -
Section 5.28 Franchises.......................................................- 59 -
Section 5.29 Compliance with Terms of Ground Leases...........................- 59 -
Section 5.30 Maintenance of Affiliate Debt and Intercompany Debt..............- 59 -
Section 5.31 Keep Well Covenants..............................................- 60 -
Section 5.32 Single Purpose Entity............................................- 60 -
Section 5.33 Environmental Monitoring and Remediation.........................- 61 -
SECTION 6. NEGATIVE COVENANTS...................................................................- 62 -
Section 6.1 Intentionally Deleted............................................- 62 -
Section 6.2 Intentionally Deleted............................................- 62 -
Section 6.3 Liens............................................................- 62 -
Section 6.4 Restriction on Fundamental Changes...............................- 63 -
Section 6.5 Transactions with Affiliates.....................................- 63 -
Section 6.6 Plans............................................................- 63 -
Section 6.7 Payout Ratios....................................................- 63 -
Section 6.8 Operating Leases.................................................- 64 -
Section 6.9 Borrower's Partnership Agreement.................................- 64 -
Section 6.10 Restriction on Prepayment of Indebtedness........................- 64 -
Section 6.11 Negative Pledge Covenant.........................................- 64 -
Section 6.12 Organizational Documents.........................................- 64 -
Section 6.13 Intentionally Deleted............................................- 64 -
Section 6.14 No Transfer......................................................- 64 -
Section 6.15 Change of Name, Identity or Structure............................- 65 -
SECTION 7. EVENTS OF DEFAULT....................................................................- 65 -
Section 7.1 Events of Default................................................- 65 -
Section 7.2 Rights and Remedies..............................................- 68 -
SECTION 8. INTENTIONALLY DELETED................................................................- 69 -
SECTION 9. MISCELLANEOUS........................................................................- 69 -
Section 9.1 Payment of Lender's and Co-Lender's Expenses, Indemnity, etc.....- 69 -
Section 9.2 Notices..........................................................- 70 -
Section 9.3 Successors and Assigns; Participations; Assignments..............- 72 -
Section 9.4 Amendments and Waivers...........................................- 72 -
Section 9.5 No Waiver; Remedies Cumulative...................................- 72 -
Section 9.6 Governing Law; Submission to Jurisdiction........................- 72 -
Section 9.7 Confidentiality; Disclosure of Information.......................- 73 -
Section 9.8 Recourse.........................................................- 73 -
</TABLE>
- iii -
<PAGE> 5
<TABLE>
<S> <C> <C>
Section 9.9 Sale of Loan, Co-Lenders, Participations and Servicing...........- 74 -
Section 9.10 Borrower's and REIT's Assignment.................................- 77 -
Section 9.11 Counterparts.....................................................- 77 -
Section 9.12 Effectiveness....................................................- 77 -
Section 9.13 Headings Descriptive.............................................- 78 -
Section 9.14 Marshaling; Recapture............................................- 78 -
Section 9.15 Severability.....................................................- 78 -
Section 9.16 Survival.........................................................- 78 -
Section 9.17 Domicile of Loan Portions........................................- 78 -
Section 9.18 Intentionally Omitted............................................- 78 -
Section 9.19 Calculations; Computations.......................................- 78 -
Section 9.20 WAIVER OF TRIAL BY JURY..........................................- 78 -
Section 9.21 No Joint Venture.................................................- 79 -
Section 9.22 Estoppel Certificates............................................- 79 -
Section 9.23 No Other Agreements..............................................- 79 -
Section 9.24 Controlling Document.............................................- 79 -
Section 9.25 No Benefit to Third Parties......................................- 79 -
Section 9.26 Joint and Several................................................- 80 -
</TABLE>
- iv -
<PAGE> 6
SCHEDULES
Schedule 1-A Owners
Schedule 1-B Allocated Loan Amounts
Schedule 1-C Allocated Guaranty Amounts
Schedule 2 Real Property Assets
Schedule 3 Franchises
Schedule 4 Intentionally Deleted
Schedule 5 Litigation
Schedule 6 Employee Benefit Plans
Schedule 7 Liens
Schedule 8 Ground Leases
Schedule 9 Intercompany Debt
Schedule 10 Operating Leases
Schedule 11 Intentionally Deleted
Schedule 12 Environmental Monitoring and Remediation
Schedule 13 REIT Business Operations
Schedule 13A Intentionally Deleted
Schedule 14 Pledged Mortgages
Schedule 15 Intentionally Deleted
Schedule 16 Liquor Licenses
EXHIBITS
Exhibit A Notice of Borrowing
Exhibit B Form of Note
Exhibit C Intentionally Deleted
Exhibit D Intentionally Deleted
Exhibit E Notice of Voluntary Prepayment
Exhibit F Form of Environmental Indemnity
Exhibit G Form of Affiliate Debt Subordination Agreement
Exhibit H Form of Security Agreement (Pledge of Membership Interests)
Exhibit I Form of SLC Security Agreement (Pledge of Membership Interests)
Exhibit J Intentionally Deleted
Exhibit K Intentionally Deleted
Exhibit L Form of Owner/Operating Entity Guaranty
Exhibit M Form of SLC/Corporation Guaranty
Exhibit N Form of Assignment and Assumption
- v -
<PAGE> 7
THIS LOAN AGREEMENT, dated as of August 16, 1996, is made
among SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership
("Borrower"), STARWOOD LODGING TRUST, a Maryland real estate investment trust
(the "REIT"), and GOLDMAN SACHS MORTGAGE COMPANY, a New York limited
partnership, individually ("Goldman") and as Agent for one or more Co-Lenders
("Lender").
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, each Owner's and each Operating Entity'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, each Owner's and each Operating Entity'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, each Owner's and each Operating
Entity'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, any Owner or any
Operating Entity 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, any Owner or any Operating Entity)
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.
"Advance" shall mean each advance of the principal balance of
the Loan in accordance with the terms of Sections 3.1 and 3.2.
"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 (including Consolidated Subsidiaries) of such
specified Person.
<PAGE> 8
"Affiliate Debt" shall mean any and all Indebtedness of
Borrower or the REIT to any Affiliate of Borrower, the REIT, or any Loan Party.
"Agent" shall have the meaning provided in Section 9.9(e).
"Agreement" shall mean this Loan Agreement, as the same may
from time to time hereafter be modified, supplemented or amended.
"Allocated Guaranty Amounts" shall mean the portions of the
Loan guaranteed by each Guarantor pursuant to the related Guaranty as set forth
on Schedule 1-C.
"Allocated Loan Amount" shall mean the portions of the
Facility Amount allocated to each Real Property Asset as set forth on Schedule
1-B, 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.
"Assets" of any Person means all assets of such Person that
would, in accordance with GAAP, be classified as assets of a company conducting
a business the same as or similar to that of such Person, including, without
limitation, all Real Property Assets.
"Assignment and Assumption" shall have the meaning provided in
Section 9.9(a).
"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, 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
- 2 -
<PAGE> 9
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 0.75% per annum from the date
hereof through and including the Initial Maturity Date and 1.75% per annum
thereafter.
"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.
"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 as of June 29, 1995, and an Amended and Restated Certificate of Limited
Partnership of SLT Realty Limited Partnership dated July 5, 1995 as amended by
those certain agreements dated May 14, 1996, June 3, 1996, June 4, 1996 and July
1, 1996 as the same may be further amended, modified or supplemented from time
to time.
"Borrowing" shall mean a borrowing of one Type of Advance from
Lender and any Co-Lender on a given date (or resulting from conversions or
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
- 3 -
<PAGE> 10
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 the membership interests of Borrower,
SLC, the Corporation, and SLT Financing Partnership, in each Owner and each
Operating Entity that have been pledged to Lender pursuant to the Security
Agreement and the SLC Security Agreement, together with the Pledged Mortgages.
"Collateral Assignments of Mortgage" shall mean those two
Collateral Assignments of Mortgage each dated the date hereof from Borrower to
Lender with respect to the Pledged Mortgages, which Mortgages have been
collaterally assigned as additional security for the Loan.
"Commitment Fee" shall have the meaning provided in Section
2.15.
"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
- 4 -
<PAGE> 11
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 is 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),
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.
"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 and any unscheduled principal amortization payments (other than payments of
principal under this Loan) actually made or required to be made during such
period pursuant to a settlement of debt (giving effect to any principal payments
actually made or required to be made other than scheduled balloon payments due
on the applicable maturity date that are not then due or past due) of such
Person for such period (whether or not such payments are made).
- 5 -
<PAGE> 12
"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) the rate per annum determined by adding 5% 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.
"Determination Date" shall have the meaning provided in
Section 2.9.
"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 or membership 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;
- 6 -
<PAGE> 13
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)(vi).
"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, SLC, the
Corporation, SLT Financing Partnership, any Owner, any Operating Entity or any
other Loan Party is a member.
"ERISA Indemnitee" shall have the meaning provided in Section
9.9(l).
"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 thirty days, and (b) for any
Short Interest Period an interpolated rate per annum based on the closest thirty
day Interest Period, 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.
"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.
- 7 -
<PAGE> 14
"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 l/16th of
one percent):
Eurodollar Base Rate
1.00 - Eurocurrency Reserve Requirements
"Eurodollar Rate Margin" shall mean (i) from the date hereof
through and including the Initial Maturity Date, 1.75% per annum, and (ii) if
Borrower elects to extend the Initial Maturity Date pursuant to Section 2.10,
from the Initial Maturity Date through and including the Extended Maturity Date,
2.75% per annum.
"Event of Default" shall have the meaning provided in Section
7.
"Extended Maturity Date" shall mean February 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.
"FIRREA" means the Financial Institutions Reform, Recovery and
Enforcement Act of 1989, as amended from time to time.
"Facility Amount" shall mean $300,000,000.00 as such amount
may be permanently reduced pursuant to Sections 2.9, 2.11 or 2.21, or otherwise
pursuant to the terms of this Agreement.
"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.
"Food and Beverage Inventory" shall mean food and beverages
(including liquor) stored at the hotel on each Real Property Asset for service
to hotel guests.
- 8 -
<PAGE> 15
"Franchise" shall mean a management agreement, franchise
agreement or similar agreement pursuant to which the Operating Entities have the
right to operate the hotel located on each Real Property Asset under a name
and/or hotel system controlled by a nationally recognized full service hotel
chain or franchise.
"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, bars,
mini-bars, banquet rooms, recreation facilities, vending machines and
concessions derived from the customary operation of such Real Property Asset.
"Group" shall mean Starwood Capital Group, L.P., a Delaware
limited partnership.
"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(a)(xxv).
"Guarantor" shall mean each Owner, each Operating Entity, SLC,
SLT Financing Partnership, and the Corporation.
"Guaranty" shall have the meaning provided in Section
3.1(a)(iii).
- 9 -
<PAGE> 16
"Improvements" shall mean any building, structure, fixture,
addition, enlargement, extension, modification, repair, replacement or
improvement now or hereafter located or erected on any Real Property Asset.
"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 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.
"Indemnified Liabilities" shall have the meaning provided in
Section 9.1(c).
"Indemnitee" shall have the meaning provided in Section
9.1(c).
"Initial Maturity Date" shall mean August 16, 1997, 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.
"Insurance Premiums" shall have the meaning provided in
Section 5.3(c).
"Intangibles" shall mean Licenses (other than liquor licenses
and licenses related to liquor licenses).
"Intercompany Debt" shall mean the debt described in Schedule
9.
"Intercreditor Agreement" shall have the meaning provided in
Section 9.4.
- 10 -
<PAGE> 17
"Interest Period" shall mean a period of thirty (30) days as
provided in Section 2.6.
"Leases" shall mean all written leases and subleases and
rental agreements, registration cards and agreements and other agreements,
whether or not in writing, affecting the use, enjoyment or occupancy of any Real
Property Asset heretofore or hereafter entered into.
"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, pursuant to the terms hereof, the
aggregate principal amount of which shall not exceed the Facility Amount.
"Loan Documents" shall mean this Agreement, the Note, the
Environmental Indemnity, each Financing Statement filed in connection with the
Security Agreement, the SLC Security Agreement, the Guarantees, the
SLC/Corporation Guaranty, the Collateral Assignments of Mortgage, and any other
documents or instruments evidencing, securing or guaranteeing the Loan or
perfecting Lender's Lien in the Collateral other than that certain letter
agreement dated the date hereof between Borrower, the REIT and Goldman.
"Loan Party" shall mean, individually and collectively, as the
context requires, the REIT, the Borrower, SLC, the Corporation, SLT Financing
Partnership, SLT Realty Company LLC, each Owner and each Operating Entity;
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.
"Majority Co-Lenders" shall mean (i) the Lender and (ii)
Co-Lenders which in the aggregate own a direct pro rata ownership interest in
the Loan of 66-2/3% or more.
"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, SLC, the
Corporation, SLT Financing Partnership, the
- 11 -
<PAGE> 18
Owners or the Operating Entities, taken as a whole, (ii) the ability of
Borrower, the REIT, SLC, the Corporation, SLT Financing Partnership, the Owners
or the Operating Entities 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 any Recourse Indebtedness.
"Maturity Date" shall mean (i) August 16, 1997 or (ii) if
Borrower has elected to extend the Initial Maturity Date pursuant to Section
2.10, February 16, 1998, or (iii) 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 Combined Payout Ratio" shall have the meaning
provided in Section 6.7(a).
"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 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.
"Maximum REIT Payout Ratio" shall have the meaning provided in
Section 6.7(b).
"Minimum Net Worth" shall have the meaning provided in Section
5.16.
"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.
"Negative Pledge Agreement" shall have the meaning provided in
Section 3.1(a)(iv).
"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.
"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.
"Note" shall have the meaning provided in Section 2.4(a).
"Notice of Borrowing" shall have the meaning provided in
Section 2.2(a).
- 12 -
<PAGE> 19
"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
Agreements or any other Loan Document.
"Operating Entity" shall mean each limited liability company
listed on Schedule 10, each of which is the lessee under an Operating Lease for
the related Real Property Asset.
"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 Owners or the
Operating Entities, 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, Owner's or the
Operating Entity'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, Owner or Operating Entity;
(iii) management fees pursuant to any management agreement not
exceeding market and approved by Lender in its reasonable discretion,
but in no event less than three and one-half percent (3.5%) of Gross
Revenues 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;
(iv) franchise fees, reservation fees and other royalties or
similar payments due under any Franchises, not exceeding market and
approved by Lender in its reasonable discretion, with respect to the
applicable Real Property Asset;
(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, Owner or Operating
Entity or any other 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,
- 13 -
<PAGE> 20
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, Owner or Operating Entity, 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, 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 the Owners under the related 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
each Owner as lessor and each Operating Entity 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).
"Owner" shall mean the limited liability companies listed on
Schedule 1-A, each of which is the fee or leasehold owner of the related Real
Property Asset.
"Participant" shall have the meaning provided in Section
9.9(i).
- 14 -
<PAGE> 21
"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 and equipment, computers, reservation systems, telephone
systems, or vans for which aggregate annual lease payments, license fees and
debt service is less than $100,000.00 per annum for each Real Property Asset.
For each Real Property Asset, such amount is an aggregate limit for that Real
Property Asset on all leasing, licensing or financing by the Borrower, the
related Owner and the related Operating Entities.
"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, to the extent owned by any
Loan Party, all machinery, equipment, fixtures (including but not limited to all
heating, air conditioning, plumbing, lighting, communications, elevator
fixtures, inventory and goods), inventory and articles of personal property and
accessions thereof and renewals, replacements thereof and substitutions therefor
(including, but not limited to, beds, bureaus, chiffonniers, chests, chairs,
desks, lamps, mirrors, bookcases, tables, rugs, carpeting, drapes, draperies,
curtains, shades, venetian blinds, screens, paintings, hangings, pictures,
divans, couches, luggage carts, luggage racks, stools, sofas, chinaware, linens,
pillows, blankets, glassware, silverware, foodcarts, cookware, dry cleaning
facilities, dining room wagons, keys or other entry systems, bars, bar fixtures,
liquor and other drink dispensers, icemakers, radios, television sets, intercom
and paging equipment, electric and electronic equipment, dictating equipment,
private telephone systems, medical equipment, potted plants, heating, lighting
and plumbing fixtures, fire prevention and extinguishing apparatus, cooling and
air-conditioning systems, elevators, escalators, fittings, plants, apparatus,
stoves, ranges, refrigerators, laundry machines, tools, machinery, engines,
dynamos, motors, boilers, incinerators, switchboards, conduits, compressors,
vacuum cleaning systems, floor cleaning, waxing and polishing equipment, call
systems, brackets, electrical signs, bulbs, bells, ash and fuel, conveyors,
cabinets, lockers, shelving, spotlighting equipment, dishwashers, garbage
disposals, washers and dryers), other customary hotel equipment and other
tangible property of every kind and nature whatsoever, now or hereafter located
upon the Real Property Assets, or appurtenances thereto, or usable in connection
with the present or future operation and occupancy of the Real Property Assets
and all building equipment, materials and supplies of any nature whatsoever, now
or hereafter located upon the Real Property Assets, including, without
limitation, Intangibles and Food and Beverage Inventory.
"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.
- 15 -
<PAGE> 22
"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.
"Pledged Mortgages" shall mean the mortgages described on
Schedule 4 and collaterally assigned to Lender pursuant to the Collateral
Assignments of Mortgage.
"Policies" shall have the meaning provided in Section 5.03(c).
"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, any Owner or Operating Entity or their respective agents or
representatives.
"Qualified Insurer" shall have the meaning provided in Section
5.03(c).
"Quality Assurance Reports" shall have the meaning provided in
Section 5.1(d).
"Rating Agency" shall have the meaning provided in Section
5.3(c).
"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.
"Recourse Indebtedness" shall mean, with respect to any
Person, Indebtedness for which such Person is personally liable.
"Register" shall have the meaning provided in Section 9.9(h).
- 16 -
<PAGE> 23
"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.
"Release Collateral" shall have the meaning provided in
Section 2.21.
"Release Price" shall have the meaning provided in Section
2.21.
"Replacement Reserve" shall have the meaning provided in
Section 5.19.
"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).
"Restoration" shall have the meaning provided in Section
5.3(h).
"Revolving Credit Facility" shall mean that certain
$135,000,000.00 Revolving Line of Credit pursuant to that certain Amended and
Restated Line of Credit Agreement dated as of October 25, 1995, and that certain
First Amendment to Amended and Restated Line of Credit Agreement dated as of
October 25, 1995, both between Borrower, the REIT, Bankers Trust Company
("Bankers") and Lehman Brothers Holding Inc., D/B/A Lehman Capital, a division
of Lehman Brothers Holdings Inc. ("Lehman"), as further amended by that certain
Second Amendment to Amended and Restated Line of Credit Agreement between
Borrower, the REIT, Bankers, Lehman, Bank of Montreal, The First National Bank
of Boston and Sanwa Bank, California, dated as of August 8, 1996, as the same
may be further amended, modified or supplemented.
"Security Agreement" shall have the meaning provided in
Section 3.1(a)(x).
"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.
"SLC" means SLC Operating Limited Partnership, a Delaware
limited partnership.
"SLC Security Agreement" shall have the meaning provided in
Section 3.1(a)(xviii).
"SLT Financing Partnership" shall mean SLT Financing
Partnership, a Delaware general partnership, in which Borrower owns a 99%
general partnership interest and SLT Realty Company, LLC, owns a 1% general
partnership interest.
"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
- 17 -
<PAGE> 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.
"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.
"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).
"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 Majority Co-Lenders elect to terminate the Draw Period and
make no further advances; (ii) Borrower is in breach of the covenants contained
in Section 5.25, and the Majority Co-Lenders elect to terminate the Draw Period
and make no further Advances or (iii) August 1, 1997.
"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.
- 18 -
<PAGE> 25
"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.
"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, or similar taxes, whether
directly or as reimbursement to Lender.
"Transactions" shall mean each of the transactions
contemplated by the Loan Documents.
"Transferee" shall have the meaning provided in Section 9.7.
"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.
"Unsecured Indebtedness" shall mean, with respect to a Person,
the outstanding principal balance of all Indebtedness which is not secured by
any collateral or Assets of such Person and is evidenced by a promissory note or
other instrument or written agreement. For purposes of this definition, all
Advances under the Loan shall be deemed to be Unsecured Indebtedness.
"Waiver" shall mean a written waiver of certain limitations on
Unsecured and Recourse Indebtedness of Borrower, the REIT and SLC contained in
the Revolving Credit Facility executed by the holders of the Revolving Credit
Facility, which waiver is satisfactory to Lender in its sole discretion.
- 19 -
<PAGE> 26
"Winston Salem" shall have the meaning provided in Section
4.16.
SECTION 2. AMOUNT AND TERMS OF LOAN.
Section 2.1 Advances. (a) Subject to and upon the terms and
conditions herein set forth, Lender (and each Co-Lender) agrees, on the Closing
Date, and from time to time thereafter and prior to the Termination Date, to
make its pro rata share of Advances to Borrower. Lender shall not be required to
make more than nine (9) Advances (inclusive of the initial Advance).
(b) Advances may be voluntarily prepaid pursuant to Section
2.11. Amounts prepaid shall not be reborrowed or readvanced. 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 shall be in the minimum amount of
Twenty Million Dollars (U.S. $20,000,000.00) or any integral multiple of Five
Hundred Thousand Dollars (U.S. $500,000.00) in excess thereof, except for the
final Advance of the Loan which brings the outstanding principal balance up to
the Facility Amount, which final Advance may be in an amount equal to the
difference between the then outstanding principal balance of the Loan and the
Facility Amount. No Advance shall be made after the Termination Date.
(d) The aggregate principal amount at any time outstanding
under the Loan shall not exceed the Facility Amount at such time.
(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.
Section 2.2 Notice of Borrowing. Whenever Borrower desires an
Advance hereunder, 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, and (y) the date of the Advance, (which shall be a
Business Day), (iv) 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 will be complied with after
giving effect to such Advance, (v) shall describe, in reasonable detail, the
intended use of the proceeds of the requested Advance, and (vi) shall be in the
form annexed hereto as Exhibit "A". Lender shall, upon determining the
Eurodollar Rate for any Interest Period, promptly notify Borrower thereof.
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
- 20 -
<PAGE> 27
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, 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. Borrower's and the REIT's obligation to
pay the principal of, and interest on, the Loan shall be evidenced by the
promissory note (as amended, modified, supplemented, extended, consolidated, the
"Note") duly executed and delivered by Borrower and the REIT substantially in
the form of Exhibit "B" hereto in a principal amount equal to $300,000,000.00,
with blanks appropriately completed in conformity herewith. The Note shall (i)
be payable to the order of Lender, (ii) be dated the Closing Date, and (iii)
mature on the Maturity Date. If required by a Co-Lender, Borrower and the REIT
hereby agree to execute a supplemental Note in the principal amount of such
Co-Lender's pro rata share of the Note substantially in the form of Exhibit "B"
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.
Section 2.5 Interest. (a) Borrower and 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 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 the REIT shall pay such interest,
(i) monthly in arrears on the first day of each month, (ii)
- 21 -
<PAGE> 28
on the date of any prepayment, (iii) on the Maturity Date (whether by
acceleration or otherwise) and (iv) 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 be calculated on the basis of a three hundred sixty
(360) day year based on the actual number of days elapsed in the related
Interest Period.
(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 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. Each interest period with
respect to a Eurodollar Portion, other than a Short Interest Period, (each, an
"Interest Period") shall be a one month period of thirty (30) days, 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.
- 22 -
<PAGE> 29
(c) If upon the expiration of any Interest Period, Eurodollar
Portions are not available pursuant to Section 2.17, all outstanding Eurodollar
Portions shall convert into Base Rate Portions, effective as of the expiration
date of such current Interest Period.
Section 2.7 Minimum Amount of Eurodollar Portions. All
Advances, payments, and prepayments 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 Twenty Million Dollars (U.S. $20,000,000.00) 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.
Section 2.8 Intentionally Deleted.
Section 2.9 Reduction of Facility Amount. On or after the
Closing Date and prior to February 1, 1997, Borrower shall have the right to
permanently reduce the Facility Amount in accordance with this Section 2.9.
Borrower shall notify Lender, in writing, of its election to reduce the Facility
Amount, and the amount of the reduction. The reduction shall be in an amount
equal to at least $20,000,000.00 or an integral multiple thereof and shall not
be more than $150,000,000.00. In no event shall the Facility Amount, after
giving effect to such reduction, be less than the then outstanding principal
balance of the Loan. Borrower shall pay to Lender, within five (5) Business Days
after Lender's receipt of the written request, by wire transfer of immediately
available federal funds, the portion of the Commitment Fee due pursuant to
Section 2.15(a), and the reduced Facility Amount shall be effective as of
Lender's receipt of the applicable Commitment Fee (the "Determination Date").
Section 2.10 Extension of Maturity Date. Borrower may extend
the initial Maturity Date for an additional six (6) month period by giving
Lender written notice to extend on or prior to the date that is one (1) month
prior to the Initial Maturity Date. Such request shall be accompanied by a
certificate of Borrower as required pursuant to Section 5.01(b)(ii) and a Waiver
from the holders of the Revolving Line of Credit Facility permitting such
extension. Upon Lender's receipt of such notice and the Waiver, and provided
that no Default or Event of Default has occurred and is continuing, the Initial
Maturity Date shall be extended to February 16, 1998.
Section 2.11 Voluntary Prepayments. Borrower and the REIT
shall have the right to prepay the Loan, in whole but not in part, other than in
connection with a release of Collateral pursuant to Section 2.21 or in
connection with a Condemnation pursuant to Section 5.3(h), 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 five (5) 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,
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) or any integral multiple of Five Hundred
Thousand U.S. Dollars (U.S. $500,000.00) 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
- 23 -
<PAGE> 30
as a result of such early payment. If any such notice is given, the amount
specified in such notice together with the applicable Funding Costs shall be due
and payable on the date specified therein. The Facility Amount shall be
permanently reduced by the amount of any such prepayment.
Section 2.12 Intentionally Deleted.
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 Note and Loan Portions specified by Borrower and if
not specified by Borrower, shall be first applied to the 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.
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, 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 in
the amount of such Co-Lender's pro rata 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 a 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. (a) Borrower and the REIT shall pay to
Lender a commitment fee (the "Commitment Fee") equal to 0.50% of the Facility
Amount, payable as follows:
(i) on the Closing Date, a payment of $750,000.00; and
(ii) on the date of each Advance made after Advances in
the aggregate amount of $150,000,000.00 have been made, a payment equal
to 0.50% of the amount of such Advance or the portion thereof which,
together with all other Advances previously made hereunder (without
taking into account any principal repayments that may have been made
prior to such date), exceeds $150,000,000.00;
- 24 -
<PAGE> 31
(iii) on the earlier to occur of (A) February 1, 1997 or
(B) the Determination Date, a payment equal to 0.50% of the difference
between the Facility Amount (as such amount may have been reduced in
accordance with Sections 2.9, 2.11 and 2.21) and the greater of (1) the
outstanding principal balance of the Loan (without taking into account
any principal repayments that may have been made prior to such date) or
(2) $150,000,000.00.
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
(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
- 25 -
<PAGE> 32
advances, and any Notice of Borrowing 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 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, 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.
- 26 -
<PAGE> 33
Section 2.17 Funding Losses. Borrower and 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 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 Eurodollar Portions does not occur on a date specified therefor in
a Notice of Borrowing (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 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.
- 27 -
<PAGE> 34
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 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 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
- 28 -
<PAGE> 35
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 distribute the
proceeds of the Loan to each of the Owners to enable each Owner to acquire the
fee or leasehold ownership interest in the related Real Property Asset or other
Personal Property, to each Operating Entity to enable each Operating Entity to
acquire the related Intangibles and Food and Beverage Inventory, for costs
associated with the construction, renovation and development of such Real
Property Asset, for working capital, for the initial funding of capital
expenditures, replacement reserves required hereunder, and to pay various
Transaction Costs or for reimbursement of such costs, for termination fees or
other costs associated with management agreements or franchise agreements
affecting the Real Property Assets and for the acquisition of additional first
class full service hotel properties by Borrower or the REIT.
Section 2.21 Release of Collateral. Provided that no Event of
Default has occurred and is continuing, Borrower shall have the right, from time
to time, to obtain a release of Collateral with respect to a particular a Real
Property Asset from the Lien of the Security Agreement, the SLC Security
Agreement, the Negative Pledge Agreement and the other Loan Documents (the
"Release Collateral") 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 Collateral with respect to a particular Real
Property Asset from the Lien of the related Security Agreement and SLC Security
Agreement, Lender shall release such Collateral
- 29 -
<PAGE> 36
from the Lien of the Security Agreement, the SLC Security Agreement, the
Negative Pledge Agreement and the Other Loan Documents, but only upon the
following terms and conditions:
(i) (A) if at the time of such request the aggregate amount of
Advances under the Loan equals the Facility Amount (whether or not any
of such Advances may have been prepaid), upon payment, by wire transfer
of immediately available federal funds, of an amount equal to 115% of
the Allocated Loan Amount for the Release Collateral, together with all
accrued interest on the amount being prepaid, and any reasonable costs
and expenses incurred by Lender to effect the Transaction contemplated
by this Section , including, without limitation, if the payment occurs
on a date that is other than the last day of an Interest Period, any
Funding Costs, or (B) if at the time of such request, the aggregate
amount of Advances under the Loan does not equal the Facility Amount
(whether or not any of such Advances may have been prepaid), no payment
shall be due in connection with the release of the Release Collateral
provided that (1) the Facility Amount is permanently reduced by an
amount equal to 115% of the Allocated Loan Amount for the Release
Collateral, (2) the then outstanding principal balance of the Loan is
less than the Facility Amount as reduced pursuant to the preceding
clause (1), and (3) after giving effect to the reduced Facility Amount
and the release of the Release Collateral, the financial covenants
contained in Sections 5.18 will continue to be complied with and no
other Default or an Event of Default will occur as a result of such
release and reduction; notwithstanding the foregoing, if either of the
foregoing conditions (2) and (3) are not complied with as a condition
to the release of the Release Collateral, Borrower shall pay to Lender,
by wire transfer of immediately available federal funds, an amount of
principal sufficient to cause compliance with the foregoing conditions
(2) and (3) together with all accrued and unpaid interest thereon, and
any reasonable costs and expenses incurred by Lender in connection with
the Transaction contemplated by this Section , including without
limitation, if the payment occurs on a date that is other than the last
day of an Interest Period, any Funding Costs. The amount of any payment
required under this clause (i) is herein referred to as the "Release
Price".
All determinations of compliance with the conditions of this Section
2.21(i) shall be made by Lender.
(ii) a certificate of the general partner of Borrower or
senior executive officer of Borrower certifying that (A) no Default or
Event of Default has occurred and is continuing and (B) no Default or
Event of Default shall occur as a result of such release and, (C) if no
Release Price is being paid, that the conditions in Section 2.21(i)(B)
have been complied with.
Simultaneously with compliance with the conditions set forth
in this Section 2.21, (w) Lender and any Co-Lender shall release the Lien with
respect to the applicable Release Collateral and the Negative Pledge Agreement
with respect to the related Real Property Asset, (x) Lender shall revise
Schedules 1-A, 1-B, 2, 3, 8, 10, 11, 11A, 12 and 16 (the "Related Schedules")
and (y) the Facility Amount shall be permanently reduced as provided in Section
2.21(i)(B) or to the extent of the applicable amounts prepaid hereunder.
Section 2.22 Intentionally Deleted.
- 30 -
<PAGE> 37
Section 2.23 Intentionally Deleted.
Section 2.24 Decision Making by Agent. Borrower and the REIT
acknowledge and agree that all approvals, consents, requirements, calculations,
determinations, decisions, waivers, amendments and modifications that Lender is
entitled to make under this Agreement are subject to the approval or consent of
some or all of the Co-Lenders pursuant to the terms and conditions of the
Intercreditor Agreement, whether or not such approval or consent is expressly
stated herein or otherwise.
SECTION 3. CONDITIONS PRECEDENT.
Section 3.1 Conditions Precedent to the Initial Advance. The
obligation of Lender and each Co-Lender to make the initial Advance of the Loan
(or its pro rata share thereof) on the Closing Date is subject to the
satisfaction by Borrower on the Closing Date of the following conditions
precedent:
(a) Loan Documents.
(i) Loan Agreement. Borrower and the REIT shall
have executed and delivered this Agreement to Lender.
(ii) The Note. Borrower and the REIT shall have
executed and delivered to Lender the Note in the amount, maturity and
as otherwise provided herein.
(iii) The Guarantees. Each Owner, each Operating
Entity, SLC, the Corporation and SLT Financing Partnership shall have
executed and delivered to Lender the Guaranty substantially in the form
set forth as Exhibit "L" or "M" hereto, as applicable (as amended,
restated, modified or supplemented from time to time, each a "Guaranty"
and collectively, the "Guarantees").
(iv) Negative Pledge Agreements. Each Owner shall
have executed and delivered to Lender negative pledge agreements
substantially in the form set forth as Exhibit "G" hereto
(collectively, the "Negative Pledge Agreements"), with respect to each
of the Real Property Assets and such Negative Pledge Agreements shall
be recorded in the appropriate recording office where the Real Property
Asset is located; Notwithstanding anything to the contrary in this
Agreement or in any other Loan Document, neither Borrower nor the
related Owner shall be required to pay any intangibles tax or mortgage
recording tax in connection with the recording of any such Negative
Pledge Agreement.
(v) Intentionally Deleted.
(vi) Environmental Indemnity. Borrower and the REIT
shall have executed and delivered to Lender the Environmental Indemnity
substantially in the form set forth as Exhibit "F" hereto, (as amended,
restated, modified or supplemented from time to time, the
"Environmental Indemnity").
- 31 -
<PAGE> 38
(vii) Intentionally Deleted.
(viii) Intentionally Deleted.
(ix) Intentionally Deleted.
(x) Intentionally Deleted.
(xi) Security Agreement. Borrower and SLT Financing
Partnership shall have executed and delivered to Lender a Security
Agreement with respect to their ownership interests in each Owner
substantially in the form of Exhibit "H" hereto, (as amended, restated,
modified or supplemented from time to time, the "Security Agreement").
(xii) Collateral Assignments of Mortgage. Borrower
(a) shall have executed and delivered to Lender the Collateral
Assignments of Mortgage, and such Collateral Assignments of Mortgage
shall be recorded in the appropriate recording office where the related
Real Property Asset is located, and (b) shall have delivered the
original notes secured by the Pledged Mortgages, together with executed
endorsements (or allonges) thereto, in blank, without recourse.
(xiii) Intentionally Deleted.
(xiv) Intentionally Deleted.
(xv) Ground Leases. If any Owner owns a leasehold
estate in a Real Property Asset, (A) a certified copy of the Ground
Lease for such Real Property Asset, together with all amendments and
modifications thereto, which Ground Lease shall be satisfactory in all
respects to Lender in its sole discretion and (B) a ground lease
estoppel executed by the fee owner and ground lessor of such Real
Property Asset, which estoppel shall be satisfactory to Lender in its
reasonable discretion.
(xvi) Intentionally Deleted.
(xvii) Intentionally Deleted.
(xviii) SLC Security Agreement. SLC, SLT Financing
Partnership and the Corporation shall have executed and delivered to
Lender a security agreement substantially in the form of Exhibit "I"
hereto with respect to their ownership interests in each Operating
Entity (as amended, restated, modified or supplemented, the "SLC
Security Agreement"; the SLC Security Agreement, together with the
Security Agreement the "Security Agreements").
(xix) Intentionally Deleted.
(xx) Intentionally Deleted.
- 32 -
<PAGE> 39
(xxi) Intentionally Deleted.
(b) Opinions of Counsel.
Lender shall have received legal opinions, dated the Closing
Date, from counsel to Borrower, the REIT, SLC, SLT Financing Partnership, the
Corporation, each Owner and each Operating Entity 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, the REIT, SLC, SLT Financing Partnership, the
Corporation, each Owner and each Operating Entity and are valid and (other than
the Negative Pledge Agreements) enforceable in accordance with their terms,
subject to bankruptcy and equitable principles; (ii) that Borrower, SLC, SLT
Financing Partnership, the Corporation, each Owner and each Operating Entity are
qualified to do business and in good standing under the laws of the jurisdiction
in which it is organized; (iii) based upon a certificate of Borrower and the
other Loan Parties, the encumbrance of the Collateral 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, SLC, SLT
Financing Partnership, the Corporation, the Owners or the Operating Entities is
a party or to which they or any of their properties or Assets are bound or
affected; (iv) Lender has a valid and perfected Lien in the Collateral; and (v)
the Loan does not violate the usury laws of the State of Arizona.
(c) Organizational Documents. Lender shall have received (i)
with respect to the Corporation, the certificate of incorporation of the
Corporation, as amended, modified or supplemented to the Closing Date, certified
to be true, correct and complete by the Borrower and the Corporation 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, SLC and SLT Financing Partnership, the agreement of limited
or general partnership, as applicable, 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, (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 (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 and (iv) with respect
to each Owner, each Operating Entity and SLT Realty Company LLC, its certificate
of formation or articles of organization, as applicable, and operating
agreement, each as amended, modified or supplemented to the Closing Date, and
each certified to be true, correct and complete by its managing member, together
with a good standing certificate from the
- 33 -
<PAGE> 40
appropriate Secretary of State and a good standing certificate from the
Secretary of State of each State in which the related Real Property Asset is
located, each to be dated not more than ten (10) days prior to the Closing Date.
(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) Intentionally Deleted.
(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 Section
5.3.
(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 Collateral, the Real Property Assets, Accounts
Receivable, Borrower, SLT Financing Limited Partnership, SLC and the Corporation
(collectively, the "UCC Searches").
(h) Financing Statements. Lender shall have received UCC-l
financing statements signed by Borrower, SLT Financing Partnership, SLC, the
Corporation or other applicable Loan Party, as debtor, naming Lender as secured
party, in form suitable for filing in the appropriate offices of each
jurisdiction where the Borrower, SLT Financing Partnership, SLC, the Corporation
and the applicable Loan Parties are located and/or organized (each, a "Financing
Statement").
(i) Title Insurance Policies; Surveys. Lender shall have
received title insurance policies issued by a title insurance company
satisfactory to Lender, in form and substance reasonably satisfactory to Lender,
insuring the applicable Owner's good and marketable fee simple or leasehold, as
the case may be, title to the related Real Property Asset, which shall contain
among other things, a "Fairway" endorsement or its equivalent, (the "Title
Policy"), and (ii) a recent survey with respect to each of the Real Property
Assets in form and substance reasonably satisfactory to Lender (each, a
"Survey").
(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
- 34 -
<PAGE> 41
such entity's most recent fiscal year and (ii) for each Real Property Asset,
annual operating statements and occupancy statements for Borrower's, SLC's, each
Owner's and each Operating Entity'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 with respect to each Initial Real Property Asset 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 Initial 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 each of the Initial 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 then due and payable pursuant to this
Agreement.
(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) Intentionally Deleted.
(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.
- 35 -
<PAGE> 42
(q) Operating 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
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) Intentionally Deleted.
(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 Agreements 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 Property Net Cash Flow of each Real Property
Asset and the calculation of financial covenants) 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
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 with respect to
each Real Property Asset which is subject to a franchise agreement, each of
which shall be reasonably satisfactory to Lender.
(x) Flood Plain. Lender shall have received reasonably
satisfactory evidence indicating which of the Real Property Assets are in a
flood plain.
(y) 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, the REIT's, any Owner's, any Operating Entity's, SLC's,
the Corporation's or SLT Financing Partnership's obligation to pay (or Lender or
any Co-Lender's rights to receive payment) of the Loan and the other Obligations
or the consummation of the Transactions.
- 36 -
<PAGE> 43
(z) 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
Initial 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.
(aa) Waiver. Lender shall have received a copy of a Waiver
from the holders of the Revolving Credit Facility, together with a copy of the
certification required to be delivered by Borrower to the holders of the
Revolving Credit Facility pursuant thereto.
(bb) 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 each Co-Lender to make each Advance under the Loan
(including without limitation, the initial Advance made on or after the Closing
Date) (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) with respect to all of the Real Property Assets and Collateral 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.
(c) 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.
(d) Notice of Borrowing. Lender shall have received a fully
executed Notice of Borrowing in respect of the Advance to be made on such date.
(e) Title Searches. In connection with a syndication or other
sale of all or any portion of the Loan pursuant to Section 9.9, Lender or any
Co-Lender may elect, in its sole discretion, to perform or have performed Title
Searches with respect to the Real Property Assets
- 37 -
<PAGE> 44
at Borrower's sole cost and expense. The results of all such Title Searches
shall be satisfactory to Lender in its sole discretion.
(f) Waiver. In the event that after giving effect to any
requested Advance, the outstanding balance of the Loan would exceed
$180,000,000.00, Lender shall have received a copy of a Waiver from the holders
of the Revolving Credit Facility permitting such Advance to be made.
(g) 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 as of the Closing Date and as of the date of each Advance, 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,
partnership or limited liability company, as the case may be, in good standing
under the laws of the jurisdiction of its incorporation or formation, (b) has
all requisite power and authority, as the case may be, to own its property and
Assets and to transact the business in which it is engaged or presently proposes
to engage (including this Transaction) and (c) other than SLC Arlington L.L.C.
has duly qualified and is authorized to do business and is in good standing as a
foreign corporation, foreign partnership, or foreign limited liability company
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.
- 38 -
<PAGE> 45
Section 4.2 Corporate/Partnership Power and Authority. Each of
Borrower and the other Loan Parties has the 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 action 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 Real Property Assets or 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 upon any of the property or Assets (including the
Collateral) 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 Collateral) is bound or
to which it may be subject, which contravention would have a Material Adverse
Effect on the value of the Real Property Assets or 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 or (e) will, with
respect to any Loan Party that is a limited liability company, violate in any
material respect the operating agreement of such Person, or (f) will, with
respect to Borrower, the REIT or any other Loan Party, result in a default or
event of default under any Indebtedness (including without limitation, the
Revolving Credit Facility) of such entity or any other agreement or instrument
to which such entity is a party.
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
other Loan Parties or their respective Subsidiaries, or with respect to the Real
Property Assets or the Collateral, 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
- 39 -
<PAGE> 46
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, SLC's, the
Corporation's, any Owner's, any Operating Entity's or SLT Financing
Partnership'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
or any Loan Party 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.
Section 4.10 Security Interests and Liens. (a) The Security
Agreements 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 (other than 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 en- forceability is considered in a proceeding in equity or at law.
(b) None of the Real Property Assets are subject to any Liens
other than Permitted Liens.
- 40 -
<PAGE> 47
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) or any Plan
has been, or is expected by Borrower or the other Loan Parties to be, incurred
by Borrower or the 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
- 41 -
<PAGE> 48
has engaged in any non-exempt transaction prohibited by Section 406 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, and the
date of any Advance 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 each Advance, there are no facts, events or conditions directly and
specifically affecting Borrower, 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. Each Owner has good
and marketable fee simple title or a leasehold estate, as the case may be,
subject to any Permitted Liens, in the related Real Property Asset and each has
good title to all of the Personal Property with respect to the related Real
Property Asset subject to no Lien of any kind except for Permitted Liens. Each
Operating Entity, and with respect to the Real Property Asset identified as the
Radisson Marque of Winston Salem on Schedule 2 ("Winston Salem"), the related
Owner, has good title to all Intangibles and Food and Beverage Inventory 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, the Personal Property, Intangibles or Food and Beverage
Inventory 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, Personal Property, Intangibles or Food and
Beverage Inventory other than Permitted Liens.
Section 4.17 No Default. To the best of the Borrower's or the
REIT's knowledge, (i) no Default or Event of Default exists under or with
respect to any Loan
- 42 -
<PAGE> 49
Document; (ii) no Default or Event of Default exists under or with respect to
the Operating Leases, or (iii) any Indebtedness of Borrower or other Loan Party
(including, without limitation, the Revolving Credit 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, SLC, the Corporation, the Owners and the
Operating Entities for each Real Property Asset have, except as set forth below,
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, service contracts, maintenance agreements and similar
contracts and agreements which are necessary for the operation of the Real
Property Assets and their respective businesses as presently conducted,
including without limitation, liquor licenses, as applicable ("Licenses"). All
liquor licenses are issued and held by the various entities and pursuant to the
various agreements described on Schedule 16, subject to compliance with Section
5.27.
Section 4.19 Compliance With Law. To the best of the
Borrower's or the REIT's knowledge, Borrower and each Loan Party and each Real
Property Asset is in compliance in all material respects with all 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
- 43 -
<PAGE> 50
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 Intentionally Omitted.
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, 1996, 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.
Section 4.25 SLC. The Corporation and entities wholly owned
and Controlled by the Corporation are the sole general partners of SLC.
Section 4.26 Owners. Borrower owns a 99% membership interest
in each Owner and SLT Financing Partnership owns a 1% membership interest in
each Owner.
Section 4.27 Operating Entities. SLC owns a 99% membership
interest in each Operating Entity and the Corporation owns a 1% membership
interest in each Operating Entity.
Section 4.28 Personal Property. For all Real Property Assets,
each Owner, owns, leases or licenses adequate Personal Property (other than
Intangibles and Food and Beverage Inventory) and each Operating Entity, and with
respect to Winston Salem, the related Owner, owns adequate Intangibles and Food
and Beverage Inventory, 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 Franchises. The Personal Property
is not subject to any liens, leases or financing arrangements other than
Permitted Liens. The Personal Property (other than Intangibles and Food and
Beverage Inventory) (other than with respect to Winston Salem) is leased to each
Operating Entity pursuant to the related Operating Lease.
Section 4.29 Intentionally Deleted.
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 the related Owner 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) the Guarantor the owner of a valid and subsisting interest as
tenant under the Ground Lease; (ii) the Ground Lease is in full
- 44 -
<PAGE> 51
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) the Owner enjoys
the quiet and peaceful possession of the estate demised thereby, subject to any
sublease; (v) the Owner 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 Agreement does 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 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 Status of Property. With respect to each Real
Property Asset:
(a) No portion of the Improvements is located in an area
identified by the Secretary of Housing and Urban Development or any successor
thereto as an area having special flood hazards pursuant to the National Flood
Insurance Act of 1968 or the Flood Disaster Protection Act of 1973, as amended,
or any successor law, or, if located within any such area, Borrower or the
related Owner has obtained and will maintain the insurance prescribed in Section
5.3(b)(i) hereof.
