-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R3qdRMiCYYeuFLfzrogj28jKWwDZG/oX5uNqtPv66zgXxrVZuO6bf7xc6HgYnhDS ArtqyELdrWobg9XFInSeVA== 0000950153-96-000586.txt : 19960816 0000950153-96-000586.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950153-96-000586 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: AMEX SROS: BSE SROS: CSX SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STARWOOD LODGING TRUST CENTRAL INDEX KEY: 0000048595 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 520901263 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06828 FILM NUMBER: 96615440 BUSINESS ADDRESS: STREET 1: 11835 W OLYMPIC BLVD STREET 2: SUITE 550 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105753900 MAIL ADDRESS: STREET 1: 11835 W OLYMPIC BLVD STREET 2: SUITE 550 CITY: LOS ANGELES STATE: CA ZIP: 90064 FORMER COMPANY: FORMER CONFORMED NAME: HOTEL INVESTORS TRUST /MD/ DATE OF NAME CHANGE: 19930506 FORMER COMPANY: FORMER CONFORMED NAME: HOTEL INVESTORS TRUST DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: HOTEL INVESTORS DATE OF NAME CHANGE: 19800720 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STARWOOD LODGING CORP CENTRAL INDEX KEY: 0000316206 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 521193298 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07959 FILM NUMBER: 96615441 BUSINESS ADDRESS: STREET 1: 11845 W OLYMPIC BLVD STREET 2: SUITE 560 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105753900 MAIL ADDRESS: STREET 1: 11845 W OLYMPIC BLVD STREET 2: SUITE 560 CITY: LOS ANGELES STATE: CA ZIP: 90064 FORMER COMPANY: FORMER CONFORMED NAME: HOTEL INVESTORS CORP DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q FOR STARWOOD LODGING TRUST & CORPORATION 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [x] Quarterly report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the quarterly period ended June 30, 1996 ---------------------------------- OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the transition period from to --------- ---------
Commission File Number: 1-6828 Commission File Number: 1-7959 STARWOOD LODGING TRUST STARWOOD LODGING CORPORATION (Exact name of registrant as specified in its charter) (Exact name of registrant as specified in its 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 East Camelback Road, Suite 410 2231 East Camelback Road, Suite 400 Phoenix, AZ 85016 Phoenix, AZ 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) (Former name or former address, (Former name or former address, if changed since last report) if changed since last report) 11835 W. Olympic Blvd., Suite 695 11835 W. Olympic Blvd., Suite 675 Los Angeles, California 90064 Los Angeles, California 90064
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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 25,798,886 Shares of Beneficial Interest, par value $0.01 per share, of Starwood Lodging Trust paired with 25,798,886 Shares of Common Stock, par value $0.01 per share, of Starwood Lodging Corporation, outstanding as of August 13, 1996. ================================================================================ 2 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The following financial statements of Starwood Lodging Trust (the "Trust") and Starwood Lodging Corporation (the "Corporation", and collectively, the "Company") are provided pursuant to the requirements of this item. INDEX TO FINANCIAL STATEMENTS Starwood Lodging Trust and Starwood Lodging Corporation: Combined Balance Sheets - As of June 30, 1996 and December 31, 1995 Combined Statements of Operations - For the three and six months ended June 30, 1996 and 1995 Combined Statements of Cash Flows - For the six months ended June 30, 1996 and 1995 Starwood Lodging Trust: Balance Sheets - As of June 30, 1996 and December 31, 1995 Statements of Operations - For the three and six months ended June 30, 1996 and 1995 Statements of Cash Flows - For the six months ended June 30, 1996 and 1995 Starwood Lodging Corporation: Balance Sheets - As of June 30, 1996 and December 31, 1995 Statements of Operations - For the three and six months ended June 30, 1996 and 1995 Statements of Cash Flows - For the six months ended June 30, 1996 and 1995 Notes to Financial Statements Starwood Lodging Trust and Starwood Lodging Corporation: Combined Statement of Operations for the three and six months ended June 30, 1996 and Combined Pro Forma Statement of Operations - for the three and six months ended June 30, 1995 Notes to Unaudited Combined Pro Forma Statements of Operations for the three and six months ended June 30, 1996 - 2 - 3 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION COMBINED BALANCE SHEETS
June 30, December 31, 1996 1995 (Unaudited) ------------- ------------- ASSETS Hotel assets held for sale, net ............................. $ 39,446,000 $ 21,063,000 Hotel assets, net ........................................... 471,800,000 315,895,000 ------------- ------------- 511,246,000 336,958,000 Mortgage notes receivable, net .............................. 59,395,000 79,261,000 Investments ................................................. 46,410,000 2,858,000 ------------- ------------- Total real estate investments .......................... 617,051,000 419,077,000 Cash and cash equivalents ................................... 17,878,000 9,332,000 Accounts and interest receivable ............................ 17,379,000 9,595,000 Notes receivable, net ....................................... 1,768,000 1,796,000 Inventories, prepaid expenses and other assets .............. 29,423,000 20,194,000 ------------- ------------- $ 683,499,000 $ 459,994,000 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Collateralized notes payable and revolving lines of credit .. $ 272,573,000 $ 119,100,000 Mortgage and other notes payable ............................ 1,756,000 4,385,000 Accounts payable and other liabilities ...................... 27,532,000 19,022,000 Dividends/distributions payable ............................. 10,677,000 9,284,000 ------------- ------------- 312,538,000 151,791,000 ------------- ------------- Commitments and contingencies MINORITY INTEREST ........................................... 102,014,000 92,735,000 ------------- ------------- SHAREHOLDERS' EQUITY Trust shares of beneficial interest at June 30, 1996 and December 31, 1995, $.01 par value; authorized 100,000,000 shares; outstanding 15,799,000 shares and 13,799,000 at June 30, 1996 and December 31, 1995, respectively ............................................. 158,000 138,000 Corporation common stock at June 30, 1996 and December 31, 1995, $.01 par value; authorized 100,000,000 shares; outstanding 15,799,000 shares and 13,799,000 at June 30, 1996 and December 31, 1995, respectively ........ 158,000 138,000 Additional paid-in capital .................................. 496,448,000 434,107,000 Distributions in excess of earnings ......................... (227,817,000) (218,915,000) ------------- ------------- 268,947,000 215,468,000 ------------- ------------- $ 683,499,000 $ 459,994,000 ============= =============
See accompanying notes to financial statements. - 3 - 4 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION COMBINED STATEMENTS OF OPERATIONS (Unaudited)
Three months ended June 30, ------------------------------ 1996 1995 ----------- ----------- REVENUE Hotel .................................................... $59,441,000 $26,804,000 Gaming ................................................... 6,914,000 7,147,000 Interest from mortgage and other notes ................... 2,236,000 2,555,000 Income from joint ventures and rents from leased hotel properties .................... 2,079,000 228,000 Other .................................................... 1,179,000 896,000 Loss on sale of real estate assets ....................... (347,000) - ----------- ----------- 71,502,000 37,630,000 ----------- ----------- EXPENSES Hotel operations ......................................... 39,603,000 18,077,000 Gaming operations ........................................ 6,357,000 6,312,000 Interest ................................................. 4,403,000 4,910,000 Depreciation and amortization ............................ 5,792,000 3,322,000 Administrative and operating ............................. 2,992,000 1,382,000 ----------- ----------- 59,147,000 34,003,000 ----------- ----------- Income before extraordinary item and minority interest ... 12,355,000 3,627,000 Minority interest ........................................ 3,834,000 2,649,000 ----------- ----------- Income before extraordinary item.......................... 8,521,000 978,000 Extraordinary item (net of $413,000 minority interest).... 1,077,000 - ----------- ----------- NET INCOME $ 9,598,000 $ 978,000 =========== =========== EARNINGS PER PAIRED SHARE Income before extraordinary item ......................... $ 0.55 $ 0.48 Extraordinary item ....................................... 0.07 - =========== =========== NET INCOME PER PAIRED SHARE $ 0.62 $ 0.48 =========== =========== Weighted average number of paired shares 15,556,000 2,022,000 =========== ===========
See accompanying notes to financial statements. - 4 - 5 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION COMBINED STATEMENTS OF OPERATIONS (Unaudited)
Six months ended June 30, ------------------------------- 1996 1995 ------------ ----------- REVENUE Hotel ..................................................... $103,505,000 $49,585,000 Gaming .................................................... 13,743,000 13,816,000 Interest from mortgage and other notes .................... 4,761,000 5,136,000 Income from joint ventures and rents from leased hotel properties ........................................ 2,673,000 387,000 Other ..................................................... 2,052,000 957,000 Loss on sale of hotel assets .............................. (347,000) (113,000) ------------ ----------- 126,387,000 69,768,000 ------------ ----------- EXPENSES Hotel operations .......................................... 69,653,000 34,357,000 Gaming operations ......................................... 12,192,000 12,333,000 Interest .................................................. 7,626,000 10,737,000 Depreciation and amortization ............................. 13,452,000 6,185,000 Administrative and operating .............................. 5,365,000 2,450,000 ------------ ----------- 108,288,000 66,062,000 ------------ ----------- Income before extraordinary item and minority interest .... 18,099,000 3,706,000 Minority interest ......................................... 5,488,000 2,743,000 ------------ ----------- Income before extraordinary item .......................... 12,611,000 963,000 Extraordinary item (net of $413,000 and $921,000 minority interest in 1996 and 1995, respectively) ................ 1,077,000 363,000 ------------ ----------- NET INCOME $ 13,688,000 $ 1,326,000 ============ =========== EARNINGS PER PAIRED SHARE Income before extraordinary item .......................... $ 0.86 $ 0.48 Extraordinary item ........................................ 0.07 0.18 ============ =========== NET INCOME PER PAIRED SHARE $ 0.93 $ 0.66 ============ =========== Weighted average number of paired shares 14,677,000 2,022,000 ============ ===========
See accompanying notes to financial statements. - 5 - 6 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION COMBINED STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, --------------------------------- 1996 1995 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income ......................................... $ 13,688,000 $ 1,326,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Minority interest ................................ 5,488,000 3,664,000 Extraordinary item ............................... (1,077,000) (1,284,000) Depreciation and amortization .................... 13,452,000 6,185,000 Accretion of discount ............................ (1,560,000) (1,518,000) Deferred interest ................................ - 649,000 Loss on sale of real estate assets ............... 347,000 113,000 Changes in operating assets and liabilities: Accounts receivable, inventories, prepaid expenses and other assets ...................... (16,056,000) (9,773,000) Accounts payable and other liabilities ........... 7,748,000 1,747,000 ------------ ------------ Net cash provided by operating activities .... 22,030,000 1,109,000 CASH FLOWS FROM INVESTING ACTIVITIES Additions to hotel assets .......................... (151,552,000) (12,421,000) Purchase of investments ............................ (44,007,000) - Decrease in investments ............................ 455,000 - Net proceeds from sale of hotel assets ............. 3,684,000 - Increase in mortgage notes receivable .............. (20,114,000) - Principal received on mortgage and other notes receivable ............................... 2,571,000 2,322,000 Reorganization costs ............................... (2,786,000) ------------ ------------ Net cash used in financing activities ........ (208,963,000) (12,885,000) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on mortgage and other notes payable ................................. (2,990,000) (33,679,000) Borrowings under secured notes payable, net ........ 153,473,000 27,156,000 Borrowings under mortgage and other notes .......... 434,000 9,977,000 Capital contributions, net ......................... 1,728,000 14,860,000 Proceeds from equity offerings ..................... 62,363,000 - Dividends/distributions paid ....................... (19,529,000) - Purchase of warrants ............................... - (1,300,000) ------------ ------------ Net cash provided by financing activities .... 195,479,000 17,014,000 ------------ ------------ INCREASE IN CASH AND CASH EQUIVALENTS .............. 8,546,000 5,238,000 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........................... 9,332,000 5,065,000 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................. $ 17,878,000 $ 10,303,000 ============ ============
See accompanying notes to financial statements. - 6 - 7 STARWOOD LODGING TRUST BALANCE SHEETS
June 30, December 31, 1996 1995 (Unaudited) ------------- ------------- ASSETS Hotel assets held for sale, net .............................. $ 36,324,000 $ 20,547,000 Hotel assets, net ............................................ 365,498,000 221,063,000 ------------- ------------- 401,822,000 241,610,000 Mortgage notes receivable, net ............................... 59,395,000 79,261,000 Mortgage notes receivable, Corporation ....................... 87,655,000 68,486,000 Investments .................................................. 45,884,000 2,841,000 ------------- ------------- Total real estate investments .......................... 594,756,000 392,198,000 Cash and cash equivalents .................................... 7,340,000 710,000 Rent and interest receivable ................................ 1,953,000 1,841,000 Notes receivable, net ........................................ 1,219,000 1,232,000 Notes receivable, Corporation ................................ 13,555,000 17,978,000 Prepaid expenses and other assets ............................ 19,992,000 11,778,000 ------------- ------------- $ 638,815,000 $ 425,737,000 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Collateralized notes payable and revolving line of credit .... $ 272,573,000 $ 119,100,000 Mortgage and other notes payable ............................. 100,000 100,000 Accounts payable and other liabilities ....................... 4,511,000 4,412,000 Dividends/Distributions payable .............................. 10,677,000 9,284,000 ------------- ------------- 287,861,000 132,896,000 ------------- ------------- Commitments and contingencies MINORITY INTEREST ............................................ 96,512,000 88,113,000 ------------- ------------- SHAREHOLDERS' EQUITY Trust shares of beneficial interest at June 30, 1996 and December 31, 1995, $.01 par value; authorized 100,000,000 shares; outstanding 15,799,000 shares and 13,799,000 at June 30, 1996 and December 31, 1995, respectively ........................................ 158,000 138,000 Additional paid-in capital ................................... 413,962,000 354,619,000 Distributions in excess of earnings .......................... (159,678,000) (150,029,000) ------------- ------------- 254,442,000 204,728,000 ------------- ------------- $ 638,815,000 $ 425,737,000 ============= =============
See accompanying notes to financial statements. - 7 - 8 STARWOOD LODGING TRUST STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended June 30, ------------------------------ 1996 1995 ----------- ----------- REVENUE Rents from Corporation .................................. $11,750,000 $ 5,805,000 Interest from Corporation ............................... 1,915,000 802,000 Interest from mortgage and other notes .................. 2,192,000 2,547,000 Income from joint venture and rents from other leased hotel properties ........................ 874,000 228,000 Other income ............................................ 667,000 66,000 Loss on sale of real estate assets ...................... (347,000) - ----------- ----------- 17,051,000 9,448,000 ----------- ----------- EXPENSES Interest ................................................ 4,271,000 4,599,000 Depreciation and amortization ........................... 3,492,000 2,227,000 Administrative and operating ............................ 1,542,000 418,000 ----------- ----------- 9,305,000 7,244,000 ----------- ----------- Income before minority interest ......................... 7,746,000 2,204,000 Minority interest ....................................... 2,146,000 1,644,000 ----------- ----------- NET INCOME $ 5,600,000 $ 560,000 =========== =========== NET INCOME PER SHARE $ 0.35 $ 0.28 =========== ===========
See accompanying notes to financial statements. - 8 - 9 STARWOOD LODGING TRUST STATEMENTS OF OPERATIONS (Unaudited)
Six Months Ended June 30, ------------------------------------- 1996 1995 -------------- --------------- REVENUE Rents from Corporation .................................... $ 23,254,000 $ 10,968,000 Interest from Corporation ................................. 4,103,000 1,569,000 Interest from mortgage and other notes .................... 4,696,000 5,113,000 Income from joint venture and rents from other leased hotel properties ........................... 2,230,000 387,000 Other ..................................................... 1,073,000 100,000 Loss on sale of real estate assets ........................ (347,000) (113,000) ------------ ------------ 35,009,000 18,024,000 ------------ ------------ EXPENSES Interest .................................................. 7,439,000 10,108,000 Depreciation and amortization ............................. 6,878,000 3,918,000 Administrative and operating .............................. 2,730,000 773,000 ------------ ------------ 17,047,000 14,799,000 ------------ ------------ Income before extraordinary item and minority interest ... 17,962,000 3,225,000 Minority interest ......................................... 5,220,000 2,376,000 ------------ ------------ Income before extraordinary item .......................... 12,742,000 849,000 Extraordinary item (net of $ 921,000 minority interest) ... - 363,000 ------------ ------------ NET INCOME $ 12,742,000 $ 1,212,000 ============ ============ EARNINGS PER PAIRED SHARE Income before extraordinary item .......................... $ 0.87 $ 0.42 Extraordinary item ........................................ - 0.18 ------------ ------------ NET INCOME PER SHARE $ 0.87 $ 0.60 ============ ============
See accompanying notes to financial statements. - 9 - 10 STARWOOD LODGING TRUST STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, -------------------------------- 1996 1995 ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income ................................................. $ 12,742,000 $ 1,212,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Minority interest ........................................ 5,220,000 3,297,000 Extraordinary item ....................................... - (1,284,000) Depreciation and amortization ............................ 6,878,000 3,918,000 Accretion of discount .................................... (1,560,000) (1,518,000) Deferred interest......................................... - 649,000 Deferred interest - Corporation .......................... 1,607,000 (939,000) Loss on sale of real estate assets ....................... 347,000 113,000 Changes in operating assets and liabilities: Accounts receivable, prepaid expenses and other assets ... (7,369,000) (7,125,000) Accounts payable and other liabilities ................... 99,000 (1,781,000) ------------- ----------- Net cash provided by operating activities ............ 17,964,000 104,000 ------------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to hotel assets .................................. (171,563,000) (11,835,000) Purchase of investments .................................... 964,000 - Net proceeds from sale of hotel assets ..................... 3,684,000 - Increase in mortgage notes receivable....................... (17,000,000) - Increase in mortgage notes receivable, Corporation ......... (20,113,000) - Principal received on mortgage and other notes receivable .. 2,555,000 2,294,000 Reorganization costs ....................................... - (1,393,000) Net changes in notes receivable, Corporation ............... (4,878,000) (1,673,000) ------------- ----------- Net cash used in investing activities ................ (206,351,000) (12,607,000) ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings under lines of credit ........................... 155,060,000 27,156,000 Principal payments on mortgage and other notes payable ..... (1,587,000) (33,175,000) Borrowings under mortgage and other notes .................. - 9,977,000 Purchase of warrants ....................................... - (1,235,000) Capital contributions ...................................... 1,829,000 11,968,000 Proceeds from equity offering .............................. 59,244,000 - Dividends/distributions paid ............................... (19,529,000) - ------------- ----------- Net cash provided by financing activities ............ 195,017,000 14,691,000 ------------- ----------- INCREASE IN CASH AND CASH EQUIVALENTS ......................................... 6,630,000 2,188,000 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................................... 710,000 255,000 ------------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ......................................... $ 7,340,000 $ 2,443,000 ============= ===========
See accompanying notes to financial statements. - 10 - 11 STARWOOD LODGING CORPORATION BALANCE SHEETS
June 30, December 31, 1996 1995 (Unaudited) ------------ ------------ ASSETS Hotel assets held for sale, net .......................... $ 3,122,000 $ 516,000 Hotel assets, net ........................................ 106,302,000 94,832,000 ------------ ------------ 109,424,000 95,348,000 Investments .............................................. 526,000 17,000 ------------ ------------ Total real estate investments ...................... 109,950,000 95,365,000 Cash and cash equivalents ................................ 10,538,000 8,622,000 Accounts receivable ...................................... 15,426,000 7,754,000 Notes receivable ......................................... 549,000 564,000 Inventories, prepaid expenses and other assets ........... 9,431,000 8,416,000 ------------ ------------ $145,894,000 $120,721,000 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Mortgage and other notes payable ......................... $ 1,656,000 $ 4,285,000 Mortgage notes payable, Trust ............................ 87,655,000 68,486,000 Notes payable, Trust ..................................... 13,555,000 17,978,000 Accounts payable and other liabilities ................... 23,021,000 14,610,000 ------------ ------------ 125,887,000 105,359,000 ------------ ------------ Commitments and contingencies MINORITY INTEREST ........................................ 5,502,000 4,622,000 ------------ ------------ SHAREHOLDERS' EQUITY Corporation common stock at June 30, 1996 and December 31, 1995, $.01 par value; authorized 100,000,000 shares; outstanding 15,799,000 shares and 13,799,000 at June 30, 1996 and December 31, 1995, respectively... 158,000 138,000 Additional paid-in capital ............................... 82,486,000 79,488,000 Distributions in excess of earnings ...................... (68,139,000) (68,886,000) ------------ ------------ 14,505,000 10,740,000 ------------ ------------ $145,894,000 $120,721,000 ============ ============
See accompanying notes to financial statements. - 11 - 12 STARWOOD LODGING CORPORATION STATEMENTS OF OPERATIONS (Unaudited)
Three months ended June 30, ----------------------------- 1996 1995 ----------- ----------- REVENUE Hotel .................................................... $59,441,000 $26,804,000 Gaming ................................................... 6,914,000 7,147,000 Income from joint venture ................................ 1,205,000 - Interest from notes receivable ........................... 44,000 8,000 Management fees and other income ......................... 512,000 830,000 ----------- ----------- 68,116,000 34,789,000 ----------- ----------- EXPENSES Hotel operations ......................................... 39,603,000 18,077,000 Gaming operations ........................................ 6,357,000 6,312,000 Rent, Trust .............................................. 11,750,000 5,805,000 Interest, Trust .......................................... 1,915,000 802,000 Interest, other .......................................... 132,000 311,000 Depreciation and amortization ............................ 2,300,000 1,095,000 Administrative and operating ............................. 1,450,000 964,000 ----------- ----------- 63,507,000 33,336,000 ----------- ----------- Income before minority interest .......................... 4,609,000 1,423,000 Minority interest ........................................ 1,688,000 1,005,000 ----------- ----------- Income before extraordinary items ........................ 2,921,000 418,000 Extraordinary item (net of $413,000 minority interest) ... 1,077,000 ----------- ----------- NET INCOME $ 3,998,000 $ 418,000 =========== =========== NET INCOME PER SHARE $ 0.26 $ 0.21 =========== ===========
See accompanying notes to financial statements. - 12 - 13 STARWOOD LODGING CORPORATION STATEMENTS OF OPERATIONS (Unaudited)
Six months ended June 30, ------------------------------- 1996 1995 ------------ ----------- REVENUE Hotel ..................................................... $103,505,000 $49,585,000 Gaming .................................................... 13,743,000 13,816,000 Income from joint venture ................................. 443,000 - Interest from notes receivable ............................ 65,000 23,000 Management fees and other income .......................... 979,000 857,000 ------------ ----------- 118,735,000 64,281,000 ------------ ----------- EXPENSES Hotel operations .......................................... 69,653,000 34,357,000 Gaming operations ......................................... 12,192,000 12,333,000 Rent, Trust ............................................... 23,254,000 10,968,000 Interest, Trust ........................................... 4,103,000 1,569,000 Interest, other ........................................... 187,000 629,000 Depreciation and amortization ............................. 6,574,000 2,267,000 Administrative and operating .............................. 2,635,000 1,677,000 ------------ ----------- 118,598,000 63,800,000 ------------ ----------- Income before minority interest ........................... 137,000 481,000 Minority interest ......................................... 268,000 367,000 ------------ ----------- Income (loss) before extraordinary item ................... (131,000) 114,000 Extraordinary item (net of $413,000 minority interest) .... 1,077,000 - ------------ ----------- NET INCOME $ 946,000 $ 114,000 ============ =========== NET INCOME PER SHARE $ 0.06 $ 0.06 ============ ===========
See accompanying notes to financial statements. - 13 - 14 STARWOOD LODGING CORPORATION STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, -------------------------------- 1996 1995 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income ......................................... $ 946,000 $ 114,000 Extraordinary item.................................. (1,077,000) - Adjustments to reconcile net income to net cash provided by operating activities: Minority interest ................................ 268,000 367,000 Depreciation and amortization .................... 6,574,000 2,267,000 Deferred interest - Trust ........................ (1,607,000) 939,000 Changes in operating assets and liabilities: Accounts receivable inventories, prepaid expenses and other assets ...................... (8,687,000) (2,648,000) Accounts payable and other liabilities ........... 7,649,000 (34,000) ------------ ------------ Net cash provided by operating activities .... 4,066,000 1,005,000 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Additions to hotel assets .......................... (23,996,000) (586,000) Increase in investments ............................ (509,000) - Principal received on notes receivable ............. 15,000 28,000 Reorganization costs ............................... - (1,393,000) ------------ ------------ Net cash used in investing activities ........ (24,490,000) (1,951,000) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Net change in notes payable - Trust ................ 4,878,000 1,673,000 Increase in mortgage notes payable - Trust ......... 17,468,000 - Principal payments on mortgage and other notes payable .......................................... (3,024,000) (504,000) Capital contributions (adjustments) ................ (101,000) 2,892,000 Proceeds from offering.............................. 3,119,000 Purchase of Warrants................................ - (65,000) ------------ ------------ Net cash provided by financing activities .... 22,340,000 3,996,000 ------------ ------------ INCREASE IN CASH AND CASH EQUIVALENTS .............. 1,916,000 3,050,000 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ... 8,622,000 4,810,000 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD ......... $ 10,538,000 $ 7,860,000 ============ ============