(b) Borrower or the related Owner or Operating Entity has
obtained all material zoning, building code, land use, environmental and other
similar permits or approvals, all of which are in full force and effect as of
the date hereof and not subject to revocation, suspension, forfeiture or
modification.
(c) The Real Property Asset is served by all utilities
required for the current or contemplated use thereof. All utility service is
provided by public utilities and the Real Property Asset has accepted or is
equipped to accept such utility service.
(d) All public roads and streets necessary for service of and
access to the Real Property Asset for the current or contemplated use thereof
have been completed, are serviceable and all-weather and are physically and
legally open for use by the public.
(e) The Real Property Asset is served by public water and
sewer systems.
(f) Borrower is not aware of any latent or patent structural
or other significant deficiency of the Real Property Asset except as may be
disclosed in the Engineering Reports delivered to Lender prior to Closing. The
Real Property Asset is free of damage and waste that would have a Material
Adverse Effect on the value of the Real Property Asset. The Real Property Asset
is free from damage caused by fire or other casualty. There is no pending or, to
the actual knowledge of Borrower, threatened condemnation proceedings affecting
the Real Property Asset, or any part thereof, except as shown on Schedule 5.
- 45 -
<PAGE> 52
(g) To the best knowledge of Borrower or the REIT, there are
no delinquent taxes, ground rents, water charges, sewer rents, assessments
(including assessments payable in future installments), insurance premiums, or
leasehold payments affecting the Real Property Asset.
(h) The Real Property Asset is assessed for real estate tax
purposes as one or more wholly independent tax lot or lots, separate from any
adjoining land or improvements not constituting a part of such lot or lots, and
no other land or improvements is assessed and taxed together with the Real
Property Asset or any portion thereof.
(i) (a) The related Operating Entity or, with respect to
Winston Salem, the related Owner, is the sole owner of the entire lessor's
interest in the Leases; (b) the Leases are valid and enforceable; (c) none of
the rents reserved in the Leases have been assigned or otherwise pledged or
hypothecated; (d) no Lease contains an option to purchase, right of first
refusal to purchase, or any other similar provision; (e) no person or entity has
any possessory interest in, or right to occupy, the Real Property Asset
(excluding transient hotel guests) except under and pursuant to a Lease; and (f)
there are no assignments, pledges, hypothecations or other encumbrances of any
Leases or any portion of rents due and payable or to become due and payable
thereunder which are presently outstanding.
(j) No portion of the Real Property Asset has been or will be
purchased with proceeds of any illegal activity.
(k) All material contracts, agreements, consents, waivers,
documents and writings of every kind or character at any time to which the
related Owner or Operating Entity is a party are valid and enforceable against
the related Owner or Operating Entity, as the case may be, and, to the best
knowledge of Borrower, are enforceable against all other parties thereto, and in
all respects are what they purport to be and, to the best knowledge of Borrower,
to the extent that any such writing shall impose any obligation or duty on the
party thereto or constitute a waiver of any rights which any such party might
otherwise have, said writing shall be valid and enforceable against said party
in accordance with the terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization or similar laws affecting the
rights of creditors generally.
Section 4.33 Affiliate Debt and Intercompany Debt. There is no
Affiliate Debt. No Intercompany Debt is secured by a Lien on any Collateral, any
Real Property Assets, any Personal Property, any Intangibles or Food and
Beverage Inventory.
Section 4.34 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.
- 46 -
<PAGE> 53
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) SLC, the Corporation and
each Guarantor and (C) Borrower, the REIT, SLC, the Corporation and each
Guarantor, 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, the REIT and each Guarantor, (B) SLC and
the Corporation and (C) Borrower, the REIT, SLC, the Corporation and each
Guarantor, 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 and SLC, 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, SLC, the Corporation and the Guarantors, 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 and SLC, (iv) copies of all of Borrower's, REIT's, SLC's and the
Corporation's quarterly and annual filings with the Securities and Exchange
Commission and all shareholder reports and letters to the REIT's and the
Corporation's shareholders and all other publicly released information promptly
after their filing or mailing, (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, 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 and (vi) monthly
operating statements for each Real Property Asset prior to the twenty-fifth
(25th) day of each month. 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.
- 47 -
<PAGE> 54
(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, SLC, the Corporation, the Guarantors 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, SLC, the Corporation
or any Guarantors 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, SLC's and Guarantor'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, and 5.19 and demonstrating compliance with the financial covenants set
forth in Sections 5.16, 5.17, 5.18, 6.3, 6.4, 6.7 and 6.10 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 and
5.27 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 6.3, 6.4 and 6.10, shall be provided by the SLC
at the same times that the Borrower's and the REIT's certificate is required
hereunder.
(iii) Within 90 days of the end of Borrower's fiscal year
through the Maturity Date, and prior to the Determination Date, and prior to the
Release of any Collateral pursuant to Section 2.21, 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 5.16, 5.17, 5.18, 5.19 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 or release, as the case may be.
- 48 -
<PAGE> 55
(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 any Loan Party or (y) any event of default under any Franchise
Agreement, Operating Lease, or any other material agreement relating to the Real
Property Assets, to which Borrower, or any Loan Party 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 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, any Owner, any
Operating Entity 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) Tax Returns. Promptly after they are filed with the
Internal Revenue Service, copies of all annual federal income tax returns and
amendments thereto of the Borrower, the REIT and the Loan Parties shall be
delivered to Lender.
(f) Condemnation and Casualty. Borrower shall immediately
notify Agent of any fire or other casualty or any pending or threatened
condemnation or eminent domain proceeding with respect to all or any portion of
any Real Property Asset.
(g) 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. (a) Borrower, SLC,
each Owner and each Operating Entity 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, SLC,
each Owner and each Operating Entity 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, SLC, each Owner and each Operating Entity and
the Real Property Assets (including, without limitation, leases, statements,
bills and invoices), discuss the affairs, finances and accounts of Borrower,
each Owner and each Operating Entity 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.
- 49 -
<PAGE> 56
Section 5.3 Maintenance of Insurance. (a) Borrower and the
other Loan Parties shall (i) maintain with financially sound and reputable
insurance companies insurance on itself and its properties in commercially
reasonable amounts, (ii) maintain Lender as named additional insured in respect
of any such liability insurance required to be maintained hereunder, and (iii)
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.
(b) With respect to each Real Property Asset, Borrower or each
Owner shall obtain and maintain, or cause to be maintained, insurance providing
at least the following coverages:
(i) comprehensive all risk insurance on the Improvements and
the Personal Property, including contingent liability from Operation of
Building Laws, Demolition Costs and Increased Cost of Construction
Endorsements, in each case (A) in an amount equal to 100% of the "Full
Replacement Cost," which for purposes of this Agreement shall mean
actual replacement value (exclusive of costs of excavations,
foundations, underground utilities and footings) with a waiver of
depreciation; (B) containing an agreed amount endorsement with respect
to the Improvements owned or leased by Borrower or the related Owner
and Personal Property or a waiver of all co-insurance provisions; (C)
providing for no deductible in excess of $50,000; and (D) containing an
"Ordinance or Law Coverage" or "Enforcement" endorsement if any of the
Improvements or the use of the Real Property Asset shall at any time
constitute legal non-conforming structures or uses. The Full
Replacement Cost shall be redetermined from time to time (but not more
frequently than once in any twelve (12) calendar months) at the request
of Lender by an appraiser or contractor designated and paid by Borrower
or the related Owner and approved by Lender, or by an engineer or
appraiser in the regular employ of the insurer. Notwithstanding the
foregoing, if such redetermination is based on an Appraisal, the cost
thereof shall be paid by the Borrower or the related Owner. After the
first appraisal, additional appraisals may be based on construction
cost indices customarily employed in the trade and shall be at
Borrower's or the related Owner's expense. No omission on the part of
Lender to request any such ascertainment shall relieve Borrower or the
related Owner of any of its obligations under this Section 5.3(b)(i).
In addition, Borrower or the related Owner shall obtain (y) flood
hazard insurance if any portion of the Improvements is currently or at
any time in the future located in a federally designated "special flood
hazard area" and (z) earthquake insurance in amounts and in form and
substance reasonably satisfactory to Lender in the event the Real
Property Asset is located in an area with a high degree of seismic
activity, or otherwise as required by Lender, provided that the
insurance pursuant to clauses (y) and (z) hereof shall be on terms
consistent with the comprehensive all risk insurance policy required
under this Section 5.3(b)(i), except that the deductible on such
insurance and on wind insurance if the Real Property Asset is located
in a coast line area, shall not be in excess of five percent (5%) of
the appraised value of the Real Property Asset;
(ii) commercial general liability insurance against claims for
personal injury, bodily injury, death or property damage occurring
upon, in or about the Real Property
- 50 -
<PAGE> 57
Asset, including "Dram Shop" or other liquor liability coverage if
alcoholic beverages are sold from or may be consumed at the Real
Property Asset, such insurance (A) to be on the so-called "occurrence"
form with a combined single limit of not less than $1,000,000 or such
greater amount or may be generally required by institutional lenders
for hotels comparable to the Real Property Asset; (B) to continue at
not less than the aforesaid limit until required to be changed by
Lender in writing by reason of changed economic conditions making such
protection inadequate; and (C) to cover at least the following hazards:
(1) premises and operations; (2) products and completed operations on
an "if any" basis; (3) independent contractors; and (4) blanket
contractual liability for all written and oral contracts;
(iii) business income and rent loss insurance (A) covering all
risks required to be covered by the insurance provided for in Section
5.3(b)(i); (B) containing an extended period of indemnity endorsement
which provides that after the physical loss to the Improvements and
Personal Property has been repaired, the continued loss of income will
be insured until such income either returns to the same level it was at
prior to the loss, or the expiration of twelve (12) months from the
date of the loss, whichever first occurs, and notwithstanding that the
policy may expire prior to the end of such period; and (C) in an amount
equal to 100% of the projected gross income from the Real Property
Asset for a period of twelve (12) months. The amount of such business
income insurance shall be determined prior to the date hereof and at
least once each year thereafter based on the greatest of: (x)
Borrower's reasonable estimate of the gross income from the Real
Property Asset and (y) the estimate of gross income set forth in the
Annual Operating Budget delivered pursuant to Section 5.1(a)(v).
(iv) at all times during which structural construction,
repairs or alterations are being made with respect to the Improvements
(A) owner's contingent or protective liability insurance covering
claims not covered by or under the terms or provisions of the above
mentioned commercial general liability insurance policy; and (B) the
insurance provided for in Section 5.3(b)(i) written in a so-called
builder's risk completed value form (1) on a non-reporting basis, (2)
against all risks insured against pursuant to Section 5.3(b)(i), (3)
including permission to occupy the Real Property Asset, and (4) with an
agreed amount endorsement or a waiver of coinsurance provisions;
(v) workers' compensation, subject to the statutory limits of
the state in which the Real Property Asset is located, and employer's
liability insurance (A) with a limit per accident and per disease per
employee, and (B) in an amount for disease aggregate in respect of any
work or operations on or about the Real Property Asset, or in
connection with the Real Property Asset or its operation (if
applicable), in each case reasonably required by Lender;
(vi) comprehensive boiler and machinery insurance, if
applicable, in amounts as shall be reasonably required by Lender on
terms consistent with the commercial general liability insurance policy
required under Section 5.3(b)(ii);
(vii) umbrella liability insurance in an amount not less than
$20,000,000 per occurrence or such greater amount as may be generally
required by institutional lenders
- 51 -
<PAGE> 58
for hotels comparable to the Real Property Asset on terms consistent
with the commercial general liability insurance policy required under
Section 5.03(b)(ii);
(viii) motor vehicle liability coverage for all owned and
non-owned vehicles, including rented and leased vehicles containing
minimum limits per occurrence of $5,000,000;
(ix) a blanket fidelity bond and errors and omissions
insurance coverage insuring against losses resulting from dishonest or
fraudulent acts committed by (A) Borrower's or the related Owner's or
Operating Entity's personnel; (B) any employees of outside firms that
provide appraisal, legal, data processing or other services for
Borrower or the related Owner or (C) temporary contract employees or
student interns; and
(x) such other insurance and in such amounts as are required
pursuant to the Franchise Agreement or as Lender from time to time may
reasonably request against such other insurable hazards which are
generally required by institutional lenders for hotels comparable to
the Real Property Asset or which are commonly insured against for
property similar to the Real Property Asset located in or around the
region in which the Real Property Asset is located.
(c) All insurance provided for in this Section 5.3(b) hereof
shall be obtained under valid and enforceable policies (the "Policies" or in the
singular, the "Policy"), and shall be subject to the approval of Lender as to
insurance companies, amounts, forms, deductibles, loss payees and insurers. The
Policies shall be issued by financially sound and responsible insurance
companies authorized to do business in the state in which the Real Property
Asset is located and approved by Lender. Each insurance company must have a
rating of "A" or better for claims paying ability assigned by Standard & Poor's
Rating Group (the "Rating Agency") or, if the Rating Agency does not assign a
rating for such insurance company, such insurance company must have a general
policy rating of A or better and a financial class of VIII or better by A.M.
Best Company, Inc. (each such insurer shall be referred to below as a "Qualified
Insurer"). Not less than thirty (30) days prior to the expiration dates of the
Policies theretofore furnished to Lender pursuant to Section 5.3(b), certified
copies of the Policies marked "premium paid" or accompanied by evidence
reasonably satisfactory to Lender of payment of the premiums due thereunder (the
"Insurance Premiums"), shall be delivered by Borrower or the related Owner to
Lender; provided, however, that in the case of renewal Policies, Borrower or the
related Owner may furnish Lender with binders therefor to be followed by the
original Policies when issued.
(d) Borrower or the related Owner shall not obtain (i) any
umbrella or blanket liability or casualty Policy unless, in each case, such
Policy is approved in advance in writing by Lender, which approval shall not be
unreasonably withheld, and such Policy is issued by a Qualified Insurer, or (ii)
separate insurance concurrent in form or contributing in the event of loss with
that required in Section 5.3(b) to be furnished by, or which may be reasonably
required to be furnished by, Borrower or the related Owner. In the event
Borrower or the related Owner obtains separate insurance or an umbrella or a
blanket Policy, Borrower or the related Owner shall notify Lender of the same
and shall cause certified copies of each Policy to
- 52 -
<PAGE> 59
be delivered as required in Section 5.3(b). Any blanket insurance Policy shall
(a) specifically allocate to the Real Property Asset the amount of coverage from
time to time required hereunder or (b) be written on an occurrence basis for the
coverages required hereunder with a limit per occurrence in an amount equal to
the amount of coverage required hereunder and shall otherwise provide the same
protection as would a separate Policy insuring only the Real Property Asset in
compliance with the provisions of Section 5.3(b).
(e) All Policies of insurance provided for in Section 5.3(b)
shall contain clauses or endorsements to the effect that:
(i) the Policy shall not be materially changed (other
than to increase the coverage provided thereby) or cancelled
without at least 30 days' written notice to Lender and any
other party named therein as an insured; and
(ii) each Policy shall provide that the issuers
thereof shall give written notice to Lender if the Policy has
not been renewed thirty (30) days prior to its expiration.
(f) Borrower or the related Owner shall furnish to Lender, on
or before thirty (30) days after the close of each of Borrower's and the related
Owner's fiscal years, a statement certified by Borrower or a duly authorized
officer of Borrower of the amounts of insurance maintained in compliance
herewith, of the risks covered by such insurance and of the insurance company or
companies which carry such insurance and, if requested by Lender, verification
of the adequacy of such insurance by an independent insurance broker or
appraiser acceptable to Lender.
(g) If at any time Lender is not in receipt of written
evidence that all insurance required hereunder is in full force and effect,
Lender shall have the right, without notice to Borrower or the related Owner to
take such action as Lender deems necessary to protect its interest in the Real
Property Asset, including, without limitation, the obtaining of such insurance
coverage as Lender in its sole discretion deems appropriate, and all expenses
incurred by Lender in connection with such action or in obtaining such insurance
and keeping it in effect shall be paid by Borrower or the related Owner to
Lender upon demand and until paid shall be secured by the Security Agreement and
shall bear interest in accordance at the Default Rate.
(h) If the Real Property Assets shall be damaged or destroyed,
in whole or in part, by fire or other casualty, or condemned or taken by eminent
domain, Borrower or the related Owner shall give prompt notice of such damage or
taking to Lender and shall promptly commence and diligently prosecute the
completion of the repair and restoration of the Real Property Asset as nearly as
possible to the condition the Real Property Asset was in immediately prior to
such fire or other casualty or taking (the "Restoration"). Borrower or the
related Owner shall pay all costs of such Restoration whether or not such costs
are covered by insurance or any condemnation award. In the event that the
related Real Property Asset cannot be restored to the same condition it was in
immediately prior to a condemnation, or all or substantially all of such Real
Property Asset is condemned or taken by eminent domain, Borrower shall
immediately pay the Release Price and the applicable Funding Costs for such Real
Property Asset in accordance with Section 2.21.
- 53 -
<PAGE> 60
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.
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 Licenses, 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. Borrower shall cause SLC Arlington L.L.C. to be qualified in Illinois
and deliver evidence of such qualification reasonably satisfactory to Lender
within 30 days of the date hereof.
(b) Borrower and SLC 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.
(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.
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, the REIT,
each Owner and each Operating Entity 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.
- 54 -
<PAGE> 61
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. Each Owner shall
own, lease or license Personal Property, and each Operating Entity, and with
respect to Winston Salem, the related Owner, shall own Intangibles and Food and
Beverage Inventory, 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. No Owner or
Operating Entity shall lease, license, encumber or enter into any other
financing arrangements with respect to any of the Personal Property or
Intangibles or Food and Beverage Inventory, as the case may be, in excess of the
Permitted Financing.
Section 5.10 Maintenance and Operation of Real Property
Assets. Borrower and the other Loan Parties shall ensure that the Real Property
Assets are maintained and operated in a manner consistent with the standards of
a full-service hotel subject to a nationally recognized full service hotel
franchise 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-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
- 55 -
<PAGE> 62
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
of any Loan Party 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 against any
Loan Party 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, that 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 against any Loan Party in excess of
$1,000,000.00.
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, the REIT or any other Loan Party 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.
- 56 -
<PAGE> 63
Section 5.15 Intentionally Deleted.
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 in accordance with GAAP; 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 SLC shall
not exceed at any time 55% of the combined Net Book Value of Borrower and SLC
calculated without duplication, provided that Total Debt and Net Book Value
shall exclude amounts related to the Intercompany Debt between (i) the
Corporation and SLC and their consolidated Subsidiaries and (ii) the REIT and
Borrower and their consolidated Subsidiaries.
(c) The maximum combined total Unsecured Indebtedness and/or
Recourse Indebtedness of Borrower and the REIT (exclusive of this Loan and any
subordinated debt) shall not exceed, at any time, $255,000,000.00.
(d) The maximum combined total Unsecured Indebtedness and/or
Recourse Indebtedness of Borrower and SLC (exclusive of this Loan and any
subordinated debt) shall not exceed, at any time, $255,000,000.00.
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 ("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 2.25 to 1.
(b) The ratio of (x) actual EBITDA (adjusted to include
replacement reserves of 4% of gross hotel revenues) of Borrower and SLC for the
applicable Base Period, to (y) the sum of Debt Service plus Fixed Charges of
Borrower and SLC for the same Base Period shall not at any time be less than
2.50 to 1. For purposes of this Section 5.18(b), EBITDA and Debt Service shall
exclude amounts related to the Operating Leases with SLC as tenant and
Intercompany Debt between (A) the Corporation and SLC and their consolidated
Subsidiaries and (B) the REIT and the Borrower and their consolidated
Subsidiaries.
(c) The ratio of (x) Property Net Cash Flow from the Real
Property Assets (adjusted to include Replacement Reserves) for the applicable
Base Period to (y) actual Debt Service with respect to this Loan for the
applicable Base Period shall not at any time be less than 1.24 to 1; for
purposes of determining compliance with this Section 5.18(c) only, the Contract
Rate for calculating Debt Service shall equal the greater of the actual Contract
Rate or 9% per annum.
- 57 -
<PAGE> 64
Section 5.19 Replacement Reserve. Borrower shall maintain or
cause to be maintained, at all times a minimum reserve of 4% of Gross Revenues
for the preceding twelve months for all Real Property Assets (the "Replacement
Reserve") in the form of either (a) readily available and unrestricted cash, (b)
borrowing capacity under this Agreement, as measured by the amount of the
unfunded Facility Amount or (c) borrowing capacity under the Revolving Credit
Facility or another closed and committed credit facility or line of credit from
a financial institution reasonably satisfactory to Lender, in each case as
measured by the amount of the unfunded committed loan amount, provided that
Borrower is not then in default thereunder.
Section 5.20 Management. Each Operating Entity shall manage
the related Real Property Asset pursuant to the Operating Lease and the related
Owner shall manage Winston Salem, subject to (i) certain management agreements
to be entered into with the Corporation with respect to each Real Property Asset
other than the Real Property Asset identified as Palm Desert Embassy Suites,
Palm Desert, California on Schedule 2 ("Palm Desert"); and with respect to Palm
Desert, that certain management agreement to be entered into with Western Host,
Inc., in all cases, such management agreements shall be reasonably satisfactory
to Lender, and (ii) the management agreements described in Sections 4.18 and
5.27 and the Franchises described in Section 5.28.
Section 5.21 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, 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 Collateral and (iii) to establish, preserve and protect the security
interest of Lender in and to the Collateral.
Section 5.22 REIT Status. The REIT shall elect to be treated
as a "real estate investment trust" for the taxable year ending on December 31,
1996 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 5.23 Loan Documents. Borrower shall comply with all of
the terms and conditions and covenants in the Security Agreements, the
Environmental Indemnity and the other Loan Documents.
Section 5.24 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. 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-
- 58 -
<PAGE> 65
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).
Borrower shall pay within five (5) Business Days of Lender's request therefor,
Lender's out-of-pocket costs and expenses for each Appraisal or update thereof
for each Real Property Asset.
Section 5.25 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 5.26 Intentionally Deleted.
Section 5.27 Transfer of Licenses. With respect to all of the
Real Property Assets, 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 ten (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 issued and maintained in either the name of the Corporation or of
Western Host, Inc., an entity which is wholly owned and controlled by the
Corporation and which has entered into a management agreement or lease agreement
with respect to such liquor licenses with the applicable Owner or Operating
Entity on terms and conditions reasonably satisfactory to Lender, within ninety
(90) days of the date hereof or within a reasonable time thereafter if necessary
for reasons beyond the control of Borrower, Western Host, Inc., the Corporation
or any other Loan Party.
Section 5.28 Franchises. Except for the Real Property Assets
identified as the Marque, Atlanta, Georgia, Hotel Park, Tucson, Tucson, Arizona
and the Ritz-Carlton, Kansas City, Missouri, on Schedule 2, each Real Property
Asset shall be operated under a Franchise from one of the entities listed on
Schedule 3 attached hereto or a nationally recognized full service hotel chain
or franchise reasonably satisfactory to Lender.
Section 5.29 Compliance with Terms of Ground Leases. Borrower,
the REIT and the applicable Loan Party shall make all payments and otherwise
perform all obligations in respect of any Ground Leases, keep such Ground Leases
in full force and effect and not allow such Ground Leases to lapse or be
terminated or any rights to renew such Ground Leases to be forfeited or
cancelled, notify the Agent of any default by any party with respect to such
Ground Leases and cause each Loan Party to cure any such default.
Section 5.30 Maintenance of Affiliate Debt and Intercompany
Debt.
- 59 -
<PAGE> 66
(a) Neither any Affiliate Debt nor any Intercompany Debt
shall be secured by a Lien on any Collateral or on
any Real Property Asset, Personal Property,
Intangibles or Food and Beverage Inventory.
(b) Neither Borrower nor the REIT shall amend or modify
the terms of the subordination of any Affiliate Debt
to the Loan and the Obligations.
(c) All Affiliate Debt shall be subordinated to the Loan
and the Obligations pursuant to a subordination
agreement in the form attached hereto as Exhibit G.
Section 5.31 Keep Well Covenants. (a) Borrower and the REIT
shall (i) cause each Owner to be operated and managed in such a manner that it
will fulfill its obligations under the Loan Documents to which it is a party;
(ii) not file any petition for relief under the Bankruptcy Code or under any
similar federal or state law against any Owner; and (iii) provide funding to
each Owner to the extent necessary to enable each Owner to fulfill its
obligations under the related Guaranty and to remain Solvent; (b) SLC and the
Corporation shall: (i) cause each Operating Entity to be operated and managed in
such a manner that it will fulfill its obligations under the Operating Lease to
which it is a party; (ii) not file any petition for relief under the Bankruptcy
Code or under any similar federal or state law against any Operating Entity; and
(iii) provide funding to each Operating Entity to fulfill its obligations under
the related Guaranty and to remain Solvent.
Section 5.32 Single Purpose Entity. Each Owner and each
Operating Entity has not and shall not:
(a) engage in any business or activity other than the
ownership, operation and maintenance of the related Real Property Asset and the
related Personal Property, and activities incidental thereto;
(b) acquire or own any material assets other than (i) with
respect to each Owner, the related Real Property Asset and with respect to each
Operating Entity, the leasehold interest in the related Operating Lease, and
(ii) such Personal Property as may be necessary for the operation of the related
Real Property Asset;
(c) merge into or consolidate with any person or entity or
dissolve, terminate or liquidate in whole or in part, transfer or otherwise
dispose of all or substantially all of its assets or change its legal structure,
without in each case Lender's consent;
(d) fail to preserve its existence as an entity duly
organized, validly existing and in good standing (if applicable) under the laws
of the jurisdiction of its organization or formation, or without the prior
written consent of Lender, amend, modify, terminate or fail to comply with the
provisions of its organizational documents;
(e) own any subsidiary or make any investment in, any Person
without the consent of Lender;
- 60 -
<PAGE> 67
(f) commingle its assets with the assets of any of its
members, any other Loan Party, Affiliates of its members or of any other Loan
Party or of any other Person;
(g) incur any debt, secured or unsecured, direct or contingent
(including guaranteeing any obligation), other than its obligations under the
Loan Documents, except in the ordinary course of its business of owning or
operating the related Real Property Asset, provided that such debt is paid when
due;
(h) become insolvent and fail to pay its debts and liabilities
from its assets as the same shall become due;
(i) fail to maintain its records, books of account and bank
accounts separate and apart from those of its members, any other Loan Party,
Affiliates of its members or any other Loan Party, and any other Person;
(j) enter into any contract or agreement with any of its
members, Affiliates of any member, or any other Loan Party or Affiliate thereof,
except upon terms and conditions that are substantially similar to those that
would be available on an arms-length basis with third parties other than any of
its members, Affiliates of any member or any other Loan Party or Affiliate
thereof;
(k) seek its dissolution or winding up in whole, or in part;
(l) hold itself out to be responsible for the debts of another
Person;
(m) make any loans or advances to any third party, including
any of its member or any other Loan Party or an Affiliate thereof;
(n) fail to file its own tax returns;
(o) fail either to hold itself out to the public as a legal
entity separate and distinct from any other entity or person or to conduct its
business solely in its own name in order not (i) to mislead others as to the
identity with which such other party is transacting business, or (ii) to suggest
that it is responsible for the debts of any third party (including any member,
or any other Loan Party or Affiliate thereof;
(p) fail to maintain adequate capital for the normal
obligations reasonably foreseeable in a business of its size and character and
in light of its contemplated business operations; or
(q) file or consent to the filing of any petition, either
voluntary or involuntary, to take advantage of any applicable insolvency,
bankruptcy, liquidation or reorganization statute, or make an assignment for the
benefit of creditors.
Section 5.33 Environmental Monitoring and Remediation.
Borrower and the REIT shall, or shall cause the related Owner or Operating
Entity, as the case may be, to promptly and diligently comply with the
requirements set forth on Schedule 12 attached hereto
- 61 -
<PAGE> 68
with respect to certain environmental monitoring and remediation requirements
for the listed Real Property Assets.
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 REIT, SLC, SLT Financing
Partnership, the Owners and the Operating Entities 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 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;
(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 or the Owners or the
Operating Entities 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, the Owner or the Operating
Entities or materially adversely affect the security interests of
Lender in the Collateral;
(e) Permitted Financing;
(f) The Pledged Mortgages; and
(g) Liens granted to Lender pursuant to the Security
Agreements securing the Obligations.
- 62 -
<PAGE> 69
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, 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 SLC; 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. 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 SLC or (ii) its membership interest in the Operating
Entities. Borrower shall not sell, transfer pledge, assign or encumber (i) its
membership interest in the Owners or (ii) its general partnership interest in
SLT Financing Partnership. SLC shall not sell, transfer, pledge, assign or
encumber its membership interest in the Operating Entities. SLT Financing
Partnership shall not sell, transfer, pledge, assign or encumber its membership
interest in the Owners. SLT Realty Company LLC shall not sell, transfer, pledge,
assign or encumber its general partnership interest in SLT Financing
Partnership.
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 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 non-exempt transaction prohibited by Section 406 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) 95% of the
- 63 -
<PAGE> 70
Funds From Operations of the REIT and the Corporation (without duplication) in
any four consecutive calendar quarters, (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) 95% for any period thereafter of the combined Funds
From Operations of the REIT in any four consecutive calendar quarters, (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. No Owner or Operating Entity
shall 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.
Section 6.10 Restriction on Prepayment of Indebtedness.
Neither Borrower nor the REIT shall prepay the principal amount, in whole or in
part, of any Unsecured Indebtedness other than the Obligations after the
occurrence of any Event of Default.
Section 6.11 Negative Pledge Covenant. Neither Borrower, the
REIT or any other Loan Party shall enter into or suffer to exist, or permit any
of its Subsidiaries to enter into or suffer to exist, any mortgage, deed of
trust, deed to secure debt or other security instrument or any other Lien, or
any agreement permitting or conditioning the creation or assumption of any Lien
upon any Real Property Asset, Operating Lease or Collateral other than (i) in
favor of Lender and the Co-Lenders, (ii) Permitted Liens, or (iii) mechanic's,
materialman's or other similar liens which remain undischarged of record (by
payment, bonding or otherwise) for more than thirty (30) days.
Section 6.12 Organizational Documents. No Owner or Operating
Entity shall modify or amend any of their respective organizational documents
without the prior written consent of Lender, which consent shall not be
unreasonably withheld.
Section 6.13 Intentionally Deleted.
Section 6.14 No Transfer. No Owner shall sell, Transfer,
convey, assign or lease all or substantially all of the related Real Property
Asset and no Operating Entity shall sell, transfer, convey or assign or sublease
all or substantially all of its leasehold interest in the related Operating
Lease, in either instance other than in connection with a release pursuant to
Section 2.21.
- 64 -
<PAGE> 71
Section 6.15 Change of Name, Identity or Structure. Neither
Borrower, SLC, the Corporation, SLT Financing Partnership, any Owner or any
Operating Entity will change their name, identity (including its trade name or
names) chief executive office, principal place of business without notifying the
Lender of such change in writing at least thirty (30) days prior to the
effective date of such change. Such Loan Party will execute and deliver to the
Lender, prior to or contemporaneously with the effective date of any such
change, any financing statement or financing statement change required by the
Lender to establish or maintain the validity, perfection and priority of
Lender's security interest in the Collateral. At the request of the Lender,
Borrower shall execute a certificate in form satisfactory to the Lender listing
the trade names under which Borrower or the applicable Loan Party intends to
operate the Real Property Asset, and representing and warranting that Borrower
and the applicable Loan Party does business under no other trade name with
respect to such Real Property Asset.
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 two (2) 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, 6.4, 6.6, 6.11 and 6.14.
(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, 5.23, 5.28, 5.31, 6.3, 6.7, 6.8, 6.9 and 6.12
and such failure shall continue uncured for thirty
- 65 -
<PAGE> 72
(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 5.25, the breach of which shall not be
deemed an Event of Default, and such failure 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 (including, without limitation, the Revolving Credit
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 (including, without
limitation, the Revolving Credit 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, or any such Recourse Indebtedness
(including, without limitation, the Revolving Credit Facility) shall
become or be declared to be due and payable prior to its stated
maturity.
(ii) Borrower or the REIT is in default under (A) any
non-recourse Indebtedness of Borrower or the REIT 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 or the Guarantors' ability to
perform their obligations in connection with the Loan.
(iii) Any Owner or Operating Entity, 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
- 66 -
<PAGE> 73
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; 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.
(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 or any Multiemployer Plan, 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
or the receipt of a notice of reorganization or insolvency under Sections 4241
or 4245 of ERISA, 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
- 67 -
<PAGE> 74
(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 any Owner or any
Operating Entity 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 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.
(v) 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) Material Adverse Effect. If any Material Adverse Effect
shall occur.
Section 7.2 Rights and Remedies. (a) Upon the occurrence of
any Event of Default described in Section 7.1(e), the Facility Amount, and the
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 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 Facility Amount and the Facility Amount is terminated, whereupon the
Facility Amount and the Facility Amount and the obligation of Lender and all
Co-Lenders 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,
- 68 -
<PAGE> 75
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) Lender and any Co-Lender may offset any indebtedness,
obligations or liabilities owed to Borrower against any indebtedness,
obligations or liabilities of Borrower to it.
(c) 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 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 Real
Property Assets, the negotiation, preparation, execution and delivery of the
Loan Documents, the creation, perfection or protection of Lender's and
Co-Lender's Liens in the Collateral (including, without limitation, fees and
expenses for property inspections, consultants, lien and title searches, filing
and recording fees), all Appraisals of the Real Property Assets made by Lender
in accordance with Section 5.24 and any amendment, waiver or consent relating to
any of the Loan Documents including releases or Collateral, (including, without
limitation, as to each of the foregoing, the reasonable fees and disbursements
of any outside or special counsel to Agent or Lender) and of Agent, Lender, the
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 and Lender).
(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
- 69 -
<PAGE> 76
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, 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, neither they nor any other Loan Party will 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.
- 70 -
<PAGE> 77
If to Lender, as follows:
Goldman Sachs Mortgage Company
85 Broad Street
New York, New York 10004
Telephone Number: (212) 902-9073
Telecopier Number: (212) 902-3684
Attention: Mr. Marc Furstein, Vice President
and
Goldman Sachs Mortgage Company
85 Broad Street
New York, New York 10004
Telephone Number: (212) 902-4579
Telecopier Number: (212) 902-3876
Attention: Ms. R. May Lee, Vice President
With a copy to:
Main Street Mortgage Co., L.P.
100 2nd Avenue South, Suite 400-S
St. Petersburg, Florida 33701
Telephone Number: (813) 825-3811
Telecopier Number: (813) 825-3821
Attention: Ms. Debbie Brown Senior Vice President
and Controller
If to Borrower or the REIT, as follows:
SLT Realty Limited Partnership,
c/o Starwood Lodging Trust
2231 East Camelback Road, Suite 410
Phoenix, Arizona 85016
Telephone Number: (602) 852-3900
Telecopier Number: (602) 852-0687
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.
- 71 -
<PAGE> 78
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
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.
(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 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 Agreements, and the determination of
deficiency judgments, the laws of the State where Borrower's, SLC's, the
Corporation's and SLT Financing Partnership's respective principal place of
business is located shall apply.
- 72 -
<PAGE> 79
(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 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 and the REIT. 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
- 73 -
<PAGE> 80
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.
Section 9.9 Sale of Loan, Co-Lenders, Participations and
Servicing.
(a) Lender and any Co-Lender may, at their 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; provided, further, however, that Borrower
shall be deemed to have approved, and no written approval shall be required for,
any financial institution or other entity purchasing the Loan or part thereof or
interest therein that has more than $5,000,000,000.00 in assets and is engaged
in the business of originating, purchasing and participating in unsecured loans.
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 "N" (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.
- 74 -
<PAGE> 81
(b) Intentionally Deleted.
(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. Borrower and the REIT shall also enter
any modifications of the Loan Documents reasonably requested by any prospective
Co-Lenders provided that such modifications do not result in any increased cost
or obligation to Borrower, the REIT or any other Loan Party. Borrower and the
REIT shall also pay all reasonable costs and expenses of Lender and any
Co-Lender or prospective Co-Lender, and all reasonable Transaction Costs,
including, without limitation Title Searches pursuant to Section 3.2(e) and
Appraisals pursuant to Section 5.24, up to a maximum of $150,000.00 (except to
the extent that such costs are specifically set forth in this Agreement as being
at Borrower's cost and expense) in connection with any sale of all or a portion
of the Loan to a Co-Lender.
(d) Intentionally Deleted.
(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).
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 Lender 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. Upon any such resignation, a successor Agent shall be determined
pursuant to the terms of the Intercreditor Agreement. The term Agent shall
include any successor Agent.
(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, Goldman 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 Goldman in its individual capacity. Goldman 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.
- 75 -
<PAGE> 82
(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 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 the Note or the
Loan Documents. No Participant shall have any rights under this Agreement, the
Note 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. No participation shall
relieve Lender or Co-Lender, as the case may be, from its obligations hereunder
or under the Note 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) 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
- 76 -
<PAGE> 83
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 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.
- 77 -
<PAGE> 84
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.
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.
- 78 -
<PAGE> 85
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 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 the 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 and the other
Loan Documents, together with that certain letter agreement dated the date
hereof between Goldman and Borrower, 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 all conditions of the obligation of Lender and the Co-Lenders to
make Advances hereunder are imposed solely and exclusively for the benefit of
Lender and the Co-Lenders 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 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
- 79 -
<PAGE> 86
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 and all other sums owing under this
Agreement, the Note, the Security Agreements and any other Loan Documents and
the performance of all of the Obligations.
- 80 -
<PAGE> 87
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: /s/ RONALD C. BROWN
_______________________________________
Ronald C. Brown
Vice President
STARWOOD LODGING TRUST
By: /s/ RONALD C. BROWN
_________________________________________________
Ronald C. Brown
Vice President
GOLDMAN SACHS MORTGAGE COMPANY,
individually and as Agent for One or More Co-
Lenders
By: Goldman Sachs Real Estate Funding Corp.,
its general partner
By: /s/ PETER L. BRIGER, JR.
________________________________________
Name: PETER L. BRIGER, JR.
Title: VICE PRESIDENT
<PAGE> 1
EXECUTION
================================================================================
Exhibit 10.34
MORTGAGE AND SECURITY AGREEMENT
MADE BY
SAUNSTAR LAND CO., LLC
("Fee Mortgagor")
and
SAUNSTAR OPERATING CO., LLC
("Leasehold Mortgagor")
(Fee Mortgagor and Leasehold Mortgagor, together, the "Mortgagor")
TO
LIFE INSURANCE COMPANY OF GEORGIA
("Mortgagee")
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I REPRESENTATIONS AND WARRANTIES
1.01. Organization and Qualification...................................... 8
1.02 Authority and Authorization of Mortgagor............................ 8
1.03 Authority and Authorization of Members.............................. 8
1.04. Execution and Binding Effect........................................ 9
1.05. Authorizations and Filings.......................................... 9
1.06. Absence of Conflicts................................................ 9
1.07. Financial Condition................................................. 9
1.08. Defaults............................................................ 10
1.09. Litigation.......................................................... 10
1.10. Subdivision; Separate Assessment; Zoning; Parking................... 10
1.11. Streets; Access..................................................... 10
1.12. Utility Services.................................................... 11
1.13. Flood Area; Filled Land............................................. 11
1.14. Title............................................................... 11
1.15. Hazardous Substances................................................ 11
1.16. Present Compliance with Laws........................................ 11
1.17 Affirmation of Borrower's Affidavit................................. 11
ARTICLE II COVENANTS AND AGREEMENTS OF MORTGAGOR
2.01. Payment of Secured Obligations...................................... 12
2.02. Maintenance; Repair; Alterations.................................... 12
2.03. Insurance........................................................... 12
2.04. Delivery of Policies; Payment of Premiums........................... 13
2.05. Insurance Proceeds.................................................. 16
2.05.1 Conditions to Use of Proceeds for Greater
Than 25% of Outstanding Principal................................... 16
2.05.2 Conditions to Use of Proceeds for All Work, Regardless of Cost...... 17
2.06. Assignment of Policies Upon Foreclosure............................. 19
2.07. Indemnification; Subrogation;Waiver of Offset....................... 19
2.08. Taxes and Impositions............................................... 20
2.09. Utilities........................................................... 23
2.10. Actions Affecting Mortgaged Property................................ 23
2.11. Actions by Mortgagee to Preserve Mortgaged Property................. 23
2.12. Performance; Survival............................................... 24
2.13. Eminent Domain...................................................... 24
2.14. Inspections......................................................... 25
2.15. Liens ........................................................... 26
2.16. Mortgagee's Powers.................................................. 26
2.17. Financial Statements; Annual Rent Roll.............................. 26
2.18. Mortgagor's Existence and Authorizations............................ 27
2.19. Other Liens......................................................... 27
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
2.20. Change of Title................................................. 27
2.21. Compliance with Laws; Etc....................................... 30
2.22. Environmental Indemnification................................... 31
ARTICLE III ASSIGNMENT OF LEASES
3.01. Assignment of Leases and Rents.................................. 31
3.02. Covenants as to Leases.......................................... 32
3.03 Master Lease.................................................... 32
ARTICLE IV SECURITY AGREEMENT
4.01. Creation of Security Interest................................... 35
4.02. Covenants Regarding Personal Property........................... 35
ARTICLE V EVENTS OF DEFAULTS; REMEDIES
5.01. Events of Default............................................... 37
5.02. Remedies ....................................................... 39
5.03. Application of Proceeds......................................... 42
5.04. Right to Sue Without Prejudice.................................. 42
5.05. Power to Modify Documents....................................... 43
5.06. Remedies Cumulative............................................. 43
5.07 Grant and Exercise of Power of Sale............................. 44
5.08 Waiver of Stay, Execution, Moratorium Laws
Equity of Redemption............................................ 44
ARTICLE VI MISCELLANEOUS
6.01. Giving of Notice................................................ 44
6.02. Governing Law................................................... 46
6.03. Statements by Mortgagor......................................... 46
6.04. Captions ....................................................... 46
6.05. Changes in Tax Law.............................................. 46
6.06. Further Assurances.............................................. 46
6.07. Amendments, Waivers, Etc........................................ 47
6.08. No Implied Waiver............................................... 47
6.09. Expenses; Taxes; Attorneys' Fees................................ 47
6.10. Jurisdiction; Etc............................................... 47
6.11. Interpretation.................................................. 48
6.12. Invalidity of Certain Provisions................................ 48
6.13. Severability.................................................... 48
6.14. Time of Essence; Duration; Survival............................. 49
6.15. Successors and Assigns.......................................... 49
6.16. Subrogation..................................................... 49
6.17. Repayment after Acceleration; Prepayment........................ 49
6.18. Future Advances................................................. 49
6.19. Assignment of Mortgagee's Interest 49
6.20. Limitation of Liability......................................... 50
EXHIBIT "A" - Legal Description
</TABLE>
ii
<PAGE> 4
MORTGAGE AND SECURITY AGREEMENT
THIS MORTGAGE AND SECURITY AGREEMENT (this "Mortgage"), dated as of the
22nd day of May 1996, by SAUNSTAR LAND CO., LLC, a Delaware limited liability
company, ("the Fee Mortgagor") and SAUNSTAR OPERATING CO., LLC, a Delaware
limited liability company, (the "Leasehold Mortgagor"), both having an address
c/o Saunders Real Estate Corporation, 20 Park Plaza, Boston, Massachusetts
02116-4399 in favor of LIFE INSURANCE COMPANY OF GEORGIA, a Georgia corporation
having an address c/o ING Investment Management, Inc., 300 Galleria Parkway,
N.W., Suite 1200, Atlanta, Georgia 30339-3149 (the "Mortgagee"). The term
"Mortgagor" as used herein shall mean each of Fee Mortgagor and Leasehold
Mortgagor, both of them, or any combination of them as the context permits or
requires. To the extent of any ambiguity, the context shall be interpreted as
being inclusive (i.e., both of them and each combination of them) and the
obligations of each of the Mortgagors hereunder shall be joint and several.
W I T N E S S E T H:
WHEREAS, Fee Mortgagor has executed and delivered to Mortgagee
its Mortgage Note (the "Note") of even date herewith wherein Fee Mortgagor
promises to pay to Mortgagee the principal sum of Thirty Million and 00/100
Dollars ($30,000,000.00) (the "Loan") in lawful money of the United States of
America (or so much thereof as shall have been disbursed by Mortgagee), with
interest thereon at the rate and times, in the manner and according to the terms
and conditions specified in the Note, all of which are incorporated herein by
reference.
WHEREAS, Fee Mortgagor is the owner in fee simple of the real
property located at and known as: Boston Park Plaza Hotel and Tower, 64
Arlington Street; the Statler Office Building, 20 Park Plaza; and The First
Corps of Cadets Armory, 130 Columbus Avenue, each located in Boston, Suffolk
County, Massachusetts, consisting of approximately a collective 2.24 acres of
land and improved with hotel, conference center, office and retail facilities,
being more particularly described in Exhibit A attached hereto and made a part
hereof (collectively, the "Premises").
WHEREAS, Leasehold Mortgagor is the owner of the leasehold
interest in the Premises by virtue of that certain Lease Agreement (as may be
amended, modified or restated, the "Master Lease") dated January 24, 1996 by and
between Fee Mortgagor as lessor and Leasehold Mortgagor as lessee.
WHEREAS, Fee Mortgagor and Leasehold Mortgagor each
acknowledge that the Mortgagor will derive substantial and material economic
benefits from the approved uses of the Loan proceeds.
1
<PAGE> 5
WHEREAS, as a condition to disbursing the Loan evidenced by
the Note and secured, inter alia, hereby, Mortgagee requires Fee Mortgagor and
Leasehold Mortgagor to execute and deliver this Mortgage for the purpose of
securing the payment of the Note and the performance and observance of all of
the obligations, arising under the Loan Documents (as hereinafter defined) and
secured hereby.