See accompanying notes to financial statements. - 14 - 15 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION NOTES TO FINANCIAL STATEMENTS NOTE 1. INTERIM FINANCIAL STATEMENTS The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q which mandate adherence to Rule 10-01 of Regulation S-X. Accordingly, these statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management of the Trust and the Corporation, all adjustments necessary for a fair presentation, consisting only of normal recurring accruals, have been included. The financial statements presented herein have been prepared in accordance with the accounting policies described in the Registrants' Joint Annual Report on Form 10-K/A for the year ended December 31, 1995 and should be read in conjunction therewith. NOTE 2. BASIS OF PRESENTATION The Trust and the Corporation have unilateral control of SLT Realty Limited Partnership ("Realty") and SLC Operating Limited Partnership ("Operating"), respectively, and therefore, the historical financial statements of Realty and Operating are consolidated with those of the Trust and the Corporation, respectively. Paired share information has been adjusted to reflect a one-for-six reverse stock split effective June 19, 1995. NOTE 3. HOTEL ASSETS On January 4, 1996, the Company completed the purchase of the equity in the Grand Hotel, a 263-room luxury hotel, located in Washington, D.C., for an additional $13.5 million. The Company had purchased a mortgage interest in the hotel in September 1995 for $19.5 million. On March 22, 1996, the Company acquired the 257-room Midland Hotel, located in Chicago, Illinois, for $21 million in cash. On April 24, 1996, the Company completed the acquisition of the 442-room Clarion hotel, located at the San Francisco Airport, in Millbrae, California for approximately $30.5 million in cash. On April 26, 1996, the Company completed the acquisition of three Doubletree Guest Suite hotels, consisting of 822 suites, located in Irving, Texas; Ft. Lauderdale, Florida; and Tampa, Florida for approximately $75 million in cash. - 15 - 16 The Company, in June 1996, acquired the 251-suite Doubletree Guest Suites hotel and the 177-room Days Inn, both located at the Philadelphia Airport in Philadelphia, Pennsylvania. The aggregate purchase price for both properties, inclusive of $2 million in cash reserves was approximately $22.5 million including $1.8 million in limited partnership units in Realty and Operating convertible into paired shares. NOTE 4. OFFERING On April 12, 1996, the Company completed a public offering of 2,000,000 paired shares (the "April 1996 Offering"). Net proceeds from the April 1996 Offering of approximately $62.4 million were used, in part, to fund the acquisitions of the 442-room Clarion Hotel located at the San Francisco Airport (acquired on April 24, 1996) and the Doubletree Guest Suite hotels located in Irving, Texas; Ft. Lauderdale, Florida; and Tampa, Florida (all three properties were acquired on April 26, 1996). NOTE 5. INVESTMENTS On January 24, 1996, the Company completed the acquisition of an interest in the 960-room Boston Park Plaza Hotel Complex in Boston, Massachusetts. The Company formed two limited liability companies in partnership with Donald Saunders Family L.L.C. ("Saunders"). The Trust contributed approximately $41.6 million in exchange for a 58.2% interest in each of the limited liability companies, while Saunders contributed its existing interest in the asset for the remaining 42.8% interest in each of the limited liability companies. The Company has accounted for this transaction under the equity method of accounting. NOTE 6. HOTEL ASSETS HELD FOR SALE At June 30, 1996, the Company's portfolio included six hotel properties which were held for sale. The six properties include the 300-room King 8 Hotel & Gambling Hall in Las Vegas, Nevada, the 150-room Bourbon Street Hotel and Casino in Las Vegas, Nevada, the 151-room Bay Valley resort in Bay City, Michigan, the 166-room Best Western in Las Cruces, New Mexico, the 175-room Best Western Airport in El Paso, Texas and the 142-room Best Western in Savannah, Georgia. During the quarter ended June 30, 1996 the Company sold the Best Western Columbus North in Columbus, Ohio for approximately $3.1 million. NOTE 7. INTEREST RATE HEDGING AGREEMENTS On January 17, 1996, the Trust entered into two interest rate hedging agreements known as Treasury locks, which have the effect of fixing the base rate of interest at 5.7% for debt the Company intends 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. 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 - 16 - 17 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 October of 1996, with a term to maturity of seven years, no such gain or loss is anticipated. NOTE 8. SUBSEQUENT EVENTS On May 14, 1996, the Company announced that they had entered into an agreement to acquire a portfolio of eight upscale and luxury full-service hotels including: the 290-room Ritz Carlton in Philadelphia, Pennsylvania; the 373-room Ritz Carlton in Kansas City, Missouri; the 347-room Westin Hotel in Waltham, Massachusetts; the 370-room Doubletree Hotel at Concourse in Atlanta, Georgia; the 739-room Doubletree Hotel LAX in Los Angeles, California; the 450-room Doubletree Hotel at Horton Plaza in San Diego, California; the 321-room Doubletree Grand Hotel at Mall of America, Bloomington, Minnesota; and the 251-room Sheraton Ft. Lauderdale Airport Hotel in Dania, Florida (collectively, the "Teachers Portfolio"), from Teachers Insurance and Annuity Association for an aggregate purchase price of approximately $309 million in cash. The purchase was completed on August 12, 1996. On July 3, 1996, the Company announced that they had entered into an agreement to acquire nine mid- and up-scale, full-service hotels from Hotels of Distinction Ventures, Inc. for an aggregate purchase price of $135 million in cash. The portfolio consists of the 257-room Marque in Atlanta, Georgia; the 247-room Sheraton in Needham, Massachusetts; the 198-room Embassy Suites in Palm Desert, California; the 297-room Embassy Suites in St. Louis, Missouri; the 215-room Hotel Park in Tucson, Arizona; the 254-room Sheraton Metrodome in Minneapolis, Minnesota; the 422-room Arlington Park Hilton in Arlington Heights, Illinois; the 224-room Hilton Hotel in Allentown, Pennsylvania; and the 293-room Radisson Marque in Winston-Salem, North Carolina (collectively, the "HOD Portfolio"). The Company entered into a definitive agreement to purchase the HOD portfolio and expects to complete the acquisition in August, 1996. On August 7, 1996, the Trust entered into an interest hedging agreement known as a Treasury lock. The Trust entered into the agreement to eliminate exposure to fluctuations in ten year interest rates. The agreement is with a large financial institution and has the effect of fixing a base rate (6.67 percent) at which the Trust can issue debt with a principal amount of $150 million and a term of ten years. The agreement extends until March 1997 at which time the difference between the current market rate and the base rate will be determined. The resulting impact on interest over the term of the debt will be calculated and the Trust will accordingly pay or receive an amount equal to the calculation. Such amount will be capitalized and amortized over the term of the debt. If the Trust did not issue any such debt, such amount would still be payable or receivable and would be treated as a loss or gain, accordingly. On August 12, 1996, the Company completed a public offering of 10,000,000 paired shares (the "August 1996 Offering"). Net proceeds from the August 1996 Offering of approximately $338.0 million were used to fund the acquisition costs of the Teachers Portfolio and the balance is expected to be used to fund a portion of the acquisition cost of the HOD Portfolio. - 17 - 18 NOTE 9. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In March and October 1995, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to be Disposed Of" and No. 123 "Accounting for Stock-Based Compensation", respectively. These statements shall be effective for financial statements for fiscal years beginning after December 15, 1995. Management believes that adoption of Standard No. 121 will not have a material effect on its financial position or results of operations. Management intends to adopt the disclosure method of Standard No. 123 and, accordingly, there will be no impact on the Company's financial position or results of operations. - 18 - 19 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION UNAUDITED COMBINED STATEMENTS OF OPERATIONS
Three months ended June 30, -------------------------------- Pro Forma 1996 1995 ------------ ------------ REVENUE Hotel ............................................ $ 59,441,000 $ 32,670,000 Gaming ........................................... 6,914,000 7,147,000 Interest from mortgage and other notes ........... 2,236,000 2,555,000 Income from joint ventures and rents from leased hotel properties ............................... 2,079,000 228,000 Management fees and other income ................. 1,179,000 896,000 Loss on sale of hotel assets ..................... (347,000) ------------ ------------ 71,502,000 43,496,000 ------------ ------------ EXPENSES Hotel operations ................................. 39,603,000 21,972,000 Gaming operations ................................ 6,357,000 6,312,000 Interest ......................................... 4,403,000 270,000 Depreciation and amortization .................... 5,792,000 4,664,000 Administrative and operating ..................... 2,992,000 1,356,000 ------------ ------------ 59,147,000 34,574,000 ------------ ------------ Income from operations before minority interest .. 12,355,000 8,922,000 Minority interest in Partnerships ................ 3,834,000 2,685,000 ------------ ------------ Income from operations ........................... $ 8,521,000 $ 6,237,000 ============ ============ Income from operations per paired share .......... $ 0.55 $ 0.45 ============ ============
See accompanying notes to the pro forma statements of operations. - 19 - 20 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION UNAUDITED COMBINED STATEMENTS OF OPERATIONS
Six months ended June 30, --------------------------------- Pro Forma 1996 1995 ------------- ------------- REVENUE Hotel ............................................ $ 103,505,000 $ 63,578,000 Gaming ........................................... 13,743,000 13,816,000 Interest from mortgage and other notes ........... 4,761,000 5,136,000 Income from joint ventures and rents from leased hotel properties ................... 2,673,000 387,000 Management fees and other income ................. 2,052,000 957,000 Loss on sale of hotel assets ..................... (347,000) (113,000) ------------- ------------- 126,387,000 83,761,000 ------------- ------------- EXPENSES Hotel operations ................................. 69,653,000 43,296,000 Gaming operations ................................ 12,192,000 12,333,000 Interest ......................................... 7,626,000 539,000 Depreciation and amortization .................... 13,452,000 9,090,000 Administrative and operating ..................... 5,365,000 2,460,000 ------------- ------------- 108,288,000 67,718,000 ------------- ------------- Income from operations before minority interest .. 18,099,000 16,043,000 Minority interest in Partnerships ................ 5,488,000 4,827,000 ------------- ------------- Income form operations ........................... $ 12,611,000 $ 11,216,000 ============= ============= Income from operations per paired share .......... $ 0.86 $ 0.81 ============= =============
See accompanying notes to the pro forma statements of operations. - 20 - 21 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION NOTES TO THE UNAUDITED COMBINED PRO FORMA STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1995 NOTE 1. BASIS OF PRESENTATION The Trust and the Corporation (collectively, the "Company") have unilateral control of SLT Realty Limited Partnership ("Realty") and SLC Operating Limited Partnership ("Operating" and, together with Realty the "Partnerships"), respectively, and, therefore, the historical financial statements of Realty and Operating are consolidated with those of the Trust and the Corporation. Unless the context otherwise requires, all references herein to 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 and those entities respectively owned or controlled by the Trust or the Corporation, including Realty and Operating. Due to the impact of certain events which occurred in 1995, the historical results of operations and earnings per share for the three and six months ended June 30, 1995 are not indicative of subsequent and future results of operations and earnings per share. The Unaudited Combined Pro Forma Statements of Operations included as part of the financial statements for the three and six months ended June 30, 1996 give effect, as of the beginning of the period presented, to the following: the public offering on July 6, 1995 (the "1995 Offering") by the Trust and the Corporation of 11,787,500 paired shares raising net proceeds of approximately $245.7 million; the acquisition of the 462-room Sheraton Colony Square in Atlanta, Georgia; the acquisition of the 224-room Embassy Suites in Tempe, Arizona; the acquisition of the 168-room Omni hotel in Chapel Hill, North Carolina. The pro forma information is based upon historical information and does not purport to present what actual results would have been had such transactions, in fact, occurred at the beginning of the period presented, or to project results for any future period. NOTE 2. NET INCOME PER PAIRED SHARE Net income per paired share has been computed using the pro forma weighted average number of paired shares and equivalent paired shares outstanding for each period presented. - 21 - 22 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management's Discussion and Analysis should be read in conjunction with the Management's Discussion and Analysis included in the Company's Joint Annual Report on Form 10-K/A for the year ended December 31, 1995. HISTORICAL RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 The following discussion and analysis of the historical results of operations for the three and six months ended June 30,1996 and 1995 give effect to transactions on the actual date they were consummated. THE TRUST: Rents from the Corporation, which are based in part on hotel revenues, increased $5.9 million and $12.3 million for the three and six months ended June 30, 1996, respectively as compared to the corresponding periods of 1995. The increase was primarily the result of rents earned by Realty on 12 hotels acquired during the twelve months ended June 30, 1996. The investment in 12 hotels (the 462-room Sheraton Colony Square and the 224-room Embassy Suites Tempe acquired in July 1995; the 652-room Doral Inn acquired in September 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 DC acquired in January 1996; the 442-room Clarion Hotel, and the three Doubletree Guest Suites hotels (822 suites) acquired in April, 1996; and the 251-suite Doubletree Guest Suites hotel acquired in June, 1996) accounted for increased rents of $5.4 million and $10.7 million for the three and six months ended June 30, 1996, respectively, as compared to the corresponding periods in 1995. In addition, rents earned by the Trust from continuously owned properties leased by the Corporation increased by $500,000 and $1.6 million for the three and six months ended June 30, 1996, respectively, as compared to the corresponding periods in 1995. Interest from the Corporation increased by $1.1 million and $2.5 million for the three and six months ended June 30, 1996, respectively, as compared to the corresponding periods of 1995. The increase in interest income was primarily a result of interest on the first mortgage of the Milwaukee Marriott Hotel which was purchased by Realty in July 1995. Interest from mortgage and other notes amounted to $2.2 million and $4.7 million for the three and six months ended June 30, 1996, respectively, as compared to $2.5 million and $5.1 million, respectively for the corresponding periods in 1995. The decrease resulted from principal amortization. - 22 - 23 Income from joint ventures and rents from other leased hotel properties increased by $646,000 and $1.8 million for the three and six months ended June 30, 1996, respectively as compared to the corresponding periods in 1995. The increase primarily resulted from the Trust's 58.2% investment in the 960-room Boston Park Plaza. Other income for the six months ended June 30, 1996 includes a $314,000 gain (net of related expenses) realized in connection with the sale of securities, which were purchased in pursuit of certain properties. Also included in other income is $314,500 recorded as a result of the Ross Litigation settlement (see Item I of Part II). Interest expense decreased by $328,000 and $2.7 million for the three and six months ended June 30, 1996, respectively as compared to the corresponding periods of 1995. The decrease was due to the repayment of approximately $206.5 million of existing indebtedness in connection with the 1995 Offering offset by borrowings under the lines of credit used to acquire the above mentioned properties. Depreciation and amortization expense increased by $1.3 million and $3.0 million during the three and six months ended June 30, 1996, respectively as compared to the corresponding periods of 1995, principally due to the above mentioned property acquisitions and to the amortization of financing costs. Administrative and operating expenses for the three and six months ended June 30, 1996 increased by $1.1 million and $2.0 million, respectively to $1.5 million and $2.7 million as compared to $418,000 and $773,000, respectively for the corresponding periods of 1995. The increase resulted primarily from 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. Administrative and operating expenses includes a payment of $228,000 to Jeffrey C. Lapin, the former President and COO of the Trust pursuant to his separation agreement. Minority interest represents primarily the interest of Starwood Capital in the Realty Partnership for the three and six months ended June 30, 1996. THE CORPORATION: Hotel revenues increased by $32.6 million and $53.9 million for the three and six months ended June 30, 1996, respectively as compared to the corresponding periods of 1995. The addition of the 12 acquired properties as discussed above and the addition of the 257-room Midland hotel in Chicago, Illinois resulted in increases in hotel revenues of $32.0 million and $50.0 million for the three and six months ended June 30, 1996, respectively. The remaining increase of $600,000 and $3.9 million for the three and six months ended June 30, 1996, respectively is attributable to other continuously owned properties. - 23 - 24 Hotel gross margin for the second quarter of 1996 was $19.8 million, or 33.4% of hotel revenues, as compared to $8.7 million, or 32.6% of hotel revenues, for the second quarter of 1995. Hotel gross margin for the six months ended June 30, 1996 was $33.9 million, or 32.7% of hotel revenues, as compared to $15.2 million, or 30.7% of hotel revenues, for the corresponding period in 1995. The increases in gross margin were primarily due to increases in REVPAR and the termination of third-party management agreements. Gaming revenues for the second quarter of 1996 as compared to the corresponding period of 1995 decreased by $233,000 to $6.9 million. Gaming revenues for the six months ended June 30, 1996 as compared to the corresponding period of 1995 decreased by $73,000 to $13.7 million. Gaming gross margin for the second quarter of 1996 was $557,000 or 8.1% of gaming revenues, as compared to $835,000 or 11.7% of gaming revenues, for the second quarter of 1995. Gaming gross margin for the six months ended June 30, 1996 was $1.6 million or 11.3% of gaming revenues, as compared to $1.5 million or 10.7% of gaming revenues, for the corresponding period in 1995. Management fees and other income for the six months ended June 30, 1996 includes $314,500 recorded as a result of the Ross Litigation settlement (see Item I of Part II) and $399,000 of management fee income from the joint venture that owns the Boston Park Plaza hotel. Income from joint venture represents income, after rents to the Trust, from the Corporation's 58.2% investment in the 960-room Boston Park Plaza. Administrative and operating expenses for the three and six months ended June 30, 1996, increased by $486,000 to $1.5 million or 2.1% of revenues and by $958,000 to $2.6 million or 2.2% of revenues, respectively, as compared to $964,000 or 2.8% of revenues and $1.7 million or 2.6% of revenues, respectively, for the corresponding periods of 1995. The increases were primarily a result of increases in payroll costs commensurate with the Company's growth, as well as the assumption of management of hotels previously provided by third-party operators. Depreciation and amortization expense increased by $1.2 million and $4.3 million for the three and six months ended June 30, 1996, respectively, as compared to the corresponding periods of 1995. The increases were primarily a result of depreciation on the hotels acquired, as discussed above. Minority interest represents primarily the interest of Starwood Capital in the Operating Partnership for the three and six months ended June 30, 1996. For information with respect to rent and interest to the Trust during the three and six months ended June 30, 1996 and 1995, see "Trust" immediately above. - 24 - 25 COMBINED HISTORICAL RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND COMBINED PRO FORMA RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1995 INCOME FROM OPERATIONS Combined income from operations for the second quarter of 1996 was $8.5 million, or $0.55 per paired share, on combined revenues of $71.5 million, compared to combined pro forma income from operations of $6.2 million, or $0.45 per paired share, on combined revenues of $43.5 million for the corresponding period in 1995. Combined income from operations for the six months ended June 30, 1996 was $12.6 million, or $0.86 per paired share, on combined revenues of $126.4 million, compared to combined pro forma net income of $11.2 million, or $0.81 per paired share, on combined revenues of $83.8 million for the corresponding period in 1995. INTERNAL GROWTH On a same-store-sales basis, including all hotels acquired prior to June 30, 1996, revenues per available room (REVPAR) for the second quarter of 1996 increased 9.7%, from $59.07 to $64.81 over the same period in 1995. The increase in REVPAR resulted from an increase in average daily rate (ADR) of 9.5%, from $78.79 to $86.28, with the occupancy rate remaining constant. On a same-store-sales basis, including all hotels acquired prior to June 30, 1996, revenues per available room (REVPAR) for the six months ended June 30, 1996 increased 9.6%, from $54.34 to $59.54 over the same period in 1995. The increase in REVPAR resulted from an increase in average daily rate (ADR) of 8.7%, from $77.58 to $84.35 and a one percentage point increase in occupancy rates from 70% to 71%. The overall increase in REVPAR for the second quarter and six months ended June 30, 1996 was largely attributable to the strong increase in REVPAR at the Company's upscale market hotels. These hotels experienced an increase in REVPAR of 11.0% and 10.6% for the second quarter and six months ended June 30, 1996, respectively, as compared to the corresponding periods of 1995. ADR for the Company's upscale hotels increased 8.1% and 8.1%, for both the second quarter and the six months ended June 30, 1996, respectively, as compared to the corresponding periods of 1995. Management believes that ADR increases, particularly in the upscale segment, reflect increases in demand which continue to outpace increases in supply. The following tables summarize average occupancy, ADR and REVPAR on a year-over-year basis for the Company's owned and operated, nongaming hotels for the three and six months ended June 30, 1996 and 1995: - 25 - 26
Three Months Ended June 30, ------------------------------- All Nongaming Hotels: 1996 1995 - -------------------- ---- ---- Occupancy rate ............................. 75.1% 75.0% ADR......................................... $86.28 $78.79 REVPAR...................................... $64.81 $59.07 REVPAR % change 9.7% Six Months Ended June 30, ------------------------------- All Nongaming Hotels: 1996 1995 - -------------------- ---- ---- Occupancy rate ............................. 70.6% 70.0% ADR......................................... $84.35 $77.58 REVPAR...................................... $59.54 $54.34 REVPAR % change 9.6% Three Months Ended June 30, ------------------------------- Upscale Hotels: 1996 1995 - -------------- ---- ---- Occupancy rate ............................. 78.0% 76.0% ADR......................................... $95.98 $88.75 REVPAR...................................... $74.87 $67.43 REVPAR % change 11.0% Six Months Ended June 30, ------------------------------- Upscale Hotels: 1996 1995 - -------------- ---- ---- Occupancy rate ............................. 72.5% 70.9% ADR......................................... $90.47 $83.71 REVPAR...................................... $65.59 $59.33 REVPAR % change 10.6% Three Months Ended June 30, ------------------------------- Midscale/Economy Hotels: 1996 1995 - ------------------------ ---- ---- Occupancy rate ............................. 69.1% 72.9% ADR......................................... $63.52 $57.80 REVPAR...................................... $43.89 $42.16 REVPAR % change 4.1% Six Months Ended June 30, ------------------------------- Midscale/Economy Hotels: 1996 1995 - ------------------------ ---- ---- Occupancy rate ............................. 67.1% 68.6% ADR......................................... $72.38 $66.27 REVPAR...................................... $48.59 $45.43 REVPAR % change 6.9%
Management believes that the increases in REVPAR resulted primarily from increases in demand due to more favorable economic conditions which have created increased business and leisure travel throughout the United States, while the supply of hotel rooms has not increased as rapidly. Revenue increases were greatest at the recently acquired city center properties in Atlanta, Boston, Chicago, New York, and Washington. REVPAR declined at the Portland Riverside Inn as a result of the impact of renovations completed in the second quarter of 1996. - 26 - 27 In addition, REVPAR at the Terrace Garden Inn and Dallas Park Central declined as a result of renovations undertaken during the second quarter of 1996. Management believes that there are several important factors that have contributed to the improved profitability of hotel properties, including increased occupancy and 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. Consequently, primarily as a result of the stronger growth in ADR than in occupancy, gross margins for the second quarter of 1996 rose to 33.4% from 32.6% in the corresponding quarter in 1995 and rose to 32.7% for the six months ended June 30, 1996 from 30.7% in the corresponding period in 1995. EXTERNAL GROWTH During the six months ended June 30, 1996, the Company acquired the equity of 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 located at the San Francisco Airport, in Millbrae California (April 1996), the 260-room Doubletree Guest Suites hotel in Tampa, Florida, the 254-room Doubletree Guest Suites hotel in Cypress Creek, Florida, and the 308-room Doubletree Guest Suites hotel in Irving, Texas (April, 1996), and the 251-room Doubletree Guest Suites hotel and the 177-room Days Inn, both located at the Philadelphia Airport in Philadelphia, Pennsylvania (June 1996). SELF MANAGEMENT As discussed above, in the twelve months ending June 30, 1996, Operating has assumed management of 12 hotels acquired during the period, as well as four continuously owned properties consistent with its business objective to capture the economic benefits otherwise retained by a third-party operator. Of the remaining three third-party management agreements in place at June 30, 1996, all except for one, are expected to be terminated in 1996. Management believes that the assumption of direct control over the operations of these hotels will allow the Company to effectively use their experience to improve operations and implement renovations and expansions. RENOVATIONS AND REPOSITIONING HOTELS During the second quarter, the Company substantially completed a $2.1 million renovation of the Portland Riverside Inn in Portland, Oregon. Additionally, the Company has undertaken renovations of the Dallas Park Central in Dallas, Texas, the Sheraton Colony Square and Terrace Garden Inn, both located in Atlanta, Georgia. The Company estimates that it will cost approximately $20 million to complete such renovations. In April, 1996, the Company - 27 - 28 converted the French Quarter Suites Hotel in Lexington, Kentucky to a Doubletree Guest Suites franchise. 