NOW, THEREFORE, in consideration of the indebtedness described
above together with interest on such indebtedness, as well as the payment of all
other sums of money secured hereby, as hereinafter provided, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and intending to be legally bound, and in order to secure:
(a) Payment of the indebtedness evidenced by the Note,
and any and all modifications, extensions and
renewals thereof, including indebtedness arising as a
result of advances made in the future, and all
interest provided for in the Note;
(b) Payment and performance of all obligations of
Mortgagor under any agreement made by Mortgagor or
between Mortgagor and Mortgagee related to the use of
the loan proceeds evidenced by the Note, and of each
agreement of Mortgagor incorporated by reference
therein or herein, or contained therein or herein;
(c) Payment and performance of all obligations of
Mortgagor under the Loan Documents (as hereinafter
defined);
(d) Payment of all sums advanced by Mortgagee in
accordance herewith to protect the Mortgaged Property
or Mortgagee's interests therein, with interest
thereon as specified in the Note;
(e) Payment of all other sums, with interest thereon,
which may be now or hereafter loaned to Mortgagor, or
its successors or assigns on behalf of the Mortgaged
Property, by Mortgagee, and also any additional sums
not related to the loan which is evidenced by the
Note (the "Loan"), when evidenced by a promissory
note or notes executed by Mortgagor reciting that
such sums are or are to be secured by this Mortgage;
and
(f) Payment and performance of all obligations and
agreements of Mortgagor contained herein or
incorporated herein by reference or evidencing or
securing the indebtedness secured hereby;
(all of the foregoing being hereinafter collectively referred to as the "Secured
Obligations"), Mortgagor does hereby irrevocably grant, bargain, sell, convey,
warrant, assign, transfer, mortgage and pledge to Mortgagee, its successors and
assigns, with MORTGAGE
2
<PAGE> 6
COVENANTS all of Mortgagor's estate, right, title, interest, property, claim and
demand, now owned or held or hereafter acquired or arising, in and to the
following property and rights:
1. ALL the Fee Mortgagor's right, title, interest, claim and
demand, either at law or equity, now or hereafter, in the Premises.
2. ALL the Fee Mortgagor and Leasehold Mortgagor's right,
title, interest, claim and demand, either at law or equity, now or hereafter, in
and to the leasehold estate in the Premises created pursuant to the Master
Lease.
3. TOGETHER WITH all leasehold estates of Mortgagor as lessor,
if any, and all right, title and interest of Mortgagor in and to all leases,
including but not limited to the Master Lease, covering the Premises or any
portion thereof now or hereafter existing or entered into (each, a "Lease,"
collectively, the "Leases"), all guarantees of the obligations of the tenants
under any of the Leases, and all right, title and interest of Mortgagor
thereunder, including, without limitation, all cash or security deposits,
rentals, additional rentals, percentage rentals, advance rentals, and deposits,
maintenance payments or common area payments, income, or profits due or to
become due under the Leases (including all proceeds under any options contained
in the Leases) and all covenants contained in the Leases relating to the
collection and enforcement of collection of such rents, income or profits, or
payments of similar nature (collectively, "Lease Rents");
4. TOGETHER WITH all interests, estate or other claims, both
in law and in equity, which Mortgagor now has or may hereafter acquire in the
Premises;
5. TOGETHER WITH Mortgagor's interest in any and all
tenements, hereditaments and appurtenances belonging to the Premises or any part
thereof or in any way appertaining thereto, and all streets, alleys, passage
ways, areas and sidewalks, water courses, water rights and all leasehold
estates, rights of way and public places, and all strips and gores of land
adjacent thereto or used in connection therewith, rights of access or similar
benefit now existing or hereafter created for the benefit of the Premises or the
Mortgagor or any subsequent owner or tenant of the Premises over ground
adjoining or adjacent to the Premises and all rights to enforce the maintenance
thereof, and all air rights, all easements for foundation and support and any
other appurtenant easement rights necessary to allow for the continued use of
the Premises for hotel, conference center, office and retail purposes as
permitted by the appropriate governing authorities and sufficient to satisfy all
tenant requirements under any and all Lease documents, and all other rights,
liberties and privileges of whatsoever kind or character, and all the estate,
right, title, interest, property, possession, claim and demand whatsoever, at
law or in equity, of Mortgagor in and to the Premises or any part thereof;
6. TOGETHER WITH all right, title and interest of Mortgagor in
and to any and all buildings, structures and improvements now or hereafter
erected on the Premises, and all chattels, fixtures, building materials,
machinery, inventory, apparatus, equipment, articles and/or all personal
property of every kind and description, all parts therefor, and all
3
<PAGE> 7
improvements, accessions or appurtenances thereto, whether tangible or
otherwise, now or hereafter located on or used or usable in connection with the
Premises or any business conducted thereon, whether or not the same have or
would become a part of the Premises by attachment thereto, including, without
limiting the generality of the foregoing, all lighting, heating, cooling,
ventilating, air conditioning, power, incinerating, sprinkling, gas, plumbing,
waste removal and refrigeration systems, engines, furnaces, boilers, pumps,
tanks, heaters, generators, motors, maintenance equipment, fire prevention
apparatus, dryers and laundry equipment, office equipment, and all pipes, wires,
fixtures and apparatus forming a part of or used in connection therewith, tools,
supplies, elevators and motors, refrigeration plants or units, kitchen
equipment, cooking appliances, cabinets, partitions, doors, windows, furniture,
furnishings, living and artificial plants and planters, televisions, television
systems, antenna and/or satellite dish systems, beds, dressers, radios, lamps,
switchboards, telephones, telephone systems and equipment, computers, computer
equipment and software, cabinets, signage, storm windows and doors, window and
door screens, awnings and window and door shades, all drapes and curtains and
related hardware and mounting devices, wall-to-wall carpeting, tables, chairs,
pots, pans, plates, dishes, silver and flatware, linens, plants, planters,
carpets, wall and floor coverings, draperies, art work, motor vehicles, vending
machines, all equipment, machinery, furnishings, fixtures and inventory situated
upon or in the Premises and used or usable in the operation thereof, as well as
all additions, improvements, substitutions and replacements thereto, and
proceeds thereof; with respect to any personal property which is subject to a
conditional bill of sale, lease, security agreement, mortgage or other lien
covering such Premises; all the right, title and interests of Mortgagor in and
to any and all such personal property and any and all such conditional bills of
sale and/or leases, together with the benefits of any deposits or payments now
or hereafter made by Mortgagor, or the predecessors or successors in title to
Mortgagor, all of the records and books of account now or hereafter maintained
by Mortgagor in connection with the Premises and/or the construction,
development, operation and/or management thereof and/or in connection with the
operation of Mortgagor's business, all names as may be used in connection with
the Premises and the goodwill associated therewith, all rents, issues, profits
and other incomes whether now existing or hereafter acquired, all contract
rights relating to the purchase, installation and/or maintenance of any
equipment and/or construction of any improvements (including without limitation,
any contracts with architects, engineers and/or contractors), all accounts and
general intangibles now owned or existing or hereafter created or acquired
related to the Premises and/or the operation of any business with respect
thereto, all agreements for the provision of Premises or services to or in
connection with, or otherwise benefitting, the Premises; including, without
limitation, all management agreements, franchise agreements, license agreements
and cable television agreements, to the extent permitted by applicable law all
rights in and to any and all building, zoning, environmental and other permits,
licenses including without limitation all liquor licenses, approvals, variances
and consents which have been issued or are hereafter issued by any governmental
entity and/or utility company or provided in connection with or related to the
Premises, and all bonds securing to Mortgagor the payment or performance of any
obligation concerning the construction, maintenance, repair and/or use of the
Premises;
4
<PAGE> 8
7. TOGETHER WITH all right, title and interest of Mortgagor in
and to all drawings, plans, specifications, shop drawings, renderings, data,
studies, reports, appraisals, analysis, and other similar work product related
to the Premises now existing or hereafter prepared by Mortgagor, its agents,
contractors, architects, engineers and/or employees in connection with or
related to the Premises and all rights in, to and under, all monies due and to
become due pursuant to and all claims, demands and causes of action that
Mortgagor now has or which may hereafter arise against all parties under all
contracts and subcontracts related to or providing for the design and
construction of improvements to the Premises or the provision of labor, services
or materials therefor, whether now existing or hereafter executed, and any
supplements thereto;
8. TOGETHER WITH all right, title and interest of Mortgagor in
and to all guarantees, and reserve accounts or escrows now or hereafter created
and the funds established thereby pursuant to this Mortgage and the Note;
9. TOGETHER WITH all the remainder or remainders, reversion or
reversions, rents, revenues, issues, profits, royalties, income, accounts
receivable and proceeds therefrom and other benefits derived from any of the
foregoing, including the Lease Rents (collectively, the "Rents"), all of which
are hereby unconditionally assigned to Mortgagee, who is hereby authorized to
collect and receive the same, to give proper receipts and acquittances therefor
and to apply the same to the payment of the Secured Obligations, notwithstanding
the fact that the same may not then be due and payable, subject, however, to a
revocable license of Mortgagor to receive and use the same which license shall
be deemed automatically revoked by Mortgagee without requirement of additional
notice to Mortgagor or of any further action on the part of Mortgagee, upon an
Event of Default (as hereinafter defined);
10. TOGETHER WITH all proceeds or payments in lieu of or as
compensation for the loss of or damage or of the conversion, voluntary or
involuntary, of any of the Mortgaged Premises into cash or liquidated claims,
including without limitation, all proceeds of the insurance required to be
maintained by this Mortgage, or otherwise maintained by the Mortgagor in
connection with the Mortgaged Premises, all awards or other compensation
heretofore or hereafter made to Mortgagor as the result of any Condemnation (as
defined in Section 2.13), all awards for changes of the grades of streets and
all awards for severance damages, all of which are hereby assigned to Mortgagee,
who is hereby authorized to collect and receive the proceeds thereof, to give
proper receipts and acquittances therefor and, subject to Sections 2.05 and
2.13, to apply the same to the payment of the Secured Obligations,
notwithstanding the fact that the same may not then be due and payable;
11. TOGETHER WITH any monies deposited with Mortgagee pursuant
to the terms hereof or of any other Loan Document and all proceeds thereof;
12. TOGETHER WITH all of Mortgagor's interest in accounts,
accounts receivable, receivables and other receivables (including without
limitation, receivables, revenues, rentals and receipts from guest rooms,
meeting rooms, food and beverage facilities,
5
<PAGE> 9
vending machines, telephone systems, guest laundry and all other items of
revenue, receipts or income as identified in the Uniform System of Accounts for
Hotels, 8th revised edition, International Association of Hospitality
Accountants and Hotel Association of New York City, Inc. (1986), as from time to
time amended), contract rights, chattel paper, instruments and documents,
promissory notes, any other obligations or indebtedness owed to Mortgagor from
whatever source arising, deposits, credits, balances, money and rights to money,
all rights of Mortgagor to receive any performance or any payments in money or
kind, all guarantees of the foregoing and security therefor, all of the right,
title and interest of Mortgagor in and with respect to the goods, services, or
other property that gave rise to or that secure any of the foregoing and
insurance policies and proceeds relating thereto, all rights of Mortgagor as an
unpaid seller of goods and services, including but not limited to, the rights to
stoppage in transit, replevin, reclamation, and resale, all books and records
relating to or evidencing any of the foregoing, and all of the foregoing whether
now owned or existing or hereafter created or acquired;
13. TOGETHER WITH all choices in action and causes of action,
all contracts and contract rights (including, without limitation, interests as
lessor in leases, including without limitation the Master Lease and the Leases,
and interests as seller in the sale, transfer or disposition of all or any part
of the property or items described herein), and all other intangible personal
property or general intangibles of Mortgagor of every kind and nature (other
than accounts), corporate or other business records, mailing lists, trademarks,
trade names, trade secrets, goodwill, blueprints, plans, programs, processes,
registrations, licenses, permits, franchises, judgments, tax refund claims,
insurance proceeds including, without limitation, insurance covering the lives
of key employees on which Mortgagor is beneficiary, and any letter of credit,
guarantee, claim, security interest or other security held by or granted to
Mortgagor to secure payment by an account debtor of any of the accounts, all
books and records relating to or evidencing any of the foregoing, and all of the
foregoing, whether now owned or exiting or hereafter created or acquired (the
"Intangibles");
14. TOGETHER WITH any goods, merchandise, or other personal
property, raw materials, parts, supplies, work-in-process and finished products
intended for sale, lease or provision under or in connection with a contract for
services of every kind and description in the custody or possession, actual or
constructive, of Mortgagor, including such inventory as is temporarily out of
the custody or possession of Mortgagor, including insurance proceeds from
insurance on any of the above, any returns upon any accounts and other proceeds,
resulting from the sale or disposition of any of the foregoing, including
without limitation, raw materials, work-in-process, and finished goods, and all
of the foregoing, whether now owned or existing or hereafter created or acquired
(the "Inventory");
15. TOGETHER WITH all proceeds, products, rents and profits
and profits (in whatever form whether cash or non-cash) of any and all of the
foregoing, including, without limitation, in the accounts, equipment,
intangibles, inventory and/or any of the property or items described herein, and
all additions and accessions to, replacements of, insurance or condemnation
proceeds of, and documents covering, the accounts, equipment, intangibles,
6
<PAGE> 10
inventory and/or any of the property or items described herein, all property
received wholly or partly in trade or exchange from the accounts, equipment,
intangibles, inventory, and/or any of the property or items described herein,
and all rents, advances, deposits, revenues, issues, profits and proceeds
arising from the sale, lease license, encumbrance, collection, or any other
temporary or permanent disposition of, the accounts, equipment, intangibles,
inventory, and/or any of the property or items described herein, or any interest
therein.
16. TOGETHER WITH the foregoing items and all books, papers
and records relating to or evidencing the foregoing are and/or shall be located
on the Premises described in Exhibit A, provided that the security interest of
Mortgagee shall attach and be effective wherever such items may be located.
17. It is the intent hereof and of Mortgagor and Mortgagee
that Mortgagee shall have a first and best pre- and post-bankruptcy petition
lien in and to all of the foregoing and a first and best lien as to all items
which may be deemed "cash collateral" under Title 11 of the United States Code
entitled "Bankruptcy," as amended from time to time. It is also the intent
hereof and the intent and agreement of Mortgagor and Mortgagee that all revenue
derived from the leasing of the Premises shall be and be deemed rent derived
from the underlying real estate and, accordingly, subject to this Mortgage.
Further, it is the intent hereof and the intent and agreement of Mortgagor and
Mortgagee that any revenues generated by and/or attributable to the portion of
the Premises which is a hotel and conference center facility or the use or the
operation thereof shall be and be deemed rent derived from the underlying real
estate which is subject to the assignment of Leases and Lease Rent provisions
hereof. Any person or entity extending credit to Mortgagor after the recording
hereof shall be deemed to have assented to the terms of this paragraph.
All of the foregoing as set forth in paragraphs 1 - 16 above,
and the balance of the entire estate, property and interest hereby conveyed to
Mortgagee, is sometimes hereafter collectively referred to as the "Mortgaged
Property."
This Mortgage, the Note, the Loan Agreement (the "Loan
Agreement") of even date herewith by and between Mortgagor and Mortgagee, the
Assignment of Leases and Rents (as defined in Section 3.01), the Environmental
Indemnification Agreement (as defined in Section 2.22), the Assignment of
Agreements, Permits and Rights of even date herewith, the Limited Guaranty and
Suretyship Agreement of even date herewith (the "Limited Guaranty") given to
Mortgagee by Saunders Real Estate Corporation, a Massachusetts corporation
("Saunders"), SLT Realty Limited Partnership, a Delaware limited partnership
("SLT"), and Starwood Lodging Trust, a Maryland real estate investment trust
("Starwood"), (each, a "Guarantor," collectively, the "Guarantors"), the Payment
Guaranty and Suretyship Agreement of even date herewith (the "Payment Guaranty")
given to Mortgagee by SLT and Starwood (the Limited Guaranty and the Payment
Guaranty, collectively, the "Guaranty"), and the Borrower and Guarantors'
Affidavit of even date herewith given by Mortgagor and Guarantors to Mortgagee
(the "Borrower's Affidavit") and any other instrument given to evidence or
further
7
<PAGE> 11
secure the payment and performance of any obligation secured hereby and any
guaranty thereof are sometimes hereinafter collectively referred to as the "Loan
Documents."
TO HAVE AND TO HOLD the Mortgaged Property hereby conveyed or
mentioned and intended so to be, unto Mortgagee, to its own use forever.
PROVIDED ALWAYS, NEVERTHELESS, and this Mortgage is upon the
express condition that, if Mortgagor pays to Mortgagee the principal sum
advanced pursuant to the Loan Documents, the interest thereon and all other sums
payable by Mortgagor to Mortgagee which constitute the Secured Obligations, in
accordance with the provisions of the Loan Documents, at the times and in the
manner specified, without deduction, defalcation, fraud or delay, and Mortgagor
performs and complies with all the agreements, conditions, covenants, provisions
and stipulations contained herein and in the other Loan Documents, then this
Mortgage and the estate hereby granted shall cease and become void, but
otherwise shall remain in full force and effect. Mortgagor agrees to pay all
costs, expenses and fees associated with the preparation, execution, delivery
and recording of a satisfaction or release of this Mortgage.
ARTICLE I
REPRESENTATIONS AND WARRANTIES
Mortgagor represents and warrants to Mortgagee, its successors
and assigns, as follows:
1.01. Organization and Qualification. Fee Mortgagor and
Leasehold Mortgagor are duly organized and validly existing as limited liability
companies under the Laws (as defined in Section 1.06) of the State of Delaware,
are duly qualified to do business and are in good standing under the Laws of the
Commonwealth of Massachusetts, and have full power to conduct their businesses
as presently conducted.
The Donald Saunders Family LLC, (the "Family LLC"), a member of Fee
Mortgagor and Leasehold Mortgagor, is duly formed and validity existing as a
limited liability company under the Laws of the Commonwealth of Massachusetts,
is duly qualified to do business has and is in good standing under the
Commonwealth of Massachusetts, is qualified and has full power to conduct its
business as presently conducted.
SLC Operating Limited Partnership ("SLC"), a member of Leasehold
Mortgagor is duly organized and validly existing as a limited partnership under
the laws of the State of Delaware, is duly qualified to do business and is in
good standing under the Laws of the State of Delaware and Commonwealth of
Massachusetts, and is qualified and has full power to conduct its business as
presently conducted.
8
<PAGE> 12
SLT, a member of Fee Mortgagor, is duly organized and validly existing
as a limited partnership under the laws of the State of Delaware, is duly
qualified to do business under the Laws of Delaware, and is in good standing
under the Laws of the State of Delaware, and is qualified and has full power to
conduct its business as presently conducted. (The members of Fee Mortgagor and
Leasehold Mortgagor are collectively referred to as the "Members").
Starwood Lodging Trust, the general partner of SLT, is duly formed
and validly existing as a real estate investment trust under the Laws of
the State of Maryland, is duly qualified to do business under the Laws of
Maryland, and is in good standing under the Laws of Maryland, and has full power
to conduct its businesses as presently conducted.
1.02. Authority and Authorization of Mortgagor. Mortgagor has
full power and authority to own the Mortgaged Property, to execute and deliver
the Note, this Mortgage and the other Loan Documents and to perform its
obligations hereunder under the Note and the other Loan Documents, and all such
action has been duly and validly authorized by all necessary partnership action
on its part.
1.03. Authority and Authorization of Members. The Members have
full power and authority to execute and deliver the Loan Documents to which
Mortgagor is a party on behalf of Mortgagor and to perform as Members in
connection with the obligations of the Mortgagor hereunder, under the Note, and
under the other Loan Documents, and all such action has been duly and validly
authorized by all necessary corporate action on its part. The Members have the
full power and authority to bind Mortgagor in any or all matters relating to
Mortgagor's business activities, including, without limitation, the power to
enter into the Loan, the Mortgage, the Note and the other Loan Documents.
1.04. Execution and Binding Effect. This Mortgage, the Note
and the other Loan Documents to which Mortgagor and the Guarantors are a party
have been duly and validly executed and delivered by Mortgagor and the
Guarantors and to the best of Mortgagor's knowledge constitute legal, valid and
binding obligations of Mortgagor and the Guarantors, respectively, enforceable
in accordance with the terms hereof and thereto.
1.05. Authorizations and Filings. To the best of Mortgagor's
knowledge, no authorization, consent, approval, license, exemption or other
action by, and no registration, qualification, designation, declaration or
filing with, any Governmental Authority is or will be necessary or advisable in
connection with the execution and delivery of this Mortgage, the Note or the
other Loan Documents, consummation of the transactions herein or therein
contemplated or performance of or compliance with the terms and conditions
hereof or thereof. As used herein the term "Governmental Authority" means any
government or political subdivision or any agency, authority, bureau, central
bank, commission, department or instrumentality of either, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or domestic.
9
<PAGE> 13
1.06. Absence of Conflicts. Neither the execution and delivery
of this Mortgage, the Note or the other Loan Documents nor consummation of the
transactions herein or therein contemplated nor performance of or compliance
with the terms and conditions hereof or thereof will (a) to the best of
Mortgagor's knowledge, violate any Law, (b) conflict with or result in a breach
of or a default under the operating agreement, articles of organization,
by-laws, or partnership agreement, as applicable, of Mortgagor, the Members, or
any Guarantor, or any agreement or instrument, including without limitation the
Master Lease, to which Mortgagor, the Members, or any Guarantor is a party or by
which any of them or any of their respective properties (now owned or hereafter
acquired) may be subject or bound or (c) to the best of Mortgagor's knowledge,
result in the creation or imposition of any lien, charge, security interest or
encumbrance upon any property (now owned or hereafter acquired) of Mortgagor,
the Members, or any Guarantor, other than those liens, charges, security
interests and encumbrances created by the Loan Documents themselves. As used
herein, the term "Law" means any law (including common law), constitution,
statute, treaty, regulation, rule, ordinance, order, injunction, writ, decree or
award of, or permit, approval or license granted by, any Governmental Authority,
including without limitation those relating to zoning, subdivision, building,
safety, fire protection, accessibility to, usability by or discrimination
against disabled individuals, or environmental matters.
1.07. Financial Condition. The financial statements of
Mortgagor and the Guarantors heretofore furnished to Mortgagee present fairly
the financial condition at the respective dates indicated therein and the
results of operations and cash flows, as applicable, for the respective periods
indicated therein of Mortgagor, the Members and the Guarantors, and to the best
of Mortgagor's knowledge, were prepared in accordance with Generally Accepted
Accounting Principles in the United States. Since the dates of the most recent
of such financial statements for Mortgagor, the Members and the Guarantors,
there has been no material adverse change in the business, operations or
condition (financial or otherwise) of any of Mortgagor, the Members or the
Guarantors from that reflected in such financial statements.
1.08. Defaults. No Event of Default, nor, to the best of
Mortgagor's knowledge, any circumstance, event or occurrence which, except for
the passage of time or the giving of notice or both would constitute an Event of
Default (a "Potential Default"), has occurred and is continuing or exists.
1.09. Litigation. There is no pending or (to Mortgagor's
knowledge) threatened proceeding by or before any Governmental Authority against
or affecting Mortgagor, the Members, the Guarantors, or the Mortgaged Property
which if adversely decided would have a material adverse effect on the business,
operations, condition (financial or otherwise) or prospects of Mortgagor, the
Members or the Guarantors or on the ability of Mortgagor or the Guarantors to
perform their respective obligations under the Loan Documents or on the
ownership or operation of the Improvements.
1.10. Subdivision; Separate Assessment; Zoning; Parking. To
the best of Mortgagor's knowledge, (i) the Premises are comprised of two parcels
under applicable Laws
10
<PAGE> 14
regulating subdivision and land development and may be leased, transferred or
mortgaged without the approval of any Governmental Authority having jurisdiction
to regulate or control subdivision or land development, (ii) the Premises are
assessed separately from all other lands for purposes of ad valorem taxation,
(iii) all requirements of every Governmental Authority pertaining to the
Premises and the Improvements, including without limitation zoning, have been
complied with, (iv) no variances, reliance on adjacent property or special
exception is required for the Improvements; and (v) the Premises contains such
parking spaces as are required by applicable Law and by all Leases of the
Premises.
1.11. Streets; Access. To the best of Mortgagor's knowledge,
all streets necessary for the full utilization of the Premises for its present
use have been completed or the necessary rights-of-way therefor acquired by or
dedicated to the appropriate Governmental Authority. The Premises abut upon
physically open, publicly dedicated rights of way known as Park Plaza, Arlington
Street and Columbus Avenue and Mortgagor, its tenants and business visitors have
direct, lawful, unobstructed, adequate and unimpaired vehicular and pedestrian
access to and from said rights of way.
1.12. Utility Services. All utility services necessary for the
ownership of the Improvements and the operation thereof for their present use
are available at the boundaries of the Premises, including water supply and
sanitary and storm sewer facilities and gas, electric and telephone facilities.
1.13. Flood Area; Filled Land. To the best of Mortgagor's
knowledge, the Premises are not in an "area of special flood hazard", as that
term is defined in the National Flood Insurance Act of 1968 (as amended and
supplemented by the Flood Disaster Protection Act of 1973).
1.14. Title. Mortgagor (a) has good and marketable title to
the Premises and the Improvements and has good title to all Personal Property
and other property and rights comprising the Mortgaged Property, except as set
forth on Exhibit B attached hereto and incorporated herein, subject to no
mortgage, lien, pledge, charge, security interest or other encumbrance or
adverse claim of any nature except Permitted Encumbrances (as defined in this
Section 1.14), and (b) has full power and lawful authority to grant, bargain,
sell, convey, warrant, assign, transfer, mortgage, pledge, grant a security
interest in, set over and confirm unto Mortgagee, and its successors and
assigns, the Mortgaged Property as herein provided. Fee Mortgagor and Leasehold
Mortgagor, each hereby consent to the other's mortgage conveyance herein of the
fee interest and leasehold interest, respectively, and acknowledge that such
respective grants do not constitute an Event of Default under the Master Lease.
Mortgagor will forever warrant and defend the title to the Mortgaged Property
and the validity and first priority of the lien or estate, and the security
interest, created hereby against the claims and demands of all persons
whomsoever. As used herein the term "Permitted Encumbrances" means (i) the
Master Lease and all other easements, rights of way and other exceptions set
forth in Schedule B-I of the title policy insuring the lien of this Mortgage,
and
11
<PAGE> 15
(ii) the other exceptions set forth in Schedule B-II of such policy provided
such exceptions remain subordinate to the lien of the Mortgage granted herein.
1.15. Hazardous Substances. The warranties and representations
set forth on Exhibit B of the Environmental Indemnification Agreement are
incorporated herein by reference and are true, complete and accurate.
1.16. Present Compliance with Laws. To the best of Mortgagor's
knowledge, the Mortgaged Property and Mortgagor's operations at the Mortgaged
Property are in substantial compliance with all applicable Laws and private
covenants, except as otherwise set forth in the Agreement of Environmental
Undertakings executed by Mortgagor of even date herewith. Neither Mortgagor nor
Guarantor has received any notification from any Governmental Authority claiming
that there has been any violation of any Law applicable to the Mortgaged
Property or Mortgagor's operations at the Mortgaged Property or requiring
compliance with any such Law not disclosed to Mortgagee in writing.
1.17. Affirmation of Borrower's Affidavit. The Representations
and Warranties as set forth in the Borrower's Affidavit are true, accurate and
complete.
ARTICLE II
COVENANTS AND AGREEMENTS OF MORTGAGOR
Mortgagor hereby covenants and agrees, for itself and its
successors and assigns:
2.01. Payment of Secured Obligations. To pay when due the
principal of, and the interest on, the indebtedness evidenced by the Note, and
the charges, fees and all other sums as provided in the Loan Documents, and all
principal of and interest on any future advance secured hereby, and all other
amounts constituting the Secured Obligations.
2.02. Maintenance; Repair; Alterations. To keep or, cause to
be kept the Mortgaged Property in good condition and in a rentable and
tenantable state of repair; to make or cause to be made, as and when necessary,
all repairs, renewals and replacements, structural and non-structural, exterior
and interior, ordinary and extraordinary, foreseen and unforeseen; to not
remove, demolish or substantially alter (other than the periodic upgrade or
refurbishment of the Improvements which maintain or increase the value thereof
and except such alterations as may be required by Laws, expressly permitted
hereby or otherwise required to be performed in connection with tenant
improvements required or permitted pursuant to any Lease in the ordinary course
of business expressly permitted hereby) any of the Improvements; to promptly
restore or complete, in good and workmanlike manner and in compliance with all
Laws, private covenants and insurance requirements, any Improvements and or
Personal Property which may be damaged or destroyed by casualty (whether or not
insured against or insurable) or by any Condemnation, with Improvements or
Personal Property of equivalent value and utility, whether or not the proceeds
of insurance required hereunder or the award payable in respect
12
<PAGE> 16
of such Condemnation are sufficient for the purpose or are available to
Mortgagor pursuant to Sections 2.05 or 2.13 for such purpose, and to promptly
pay when due all claims for labor performed and materials furnished therefor; to
comply with all Laws, covenants, conditions and restrictions now or hereafter
affecting the Mortgaged Property or any part thereof or requiring any
alterations or improvements, whether foreseen or unforeseen, including but not
limited to those relating to environmental Laws and Laws relating to
accessibility to, usability by and discrimination against disabled individuals;
not to commit or permit any waste or deterioration of the Mortgaged Property; to
keep and maintain grounds, sidewalks, roads, parking and landscape areas in good
and neat order and repair; to comply with the provisions of any Lease; not to
commit, suffer or permit any act to be done in or upon the Mortgaged Property in
violation of any Law; and not to permit the Mortgaged Property to become
abandoned or unguarded.
2.03. Insurance. To at all times provide, maintain and keep in
force the following insurance coverage with respect to the Mortgaged Property:
(a) Insurance against loss or damage to the
Improvements and the Personal Property by fire, flood, earthquakes, lightning,
windstorm, explosion, riot, riot attending a strike, civil commotion, aircraft
and vehicles, smoke and such other hazards as are covered by insurance of the
type now known as "fire and extended coverage", vandalism, malicious mischief
and such other hazards as are covered by so-called "all risk to physical loss"
insurance, and such other insurable hazards as, under good insurance practices,
from time to time are insured against for improvements and personal property
having similar functions and uses in the area where the Improvements and
Personal Property are located, in an amount not less than the greater of (i)
100% of the replacement cost of the Improvements and Personal Property without
deduction for physical depreciation, including the cost of debris removal
(exclusive of the cost of excavations, foundations and footings below the lowest
basement floor), or (ii) the amount necessary to avoid Mortgagor being or
becoming a co-insurer with Mortgagee under the terms of the applicable policies
or by applicable Law; but in any event not less than $30,000,000.00 and with not
more than a $50,000.00 deductible from the loss payable for any earthquake or
flood casualty and a $10,000.00 deductible from the loss payable for all other
casualties, which amounts shall increase each year by an amount allowed pursuant
to subparagraph (i) of this Section 2.03. The policies of insurance carried in
accordance with this subparagraph (a) shall provide for an annual review to
ascertain, among other things, the then pertaining "Replacement Cost
Endorsement";
(b) Comprehensive general liability insurance
(including coverage for elevators and escalators, if any, on the Mortgaged
Property and, if any completion or construction of new Improvements occurs after
execution of this Mortgage, completed operations coverage for two years after
construction of all Improvements has been completed) on an "occurrence basis"
against claims for "personal injury," including without limitation bodily
injury, death or property damage occurring on, in or about the Premises and the
adjoining streets, sidewalks and passageways, such insurance to be in a minimum
amount of $1,000,000.00 per person and $2,000,000.00 per occurrence, together
with excess or umbrella
13
<PAGE> 17
liability in the minimum amount of $25,000,000.00 naming Mortgagee as additional
insured and in an amount to satisfy all Lease requirements and with not more
than $5,000.00 deductible from the loss payable for any such occurrence which
amount shall increase each year by an amount allowed pursuant to subparagraph
(i) of this Section 2.03.
(c) Worker's compensation insurance (including
employer's liability insurance, if requested by Mortgagee) for all employees of
Mortgagor engaged on or with respect to the Mortgaged Property in such amount as
is reasonably satisfactory to Mortgagee, or, if such limits are established by
law, in such amounts;
(d) During the course of any construction or repair
of improvements on the Premises at a cost in excess of $100,000.00 builder's
completed value risk insurance against "all risks of physical loss", including
work in place, collapse and transit coverage, during construction of such
Improvements, with deductibles not to exceed $10,000.00 which amount shall
increase each year by an amount allowed pursuant to subparagraph (i) of this
Section 2.03, in non-reporting form, covering the total value of work performed
and equipment, supplies and materials furnished. Said policy of insurance shall
contain the "permission to occupy upon completion of work or occupancy"
endorsement;
(e) To the extent applicable, as determined by
Mortgagee, boiler and machinery insurance covering pressure vessels, air tanks,
boilers, machinery, pressure piping, heating, air conditioning and other major
components of HVAC systems, and elevator equipment and escalator equipment,
provided the Improvements contain equipment of such nature, and insurance
against loss of occupancy or use arising from any such breakdown, in such
amounts as are from time to time satisfactory to Mortgagee;
(f) If the Premises are in an area designated as a
special flood hazard area by the Federal Emergency Management Agency, such flood
insurance as is available and reasonably acceptable to Mortgagee;
(g) Business interruption insurance and insurance
against loss of "rental value" for a period of not less than twelve (12) months
in such amounts as are satisfactory to Mortgagee; and
(h) Such other insurance, and in such amounts, as may
from time to time be reasonably required by Mortgagee against the same or other
hazards which may now or hereafter arise.
(i) From the date hereof until the Maturity Date (as defined in the
Note), the maximum deductible amounts allowed in Sections 2.3(a), (b) and (d)
may increase annually as follows: Each respective deductible shall be multiplied
times a fraction, the denominator of which shall be the Consumer Price Index
published most recently prior to the date hereof. The numerator of the fraction
shall be the Consumer Price Index published most recently prior to
14
<PAGE> 18
the commencement of each respective Loan Year (as defined in the Note) for which
the calculation is being made.
The term "Consumer Price Index" or "CPI" shall mean the Consumer Price
Index for urban wage earners and clerical workers, Boston, Massachusetts, all
items (1982-1984 =100) published by the United States Department of Labor. In
the event the CPI ceases to use the 1982-84 average of 100 as the basis of
calculation or if substantial changes are made in the terms or items contained
therein then the price index shall be adjusted to the figure that would have
been arrived at had the manner of completing the CPI not been changed. In the
event that the CPI is discontinued, then an equivalent index or method of
calculation shall be determined by Mortgagee.
2.04. Delivery of Policies; Payment of Premiums. That all
policies of insurance required hereby shall be issued by companies and in
amounts in each company satisfactory to Mortgagee:
(a) All policies of insurance required by the terms
of this Mortgage shall contain an endorsement or agreement by the insurer that
any loss shall be payable in accordance with the terms of such policy
notwithstanding any act or negligence of Mortgagor which might otherwise result
in forfeiture of said insurance and the further agreement of the insurer waiving
all rights of set off, counterclaim or deductions against Mortgagor. All
policies of insurance shall be subject to the approval of Mortgagee as to
insurance companies, amounts, expiration dates, form and content and shall name
Mortgagee as an additional insured. In furtherance and not in limitation of the
foregoing, all such policies must have a Best's Class A "XIII" category
designation, and are to be obtained by Mortgagor and held by Mortgagee's
correspondent, New England Realty Resources, Inc., or such other person as may
be from time to time designated by Mortgagee. All policies of insurance
maintained by Mortgagor pursuant to clauses (a) and (d) of Section 2.03 shall
contain the "Replacement Cost Endorsement," "Increased Cost of Construction
Endorsement," and an "Agreed Amount Endorsement." All policies of insurance
covering risks of physical loss shall provide the losses thereunder shall be
payable to Mortgagee pursuant to a standard first mortgagee endorsement, without
contribution, substantially equivalent to the New York Standard Mortgage
Endorsement. At least thirty (30) days prior to the expiration of any policy of
insurance, Mortgagor shall furnish Mortgagee with evidence satisfactory to
Mortgagee of the payment of the premium for, and the reissuance of a policy
continuing, such insurance is required by this Mortgage. All policies of
insurance shall contain a waiver by the insurer of all rights of subrogation to
any rights of Mortgagee and all rights of set-off, counterclaim or deduction
against the insureds. All policies of insurance shall also contain a provision
to the effect that any modification, termination, cancellation of or amendment
to, or non-renewal of such insurance, including any reduction in the scope or
limits of coverage, shall not be effective as to Mortgagee without at least
thirty (30) days prior written notice to Mortgagee. Mortgagor shall not take out
separate insurance with respect to the Mortgaged Property concurrent in form or
contributing in the event of loss with that required by this Mortgage unless the
same shall contain a standard non-contributory lender's loss payable endorsement
in favor of and in scope and form satisfactory to Mortgagee.
15
<PAGE> 19
If the policy carries a co-insurance clause or other clause limiting the amount
of coverage under certain conditions, the insurance must be in such an amount as
to give full coverage under all conditions.
(b) In the event Mortgagor fails to provide,
maintain, keep in force or deliver and furnish to Mortgagee the policies of
insurance required by Section 2.03 and by this Section 2.04, Mortgagee may
procure such insurance or single-interest insurance for such risks covering
Mortgagee's interest, and Mortgagor will pay all premiums thereon promptly
within ten (10) days of demand by Mortgagee, and until such payment is made by
Mortgagor the amount of all such premiums together with interest thereon at the
Default Rate set forth in the Note and shall be evidenced by the Note and shall
be secured by this Mortgage.
(c) Mortgagor shall pay to Mortgagee on the day
monthly installments of principal and interest are due under the Note, until the
Note is paid in full, an amount equal to one-twelfth (1/12th) of the estimated
aggregate annual insurance premiums on all policies of insurance required by
this Mortgage. Such sums shall be held in escrow by New England Realty
Resources, Inc., or such other person as may be from time to time designated by
Mortgagee. Mortgagor further agrees, upon Mortgagee's request, to cause all
bills, statements or other documents relating to the foregoing insurance
premiums to be sent or mailed directly to Mortgagee at least thirty (30) days
prior to the expiration or termination date thereof. Upon receipt of such bills,
statements or other documents, and provided Mortgagor has deposited sufficient
funds with Mortgagee pursuant to this Section 2.04, Mortgagee shall pay such
amounts as may be due thereunder out of the funds so deposited with Mortgagee.
If at any time and for any reason the funds deposited with Mortgagee are or will
be insufficient to pay such amounts as may then or subsequently be due,
Mortgagee shall notify Mortgagor and Mortgagor shall immediately deposit an
amount equal to such deficiency with Mortgagee. Funds deposited with Mortgagee
pursuant to this Section 2.04 in an account or accounts designated for such
deposits may be commingled by Mortgagee with similar deposits by other
mortgagors and, to the extent permitted by applicable Law, shall not bear
interest.
2.05 Insurance Proceeds. That upon the occurrence of any casualty to
the Mortgaged Property or any part thereof, Mortgagor shall give prompt written
notice thereof to Mortgagee.
A. In the event of fire or other casualty during the term of the Note,
subject to the provisions of subclause B. below, then the proceeds of any
insurance policies carried by Mortgagor (the "Proceeds") shall be paid over to
Mortgagee, and may be used at the sole, absolute and exclusive option of
Mortgagee toward repayment of the Loan or to restore, repair or replace the
damaged Mortgaged Property (the "Work").
B. Notwithstanding the foregoing, provided that no Event of Default has
occurred and is continuing and in the event:
(1) Proceeds available as a result of such fire or other
casualty are equal to or less than Five Hundred Thousand and 00/100 Dollars
($500,000.00), Mortgagee shall deliver
16
<PAGE> 20
such Proceeds to Mortgagor, and Mortgagor covenants to use such Proceeds to fund
the cost of the Work, and further covenants that upon completion of the Work,
Mortgagor will fulfill the terms and conditions as set forth in Section
2.05.2(B), (C), (E), (F), (G), to the extent any tenant under any Lease is
affected by such casualty, and (H).
(2) The cost of completing the Work estimated by Mortgagee is
equal to or less than Fifty percent (50%) of the then outstanding principal
balance under the Loan at the time of the casualty occurrence, Mortgagee shall
make such Proceeds available for reimbursement of the costs to Mortgagor of the
Work subject to the fulfillment of the terms and conditions as set forth in
Section 2.05 (including Subsections 2.05.1 and 2.05.2) to Mortgagee's full and
complete satisfaction, in its reasonable judgment.
(3) The cost of completing the Work estimated by Mortgagee is
greater than Fifty percent (50%) of the then outstanding principal balance under
the Loan at the time of the casualty occurrence, and if Mortgagee shall, in its
sole discretion, elect to apply the Proceeds toward repayment of the Loan, then
Mortgagor shall have the right to prepay the Loan in full without any Prepayment
Premium (as defined in the Note) within ninety days (90) after Mortgagee or
Correspondents notifies Mortgagor of such election, provided that Mortgagor
notifies Mortgagee of its intention to prepay the Loan in full within thirty
(30) days of the receipt of notice of such election.
C. In the event Mortgagee makes the Proceeds available for repair,
restoration or replacement of the Mortgaged Property, and each and every term
and condition set forth in this Section 2.05 (including Subsections 2.05.1 and
2.05.2) is not fulfilled to Mortgagee's full and complete satisfaction, in its
reasonable judgment, then Mortgagee shall continue to have the right as set
forth in paragraph A of this Section 2.05 to use the Proceeds towards repayment
of the Loan, or to restore, repair or replace the damaged Mortgaged Property, at
the sole, absolute and exclusive option of Mortgagee.
D. Regardless of whether there are Proceeds available, or whether
Mortgagee makes Proceeds available to Mortgagor or any such Proceeds are
sufficient in amount:
(1) Nothing herein contained shall be deemed to excuse
Mortgagor from repairing or maintaining the Mortgaged Property as provided in
Section 2.02 hereof or restoring or replacing all damage or destruction of the
Mortgaged Property;
(2) The application or release by Mortgagee of any Proceeds
shall not cure or waive any default or notice of default under this Mortgage or
invalidate any act done pursuant to such notice; and
(3) Mortgagor may obtain construction financing ("Construction
Financing") to fund the cost of the Work provided (i) such financing and the
lien securing such financing on the Mortgaged Property is fully and completely
subordinate to the lien of this Mortgage, (ii) Mortgagee has approved the terms
and conditions of the Construction Financing, including
17
<PAGE> 21
the loan documents evidencing and securing such Construction Financing, which
consent shall not be unreasonably withheld or delayed, and (iii) Mortgagor shall
pay Mortgagee's costs associated with Mortgagee's review and approval of the
Construction Financing, including, without limitation reasonable attorneys'
fees.
E. Any monies released to Mortgagor (or paid or applied on the cost of
the Work, as hereinafter defined) shall in no event be deemed a repayment of the
Loan. Mortgagee shall not be responsible for any failure to collect the Proceeds
under the terms of any insurance policy required pursuant to this Mortgage.
F. To the extent that Proceeds are to be made available by Mortgagee
for the reimbursement of the costs to Mortgagor for completing the Work pursuant
to this Section 2.05, such Proceeds shall be paid out by Mortgagee to Fee
Mortgagor or Leasehold Mortgagor, as the case may be depending on which party is
entitled to receive the Proceeds under the Master Lease, only upon the
fulfillment of the terms and conditions set forth in Section 2.05.1 and Section
2.05.2 to Mortgagee's full and complete satisfaction, in its reasonable
judgment:
2.05.1 Conditions To Use Of Proceeds for Work Greater Than 25% of
Outstanding Principal. If the cost of completing the Work estimated by Mortgagee
shall exceed twenty-five percent (25%) of the then outstanding principal balance
under the Loan at the time of the casualty occurrence and the Mortgagee makes
the Proceeds available to Mortgagee, then, prior to the commencement thereof
(other than Work to be performed on an emergency basis to protect the Mortgaged
Property or prevent interference therewith):
A. Mortgagor shall retain (at Mortgagor's expense) an architect
or engineer, approved by Mortgagee in its reasonable judgment
in advance of the performance of the Work, and charged with
the supervision of the Work; and
B. Mortgagor shall have submitted to Mortgagee:
1. The plans and specifications for such Work (the "Plans"),
along with a cost projection schedule including a trade
payment breakdown, project budget, construction schedule and
anticipated payments schedule showing the costs and timing for
completing the Work (the "Cost Projection Schedule"), each
with such detail as Mortgagee may reasonably require. At
Mortgagee's request, Mortgagor's interest in the Plans will be
assigned to Mortgagee conditioned upon the occurrence of an
Event of Default;
2. Such other documentation as Mortgagee may reasonably
require evidencing that the Work will be in compliance with
all federal, state and local, rules, regulations ordinances
and codes, including without limitation, all building codes
and zoning ordinances, governing or otherwise applicable to
the Mortgaged Property or the Work (the "Legal Requirements");
18
<PAGE> 22
3. Executed copies all general construction contracts relating
to the Work;
4. To the extent that the cost to complete the Work, based
upon the Cost Projection Schedule, will be more than the
Proceeds, Mortgagor shall have deposited with Mortgagee funds
(the "Additional Deposit") at least equal to the difference
between (a) the costs to complete the Work as set forth on the
Cost Projection Schedule and (b) the Proceeds received and
being held by Mortgagee. The Additional Deposit shall be held
by Mortgagee under the same terms and conditions, and with the
same rights and privileges granted to Mortgagee, as the
Proceeds are to be held by Mortgagee under this Mortgage. To
the extent that any funds are advanced to Mortgagor pursuant
to this Section 2.05, the Additional Deposit shall be deemed
to have been the funds first advanced. In the alternative, to
the extent that the cost to complete the Work will be more
than the Proceeds, Mortgagee shall allow the Guarantors to
provide a completion guaranty (the "Completion Guaranty") for
all such costs which exceed the Proceeds, which guaranty shall
be acceptable to Mortgagee in its sole discretion. Mortgagor
shall pay to Mortgagee all costs and expenses incurred by
Mortgagee, including, without limitation, legal fees, in
connection with the Completion Guaranty.