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. Future 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. OTHER INCOME AND ADMINISTRATIVE AND OPERATING EXPENSES Other income for the six months ended June 30, 1996 includes a $314,000 gain (net of related expenses) realized in connection with the sale of securities, which were purchased in pursuit of certain properties. Also included in other income is $629,000 recorded in connection with the Ross Litigation settlement (see Item I of Part II). Administrative and operating expenses for the three and six months ended June 30, 1996 increased by $1.6 million to $3.0 million or 4.1% of revenue and by $2.9 million to $5.4 million or 4.2% of revenues, respectively, as compared to $1.4 million or 3.1% of revenues and $2.5 million or 2.9% of revenues, respectively, for the corresponding periods of 1995. The increase was primarily a result of an increase in payroll costs due to additions to the corporate staffs commensurate with the Company's growth, as well as the assumption of management of hotels previously provided by third-party operators. Administrative and operating expenses includes a payment of $228,000 to Jeffrey C. Lapin, the former President and Chief Operating Officer of the Trust pursuant to his separation agreement. The increase also resulted from costs relating to the potential acquisition of hotels which ultimately were not acquired. - 28 - 29 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, the Trust paid a distribution of $0.47 per share for the fourth quarter of 1995. During the second quarter, the Trust paid a distribution of $0.47 per share for the quarter ending March 31, 1996, and declared a distribution of $0.49 per share for the quarter ended June 30, 1996. Cash Flows from Investing and Financing Activities. Additionally, the Company intends to finance the acquisition of additional hotel properties, hotel renovations and capital improvements and provide for general corporate purposes through three loan facilities with affiliates of Lehman Brothers Inc. and, when market conditions warrant, to issue additional equity or debt securities. In March 1996, Realty entered into a loan facility (the "Term Loan") with an affiliate of Lehman Brothers Inc. The 12-month Term Loan was put in place to fund the acquisition in March 1996, of the 257-room Midland Hotel in Chicago and, in April 1996, the facility was increased to $94 million. The Term Loan is secured by certain properties of the Company on a cross-collateralized basis. As of June 30, 1996, Realty had borrowed $74 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 $20 million and (b) 1.75 % for the balance of the Term Loan. The Term Loan may be retired from the proceeds of public or private issuances of equity or debt securities by the Company. In July, 1996, the maturity date of the Mortgage Loan Funding Facility (the "Repo Facility") was extended from January 25, 1997 to July 25, 1997. As of June 30, 1996, Realty had borrowed $71 million under the Repo Facility. In July 1996, the Company agreed to terms with an institutional lender for a one-year (extendible to 18 months) $300 million loan to fund a portion of the acquisition cost of the Teachers Portfolio and the HOD Portfolio (the "1996 Facility"). The 1996 Facility will bear interest at one-month LIBOR plus 1.75%. The 1996 Facility is subject to the satisfaction of certain conditions, including the negotiation of definitive documentation. On April 12, 1996, the Company completed a public offering of 2,000,000 paired shares at a net price to the Company of $31.50 per paired share. 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. - 29 - 30 On August 12, 1996, the Company completed a public offering of 10,000,000 paired shares. Net proceeds from the offering of approximately $338.0 million were used to fund the acquisition costs of the Teachers Portfolio and the balance is expected to be used to fund a portion of the acquisition cost of the HOD Portfolio. The remaining portion of the Teachers Portfolio and HOD Portfolio will be funded through the Acquisition Facility discussed above. As previously discussed, the Company has substantially completed a $2.1 million renovation of the Portland Riverside Inn, in Portland, Oregon. In addition, the Company has commenced a major renovation of the Dallas Park Central Hotel, the renovation of the Sheraton Colony Square Hotel in Atlanta, Georgia and the renovation of the Terrace Garden Inn in Atlanta, Georgia. The Company estimates that it will cost approximately $20 million to complete such renovations. Major and minor renovations of other hotels are also being contemplated. Sources of capital for major building renovations and expansions 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 of the filing of this report, since January 1, 1995, the Company has invested over $380 million in hotel assets (approximately $210 million including capital expenditures for the six months ended June 30, 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 Acquisition Facility and the Term Loan and the issuance of additional equity or debt securities. The Company intends to incur additional indebtedness in a manner consistent with their policy of maintaining a Ratio of Debt-to-Total Market Capitalization of not more than 50%. 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 quarter ended June 30, 1996 grew by 162 percent to $18.2 million, compared to combined historical FFO of $6.9 million for the corresponding period in 1995 and grew by 38% compared to pro forma FFO of $13.2 million for the corresponding period in 1995. The following table shows the calculation of historical and pro forma combined FFO for the quarter ended June 30, 1996: - 30 - 31
Three Months Ended June 30, ------------------------------------- Pro Forma Historical 1996 1995 1995 ---- ---- ---- (in thousands) Income before extraordinary item and minority interest ........................................... $12,355 $ 8,922 $ 3,627 Real estate related depreciation and amortization, net of amortization of financing costs ................. 5,507 4,250 3,322 Loss on sales of hotel assets ........................ 347 ------- ------- ------- FFO $18,209 $13,172 $ 6,949 ======= ======= =======
For the six months ended June 30, 1996 combined FFO grew by 213% to $31.3 million, compared to combined historical FFO of $10.0 million for the corresponding period in 1995 and grew by 26% compared to pro forma FFO of $24.8 million for the corresponding period in 1995. The following table shows the calculation of historical and pro forma combined FFO for the six months ended June 30, 1996:
Six Months Ended June 30, ----------------------------------- Pro Forma Historical 1996 1995 1995 ---- ---- ---- (in thousands) Income before extraordinary item and minority interest ........................................... $18,099 $16,043 $ 3,706 Real estate related depreciation and amortization, net of amortization of financing costs ................. 12,888 8,676 6,185 Loss on sales of hotel assets ........................ 347 113 113 ------- ------- ------- FFO $31,334 $24,832 $10,004 ======= ======= =======
FFO includes $292,000 and $252,000 of interest income recognized in excess of the actual cash received on mortgage notes receivable (as a result of the notes having been purchased at a discount) for the quarter ended June 30, 1996 and 1995, respectively, and $518,000 and $545,000 for the six months ended June 30, 1996 and 1995, respectively.. (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 REITs 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. - 31 - 32 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS During the year ended December 31, 1995, the Trust and the Corporation reached settlement agreements with respect to two purported class action complaints and one complaint which was purportedly brought on behalf of the Trust and the Corporation (collectively, the "Shareholder Actions"). The Shareholder Actions were brought in 1991 and 1992 in each case in connection with the Trust's purchase of its two hotel/casinos and the Ramada Inn in Indian Wells, California. The two purported class actions were filed in the United States District Court for the Southern District of California in August 1991 and February 1992 against the Trust, the Corporation and certain current and former officers, Directors and Trustees. The complaint alleged fraud, violations of federal and California securities laws, the federal Racketeer Influenced and Corrupt Organizations Act and ERISA. The actions sought compensatory damages, rescission and/or treble and exemplary damages plus interest, costs and attorneys' fees and statutory damages under ERISA. The third action was filed in the Superior Court for the State of California for San Diego County in March 1992 against certain current and former officers, Directors and Trustees and alleged breach of fiduciary duty, gross negligence and corporate waste. The action sought compensatory damages, certain remuneration and costs. The plaintiffs and defendants in the Shareholder Actions entered into stipulations of settlement providing for the release of all claims that were or might have been made in the Shareholder Actions and provided for a $3,250,000 cash settlement fund which, after payment of fees and expenses of plaintiffs' counsel, will be distributed to the certified plaintiff classes. The Trust and the Corporation have paid $400,000 (which amount was accrued in 1993) into the settlement fund, with the balance of the settlement being paid by the insurance company that issued the directors and officers policy applicable to the period to which the Shareholder Actions relate and by two former officers and Trustees of the Trust. The Trust and the Corporation have also agreed to pay the legal fees and other costs incurred prior to October 12, 1993 by the defendants in the Shareholder Actions. Holders of approximately 200,000 Paired Shares (the "Ross Shares") opted out of the settlement. The stipulation requires that the Trust's Board of Trustees and the Corporation's Board of Directors establish a joint transaction committee of independent Trustees and Directors to make recommendations to those Boards with respect to any transaction proposed in the future by management and having a fair market value of $20 million or more. Subsequent to the settlement of the Shareholder Actions, Leonard M. Ross and his affiliates ("Ross"), who held 198,398 Paired Shares (as adjusted for the one for six reverse split in June 1995) (the "Ross Shares") and opted out of the settlement, threatened litigation against the Trust and the Corporation. - 32 - 33 In October 1994, Starwood Capital entered into an agreement with Ross to settle the threatened litigation in which Starwood Capital agreed, in exchange for an assignment of Ross' claims against the Trust and the Corporation, to purchase the Ross Shares, at Ross' election, in a 60-day period beginning on the earlier of the first anniversary of the closing of the Reorganization or December 15, 1995 at a price of $33.75 subject to certain adjustments. Starwood Capital also had the right to elect to purchase such paired shares at the same time and on the same terms. The Trust and the Corporation accrued a liability as of December 31, 1994 of $2,648,000 reflecting a reasonable estimate of the cost of settling the Ross claims. In connection with the Reorganization, which took place in 1995, the Trust and Corporation severally agreed that under certain circumstances they would indemnify Starwood Capital with respect to Starwood Capital's obligations to Ross, up to a maximum of $1.8 million, upon receipt of a full release from Starwood Capital of all of the claims assigned by Ross. At December 31, 1995, the Company had accrued $1.8 million in respect of this potential liability. The $848,000 reduction in this liability was recorded as an adjustment to contributed capital during 1995. Ross elected to sell his paired shares, and in January 1996 those paired shares were sold to a third party through Merrill Lynch. The paired shares were sold at a price of $29.625 per paired share; the Trust and the Corporation paid $1,375,743 in the aggregate pursuant to their indemnity obligations, and Starwood Capital released the Trust and the Corporation from all claims assigned to it by Ross. Additionally, the Trust and the Corporation are entitled to insurance proceeds totaling $205,000 and, as a result, recognized $629,000 of income in the first quarter of 1996. Item 2. Changes in Securities None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. - 33 - 34 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Exchange Rights Agreement dated June 3, 1996 10.2 Registration Rights Agreement dated June 3, 1996 10.3 Employment Agreement with Ted Darnall dated April 19, 1996 10.4 Employment Agreement with Eric A. Danziger dated June 27, 1996 10.5 Separation Agreement with Jeffrey C. Lapin dated June 18, 1996 10.6 Asset Purchase Agreement by and between 730 Cal Hotel Properties II, Inc., 730 Georgia Hotel Properties, I, Inc., 730 Mass Hotel Properties I, Inc., 730 Mo Hotel Properties I, Inc., 730 Minn Hotel Properties I, Inc., 730 Penn. Hotel Properties I, Inc., Cal Hotel Properties I Associates, MRC Properties, Inc. and SLT Realty Limited Partnership and SLC Operating Limited Partnership dated as of May 3, 1996 (effective May 14, 1996) 10.7 Asset Purchase Agreement by and between Hotels of Distinction, Inc., and SLT Realty Limited Partnership dated as of March 25, 1996 (effective July 3, 1996) 10.8 Asset Purchase Agreement by and between Hotels of Distinction Ventures, Inc. and the Subsidiary Entities described therein and SLT Realty Limited Partnership and SLC Operating Limited Partnership (b) Reports on Form 8-K On April 26, 1996, the Trust and Corporation filed a Joint Current Report on the Form 8-K to report the purchase of the FFCA properties. On May 16, 1996, the Trust and Corporation filed a Joint Current Report on the Form 8-K on the Safe Harbor Provisions. On June 28, 1996, the Trust and Corporation filed a Joint Current Report on the Form 8-K to report the pending acquisitions of the HOD and Teachers Portfolios; the acquisitions of the Midland Hotel in Chicago, Illinois, the Clarion Hotel in San Francisco, California, the Doubletree Guest Suites in Philadelphia, Pennsylvania, the Days Inn in Philadelphia, Pennsylvania, and the pending acquisition of the Marriott Forrestal in Princeton, New Jersey. - 34 - 35 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STARWOOD LODGING TRUST STARWOOD LODGING CORPORATION Registrant Registrant /s/ RONALD C. BROWN /s/ ALAN M. SCHNAID - ------------------------------------ --------------------------------- Ronald C. Brown Alan M. Schnaid Senior Vice President and Chief Vice President and Corporate Financial Officer Controller (Principal Financial Officer) (Principal Accounting Officer) Date: August 14, 1996. - 35 - EX-10.1 2 EXCHANGE RIGHTS AGREEMENT 1 EXCHANGE RIGHTS AGREEMENT This Exchange Rights Agreement (this "Agreement") is made as of June 3, 1996 among Starwood Lodging Trust, a real estate investment trust organized under the laws of the State of Maryland (the "Trust"), Starwood Lodging Corporation, a Maryland corporation (the "Corporation"), SLT Realty Limited Partnership, a Delaware limited partnership (the "Realty Partnership"), SLC Operating Limited Partnership, a Delaware limited partnership (the "Operating Partnership"), Philadelphia HIR Limited Partnership, a Massachusetts limited partnership ("HIR") and Philadelphia HSR Limited Partnership, a Massachusetts limited partnership ("HSR"). Unless otherwise indicated, capitalized terms used herein are used herein as defined in Section 10. WHEREAS, (i) on the date hereof HSR is making a capital contribution to the Realty Partnership in return for the issuance by the Realty Partnership to HSR of Units (as defined in the Amended and Restated Limited Partnership Agreement of the Realty Partnership (the "Realty Partnership Agreement")) of the Realty Partnership (the Units issued by the Realty Partnership being hereinafter called "Realty Units"), (ii) on the date hereof HSR is making a capital contribution to the Operating Partnership in return for the issuance by the Operating Partnership to HSR of Units (as defined in the Amended and Restated Limited Partnership Agreement of the Operating Partnership (the "Operating Partnership Agreement")) of the Operating Partnership (the Units issued by the Operating Partnership being hereinafter called the "Operating Units"), (iii) on or about July 1, 1996 HIR will be making a capital contribution to the Realty Partnership in return for the issuance by the Realty Partnership to HIR of Realty Units, and (iv) on or about July 1, 1996 HIR will be making a capital contribution to the Operating Partnership in return for the issuance by the Operating Partnership to HIR of Operating Units; WHEREAS, the parties hereto are entering into this Agreement to provide for the rights of HIR and HSR to tender Realty Units and Operating Units in exchange for either Paired Shares (as defined herein), cash or a combination of Paired Shares and cash, on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth herein, the parties hereto agree as follows: SECTION 1. RIGHT TO TENDER STARWOOD UNITS. (a) Upon the terms and subject to the conditions of this Agreement, each holder of Starwood Units (as defined below) shall have the right to tender to the Trust outstanding Realty Units and the right to tender to the Corporation outstanding Operating Units and upon making such tender, in accordance with, and subject to the terms and conditions hereof, each such holder shall be entitled to receive certain Paired Shares as provided for below. Notwithstanding anything to the contrary contained in this Agreement (i) no Realty Unit may be tendered to the Trust unless simultaneously therewith the tendering holder also tenders to the Corporation an 2 Operating Unit and no Operating Unit may be tendered to the Corporation unless simultaneously therewith the tendering holder also tenders to the Trust a Realty Unit (a Realty Unit tendered for exchange and the Operating Unit simultaneously tendered for exchange being hereinafter collectively referred to as a "Starwood Unit") and (ii) any attempted tender of a Realty Unit or an Operating Unit which is not accompanied by a simultaneous tender of an Operating Unit or Realty Unit, respectively, shall be void and of no effect; it being understood that a simultaneous tender of unequal numbers of Realty Units and Operating Units shall be valid under this sentence to the extent of the lesser of the number of Realty Units or Operating Units, as the case may be, included in such tender. Realty Units and Operating Units shall be deemed tendered at the same time notice would be given under Section 9. (b) Notwithstanding any other provision of this Agreement, no Paired Shares or cash shall be issued or paid in respect of any tender of Starwood Units (i) if the right to tender Starwood Units and receive Paired Shares or cash would result in the Trust not satisfying the REIT Requirements in any respect or would result in any person or entity Beneficially Owning Trust Shares exceeding the Ownership Limit, (ii) prior to the expiration or termination of the waiting period applicable to such exchange and issuance, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as it may be amended from time to time, or (iii) prior to the receipt of all governmental and regulatory approvals which are required to be obtained prior to such tender and issuance or payment, including, without limitation, any required approvals of the gaming authorities of the State of Nevada and of Clark County, Nevada. In the event that the ability to receive Paired Shares or cash would result in the Trust not satisfying the REIT Requirements in any respect or would result in any person or entity Beneficially Owning Trust Shares exceeding the Ownership Limit, and as a result thereof no Paired Shares or cash may be issued or paid in respect of any tender of Starwood Units pursuant to Section 1(b)(i) above, then the parties hereto shall use their respective best efforts to restructure the terms and provisions of this Agreement (and, if necessary, the Partnership Agreements), or to agree to terms and provisions in addition to such terms and provisions, so as to provide to each such party the same substantive rights (or substantive rights as close thereto as is reasonably practicable) as those provided by this Agreement and the Partnership Agreements. If the parties are unsuccessful in such efforts, the Realty Partnership and the Operating Partnership will, to the extent permitted by the REIT Requirements, purchase such tendered Starwood Units for cash in an amount equal to the product of (i) the number of Paired Shares which would have been exchanged pursuant to this Agreement if such tender had successfully been completed, multiplied by (ii) the average Paired Shared Closing Price for the 10 trading day period ending one trading day prior to the date of purchase. (c) The rights to exchange Starwood Units pursuant to this Agreement constitute a continuous offer and may not be withdrawn, amended or modified by the Trust or the Corporation without the prior written consent of each holder of outstanding Starwood Units adversely affected by such withdrawal, amendment or modification; provided that any withdrawal, amendment or modification that does not adversely affect any holder of outstanding Starwood Units may be effected without the consent of such holder. -2- 3 SECTION 2. ACCEPTANCE OF TENDER; ELECTION OF METHOD OF PAYMENT FOR TENDERED STARWOOD UNITS. (a) Upon the terms and subject to the conditions of this Agreement, the Trust and the Corporation shall accept Starwood Units validly tendered in proper form and meeting all of the requirements of this Agreement. In order for Starwood Units to be validly tendered pursuant to this Agreement, the registered holder thereof shall deliver to the Trust and the Corporation, at the address provided pursuant to Section 9, (i) a completed and duly executed Letter of Transmittal in the form attached hereto as Exhibit A (the "Letter of Transmittal") and any other documents required by the Letter of Transmittal and (ii) a calculation, to the best knowledge of such registered holder after due inquiry (together with such supporting documentation as the Trust may reasonably request), of the maximum number of Paired Shares that may be issued to such registered holder without causing either (x) the Trust to not satisfy the REIT Requirements in any respect or (y) any person or entity to Beneficially Own Trust Shares exceeding the Ownership Limit. The Trust and the Corporation shall reasonably make all determinations as to the validity and form of any tender of Starwood Units in accordance with the provisions of this Agreement and upon rejection of a tender shall give the tendering holder written notice of such rejection, which shall include the reasons therefor. (b) HIR and HSR will have the right to request, as part of a tender of Starwood Units pursuant to this Section 2, that the Trust and the Corporation (or, at the election of the Trust and the Corporation, the Realty Partnership and the Operating Partnership) exchange a minimum number of Starwood Units for cash ("Cash Request"). The Cash Request must be part of the Letter of Transmittal (as an attachment or as part of the text of the letter). The price and terms of payment for each Starwood Unit tendered pursuant to a Cash Request will be consistent with Sections 4 and 5 (depending on which provision is applicable to the tender of Starwood Units subject to the Cash Request). The maximum amount of cash paid by the Trust and the Corporation pursuant to all Cash Requests under this Agreement will be an aggregate amount of $270,000. The Trust and the Corporation (or, at the election of the Trust and the Corporation, the Realty Partnership and the Operating Partnership) will promptly pay to HIR or HSR, the amount of any Cash Request which fulfills the foregoing requirements of this clause (b). (c) Unless otherwise determined by agreement of the Trust and the Corporation, tenders of Starwood Units pursuant to this Agreement shall be irrevocable and shall not be subject to withdrawal or modification; provided that if the Trust and the Corporation make the Paired Share Election with respect to a tender, then within 3 days after such Election the tendering holder may elect to revoke such tender so long as (i) no public disclosure of such tender has been made prior to such revocation and (ii) such tendering holder reimburses the Trust and the Corporation for all reasonable costs and expenses incurred in connection with such tender. (d) Within 15 days after the valid tender pursuant to this Agreement of Starwood Units, the Trust and the Corporation shall make an election to pay for such Starwood Units by delivering either (i) Paired Shares (the "Paired Share Election"), (ii) cash (the "Cash Election") or (iii) a combination of Paired Shares and cash (the "Combined Election"). Such election shall be made pursuant to an agreement as to such election -3- 4 between the Trust and the Corporation. If the Trust and the Corporation do not so agree within such 15-day period, they shall be deemed to have made the Cash Election. SECTION 3. PAIRED SHARE ELECTION. (a) If with respect to any tender of Starwood Units pursuant to this Agreement, the Trust and the Corporation make the Paired Share Election, then within 20 days after such tender the Trust and the Corporation shall deliver to the tendering holder one Paired Share for each Starwood Unit validly tendered pursuant to the provisions of this Agreement. (b) No fractional Paired Shares or scrip representing fractional Paired Shares shall be issued upon exchange of Starwood Units pursuant to this Agreement. If more than one Letter of Transmittal shall be delivered at one time by the same holder, the number of full Paired Shares which shall be issuable upon exchange of the Starwood Units tendered thereby shall be computed on the basis of the aggregate number of Starwood Units so tendered. Instead of any fractional Paired Shares which would otherwise be issuable upon exchange of any Starwood Units, the Trust and the Corporation shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the Paired Share Closing Price on the last business day preceding the date of exchange. (c) If a holder exchanges Starwood Units pursuant to this Agreement, the Trust and the Corporation shall pay any documentary, stamp or similar issue or transfer tax due on any issue of Paired Shares upon such exchange. Such holder, however, shall (i) pay to the Trust and the Corporation the amount of any additional documentary, stamp or similar issue or transfer tax which is due (or shall establish to the satisfaction of the Trust and the Corporation the payment thereof) as a result of Paired Shares being issued in a name other than the name of such holder and (ii) be responsible for all income or other taxes as a result of such exchange. SECTION 4. CASH ELECTION. (a) If with respect to any tender of Starwood Units pursuant to this Agreement, the Trust and the Corporation make or are deemed to have made the Cash Election, then within 20 days after such tender the Trust and the Corporation shall pay to the tendering holder an aggregate amount of cash (the "Aggregate Cash Payment") equal to the product of (i) the number of Paired Shares which would have been delivered to such holder if the Trust and the Corporation had made the Paired Share Election with respect to such tender and (ii) the average Paired Share Closing Price for the 10 trading day period ending one trading day prior to the date of such tender (it being agreed that the date of tender shall be the date the tendering registered holder of the Starwood Units shall be deemed to have given to the Trust and the Corporation, the Letter of Transmittal and the calculation called for in Section 2(a) above). (b) In connection with any Aggregate Cash Payment pursuant to Section 4(a) or any cash payment pursuant to Section 5(a)(ii), the Trust shall pay 95% of such Aggregate Cash Payment or such cash payment and the Corporation shall pay 5% of such Aggregate Cash Payment or such cash payment (such percentages being herein called the "Issuance Percentages"); provided that the Trust and the Corporation may from time to time change the Issuance Percentages based on their determination of the relative fair values of the Trust -4- 5 Shares and the Corporation Shares. At the election of the Trust and the Corporation, the Realty Partnership and the Operating Partnership may purchase and pay the cash for the Starwood Units. SECTION 5. COMBINED ELECTION. (a) If with respect to any tender of Units pursuant to this Agreement, the Trust and the Corporation shall make the Combined Election, then within 20 days after such tender the Trust and the Corporation shall (i) notify the tendering holder of the number of such tendered Units which will be exchanged for cash (the "Cash Units") and the number of such tendered Units which will be exchanged for Paired Shares (the "Paired Share Units"), (ii) pay to the tendering holder, in respect of each Cash Unit validly tendered pursuant to the provisions of this Agreement, an amount of cash (with each of the Trust and the Corporation paying its then respective Issuance Percentage of such amount of cash) equal to