2.05.2 Conditions To Use Of Proceeds For All Work, Regardless Of Cost.
In the event Mortgagee has made the Proceeds available, the proceeds shall be
made available upon the full and complete performance of the Work, regardless of
the cost thereof:
A. Neither an Event of Default nor a Potential Default shall have
occurred and be continuing;
B. Mortgagor shall provide lien waivers satisfactory in form and
substance to Mortgagee covering the Work and an endorsement to the
title policy evidencing that there has not been filed, and insuring
against the filing of, any mechanic's lien or other lien, affidavit or
instrument asserting any lien or any lien rights with respect to the
Mortgaged Property;
C. Mortgagor shall provide a copy of a Certificate of Occupancy if
required by Law and all other licenses, certificates and permits as may
be required by any Legal Requirements to render occupancy of the
damaged portion of the Mortgaged Property lawful for its intended
purposes;
D. Mortgagor shall provide no less than ten (10) business days prior
written notice to Mortgagee of its request for the release of Proceeds;
E. The architect or engineer reasonably approved by the Mortgagee (if
any be required hereinabove, and if not so required or otherwise
retained, then Mortgagor or an executive officer, general partner or
member of the Members) shall deliver to
19
<PAGE> 23
Mortgagee a certification stating, among such other matters as may be
reasonably required by Mortgagee that:
a. All of the Work has been fully and completely performed in
compliance with the approved plans and specifications (if any
be required hereinabove), in a good and workmanlike manner.
b. The amount of the Proceeds requested to be disbursed is
justly required to reimburse Mortgagor for payments by
Mortgagor to, or is justly due to, the contractor,
subcontractors, materialmen, laborers, engineers, architects
or other persons rendering services or materials for the Work
(giving a brief description of such services and materials);
c. The amount of the disbursement requested does not exceed
the value of the Work performed;
F. Mortgagor shall deliver to Mortgagee such other documentation as
Mortgagee may reasonably require evidencing that the Mortgaged Property
and the Work as completed is in compliance with all Legal Requirements,
and that all conditions to any such licenses, certificates and permits
issued in connection with the Mortgaged Property and the Work have been
fulfilled;
G. Mortgagor shall deliver to Mortgagee estoppel certificates from
Leasehold Mortgagor as lessee under the Master Lease and from each tenant,
affected by the casualty including without limitation any Tenant which
would have a right of termination or offset as a result of such casualty,
under any Major Lease, as defined in the Assignment of Leases and Rents,
which acknowledge that all Work was fully and completely performed in
compliance with the Master Lease and the Major Leases and that the Master
Lease and all such Major Leases remain in full force and effect, and that
no default or Event of Default has occurred and is continuing under the
Master Lease or such Major Leases;
H. Mortgagor shall have completed the Work on or before eighteen (18)
months after the date of such casualty, as such period may be extended by
up to three (3) additional months in the event of a force majeure.
Nothing herein shall be interpreted to require Mortgagee to make proceeds
available to Mortgagor unless the conditions as set forth in Section 2.05(B)(1)
or (2) have been fulfilled. Further, nothing herein shall be interpreted to
prohibit Mortgagee from (y) withholding five percent (5%) (or a greater amount,
if required by any Legal Requirement) of the amount otherwise herein provided to
be disbursed from disbursement, and from continuing to withhold such sum until
the time permitted for perfecting liens, by each respective trade providing the
Work, against the Mortgaged Property has expired, at which time the amount
withheld shall be disbursed to Mortgagor (or to Mortgagor and any person or
persons furnishing labor and/or
20
<PAGE> 24
material of the Work or directly to such persons) upon completion of the
respective work or service by the respective trade and receipt of Mortgagee of
the respective mechanics lien waivers, or (z) applying at any time the whole or
any part of the Proceeds to the curing of any Event of Default.
If, upon completion of the Work and disbursement as contemplated herein,
any portion of the Proceeds has not been disbursed to Mortgagor (or one or more
of the other aforesaid persons), Mortgagee may, at Mortgagee's option, disburse
such balance to Mortgagor or apply such balance toward the repayment of the
Loan.
2.06. Assignment of Policies Upon Foreclosure. That in the
event of foreclosure of this Mortgage or other transfer of title or assignment
of the Mortgaged Property in extinguishment, in whole or in part, of the debt
secured hereby, all right, title and interest of Mortgagor in and to all
policies of insurance (except for the liability insurance) required by this
Mortgage shall and must inure to the benefit of and pass to the successor in
interest to Mortgagor or the purchaser or grantee of the Mortgaged Property.
2.07. Indemnification; Subrogation; Waiver of Offset.
(a) That in the event Mortgagee is made a party
defendant to any litigation concerning this Mortgage or the Mortgaged Property
or any part thereof or therein, or in the occupancy thereof by Mortgagor or
persons claiming through the Mortgagor, then Mortgagor shall indemnify, defend
and hold Mortgagee harmless from all liability by reason of said litigation,
including attorneys' fees and expenses incurred by Mortgagee in any such
litigation, whether or not any such litigation is prosecuted to judgment.
If Mortgagee commences an action against Mortgagor to enforce any of
the terms hereof or because of the breach by Mortgagor of any of the terms
hereof, or for the recovery of any sum secured hereby, Mortgagor shall pay to
Mortgagee attorneys' fees and expenses, and the right to such attorneys' fees
and expenses shall be deemed to have accrued on the commencement of such action,
and shall be enforceable whether or not such action is prosecuted to judgment.
If an Event of Default occurs under this Mortgage, Mortgagee may employ an
attorney or attorneys to protect its rights hereunder, and in the event of such
employment following any Event of Default, Mortgagor shall pay Mortgagee
attorneys' fees and all other expenses incurred by Mortgagee, whether or not an
action is actually commenced against Mortgagor by reason of breach.
(b) To waive any and all right to claim or recover
against Mortgagee, its officers, employees, agents and representatives, for loss
of or damage to Mortgagor, the Members, any Guarantor, the Mortgaged Property,
Mortgagor's property or the property of others under Mortgagor's control from
any cause whatsoever.
(c) That all sums payable by Mortgagor hereunder
shall be paid without notice, demand, counterclaim, setoff, deduction or defense
and without abatement,
21
<PAGE> 25
suspension, deferment, diminution or reduction, and the obligations and
liabilities of Mortgagor hereunder shall in no way be released, discharged or
otherwise affected by reason of: (i) any damage to or destruction of or any
condemnation or similar taking of the Mortgaged Property or any part thereof;
(ii) any restriction or prevention of or interference with any use of the
Mortgaged Property or any part thereof; (iii) any title defect or encumbrance or
any eviction from the Premises or the Improvements or any part thereof by title
paramount or otherwise; (iv) any bankruptcy, insolvency, reorganization,
composition, adjustment, dissolution, liquidation or other like proceeding
relating to Mortgagor, the Members or any Guarantor, or any action taken with
respect to this Mortgage by any trustee or receiver of Mortgagor or any Member,
or by any court, in any such proceeding; (v) any claim which Mortgagor or any
Member has or might have against Mortgagee; (vi) any default or failure on the
part of Mortgagee to perform or comply with any of the terms hereof or of any
other agreement with Mortgagor; or (vii) any other occurrence whatsoever,
whether similar or dissimilar to the foregoing; whether or not Mortgagor or any
Member shall have notice or knowledge of any of the foregoing. Mortgagor waives
all rights now or hereafter conferred by statute or otherwise to any abatement,
suspension, deferment, diminution or reduction of any sum secured hereby and
payable by Mortgagor.
2.08. Taxes and Impositions.
(a) To pay all real property taxes and assessments, general
and special, and all other taxes and assessments or payments in lieu of taxes of
any kind or nature whatsoever, including without limitation non-governmental
levies or assessments such as maintenance charges, owner association dues or
charges or fees, levies or charges resulting from covenants, together with any
other charge or similar payment which create, may create or appear to create or
could create a lien upon the Mortgaged Property or the Improvements, or any part
thereof, or upon any of Mortgagor's Personal Property, equipment or other
facilities used in the operation or maintenance thereof (all of which taxes,
assessments and other governmental and non-governmental charges of like nature
are hereinafter referred to as "Impositions"); provided, however, that so long
as no Event of Default has occurred if, by law, any such Imposition is payable,
or at the option of the taxpayer may be legally paid, in installments without
delinquency, interest or penalty, Mortgagor may pay the same together with any
accrued interest on the unpaid balance of such Imposition in installments as the
same become due and before any fine, penalty, interest or cost may be added
thereto for the nonpayment of any such installment and interest.
(b) That if at any time after the date hereof there shall be
assessed or imposed by any Law now or hereafter enacted (i) a tax or assessment
on the Mortgaged Property in lieu of or in addition to the Impositions payable
by Mortgagor pursuant to clause (a) of this Section 2.08, or (ii) a license fee,
mercantile, business privilege or any other tax or assessment on Mortgagee and
measured by or based in whole or in part upon the amount of the outstanding
obligations secured hereby, (all such taxes, assessments or fees shall be deemed
to be included within the term "Impositions" as defined in clause (a) of this
Section 2.08), and Mortgagor shall fail to pay and discharge the same as herein
provided with respect to the
22
<PAGE> 26
payment of Impositions then, at the option of Mortgagee, and with or without
notice to Mortgagor, Mortgagee may pay same, and all such obligations shall be
secured hereby and, together with all accrued interest thereon, shall
immediately become due and payable. Anything to the contrary herein
notwithstanding, Mortgagor shall have no obligation to pay any income, excess
profits or similar tax based on and measured by net profits or gross profits
levied on Mortgagee or on the obligations secured hereby.
(c) Leasehold Mortgagor agrees to pay all rent, and other
payments required to be made by Leasehold Mortgagor pursuant to the Master Lease
(the "Master Lease Obligations").
(d) Subject to the provisions of this Section 2.08, to furnish
Mortgagee at least 15 days prior to the date upon which any penalty or interest
may be payable by Mortgagor, official receipts of the appropriate taxing
authority, or other proof satisfactory to Mortgagee, evidencing the payments
thereof.
(e) That, so long as no Event of Default has occurred,
Mortgagor shall have the right before any delinquency occurs to contest or
object to the amount or validity of any such Imposition by appropriate legal
proceedings, but this shall not be deemed or construed in any way as relieving,
modifying or extending Mortgagor's covenant to pay any such Imposition at the
time and in the manner provided in this Section 2.08, unless, at Mortgagee's
sole option, Mortgagor: (i) shall immediately demonstrate to Mortgagee's
reasonable satisfaction that the legal proceedings shall operate conclusively to
prevent the sale of the Mortgaged Property, or any part thereof, and to satisfy
such Imposition prior to final determination of such proceedings; and (ii) shall
furnish a good and sufficient bond or surety as requested by and satisfactory to
Mortgagee, or another good and sufficient undertaking acceptable to Mortgagee as
may be required or permitted by law to accomplish a stay of such proceedings.
Mortgagee shall, in its sole discretion, determine whether Mortgagor has
satisfied the conditions of this section.
(f) Mortgagor shall pay to Mortgagee on the day that monthly
installments of principal and interest are payable under the Note, until the
Secured Obligations are paid in full, an amount equal to one-twelfth (1/12th) of
the annual Impositions reasonably estimated by Mortgagee to pay the installment
of taxes and assessments next due on the Mortgaged Property as provided for in
the Note. Such sums shall be held in escrow by New England Realty Resources,
Inc., or such other person as may be from time to time designated by Mortgagee,
without interest being payable to Mortgagor. Mortgagor further agrees to
promptly upon receipt thereof forward directly to Mortgagee true and complete
copies of all bills, statements or other documents relating to the Impositions.
Upon receipt of such bills, statements or other documents, and providing
Mortgagor has deposited sufficient funds with Mortgagee pursuant to this Section
2.08, Mortgagee shall pay such amounts as may be due thereunder out of the funds
so deposited with Mortgagee. If at any time and for any reason the funds
deposited with Mortgagee are or will be insufficient to pay such amounts as may
then or subsequently be due, Mortgagee shall notify Mortgagor and Mortgagor
shall within ten
23
<PAGE> 27
(10) days of demand by Mortgagee deposit an amount equal to such deficiency with
Mortgagee. Should Mortgagor at any time fail to deposit with Mortgagee
(exclusive of that portion of said payments which has been applied by Mortgagee
on account of the principal of or interest on the indebtedness secured by the
Loan Documents) sums which together with sums to be deposited herewith monthly
will be sufficient to fully pay such Impositions at least thirty (30) days
before delinquency thereof, Mortgagee may, at Mortgagee's election, but without
any obligation so to do, advance any amounts required to make up the deficiency,
which advances, if any, shall be secured hereby and shall be repayable to
Mortgagee as herein elsewhere provided. Should any Event of Default occur or
exist on the part of Mortgagor in the payment or performance of any of
Mortgagor's obligations under the terms of the Loan Documents, Mortgagee may, at
any time and at Mortgagee's option, apply any sums or amounts held by Mortgagee,
including any interest earned thereon, to the payment of any indebtedness or
obligation of the Mortgagor secured hereby in such manner and order as Mortgagee
may elect. The receipt, use or application of any such sums paid by Mortgagor to
Mortgagee hereunder shall not be construed to affect the maturity of any of the
Secured Obligations or any of the rights or powers of Mortgagee under the terms
of the Loan Documents or any of the obligations of Mortgagor under any Loan
Document. Funds deposited with Mortgagee pursuant to this Section 2.08 in an
account or accounts designated for such deposits may be commingled by Mortgagee
with similar deposits by other mortgagors, and, to the extent permitted by
applicable law, shall not bear interest. The provisions of this Section 2.08(f)
are subject to the terms of a separate letter agreement between Mortgagor and
Mortgagee.
(g) Mortgagor covenants and agrees, to the extent permitted by
law, not to suffer, permit or initiate the joint assessment of the real and
personal property, or any other procedure whereby the lien of real property
taxes and the lien of personal property taxes shall be assessed, levied or
charged to the Mortgaged Property as a single lien, nor shall the real property
be assessed with any other real property which is not subject to the lien of
this Mortgage.
(h) That if Mortgagor or any of the Members, assignees,
successors or grantees of Mortgagor is or shall be or become a corporation, a
limited or general partnership, a limited liability company or limited liability
partnership, it shall keep in effect its existence and rights as such
corporation or partnership under the Laws of the state of its incorporation or
formation and its right to own property and transact business in the state in
which the Mortgaged Property is situated during the entire time that it has any
ownership or other interest in the Mortgaged Property. For all periods during
which the title to the Mortgaged Property or any part thereof shall be held by a
corporation or other entity subject to corporate taxes or taxes similar to
corporate taxes, Mortgagor shall file or cause to be filed returns for such
taxes with the proper authorities, bureaus or department and shall cause to be
paid, when due and before interest or penalties are due thereon, all taxes
payable by such corporation or other entity to the United States, to such state
of incorporation or formation and to the state in which the Mortgaged Property
is situated and any political subdivision thereof, and shall produce to
Mortgagee receipts showing payment of any and all such taxes, charges or
assessments prior to the last dates upon which such taxes, charges
24
<PAGE> 28
or assessments are payable without interest or penalty charges; provided,
however, that Mortgagor shall have the right before any delinquency occurs to
contest or object to the amount or validity of any such taxes, charges or
assessment in good faith and by appropriate legal proceedings, but this shall
not be deemed or construed in any way as relieving, modifying or extending
Mortgagor's obligation to pay any such taxes, charges or assessments at the time
such contest, objection and legal proceedings have been terminated or
discontinued adversely to Mortgagor. Within ten (10) days of receipt thereof,
Mortgagor shall produce to Mortgagee all settlements, notices of deficiency or
overassessment and any other notices pertaining to Mortgagor's tax liability,
which may be issued by the United States, the state in which the Mortgaged
Property is situated and any political subdivision thereof. If at any time the
United States or any department or bureau thereof shall require Internal Revenue
stamps on the Note secured hereby, Mortgagor on demand shall pay for them with
any interest or penalties payable thereon.
2.09. Utilities. To pay when due all utility charges which are
incurred by Mortgagor for the benefit of the Mortgaged Property or which may
become a charge or lien against the Mortgaged Property for gas, telephone,
electricity, electronic equipment, water or sewer services furnished to the
Mortgaged Property and all other assessments or charges of a similar nature,
whether public or private, the Mortgaged Property or any portion thereof,
whether or not such taxes, assessments or charges are liens thereon.
2.10. Actions Affecting Mortgaged Property. To appear in and
contest any action or proceeding purporting to affect the security hereof or the
rights or powers of Mortgagee and to pay all costs and expenses, including cost
of evidence of title and attorneys' fees, in any such action or proceeding in
which Mortgagee may appear.
2.11. Actions by Mortgagee to Preserve Mortgaged Property.
That should Mortgagor fail to make any payment or to do any act as and in the
manner provided in any of the Loan Documents after the expiration of any
applicable notice or grace periods, Mortgagee in its own discretion, without
obligation so to do and immediately upon giving notice to Mortgagor but without
demand upon Mortgagor and without releasing Mortgagor from any obligation, may
make or do the same in such manner and to such extent as Mortgagee may deem
necessary to protect the security hereof. In connection therewith (without
limiting its general powers), Mortgagee shall have and is hereby given the
right, but not the obligation upon an Event of Default: (i) to enter upon and
take possession of the Mortgaged Property; (ii) to make additions, alterations,
repairs and improvements to the Mortgaged Property which it may reasonably
consider necessary or proper to keep the Mortgaged Property in good condition
and repair; (iii) to appear and participate in any action or proceeding
affecting or which may affect the security hereof or the rights or powers of
Mortgagee; (iv) to pay, purchase, contest or compromise any encumbrance, claim,
charge, lien, Imposition or debt which in the sound judgment of Mortgagee may
adversely affect or appears to affect the security of this Mortgage or be prior
or superior hereto in lien, payment or priority; and (v) in exercising such
powers, to pay necessary expenses, including fees and charges of counsel or
other necessary or desirable consultants. Within ten (10) days of demand
therefor by Mortgagee, Mortgagor shall
25
<PAGE> 29
pay all costs and expenses incurred by Mortgagee in connection with the exercise
by Mortgagee of the foregoing rights, with interest at the Default Rate
including without limitation costs of evidence of title, court costs,
appraisals, surveys and attorneys' fees.
2.12. Performance; Survival. To fully and faithfully satisfy
and perform the obligations of Mortgagor contained in the Loan Documents, and
each agreement of Mortgagor incorporated by reference therein or herein, and any
modification or amendment thereof. All representations, warranties and covenants
of Mortgagor contained therein or incorporated by reference shall survive the
closing and funding of the Loan and shall remain continuing obligations,
warranties and representations of Mortgagor during any time when any portion of
the Secured Obligations remain outstanding.
2.13. Eminent Domain. Should the entire Mortgaged Property, or
any part thereof or interest therein, be taken or damaged by reason of any
public improvement or other eminent domain proceeding, or in any other manner
("Condemnation") and the Mortgaged Property cannot be used thereafter for its
intended purposes, or should Mortgagor receive any notice or other information
regarding such proceeding, Mortgagor shall give prompt written notice thereof to
Mortgagee and the following provisions shall apply:
(a) Mortgagee shall be entitled to all compensation for
property taken or for damage to property not taken, awards and other payments or
relief therefor whether as a result of such proceedings or in lieu thereof made
to Mortgagor, to the extent of the outstanding principal sum under the Note,
together with interest due to the date of payment and all other amounts
constituting the Secured Obligations, and shall be entitled at its option to
commence, appear in and prosecute in its own name any action or proceedings
jointly with Mortgagor. Mortgagee also shall be entitled to appear in any
compromise or settlement in connection with such condemnation or damage.
Regardless of whether or not Mortgagee exercises its right to so appear, any
such compromise or settlement shall be subject to the consent of Mortgagee,
which consent shall not be unreasonably withheld. All such compensation, awards,
damages, rights of action and proceeds awarded to Mortgagor (the "Eminent Domain
Proceeds") are hereby assigned by Mortgagor to Mortgagee and the same shall be
received and collected by Mortgagee, and Mortgagor agrees to execute such
further assignments of the Eminent Domain Proceeds and other instruments as
Mortgagee may require. Such assignment shall not relieve Mortgagor of its
obligations to continue to pay and perform the Secured Obligations or such
portion thereof as remains unpaid after any application by Mortgagee pursuant to
this Section 2.13 of the Eminent Domain Proceeds to the Secured Obligations.
(b) In the event any lesser portion other than the entire
Mortgaged Property is so taken or damaged and there shall be no existing Event
of Default, after deducting therefrom all costs and expenses (regardless of the
particular nature thereof and whether incurred with or without suit), including
attorneys' fees, incurred by it in connection with such Eminent Domain Proceeds,
Mortgagee may elect, in its sole discretion, to apply such Eminent Domain
Proceeds, after such deductions, to either the restoration of the Mortgaged
26
<PAGE> 30
Property not taken or condemned or to the Secured Obligations in such order as
Mortgagee shall in its sole discretion determine.
(i) Provided the Eminent Domain Proceeds are made
available for restoration, the Mortgaged Property must then be restored by
Mortgagor to the use existing immediately prior to such taking or
condemnation, and the utility, value, condition and character of the
Mortgaged Property, as restored, must be at least equal to the value and
utility and substantially similar to the condition and character as
existed immediately prior to such taking or condemnation.
(ii) In the event Mortgagee elects to make the Eminent
Domain Proceeds available to Mortgagor for such restoration, and the
application of such Eminent Domain Proceeds shall be subject to the same
conditions as set forth in Section 2.05. To the extent such Eminent Domain
Proceeds are insufficient for such restoration, any deficiency must be
deposited by Mortgagor with Mortgagee and expended prior to the
Eminent Domain Proceeds. Such application or release shall not cure or
waive any default or notice of default hereunder or invalidate any act
done pursuant to such notice.
(c) In the event Mortgagee elects to rebuild as permitted by
this Section 2.13, Mortgagor shall promptly obtain all approvals necessary to
comply with all Legal Requirements. If Mortgagor fails to obtain such approvals
within twelve (12) months following receipt of the Proceeds or the Eminent
Domain Proceeds, as the case may be, such failure shall constitute an Event of
Default hereunder. Notwithstanding the foregoing, provided that Mortgagor has
diligently and continuously attempted to obtain such approvals during such
twelve (12) month period, and despite such efforts been unable to obtain such
approvals, then no Event of Default shall have occurred hereunder unless
Mortgagor fails to obtain such approvals within eighteen (18) months following
receipt of the Proceeds or the Eminent Domain Proceeds, as the case may be,
provided that during such additional six (6) month period, the Mortgagor
diligently and continuously attempts to obtain such approvals.
2.14. Inspections. That, subject to the rights of tenants under the
Leases, Mortgagee, or its agents, representatives or workers, are authorized to
enter at any reasonable time upon reasonable notice or at any time in the event
of an emergency upon or in any part of the Mortgaged Property for the purpose of
inspecting the same and for the purpose of performing any of the acts it is
authorized to perform under the terms of the Loan Documents.
2.15. Liens. That upon substantial completion of any construction or
other improvements or similar work on the Mortgaged Property, to file or cause
to be filed waivers of mechanics' liens in form and substance reasonably
satisfactory to Mortgagee and to pay and promptly discharge, at Mortgagor's cost
and expense, all liens, encumbrances and charges upon the Mortgaged Property, or
any part thereof or interest therein. So long as there exists no Event of
Default, and so long as neither Mortgagor, Mortgagee, nor any officer, director,
employee or agent of either thereof could thereby be subject to any civil or
criminal liability, Mortgagor shall have the right to contest in good faith the
validity of any such lien,
27
<PAGE> 31
encumbrance or charge, provided Mortgagor shall first either (a) deposit with
Mortgagee or with a court in which such contest is being pursued a bond or other
security reasonably satisfactory to Mortgagee or (b) record in the Suffolk
Registry of Deeds a lien bond, which in the case of either (a) or (b) shall be
in such amounts as Mortgagee shall reasonably require, plus costs, expenses,
including attorneys' fees and interest, and provided further that Mortgagor
shall thereafter diligently proceed to cause such lien, encumbrance or charge to
be removed and discharged. If Mortgagor shall fail to discharge any such lien,
encumbrance or charge, or provide such security, then, in addition to any other
right or remedy of Mortgagee, Mortgagee may, but shall not be obligated to,
discharge the same, either by paying the amount claimed to be due, or by
procuring the discharge of such lien by depositing in court a bond for the
amount claimed or otherwise giving security for such claim, or in such manner as
is or may be prescribed by law and all funds advanced by Mortgagee to pay such
obligations, liabilities, costs and expenses shall be reimbursed by Mortgagor
within ten (10) days of demand by Mortgagee together with interest thereon until
reimbursement at the Default Rate set forth in the Note; and all such advances
with interest thereon as aforesaid shall be secured by this Mortgage and the
other Loan Documents.
2.16. Mortgagee's Powers. That without affecting the liability of
any other person liable for the payment or performance of any obligation herein
mentioned, and without affecting the lien or charge of this Mortgage upon any
portion of the Mortgaged Property not then or theretofore released as security
for the full amount of all unpaid Secured Obligations, Mortgagee may, from time
to time and without notice (i) release any person so liable, (ii) extend the
maturity or alter any of the terms of the Secured Obligations, (iii) grant other
indulgences, (iv) release or reconvey, or cause to be released or reconveyed at
any time at Mortgagee's option, any parcel, portion or all of the Mortgaged
Property, (v) accept or release any other or additional security for the Secured
Obligations, (vi) make compositions or other arrangements with debtors in
relation thereto, or (vii) advance additional funds to protect the security
hereof and pay or discharge the obligations of Mortgagor hereunder or under the
Loan Documents, and all amounts so advanced, with interest thereon at the
Default Rate set forth in the Note, shall be secured hereby.
2.17. Financial Statements; Annual Rent Roll. That Mortgagor will
cause to be delivered to Mortgagee as soon as practicable, but in any event not
later than ninety (90) days after the end of each calendar year, unaudited
annual financial statements including an itemized operating statement of
Mortgagor's annual (effective) income and expenses for the operation of the
Mortgaged Property, and cash flow statement pertaining to the operation of the
Mortgaged Property for the previous calendar year, together with a balance sheet
regarding the Premises and Improvements as at the end of each calendar year, all
prepared by a certified public accountant reasonably acceptable to Mortgagee or
by such other preparer as Mortgagee may approve in writing covering only the
Premises which is the subject of this Mortgage. A certified, current rent roll
shall be delivered to Mortgagee by Mortgagor at such time. Such rent roll, and
such financial statements, shall be certified as being true, correct and
complete by Mortgagor. Mortgagor agrees to make its books and accounts relating
to the Mortgaged Property available for inspection by Mortgagee or its
representatives upon request at any
28
<PAGE> 32
reasonable time. Guarantors will cause to be delivered to Mortgagee as soon as
practicable, but in any event not later than ninety (90) days after the end of
each calendar year, annual financial statements relating to Guarantors interest
in the operation of the Mortgaged Property, prepared by a certified public
accountant reasonably acceptable to Mortgagee.
2.18. Mortgagor's Existence and Authorizations. That Mortgagor and
the Members and any subsequent owner of any of the Premises shall do all things
necessary to preserve and keep in full force and effect its and their existence,
franchises, rights and privileges as a limited liability company, corporation,
partnership or trust, as the case may be, under the Laws of the state of its
formation and its right to own property and transact business in the state in
which the Premises are located, and shall not materially amend, modify,
transfer, assign or cancel the Operating Agreements of Mortgagor, or the
operating agreement, articles of organization, partnership agreement, or trust
agreement, as the case may be, of any subsequent owner as may be permitted by
Mortgagee, which amendment, modification, transfer, assignment or cancellation
is adverse to the interests of Mortgagee without the prior written consent of
Mortgagee.
2.19. Other Liens. That without the prior written consent of
Mortgagee, which may be granted in Mortgagee's sole discretion, Mortgagor shall
not now or hereafter cause or permit to exist any other lien on the Premises
whether junior or senior to the lien of this Mortgage, excepting only the
Permitted Exceptions.
2.20. Change of Title. That Mortgagee, at its option, may declare
the Note secured hereby and all other obligations hereunder to be forthwith due
and payable and shall have all other rights and remedies set forth herein if,
without the prior written consent of Mortgagee: (i) title to the Mortgaged
Property or any part thereof or interest therein is terminated, dissolved, sold,
assigned, transferred, conveyed, mortgaged, encumbered or otherwise changed
(including any such changes as security for additional financing), whether
voluntarily or involuntarily or by operation of law, (ii) title to the Mortgaged
Property or any interest therein is divested, (iii) any lease which gives the
lessee thereunder any option to purchase the Mortgaged Property or any part
thereof is entered into, or (iv) any change in any membership interests in the
Mortgagor or its Members other than limited partnership interests, as
applicable, or any general partnership interests or any beneficial interests in
the Members; subject in each case, to the following provisions regarding
Permitted Transfers. Mortgagor acknowledges that the present ownership of the
Mortgaged Property is a material inducement to Mortgagee to fund the Loan.
For purposes hereof and particularly Sections 4.02(b) and 5.01(k), the
terms "sell, assign, transfer or convey" shall include, in addition to the
common and ordinary meanings of those terms and without limiting their
generality, transfers made to a subsidiary or affiliated entity(ies), transfers
to a reconstituted limited partnership, transfers made by any partnership to the
individual partners or vice-versa, transfers made by a partner to third parties,
transfers by any corporation to its stockholders or vice-versa, any corporate
merger or consolidation and transfers made by any individuals to any other
individuals or any entity, or vice-versa. Any
29
<PAGE> 33
consent by Mortgagee to a change in ownership of the Mortgaged Property or to a
change in the composition of Mortgagor may be conditioned, in Mortgagee's sole
discretion, upon (a) payment of a transfer fee equal to one percent (1%) of the
outstanding indebtedness at the time of such sale, assignment, transfer or
conveyance, (b) an increase in the interest rate on the then outstanding
indebtedness to a current market rate and (c) any other terms and conditions as
Mortgagee may require in its sole discretion.
Notwithstanding the foregoing, Mortgagee will permit the following
transfers (collectively, the "Permitted Transfers") provided no Event of Default
has occurred and continues to exist:
(1) Any member's interest in the Family LLC may be transferred upon the
death of that member, but only by will or intestacy;
(2) Any member's interest or the beneficial interest in any member, as
the case may be, in the Family LLC may be voluntarily sold, transferred,
conveyed or assigned to immediate family members for estate planning purposes
("immediate family members" shall mean the spouse, children, grandchildren,
siblings, and the children of siblings of each existing party, as of the date
hereof, or trust for the benefit of one or more of any such persons), provided
that at all times there exists a minimum of fifty percent (50%) control of the
Family LLC by the members existing as of the date hereof;
(3) Any member's interest in the Family LLC may be voluntarily sold,
transferred, conveyed or assigned to another member or members of the Family LLC
or one or more members of the group consisting of Donald Saunders, Lisa
Saunders-Hartstein and Pamela Saunders Albin and their immediate family members
(as defined in subsection (2) hereof) and/or trusts created exclusively for the
benefit of one or more of the foregoing, provided that at all times a minimum of
fifty percent (50%) control of the Family LLC is maintained by a member or
members of the Family LLC existing as of the date hereof;
(4) Any transfer of shares or interests in Starwood, Starwood Lodging
Corporation, or limited partnership interests of either SLT Realty Limited
Partnership or SLC Operating Limited Partnership are permitted; and
(5) Any transfers: (A) among the Fee Mortgagor, Leasehold Mortgagor or
their Members (or entities owned and/or controlled by either of them to one
another, or (B) to third parties provided, however, that the Members existing as
of the date hereof (or entities owned and/or controlled by either of them) in
the aggregate own and control not less than fifty percent (50%) interest in the
resulting entity after such transfer.
The Permitted Transfers are subject to the conditions that notice of
such transfer is given to Mortgagee and such transfer shall not reduce, release
or otherwise affect the liability of Mortgagor or the Guarantors and such
transfer shall not reduce, release or otherwise affect the liability of
Mortgagor or the Guarantors under the Loan Documents. No transfer fee or
30
<PAGE> 34
change in Loan terms shall be imposed by Mortgagee with respect to any such
Permitted Transfers, however Mortgagee reserves the right to charge Mortgagor
for any attorneys' fees or other costs incurred by Mortgagee in connection with
such transfer.
Notwithstanding the foregoing, upon written request of the Mortgagor,
Mortgagee will consent to a one-time sale, assignment, transfer or conveyance of
the Mortgaged Property or of the ownership interest therein which is not
otherwise a Permitted Transfer, provided that the following conditions are fully
and completely satisfied in advance of any such sale, assignment, transfer or
conveyance:
(1) no Event of Default has occurred and continues to exist;
(2) the Mortgagee has determined, in its sole discretion, that proposed
transferee has a financial and credit standing and management expertise equal to
or greater than that of the Mortgagor at the time of the original Loan approval;
(3) assignment and assumption documents satisfactory to Mortgagee and
its counsel in connection with such sale, assignment, transfer or conveyance are
executed and delivered to the Mortgagee. Such assumption documents will provide,
however, that the Mortgagor continues to be liable for all liabilities and
obligations to the Mortgagee under the Loan Documents, unless otherwise agreed
to by the Mortgagee in writing, such agreement to be withheld or granted by the
Mortgagee in its sole and absolute discretion;
(4) the Mortgagee is paid a transfer fee equal to one percent (1%) of
the outstanding indebtedness at the time of such sale, assignment, transfer or
conveyance;
(5) all costs and expenses incurred by Mortgagee, including without
limitation, legal fees, shall have been paid in full to the Mortgagee by the
Mortgagor;
(6) the Mortgagor delivers to the Mortgagee an endorsement to the Ticor
Title Insurance Policy issued in connection with the First Disbursement, as
defined in the Note, reflecting the change in the ownership interest to
Mortgagee's satisfaction;
(7) the Mortgagee may require, in its sole discretion, authority
documentation of the proposed transferee and opinions of Mortgagor's counsel and
the proposed transferee's counsel regarding the due authority of the respective
parties to enter into the transfer and the enforceability of the transfer
documentation in each case in form and substance reasonably satisfactory to
Mortgagee;
(8) the Mortgagee may require, in its sole discretion, the proposed
transferee or any other party, in Mortgagee's sole judgment, to deliver an
environmental indemnification, satisfactory to Mortgagee in its sole discretion,
which shall contain an acknowledgement by Mortgagor that Mortgagor shall
continue to remain liable for its obligations arising prior to the
31
<PAGE> 35
transfer under the Environmental Indemnification Agreement and an assumption by
the proposed transferee of such obligations arising after the date of the
transfer.
The rights granted to Mortgagor in the immediately preceding paragraph are
personal to Mortgagor, shall be extinguished after the exercise thereof, and
shall not inure to the benefit of any subsequent transferee. Such transfer and
assumption will not, however, release the Mortgagor or any Guarantor from any
liability to the Mortgagee without the prior written consent of Mortgagee, which
consent may be given or withheld in Mortgagee's sole discretion, but if given,
may be conditioned upon, without limitation, the execution of new guaranties
from principals of the transferee as Mortgagee deems necessary, execution by the
principals of the transferee and such other requirements as Mortgagee may
appropriate in its discretion.
2.21. Compliance with Laws; Etc. That Mortgagor shall comply
with all Laws and all private covenants which at any time are applicable to the
Mortgaged Property or Mortgagor, and shall comply with the requirements of all
policies of insurance required by this Mortgage and of the insurers under such
policies. Mortgagor shall make any replacements, alterations or improvements to
the Mortgaged Property as may be required by such Laws or such requirements even
if unforeseen and/or extraordinary. So long as no Event of Default has occurred,
Mortgagor shall have the right, after prior written notice to Mortgagee, to
contest by appropriate legal proceedings diligently conducted in good faith,
without cost or expense to Mortgagee, the validity or application of any Law
which does not subject Mortgagee to any criminal or civil liability, and
Mortgagor may delay compliance with such Law until final determination of such
proceeding if compliance with such Law may legally be delayed until, and such
proceedings shall conclusively operate to prevent the enforcement of such Law
prior to, such final determination; provided, however, that, if in the judgment
of Mortgagee any lien or charge against the Mortgaged Property would or might be
incurred by reason of such delay, Mortgagor shall furnish to and maintain with
Mortgagee security, at all times satisfactory to Mortgagee, to assure the
discharge of such lien or charge. Mortgagor shall keep, (or cause to be kept, in
the case of those portions of the Mortgaged Property which are subject to any of
the Leases), in full force and effect all licenses, permits and governmental
authorizations and agreements necessary or desirable for the ownership,
construction, occupancy, operation, management or use of the Mortgaged Property.
Mortgagor shall preserve and maintain unimpaired any and all easements, rights
of way, appurtenances and other interests and rights constituting any portion of
the Mortgaged Property. At all times prior to the repayment in full of the
Secured Obligations, there shall be sufficient parking spaces on the Premises,
so as to comply with all applicable Laws and all Leases of all or any portion of
the Premises.
2.22. Environmental Indemnification.
(a) If at any time it is determined that there are
any Hazardous Materials (as defined in the Environmental Indemnification
Agreement) located in, on, under, around or above the Mortgaged Property which
are subject to any federal, state or local environmental Law or private
agreement ("Environmental Requirements"), including Environmental Requirements
requiring special handling of Hazardous Materials in their use,
32
<PAGE> 36
handling, collection, storage, treatment or disposal, Mortgagor shall (i)
immediately notify Mortgagee of such determination; (ii) commence with diligence
within thirty (30) days after receipt of notice of the presence of the Hazardous
Materials, and (iii) continue to diligently take all appropriate action, at
Mortgagor's sole expense, to comply with all such Environmental Requirements.
(b) This Section 2.22 is in addition to and not in limitation
of that certain Environmental Indemnification and Hold Harmless Agreement of
even date herewith (the "Environmental Indemnification Agreement") given by
Mortgagor and by the Guarantors to Mortgagee. Any conflict that may exist
between the two documents shall be interpreted as set forth in Section 6.11 of
this Mortgage. The terms of the Environmental Indemnification Agreement are
incorporated herein by reference and made a part hereof. The failure of
Mortgagor to comply with all Environmental Requirements or any of the terms of
the Environmental Indemnification Agreement after the lapse of any applicable
notice or grace periods shall constitute an Event of Default hereunder.
ARTICLE III
ASSIGNMENT OF LEASES
3.01 Assignment of Leases and Rents. Mortgagor hereby and also by a
certain Assignment of Leases and Rents of even date herewith given by Mortgagor
to Mortgagee ("Assignment of Leases and Rents"), which Assignment of Leases and
Rents is incorporated herein by reference as fully and with the same effect as
if set forth herein at length, assigns and transfers to Mortgagee all existing
and future Leases, and the Rents of the Mortgaged Property, and hereby gives to
and confers upon Mortgagee the right, power and authority to collect such Rents
of the Mortgaged Property. This Assignment is and is intended to be an absolute
assignment from Mortgagor to Mortgagee and not merely the passing of a security
interest or a conditional assignment, contingent only upon the privilege, which
may be revoked by Mortgagee, of the Mortgagor to collect Rents in accordance
with the Assignment of Leases and Rents.
3.02. Covenants as to Leases. Mortgagor shall not execute, amend or
terminate as landlord, Leases of the Improvements or Mortgaged Property or any
part thereof, except in compliance with the Assignment of Leases and Rents, and
the following provisions:
(a) Copies of Leases. Mortgagor shall promptly deliver to
Mortgagee a copy of any executed Lease for any part of the Mortgaged Property
and upon request shall supply to Mortgagee such reasonable information and
documentation regarding the tenant thereunder;
33
<PAGE> 37
(b) Subordination. Mortgagor hereby expressly agrees and
affirms that all Leases, including but not limited to the Master Lease, for any
of the Mortgaged Property or Improvements now or hereafter executed shall, at
Mortgagee's option, be subordinate to this Mortgage; provided, however, that
Mortgagee shall have the right at any time to require that any Lease now or
hereafter executed be made superior to the lien of this Mortgage, at Mortgagor's
expense. Mortgagee shall have the right at any time and from time to time to
demand and require that any tenant under any existing Lease (provided the Lease
so requires the tenant to do so) and any future Lease execute a subordination,
attornment and non-disturbance agreement in form and substance satisfactory to
Mortgagee; and
(c) Bona Fide Transactions. All Leases of any part of the
Mortgaged Property shall be an arm's length transaction, shall be subject to all
other applicable provisions of the Loan Documents, and except for the Master
Lease, shall be for bona fide actual occupancy.
3.03. Master Lease. Notwithstanding the foregoing with respect
to the Master Lease, the Fee Mortgagor and Leasehold Mortgagor warrant,
represent, covenant and agree, respectively, as is applicable to each party, as
follows:
(a) The Master Lease is a complete statement of the agreement
between the parties thereto with respect to the letting of the Mortgaged
Property and except as set forth therein, has not been terminated,
amended, modified, extended, shortened in term, or restated in any
respect. The Master Lease is currently in full force and effect according
to its terms and is a binding obligation of the Leasehold Mortgagor and
Fee Mortgagor as of the date hereof; and there exits no default (nor any
events which, with the passage of time, the giving of notice, or both,
would cause a default or an Event of Default under any term or terms of
the Master Lease, or any other circumstance which would cause either party
to terminate the interest of the other party in the Master Lease.
(b) Leasehold Mortgagor will pay all rent and other charges
required under the Master Lease as and when the same are due and Fee
Mortgagor and Leasehold Mortgagor will keep, observe and perform, or cause
to be kept, observed and performed, all of the other material terms,
covenants, provisions and agreements of the Master Lease for which it is
responsible, and will not in any manner, cancel, terminate, shorten the
term or surrender, or permit any cancellation, termination, surrender or
shortening of the term of the Master Lease, in whole or in part, or,
without the written consent of Mortgagee (which consent shall not be
unreasonably withheld), either orally or in writing, modify, amend or
permit any modification or amendment of any of the terms thereof in any
manner which adversely affects this Mortgage or Mortgagee, or consent to
the subordination of the Master Lease to any mortgage of the fee interest
of Fee Mortgagor, and any attempt on the part of the Fee Mortgagor or
Leasehold Mortgagor to exercise any of the foregoing without such written
consent of Mortgagee
34
<PAGE> 38
shall not be binding on Mortgagee if Mortgagee succeeds to the interest
of Fee Mortgagor or Leasehold Mortgagor under the Master Lease.
(c) Each of the Mortgagors, respectively, will do, or cause to
be done, all things necessary to prevent any default under the Master
Lease, or any termination, surrender, cancellation, forfeiture or
impairment thereof.
(d) Each Mortgagor will use reasonable efforts to enforce the
obligations of each Mortgagor under the Master Lease, and will promptly
notify Mortgagee in writing of any default by the Fee Mortgagor or by
Leasehold Mortgagor in the performance or observance of any of the
terms, covenants and conditions on the part of Fee Mortgagor or
Leasehold Mortgagor, as the case may be, to be performed or observed
under the Master Lease and Fee Mortgagor or Leasehold Mortgagor will
promptly advise Mortgagee in writing of the occurrences of any default
under the Master Lease and of the giving of any notice by Leasehold
Mortgagor to Fee Mortgagor or Fee Mortgagor to Leasehold Mortgagor, as
the case may be, of any default by Fee Mortgagor or Leasehold
Mortgagor, as the case may be, in performance or observance of any of
the terms, covenants or conditions of the Master Lease on the part of
Fee Mortgagor or Leasehold Mortgagor to be performed or observed and
will promptly deliver to Mortgagee a true copy of each such notice.
(e) Fee Mortgagor shall not institute any action or proceeding
to evict Leasehold Mortgagor or to recover possession of the Mortgaged
Property or any part thereof or for any other purpose affecting the
Master Lease or this Mortgage without Mortgagee's prior written consent
and in such event, Fee Mortgagor will, immediately upon service thereof
on or to Leasehold Mortgagor, deliver to Mortgagee a true copy of each
petition, summons, complaint, notice or motion, order to show cause and
of all other provisions, pleadings, and papers, however designated,
served in any such action or proceeding.
(f) Fee Mortgagor and Leasehold Mortgagor covenant and agree
that unless Mortgagee shall otherwise expressly consent in writing, the
fee title to the property, if any, demised by the Master Lease and the
Mortgaged Property shall not merge but shall always remain separate and
distinct, notwithstanding the union of said estates either in Fee
Mortgagor, Leasehold Mortgagor, or a third party by purchase or
otherwise;
(g) No release or forbearance of any of the Fee Mortgagor or
Leasehold Mortgagor's obligations under the Master Lease, pursuant to
the Master Lease, or otherwise, shall release Fee Mortgagor or
Leasehold Mortgagor from any of its obligations under this Mortgage,
including Leasehold Mortgagor's obligation with respect to the payment
of rent as provided for in the Master Lease and the performance of all
of the terms, provisions, covenants, conditions and agreements
contained in the
35
<PAGE> 39
Master Lease, to be kept, performed and complied with by Fee Mortgagor or
Leasehold Mortgagor as landlord and tenant, respectively, therein.
(h) The lien of this mortgage shall attach to all of Leasehold
Mortgagor's rights and remedies at any time arising under or pursuant to
Subsection 365(h) of the Bankruptcy Code, 11 U.S.C. Section 365(h),
including, without limitation, all of Leasehold Mortgagor's rights to
remain in possession of the Mortgaged Property.
(i) Fee Mortgagor or Leasehold Mortgagor shall not, without
Mortgagee's prior written consent, elect to treat the Master Lease as
terminated under Subsection 365(h) (1) of the Bankruptcy Code, 11 U.S.C.
Section 365(h)(1). Any such election made without Mortgagee's consent
shall be void.
(j) Leasehold Mortgagor hereby unconditionally assigns,
transfers and sets over to the Mortgagee all of Leasehold Mortgagor's
claims and rights to the payment of damages arising from any rejection of
the Master Lease by Fee Mortgagor or any other fee owner of the Mortgaged
Property under the Bankruptcy Code. Mortgagee shall have the right to
proceed in its own name or in the name of Leasehold Mortgagor in respect
of any claim suit, action or proceeding relating to the rejection of the
Master Lease, including, without limitation, the right to file and
prosecute any proofs of claim, complaints, motions, applications, notices
and other documents and any and all rights to vote with respect to such
matters, in any case in respect to the Fee Mortgagor or any fee owner
under the Bankruptcy Code. This assignment constitutes a present,
irrevocable and unconditional assignment of the foregoing claims, rights
and remedies, and shall continue in effect until all of the obligations
secured by this Mortgage shall have been satisfied and discharged in full.
Any amounts received by Mortgagee as damages arising out of the rejection
of the Master Lease as aforesaid shall be applied first to all costs and
expenses of Mortgagee (including, without limitation, reasonable
attorneys' fees) incurred in connection with the exercise of any of its
rights or remedies under this section.
(k) If pursuant to Subsection 365(h)(2) of the Bankruptcy
Code, 11 U.S.C. Section 365(h)(2), Mortgagor shall seek to offset against
the rent reserved in the Master Lease the amount of any damages caused by
the nonperformance by the Landlord or any fee owner of any of their
obligations under the Master Lease after the rejection by the Landlord or
any fee owner of the Master Lease under the Bankruptcy Code, Mortgagor
shall, prior to effecting such offset, notify Mortgagee of its intent to
do so, setting forth the amounts proposed to be so offset and the basis
therefor. Mortgagee shall have the right to object to all or any part of
such offset that, in the reasonable judgment of Mortgagee, would
constitute a breach of the Master Lease, and in the event of such
objection, Mortgagor shall not effect any offset of the amounts so
objected to by Mortgagee. Neither Mortgagee's failure to object as
aforesaid nor any objection relating to such offset shall constitute an
approval of any such offset by Mortgagee. Mortgagor shall pay and protect
Mortgagee, and indemnify and save
36
<PAGE> 40
Mortgagee harmless from and against, any and all claims, demands, actions,
suits, proceedings, damages, losses, costs and expenses of every nature
whatsoever (including, without limitation, reasonable attorneys' fees)
arising from or relating to any offset by Mortgagor against the rent
reserved in the Master Lease.
(l) If any action, proceedings, motion or notice shall be
commenced or filed in respect of the Landlord or any fee owner, the
Mortgaged Property or the Master Lease in connection with any case under
the Bankruptcy Code, Mortgagee shall have the option, exercisable by
notice from Mortgagee to Mortgagor, to join any such litigation with
counsel of Mortgagee's choice. Mortgagee may proceed in its own name in
connection with any such litigation, and Fee Mortgagor agrees to execute
any and all powers, authorizations, consents or other documents required
by Mortgagee in connection therewith. Fee Mortgagor shall, upon demand,
pay to Mortgagee all costs and expenses (including reasonable attorneys'
fees) paid or incurred by Mortgagee in connection with the prosecution or
conduct of any such proceedings. Any such costs or expenses not paid by
Fee Mortgagor as aforesaid shall be secured by the lien of this Mortgage
and shall be added to the indebtedness secured hereby.
(m) Fee Mortgagor or Leasehold Mortgagor shall, after
obtaining knowledge thereof, promptly notify Mortgagee of any filing by or
against the Fee Mortgagor, Leasehold Mortgagor or another such owner of a
petition under the Bankruptcy Code. Fee Mortgagor or Leasehold Mortgagor
shall promptly deliver to Mortgagee, following receipt, copies of any and
all notices, summonses, pleadings, applications and other documents
received by Fee Mortgagor or Leasehold Mortgagor in connection with any
such Petition and any proceedings relating thereto.
ARTICLE IV
SECURITY AGREEMENT
4.01. Creation of Security Interest. As security for the Secured
Obligations, Mortgagor hereby grants to Mortgagee a security interest in all of
Mortgagor's right, title and interest in the Personal Property now or hereafter
located on or at the Premises together with any and all replacements thereof or
substitutions therefor located on or at the Mortgaged Property.
4.02. Covenants Regarding Personal Property. Mortgagor does hereby
covenant as follows:
(a) No Other Liens,. Except for the security interest granted
hereby and except as set forth on Exhibit B attached hereto and incorporated
herein the Personal Property shall remain free from any lien, security interest,
encumbrance or claims thereon of any kind whatsoever. Mortgagor will notify
Mortgagee of, and will defend the Personal
37
<PAGE> 41
Property against, all claims and demands of all persons at any time claiming the
same or any interest therein;
(b) Encumbrances. Except as set forth on Exhibit B attached
hereto and incorporated herein, Mortgagor will not assign, pledge, encumber,
hypothecate, lease, sell, convey or in any manner transfer the Personal Property
without the prior written consent of Mortgagee, except in the ordinary course of
business for the purpose of replacement;
(c) Business Purposes. The Personal Property is not and shall
not be used, and was not and shall not be purchased, for personal, family or
household purposes;
(d) Location. The Personal Property will be kept on or at the
Mortgaged Property and Mortgagor will not remove the Personal Property or any
part thereof from the Mortgaged Property without the prior written consent of
Mortgagee, except such portions or items of Personal Property which are consumed
or worn out in ordinary usage, all of which shall be promptly replaced by
Mortgagor with new items of equal or greater quality, utility and value;
(e) Financing Statements. At the request of Mortgagee,
Mortgagor will, with or without joinder of Mortgagee, execute one or more
financing statements and renewals and amendments thereof pursuant to the
Massachusetts Uniform Commercial Code (the "UCC") in form satisfactory to
Mortgagee, and will pay the cost of filing the same in all public offices
wherever filing is deemed by Mortgagee to be necessary or desirable. Without
limiting the foregoing, Mortgagor hereby irrevocably appoints Mortgagee
attorney-in-fact for Mortgagor to execute, deliver and file such instruments for
and on behalf of Mortgagor, and Mortgagor will pay the costs of any such filing;
(f) Covenants and Obligations. All covenants and obligations
of Mortgagor contained herein relating to the Mortgaged Property shall be deemed
to apply to the Personal Property whether or not expressly referred to herein;
and
(g) Security Agreement. This Mortgage constitutes both a
"mortgage" and a "security agreement" as those terms are used in the UCC and
Mortgagee shall be entitled to the rights and benefits of a "secured party", as
that term is defined in the UCC or any successor legislation thereto. The
Mortgaged Property includes both real and personal property and all other rights
and interests, whether tangible or intangible in nature, of Mortgagor in the
Mortgaged Property. Mortgagor by granting and delivering this Mortgage has
granted to Mortgagee, as security for the Secured Obligations, a security
interest in and to those portions of the Mortgaged Property in which a security
interest can be granted under the UCC. Portions of the Mortgaged Property are or
are to become fixtures as defined in the UCC. This Mortgage constitutes and is
effective as a fixture filing as provided in Section 9-402 of the UCC.
38
<PAGE> 42
ARTICLE V
EVENTS OF DEFAULT; REMEDIES
5.01. Events of Default. The occurrence of any one or more of
the following events shall constitute a default (an "Event of Default") by
Mortgagor hereunder:
(a) Mortgagor shall fail or refuse to pay when due to the
Mortgagee any installment of interest, principal, principal and interest, or any
other amount due hereunder or under the Note or any other Loan Document or to
make any payment of Impositions, or utility charges within ten (10) days after
notice that the same is past due; or
(b) Any representation or warranty made by Mortgagor or the
Guarantors under this Mortgage or any other Loan Document or any statement made
by Mortgagor or any Guarantor in any financial statement, certificate, report,
exhibit or document furnished by Mortgagor or any Guarantor to Mortgagee
pursuant to or in connection with this Mortgage or any other Loan Document shall
prove to have been false or misleading in any material respect as of the time
when made (including by omission of material information known to Mortgagor
necessary to make such representation, warranty or statement not misleading); or
(c) Mortgagor shall default in the performance or observance
of any covenant contained in Section 2.03 and 2.04 to the extent each section
pertains to the payment for and maintenance of insurance coverage of the
Mortgaged Property, 2.05.2(H), 2.07, 2.18, 2.20 or 2.22; or
(d) Mortgagor shall default in the performance or observance
of any other representation, warranty, covenant, agreement or duty under this
Mortgage and such default shall have continued for a period of thirty (30) days
after written notice thereof to Mortgagor or, if such default is not reasonably
capable of being cured within such thirty (30) day period, if Mortgagor shall
have commenced cure within thirty (30) days of notice and thereafter diligently
and continuously prosecute to completion, if such default shall have continued
for a period of ninety (90) days after said notice; or
(e) Mortgagor or any Guarantor shall default in the
performance or observance of any covenant, agreement or duty under the Note or
any other Loan Document beyond any period of grace with respect thereto; or
(f) (intentionally deleted)
(g) (intentionally deleted)
(h) One or more judgments for the payment of money shall have
been entered against Mortgagor or Guarantor, except that to the extent the
judgment or judgments do not exceed $5,000,000 in the aggregate and are fully
covered by insurance held by the
39
<PAGE> 43
Borrower, no Event of Default shall have occurred unless such judgment or
judgments shall have remained undischarged and unstayed for a period of thirty
(30) consecutive days; or
(i) A writ or warrant of attachment, garnishment, execution,
distraint or similar process shall have been issued against Mortgagor or any of
its respective properties which shall have remained undischarged and unstayed
for a period of sixty (60) consecutive days; or
(j) (intentionally deleted)
(k) Mortgagor or the Members shall sell or otherwise convey or
transfer the Mortgaged Property or any part thereof, or, except as permitted by
Section 2.20, any interest in Mortgagor or the Members (including any interest
in the profits and/or losses of Mortgagor) shall have been transferred, pledged,
levied upon or encumbered in violation of the terms of this Mortgage; or
(1) A proceeding shall have been instituted in respect of
Mortgagor, the Members, or any Guarantors:
(i) seeking to have an order for relief entered in
respect of Mortgagor, the Members or the Guarantors, or seeking a
declaration or entailing a finding that Mortgagor, the Members or the
Guarantors is or are insolvent or a similar declaration or finding, or
seeking dissolution, winding-up, charter revocation or forfeiture,
liquidation, reorganization, arrangement, adjustment, composition or other
similar relief with respect to Mortgagor, the Members or the Guarantors,
its assets or its debts under any Law relating to bankruptcy, insolvency,
relief of debtors or protection of creditors, termination of legal
entities or any other similar Law now or hereafter in effect; or
(ii) seeking appointment of a receiver, trustee,
custodian, liquidator, assignee, sequestrator or other similar official
for Mortgagor, the Members or the Guarantors or for all or any substantial
part of its or their property;
and such proceeding shall result in the entry, making or grant of any such order
for relief, declaration, finding, relief or appointment, or such proceeding
shall remain undismissed and unstayed for a period of sixty (60) consecutive
days; or
(m) Mortgagor, the Members, or the Guarantors shall become
insolvent, shall become generally unable to pay its debts as they become due,
shall voluntarily suspend transaction of its business, shall make a general
assignment for the benefit of creditors, shall institute a proceeding described
in Section 5.01(l)(i) or shall consent to any such order for relief,
declaration, finding or relief described therein, shall institute a proceeding
described in Section 5.01(l)(ii) or shall consent to any such appointment or to
the taking of possession by any such official of all or any substantial part of
its property whether or not any such
40
<PAGE> 44
proceeding is instituted, shall dissolve, wind-up or liquidate itself or any
substantial part of its property, or shall take any action in furtherance of any
of the foregoing.
5.02. Remedies.
(a) Primary Remedies. If an Event of Default shall occur,
Mortgagee may (x) declare the Secured Obligations immediately due and payable
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived; and/or (y) exercise any other right, power or remedy
available to it at law or in equity, hereunder or under any other Loan Document
without demand, protest or notice of any kind, all of which are hereby expressly
waived, except such as is expressly required hereby or by such other Loan
Document. Without limiting the generality of the foregoing, Mortgagee may:
(i) enter and take possession of the Mortgaged Property
or any part thereof, exclude Mortgagor and all persons claiming under
Mortgagor wholly or partly therefrom, and operate, use, manage and control
the same, or cause the same to be operated by a person selected by
Mortgagee, either in the name of Mortgagor or otherwise, and upon such
entry, from time to time, at the expense of Mortgagor and of the Mortgaged
Property, make all such repairs, replacements, alterations, additions or
improvements thereto as Mortgagee may deem proper, and collect and receive
the rents, revenues (including without limitation, receivables, revenues,
rentals and receipts from guest rooms, meeting rooms, food and beverage
facilities, vending machines, telephone systems, guest laundry and all
other items of revenue, receipts or income as identified in the Uniform
System of Accounts for Hotels, 8th revised edition, International
Association of Hospitality Accountants and Hotel Association of New York
City, Inc. (1986) as from time to time amended), issues, profits,
royalties, income and benefits thereof and apply the same to the payment
of all expenses which Mortgagee may be authorized to incur under the
provisions of this Mortgage and applicable Laws, the remainder to be
applied to the payment, performance and discharge of the Secured
Obligations in such order as Mortgagee may determine until the same have
been paid in full;
(ii) institute an action for the foreclosure of this
Mortgage and the sale of the Mortgaged Property pursuant to the judgment
or decree of a court of competent jurisdiction;
(iii) sell the Mortgaged Property to the highest bidder
or bidders at public auction at a sale or sales held at such place or
places and time or times and upon such notice and otherwise in such manner
as may be required by law, or in the absence of any such requirement, as
Mortgagee may deem appropriate, and from time to time adjourn such sale by
announcement at the time and place specified for such sale or for such
adjourned sale or sales without further notice except such as may be
required by law;
41
<PAGE> 45
(iv) take all steps to protect and enforce the rights of
Mortgagee under this Mortgage by suit for specific performance of any
covenant herein contained, or in aid of the execution of any power herein
granted or for the enforcement of any other rights;
(v) exercise any or all of the rights and remedies
available to a secured party under the UCC, including the right to (A)
enter the Mortgaged Property and take possession of the Personal Property
without demand or notice and without prior judicial hearing or legal
proceedings, which Mortgagor hereby expressly waives, (B) require
Mortgagor to assemble the Personal Property, or any portion thereof, and
make it available to Mortgagee at a place or places designated by
Mortgagee and reasonably convenient to both parties and (C) sell all or
any portion of the Personal Property at public or private sale, without
prior notice to Mortgagor except as otherwise required by law (and if
notice is required by law, after ten days' prior written notice), at such
place or places and at such time or times and in such manner and upon such
terms, whether for cash or on credit, as Mortgagee in its sole discretion
may determine. As to any property subject to Article 9 of the UCC included
in the Mortgaged Property, Mortgagee may proceed under the UCC or proceed
as to both real and personal property in accordance with the provisions of
this Mortgage and the rights and remedies that Mortgagee may have at law
or in equity, in respect of real property, and treat both the real and
personal property included in the Mortgaged Property as one parcel or
package of security. Mortgagor shall have the burden of proving that any
sale pursuant to this Section 5.02(a) or pursuant to the UCC was conducted
in a commercially unreasonable manner; and/or
(vi) terminate any management agreements, contracts or
agents/managers responsible for the property management of the Mortgaged
Property, if in the sole discretion of Mortgagee, such property management
is unsatisfactory in any respect.
(b) Receiver. If an Event of Default shall occur, Mortgagee
shall be entitled as a matter of right to the appointment of a receiver of the
Mortgaged Property and the rents, revenues, issues, profits, royalties, income
and benefits thereof, without notice or demand, and without regard to the
adequacy of the security for the Secured Obligations or the solvency of
Mortgagor.
(c) Environmental Site Assessments. If an Event of Default
shall occur, Mortgagor shall permit such persons as Mortgagee may designate
("Site Reviewers") to visit the Mortgaged Property and perform environmental
site investigations and assessments ("Site Assessments") on the Mortgaged
Property for the purpose of determining whether there exists on the Mortgaged
Property any environmental condition which could result in any liability, cost
or expense to the owner or occupier of the Mortgaged Property. Such Site
Assessments may include both above and below the ground testing for
environmental damage or the presence of Hazardous Materials on the Mortgaged
Property and such other tests on the
42
<PAGE> 46
Mortgaged Property as may be necessary to conduct the Site Assessments in the
opinion of the Site Reviewers. Mortgagor will supply to the Site Reviewers such
historical and operational information regarding the Mortgaged Property as may
be reasonably requested by the Site Reviewers to facilitate the Site Assessments
and will make available for meetings with the Site Reviewers appropriate
Personnel having knowledge of such matters. The cost of performing all Site
Assessments shall be paid by Mortgagor within five days after demand by
Mortgagee with interest at the Default Rate until paid.
(d) Right of Set-Off. If an Event of Default shall occur,
Mortgagee and the holder of any participation in the Note shall have the right,
in addition to all other rights and remedies available to it, to set-off against
and to appropriate and apply to the unpaid balance of the Note and all other
obligations of Mortgagor hereunder or under any other Loan Document any debt
owing to, and any other funds held in any manner for the account of, Mortgagor
by Mortgagee or such holder, including without limitation, the Proceeds and all
funds in all deposit accounts (general or special) now or hereafter maintained
by Mortgagor with Mortgagee or such holder. Such right shall exist whether or
not Mortgagee or any such holder shall have made any demand under the Note or
any such participation or any other Loan Document and whether or not the Note or
such participation or such other obligations are matured or unmatured. Mortgagor
hereby confirms the foregoing arrangements and each such holder's and the
Mortgagee's right of lien and set-off and nothing in this Mortgage or any other
Loan Document shall be deemed any waiver or prohibition of any such holder's or
of the Mortgagee's right of lien or set-off. Mortgagee shall endeavor to advise
Mortgagor of all holders of any participation in the Note upon the receipt of
written request therefor by Mortgagor. However, Mortgagee's failure to so advise
Mortgagor shall not constitute a default by Mortgagee, in any respect entitle
Mortgagor to any rights or remedies as a result thereof or impair any of the
rights and remedies of the Mortgagee under this Mortgage or the Loan Documents.
(e) Sales by Parcels. In any sale made under or by virtue of
this Mortgage or pursuant to any judgment or decree of court, the Mortgaged
Property may be sold in one or more parts or parcels or as an entirety and in
such order as Mortgagee may elect, without regard to the right of Mortgagor, or
any person claiming under it, to the marshalling of assets.
(f) Effect of Sale. The purchaser at any sale made under or by
virtue of this Mortgage or pursuant to any judgment or decree of court shall
take title to the Mortgaged Property or the part thereof so sold free and
discharged of the estate of Mortgagor therein, the purchaser being hereby
discharged from all liability to see to the application of the purchase money.
Any person, including Mortgagee, may purchase at any such sale. Mortgagee is
hereby irrevocably appointed the attorney-in-fact of Mortgagor in its name and
stead to make all appropriate transfers and deliveries of the Mortgaged Property
or any portions thereof so sold and, for this purpose, Mortgagee may execute all
appropriate instruments of transfer, and may substitute one or more persons with
like power, Mortgagor hereby ratifying and confirming all that its said
attorneys or such substitute or substitutes shall lawfully do by
43
<PAGE> 47
virtue hereof. Nevertheless, Mortgagor shall ratify and confirm, or cause to be
ratified and confirmed, any such sale or sales by executing and delivering, or
by causing to be executed and delivered, to Mortgagee or to such purchaser or
purchasers all such instruments as may be advisable, in the judgment of
Mortgagee, for the purpose, and as may be designated, in such request. Any sale
or sales made under or by virtue of this Mortgage, to the extent not prohibited
by law, shall operate to divest all the estate, right, title, interest,
property, claim and demand whatsoever, whether at law or in equity, of Mortgagor
in, to and under the Mortgaged Property, or any portions thereof so sold, and
shall be a perpetual bar both at law and in equity against Mortgagor, its
successors and assigns, and against any and all persons claiming or who may
claim the same, or any part thereof, by, through or under Mortgagor, or its
successors or assigns. The powers and agency herein granted are coupled with an
interest and are irrevocable.
(g) Eviction of Mortgagor After Sale. If Mortgagor fails or
refuses to surrender possession to the Mortgaged Property after any sale
thereof, Mortgagor shall be deemed a subtenant at sufferance, subject to
eviction by means of forcible entry and detainer proceedings, provided that this
remedy is not exclusive or in derogation of any other right or remedy available
to Mortgagee or any purchaser of the Mortgaged Property under any provision of
this Mortgage or pursuant to any judgment or decree of court.
(h) Insurance Policies. In the event of a foreclosure sale
pursuant to this Mortgage or other transfer of title or assignment of the
Mortgaged Property in extinguishment, in whole or in part, of the Secured
Obligations, all right, title and interest of Mortgagor in and to all policies
of insurance (except for the liability insurance) required under the provisions
of Section 2.03 shall inure to the benefit of and pass to the successor in
interest of Mortgagor or the purchaser or grantee of the Mortgaged Property or
any part thereof so transferred.
5.03. Application of Proceeds. The proceeds of any sale made either
under the power of sale hereby given or under a judgment, order or decree made
in any action to foreclose or to enforce this Mortgage, shall be applied:
(a) first to the payment of (i) all costs and expenses of such
sale, including attorneys' fees, appraisers' fees and costs of procuring title
searches, title insurance policies and similar items and (ii) all charges,
expenses and advances incurred or made by Mortgagee in order to protect the lien
or estate created by this Mortgage or the security afforded hereby including any
expenses of entering, taking possession of and operating the Mortgaged Property;
(b) then to the payment of any other Secured Obligations in
such order as Mortgagee may determine until the same have been paid in full; and
(c) any balance thereof shall be paid to Mortgagor, or to
whosoever shall be legally entitled thereto, or as a court of competent
jurisdiction may direct.
44
<PAGE> 48
5.04. Right to Sue Without Prejudice. If an Event of Default shall
occur, Mortgagee shall have the right from time to time to cause a sale of the
Mortgaged Property under the provisions of this Mortgage or, subject to the
limitations of Section 6.20 hereof, sue for any sums required to be paid by
Mortgagor under the terms of this Mortgage as the same respectively become due,
without regard to whether or not the Secured Obligations shall be due and
without prejudice to the right of Mortgagee thereafter to cause any such sale or
to bring any action or proceeding of foreclosure or otherwise, or to take other
action, in respect of any Event of Default existing at the time such earlier
action or proceeding was commenced.
5.05. Power to Modify Documents. Mortgagee may at any time or
from time to time (a) renew or extend this Mortgage or any other Loan Document,
including but not limited to UCC Financing Statements, or (b) waive any of the
terms, covenants or conditions hereof or thereof in whole or in part, or (c)
with the consent of the Mortgagor, amend or modify the same in any way, and may
release any portion of the Mortgaged Property or any other security, and grant
such extensions and indulgences in relation to the Secured Obligations as
Mortgagee may determine, without the consent of any junior lienor or
encumbrancer and without any obligation to give notice of any kind to any person
and without in any manner affecting the priority of the lien or security
interest of this Mortgage on or in any part of the Mortgaged Property. Mortgagee
may at any time or from time to time subordinate the lien or security interest
of this Mortgage to any Lease or any other agreement with respect to the
occupancy or use of any part of the Mortgaged Property, or to any easement,
restrictive covenant or other encumbrance on any part of the Mortgaged Property,
or to any other lien on or security interest in any part of the Mortgaged
Property, or to any other interest of any person in or to any part of the
Mortgaged Property, in each case without the agreement or consent of Mortgagor
or of the tenant or other party holding the interest to which the lien or
security interest hereof is being subordinated or of any other person having a
right or interest in any of the Mortgaged Property, without any obligation to
give notice of any kind to any person, and without in any manner affecting
(except to the extent specifically provided in the instrument effecting such
subordination) the priority of the lien or security interest of this Mortgage on
or in any part of the Mortgaged Property.
5.06. Remedies Cumulative.
(a) Generally. No right or remedy herein conferred upon or
reserved to Mortgagee is intended to be exclusive of any other right or remedy,
and each and every such right and remedy shall be cumulative and in addition to
any other right or remedy of Mortgagee under the Loan Documents or this
Mortgage, or at law or in equity. The failure of Mortgagee to insist at any time
upon the strict observance or performance of any of the provisions of this
Mortgage, or to exercise any right or remedy provided for herein or in the Loan
Documents, shall not impair any such right or remedy nor be construed as a
waiver or relinquishment thereof. Every right and remedy given by this Mortgage
or the Loan Documents to Mortgagee, or to which Mortgagee may otherwise be
entitled, may be exercised from time to time and as often as may be deemed
expedient by Mortgagee, and no warrant shall be exhausted by the exercise
thereof. Mortgagee may pursue inconsistent remedies.
45
<PAGE> 49
(b) Other Security. Mortgagee shall be entitled to enforce
payment and performance of any Secured Obligations and to exercise all rights
and powers under the Loan Documents or this Mortgage, or at law or in equity,
notwithstanding that such Secured Obligations may now or hereafter be otherwise
secured. Neither the acceptance of this Mortgage nor its enforcement, whether by
court action or pursuant to the power of sale or other powers herein contained,
shall prejudice or in any manner affect Mortgagee's right to realize upon or
enforce any other security now or hereafter held by Mortgagee in such order and
manner as Mortgagee in its sole discretion may determine.
5.07. Grant and Exercise of Power of Sale. To the maximum extent
permissible, this Mortgage is upon the STATUTORY CONDITION and upon the further
condition that all agreements and covenants of the Mortgagor and all other
parties contained in the Loan Documents shall be fully kept and performed and
all of the other conditions thereof shall be fully met, all as therein provided,
for any breach of which the Lender shall have the STATUTORY POWER OF SALE.
5.08. Waiver of Stay, Extension, Moratorium Laws; Equity of
Redemption. Mortgagor shall not at any time (a) insist upon, plead or in any
manner whatever claim or take any benefit or advantage of any applicable present
or future stay, extension or moratorium Law or (b) claim, take or insist upon
any benefit or advantage of any present or future Law providing for the
valuation or appraisal of the Mortgaged Property prior to any sale or sales
thereof which may be made under or by virtue of the provisions of Section 5.02;
and Mortgagor hereby waives all benefit or advantage of any such Law or Laws.
Mortgagor, for itself and all who may claim under it, hereby waives any and all
rights and equities of redemption from sale under the power of sale created
hereunder or from sale under any order or decree of foreclosure of this Mortgage
and all notice or notices of seizure, and all right to have the Mortgaged
Property marshalled upon any foreclosure hereof. Mortgagee shall not be
obligated to pursue or exhaust its rights or remedies as against any part of the
Mortgaged Property before proceeding against any other part thereof and
Mortgagor hereby waives any right or claim of right to have Mortgagee proceed in
any particular order. Mortgagor hereby waives and releases all errors, defects
and imperfections in any proceedings instituted by Mortgagee under this
Mortgage.
ARTICLE VI
MISCELLANEOUS
6.01. Giving of Notice.
(a) Delivery. Whenever notice is given or required to be given
pursuant to this Mortgage, it shall be sent postage prepaid by registered or
certified mail, return receipt requested, or by telegram, or by prepaid
nationally recognized overnight delivery service or by hand delivery addressed
and delivered to the parties at their respective addresses set forth below, or
at such other address as a party, by similar written notice to the other parties
hereto, may designate from time to time:
46
<PAGE> 50
Mortgagor:
SaunStar Land Co., L.L.C.
c/o Saunders Real Estate Corp.
20 Park Plaza
Boston, MA 02116-4399
and to: SaunStar Operating Co., L.L.C.
c/o Saunders Real Estate Corp.
20 Park Plaza
Boston, MA 02116-4399
and to: SLT Realty Limited Partnership
c/o Starwood Lodging Trust
1135 W. Olympic Boulevard
Suite 675
Los Angeles, CA 90064
Attn: Ronald Brown
with a copy, mailed Alan S. Weil, Esquire
regular mail, to: Sidley & Austin
875 Third Avenue
New York, NY 10022
and to: Joel A. Kozol, Esquire
Friedman & Atherton
Exchange Place
Boston, MA 02109
Mortgagee:
Life Insurance Company of Georgia
c/o ING Investment Management, Inc.
300 Galleria Parkway, N.W.
Atlanta, Georgia 30339-3149
Attention: Maurice Moore
and to: New England Realty Resources, Inc.
65 Franklin Street, Suite 400
Boston, MA 02110
Attention: James M. Murphy
with a copy, mailed Paul J. Ayoub, Esquire
regular mail, to: Peabody & Arnold
50 Rowes Wharf
Boston, MA 02110
47
<PAGE> 51
(b) Receipt. Unless otherwise specified, notice shall be
deemed to have been received (i) when deposited in the United States mail,
registered or certified, return receipt requested or (ii) one (1) business day
after the notice is sent by telegram or by a nationally recognized overnight
delivery service or (iii) the date of delivery if notice is delivered by hand.
6.02. Governing Law. This Mortgage and the other Loan Documents
shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts.
6.03 Statements by Mortgagor. Mortgagor, within ten (10) days after
being given notice by mail, will furnish to Mortgagee a written statement
stating the unpaid principal of and interest on the Note and any other amounts
secured by this Mortgage and stating whether any offset or defense exists
against such principal and interest.
6.04. Captions. The captions or headings at the beginning of each
section hereof are solely for the convenience of the parties and are not a part
of this Mortgage, nor do such captions affect the scope or meaning of any
provisions hereof.
6.05. Changes in Tax Law. In the event of the passage after the date
of this Mortgage of any Law deducting from the value of the Mortgaged Property,
for the purpose of taxation, any lien thereon, or changing in any way the Laws
now in force for the taxation of mortgages, or debts secured thereby, for state
or local purposes, or the manner of the operation of any such taxes so as to
affect the interest of Mortgagee, then and in such event, Mortgagor shall bear
and pay the full amount of such taxes, provided that if for any reason payment
by Mortgagor of any such new or additional taxes would be unlawful (including
under Laws governing usury) Mortgagee may either declare the Secured
Obligations, with interest thereon, to be immediately due and payable, or pay
that amount or portion of such taxes as would be unlawful to require Mortgagor
to pay, in which event Mortgagor shall concurrently therewith pay the balance of
said taxes.
6.06. Further Assurances.
(a) Generally. From time to time upon the request of
Mortgagee, Mortgagor shall promptly and duly execute, acknowledge and deliver
any and all such further instruments and documents as Mortgagee may deem
reasonably necessary or desirable to confirm this Mortgage, to carry out the
purpose and intent hereof, or to enable Mortgagee to enforce any of its rights
hereunder.
48
<PAGE> 52
(b) Filings. Mortgagor immediately upon the execution and
delivery of this Mortgage, and thereafter from time to time, shall cause this
Mortgage, any supplements hereto, any financing statements and each instrument
of further assurance to be filed, registered or recorded and refiled,
re-registered or rerecorded in such manner and in such places as may be required
by any present or future Law in order to publish notice of and perfect the lien
and security interest or estate created by this Mortgage on or in the Mortgaged
Property, and shall pay all fees and costs in connection therewith.
6.07. Amendments, Waivers, Etc. This Mortgage cannot be amended,
modified, waived, changed, discharged or terminated except by an instrument in
writing signed by the party against whom enforcement of such amendment,
modification, waiver, change, discharge or termination is sought.
6.08. No Implied Waiver. No course of dealing and no delay or
failure of Mortgagee in exercising any right, power or privilege under this
Mortgage, the Note or any other Loan Document shall affect any other or future
exercise thereof or exercise of any other right, power or privilege; nor shall
any single or partial exercise of any such right, power or privilege or any
abandonment or discontinuance of steps to enforce such a right, power or
privilege preclude any further exercise thereof or of any other right, power or
privilege.
6.09. Expenses; Taxes; Attorneys' Fees. Mortgagor agrees to pay or
cause to be paid and to save Mortgagee harmless against liability for the
payment of all out-of-pocket expenses, including fees and expenses of counsel
for Mortgagee, incurred by Mortgagee from time to time (a) arising in connection
with the preparation, execution, delivery and performance of this Mortgage, the
Note and the other Loan Documents, (b) relating to any requested amendments,
waivers or consents to this Mortgage, the Note or any other Loan Document and
(c) arising in connection with Mortgagee's enforcement or preservation of rights
under this Mortgage, the Note or any other Loan Document, including such
expenses as may be incurred by Mortgagee in the collection of the Note or the
realization of security given for the Note. Mortgagor agrees to pay all stamp,
document, transfer, recording or filing taxes or fees and similar impositions
now or hereafter determined by Mortgagee to be payable in connection with this
Mortgage, the Note or any other Loan Documents, and Mortgagor agrees to save
Mortgagee harmless from and against any and all present or future claims,
liabilities or losses with respect to or resulting from any omission to pay or
delay in paying any such taxes, fees or impositions. Mortgagor agrees to pay and
to save Mortgagee harmless against liability for the payment of all
out-of-pocket expenses incurred by Mortgagee in connection with its review of
any repair, replacement, alteration, improvement or restoration to the Mortgaged
Property in connection with the requirements of Sections 2.02, 2.05 and 2.13,
including the fees and expenses of counsel for Mortgagee and of any architect
engaged by Mortgagee to review plans and specifications, inspect work or provide
advice with respect to determinations to be made by Mortgagee in connection
therewith. In the event of termination adversely to Mortgagor of any action at
law or suit in equity in relation to this Mortgage, the Note or any other Loan
Document, Mortgagor will pay, in addition to all other sums which Mortgagor may
be required to pay, all attorneys' fees incurred by Mortgagee in connection with
such action or suit. All
49
<PAGE> 53
references to "attorneys' fees" in this Mortgage and in the other Loan Documents
shall mean reasonable attorneys' fees. All amounts payable by Mortgagor under
this Section 6.09 shall be paid within ten (10) days after demand by Mortgagee
with interest at the Default Rate specified in the Note until paid.
6.10. Jurisdiction; Etc. Mortgagor, for itself and the Guarantors,
irrevocably (a) agrees that Mortgagee, may bring suit, action or other legal
proceedings arising out of this Mortgage (other than those brought for the
foreclosure or other realization on the real property security granted hereby),
the Note or any other Loan Document, or the transactions contemplated hereby or
thereby, in the courts of the Commonwealth of Massachusetts or the courts of the
United States for the District of Massachusetts; (b) consents to the
jurisdiction of each such court in any such suit, action or proceeding; (c)
waives any objection which Mortgagor or the Guarantors, may have to the laying
of the venue of any such suit, action or proceeding in any of such courts; and
(d) waives any right it or the Guarantors may have to a jury trial in connection
with any suit, action or proceeding arising out of this Mortgage, the Note or
any other Loan Document or the transactions contemplated hereby or thereby.
6.11. Interpretation. Unless the context otherwise requires: (a) the
term "person" means an individual, corporation, partnership, trust,
unincorporated association, joint venture, joint-stock company, government
(including political subdivisions), governmental authority or agency, or any
other entity; (b) any reference to an Article or Section shall refer to the
specified Article or Section of this Mortgage; (c) words importing the singular
number include the plural number, and vice versa; (d) the terms "hereof",
"hereby", "hereto", "hereunder" and similar terms refer to this entire Mortgage;
(e) the term "including" shall mean "including without limitation"; (f) any
reference to the Mortgaged Property shall refer to the Mortgaged Property or any
part thereof or any estate or interest therein; (g) any "consent", "approval" or
"option" by Mortgagee shall be in its sole and absolute discretion, unless
expressly stated herein to the contrary; (h) the word "Mortgagor" shall mean the
person or persons named in this Mortgage and who execute the same and their
successors and assigns, and any subsequent owner of the Mortgaged Property; (i)
the word "Mortgagee" shall mean the person who is the owner and holder of the
Note, whether or not specifically named herein as "Mortgagee", or any subsequent
owner and holder of the Note and this Mortgage; (j) the use of any gender shall
include all genders; and (k) in the event Mortgagor hereafter consists of more
than one person, all agreements, conditions, covenants, provisions,
stipulations, warrants of attorney, authorizations, waivers, releases, options,
undertakings, rights and benefits made or given by Mortgagor shall be joint and
several, and shall bind and affect all persons who are defined as "Mortgagor" as
fully as though all of them were specifically named herein wherever the word
"Mortgagor" is used. In the event provisions hereof conflict or otherwise are
inconsistent with any provision of the other Loan Documents, then the Mortgagor
shall be bound by the provision more restrictive to the Mortgagor and more
beneficial to the Mortgagee. To the extent possible, however, provisions of this
Mortgage and the Note and the other Loan Documents shall be interpreted to
compliment and supplement each other. The absence of any provision or portion
thereof in one such document shall be not be deemed to be inconsistent with the
any other such document containing such provision or portion thereof.
50
<PAGE> 54
Notwithstanding the foregoing, in no event shall any rights of the Mortgagor
under the several Loan Documents to cure an Event of Default, or redeem or
otherwise reinstate the Loan be deemed cumulative.
6.12. Invalidity of Certain Provisions. If the security interest,
lien or estate created by this Mortgage is invalid or unenforceable as to any
part of the Secured Obligations, or as to any part of the Mortgaged Property,
the unsecured or partially secured portion of the Secured Obligations shall be
completely paid prior to the payment of the remaining and secured or partially
secured portion of the Secured Obligations, and all payments made thereon,
whether voluntary or pursuant to foreclosure sale or other enforcement action or
procedure, shall be considered to have been first paid on and applied to the
full payment of that portion of the Secured Obligations which is not secured or
fully secured by this Mortgage.
6.13. Severability. If any term or provision of this Mortgage or the
application thereof to any person or circumstance shall to any extent be invalid
or unenforceable, the remainder of this Mortgage, or the application of such
term or provision to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Mortgage shall be valid and enforceable to the fullest extent
permitted by law.
6.14. Time of Essence; Duration; Survival. Time is of the essence
with respect to all of Mortgagor's obligations under this Mortgage and the other
Loan Documents. All representations and warranties of Mortgagor contained herein
or in any other Loan Document or made in connection herewith or therewith shall
survive the making of and shall not be waived by the execution and delivery of
this Mortgage or the other Loan Documents, or any investigation by Mortgagee.
All covenants and agreements of Mortgagor contained herein or in any other Loan
Document shall continue in full force and effect from and after the date hereof
and until payment in full of the Secured Obligations. Without limitation, it is
understood that all obligations of Mortgagor to make payments to or indemnify
Mortgagee shall survive the payment in full of the principal of and interest on
the Note, and all other amounts constituting Secured Obligations.
6.15. Successors and Assigns. This Mortgage applies to, inures to
the benefit of and binds all parties hereto, their successors and assigns.
6.16. Subrogation. To the extent that proceeds of the Note or
advances under this Mortgage are used to pay any outstanding lien, charge or
prior encumbrance against the Mortgaged Property, such proceeds have been or
will be advanced by Mortgagee at Mortgagor's request and Mortgagee shall be
subrogated to any and all rights and liens held by any owner or holder of such
outstanding liens, charges and prior encumbrances, irrespective of whether said
liens, charges or encumbrances are released.
6.17. Repayment after Acceleration; Prepayment,. If after the
acceleration of the maturity of the Secured Obligations as herein provided, a
tender of payment of the amount
51
<PAGE> 55
necessary to satisfy the entire Secured Obligations is made at any time prior to
foreclosure sale by Mortgagor, its successors or assigns, or by anyone on behalf
of Mortgagor, its successors or assigns, such tender shall, to the full extent
permitted by law, constitute an evasion of the prepayment terms of the Note and
be deemed to be a voluntary prepayment thereunder, and Mortgagee shall not be
obligated to accept any such tender of payment unless such tender of payment
also includes the Prepayment Premium set forth in the Note.
6.18. Future Advances. This Mortgage secures, and the Secured
Obligations include, (i) all advances made by Mortgagee with respect to any of
the Mortgaged Property for the payment of Impositions, maintenance charges,
insurance premiums or costs incurred for the protection of any of the Mortgaged
Property or the lien of this Mortgage and (ii) all expenses incurred by
Mortgagee by reason of an Event of Default hereunder.
6.19. Assignment of Mortgagee's Interest. Mortgagor hereby
specifically grants unto Mortgagee the right and privilege, at Mortgagee's
option, to transfer and assign to any third person all or any portion of
Mortgagee's interest and obligations hereunder, under the Loan, and under the
Loan Documents. Upon any such transfer, Mortgagor, at Mortgagee's request, shall
provide an estoppel certificate to such third person in form and content
reasonably satisfactory to Mortgagee, in its reasonable discretion.
6.20. Limitation of Liability. The liability of the Mortgagor for
the Secured Obligations hereunder or under any of the Loan Documents is limited
in recourse as set forth in Section 19 of the Note.
The name "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 Starwood Lodging Trust shall look solely to Starwood Lodging
Trust's assets for the enforcement of any claims against Starwood Lodging Trust,
as the trustees, officers, agents and security holders of Starwood Lodging Trust
assume no personal liability for obligations entered into on behalf of Starwood
Lodging Trust, 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 Starwood Lodging Trust under this
Mortgage and the other Loan Documents.
52
<PAGE> 56
IN WITNESS WHEREOF, this Mortgage has been duly executed as a sealed
instrument as of the day and year first above written.
FEE MORTGAGOR:
SAUNSTAR LAND CO., LLC
By: DONALD SAUNDERS FAMILY LLC,
its member
By: /s/ Donald L. Saunders
---------------------------------------
Name: Donald L. Saunders, its manager
hereunto duly authorized
By: SLT REALTY LIMITED PARTNERSHIP,
its member
By: STARWOOD LODGING TRUST,
its general partner
By: /s/ Ronald C. Brown
----------------------------------
Name: Ronald C. Brown
Title: Vice President and
Chief Financial Officer
hereunto duly authorized
LEASEHOLD MORTGAGOR:
SAUNSTAR OPERATING CO., LLC
By: DONALD SAUNDERS FAMILY LLC,
its member
By: /s/ Donald L. Saunders
---------------------------------------
Name: Donald L. Saunders, its manager
hereunto duly authorized
53
<PAGE> 57
LEASEHOLD MORTGAGOR: (CONTINUED)
By: SLC OPERATING LIMITED PARTNERSHIP,
its member
By: STARWOOD LODGING CORPORATION,
its managing general partner
By: /s/ Charles McCain
______________________________
Name: Charles McCain
Title: Treasurer
hereunto duly authorized
COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. May 7, 1996
Then personally appeared the above-named Donald L. Saunders, manager of
Donald Saunders Family LLC, which is a member of SaunStar Land Co., LLC and
SaunStar Operating Co., LLC, and acknowledged the foregoing instrument to be the
free act and deed of said company on behalf of SaunStar Land Co., LLC and
SaunStar Operating Co., LLC, before me
/s/ Barbara F. Duby
______________________________
Notary Public
My commission expires:
[Seal]
COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. May 7, 1996
Then personally appeared the above-named Ronald C. Brown, Vice President
and Chief Financial Officer of Starwood Lodging Trust, General Partner of SLT
Realty Limited Partnership, which is a member of SaunStar Land Co., LLC and
acknowledged the foregoing instrument to be the free act and deed of said trust
on behalf of said limited partnership as a member of said company, before me
/s/ Andrea S. Cameron
______________________________
Notary Public
My commission expires:
[Seal]
54
<PAGE> 58
COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. May 7, 1996
Then personally appeared the above-named Charles McCain, Treasurer of
Starwood Lodging Corporation, General Partner of SLC Operating Limited
Partnership which is a member of SaunStar Operating Co., LLC, and acknowledged
the foregoing instrument to be the free act and deed of said corporation on
behalf of said limited partnership as a member of said company, before me.
/s/ Andrea S. Cameron
----------------------------------------
Notary Public
My commission expires:
[Seal]
55
<PAGE> 1
EXHIBIT 10.35
================================================================================
THE SUMITOMO TRUST & BANKING CO., LTD.
AND
EMSTAR REALTY LLC
- --------------------------------------------------------------------------------
LOAN AGREEMENT
- --------------------------------------------------------------------------------
DATED: AS OF SEPTEMBER 19, 1996
LOCATION: 120 AND 130 EAST 39TH STREET
NEW YORK, NEW YORK
================================================================================
BATTLE FOWLER LLP
75 EAST 55TH STREET
NEW YORK, NEW YORK 10022
ATTENTION: ROBERT J. WERTHEIMER, ESQ.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Title Page
<S> <C>
ARTICLE 1
INCORPORATION OF RECITALS AND EXHIBITS................................. 3
Incorporation of Recitals..................................... 3
Incorporation of Exhibits..................................... 3
ARTICLE 2
DEFINITIONS............................................................ 3
Defined Terms................................................. 3
Use of Defined Terms.......................................... 12
Use of Recital, Article, Section and Exhibit References....... 12
ARTICLE 3
REPRESENTATIONS AND WARRANTIES......................................... 12
Representations and Warranties of Borrower.................... 12
Survival of Representations and Warranties.................... 19
ARTICLE 4
TERMS OF LOAN AND DOCUMENTS............................................ 19
Agreement to Borrow and Lend.................................. 19
Loan Documents................................................ 19
Term of the Loan.............................................. 21
Prepayments................................................... 21
Due on Sale................................................... 21
Partial Sale of Premises...................................... 21
Conditions to Partial Sale of Premises........................ 22
ARTICLE 5
LOAN EXPENSES AND ADVANCES;
SECURITY OF MORTGAGE FOR SAME.......................................... 23
Loan Origination Expenses..................................... 23
Lender's Loan Fee............................................. 23
Expenses and Advances Secured by Loan Documents............... 23
ARTICLE 6
REQUIREMENTS PRECEDENT
TO THE OPENING OF THE LOAN............................................. 24
ARTICLE 7
LENDER'S OBLIGATION TO DISBURSE PROCEEDS OF LOAN....................... 27
Loan Opening.................................................. 27
ARTICLE 8
BORROWER'S AGREEMENTS.................................................. 27
Compliance with Requirements of Governmental Authorities...... 27
Inspection by Lender.......................................... 27
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Title Page
----- ----
<S> <C>
Mechanics' Liens and Contest Thereof.............................................. 27
Settlement of Mechanics' Lien Claims.............................................. 28
Renewal of Insurance.............................................................. 28
Payment of Taxes.................................................................. 28
Personal Property................................................................. 29
Proceedings to Enjoin or Prevent Operation of the Project......................... 29
Lender's Attorneys' Fees and Expenses............................................. 29
Lender's Action for its Own Protection Only....................................... 30
Furnishing Information............................................................ 31
Documents of Further Assurance.................................................... 33
Furnishing Reports................................................................ 33
Operation of Project.............................................................. 34
Leasing ......................................................................... 34
Agreements........................................................................ 34
Furnishing Notices................................................................ 35
No Additional Debt................................................................ 35
Indemnification................................................................... 35
Insurance Reporting Requirements.................................................. 36
Compliance With Laws.............................................................. 37
Organizational Documents.......................................................... 37
Alterations....................................................................... 37
Lost Note......................................................................... 37
Hazardous Material................................................................ 37
Asbestos ......................................................................... 39
Annual Appraisals................................................................. 39
Access to the Project and Right to Cure Defaults Under Leases and Easement
Agreements .............................................................. 39
Payments to Affiliates; Application of Cash Flow.................................. 39
Single Purpose Entity/Relocation of Borrower's Office............................. 40
Use of Loan Proceeds.............................................................. 40
Maintenance of Debt Service Coverage.............................................. 40
Escrow Account.................................................................... 41
Net Worth Decline................................................................. 41
ERISA ......................................................................... 42
Guarantors' Financial Tests....................................................... 42
Limitations on Suits Brought Against Lender....................................... 42
ARTICLE 9
ASSIGNMENTS....................................................................... 43
Lender's Right to Assign.......................................................... 43
Prohibition of Assignments by Borrower............................................ 44
Restrictions on Transfers of Interest............................................. 44
Prohibition of Transfers in Violation of ERISA.................................... 45
Successors and Assigns............................................................ 45
ARTICLE 10
EVENTS OF DEFAULT.......................................................................... 45
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Title Page
----- ----
<S> <C>
ARTICLE 11
LENDER'S REMEDIES IN EVENT OF DEFAULT..................................... 49
Remedies Conferred Upon Lender................................... 49
Non-Waiver of Remedies........................................... 50
ARTICLE 12
GENERAL PROVISIONS........................................................ 50
Captions ........................................................ 50
Notices ........................................................ 50
Entire Agreement; Modification; Waiver........................... 52
Governing Law.................................................... 52
Acquiescence Not to Constitute Waiver of Lender's Requirements... 52
Disclaimer by Lender............................................. 52
Right of Lender to Make Advances to Cure Borrower's Defaults..... 54
Definitions Apply in Amendments.................................. 54
Time Is of the Essence........................................... 54
Execution in Counterparts........................................ 54
Waiver of Consequential Damages.................................. 54
Claims Against Lender............................................ 55
Jurisdiction; Service of Process................................. 55
Severability..................................................... 56
Waiver of Jury Trial............................................. 56
Survival of Indemnities.......................................... 56
No Additional Liability to Guarantors............................ 56
EXHIBITS:
Exhibit A - Legal Description of Court Premises.