the average Paired Share Closing Price for the 10 trading day period ending one trading day prior to the date of such tender and (iii) deliver to the tendering holder one Paired Share for each Paired Share Unit validly tendered pursuant to the provisions of this Agreement. (b) The provisions of Sections 3(b) and 3(c) of this Agreement shall apply to the issuance of Paired Shares pursuant to Section 5(a). SECTION 6. REPRESENTATIONS OF TENDERING HOLDER. Each tender of Starwood Units (other than a Cash Request) shall constitute a representation and warranty by the tendering holder of each of the representations and warranties set forth in the Letter of Transmittal. Without limiting the generality of the foregoing, unless, at the time of a tender for exchange of Starwood Units pursuant to this Agreement, a registration statement relating to any Paired Shares to be delivered upon such tender is effective under the Securities Act of 1933, as amended (the "Securities Act"), such tender shall constitute a representation and warranty by the tendering holder to the Trust and the Corporation that such tendering holder (i) is an "accredited investor" within the meaning of Rule 501 under the Securities Act, (ii) has sufficient knowledge and experience in financial and business matters and in investing in entities similar to the Partnerships, the Trust and the Corporation so as to be able to evaluate the risks and merits of its investment in the Partnerships, the Trust and the Corporation and it is able financially to bear the risks thereof, (iii) has had an opportunity to discuss the business, management and financial affairs of the Trust, the Corporation and the Partnerships with the management of the Trust, the Corporation and the Partnerships, and (iv) understands that the Paired Shares have not been registered under the Securities Act by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated under the Securities Act and such Paired Shares must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act and applicable state securities laws or is exempt from such registration. SECTION 7. STATUS OF TENDERING HOLDER. Until the holder of Starwood Units tendered pursuant to this Agreement becomes a holder of record of the Paired Shares issued in exchange therefor (in the case of a Paired Share Election or a Combined Election) or until such holder has received cash in exchange therefor (in the case of a Cash Election or a -5- 6 Combined Election), such holder shall continue to hold and own such Starwood Units for all purposes of the Realty Partnership Agreement and the Operating Partnership Agreement. In the case of a Paired Share Election or a Combined Election, no such holder shall have any rights as a shareholder of the Trust or a stockholder of the Corporation in respect of such Paired Shares until such holder becomes a holder of record of such Paired Shares. SECTION 8. RESERVATION OF SHARES; CLOSING OF TRANSFER BOOKS. (a) The Trust shall reserve and shall at all times have reserved out of its authorized but unissued Trust Shares, solely for the purpose of effecting the exchange of Realty Units pursuant to this Agreement, enough Trust Shares to permit the exchange of the then outstanding Realty Units. The Corporation shall reserve and shall at all times have reserved out of its authorized but unissued Corporation Shares, solely for the purpose of effecting the exchange of Operating Units pursuant to this Agreement, enough Corporation Shares to permit the exchange of the then outstanding Operating Units. All Paired Shares which may be issued upon exchange of Starwood Units shall be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issuance thereof other than income taxes resulting from such exchange. (b) The Trust shall not close its transfer books so as to prevent the timely issuance of Trust Shares pursuant to this Agreement. The Corporation shall not close its transfer books so as to prevent the timely issuance of Corporation Shares pursuant to this Agreement. SECTION 9. NOTICES. All notices, documents and other communications under this Agreement shall be in writing and shall be deemed given when delivered personally or by overnight mail or when sent by facsimile transmission, or four days after being mailed (by registered mail, return receipt requested) to a party at the following address (or to such other address as such party may have specified by notice given to the other parties pursuant to this provision): If to the Trust or the Realty Partnership, to: Starwood Lodging Trust 11835 West Olympic Boulevard Suite 695 Los Angeles, California 90064 Attention: Chief Financial Officer Telecopy No.: (310) 575-9512 with a copy to: Sidley & Austin 555 West 5th Street Los Angeles, California 90013 Attention: Sherwin L. Samuels Telecopy No.: (213) 896-6600 -6- 7 If to the Corporation or the Operating Partnership, to: Starwood Lodging Corporation 11835 West Olympic Boulevard Suite 675 Los Angeles, California 90064 Attention: Kevin E. Mallory Telecopy No.: (310) 575-9143 with a copy to: Sidley & Austin 555 West 5th Street Los Angeles, California 90013 Attention: Sherwin L. Samuels Telecopy No.: (213) 896-6600 If to HIR, to: Philadelphia HIR Limited Partnership c/o The Beacon Companies 50 Rowes Wharf Boston, Massachusetts 02110 Attention: Edwin N. Sidman Telecopy No.: (617) 261-0152 with a copy to: Brown, Rudnick, Freed & Gesmer One Financial Center Boston, Massachusetts 02111 Attention: Larry Uchill Telecopy No.: (617) 439-3278 If to HSR, to: Philadelphia HSR Limited Partnership c/o The Beacon Companies 50 Rowes Wharf Boston, Massachusetts 02110 Attention: Edwin N. Sidman Telecopy No.: (617) 261-0152 -7- 8 with a copy to: Brown, Rudnick, Freed & Gesmer One Financial Center Boston, Massachusetts 02111 Attention: Larry Uchill Telecopy No.: (617) 439-3278 SECTION 10. DEFINITIONS. For purposes of this Agreement: "Beneficially Owning" means owning Trust Shares directly, indirectly or constructively by a person or entity through the application of Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code, or Section 544 of the Code, as modified by Section 856(h) of the Code. The term "Beneficially Own" shall have a correlative meaning. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Corporation Shares" means the shares of Common Stock, par value $.01 per share, of the Corporation. "Declaration of Trust" means the Declaration of Trust of the 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. "Ownership Limit" when used with respect to Trust Shares, has the meaning set forth in the Declaration of Trust and, when used with respect to the Corporation Shares, has the meaning set forth in the Restated Articles, in each case as amended from time to time. "Paired Share" means a Corporation Share and a Trust Share which are paired pursuant to the Pairing Agreement. "Partnership Agreements" means the Realty Partnership Agreement and the Operating Partnership Agreement. "Paired Share Closing Price" shall mean, with respect to a particular date, the last reported sales price regular way on such date or, in case no such reported sale takes place on such date, the average of the reported closing bid and asked prices regular way on such date, in either case on the New York Stock Exchange, or if the Paired Shares are not then listed or admitted to trading on such Exchange, on the principal national securities exchange on which the Paired Shares are then listed or admitted to trading or, if not then listed or admitted to trading on any national -8- 9 securities exchange, the closing sale price on such date of the Paired Shares or, in case no reported sale takes place on such date then, the average of the closing bid and asked prices on such date, on NASDAQ or any comparable system. If the Paired Shares are not then quoted on NASDAQ or any comparable system, the Board of Trustees of the Trust and the Board of Directors of the Corporation shall in good faith determine the Paired Share Closing Price. "Pairing Agreement" means the Pairing Agreement dated June 25, 1980 between the Trust and the Corporation, as it may be amended from time to time. "REIT Requirements" shall mean the requirements for the Trust to (i) qualify as a REIT under the Code and the rules and regulations promulgated thereunder, (ii) avoid any federal income or excise tax liability, (iii) retain its status as grandfathered pursuant to Section 132(c)(3) of the Deficit Reduction Act of 1984 and (iv) retain the benefits of that certain private letter ruling issued by the Internal Revenue Service to the Trust dated as of January 4, 1980. "Restated Articles" means the Restated Articles of Incorporation of the Corporation, as amended from time to time after the date of this Agreement. "Trust Shares" means the shares of Beneficial Interest, $.01 par value, of the Trust. SECTION 11. PARTIAL INVALIDITY. In case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision or provisions had never been contained herein unless the deletion of such provision or provisions would result in such a material change as to cause completion of the transactions contemplated hereby to be unreasonable. SECTION 12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors or assigns. SECTION 13. EXECUTION IN COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be considered an original counterpart, and shall become a binding agreement when the Trust, the Corporation, the Realty Partnership, the Operating Partnership, HIR and HSR shall have each executed a counterpart of this Agreement. SECTION 14. TITLES AND HEADINGS. Titles and headings to Articles and Sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. -9- 10 SECTION 15. EXHIBITS. The Exhibits referred to in this Agreement shall be construed with, and as an integral part of, this Agreement to the same extent as if the same had been set forth verbatim herein. SECTION 16. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement, including the Exhibits, contains the entire understanding of the parties hereto with regard to the subject matter contained herein. In addition to amendments and modifications permitted by Section 1(c), the parties hereto, by mutual agreement in writing, may amend, modify and supplement this Agreement. The failure of any party hereto to enforce at any time any provision of this Agreement shall not be construed to be a waiver of such provision, nor in any way to affect the validity of this Agreement or any part hereof or the right of such party thereafter to enforce each and every such provision. No waiver of any breach of this Agreement shall be held to constitute a waiver of any other or subsequent breach. SECTION 17. GOVERNING LAW. Except to the extent that Maryland law is mandatorily applicable to the rights and obligations of the shareholders of the Trust and the stockholders of the Corporation, this Agreement, and the application or interpretation thereof, shall be governed exclusively by its terms and by the internal laws of the State of New York, without regard to principles of conflicts of laws as applied in the State of New York or any other jurisdiction which, if applied, would result in the application of any laws other than the internal laws of the State of New York. SECTION 18. STARWOOD LODGING TRUST. The parties hereto understand and agree that the name "Starwood Lodging Trust" is a designation of the Trust and its Trustees (as Trustees but not personally) under the Declaration of Trust, and all persons dealing with the Trust shall look solely to the Trust's assets for the enforcement of any claims against the Trust, and that the Trustees, officers, agents and security holders of the Trust assume no personal liability for obligations entered into on behalf of the Trust, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. -10- 11 SECTION 19. SUBMISSION TO JURISDICTION. Each of the parties hereto irrevocably submits and consents to the jurisdiction of the United States District Court for the Southern District of New York and the United States District Court for the Central District of California in connection with any action or proceeding arising out of or relating to this Agreement, and irrevocably waives any immunity from jurisdiction thereof and any claim of improper venue, forum non conveniens or any similar basis to which it might otherwise be entitled in any such action or proceeding. IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties hereto or by their duly authorized officers, all as of the date first above written. STARWOOD LODGING TRUST By: ------------------------------- Name: Title: STARWOOD LODGING CORPORATION By: ------------------------------- Name: Title: SLT REALTY LIMITED PARTNERSHIP By: STARWOOD LODGING TRUST General Partner By: ------------------------------- Name: Title: -11- 12 SLC OPERATING LIMITED PARTNERSHIP By: STARWOOD LODGING CORPORATION, Managing General Partner By: ------------------------------- Name: Title: PHILADELPHIA HIR LIMITED PARTNERSHIP By: ------------------------------------- Name: Title: PHILADELPHIA HSR LIMITED PARTNERSHIP By: ------------------------------------ Name: Title: -12- EX-10.2 3 REGISTRATION RIGHTS AGREEMENT 1 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement") is made as of June 3, 1996 among Starwood Lodging Trust, a real estate investment trust organized under the laws of Maryland (the "Trust"), Starwood Lodging Corporation, a Maryland corporation (the "Corporation") and Philadelphia HSR Limited Partnership, a Massachusetts limited partnership ("HSR"). Unless otherwise indicated, capitalized terms used herein are used herein as defined in Section 1.1. RECITALS WHEREAS, (i) on the date hereof HSR, is making a capital contribution to SLT Realty Limited Partnership, a Delaware limited partnership (the "Realty Partnership"), in return for the issuance by the Realty Partnership to HSR of Units (as defined in the Amended and Restated Limited Partnership Agreement of the Realty Partnership) of the Realty Partnership (the Units issued by the Realty Partnership being hereinafter called the "Realty Units"), (ii) on the date hereof HSR is making a capital contribution to SLC Operating Limited Partnership, a Delaware limited partnership (the "Operating Partnership"), in return for the issuance by the Operating Partnership to HSR of Units (as defined in the Amended and Restated Limited Partnership Agreement of the Operating Partnership) of the Operating Partnership (the Units issued by the Operating Partnership being hereinafter called the "Operating Units"), (iii) on or about July 1, 1996 Philadelphia HIR Limited Partnership, a Massachusetts limited partnership ("HIR"), will be making a capital contribution to the Realty Partnership in return for the issuance by the Realty Partnership to HIR of Realty Units, and (iv) on or about July 1, 1996 HIR will be making a capital contribution to the Operating Partnership in return for the issuance by the Operating Partnership to HIR of Operating Units; WHEREAS the parties hereto desire to set forth the rights of HSR and the obligations of the Trust and the Corporation to cause the registration of the Registerable Securities pursuant to the Securities Act; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS AND USAGE. 