Exhibit B - Legal Description of Tuscany Premises.
Exhibit C - Permitted Exceptions.
Exhibit D - Form of Rent Roll.
Exhibit E - Governmental Approvals.
Exhibit F - Form of Pledge Agreement.
Exhibit G - Form of Debt Service Coverage Ratio Statement.
</TABLE>
<PAGE> 5
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "AGREEMENT") made and dated as of
September 19, 1996 by and among THE SUMITOMO TRUST & BANKING CO., LTD., a
Japanese banking corporation acting through its New York Branch, having an
address at 527 Madison Avenue, New York, New York 10022 ("LENDER"), EMSTAR
REALTY LLC, a New York limited liability company having an address at 539-541
Lexington Avenue, New York, New York ("BORROWER") and STARWOOD LODGING TRUST, a
Maryland trust, STARWOOD LODGING CORPORATION, a Maryland corporation, and SLT
REALTY LIMITED PARTNERSHIP, a Delaware limited partnership, each having an
address at 2231 East Camelback Road, Phoenix, Arizona 85016 (collectively, the
"GUARANTORS").
PRELIMINARY STATEMENT
WHEREAS, Lender has previously made a loan to Tuscany
Operating Company, a New York limited partnership (the "COMPANY"), in the
original principal amount of $24,000,000 (the "COURT LOAN"), which loan is
evidenced by a certain Amended, Restated and Consolidated Mortgage Note from the
Company to Lender dated as of January 19, 1990 (the "COURT NOTE") and secured by
that certain Agreement of Spreader, Consolidation and Modification of Mortgage
and Note between the Company and Lender dated as of January 19, 1990 (the "COURT
MORTGAGE") which encumbers the premises described in Exhibit A attached hereto
(the "COURT PREMISES");
WHEREAS, Hotel Tuscany Limited Partnership ("HOTEL TUSCANY
LP") has previously received a loan from Republic Bank for Savings (f/k/a The
Manhattan Savings Bank) (the "TUSCANY MORTGAGEE") in the original principal
amount of $11,500,000, as subsequently reduced to $5,500,000, (the "TUSCANY
LOAN"; the Court Loan and the Tuscany Loan shall be referred to collectively
hereinafter as the "LOAN"), which loan is evidenced by a note from Hotel Tuscany
LP to the Tuscany Mortgagee (the "TUSCANY NOTE") and secured by a mortgage
between Hotel Tuscany LP and the Company dated as of November 16, 1988 (as
subsequently modified and extended pursuant to that certain Modification and
Extension Agreement dated as of September 1, 1994 between Hotel Tuscany LP and
the Tuscany Mortgagee, the "TUSCANY MORTGAGE") which encumbers the premises
described in Exhibit B attached hereto (the "TUSCANY PREMISES"; the Court
Premises and the Tuscany Premises shall be referred to collectively as the
"PREMISES");
WHEREAS, Lender has agreed to purchase the Tuscany Loan from
the Tuscany Mortgagee for an aggregate purchase price of $3,375,000, and in
connection therewith the Tuscany Note and Tuscany Mortgage shall be assigned
simultaneously herewith by the Tuscany Mortgagee to Lender;
<PAGE> 6
WHEREAS, there is constructed on each of the Court Premises
and the Tuscany Premises a hotel, together with certain other improvements
(collectively, the "BUILDING"; the Tuscany Premises, Court Premises, the
Building and all related improvements and facilities, together with all rights,
privileges, easements, hereditaments and appurtenances thereunto relating or
appertaining, and all fixtures and equipment (other than "Tenant Improvements,"
as hereinafter defined) required for, or otherwise intended for use in
connection with, the operation thereof, are herein collectively called the
"PROJECT";
WHEREAS, the Company shall assign, and Hotel Tuscany, LLC
("HOTEL TUSCANY, LLC") shall assume, the Company's interest in the Court Loan
and the Project pursuant to those certain assignment and assumption agreements
and those certain bargain and sale deeds from the Company to Hotel Tuscany, LLC;
WHEREAS, Tuscany LP shall assign, and the Hotel Tuscany, LLC
shall assume, the interest of Tuscany LP in the Tuscany Loan and the Project
with respect to the Tuscany Premises;
WHEREAS, Hotel Tuscany LLC shall transfer its entire interest
in the Court Loan, the Tuscany Loan and the Project to Borrower as part of its
initial capital contribution into Borrower pursuant to those certain assignment
and assumption agreements between Hotel Tuscany LLC and Borrower and certain
bargain and sale deeds from Hotel Tuscany LLC to Borrower dated as of the date
hereof;
WHEREAS, Alstar Realty LLC, a New York limited liability
company wholly-owned by members of the Starwood Group, has acquired a 49%
interest in Borrower for approximately $9,125,000 plus its portion of the Loan;
WHEREAS, Borrower and Lender shall enter into a certain
Consolidated Amended and Restated Note (the "NOTE") which shall consolidate the
Court Note and the Tuscany Note and amend and restate such notes in their
entireties, and shall be secured by a certain Mortgage Spreader, Consolidation
and Modification Agreement dated as of the date hereof between Borrower and
Lender (the "MORTGAGE") which shall serve to consolidate the Court Mortgage and
the Tuscany Mortgage and shall encumber the Premises;
WHEREAS, in connection with the Loan, Guarantors shall deliver
to Lender a Guaranty of Payment (the "GUARANTY"; the Note, the Mortgage, the
Guaranty and all other documents executed now or hereafter in connection with
the Loan shall be referred to collectively hereinafter as the "LOAN DOCUMENTS");
and
WHEREAS, each of Borrower and Guarantor, and their respective
affiliates, shall benefit from the terms and conditions contained herein and in
the other Loan Documents.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
2
<PAGE> 7
ARTICLE 1
INCORPORATION OF RECITALS AND EXHIBITS
INCORPORATION OF RECITALS
1.1 The foregoing Recitals are made a part of this Agreement.
INCORPORATION OF EXHIBITS
1.2 All Exhibits hereto (whether or not listed in the Index)
are incorporated herein and expressly made a part hereof.
ARTICLE 2
DEFINITIONS
DEFINED TERMS
2.1 The following terms as used herein or in any of the other
Loan Documents (unless otherwise defined therein), as the case may be, shall
have the following meanings:
ACCELERATED MATURITY DATE: The meaning set forth in Section
4.3.
ACM: Any product or construction material containing more than
0.1 percent asbestos or any other substance containing asbestos and deemed
hazardous by any applicable Laws.
ADA: The Americans with Disabilities Act of 1990, as amended,
and the regulations promulgated thereunder from time to time.
AFFILIATE: When used with respect to any Person, shall mean
any other Person directly or indirectly controlling or controlled by, or under
direct or indirect common control with, such Person. For purposes of this
definition, the term "control" (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
AGREEMENT: This Loan Agreement, as originally executed or as
may be hereafter supplemented, amended or restated in accordance with its terms
from time to time in writing.
3
<PAGE> 8
AMORTIZATION PAYMENT OR AMORTIZATION PAYMENTS: The mandatory
repayments of the Loan, if any, required to be made by Borrower pursuant to and
in accordance with the terms of the Note.
APPRAISAL: The meaning set forth in Section 6.1(c)(xii).
APPRAISER: Cushman & Wakefield or such other appraiser who is
a Senior Commercial Appraiser of the Appraisal Institute and is qualified under
the requirements of FIRREA, as Lender may from time to time designate.
ASSIGNEE: The meaning set forth in Section 9.1(a).
ASSIGNMENT AND ASSUMPTION AGREEMENT: The meaning set forth in
the Recitals.
BRANCH: The Sumitomo Trust & Banking Co., Ltd., New York
Branch.
BUILDING: The meaning set forth in the Recitals.
BUSINESS DAY: Shall mean any day on which the Lender is open
for business in New York City.
CERTIFICATE: A certificate delivered by Borrower to Lender as
of the Loan Opening Date relating to certain representations and warranties, the
completeness and accuracy of which shall be certified by Borrower.
CONSOLIDATED INDEBTEDNESS: All indebtedness of the Guarantors
in accordance with generally accepted accounting principals consistently applied
("GAAP") which will include all liabilities for borrowed money including
outstanding indebtedness under existing and future loan facilities, liabilities
for the deferred purchase price of property or services acquired; all
liabilities for borrowed money secured by any lien with respect to any property
owned by the Guarantors or any entity directly or indirectly owned by any of the
Guarantors (whether or not it has assumed or otherwise become liable for such
liabilities) in an amount not to exceed the fair market value of the property
securing such liability, or if assumed or otherwise become liable therefor, in
an amount equal to such assumption or liability; the maximum stated amount of
all letters of credit issued or acceptance facilities established and, without
duplication, all drafts drawn thereunder (other than letters of credit
supporting Consolidated Indebtedness); the amount of all obligations under "take
or pay" or similar arrangements; the aggregate principal amount of outstanding
Consolidated Indebtedness of a partnership in which any Guarantor is a general
partner; and any guaranty by any Guarantor with respect to liabilities of a type
described in any of the clauses above. Consolidated Indebtedness shall not
include trade payables and accrued expenses arising or incurred in the ordinary
course of business, but shall include all obligations of the character described
above to the
4
<PAGE> 9
extent the Borrower remains legally liable in respect thereof notwithstanding
that any such obligation is deemed to be extinguished under GAAP.
CONSOLIDATED TANGIBLE NET WORTH: The sum of the capital stock
and additional paid-in capital plus retained earnings (or minus accumulated
deficits which may be referred to as distributions in excess of earnings) less
the sum of the goodwill, intellectual property, organizational expenses,
unamortized debt discount and expenses, deferred costs and other similar
intangibles of Starwood Lodging Trust and Starwood Lodging Corporation and their
subsidiaries on a consolidated basis determined in conformity with GAAP as
reflected in the consolidated balance sheet of the Guarantors and their
subsidiaries in their forms 10-Q and 10-K filed with the Securities and Exchange
Commission.
DEBT SERVICE: The actual monthly interest payments which are
required to be made under the Note.
DEBT SERVICE COVERAGE: With respect to a particular twelve
(12) month period, the figure calculated by dividing (a) Net Operating Income
for such period by (b) Debt Service for such period.
DEBT SERVICE COVERAGE RATE: 1.25.
DEBT SERVICE COVERAGE STATEMENT: The meaning set forth in
Section 8.1(l)(i).
DEFAULT OR DEFAULT: Any event which, if it were to continue
uncured, would, with notice or lapse of time or both, constitute an Event of
Default.
DOLLARS AND "$": Dollars in lawful money of the United States
of America.
EMPLOYEE BENEFIT PLAN: Any employee pension benefit plan which
is defined in Section 3(3) of ERISA.
ENGINEERING REPORTS: The engineering building inspection
reports of the Court Premises and the Tuscany Premises, each dated March 6, 1996
and each prepared by Cosentini Associates Consulting Engineers at Borrower's
sole cost and expense.
ENVIRONMENTAL INDEMNITY: The indemnity described and defined
in Section 4.2(k), as originally executed or as may be hereafter supplemented,
amended or restated from time to time in writing.
ENVIRONMENTAL PROCEEDINGS: The meaning set forth in Section
3.1(x).
ENVIRONMENTAL REPORTS: The meaning set forth in Section
6.1(c)(viii).
5
<PAGE> 10
ENVIRONMENTAL SURVEY: The Phase I environmental survey of the
Project dated July 19, 1996 prepared by Law Engineering and Environmental
Services at Borrower's sole cost and expense.
ERISA: Employee Retirement Income Security Act of 1974, as
amended, and the regulations promulgated thereunder from time to time.
ESCROW ACCOUNT: An interest bearing cash collateral account
established by Lender with Branch in its name and under its sole control.
ESTOPPEL CERTIFICATES: The meaning set forth in Section
4.2(m).
EVENT OF DEFAULT: The meaning set forth in Section 10.1.
FIRREA: Financial Institutions, Reform, Recovery and
Enforcement Act, as amended, and the regulations promulgated thereunder from
time to time.
GOVERNMENTAL APPROVALS: The meaning set forth in Section
3.1(p).
GOVERNMENTAL AUTHORITY: Any federal, state, county or
municipal government, or political subdivision thereof, any governmental or
quasi-governmental agency, authority, board, bureau, commission, department,
instrumentality, or public body, or any court, administrative tribunal or public
utility, whether foreign or domestic having jurisdiction over the Premises.
GROSS REVENUES: For any period, all revenues derived from the
ownership, operation, use, leasing and occupancy of the Project during such
period, including rents received from tenants of the Project; provided, however,
that in no event shall Gross Revenues include (a) any gain arising from any
write-up of assets, (b) any loan proceeds, (c) any income derived from the sale
of any part of the Project, (d) proceeds or payments under insurance policies
(except that proceeds of rental loss or business interruption insurance covering
the Project shall be included in Gross Revenues), (e) tips, service charges,
gratuities, or similar amounts received by employees, (f) gross receipts of
licensees, concessionaires, tenants, subtenants or similar third parties, (g)
refunds, rebates, discounts, credits, etc., which are paid, retained or received
by Borrower, (h) condemnation proceeds or sales proceeds in lieu of and/or under
threat of condemnation or (i) any security deposits received from any tenants of
the Project, unless and until the same are applied to rent or such tenants'
other obligations in accordance with the terms of such tenants' leases. For any
period, Gross Revenues (sometimes referred to as Revenue on the combined
statement of operations) shall be determined on an accrual basis.
GUARANTY: The guaranty of payment described and defined in
Section 4.2(j), as originally executed or as may be hereafter supplemented,
amended or restated from time to time in writing.
6
<PAGE> 11
GUARANTORS: Collectively and jointly and severally Starwood
Lodging Trust, Starwood Lodging Corporation and SLT Realty Limited Partnership.
HANDLED/HANDLING: The past, present or future production,
storage, handling, transferring, refining, treating, processing, managing,
transporting, discharging, releasing or disposing of Hazardous Material.
HAZARDOUS MATERIAL: Gasoline, petroleum and other petroleum
by-products, asbestos (including, without limitation, any ACMs), explosives,
PCBs, radioactive materials or any "hazardous" or "toxic" material, substance or
waste which is defined by those or similar terms or is regulated as such under
any statute, law, ordinance, rule or regulation of any Governmental Authority
having jurisdiction over the Project or any portion thereof or its use,
including any material, substance or waste which is: (a) defined as a "hazardous
substance" under Section 311 of the Water Pollution Control Act (33 U.S.C. Sec.
1317), as amended; (b) defined as a "hazardous waste" under Section 1004 of The
Resource Conservation and Recovery Act of 1976, 42 U.S.C. Sec. 6901 et seq., as
amended; (c) defined as a "hazardous substance" or "hazardous waste" under
Section 101 of The Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Reauthorization Act of 1986,
42 U.S.C. Sec. 9601 et seq., or any so-called "superfund" or "superlien" law,
including the judicial interpretations thereof; (d) defined as a "pollutant" or
"contaminant" under 42 U.S.C.A. Sec. 9601(33); (e) defined as "hazardous waste"
pursuant to 40 C.F.R. Part 260; (f) defined as a "hazardous chemical" under 29
C.F.R. Part 1910; or (g) subject to any other law or other past (and still in
effect), present or future requirement of any Governmental Authority regulating,
relating to, or imposing obligations, liability or standards of conduct
concerning, the protection of human health, plant life, animal life, natural
resources, property or the enjoyment of life or property free from the presence
in the environment of any solid, liquid, gas, odor or any form of energy from
whatever source.
HAZARDOUS MATERIALS CLAIMS: The meaning set forth in Section
8.1(y)(ii)(B).
INCLUDING: Including but not limited to.
INDEMNIFIED PERSONS: The meaning set forth in Section 8.1(s).
INSPECTING ENGINEER: Any engineer selected by Lender in
connection with any alterations or restoration work undertaken with respect to
the Improvements.
INTERNAL REVENUE CODE: The Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder from time to time.
7
<PAGE> 12
ITINERANT HOTEL GUESTS: Residential hotel guests other than
those who are staying at the Premises pursuant to a contract for a period of
thirty (30) or more days.
KNOWLEDGE: When used to modify a representation or warranty,
actual knowledge or such knowledge as a reasonable person under the
circumstances should have after commercially reasonable inquiry and
investigation, and shall apply to all of the parties comprising Borrower, the
Property Manager and all of their respective employees, and all present and
future owners, employees and officers of the Starwood Group and any replacements
(in whole or in part) of such Starwood Group.
LAWS: Collectively, all federal, state and local laws,
statutes, codes, ordinances, orders, rules and regulations, including judicial
opinions or precedential authority in the applicable jurisdiction, foreign or
domestic, and all directions, requirements, orders and notices of violation of
any Governmental Authority having or asserting jurisdiction over the Project or
any party to any of the Loan Documents.
LEASES: The meaning set forth in Section 8.1(o).
LOAN: The meaning set forth in the Recitals.
LOAN DOCUMENTS: Collectively, this Agreement, the Note, the
Mortgage, the Guaranty, Pledge Agreement and all other documents and instruments
listed in Section 4.2 and all other documents, instruments or certificates
delivered to Lender herewith or from time to time to evidence or secure the Loan
and the payment and performance of Borrower's obligations hereunder, as the same
may be modified from time to time with the prior written consent of Lender and
Borrower.
LOAN FEE: The meaning set forth in Section 5.2.
LOAN OPENING OR OPENING OF THE LOAN: The disbursement of Loan
proceeds in accordance with the terms of this Agreement.
LOAN OPENING DATE: The date of the Loan Opening.
MANAGEMENT FEE: The fee payable to the Property Manager under
the Management Agreement for the management of the Project.
MATURITY DATE: The meaning set forth in Section 4.3.
MINIMUM NET WORTH THRESHOLD: For any period, shall mean the
aggregate Consolidated Tangible Net Worth of the Guarantors equal to or
exceeding Two Hundred Fifteen Million Dollars ($215,000,000.00).
MONTHLY EXCESS CASH FLOW: For any month, the amount by which
Gross Revenues for such month exceed the sum of (a) Operating Expenses for such
8
<PAGE> 13
month (determined on an accrual basis), (b) capital expenditures required for
the Project and either paid or reserved against during such month, (c) the
amount of interest on the Loan paid during such month, (d) Amortization Payments
made during such month and (e) any reserve or escrow deposits established by
Borrower for the benefit of Lender and posted as additional collateral for the
Loan pursuant to the terms of the Loan Documents.
MORTGAGE: The mortgage described and defined in the Recitals,
as originally executed or as may be hereafter supplemented, amended or restated
from time to time in writing.
NET OPERATING INCOME: For any period, the amount by which
Gross Revenues for such period exceed Operating Expenses for such period
(determined on an accrual basis).
NET WORTH: For any period, an amount equal to the net worth of
a Guarantor calculated on a GAAP basis.
NOTE: The meaning set forth in the Recitals.
OPERATING EXPENSES: For any period, the actual costs and
expenses of owning, operating, managing and maintaining the Project during such
period incurred by Borrower including, without limitation, real estate taxes,
insurance premiums, repairs, maintenance and utility costs and leasing fees and
commissions; provided, however, that in no event shall Operating Expenses
include (a) interest due on the Loan and Amortization Payments, if any, (b) any
fees paid to Lender in connection with the Loan, (c) capital expenditures or
reserves therefor or (d) depreciation, amortization and other non-cash items.
OUTSTANDING AMOUNT: For any period, the amount of the
outstanding principal balance of the Loan.
PARTICIPANT: The meaning set forth in Section 9.1(b).
PERMITTED EXCEPTIONS: Those matters listed in Exhibit C
hereto, to which the interest of Borrower in the Real Estate is permitted to be
subject at the Loan Opening Date and thereafter, and such other title exceptions
or objections, if any, as Lender, or its counsel, may approve in advance in
writing or which, pursuant to the terms hereof, do not require the approval of
Lender, if any. Matters which are not listed on Exhibit C hereto but over which
the Title Insurer has agreed to insure Lender pursuant to endorsements to, or
affirmative insurance coverage in, the Title Policy (which endorsements or
affirmative insurance coverage shall be in form and substance satisfactory to
Lender) shall also be deemed Permitted Exceptions.
PERMITTED INVESTMENTS: United States Treasury obligations or
certificates of deposit of Branch, in either case having maturities of ninety
(90) days
9
<PAGE> 14
or less, or other debt obligations of the United States Government with
maturities of ninety (90) days or less, approved by Lender in its sole
discretion.
PERMITTED TRANSFEREES: Any or all of (i) (a) the Estate of
Alfred L. Kaskel, deceased, and/or (b) any or all of the executors of the Estate
of Alfred L. Kaskel, deceased, and/or (c) Howard Kaskel, Carole Schragis, Anita
Kaskel Roe and/or Doris Kaskel, and/or any of them or their lineal descendants,
and/or (d) any corporation, entity or trust controlled by or created for the
benefit of any or all of the foregoing and (ii) the Starwood Group.
PERSON: Any individual, partnership, corporation, trust,
unincorporated association, joint venture, government or any department or
agency thereof, or any other entity.
PLANS AND SPECIFICATIONS: The meaning set forth in Section
6.1(c)(xiv).
PLEDGE AGREEMENT: That certain Pledge and Security Agreement
between Borrower and Lender, dated of even date herewith.
PREMISES: The meaning set forth in the Recitals.
PROCEEDING: The meaning set forth in Section 12.13.
PROHIBITED TRANSACTION: A prohibited transaction as described
under Section 406 of ERISA and Section 4975 of the Internal Revenue Code.
PROJECT: The meaning set forth in the Recitals.
PROPERTY MANAGER: Any Affiliate of Borrower or any Guarantor
or any other successor property manager. The initial Property Manager shall be
Doral Hotels Management Corp.
REAL ESTATE: That portion of the Project legally constituting
real estate, including the land and all easements and rights appurtenant
thereto.
REIT STOCK: The meaning set forth in the definition of the
term "Value".
RENT ROLL: The Rent Roll for the Project, which shall be
substantially in the form attached hereto as Exhibit D. The Rent Roll shall not
include any Itinerant Hotel Guests.
10
<PAGE> 15
ROUTINE USES: The use of Hazardous Materials at the Project in
connection with the routine operation of a hotel/residential apartment building
with commercial tenants, including cleaning and maintenance fluids, office
supplies and other similar items, in each case used in accordance with, and so
as not to cause a violation of, environmental Laws and in quantities and in a
manner which do not violate environmental Laws.
SECURITY DEPOSIT(S): Any and all security deposit(s) which, at
a given point in time, are collected by Borrower, as lessor, from a tenant
pursuant to such tenant's Lease, together with any interest earned thereon.
SECURITY DEPOSIT ACCOUNT: An interest bearing account in
Borrower's name in which the Security Deposits are deposited and held and from
which they are disbursed.
STANDING MATURITY DATE: The meaning set forth in Section 4.3.
STARWOOD GROUP: Guarantors and any entity wholly owned,
whether directly or indirectly, by any of the Guarantors.
TENANT IMPROVEMENTS: The improvements and personal property
which have been or will be installed at the Project by or on behalf of any
tenant whether or not at its sole cost and expense, and which are or will be
owned by such tenant.
TITLE INSURER: New York Land Services, Inc., as agent for
Commonwealth Land Title Insurance Company or such other title insurance company
or companies licensed in the State of New York, as may be approved by Lender,
together with the co-insurers and re-insurers of the foregoing title insurance
company(ies).
TITLE POLICY: The meaning set forth in Section 6.1(c)(iii).
TOTAL LIABILITIES: The "Total Liabilities" set forth in the
10-K and 10-Q reports for Starwood Lodging Trust and Starwood Lodging
Corporation as of the date of such report.
TRANSFER: The meaning set forth in Section 9.2.
TREASURY RATE: The interest rate per annum as of the date
hereof for United States Government Treasury Securities selected by Lender with
a five (5) year term as calculated by reference to the yield quoted in the
Federal Reserve Weekly Release H15 (or its successor or replacement publication
if said Weekly Release H15 is no longer issued or published at such time).
VALUATION DATE: The first day of each calendar quarter
commencing with the first day of the first calendar quarter following the
closing date of the Loan, or, if such date is not a day on which trading occurs
on the NYSE ("a Trading Day"), the next succeeding Trading Day.
11
<PAGE> 16
VALUE: With respect to shares of Starwood Lodging Trust, which
are comprised of a one-for-one pairing of the shares of beneficial interest of
the Starwood Lodging Trust and the shares of common stock of the Starwood
Lodging Corporation and currently traded on the New York Stock Exchange ("NYSE")
under the symbol HOT (collectively, the "REIT Stock"), the average of the daily
market price for the five (5) consecutive trading days immediately preceding the
Valuation Date. The market price for each such trading day shall be determined
as follows: (i) if the REIT Stock is listed or admitted to trading on the NYSE,
any national securities exchange or the Nasdaq Stock Market ("Nasdaq"), the
closing price on such day, or if no such sale takes place on such day, the
average of the closing bid and asked prices on such day; (ii) if the REIT Stock
is not listed or admitted to trading on the NYSE, any national securities
exchange or the Nasdaq, the last reported sale price on such day or, if no sale
takes place on such day, the average of the closing bid and asked prices on such
day, as reported by a reliable quotation source designated by the Lender; or
(iii) if the REIT Stock is not listed or admitted to trading on the NYSE, any
national securities exchange or the Nasdaq and no such last reported sale price
or closing bid and asked prices are available, the average of the reported high
bid and low asked prices on such day, as reported by a reliable quotation source
designated by the Lender, or if there shall be no bid and asked prices on such
day, the average of the high bid and low asked prices, as so reported, on the
most recent day (not more than five (5) days prior to the date in question) for
which prices have been so reported; provided, that if there are no bid and asked
prices reported during the five (5) days prior to the date in question, the
Value of the REIT Stock shall be determined by the Lender acting in good faith
on the basis of such quotations and other information as it considers, in its
reasonable judgment, appropriate.
USE OF DEFINED TERMS
2.2 Defined terms may be used in the singular or the plural.
When used in the singular preceded by "a", "an", or "any", such term shall be
taken to indicate one or more members of the relevant class. When used in the
plural, such term shall be taken to indicate all members of the relevant class.
USE OF RECITAL, ARTICLE, SECTION AND EXHIBIT REFERENCES
2.3 The use herein of references to Recitals, Articles,
Sections and Exhibits shall refer to the referenced Recital, Article or Section
in, or Exhibit annexed to, this Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
REPRESENTATIONS AND WARRANTIES OF BORROWER
3.1 To induce Lender to execute and deliver this Agreement and
to perform the obligations of Lender hereunder, Borrower hereby represents and
warrants to Lender as follows:
12
<PAGE> 17
(a) Borrower has good, transferable and insurable fee
simple title to the Real Estate, subject only to the Permitted Exceptions.
(b) Borrower is a limited liability company duly and
validly formed and validly existing under the laws of the State of New York.
Borrower has full power and authority to execute, deliver and perform the
obligations and carry out the duties imposed upon Borrower by this Agreement and
the other Loan Documents to which it is a party. Borrower has taken all
necessary internal actions, and obtained all internal approvals and consents,
necessary or appropriate to carry out Borrower's obligations and duties in
connection with the Loan.
(c) (i) Starwood Lodging Trust is a trust duly and
validly formed and validly existing under the laws of the state of its
formation. Starwood Lodging Trust has full power and authority to execute,
deliver and perform the obligations and carry out the duties imposed upon it by
this Agreement and the other Loan Documents to which it is a party. Starwood
Lodging Trust has taken all necessary internal actions, and obtained all
internal approvals and consents, necessary or appropriate to carry out its
obligations and duties in connection with the Loan.
(ii) SLT Realty Limited Partnership is a limited
partnership duly and validly formed and validly existing under the laws of the
state of its formation. SLT Realty Limited Partnership has full power and
authority to execute, deliver and perform the obligations and carry out the
duties imposed upon it by this Agreement and the other Loan Documents to which
it is a party. SLT Realty Limited Partnership has taken all necessary internal
actions, and obtained all internal approvals and consents, necessary or
appropriate to carry out its obligations and duties in connection with the Loan.
(iii) Starwood Lodging Corporation is a
corporation duly and validly formed and validly existing under the laws of the
state of its formation. Starwood Lodging Corporation has full power and
authority to execute, deliver and perform the obligations and carry out the
duties imposed upon it by this Agreement and the other Loan Documents to which
it is a party. Starwood Lodging Corporation has taken all necessary internal
actions, and obtained all internal approvals and consents, necessary or
appropriate to carry out its obligations and duties in connection with the Loan.
(d) All of the Loan Documents executed by Borrower
and/or any Guarantor, as the case may be, have been duly and properly executed
and delivered by such parties.
(e) This Agreement, the Note, the Mortgage, the
Guaranty, the Environmental Indemnity, Pledge Agreement and all of the other
Loan Documents each constitutes legal, valid and binding obligations of Borrower
and/or the Guarantors, as the case may be, and each of the Loan Documents and
the security interests granted therein, if applicable, are enforceable in
accordance with their respective terms, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditor's rights generally and limitations imposed by general principles of
equity.
13
<PAGE> 18
(f) When duly recorded or filed in the appropriate
public records, the Mortgage and the Uniform Commercial Code financing
statements delivered to Lender pursuant to Section 4.2 shall each create in
favor of Lender a valid and perfected first priority lien upon the property
purportedly subject thereto and, other than the filing of continuation
statements under the Uniform Commercial Code, no further action will be required
to perfect and maintain such lien. When executed, delivered and filed, as
applicable, the Pledge Agreement and UCC-1 Financing Statements relating thereto
shall create in favor of Lender a valid and perfected first priority lien upon
the property purportedly subject thereto and no further action will be required
to perfect and maintain such lien.
(g) No provision of any mortgage, indenture,
agreement, contract or other instrument to which Borrower or any Guarantor is a
party requires the consent or authorization of any other person, firm or
corporation as a condition precedent to the consummation of the transactions
contemplated herein or in any of the other Loan Documents.
(h) No approval of, or consent from, any Governmental
Authority is required in connection with the execution, delivery and performance
by Borrower and/or any Guarantor, as the case may be, of this Agreement or any
of the other Loan Documents or in connection with the performance or
consummation by Borrower and/or any Guarantor of any of the transactions
contemplated hereby or thereby, or if required, such approval or consent has
been obtained.
(i) The execution, delivery and performance of the
Loan Documents, the granting of the security interests therein and compliance
with the provisions of this Agreement and the other Loan Documents, (i) have not
constituted (and will not, upon the giving of notice or lapse of time or both,
constitute) either (A) a breach or default under any organizational document of
Borrower, any indenture, mortgage, deed of trust, franchise, permit, license,
note or any other agreement or instrument to which Borrower or any Guarantor is
a party or by which Borrower or any Guarantor or any of their respective
properties (including the Project) may be bound or affected, or (B) a violation
of any Law, court order, writ, injunction or other decree which may affect
Borrower, any Guarantor or the Project, any part thereof, any interest therein,
or the use thereof, and (ii) will not result in a lien against any property or
assets of Borrower (other than liens in favor of Lender pursuant to the Loan
Documents) or any Guarantor.
(j) Except for lawsuits that are fully covered by
insurance (and as to which such coverage has not been denied by the applicable
insurance carrier), there are no actions, suits or proceedings pending, or
threatened in writing which Borrower or any Affiliate of Borrower has received,
involving the Project or against Borrower or any Guarantor that: (i) could or
might materially and adversely affect the Project, or any portion thereof in the
event such suit was decided in a manner adverse to the interests of Borrower or
any Guarantor; (ii) might affect the validity or priority of the lien of the
Mortgage or the security interests created by the other Loan Documents; (iii)
might affect the ability of Borrower or any Guarantor to perform its respective
obligations pursuant to and as contemplated by the terms and provisions of this
Agreement and the other Loan Documents; (iv) could materially and
14
<PAGE> 19
adversely affect the operations or financial condition of Borrower or (v) could
or might cause any of the Guarantors to fail any of their financial covenants
set forth herein or in Paragraph 2 of the Guaranty, if finally adjudicated
against any of the Guarantors.
(k) There are no pending, or threatened in writing,
actions, suits or proceedings to revoke, attack, invalidate, rescind or modify
the zoning of the Project or any part thereof, or any building or other permits
heretofore issued with respect thereto, or asserting that such zoning or permits
do not permit the continued use of any of the Building and the Project as
presently used.
(l) The copy of the articles of organization of
Borrower furnished to Lender is a true, correct and complete copy thereof.
(m) (i) No condemnation of any portion of the
Project, (ii) no condemnation or relocation of any roadways abutting the
Project, (iii) no proceeding to deny access to the Project and (iv) no
proceeding which could adversely affect the operation of the Project, has, to
Borrower's knowledge, commenced or is threatened in writing. No casualty
affecting all or any portion of the Project has occurred which has not been
fully repaired.
(n) All financial statements furnished to Lender by
Borrower or any Guarantor are true, correct and complete in all material
respects as of the dates noted thereon, and all other information previously
furnished to Lender by Borrower or any Guarantor in connection with the
transactions contemplated by the Loan Documents is true, correct and complete in
all material respects and does not fail to state any material fact necessary to
make the statements made not misleading. Neither Borrower nor any Guarantor has
any liability, contingent or otherwise which can be determined with specificity,
not disclosed in such financial statements or such other information which would
materially and adversely affect Borrower's or such Guarantor's ability to
perform or discharge its respective obligations under the Loan Documents.
(o) Intentionally Deleted.
(p) To Borrower's knowledge, Borrower is in
compliance with, and the use of the Project for its existing and intended uses
and related uses is in compliance with and does not, other than as specifically
identified in the violations searches (the "Violations Searches") prepared in
connection with the Loan Opening, the Certificate, the title report, the Title
Policy, the Environmental Survey and/or the Engineering Reports, violate (i) any
Laws of any kind whatsoever (including the ADA, all other zoning and building
Laws (other than as set forth in Section 8.1(u) hereof) and environmental
protection Laws), or (ii) any building permits or other approvals, restrictions
of record, or any agreement affecting the Project or any part thereof. To
Borrower's knowledge, except as set forth in the Title Policy and except for the
garage, neither the zoning nor any other right to use the Project is to any
extent dependent upon or related to any real property other than the Project.
Without limiting the generality of the foregoing, to Borrower's knowledge, all
material consents, licenses and permits and all other authorizations or
approvals, including all
15
<PAGE> 20
permits issued by all applicable municipal and other governmental authorities
concerning the operation, use and occupancy of the Project (collectively,
"GOVERNMENTAL APPROVALS"), required as of the date hereof to operate the Project
as the Project is now operated have been obtained (other than as set forth in
Section 8.1(u) hereof), have been fully paid for, are in full force and effect
and are in the form attached as Exhibit E, and all conditions thereto have been
satisfied in all material respects; and all Laws of the State where the Project
is located or any subdivision thereof relating to the operation of the Project
have been complied with in all material respects.
(q) To Borrower's knowledge, the Project, as the
Project is now operated, has adequate water, gas and electrical supply, storm
and sanitary sewerage facilities.
(r) Borrower has dealt with no broker in connection
with this Loan transaction and no brokerage fees or commissions are payable by
or to any person in connection with any of the Loan Documents or the
transactions contemplated thereby. Subject to the provisions of Section 12.6(f),
Lender shall not be responsible for the payment of any fees or commissions, and
Borrower shall pay, any brokerage fees or commissions due to any broker claiming
to have dealt with Borrower in connection with the Loan and shall indemnify,
defend and hold Lender harmless from and against any claims, liabilities,
obligations, damages, costs and expenses (including reasonable attorneys' fees
and disbursements) made against or incurred by Lender as a result of claims made
or actions instituted by any broker or any person claiming to have dealt with
Borrower in connection with the Loan. No written brokerage agreement exists
between Borrower or any Guarantor and any leasing broker with respect to the
Project.
(s) No structural alterations have been made to the
Project since the date of the survey delivered pursuant to Section 6.1(c)(iv)
which would render such survey materially inaccurate.
(t) Each of the Court Premises and the Tuscany
Premises is taxed separately without regard to any other property and for all
purposes the Project may be mortgaged and conveyed as two separate and
independent parcels and tax lots. To the best of Borrower's knowledge, Borrower
has paid all partnership, corporate, or limited liability company (as
applicable) or other taxes and assessments charged by the State of New York and
all taxes and assessments affecting the Project or otherwise payable by Borrower
which are due and payable on or before the date hereof.
(u) Borrower is not in the business of extending
credit for the purpose of purchasing or carrying "margin stock" within the
meaning of Regulation G, T, U or X issued by the Board of Governors of the
Federal Reserve System, as at any time amended, and none of the proceeds of the
Loan will be used for the purpose of purchasing or carrying any margin stock or
to extend credit to others for the purpose of purchasing or carrying any margin
stock, and Borrower agrees to execute all instruments necessary to comply with
all the requirements of Regulation U of the Federal Reserve System, as at any
time amended.
16
<PAGE> 21
(v) The Loan and the execution and performance of the
Loan Documents do not constitute a Prohibited Transaction; Borrower does not
have an Employee Benefit Plan; and the assets of Borrower do not constitute
"plan assets" within the meaning of 29 C.F.R. Sec. 2510.3-101.
(w) Borrower and all Guarantors are in material
compliance with the provisions of ERISA.
(x) None of Borrower, any Guarantor (in connection
with the Project) or the Project is in violation of any environmental Law,
except as expressly disclosed in the Environmental Survey, the Title Policy, the
Violation Search, the Certificate or the Engineering Reports; except as
aforesaid, none of Borrower nor any Guarantor has received any written notice of
any such violation or claimed violation concerning the Project, and Borrower is
not aware of any circumstances which could give rise to the issuance of any such
notice. There are no pending civil (including actions by private parties),
criminal or administrative actions, suits or proceedings affecting Borrower, any
Guarantor (in connection with the Project) or the Project relating to
environmental matters ("ENVIRONMENTAL PROCEEDINGS"), and Borrower has no
knowledge of any threatened in writing Environmental Proceedings or any
circumstances which could give rise to any future Environmental Proceedings.
Except for Routine Uses (all of which are maintained in compliance with Law),
neither Borrower nor any Guarantor has ever caused or permitted any Hazardous
Material to be Handled over, on, under or at the Project, or any part thereof,
or any other property adjacent thereto, or any other property owned by Borrower,
or used the Project or any such other property permanently or temporarily as a
dump site or storage site for any Hazardous Material. To Borrower's knowledge,
except for Routine Uses (all of which are maintained in compliance with Law), no
other person has ever caused or permitted any Hazardous Material to be Handled
on, under, adjacent to or at the Project, or any part thereof, or used the
Project or any such other property permanently or temporarily as a dump site or
storage site for any Hazardous Material. To Borrower's knowledge, except as set
forth in the Environmental Survey, the Project and all parts thereof are free of
all Hazardous Material, except for Routine Uses, all of which are maintained in
compliance with Law. The representations and warranties contained in this
Section 3.1(x) shall survive until such time as all related claims which may be
brought against Lender shall be time-barred by any applicable statute of
limitations, notwithstanding the payment in full and the performance of all
obligations of Borrower and any Guarantor under the Loan Documents or a
foreclosure of the Project or deed-in-lieu thereof.
(y) All statements set forth in the Recitals are true
and correct.
(z) Borrower is not a "foreign person" within the
meaning of Section 1445 or 7701 of the Internal Revenue Code.
(aa) Other than the tradenames -- "Doral Court" and
"Doral Tuscany", Borrower uses no trade name and has not done and does not do
business
17
<PAGE> 22
under any name other than its actual name set forth herein. The principal place
of business of Borrower is as stated on page 1 hereof.
(ab) Borrower is, and at all times during the term of
the Loan shall remain, a single purpose entity whose sole purpose is to own and
operate the Project.
(ac) Borrower is not a "Public Utility Holding
Company" as defined in The Public Utility Holding Company Act of 1935, as
amended.
(ad) Property Manager manages the Project pursuant to
that certain management agreement, dated as of the date hereof (the "MANAGEMENT
AGREEMENT"), between Property Manager and Emstar Operating LLC, and as of the
date hereof there are no material defaults by Borrower, or to Borrower's
knowledge, by Property Manager under the Management Agreement. Except as set
forth on the Certificate, there are no other management, employment or
consulting agreements relating to Borrower or the Project. Except as set forth
on the Certificate, no collective bargaining agreements or labor agreements
cover any employees of Borrower.
(ae) Borrower is the owner of all personal property,
machinery and equipment located at the Project (other than the Tenant
Improvements), all of which is free and clear of all chattel mortgages,
conditional vendor's liens and other liens, encumbrances and security interests,
other than as set forth on the Certificate.
(af) Other than as specifically identified as such in
the Violation Search and the Certificate, no notices of any claimed violations
of Laws arising from the operation, use or occupancy of the Project which have
not been cured have been served upon Borrower or any of its agents or
representatives. To Borrower's knowledge, none of Borrower, any Guarantor (in
connection with the Project) or the Project is involved in any investigation by
or before any Governmental Authority, nor to Borrower's knowledge has any such
investigation been threatened in writing.
(ag) Borrower has not taken any of the actions
described in Section 10.1(i) of this Agreement or been the subject of any of the
involuntary actions described in Sections 10.1(g) and 10.1(i) of this Agreement.
(ah) The information provided by Borrower to Lender
in connection herewith concerning the Project, Borrower, any Guarantor and any
Lease does not include an untrue statement of a material fact or omit to state
any material fact or any other fact which is necessary to make the statements
contained therein (in the light of the circumstances under which they were made)
not misleading.
(ai) Borrower does not provide any building services
to tenants from which income other than rent or hotel room charges is generated
or derived other than services related to the operation of the Project.
18
<PAGE> 23
(aj) Since the date of the last financial statements
of Borrower, Guarantor and the Project which have been delivered to Lender,
there has been no change in the financial condition of Borrower, any Guarantor
or the Project, respectively, that would (with the passage of time or the giving
of notice, or both) constitute an Event of Default under the provisions of
Sections 10.1(i), 10.1(q), 10.1(r) and/or 10.1(s).
SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
3.2 Borrower agrees that all of its representations and
warranties set forth in Section 3.1 and elsewhere in this Agreement and the
other Loan Documents will be true at the Loan Opening Date.
ARTICLE 4
TERMS OF LOAN AND DOCUMENTS
AGREEMENT TO BORROW AND LEND
4.1 Subject to all of the terms, provisions and conditions set
forth in this Agreement and the other Loan Documents, Lender agrees to make and
Borrower agrees to accept the Loan. The principal amount of the Loan disbursed
to Borrower shall be TWENTY-SEVEN MILLION THREE HUNDRED SEVENTY-FIVE THOUSAND
AND xx/100 ($27,375,000.00) DOLLARS.
LOAN DOCUMENTS
4.2 In consideration of Lender's entry into this Agreement and
Lender's agreement to make the Loan, Borrower shall, in sufficient time for
review by Lender and its counsel prior to the Loan Opening Date, execute and
deliver, or cause to be executed and delivered, to Lender the following
documents and instruments in form and substance acceptable to Lender and its
counsel:
(a) The Note;
(b) The Mortgage;
(c) A security agreement granting Lender a first
priority security interest in all fixtures, furniture, furnishings and equipment
and any other personal property (tangible and intangible) now or hereafter owned
by Borrower and located in, or used in connection with the operation of, the
Project, which security agreement may be combined with the Mortgage;
(d) Such Uniform Commercial Code financing statements
as Lender's counsel determines are necessary or advisable to perfect, or notify
third parties of, the security interests intended to be created by the Loan
Documents;
(e) To the extent assignable, a collateral assignment
to Lender of all of Borrower's right, title and interest in, to and under all
building
19
<PAGE> 24
permits, governmental permits, licenses and authorizations issued from time to
time in connection with the operation of the Project;
(f) A collateral assignment to Lender of all of
Borrower's right, title and interest in, to and under (i) all management,
maintenance, service, supply or other agreements relating to the use and
operation of the Project and all warranties and guaranties issued in connection
therewith and (ii) all brokerage or leasing agreements relating to the Project;
(g) A collateral assignment to Lender of all of
Borrower's right, title and interest in, to and under (i) all plans and
specifications pertaining to the Project and (ii) any and all tests, studies,
surveys, audits, results and reports performed or prepared in connection with
the Project, if required by Lender;
(h) An assignment to Lender of all rents and all
Leases, licenses, concessions and other similar contracts and agreements
relating to or connected with the use and/or operation of the Project now or
hereafter entered into, including, without limitation, all rents, issues,
revenues, proceeds and profits from the Project or any of the foregoing;
(i) [Intentionally Deleted]
(j) That certain Guaranty of Payment (the "GUARANTY")
dated as of the date hereof from Guarantors to Lender;
(k) Hazardous Material Indemnification Agreement from
Borrower to and for the benefit of Lender (the "ENVIRONMENTAL INDEMNITY") with
respect to environmental representations, warranties and covenants;
(l) A subordination agreement between Property
Manager and Lender, pursuant to which Property Manager shall agree that upon the
occurrence of an Event of Default and the acceleration of the Loan, the rights
of Property Manager to receive the Management Fee shall in all respects be
subject and subordinate to Lender's rights to receive payment in full of all of
Borrower's obligations under the Loan Documents;
(m) Estoppel certificates from each existing
commercial and retail tenant of the Project to the extent required by Lender
(collectively, the "ESTOPPEL CERTIFICATES").
(n) A general release from the Company to Lender
releasing Lender from all liabilities which may have accrued as of the Loan
Opening Date including, without limitation, any lender liability claims; and
(o) Such other papers, documents and instruments as
may be required by this Agreement or as Lender may reasonably require.
20
<PAGE> 25
Notwithstanding anything contained herein to the contrary,
Lender acknowledges and agrees that all the requirements of this Section 4.2
have been satisfied in full or waived by Lender as of the Loan Opening Date.
TERM OF THE LOAN
4.3 Without limiting the provisions of the Note, the unpaid
principal balance, together with any accrued and unpaid interest and all other
sums then due and payable under the Note and under the other Loan Documents, if
not sooner paid, whether by reason of acceleration or otherwise, shall be paid
in full on September 18, 2001 (the "STANDING MATURITY DATE"), unless the entire
outstanding principal balance of the Note, together with all accrued but unpaid
interest thereon, and all other sums which then may be payable under the Note
becomes due and payable or are paid by Borrower on an earlier date due to
acceleration of the Note or prepayment thereof (the "ACCELERATED MATURITY
DATE"). As used herein the term "MATURITY DATE" shall mean the date that is the
first to occur of (i) the Standing Maturity Date; or (ii) the Accelerated
Maturity Date.
PREPAYMENTS
4.4 Borrower shall have the right to make prepayments of the
Loan in accordance with the terms of the Note.
DUE ON SALE
4.5 The unpaid principal balance, all accrued and unpaid
interest and all other sums due and payable under the Note, including any
prepayment fees, and the other Loan Documents, if not sooner paid, shall be paid
in full upon, except as expressly permitted under Sections 4.6, 9.2 or 9.3, a
Transfer by Borrower or the Guarantors of (i) all or any portion of the Project,
(ii) all or any portion of the Borrower's right, title and interest in and to
the Project or (iii) any interest in Borrower or any interest in any entity
which holds an interest in, or directly or indirectly controls, Borrower.
PARTIAL SALE OF PREMISES
4.6 Notwithstanding anything to the contrary in this Article
4, Borrower, subject to the satisfaction of the conditions set forth in Section
4.7 below shall have the right, with the payment by Borrower to Lender of the
applicable prepayment premiums, to sell either, but not both, the Court Premises
or the Tuscany Premises provided that (i) following the proposed sale of one of
the properties (i.e., either the Court Premises or Tuscany Premises) the
remaining balance of the Loan shall not exceed seventy-five (75%) of the value
of the remaining property which is subject to the Loan, as determined by a then
current appraisal and (ii) ninety-five percent (95%) of the gross sales proceeds
are utilized to pay down the principal portion of the Loan.
21
<PAGE> 26
CONDITIONS TO PARTIAL SALE OF PREMISES
4.7 Subject to the conditions set forth in Section 4.6 above,
and further subject to the satisfaction of each of the conditions set forth
below, Lender shall release a portion of the lien of the Mortgage encumbering
either the Court Premises or the Tuscany Premises (such premises which may be
released, the "Released Premises", such premises which remain subject to the
Mortgage after the Released Premises have been released, the "Remaining
Premises").
As a condition precedent to Lender's obligation to release a
Released Premises each of the following conditions shall be satisfied:
(a) No Event of Default or event which with the passage of
time or notice or both would constitute an Event of Default, shall be existing
under this Agreement, the Note, the Mortgage, or any other Loan Document;
(b) All instruments and documents to be executed and
delivered, other than purchase or option agreements, in connection with any
release shall be in form and substance reasonably satisfactory to Lender and its
counsel;
(c) All costs and expenses incurred by Lender in connection
with any release, including, but not limited to, reasonable attorneys' fees and
disbursements, recording fees and title charges and premiums, shall be paid by
Borrower;
(d) The Remaining Premises shall have been properly designated
and established as a separate tax lot or lots by the pertinent taxing authority
in which such parcel or parcels are located, distinct from the Released Premises
to insure, among other things, that the ability of Lender to foreclose the
Mortgage attributable to the Remaining Premises and sell the Remaining Premises
shall not be hindered or compromised in any manner whatsoever as a result of any
such release;
(e) Borrower shall provide Lender with such title insurance
endorsements or new title policies affirmatively assuring that the release of
the Released Premises shall not impair the lien or affect the priority of the
Mortgage, as Lender may reasonably require in connection with the making of any
such release;
(f) The Remaining Premises shall continue to be subject to the
lien of the Mortgage; and
(g) The Remaining Premises shall be able to meet the Debt
Service Coverage, as determined by Lender, immediately following the release of
the Released Premises based on the portion of the Debt which will remain owing
to Lender after the Released Premises are released.
SEVERANCE AND PARTIAL RELEASE OF MORTGAGE
22
<PAGE> 27
4.8 Provided the conditions set forth in Sections 4.6 and 4.7
above have been fully satisfied, Lender shall execute severance and release
documents required to release the Released Premises provided any such severance
arrangement is then permitted by Law and provided further that Lender shall not
be required to execute any affidavits in connection with any such severance.
ARTICLE 5
LOAN EXPENSES AND ADVANCES;
SECURITY OF MORTGAGE FOR SAME
LOAN ORIGINATION EXPENSES
5.1 Borrower agrees to pay all third party expenses of the
Loan incurred by Lender, including all amounts payable pursuant to Sections 5.2
and 5.3 below, and also including all recording charges, title insurance
charges, costs of surveys, costs of appraisals, costs for certified copies of
instruments, all reasonable fees, expenses and charges of appraisal,
construction, architectural, engineering, environmental, insurance and other
consultants, all brokerage fees and commissions, and all reasonable fees and
expenses (including word processing and photocopying expenses) of Lender's
attorneys, in connection with or arising out of the making of the Loan and the
Loan Opening.
LENDER'S LOAN FEE
5.2 Borrower agrees to pay, in consideration of Lender's entry
into this Agreement, a loan fee (the "LOAN FEE") of $410,625 (which fee is equal
to 1.5% of the original principal amount of the Loan). The Loan Fee shall be
paid to Lender on or before the Loan Opening Date.
EXPENSES AND ADVANCES SECURED BY LOAN DOCUMENTS
5.3 All expenses, fees, advances or payments made by Lender
under this Agreement or any of the other Loan Documents occurring after the date
hereof, including, without limitation, those made in connection with (i) a
Default or an Event of Default or (ii) any request of Borrower or any Guarantor
or indemnitor to Lender in connection with the Loan or the Project (including
any request that Lender prepare additional documents or review additional
documents), all of which Borrower hereby agrees to pay, and all amounts expended
by Lender pursuant to Section 11.1(b)(i) or for Lender's various consultants'
fees and attorneys' fees and expenses, if any, and all other Loan expenses
shall, as and when advanced or incurred by Lender, constitute additional
indebtedness secured by the Mortgage and the other Loan Documents to the same
extent and effect as if the terms and provisions of this Agreement were set
forth therein; provided, however, that Borrower shall not be obligated to
reimburse any of Lender's expenses in excess of $10,000 in any given year,
unless such expenses are incurred in connection with an Event of Default. If
Lender utilizes attorneys following a Default, but prior to an Event of Default,
Borrower shall not be obligated to reimburse Lender for such legal fees unless
it is determined that Borrower was in Default under this Agreement or any of the
other Loan Documents.
23
<PAGE> 28
ARTICLE 6
REQUIREMENTS PRECEDENT
TO THE OPENING OF THE LOAN
6.1 Borrower shall perform and satisfy all of the following
conditions precedent on or before the Loan Opening Date, and Borrower agrees
that Lender's obligation to disburse the Loan is conditioned upon Borrower's
performance or satisfaction of all such conditions precedent:
(a) No Default or Event of Default by Borrower or any
Guarantor shall exist under this Agreement or any of the other Loan Documents.
(b) Borrower shall have executed and delivered or
caused to be executed and delivered to Lender all of the Loan Documents as
required by, and in accordance with, Section 4.2, duly and properly executed by
the respective parties thereto, and Borrower shall have paid all amounts
required to be paid by Borrower on or before the Loan Opening Date pursuant to
Article 5.
(c) Borrower shall have furnished to Lender the
following, in sufficient time for review by Lender and its counsel prior to the
Loan Opening Date, all of which shall be in form and substance reasonably
satisfactory to Lender and its counsel:
(i) A certified copy of the Articles of
Organization of Borrower issued by the office of the Secretary of State of New
York and any amendments thereto.
(ii) The Assignment and Assumption Agreement.
(iii) A mortgagee policy of title insurance
(the "TITLE POLICY") satisfactory in form and substance to Lender.
(iv) A survey for each of the Court Premises
and the Tuscany Premises satisfactory in form and substance to Lender.
(v) Opinions from counsel to Borrower and the
Guarantors satisfactory to Lender, which Borrower and the Guarantors hereby
direct their respective attorneys to deliver to Lender.
(vi) The current Rent Roll for the Project in
form and substance reasonably satisfactory to Lender. The Rent Roll shall
indicate (A) gross monthly rent collections from the Project, (B) the
approximate square footage of retail space that is currently occupied, (C) the
number of rooms leased for more than a thirty (30) day period, and (D) the names
of any residential tenants (other than Itinerant Hotel Guests). The Rent Roll
shall be certified by Borrower's managing member as being true, correct and
complete as of the date of closing.
24
<PAGE> 29
(vii) A copy of any written management
agreement (including, but not limited to, the Management Agreement) and any
brokerage agreement relating to the Project, together with a statement as to any
commissions payable upon the happening of certain stated events, all of which
shall be approved by Lender.
(viii) All existing environmental reports
relating to the Project that are in the possession of Borrower, any Guarantor or
any Affiliate, agent or consultant of Borrower or any Guarantor (the
"ENVIRONMENTAL REPORTS") including, without limitation, the Environmental
Survey, certified to Lender.
(ix) The Engineering Reports, certified to
Lender.
(x) Evidence satisfactory to Lender that the
Project and the use thereof are in compliance with all applicable zoning and
building codes, environmental Laws, wetlands protection Laws and any other Laws
of any applicable Governmental Authority (including the ADA and any requirements
for parking), including all requirements and conditions set forth in all
permits, licenses and other approvals which have been obtained or are required
to be obtained from Governmental Authorities for the operation, use or occupancy
of the Project, and that all approvals, permits, licenses and certificates
required to be obtained from any Governmental Authority or other third party for
the operation, use or occupancy of the Project have been so obtained, have been
paid for and are valid and in full force and effect. Such evidence may include
information shown on the survey, endorsements to the Title Policy and
photocopies, in duplicate, of building permits and any special permits, licenses
or certificates (including certificates of occupancy) issued by any Governmental
Authority, including the municipality in which the Project is located, which are
required in connection with the operation of the Project.
(xi) Current tax lien, bankruptcy, judgment
and Environmental Control Board lien searches against Borrower and all
Guarantors. Current searches of all Uniform Commercial Code financing statements
filed with such offices as Lender's counsel designates, with respect to Borrower
and each Guarantor, respectively, as debtor, which searches shall show that no
Uniform Commercial Code financing statements are filed or recorded against any
of Borrower or any Guarantor in which the collateral is described as personal
property or fixtures constituting a part of, or used in connection with, the
Project other than equipment leases.
(xii) An Appraisal Institute certified
appraisal of the Project (the "APPRAISAL") performed for and certified to Lender
by the Appraiser, in conformity with the requirements of FIRREA and on a basis
and using a methodology satisfactory to Lender, and disclosing an appraised
value of the Project reflecting a value satisfactory to Lender in its sole
discretion. All fees related to the preparation of the Appraisal shall be paid
by Borrower.
(xiii) (A) Copies of financial statements of
the Company, Hotel Tuscany LP and each of the Guarantors in form and substance
satisfactory to Lender.
25
<PAGE> 30
(xiv) To the extent available, a complete set
of "as-built" plans and specifications of each of the Buildings comprising the
Project (collectively, the "PLANS AND SPECIFICATIONS"), certified as being true,
complete and correct by Borrower.
(xv) With respect to the assignments described
in Section 4.2(e), Section 4.2(f), Section 4.2(g) and Section 4.2(i), Borrower
shall have delivered to Lender advance consents to such assignments from such
third parties as shall be required in order to deliver such assignments and as
Lender may reasonably require.
(xvi) Borrower shall have furnished Lender
with a certification of Borrower or other evidence satisfactory to Lender that:
(A) there has been no change in the
financial condition of Borrower or any of the Guarantors or the Project that
would constitute an Event of Default under the provisions of Sections 10.1(i),
10.1(q), 10.1(r) and/or 10.1(s);
(B) All Leases are subordinate to the
Loan, all Leases are in full force and effect and there are no set-offs,
defenses, counterclaims or written disputes with respect to any Leases.
(xvii) Evidence satisfactory to Lender that no
bankruptcy petitions have been filed against or by any of the tenants or by or
against Borrower, or by or against any Guarantor.
(xviii) A copy of all Leases, which Leases are
acceptable to Lender in its sole discretion.
(xix) An agreement between Lender and any
lessee under any Lease pursuant to which such lessee agrees to subordinate its
interest in the Court Premises or the Tuscany Premises, as the case may be, to
Lender's interest in the Premises.
(xx) Such other evidence, documents and
instruments as may be required under this Agreement or as Lender may reasonably
require.
Notwithstanding anything contained herein to the contrary, Lender
acknowledges and agrees that other than in connection with any matters which
Borrower or any Guarantor has undertaken to perform after the Loan Opening Date
in a writing delivered at the closing, all the requirements set forth in this
Section 6.1 have either been satisfied in full or waived by Lender as of the
Loan Opening Date.
26
<PAGE> 31
ARTICLE 7
LENDER'S OBLIGATION TO DISBURSE PROCEEDS OF LOAN
LOAN OPENING
7.1 In that Borrower has complied with and satisfied all
conditions precedent to the Loan Opening, Lender has acquired the Tuscany Loan
as of the date hereof.
ARTICLE 8
BORROWER'S AGREEMENTS
8.1 Borrower further covenants and agrees to and with Lender
as follows:
COMPLIANCE WITH REQUIREMENTS OF GOVERNMENTAL AUTHORITIES
(a) At all times after the Loan Opening Date,
Borrower will, in all material respects, comply with, and will, in all material
respects, cause the Project to be in compliance with, all applicable Laws and
requirements of Governmental Authorities, including all requirements and
conditions set forth in all permits, licenses and other approvals which have
been obtained or are required to be obtained from Governmental Authorities for
the operation, use or occupancy of the Project as it is then being operated,
used or occupied.
INSPECTION BY LENDER
(b) Borrower will cooperate, and will use reasonable
efforts to cause all tenants and any managing agent or Property Manager to
cooperate, with Lender in arranging for inspections from time to time, of the
Project by Lender and its agents and representatives at any time during normal
business hours following reasonable notice, except in the case of an emergency
when no notice shall be required.
MECHANICS' LIENS AND CONTEST THEREOF
(c) Borrower will not suffer or permit any mechanics'
lien or claim to be filed or otherwise asserted against the Project other than
work performed by non-Affiliated tenants without Borrower's consent, and will
promptly discharge the same, or cause the same to be discharged, by payment,
bonding or otherwise within thirty (30) days after the institution of
foreclosure proceedings based on any such liens.
27
<PAGE> 32
SETTLEMENT OF MECHANICS' LIEN CLAIMS
(d) If Borrower shall fail, after any applicable
notice or cure period, to discharge any mechanics' lien or claim filed or
otherwise asserted against the Project (other than work performed by
non-Affiliated tenants) or cause the same to be discharged by payment, bonding
or otherwise in accordance with the Loan Documents after the institution of
foreclosure proceedings based on any such liens, Lender may, at its election
(but shall not be obligated to), (i) procure the release and discharge of any
such lien or claim and any judgment or decree thereon, without inquiring into or
investigating the amount, validity or enforceability of such lien or claim and
(ii) effect any settlement or compromise of the same, and any amounts expended
by Lender in connection therewith, including premiums paid or security furnished
in connection with the issuance of any surety company bonds, shall be deemed to
constitute additional indebtedness evidenced by the Note (even if the total
amount of such indebtedness would then exceed the face amount of the Note),
payable on demand and secured by the Mortgage and other Loan Documents.
Notwithstanding anything contained herein to the contrary, Lender agrees not to
exercise its rights to cure such liens so long as within thirty (30) days of
notice from Lender to Borrower, Borrower bonds over such mechanics' lien and has
the mechanics lien released against the Real Estate.
RENEWAL OF INSURANCE
(e) Intentionally Deleted
PAYMENT OF TAXES
(f) Subject to the provisions of Section 5 of the
Mortgage, Borrower shall pay, or cause to be paid, with respect to Borrower and
the Project, all general and special taxes, real estate taxes, assessments and
charges, sales and excise taxes, any tax that is due or becomes due in respect
of the issuance of the Note or the recording of the Mortgage (other than taxes
based on Lender's income, franchise, revenue and other similar taxes), and any
other taxes that affect the Project or the ability of Borrower or any Guarantor
to discharge its respective obligations under the Loan Documents until such time
as Lender reasonably believes that title is materially impaired by, and Borrower
is in danger of losing the Project due to, same, and shall, upon request,
furnish to Lender copies of the receipts therefor; provided, however, that after
prior notice to Lender in the case of any material item, Borrower, at its own
expense, may contest by appropriate legal proceeding, promptly initiated and
conducted in good faith and with due diligence, the amount or validity or
application in whole or in part of any of the Taxes (as such term is defined in
the Mortgage), provided that (i) no Event of Default exists under this
Agreement, the Note, the Mortgage or any other document entered into in
connection herewith or therewith, (ii) Borrower shall have either paid all
amounts claimed to be due "under protest" or such proceeding shall suspend the
collection of the Taxes from Borrower and from the Mortgaged Property (as such
term is defined in the Mortgage), (iii) such proceeding shall be permitted under
and be conducted in accordance with the provisions of any other instrument to
which Borrower or the Mortgaged Property is subject and shall not constitute a
default thereunder, and (iv) neither the Mortgaged Property nor any
28
<PAGE> 33
part thereof or interest therein will in the reasonable opinion of Lender be in
danger of being sold, forfeited, terminated, cancelled or lost. If Borrower
fails to commence such contest or, having commenced to contest the same, and
having deposited such security required by Lender, shall thereafter fail to
prosecute such contest in good faith and with due diligence, or, upon adverse
conclusion of any such contest, shall fail to pay such tax, assessment or
charge, Lender may, at its election (but shall not be obligated to), pay and
discharge any such tax, assessment or charge, and any interest or penalty
thereon, and any amounts so expended by Lender, except amounts deposited by
Borrower with Lender as security in accordance herewith, shall be payable on
demand and secured by the Mortgage and the other Loan Documents.
PERSONAL PROPERTY
(g) (i) All of Borrower's personal property (which
shall not be deemed to include the Tenant Improvements), fixtures, furnishings,
furniture, attachments and equipment located on or used in connection with the
Project, shall always be located at the Project and shall also be kept free and
clear of all chattel mortgages, conditional vendor's liens and all other liens,
encumbrances and security interests of any kind whatever (other than liens
granted in favor of Lender under the Loan Documents), (ii) Borrower will be the
owner of said personal property, fixtures, attachments and equipment and (iii)
Borrower shall, from time to time upon reasonable demand by Lender, furnish
Lender with evidence of such ownership reasonably satisfactory to Lender,
including searches of applicable public records. Notwithstanding anything to the
contrary in this subsection, Borrower shall have the right to sell or dispose of
any such property in the ordinary course of its business and may enter into
equipment leases and installment contracts, but Lender shall have no obligation
to enter into a non-disturbance agreement for any such equipment lease or
installment contract.
PROCEEDINGS TO ENJOIN OR PREVENT OPERATION OF THE PROJECT
(h) If any action, suit or proceeding is filed or
otherwise commenced seeking to enjoin or otherwise prevent or declare unlawful
the operation, use or occupancy of the Project or any portion thereof as it is
presently used, or if any other action, suit or proceeding of the nature
described in Section 3.1(j) above, is filed or otherwise commenced, Borrower
shall give immediate notice thereof to Lender, and, at its sole expense (i)
cause such proceedings to be diligently contested in good faith by appropriate
proceedings and (ii) in the event of an adverse ruling or decision relating to
the Project, prosecute all allowable appeals therefrom. Borrower shall resist
the entry or seek the stay of any temporary or permanent injunction that may be
entered against the Project.
LENDER'S ATTORNEYS' FEES AND EXPENSES
(i) In case of any default under this Agreement or
any of the other Loan Documents, Borrower shall pay Lender's reasonable
attorneys' fees and expenses as set forth in Section 5.3. In case of any Event
of Default under this Agreement or any of the other Loan Documents, Borrower (in
addition to Lender's reasonable attorneys' fees and expenses to be paid by
Borrower under Section 5.3)
29
<PAGE> 34
shall pay all of Lender's reasonable attorneys' fees and expenses in connection
with the enforcement of this Agreement and the other Loan Documents and with the
collection of all amounts payable hereunder and thereunder. Notwithstanding
anything to the contrary set forth herein, if Lender utilizes attorneys
following a Default, but prior to an Event of Default, Borrower shall not be
obligated to reimburse Lender for such legal fees unless it is determined that
Borrower or any Guarantor was in Default under this Agreement or any of the
other Loan Documents. In addition to, and without limiting the generality of the
foregoing, if at any time hereafter prior to repayment of the Loan in full upon
(x) the occurrence of a Default or an Event of Default or (y) a request by
Borrower, any Guarantor, or any guarantor or indemnitor to Lender, in either of
the cases described in clauses (x) or (y), Lender employs counsel for advice or
other representation (whether or not any suit has been, or shall thereafter be,
filed and whether or not other legal proceedings have been, or shall thereafter
be, instituted, whether or not Lender shall be a party thereto) with respect to
the Loan, the Project or any part thereof, this Agreement or any of the other
Loan Documents, or to protect, collect, lease, sell, take possession of,
foreclose upon or liquidate any of the Project in accordance with the terms of
the Loan Documents, or to attempt to enforce any security interest or lien in
any of the Project in favor of Lender, or to enforce any rights of Lender or any
of Borrower's obligations hereunder or under any of the other Loan Documents, or
any obligations of any other person, firm or corporation (including any
guarantor or indemnitor) which may be obligated to Lender by virtue of this
Agreement or any other Loan Document heretofore or hereafter delivered to Lender
by or for the benefit of Borrower, then, in any such event, all of the
reasonable attorneys' fees and expenses arising from such services, and all
reasonable third party expenses, costs and charges relating thereto, shall be
paid by Borrower on demand and, if Borrower fails to pay such fees, costs and
expenses, payment thereof by Lender shall be deemed to constitute additional
indebtedness evidenced by the Note (even if the total amount of such
indebtedness would then exceed the face amount of the Note), payable on demand
and secured by the Mortgage and other Loan Documents.
LENDER'S ACTION FOR ITS OWN PROTECTION ONLY
(j) The authority herein conferred upon Lender, and
any action taken by Lender, to inspect the Project will be exercised and taken
by Lender and by Lender's employees, agents and representatives for their own
protection only and may not be relied upon by Borrower or any other party for
any purposes whatever; and neither Lender nor Lender's employees, agents and
representatives shall be deemed to have assumed any responsibility to Borrower
or any other party with respect to any such action herein authorized or taken by
Lender or Lender's employees, agents and representatives. Any review,
investigation or inspection conducted by Lender, any architectural, engineering
or other consultants retained by Lender or any agent or representative of Lender
in order to verify independently Borrower's satisfaction of any conditions
precedent to the disbursement of Loan proceeds under this Agreement, Borrower's
performance of any of the other covenants, agreements and obligations of
Borrower under this Agreement, or the validity of any representations and
warranties made by Borrower hereunder (regardless of whether or not the party
conducting such review, investigation or inspection should have discovered that
any of such conditions precedent were not
30
<PAGE> 35
satisfied or that any such covenants, agreements or obligations were not
performed or that any such representations or warranties were not true), shall
not affect (or constitute a waiver by Lender of) (i) any of Borrower's
representations and warranties under this Agreement or Lender's reliance thereon
or (ii) Lender's reliance upon any certifications of Borrower, or any other
party required under this Agreement, or any other facts, information or reports
furnished to Lender by Borrower or any other party.
FURNISHING INFORMATION
(k) (i) The Guarantors shall deliver to Lender
quarterly and annual financial statements for each of the Guarantors as soon as
available and in no event later than (x) one hundred twenty (120) days after the
close of each calendar year or (y) forty-five (45) days after the close of each
quarter, as applicable. The Borrower shall deliver monthly operating statements
setting forth profits and losses for the preceding month within forty-five (45)
days of the close of each month. Borrower's quarterly and annual financial
statements shall be prepared and maintained in accordance with the highest
standards of reporting prepared by such entity. Borrowers' monthly operating
statements shall be certified as true, complete and correct by a member of
Borrower and a principal of each Guarantor. Such monthly statements must show
actual sources and uses of cash during the preceding month. Guarantors shall
deliver its 10-K and 10-Q filings, as applicable, in satisfaction of such
quarterly and annual reporting requirements. Commencing with the end of the
calendar quarter in which falls the date which is twenty-four (24) months after
the closing, and at the end of each calendar quarter thereafter until the Loan
is repaid in full, Borrower and each Guarantor shall deliver to Lender along
with Borrower's monthly operating statements a calculation of the Debt Service
Coverage in substantially the form attached hereto as Exhibit G, for the
immediately preceding twelve month period certified as true and correct by a
member of Borrower and each Guarantor (each a "DEBT SERVICE COVERAGE STATEMENT")
and accompanied by back-up documentation in detail reasonably satisfactory to
Lender to enable Lender to easily calculate the Debt Service Coverage for the
twelve month period in question. In addition, if at any time during such
calendar quarter rents equal to or in excess of Fifty Thousand Dollars ($50,000)
are or have been sixty (60) days or more in arrears, a delinquency report
specifying the amount overdue, the period of time so due and the tenants from
whom such amounts are due, including a so-called "aging" of accounts receivable
presented in a format reasonably satisfactory to Lender and (z) Net Operating
Income statements (certified by a member of Borrower and each Guarantor to the
best of their knowledge) showing all information necessary to calculate Net
Operating Income for the Project for the preceding quarter and the actual
calculations of the Net Operating Income for the preceding quarter. Within sixty
(60) days following the end of each calendar year, Borrower shall deliver to
Lender a Rent Roll certified by Borrower as being true, correct and complete in
all material respects. Each such Rent Roll provided to Lender shall disclose all
leasing activity (other than to Itinerant Hotel Guests) and the current
aggregate rentals for the Project, the name of each tenant, the rent payable and
the Security Deposit, if any, paid by such tenant and the Lease expiration date.
Each such Rent Roll shall be delivered together with a certified statement that,
other than as set forth in the Rent Roll, and other than Itinerant Hotel Guests,
there are no tenancy, occupancy rights, oral leases or other
31
<PAGE> 36
agreements concerning the use and occupancy of any portion of the Project,
including such an agreement which would affect the rental rates. Additionally,
Borrower will:
(A) promptly supply Lender with such
information concerning its affairs and property relating to the operation of the
Project as Lender may reasonably request from time to time hereafter, which
information shall not include any confidential documentation which is of a
proprietary nature (e.g. tax returns);
(B) promptly notify Lender of any condition
or event which constitutes (or which upon the giving of notice or lapse of time,
or both, would constitute) a breach, default, or Event of Default under this
Agreement or of any of the other Loan Documents, including any event or
circumstance which causes any information which has previously been provided by
it to Lender to include an untrue statement of material fact or to omit to state
any material fact or any fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading and, in
such event, Borrower and/or any Guarantor (as may be appropriate) shall promptly
furnish to Lender updated or revised information which will correct such untrue
statement or include such omitted fact;
(C) maintain a system of accounting in
accordance with GAAP (as applied in the United States) consistently applied;
(D) cooperate, and will use reasonable
efforts to cause all agents or employees who have prepared any of the financial
statements required by this Section 8.1(k) to cooperate with Lender in arranging
for examinations from time to time of such financial statements by Lender and
its agents and representatives at any time during normal business hours
following reasonable notice;
(E) at any time during regular business
hours and on reasonable advance notice, permit Lender and any of its agents or
representatives, at Lender's sole cost and expense, to have access to the
Property Manager's office and examine all of its books and records regarding
Borrower and the operation of the Project, if (A) an Event of Default has
occurred and is continuing or (B) Lender believes, in good faith, that either
(x) a material adverse change in the financial condition of Borrower or the
Project has occurred or (y) a misapplication of revenues from the Project,
Security Deposits, insurance proceeds or condemnation awards in contravention of
the provisions of this Agreement, the Mortgage or any other Loan Document has
occurred;
(F) permit Lender to copy and make abstracts
from any and all of such books and records reviewed by Lender or its
representatives pursuant to this Section 8.1(k).
(G) promptly notify Lender of the
institution of any action, suit or proceeding involving the Project, Borrower or
any Guarantor which is not fully covered by insurance, and which under any
contingency, if determined adversely to the interests of Borrower or Guarantor,
as applicable, could result (A) in
32
<PAGE> 37
liability to the Project and/or Borrower in excess of One Million Dollars
($1,000,000) or (B) of any Guarantor in excess of Five Million Dollars
($5,000,000).
(H) maintain reasonably detailed records
substantiating all expenditures for capital or other material improvements to
the Project, and provide the same to Lender upon request and not destroy such
records for three (3) years without Lender's prior written consent, provided,
however, that notwithstanding Borrower's right to destroy such records after
three (3) years, Borrower shall continue to provide such records to Lender for
its review for as long as Borrower maintains same; and
(ii) Borrower shall promptly furnish to Lender
copies of all other information concerning Borrower, any Guarantor and/or the
Project as is reasonably requested from time to time by Lender.
DOCUMENTS OF FURTHER ASSURANCE
(l) From time to time, Borrower shall execute,
deliver, record and furnish such documents as may be reasonably necessary or
desirable to (i) perfect and maintain perfected as valid liens upon the Project,
the liens granted by Borrower to Lender under the Mortgage and the collateral
assignments and other security interests under the other Loan Documents as
contemplated by this Agreement and (ii) correct any errors of a typographical
nature or inconsistencies which may be contained in any of the Loan Documents.
Without limiting the generality of the foregoing, Borrower hereby covenants that
not more than six (6) months nor less than one (1) month prior to the date on
which any continuation statements are required to be filed with respect to
maintaining and preserving the perfection of the liens granted by Borrower to
Lender pursuant to this Agreement and the other Loan Documents, Borrower shall,
if the same are provided by Lender, file or cause to be filed all such
continuation statements and send copies evidencing such filing to Lender.
Nothing contained herein shall be deemed to limit Lender's
right to file any such financing and/or continuation statements on Borrower's
behalf pursuant to applicable law.
FURNISHING REPORTS
(m) Borrower shall provide to Lender, promptly after
Borrower's receipt thereof, copies of all inspections, reports, test results and
other material information received by Borrower from time to time from its
employees, agents, representatives, architects, engineers and any other parties
involved in the operation of the Project, which reveal a material problem or
defect in the Project or any of its systems which would cost in excess of
$1,000,000. This provision, however, does not apply to any violation of
Environmental Laws. Accordingly, any violations of Environmental Laws shall be
deemed material regardless of the cost of remediation or the penalty or fine
attributable to such violation and Borrower shall give Lender immediate notice
upon its receipt thereof.
33
<PAGE> 38
OPERATION OF PROJECT
(n) As long as any portion of the Loan remains
outstanding, the Project shall be operated as hotels, except for the existing
rental units. Borrower shall fully and faithfully perform all of its material
covenants, agreements and obligations under any Leases of space in the Project.
Other than Leases with Emstar Operating LLC, Borrower shall not enter into or
terminate a Lease equal to or greater than ten percent (10%) of the square
footage at either the Tuscany Premises or the Court Premises without Lender's
consent, which consent shall not unreasonably be withheld.
LEASING
(o) All present and future leases of space at the
Project, any ground leases, and all subleases, license agreements, concession
agreements, tenancy agreements, occupancy agreements and any other agreements,
together with all modifications, extensions and renewals thereof (except for any
such agreements with Itinerant Hotel Guests) (collectively, the "LEASES") shall
be assigned to Lender (together with security deposits) as additional security
for the Loan. Upon Lender's request, Borrower shall promptly deliver to Lender
true and complete copies of all Leases. Lender shall have no obligation to
deliver a subordination, non-disturbance and attornment agreement to any tenants
located at the Premises.
AGREEMENTS
(p) Borrower may enter into, modify, amend, waive,
terminate or cancel any agreement or Lease affecting the Project without the
prior approval of Lender provided such actions are taken in the ordinary course
of business. Borrower shall give Lender notice of the entering into of any such
agreement or Lease pursuant to which Borrower shall or may incur liabilities in
excess of $500,000 over the full term of the agreement within twenty-four (24)
hours of the execution of such agreement. At all times until the Loan has been
paid in full and all obligations under the Loan Documents have been performed,
the Project shall be managed by Property Manager, which Property Manager shall
receive a management fee no higher than competitive management fees for similar
services in the area where the Project is located. Borrower shall be permitted
to change the manager of the Property without the consent of Lender. Borrower
will enter into and cause Property Manager to enter into an assignment and
subordination of such Management Agreement in form satisfactory to Lender,
assigning and subordinating Property Manager's interest in the Project and all
fees and other rights of Property Manager pursuant to such Management Agreement
to the rights of Lender under the Loan Documents. Borrower shall cause Property
Manager to hold and maintain all necessary licenses, certifications and permits
required by Law. Borrower, at Lender's request made at any time while an Event
of Default continues, shall terminate the Management Agreement and replace the
Property Manager with a manager approved by Lender.
34
<PAGE> 39
FURNISHING NOTICES
(q) Borrower shall deliver to Lender copies of all
notices of default received or given by Borrower (or its agents or
representatives) under any commercial Lease within ten (10) Business Days after
such notice is given or received, as the case may be. Borrower shall also
provide Lender with copies of all material notices pertaining to the Project or
any part thereof received by Borrower or the Property Manager (or their agents
or representatives) from any Governmental Authority or from any insurance
company providing insurance on any portion of, or any interest in, the Project
within ten (10) Business Days after such notice is received.
NO ADDITIONAL DEBT
(r) Borrower shall not, without the prior written
consent of Lender, (i) directly or indirectly create or permit or suffer to
exist any additional indebtedness secured by a lien or security interest on, in
or to all or any portion of the Project or any interest in Borrower, (ii) incur
any other additional indebtedness (whether personal or nonrecourse, secured or
unsecured) other than accounts payable incurred during the normal course of
Borrower's business and outstanding for a period of less than ninety (90) days,
subject to Borrower's right to dispute such amounts without making payment,
(iii) further encumber any personalty used at the Project or (iv) enter into any
commitments for additional indebtedness. Notwithstanding anything to the
contrary contained herein or in any other Loan Document, (x) Borrower shall have
the right, from time to time, to borrow up to an aggregate of $1,000,000 (i.e.,
at no time shall the total amount of Borrower unsecured debt exceed such amount)
on an unsecured basis for (a) Project's capital expenditures or (b) any other
operating requirements related to the Project; and (y) any indebtedness of
Borrower to any Guarantor or any Affiliate of Borrower or the Guarantors now or
hereafter existing is hereby subordinated to the Loan and the performance of
each and every obligation of Borrower and the Guarantors contained herein and in
the other Loan Documents. Borrower agrees that following the occurrence and
continuance of an Event of Default, Borrower will not make any payment on
account of such subordinated debt to any of the Guarantors or any Affiliate of
Borrower or the Guarantors. Any such payments made to any of the Guarantors or
any Affiliate of Borrower or the Guarantors in contravention of this Section
8.1(r) shall be held in trust for Lender and shall be paid over to Lender on
account of the Loan and Borrower's or the Guarantors' obligations under the Loan
Documents. Notwithstanding anything contained in this Section 8.1(r) to the
contrary, Borrower shall be permitted to deliver a promissory note which is not
secured by the Project or any portion thereof in the original principal amount
of up to $5,000,000 to Carol Management Company.
INDEMNIFICATION
(s) Borrower shall unconditionally indemnify, defend
and hold harmless Lender, its officers, directors, shareholders, employees and
agents, and any successor to any interest of Lender in or to the Project or the
Loan and such successor's officers, directors, shareholders, employees, agents,
partners and
35
<PAGE> 40
principals (all of the foregoing are collectively called "INDEMNIFIED PERSONS")
from and against any and all claims, losses, costs and expenses (including
reasonable litigation costs and attorneys' fees, expenses and disbursements),
damages (including indirect and consequential damages), obligations and
liabilities of any nature whatsoever made against or suffered or incurred by any
Indemnified Persons by reason of the assertion against such Indemnified Persons
by any party of any claim relating to or arising out of (i) construction of
alterations or improvements to the Building or the Project; (ii) the operation
or maintenance of the Project, including, without limitation, by reason of the
assignment of Leases, or the rents, issues or profits of the Project, or
Lender's exercise of any right of remedy provided for herein or available at
Law, or by reason of any alleged obligation or undertaking of Lender relating to
any Lease; (iii) the institution by any broker or person claiming to have dealt
with Borrower in connection with the Loan; (iv) any breach of any representation
or warranty, any default or Event of Default hereunder or under any of the other
Loan Documents; (v) any other matter arising in connection with the Loan,
Borrower, the Project, the use of the Project or any part thereof by tenants,
guests or invitees, the Loan Documents, or entry into or consummation of the
transactions contemplated by any of the Loan Documents; (vi) the investigation,
defense and settlement of claims and the procurement of any prohibited
transaction exemption under ERISA by reason of a breach by Borrower of Section
9.4 of this Agreement; (vii) any other action or inaction by, or matter which is
the responsibility of, Borrower; (viii) relating to or arising out of the
present or future presence or Handling of any Hazardous Material in, on or
around the Project other than Routine Uses which have been in compliance with
Laws; (ix) relating to or arising out of the failure of the Project to comply
from and after the date hereof with any applicable environmental Laws now or
hereafter in effect; (x) relating to or arising out of any claim, action, suit
or proceeding brought or threatened by any person or entity relating to
Hazardous Material in any way connected to the Project; or (xi) relating to or
arising out of any remediation, repair, restoration, replacement, abatement
and/or removal of any Hazardous Material at the Project; provided, however, that
Borrower shall not be obligated to indemnify any indemnified Person against such
indemnified Person's gross negligence or willful misconduct. Notwithstanding
anything contained herein to the contrary, the provisions of this Section 8.1(s)
are in all respects subject to the provisions of Section 12.16 (Survival of
Indemnities).
INSURANCE REPORTING REQUIREMENTS
(t) Borrower shall promptly notify its insurance
carrier or agent therefor (with a copy of such notification being provided to
Lender) if there is any (i) occurrence which, under the terms of any insurance
policy then in effect with respect to the Project, requires such notification,
(ii) increase in any hazard insured by such insurance carrier or any new or
otherwise unanticipated hazard requiring insurance by such insurance carrier at,
or relating to the Project or (iii) transfer of ownership.
36
<PAGE> 41
COMPLIANCE WITH LAWS
(u) Borrower shall comply in all material respects
with all Laws (including all applicable zoning, building, health, fire,
Department of Housing and Community Renewal, and environmental Laws) of any
Governmental Authority having jurisdiction over Borrower or the Project;
provided, however, that Lender acknowledges that the use of the Tuscany Premises
as a transient hotel may violate certain zoning ordinances regarding use, and
Borrower shall not be obligated to seek a variance for zoning or a complying
certificate of occupancy for use of the Tuscany Premises unless the City of New
York takes legal action against the Tuscany Premises based on such violations.
ORGANIZATIONAL DOCUMENTS
(v) Without the prior written consent of Lender (A)
Borrower shall not terminate nor permit or suffer any material amendment or
modification of Borrower's operating agreement or any other organizational
documents (as applicable) other than as permitted pursuant to Section 9.3(b)
below, or suffer or permit the admission of any new member.
ALTERATIONS
(w) Other than in connection with a casualty or
condemnation, without the prior written consent of Lender, Borrower shall not
make, nor suffer nor permit any tenant to make, any material structural
alterations to the Project which would cause less than 50% of either the Tuscany
Premises or the Court Premises to be in operation at any one time.
LOST NOTE
(x) If the Note is mutilated, destroyed, lost, or
stolen, Borrower shall promptly deliver to Lender, in substitution therefor, a
new promissory note containing the same terms and conditions as the Note with a
notation thereon (i) of the unpaid principal and accrued and unpaid interest and
(ii) stating that such promissory note is a duplicate original of the Note,
intended to replace the Note.
HAZARDOUS MATERIAL
(y) Except for Routine Uses (but only to the extent
such materials are properly contained, labeled and used in accordance with all
applicable Laws), Borrower shall (i) keep, and shall use reasonable efforts to
cause all tenants, subtenants and Property Managers to keep, the Project free of
all Hazardous Material, (ii) comply, and shall cause all tenants, subtenants and
Property Managers to comply in all material respects, with all environmental
Laws, including Laws regarding Hazardous Material, (iii) pay promptly when due
the costs of removal or remediation of any Hazardous Material in, over, on or
under, or emanating from, the Project to the extent required to be paid by
Borrower pursuant to applicable Law, and (iv) keep the Project free of any lien
imposed pursuant to such environmental Laws.
37
<PAGE> 42
Without limiting the generality of the foregoing:
(i) Except for Routine Uses (all of which are
maintained in compliance with Law), Borrower shall not engage in the Handling
of, or allow the Handling of, any Hazardous Material at or from the Project. At
Lender's request, Borrower shall, from time to time, conduct an environmental
audit of the Project at Borrower's sole cost and expense, (x) to confirm
Borrower's completion of any remedial actions and compliance with environmental
Laws and requirements of any Governmental Authority in connection with such
remedial actions, (y) if, in Lender's reasonable judgment, it is appropriate
under the circumstances (including in connection with any action by Lender to
foreclose this Mortgage) or (z) at any other time if based on a good faith
belief by Lender that a proper reason exists therefor, but not more frequently
than two (2) times from the date hereof through the Maturity Date. Borrower
shall cooperate in the conduct of all such environmental audits and shall use
reasonable efforts to cause any tenants to give Lender and its agents and its
employees access to the Project to conduct such audits at reasonable times and
upon reasonable advance notice except in the case of an emergency.
(ii) Borrower shall promptly advise Lender in
writing of:
(A) any enforcement, cleanup, removal or
other governmental or regulatory action at or relating to the Project instituted
by any Governmental Authority pursuant to any applicable environmental Laws;
(B) any written claim or threatened (in
writing) claim of which Borrower has knowledge made by any third party against
Borrower or the Project relating to damage, contribution, cost recovery,
compensation, loss or injury resulting from any violation or claimed violation
of any environmental Laws (the matters set forth in clauses (A) and (B) are
hereinafter referred to as "HAZARDOUS MATERIALS CLAIMS"); and
(C) Borrower's discovery of any occurrence
or condition at the Project or on any real property adjoining or in the vicinity
of the Project that would be likely to result in the Project, or any part
thereof, being subject to the imposition of any lien or encumbrance, or any
restrictions on the ownership, occupancy, transferability or use of the Project
under any applicable environmental Laws.
(iii) Lender shall have the right (but shall
not be obligated) to join and participate in, as a party if it so elects, any
legal proceedings or actions initiated in connection with any Hazardous
Materials Claims and to have all reasonable attorneys' fees and disbursements
and all other expenses incurred in connection therewith paid by Borrower;
provided, however, that until such time as an Event of Default has occurred,
Borrower shall have the right to prosecute and control any such claims or
proceedings.
38
<PAGE> 43
ASBESTOS
(z) Borrower shall not install or permit to be
installed any ACM's at the Project. Borrower shall enter into an operations and
management agreement to prevent any ACM's currently present at the Project from
creating any violations of Law and shall promptly abate all ACM's currently
present at the Project to the extent required by Law.
ANNUAL APPRAISALS
(aa) Solely if required by governmental or
quasi-governmental regulators of financial institutions or pursuant to
applicable laws or regulations, Lender shall be entitled to obtain, at
Borrower's expense, an update of the Appraisal; provided, however, that
Borrower's obligation under this Section 8.1(aa) shall be limited to a total of
two (2) appraisals during the term of this Loan and cost of such appraisals
shall not exceed $30,000 in the aggregate. The update of the Appraisal shall be
performed for, and certified to, Lender by the Appraiser, in conformity with the
requirements of FIRREA and on a basis and using a methodology satisfactory to
Lender. Nothing contained in this Section 8.1(aa) shall limit Lender's right to
perform appraisals of the project at its own expense. Lender shall have the
option of requesting Borrower to provide the update of the Appraisal or of
ordering the same directly.
ACCESS TO THE PROJECT AND RIGHT TO CURE DEFAULTS UNDER LEASES AND EASEMENT
AGREEMENTS
(ab) In the event of a material default by Borrower
under any Lease, beyond any applicable notice or cure period set forth therein,
Lender shall, upon ten (10) days prior written notice to Borrower, have the
right (but not the obligation) to cure or cause the cure of such default and,
if, in order to effect such cure, Lender must enter upon and/or take possession
of the Project, or any portion thereof, Lender may, and Borrower hereby grants
Lender the right to, enter in and upon and take exclusive possession of the
Project, or such portion thereof, for the purpose of curing such default. Any
costs incurred by Lender in curing such default shall be deemed to constitute
additional indebtedness evidenced by the Note (even if the total amount of such
indebtedness would then exceed the face amount of the Note), payable on demand
and secured by the Mortgage and other Loan Documents. Borrower shall not enter
into, modify, amend, waive any material provision of, terminate or cancel any
agreements containing appurtenant easements necessary for the operation of the
Project as it is presently operated, and Borrower shall fully and faithfully
perform all of its covenants, agreements and obligations with respect to such
appurtenant easements under such documents.
PAYMENTS TO AFFILIATES; APPLICATION OF CASH FLOW
(ac) None of Borrower, any Guarantor (in connection
with the Project), nor the Property Manager shall receive any overhead fees,
leasing fees, management fees, marketing fees, consulting fees (or any fees
similar to the foregoing) during the term of the Loan, except to the extent such
fees do not exceed
39
<PAGE> 44
the amount that would have been paid to non-affiliated parties for the same
services in an arms-length transaction.
SINGLE PURPOSE ENTITY/RELOCATION OF BORROWER'S OFFICE
(ad) As long as the Loan remains outstanding,
Borrower shall engage solely in the business of operating the Project, and shall
not acquire any material assets or properties (real estate or non-real estate)
except in connection with the operation of the Project. If Borrower shall change
its principal place of business at any time during the term of the Loan,
Borrower shall notify Lender within ten (10) days prior to the effectiveness of
such change and shall execute and deliver to Lender any and all documents,
instruments or amendments reasonably requested by Lender to duly perfect its
liens granted pursuant to the Loan Documents, including, without limitation, the
execution and delivery of Uniform Commercial Code filings. Any and all recording
or filing fees or other costs and expenses incurred by Lender in connection with
such change of place of business shall be paid by Borrower.
USE OF LOAN PROCEEDS
(ae) Borrower shall not use or permit any Loan
proceeds to be used for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U issued by the Board of Governors of the
Federal Reserve System) or to extend credit to others for the purpose of
purchasing or carrying any margin stock.
MAINTENANCE OF DEBT SERVICE COVERAGE
(af) (i) Throughout the term of the Loan, Borrower
shall maintain Debt Service Coverage equal to or greater than the Debt Service
Coverage Rate. For purposes of this Section 8.1(af), Debt Service Coverage shall
be tested as of the end of each calendar quarter, commencing with the calendar
quarter in which falls the day which is twenty-four (24) months from the date
hereof, with a measuring period equal to the twelve (12) calendar months
immediately preceding such calendar quarter. If Borrower fails to furnish Lender
with any Debt Service Coverage Statement and the requisite back-up documentation
in connection therewith within thirty (30) days following notice from Lender to
Borrower, it shall constitute an Event of Default and Lender reserves the right
to, after written notice to Borrower, unilaterally calculate, in good faith,
Debt Service Coverage for the applicable period based on such information as is
then available to Lender.
(ii) If Debt Service Coverage for any measuring
period shall be less than the Debt Service Coverage Rate, then Borrower shall
within five (5) Business Days after the calculation of such Debt Service
Coverage Rate, at its option, either (A) reduce the outstanding principal amount
of the Loan (in which event Borrower shall be responsible for all prepayment
costs caused by any such reduction of the outstanding principal amount of the
Loan) until such time as the Debt Service Coverage equals or exceeds the Debt
Service Coverage Rate, or (B) deposit additional collateral acceptable to Lender
which has sufficient value to reduce the Outstanding Amount to a level
sufficient to achieve a Debt Service Coverage which equals or exceeds the Debt
Service Coverage Rate. In the event that Borrower elects to deposit
40
<PAGE> 45
additional collateral to Lender in order to satisfy the provisions of this
Section 8.1(af)(ii), Lender shall not be obligated to return such collateral
until such time as the Debt Service Coverage (without taking into account any
additional collateral then being held by Lender) is equal to or greater than the
Debt Service Coverage Rate for two (2) consecutive calendar quarters.
Notwithstanding anything to the contrary in the immediately preceding sentence,
Lender shall have no obligation to return to Borrower any additional collateral
at any time that an Event of Default is then occurring.
ESCROW ACCOUNT
(ag) The Escrow Account shall be established and
maintained for the deposit of funds in connection with Borrower's requirement to
meet the Debt Service Coverage Rate and/or the Guarantors failure to meet the
Minimum Net Worth Threshold as required from time to time under the provisions
of this Agreement and at such time that such Escrow Account is required.
Borrower agrees to execute and deliver the Pledge Agreement (the "Security
Agreement") in substantially the form attached hereto as Exhibit F, if Borrower
intends to deposit cash in lieu of reducing the Loan to meet the Debt Service
Coverage Rate and/or the Guarantors fail to meet the Minimum Net Worth
threshold. All withdrawals from the Escrow Account shall require Lender's
consent, authorization, and signature. The Escrow Account shall be pledged to
Lender as additional collateral for the Loan pursuant to the Security Agreement.
All interest earned on the Escrow Account shall be kept in the Escrow Account in
the name of the Borrower with Lender as secured party and at the Branch or at a
bank selected by Lender and applied in the same manner as the other funds in the
Escrow Account from time to time. Throughout the term of the Loan, Lender shall
have a perfected, first priority security interest in and to all amounts
deposited in the Escrow Account and all interest earned thereon. Provided no
Event of Default exists and is continuing, funds in the Escrow Account shall, to
the extent practicable, be invested in Permitted Investments.
NET WORTH DECLINE
(ah) (i) Throughout the term of the Loan, the
Guarantors shall be required to meet the Minimum Net Worth Threshold. If the
Minimum Net Worth Threshold shall not be met at any time, then Borrower or
Guarantors shall thereafter, at Lender's option, either (i) pay all Monthly
Excess Cash Flow to Lender to reduce the outstanding principal amount of the
Loan (in which event Borrower shall be responsible for all funding losses caused
by any such reduction of the outstanding principal amount of the Loan) until
annual financial statements of the Guarantors delivered to Lender in accordance
with Section 8.1 indicate that the Minimum Net Worth Threshold is once again
being met or (ii) Lender may accelerate the indebtedness evidenced by the Note.
Any deposit or payment to be made pursuant to this Section 8.1(ah) shall be made
not later than five (5) days after the end of the applicable month.
(ii) In the event that the Consolidated
Tangible Net Worth of all of the Guarantors in the aggregate is less than Two
Hundred Fifteen Million
41
<PAGE> 46
Dollars ($215,000,000.00), it shall constitute an Event of Default, as more
particularly described in Article 10 herein.
ERISA
(ai) While any portion of the Loan is outstanding (i)
the Borrower shall not maintain an Employee Benefit Plan and if the Borrower
becomes under the common control (within the meaning of Section 414 of the
Internal Revenue Code of 1986, as amended) with any of the Guarantors, the
Guarantors shall indemnify the Borrower from and against any liability
attributable to the Borrower directly or indirectly which arises out of a
violation of any provision of ERISA relating to an Employee Benefit Plan
maintained or contributed to by any of the Guarantors or any failure by the
Guarantors to fund a contribution obligation pursuant to an Employee Benefit
Plan, notwithstanding anything contained in Section 12.17 hereof to the
contrary, and (ii) none of the assets of Borrower will constitute "plan assets"
within the meaning of 29 C.F.R. Sec. 2510.3-101. During the term of the Loan
Borrower will not be in violation of any of the provisions of ERISA.
(aj) Borrower shall invest no less than $750,000 per
annum in the Project during each of the first four (4) years of the Loan on a
cumulative basis (e.g. in the event Borrower invests $1,800,000 in the first
year of the Loan, Borrower shall have no obligation to invest any money into the
Project in the second year of the Loan and shall only be obligated to invest
$450,000 in the third year of the Loan and $750,000 in the fourth year of the
Loan). In the event Borrower fails to invest the required amount in any year, on
a cumulative basis, Borrower shall deposit any such shortfall into the Deposit
Account (as such term is defined in the Pledge Agreement), provided, however,
that notwithstanding the provisions of the Pledge Agreement, no funds deposited
into the Deposit Account pursuant to this Section 8.1(aj) shall be released from
the Deposit Account without Lender's prior written consent unless such funds are
then being invested in the Project. Upon receipt of a certification from
Borrower that the money requested is for a specified investment in the Project
and no Event of Default or default beyond applicable grace and cure periods, if
any, shall have occurred and be continuing, Lender, within five (5) days of
receipt of such request, shall release the requested amount to Borrower or to a
contractor at Borrower's direction.
GUARANTORS' FINANCIAL TESTS
(ak) Until the Loan is repaid in full by Borrower to
Lender, each of the Guarantors shall satisfy each of the financial tests as set
forth in Paragraph 2 of the Guaranty on a quarterly basis. In the event the
Guarantors fail to satisfy any of the financial tests set forth in Paragraph 2
of the Guaranty, at Lender's option, it shall constitute an Event of Default
under this Agreement.
LIMITATIONS ON SUITS BROUGHT AGAINST LENDER
42
<PAGE> 47
(al) Borrower and Guarantors acknowledge and agree
that they shall not make any claim which seeks damages in excess of the then
Outstanding Amount in any actions or suits brought by either the Borrower or the
Guarantors against Lender.
ARTICLE 9
ASSIGNMENTS
LENDER'S RIGHT TO ASSIGN
9.1 (a) Assignment. Lender shall have the right, at its sole
cost and expense, without the consent of Borrower, to assign, transfer, sell,
negotiate, pledge or otherwise hypothecate this Agreement and any of its rights
and security hereunder and under the Loan Documents, including the Note, the
Mortgage and any of the other Loan Documents, to any other party (an
"ASSIGNEE"). Borrower hereby agrees that all of the rights and remedies of
Lender in connection with the interest so assigned shall be enforceable against
Borrower by an Assignee with the same force and effect and to the same extent as
the same would have been enforceable by Lender but for such assignment.
(b) Participants. Lender shall have the right, at its sole
cost and expense, without the consent of Borrower, to syndicate or sell
participations to one or more other lenders (a "PARTICIPANT") in or to all or a
portion of its rights and obligations under the Loan and the Loan Documents;
provided, however, that notwithstanding any such sale, Lender agrees that unless
Borrower otherwise gives its prior written consent, Lender or any of its
affiliates shall retain responsibility for the administration of the Loan,
Borrower shall only be required to deal with Lender, and Lender will act as lead
Lender for its Participants unless retention is prohibited under any applicable
agreement with its Participants, by court order or by any Governmental Authority
having jurisdiction over Lender or its affiliates.
(c) Availability of Records; Further Assurances. Borrower
acknowledges and agrees that Lender may provide to any Assignee or Participant
originals or copies of this Agreement, the Note, the Mortgage, any other Loan
Documents and any 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 any Guarantor
or received by Lender in connection with the Loan, Borrower or any Guarantor;
provided, however, that Lender shall require that any and all Assignees and
Participants (actual or potential) use their best efforts to keep financial
information concerning the Borrower and Guarantors confidential. In order to
facilitate assignments to Assignees and sales to Participants, Borrower shall
execute such further documents, instruments or agreements as Lender may
reasonably require, at Lender's expense, provided such additional documentation
is consistent with the terms of the Loan Documents and contains exculpation
provisions to the extent applicable. In addition, Borrower agrees to cooperate
in a reasonable manner with Lender in the exercise of Lender's rights pursuant
to this Section 9.1, including providing such information and documentation
43
<PAGE> 48
regarding Borrower, the Guarantors and their businesses and finances as Lender
or any potential Assignee or Participant may reasonably request (provided the
type of information requested is consistent with the type of information
required to be provided pursuant to the terms of the Loan Documents) and to meet
with potential Assignees and Participants at a time and place mutually
convenient for all parties.
(d) Lender as Agent. Borrower acknowledges, that Lender,
as agent for itself and any Assignees and Participants, shall have the sole and
exclusive authority to execute and perform this Agreement and each other Loan
Document on behalf of itself, as Lender, and as agent for itself and the
Assignees and Participants; it being the intention and agreement of the parties
hereto that at all times during the term of the Loan, Lender shall be solely
responsible for the administration and performance of all Loan Documents
notwithstanding any such sale or assignment; provided, however, that Lender
shall have the right at any time to withdraw as Agent. Except as otherwise
provided in this Article 9, Borrower shall have no obligation to recognize or
take any action or to deal directly with any Assignee or Participant, and no
Assignee or Participant shall have any right to take any action or to deal
directly with Borrower with respect to the rights, benefits and obligations of
Borrower under this Agreement, the other Loan Documents or any one or more
documents or instruments in respect thereof. Borrower may rely conclusively on
the actions of Lender as agent to bind Lender, the Assignees and the
Participants, notwithstanding that the particular action in question may,
pursuant to this Agreement or any other agreement, be subject to the consent or
direction of any Assignee or Participant. Notwithstanding the foregoing, Lender
shall be permitted at any time to sell its interest in the Loan and have no
obligation to act as the servicer of the Loan following its sale.
PROHIBITION OF ASSIGNMENTS BY BORROWER
9.2 Borrower shall not assign or attempt to assign its rights
under this Agreement without the prior written consent of Lender, which consent
shall not be unreasonably withheld or delayed. Borrower will not suffer or
permit any of its interest or rights in the Project to be assigned, sold,
pledged, encumbered, transferred, hypothecated or otherwise disposed of (each a
"TRANSFER") until the Loan and all other sums evidenced by the Note and/or
secured by the Mortgage and the other Loan Documents have been paid in full.
RESTRICTIONS ON TRANSFERS OF INTEREST
9.3 (a) Unless permitted by Section 9.3(b) below, none of the
Guarantors shall (i) voluntarily or involuntarily, directly or indirectly
Transfer any interest which it may have in Borrower, or in any entity which
holds an interest in or directly or indirectly controls Borrower, or (ii) cause,
suffer or permit any of the foregoing to occur (whether voluntarily or
involuntarily), without in each instance the prior written consent of Lender,
which consent Lender may withhold in its sole and absolute discretion.
(b) The consent of Lender shall not be required for (i)
the transfer of any interest in Borrower to one or any number of the Permitted
44
<PAGE> 49
Transferees, or (ii) any transfer (x) in connection with a transaction in which
Borrower or any member in Borrower is merged or consolidated with another entity
or in which substantially all of Borrower's or such member's assets are
transferred, (y) to members of Borrower, or (z) to an Affiliate of Borrower or
an Affiliate of a member of Borrower. Borrower covenants and agrees that the
Permitted Transferees which are Affiliates of the Guarantors (exclusive of any
Permitted Transferees which are Affiliates of Carol Management Entities) shall
at all times maintain, directly or indirectly, at least 49% of the record and
beneficial interests of Borrower.
PROHIBITION OF TRANSFERS IN VIOLATION OF ERISA
9.4 In addition to the prohibitions set forth above in Section
9.2 and Section 9.3 and in the Mortgage and the other Loan Documents, and not in
limitation thereof, Borrower shall not Transfer its interest or rights in this
Agreement or in the Project, or attempt to do any of the foregoing or suffer any
of the foregoing, nor shall any party owning a direct or indirect interest in
Borrower Transfer any of its rights or interest (direct or indirect) in
Borrower, attempt to do any of the foregoing or suffer any of the foregoing, if
such action would cause the Loan, or the exercise of any of Lender's rights in
connection therewith, to constitute a Prohibited Transaction or otherwise result
in Lender being deemed in violation of any applicable provision of ERISA or the
Internal Revenue Code.
SUCCESSORS AND ASSIGNS
9.5 Subject to the foregoing restrictions on transfer and
assignment contained in this Article 9, this Agreement shall inure to the
benefit of and shall be binding on the parties hereto and their respective
heirs, executors, legal representatives, successors and permitted assigns.
ARTICLE 10
EVENTS OF DEFAULT
10.1 The occurrence of any one or more of the following shall
constitute an "EVENT OF DEFAULT," as such term is used herein:
(a) If Borrower fails to pay the unpaid principal
amount of the Loan when due, whether at the Maturity Date or upon acceleration
or otherwise as provided herein and in the Note;
(b) If Borrower fails to pay any monthly installment
of interest under the Note within the later of (i) five (5) days of the date
when due and (ii) twenty-four (24) hours after written notice from Lender to
Borrower;
(c) If Borrower fails to observe or perform any
covenant, agreement or obligation hereunder or under the other Loan Documents
involving the payment of money, other than the payment of principal or interest
under the Note; provided, however, that no Event of Default shall be deemed to
occur in the event of Borrower's failure to reimburse Lender for any expense as
required hereunder or
45
<PAGE> 50
under any other Loan Document unless such failure continues beyond five (5) days
after written notice by Lender to Borrower that Borrower has failed to pay such
expense;
(d) If Borrower fails to perform any of its
non-monetary covenants, agreements and obligations under this Agreement other
than those set forth in Sections 8.1(y) and 8.1(z), or has otherwise breached
any of the covenants, agreements and conditions of this Agreement other than
those set forth in Sections 8.1(y) and 8.1(z), and such failure or breach shall
continue for thirty (30) days after written notice thereof from Lender;
provided, however, that if such failure or breach by its nature cannot be cured
within such thirty (30) day period but is capable of being cured, then the same
shall not constitute an Event of Default so long as Borrower commences such cure
within such thirty (30) day period and establishes to Lender in Lender's sole
discretion that it is diligently prosecuting such cure to completion within a
reasonable period of time under the circumstances;
(e) If Borrower shall default in the performance or
observance of any of its obligations under either Sections 8.1(y) or 8.1(z) of
this Agreement, and such default shall continue after notice to Borrower and
after the first to occur of (i) thirty (30) days after such notice thereof from
Lender; provided, however, that if such failure or breach by its nature cannot
be cured within such thirty (30) day period but is capable of being cured, then
the same shall not constitute an Event of Default so long as Borrower commences
such cure within such thirty (30) day period and establishes to Lender in
Lender's sole discretion that it is diligently prosecuting such cure to
completion, and (ii) the expiration of the cure period permitted under
applicable Law;
(f) If any material representation or warranty
(including the representations and warranties of Borrower set forth in Article 3
of this Agreement) of Borrower, or of any Guarantor made herein or in any such
guaranty, or in any certificate, report, financial statement or other instrument
furnished in connection with the making of this Loan Agreement, the Note, the
Mortgage, any other Loan Document or any guaranty, shall prove false or
misleading in any material respect when made; provided, however, that any such
misrepresentation shall not constitute an Event of Default in the event that
such misrepresentation is capable of being made truthful and Borrower makes such
misrepresentation truthful within ten (10) days of notice from Lender of such
misrepresentation;
(g) If all or substantially all of the assets of
Borrower are attached, seized, subjected to a writ of distress warrant, or are
levied upon, or come into the possession of any receiver, trustee, custodian or
assignee for the benefit of creditors, and the same is not vacated, stayed,
dismissed, set aside or otherwise remedied within ninety (90) days after the
occurrence thereof;
(h) If Borrower is enjoined, restrained or in any way
prevented by any court order from operating the Project, or if a notice of lien,
levy or assessment is filed of record with respect to all or any part of the
property of Borrower by any Governmental Authority, which could affect the
performance of the obligations of Borrower hereunder or under the other Loan
Documents, as the case
46
<PAGE> 51
may be, or if any proceeding is filed or commenced seeking to enjoin, restrain
or in any way prevent Borrower from conducting all or a substantial part of its
business affairs, and in any of such events, Borrower shall fail to cause the
same to be vacated, stayed, dismissed, set aside or remedied within thirty (30)
days after the occurrence thereof;
(i) If any petition is filed by or against Borrower
under the Federal Bankruptcy Code or any similar state or federal law, whether
now or hereafter existing (and, in the case of involuntary proceedings, either
failure to cause the same to be vacated, stayed or set aside within ninety (90)
days after filing or the entry of an order for relief); or if Borrower makes an
assignment for the benefit of creditors or admits in writing its inability to
pay its debts as they become due;
(j) If Borrower fails to comply with the provisions
set forth in Section 8.1(af) within ten (10) Business Days after notice that
Borrower has failed to so comply.
(k) If any Transfer is made in violation of Section
9.2, Section 9.3 or Section 9.4, or in violation of prohibitions against
disposition of any interest in Borrower contained in the Mortgage;
(l) Intentionally Deleted;
(m) If (i) the Guaranty ceases at any time to be
valid, binding and enforceable against any Guarantor or if any Guarantor
repudiates any of its obligations under, or denies the validity or
enforceability of all or any portion of the Guaranty or (ii) the Environmental
Indemnity ceases at any time to be valid, binding and enforceable against
Borrower or if Borrower repudiates any of its obligations under, or denies the
validity or enforceability of all or any portion of the Environmental Indemnity;
(n) If there exists any fraud or misappropriation by
Borrower or any Guarantor in connection with the Loan;
(o) If an "Event of Default" or "event of default"
occurs under any of the other Loan Documents and continues beyond the applicable
grace period, if any, contained therein;
(p) If Borrower fails to comply with the Restoration
Requirements contained in Sections 3(b) or 7 of the Mortgage;
(q) If all or substantially all of the assets of any
Guarantor are attached, seized, subjected to a writ of distress warrant, or are
levied upon, or come into the possession of any receiver, trustee, custodian or
assignee for the benefit of creditors, and either (i) the same is not vacated,
stayed, dismissed, set aside or otherwise remedied within ninety (90) days after
the occurrence thereof or (ii) provided no other Event of Default then exists,
either Borrower or the Guarantors shall fail to provide a replacement acceptable
to Lender to execute the Guaranty within ninety (90) days after the occurrence
thereof;
47
<PAGE> 52
(r) If a notice of lien, levy or assessment is filed
of record with respect to all or any part of the property of any Guarantor by
any Governmental Authority, which could materially adversely affect the
performance of the obligations of such Guarantor under the Guaranty or if any
proceeding is filed or commenced seeking to enjoin, restrain or in any way
prevent any Guarantor from conducting all or a substantial part of its business
affairs, and in any of such events, either (i) the affected Guarantor shall fail
to cause the same to be vacated, stayed, dismissed, set aside or remedied within
ninety (90) days after the occurrence thereof or (ii) provided no other Event of
Default then exists, either Borrower or such Guarantor shall fail to provide a
replacement acceptable to Lender to execute the Guaranty within ninety (90) days
after the occurrence thereof;
(s) If any petition is filed by or against any
Guarantor under the Federal Bankruptcy Code or any similar state or federal law,
whether now or hereafter existing (and, in the case of involuntary proceedings,
either (i) such Guarantor fails to cause the same to be vacated, stayed or set
aside within ninety (90) days after filing or the entry of an order for relief
or (ii) provided no other Event of Default then exists, such Guarantor or
Borrower fails to provide a replacement acceptable to Lender to execute the
Guaranty within ninety (90) days after the occurrence thereof), or if any
Guarantor makes an assignment for the benefit of creditors or admits in writing
its inability to pay his or her debts as they become due and either Borrower or
such Guarantor shall fail to provide a replacement acceptable to Lender to
execute the Guaranty within ninety (90) days after the occurrence thereof; or
(t) If the Guarantors in the aggregate have a
Consolidated Tangible Net Worth less than the Minimum Net Worth Threshold; or
(u) If a default shall occur beyond applicable grace
and cure period, if any, under the Mortgage.
Nothing contained in this Section 10.1 is intended to effect
an extension of any grace and cure periods provided in the other Loan Documents
and all grace and cure periods contained herein shall run concurrently, and not
consecutively, with the grace and cure periods contained in the other Loan
Documents.
48
<PAGE> 53
ARTICLE 11
LENDER'S REMEDIES IN EVENT OF DEFAULT
REMEDIES CONFERRED UPON LENDER
11.1 (a) Upon the occurrence and during the continuation of an
Event of Default under Section 10.1(i), (q), (r) and (s), the Note shall
immediately and automatically become due and payable in full without notice,
presentment, demand, protest or other action of any kind, all of which Borrower
hereby expressly waives, and Lender shall, in addition to the foregoing and all
other remedies conferred upon Lender by law and by the terms of the Note, the
Mortgage or the other Loan Documents, have the right, but not the obligation, to
pursue one or more of the remedies set forth in Section 11.1(b), concurrently or
successively, it being the intent hereof that all of such remedies shall be
cumulative and that no such remedy shall be to the exclusion of any other.
(b) Upon the occurrence and during the continuation of
any Event of Default, Lender shall, in addition to all other remedies conferred
upon Lender by law and by the terms of the Note, the Mortgage, and the other
Loan Documents, have the right but not the obligation to pursue any one or more
of the following remedies, concurrently or successively, it being the intent
hereof that all such remedies shall be cumulative and that no such remedy shall
be to the exclusion of any other:
(i) Take any action which, in Lender's sole
judgment, is necessary or appropriate to effect observance and performance of
the covenants, agreements and obligations of Borrower under this Agreement, or
the other Loan Documents, as the case may be. Without limiting the generality of
the foregoing, and for the purpose aforesaid, upon the occurrence and during the
continuation of an Event of Default, Borrower hereby irrevocably appoints and
constitutes Lender its lawful attorney in fact with full power of substitution,
and agrees that Lender shall be entitled to (A) pay, settle or compromise all
existing bills and claims the nonpayment of which might result in liens against
the Project or take such other action as Lender shall determine to prevent such
bills and claims from resulting in liens against the Project, (B) execute all
applications and certificates which may be required by any of the Loan
Documents, (C) prosecute and defend all actions or proceedings connected with or
relating to the Project, (D) take possession of and operate the Project and (E)
do any and every act which Borrower may do in its own behalf; it being
understood and agreed that the foregoing power of attorney shall be a power
coupled with an interest and cannot be revoked;
(ii) Withhold further disbursement of the
proceeds of the Loan (if any);
(iii) Declare the Note to be immediately due
and payable;
(iv) Use and apply any monies deposited by
Borrower, with Lender, regardless of the purpose for which the same was
deposited,
49
<PAGE> 54
to cure any default or to apply on account of any indebtedness under this
Agreement which is due and owing to Lender; and
(v) Exercise or pursue any other right or
remedy permitted under this Agreement, or any of the other Loan Documents or
conferred upon Lender by operation of Law.
NON-WAIVER OF REMEDIES
11.2 No waiver of any breach or default of any provision of
this Agreement or any other Loan Document shall constitute or be construed as a
waiver by Lender of any subsequent or prior breach or default or of any breach
or default of any other provision of this Agreement or any other Loan Document.
ARTICLE 12
GENERAL PROVISIONS
CAPTIONS
12.1 The captions and headings of various Articles and
Sections of this Agreement and Exhibits pertaining hereto are for convenience
only and are not to be considered as defining or limiting in any way, the scope
or intent of the provisions hereof.
NOTICES
12.2 Any notice, demand, request or other communication which
any party hereto may be required or may desire to give hereunder shall be in
writing and shall be deemed to have been properly given and received: (a) if
hand delivered, on the day so delivered to the address set forth below; (b) if
mailed, on the third Business Day after the day on which it is deposited in the
United States mails in the continental United States, registered or certified
mail, postage prepaid, return receipt requested, addressed as set forth below;
or (c) if by Federal Express or other reputable express courier service, on the
next Business Day after delivery to such express courier service, addressed as
set forth below; or (d) for other than notices of default, if by telecopy
transmission, on the day and at the time on which delivered to such party at the
address and the telecopier number set forth below:
If to Lender:
The Sumitomo Trust & Banking Co., Ltd.
527 Madison Avenue
New York, New York 10022
Telephone: (212) 326-0600
Telecopier: (212) 418-4848
Attention: Real Estate Department Manager
50
<PAGE> 55
with a copy to:
Battle Fowler LLP
75 East 55th Street
New York, NY 10021
Telephone: (212) 856-7000
Telecopier: (212) 856-7808
Attention: Robert J. Wertheimer Esq.
If to Borrower:
Emstar Realty LLC
c/o SLT Realty Limited Partnership
2231 East Camelback Road
Phoenix, AZ 85016
Telephone: (602) 852-3900
Telecopier: (602) 852-0686
Attention: Ronald Brown, Chief Financial Officer
with copies to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Telephone: (212) 821-8000
Telecopier: (212) 821-8111
Attention: Eugene A. Pinover, Esq.
and:
Alter Bartfeld & Mantel
90 Park Avenue
New York, New York 10016
Telephone: (212) 953-5500
Telecopier: (212) 953-5061
Attention: Arthur S. Mantel, Esq.
or at such other address or to such other addressee as the party to be served
with notice may have furnished in writing to the party seeking or desiring to
serve notice as a place for the service of notice. Notwithstanding the fact that
Lender has agreed to deliver copies to Borrower's counsel, Borrower acknowledges
that such copies are courtesy copies only, and Lender's failure to deliver such
notices shall not negate the effectiveness of any notice given to Borrower.
51
<PAGE> 56
ENTIRE AGREEMENT; MODIFICATION; WAIVER
12.3 This Agreement and the other Loan Documents and
instruments delivered in connection herewith constitute the entire agreement
among the parties with respect to the Project and the Loan and supersede all
prior agreements, written and oral, relating to the subject matter hereof.
Neither Lender nor any employee of Lender has made or is authorized to make any
representation or agreement upon which Borrower may rely unless such matter is
made for the benefit of Borrower and is in writing signed by an authorized
officer of Lender. Borrower agrees that it has not and will not rely on any
custom or practice of Lender, or on any course of dealing with Lender, in
connection with the Loan unless such matter is set forth in this Agreement or
the other Loan Documents or in a written instrument made for the benefit of
Borrower and signed by an authorized officer of Lender. No modification, waiver,
amendment, discharge or change of this Agreement shall be valid unless the same
is in writing and signed by the party against whom the enforcement of such
modification, waiver, amendment, discharge or change is sought.
GOVERNING LAW
12.4 THIS AGREEMENT IS A CONTRACT ENTERED INTO AND TO BE
PERFORMED IN THE STATE OF NEW YORK AND SHALL BE GOVERNED BY AND CONSTRUED UNDER
THE INTERNAL LAWS (AS OPPOSED TO THE LAWS OF CONFLICTS) OF THE STATE OF NEW
YORK.
ACQUIESCENCE NOT TO CONSTITUTE WAIVER OF LENDER'S REQUIREMENTS
12.5 Each and every covenant and condition for the benefit of
Lender contained in this Agreement may be waived by Lender; provided, however,
that to the extent Lender may have acquiesced in any noncompliance with any
conditions, covenants or obligations of Borrower contained herein, such
acquiescence shall not be deemed to constitute a waiver by Lender of the
performance by Borrower of any subsequent conditions, covenants or obligations
to be performed by Borrower hereunder, other than Lender's waiver of any closing
conditions, which waivers shall be conclusive.
DISCLAIMER BY LENDER
12.6 (a) This Agreement is made for the sole benefit of
Borrower and Lender (and Lender's successors and assignees and participants, if
any, any transferee of Borrower permitted pursuant to Sections 9.2 and 9.3 and
any Permitted Transferees, if any), and no other person or persons shall have
any benefits, rights or remedies under or by reason of this Agreement, or by
reason of any actions taken by Lender pursuant to this Agreement. Lender shall
not be liable to any party for any debts or claims accruing in favor of any such
party against Borrower or others or against the Project. Borrower is not and
shall not be an agent of the Lender for any purposes. Except as expressly set
forth in the Loan Documents, Lender is not and shall not be an agent of Borrower
for any purposes. Lender, by making the Loan or
52
<PAGE> 57
any action taken pursuant to any of the Loan Documents, shall not be deemed a
partner or a joint venturer with Borrower or a fiduciary of Borrower.
(b) By accepting or approving anything required to be
observed, performed, fulfilled or given to Lender pursuant to the Loan
Documents, including, without limitation, the Environmental Survey, the
Engineering Reports, the ADA Report and any certificate, statement of profit and
loss or other financial statement, survey, appraisal, lease or insurance policy,
Lender shall not be deemed to have warranted or represented the accuracy,
sufficiency, legality, effectiveness or legal effect of the same, or of any
term, provision or condition thereof, and such acceptance or approval thereof
shall not constitute (i) a warranty or representation to anyone with respect
thereto by Lender or (ii) a waiver of any of Borrower's or any Guarantor's
obligations or liabilities under this Agreement or any of the other Loan
Documents with respect to any facts, matters or circumstances disclosed in any
of the reports or other documents described in this Section 12.6(b), other than
Lender's waiver of any closing conditions, which waivers shall be conclusive.
(c) Lender neither undertakes nor assumes any
responsibility or duty to Borrower to select, review, inspect, supervise, pass
judgment upon or inform Borrower of any matter in connection with the Project,
and Borrower shall rely entirely upon its own judgment with respect to such
matters, and any review, inspection, supervision, exercise of judgment or supply
of information to Borrower by Lender in connection with such matters is for the
protection of Lender only and neither Borrower nor any third party is entitled
to rely thereon.
(d) Lender owes no duty of care to protect Borrower
with respect to any matter reviewed or investigated by Lender in connection with
the Loan.
(e) Lender shall not be directly or indirectly liable
or responsible for any loss, claim, cause of action, liability, indebtedness,
damage or injury of any kind or character to any person or property arising from
any activity on, or occupancy or use of, all or any portion of the Project,
including any loss, claim, cause of action, liability, indebtedness, damage or
injury caused by, or arising from: (i) any defect in any building, structure,
grading, fill, landscaping or other improvements thereon or in any on-site or
off-site improvement or other facility therein, thereon or relating thereto
irrespective of whether or not any such defect was disclosed in any of the
reports or other documents described in Section 12.6(b) above; (ii) any act or
omission of Borrower, any of the Guarantors, any Affiliate of Borrower or any of
the Guarantors or any of Borrower's agents, employees, independent contractors,
licensees or invitees; (iii) any accident at the Project or any fire, flood or
other casualty or hazard thereon; (iv) the failure of Borrower, any of
Borrower's licensees, employees, invitees, agents, independent contractors or
other representatives to maintain all or any portion of the Project in a safe
condition; and (v) any nuisance made or suffered on any part of the Project;
except to the extent that any of the circumstances described above are caused by
the gross negligence or willful misconduct of Lender or its officers,
contractors, employees, representatives or agents (provided they are acting in
their capacity as such) or once Lender enters upon or has possession of the
Project pursuant to the terms hereof.
53
<PAGE> 58
(f) Lender represents and warrants to Borrower that
it has not dealt with any broker and notwithstanding anything contained herein
to the contrary, Lender shall be responsible for any fees or commissions of any
broker with whom Lender has dealt and not disclosed to Borrower.
RIGHT OF LENDER TO MAKE ADVANCES TO CURE BORROWER'S DEFAULTS
12.7 If (i) Borrower shall default beyond any applicable
notice or cure period in any of Borrower's covenants, agreements or obligations
contained in this Agreement or the other Loan Documents, or (ii) Lender
determines in good faith that an emergency or other exigent circumstances exist,
Lender may (but shall not be obligated to) perform any of such covenants,
agreements and obligations. Any amounts expended by Lender to cure Borrower's
defaults, including any amounts expended by Lender pursuant to Section
11.1(b)(i), shall constitute additional indebtedness evidenced by the Note (even
if the total amount of such indebtedness would then exceed the face amount of
the Note), payable on demand and secured by the Mortgage and the other Loan
Documents.
DEFINITIONS APPLY IN AMENDMENTS
12.8 Definitions contained in this Agreement which identify
documents, including the other Loan Documents, shall be deemed to include all
future amendments and supplements thereto entered into from time to time to
satisfy the requirements of this Agreement or otherwise with the consent of
Lender and Borrower. Reference to this Agreement contained in any of the
foregoing documents shall be deemed to include all amendments and supplements to
this Agreement.
TIME IS OF THE ESSENCE
12.9 Time is hereby declared to be of the essence of this
Agreement and of every part hereof.
EXECUTION IN COUNTERPARTS
12.10 This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
WAIVER OF CONSEQUENTIAL DAMAGES
12.11 In no event shall Lender be liable to Borrower for
consequential damages, whatever the nature of a breach by Lender of its
obligations under this Agreement or any of the other Loan Documents, and
Borrower for itself and all Affiliates hereby waives all claims for
consequential damages. Notwithstanding anything herein or in any other Loan
Document to the contrary, Borrower shall not be liable to Lender for indirect or
consequential damages except in connection with any matter, claim, loss or
damage arising out of an environmental condition or claim. Notwithstanding the
foregoing, Borrower shall not claim or raise a defense to a claim
54
<PAGE> 59
by Lender that sums due under any of the Loan Documents are or constitute
consequential or indirect damages.
CLAIMS AGAINST LENDER
12.12 Lender shall not be in default under this Agreement, or
under any other Loan Documents, unless a written notice specifically setting
forth the claim of Borrower shall have been given to Lender and Lender does not
promptly commence a cure thereof and diligently proceed to remedy or cure the
default (if any) within ninety (90) days after notice from Borrower. If it is
determined in any proceedings that Lender has improperly failed to grant its
consent or approval, where such consent or approval is required by this
Agreement or any other Loan Document to be obtained, Borrower's sole remedy
shall be to obtain declaratory relief determining such withholding to have been
improper, and Borrower hereby waives, for itself and any Affiliate of Borrower,
all claims for damages or set-off against Lender resulting from any withholding
of consent or approval by Lender.
JURISDICTION; SERVICE OF PROCESS
12.13 WITH RESPECT TO ANY SUIT, ACTION OR PROCEEDINGS RELATING
TO THIS AGREEMENT, THE PROJECT OR ANY OTHER LOAN DOCUMENT (EACH, A
"PROCEEDING"), BORROWER AND LENDER IRREVOCABLY (A) SUBMIT TO THE NON-EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE COUNTY OF NEW
YORK AND THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT LOCATED IN
THE COUNTY OF NEW YORK; AND (B) WAIVE ANY OBJECTION WHICH THEY MAY HAVE AT ANY
TIME TO THE LAYING OF VENUE OF ANY PROCEEDING BROUGHT IN ANY SUCH COURT, WAIVE
ANY CLAIM THAT ANY PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND
FURTHER WAIVE THE RIGHT TO OBJECT, WITH RESPECT TO SUCH PROCEEDING, THAT SUCH
COURT DOES NOT HAVE JURISDICTION OVER SUCH PARTY. NOTHING IN THIS AGREEMENT
SHALL PRECLUDE BORROWER OR LENDER FROM BRINGING A PROCEEDING IN ANY OTHER
JURISDICTION NOR WILL THE BRINGING OF A PROCEEDING IN ANY ONE OR MORE
JURISDICTIONS PRECLUDE THE BRINGING OF A PROCEEDING IN ANY OTHER JURISDICTION.
BORROWER AND LENDER FURTHER AGREE AND CONSENT THAT, IN ADDITION TO ANY METHODS
OF SERVICE OF PROCESS PROVIDED FOR UNDER APPLICABLE LAW, ALL SERVICE OF PROCESS
IN ANY PROCEEDING IN ANY NEW YORK STATE OR UNITED STATES COURT SITTING IN THE
CITY AND COUNTY OF NEW YORK MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN
RECEIPT REQUESTED, DIRECTED TO BORROWER OR LENDER AT THE ADDRESS INDICATED
ABOVE, AND SERVICE SO MADE SHALL BE COMPLETE UPON RECEIPT; PROVIDED, HOWEVER,
THAT IF BORROWER OR LENDER SHALL REFUSE TO ACCEPT DELIVERY, SERVICE SHALL BE
DEEMED COMPLETE FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN SO MAILED.
55
<PAGE> 60
SEVERABILITY
12.14 The parties hereto intend and believe that each
provision in this Agreement comports with all applicable local, state and
federal laws and judicial decisions. However, if any provision or provisions, or
if any portion of any provision or provisions, in this Agreement is found by a
court of law to be in violation of any applicable local, state or federal law,
statute, ordinance, administrative or judicial decision, or public policy, and
if such courts declare such portion, provision or provisions of this Agreement
to be illegal, invalid, unlawful, void or unenforceable as written, then it is
the intent of all parties hereto that such portion, provision or provisions
shall be given force to the fullest possible extent that they are legal, valid
and enforceable, and that the remainder of this Agreement shall be construed as
if such illegal, invalid, unlawful, void or unenforceable portion, provision or
provisions were not contained therein, and that the rights, obligations and
interests of Borrower and Lender under the remainder of this Agreement shall
continue in full force and effect.
WAIVER OF JURY TRIAL
12.15 BORROWER, GUARANTORS AND LENDER EACH HEREBY WAIVE ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY
RIGHTS UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS OR RELATING THERETO OR
ARISING FROM THE LENDING RELATIONSHIP WHICH IS THE SUBJECT OF THIS AGREEMENT AND
AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT
BEFORE A JURY.
SURVIVAL OF INDEMNITIES
12.16 All indemnities concerning environmental matters of
Borrower or any other party contained in this Agreement or any other Loan
Document shall survive until such time as all related claims which may be
brought against Lender shall be time-barred by any applicable statute of
limitations, notwithstanding the payment in full of all obligations under the
Note and the other Loan Documents. Other than as set forth in the immediately
preceding sentence, all indemnities set forth in this Agreement or any other
Loan Document are in all respects subject to the provisions of Section 12.15
hereof and shall terminate upon the payment in full of all obligations due under
the Note and the other Loan Documents or a foreclosure of the Project or
deed-in-lieu thereof.
NO ADDITIONAL LIABILITY TO GUARANTORS
12.17 The Guarantors' liability to Lender shall be determined
under and pursuant to the terms of the Guaranty and the Guarantors shall incur
no additional liability by their execution of this Agreement in excess of the
Guarantors' obligations set forth in the Guaranty.
56
<PAGE> 61
Borrower, Guarantors and Lender have executed this Agreement as of the
day and year first set forth above.
BORROWER:
EMSTAR REALTY LLC, a New York limited
liability company
By: Alstar Realty LLC, its Managing Member
By: SLT Realty Limited Partnership, a
Member
By: Starwood Lodging Trust,* its
general partner
By: /s/ Ronald C. Brown
-----------------------------------
Name: Ronald C. Brown
Title: Sr. Vice President
and Chief Financial
Officer
- --------
* Starwood Lodging Trust. The name "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 25, 1969, as amended and restated
as of June 6, 1988, and as further amended on February 1, 1995 and as the
same may be further amended from time to time, and all persons dealing with
Starwood Lodging Trust shall look solely to Starwood Lodging Trust's assets
for the enforcement of any claims against Starwood Lodging Trust, as the
Trustees, officers, agents and security holders of Starwood Lodging Trust
assume no personal liability for obligations entered into on behalf of
Starwood Lodging Trust, and their respective individual assets shall not be
subject to the claims of any person relating to such obligations.
57
<PAGE> 62
GUARANTORS:
STARWOOD LODGING TRUST
By: /s/ Ronald C. Brown
-------------------------------------
Name: Ronald C. Brown
Title: Sr. Vice President and
Chief Financial Officer
STARWOOD LODGING CORPORATION
By: /s/ Steven R. Goldman
------------------------------------
Name: Steven R. Goldman
Title: Sr. Vice President
SLT REALTY LIMITED PARTNERSHIP
By: Starwood Lodging Trust, its general partner
By: /s/ Ronald C. Brown
-------------------------------------
Name: Ronald C. Brown
Title: Sr. Vice President and
Chief Financial Officer
LENDER:
THE SUMITOMO TRUST & BANKING CO.,
LTD, New York Branch
By: /s/ Brad D. Gillman
-------------------------------------
Brad D. Gillman, Senior Vice President
and Department Manager
58
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Starwood Lodging Trust and Starwood Lodging Corporation on Form S-3 (File
Nos. 333-13411, 333-13325 and 333-22219) and Form S-8 (File No. 333-02721) of
our report dated February 21, 1997, appearing in the Annual Report on Form 10-K
of Starwood Lodging Trust and Starwood Lodging Corporation for the year ended
December 31, 1996.
Coopers & Lybrand L.L.P.
Phoenix, Arizona
March 10, 1997
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-22219, 333-13325 and 333-13411 on Form S-3 and No. 333-02721 on Form S-8 of
Starwood Lodging Trust and Starwood Lodging Corporation 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, 1996.
DELOITTE & TOUCHE LLP
Los Angeles, California
March 6, 1997
<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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 3,810,000
<SECURITIES> 0
<RECEIVABLES> 211,413,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,219,000
<PP&E> 1,000,924,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,233,366,000
<CURRENT-LIABILITIES> 28,458,000
<BONDS> 0
0
0
<COMMON> 401,000
<OTHER-SE> 568,899,000
<TOTAL-LIABILITY-AND-EQUITY> 1,233,366,000
<SALES> 0
<TOTAL-REVENUES> 115,059,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 46,651,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,088,000
<INCOME-PRETAX> 33,589,000
<INCOME-TAX> 33,589,000
<INCOME-CONTINUING> 33,589,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,589,000
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 0
</TABLE>
<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> 0000316206
<NAME> STARWOOD LODGING CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 21,616,000
<SECURITIES> 0
<RECEIVABLES> 31,354,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,472,000
<PP&E> 120,750,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 185,192,000
<CURRENT-LIABILITIES> 48,096,000
<BONDS> 0
0
0
<COMMON> 401,000
<OTHER-SE> 22,960,000
<TOTAL-LIABILITY-AND-EQUITY> 185,192,000
<SALES> 408,740,000
<TOTAL-REVENUES> 410,156,000
<CGS> 0
<TOTAL-COSTS> 296,849,000
<OTHER-EXPENSES> 113,182,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,333,000
<INCOME-PRETAX> (7,715,000)
<INCOME-TAX> (7,715,000)
<INCOME-CONTINUING> (7,715,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,077,000
<CHANGES> 0
<NET-INCOME> (6,638,000)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> 0
</TABLE>