1.1. DEFINITIONS. As used in this Agreement: Beneficially Owning. "Beneficially Owning" means owning Trust Shares directly, indirectly or constructively by a Person through the application of Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code, or Section 544 of the Code, as modified by Section 856(h) of the Code. 2 Code. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. Commission. "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. Continuously Effective. "Continuously Effective", with respect to a specified registration statement, shall mean that such registration statement shall not cease to be effective and available for Transfers of Registrable Securities thereunder for longer than either (i) any ten (10) consecutive business days, or (ii) an aggregate of fifteen (15) business days during the period specified in the relevant provision of this Agreement. Corporation Shares. "Corporation Shares" shall mean the shares of Common Stock, par value $.01 per share, of the Corporation. "Declaration of Trust" means the Declaration of Trust of the 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. Exchange Act. "Exchange Act" shall mean the Securities Exchange Act of 1934 and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Exchange Rights Agreement. "Exchange Rights Agreement" shall mean the Exchange Rights Agreement dated the date hereof among the Trust, the Corporation, HIR, HSR, the Operating Partnership and the Realty Partnership. "Holders" "Holders" shall mean Philadelphia HIR Limited Partnership and Philadelphia HSR Limited Partnership. Issuance Percentages. "Issuance Percentage", when used with respect to the Trust, shall mean 95% and, when used with respect to the Corporation, shall mean 5%; provided that the Trust and the Corporation may from time to time change the Issuance Percentages based on their joint determination of the relative values of the Trust Shares and Corporation Shares. Majority Selling Holders. "Majority Selling Holders" means those Selling Holders whose Registrable Securities included in such registration represent a majority of the Registrable Securities of all Selling Holders included therein. Operating Partnership. "Operating Partnership" shall have the meaning set forth in the recitals. Operating Units. "Operating Units" shall have the meaning set forth in the recitals. -2- 3 Ownership Limit. "Ownership Limit" when used with respect to Trust Shares, has the meaning set forth in the Declaration of Trust of the Trust and, when used with respect to the Corporation Shares, has the meaning set forth in the Restated Articles, in each case as amended from time to time. Paired Shares. "Paired Shares" shall mean the shares of Trust Shares and shares of Corporation Stock which are "paired" pursuant to the Pairing Agreement dated June 25, 1980 between the Trust and the Corporation, as it has been and may be amended from time to time. Person. "Person" shall mean any individual, corporation, partnership, joint venture, association, joint-stock company, limited liability company, trust, unincorporated organization or government or other agency or political subdivision thereof. Piggyback Registration. "Piggyback Registration" shall have the meaning set forth in Section 3. Realty Partnership. "Realty Partnership" shall have the meaning set forth in the recitals. Realty Units. "Realty Units" shall have the meaning set forth in the recitals. Register, Registered and Registration. "Register", "registered", and "registration" shall refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering by the Commission of effectiveness of such registration statement or document. Registrable Securities. "Registrable Securities" shall mean: (i) the Paired Shares issued upon exchange of Realty Units and Operating Units pursuant to the Exchange Rights Agreement; (ii) any Paired Shares or other securities issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange by the Trust and the Corporation generally for, or in replacement by the Trust and the Corporation generally of, such Paired Shares; and (iii) any securities issued in exchange for Paired Shares in any merger or reorganization of the Trust and the Corporation; provided, however, that Registrable Securities shall not include any securities which have theretofore been registered and sold pursuant to the Securities Act or which have been sold to the public pursuant to Rule 144 or any similar rule promulgated by the Commission pursuant to the Securities Act, and, provided further, the Trust and the Corporation shall have no obligation under Sections 2 and 3 to register any Registrable Securities if the Trust and the Corporation shall deliver to the Holders of such Registrable Securities an opinion of counsel reasonably acceptable to Holders and which could be relied upon by Holders or their transferees to the effect that the proposed sale or disposition of all of the Registrable Securities for which registration was requested does not require registration under the Securities Act for a sale or disposition in a single public sale, and offers to remove any and all legends restricting transfer from the certificates evidencing such Registrable Securities. Notwithstanding anything to the contrary set forth -3- 4 herein, Registrable Securities shall not include (x) any Realty Units or Operating Units or (y) any Paired Shares issued upon exchange of Units, exclusive of any exchange of the Realty or Operating Units pursuant to the Exchange Agreement of even date, between the Trust, the Corporation and other parties, to any Person (including, without limitation, any Holder). Registrable Securities then outstanding. "Registrable Securities then outstanding" shall mean, with respect to a specified determination date, the Registrable Securities owned by all Holders on such date and the Registrable Securities which are issuable upon exchange of Realty Units and Operating Units owned by all Holders on such date. Registration Expenses. "Registration Expenses" shall have the meaning set forth in Section 6.1 REIT Requirements. "REIT Requirements" shall mean the requirements for the Trust to (i) qualify as a REIT under the Code, and the rules and regulations promulgated thereunder, (ii) avoid any federal income or excise tax liability, (iii) retain its status as grandfathered pursuant to Section 132(c)(3) of the Deficit Reduction Act of 1984 and (iv) retain the benefits of that certain private letter ruling issued by the Internal Revenue Service to the Trust dated as of January 4, 1980. "Restated Articles" means the Restated Articles of Incorporation of the Corporation, as amended from time to time after the date of this Agreement. Securities Act. "Securities Act" shall mean the Securities Act of 1933 and the rules and regulations of the Commission thereunder, all as the same may be in effect at the time. Selling Holders. "Selling Holders" shall mean, with respect to a specified registration pursuant to this Agreement, Holders whose Registrable Securities are included in such registration. Shelf Registration. "Shelf Registration" shall mean a registration statement that is filed in accordance with the Securities Act for an offering on a delayed or continuous basis pursuant to Rule 415 under the Securities Act. Transfer. "Transfer" shall mean and include the act of selling, giving, transferring, creating a trust (voting or otherwise), assigning or otherwise disposing of (other than pledging, hypothecating or otherwise transferring as security) (and correlative words shall have correlative meanings); provided however, that any transfer or other disposition upon foreclosure or other exercise of remedies of a secured creditor after an event of default under or with respect to a pledge, hypothecation or other transfer as security shall constitute a "Transfer". Trust Shares. "Trust Shares" shall mean the shares of Beneficial Interest, $.01 par value, of the Trust. -4- 5 Underwriters' Representative. "Underwriters' Representative" shall mean the managing underwriter, or, in the case of a co-managed underwriting, the managing underwriter designated as the Underwriters' Representative by the co-managers. Units. "Units" shall mean Realty Units and Operating Units. Violation. "Violation" shall have the meaning set forth in Section 7.1. 1.2. USAGE. (i) References to a Person are also references to its assigns and successors in interest (by means of merger, consolidation or sale of all or substantially all the assets of such Person or otherwise, as the case may be). (ii) References to Registrable Securities "owned" by a Holder shall include Registrable Securities beneficially owned by such Person but which are held of record in the name of a nominee, trustee, custodian, or other agent, but shall exclude Paired Shares held by a Holder in a fiduciary capacity for customers of such Person. (iii) References to a document are to it as amended, waived and otherwise modified from time to time and references to a statute or other governmental rule are to it as amended and otherwise modified from time to time (and references to any provision thereof shall include references to any successor provision). (iv) References to Sections or to Schedules or Exhibits are to sections hereof or schedules or exhibits hereto, unless the context otherwise requires. (v) The definitions set forth herein are equally applicable both to the singular and plural forms and the feminine, masculine and neuter forms of the terms defined. (vi) The term "including" and correlative terms shall be deemed to be followed by "without limitation" whether or not followed by such words or words of like import. (vii) The term "hereof" and similar terms refer to this Agreement as a whole. (viii) The "date of" any notice or request given pursuant to this Agreement shall be determined in accordance with Section 11. SECTION 2. DEMAND SHELF REGISTRATIONS. 2.1. If HSR shall make a written request to the Trust and the Corporation, then the Trust and the Corporation shall cause there to be filed with the Commission a registration statement in accordance with the Securities Act for an offering on a delayed or continuous basis pursuant to Rule 415 under the Securities Act (a "Shelf Registration"), and the Trust and the Corporation shall include therein the Registrable Securities requested by -5- 6 HSR. Any request made pursuant to this Section 2.1 shall be addressed to the attention of the Secretary of each of the Trust and the Corporation, and shall specify the number of Registrable Securities to be registered, the possible intended methods of disposition thereof and that the request is for a Shelf Registration pursuant to this Section 2.1. 2.2. (i) The Trust and the Corporation shall be entitled to postpone for up to 180 days the filing, effectiveness, supplementing or amending of any registration statement otherwise required to be prepared and filed pursuant to this Section 2, if the Board of Trustees of the Trust or the Board of Directors of the Corporation determines that such registration and the Transfer of Registrable Securities contemplated thereby would interfere with, or require premature disclosure of, any material financing, acquisition, disposition, reorganization or other transaction involving the Realty Partnership, the Operating Partnership, the Trust or the Corporation or any of their respective subsidiaries and the Trust or the Corporation, as the case may be, promptly gives HSR notice of such determination. HSR and each Holder hereby acknowledges that any notice given by the Trust or the Corporation pursuant to this Section 2.4(i) shall constitute material non-public information and that the United States securities laws prohibit any Person who has material non-public information about a company from purchasing or selling securities of such company or from communicating such information to any other Person under circumstances in which it is reasonably foreseeable that such Person is likely to purchase or sell such securities. (ii) The Trust and the Corporation shall not be obligated to file any registration statement under the Securities Act pursuant to this Section 2 if, within 30 days after their receipt of the written request of HSR the Trust and the Corporation notify HSR that, prior to their receipt of such request, they had a plan or intention promptly to register equity securities under the Securities Act. Holders of Registrable Securities shall have rights to participate in any such registration on the terms provided in Section 3 hereof. If HSR makes a request for a Shelf Registration pursuant to Section 2.1 and the Trust and the Corporation do not file the registration statement pursuant to this Section 2.2(ii), within 6 months of the written request of HSR then HSR will not be deemed to have exercised its demand right pursuant to Section 2.1. 2.3. Following receipt of a request for a Shelf Registration, the Trust and the Corporation shall: (i) File the registration statement with the Commission as promptly as practicable, and shall use their respective reasonable efforts to have the registration declared effective under the Securities Act as soon as reasonably practicable, in each instance giving due regard to the need to prepare current financial statements, conduct due diligence and complete other actions that are reasonably necessary to effect a registered public offering. (ii) Use their respective reasonable efforts to keep the relevant registration statement Continuously Effective until the earlier of (x) 1 year after such registration statement is declared effective or (y) such date as of which all the Registrable Securities under the Shelf Registration statement have been disposed of in a manner described in the registration statement. -6- 7 2.4. Notwithstanding anything in this Agreement to the contrary, (a) in no event will the Trust or the Corporation be obligated to effect more than one Shelf Registration, (b) in no event will the Trust or the Corporation be obligated to effect any Shelf Registration for less than $1,000,000 of Paired Shares (the value of Paired Shares, for this purpose, is equal to the product of (i) the number of Paired Shares subject to the Shelf Registration and (ii) the average Paired Share Closing Price for the ten (10) trading day period ending one (1) trading day prior to the date the request for the Shelf Registration is made), (c) in no event will securities other than securities that are subject to this Agreement be added to the Shelf Offering, and (d) no registration shall be effected under this Agreement and no Transfer of Registrable Securities may be effected if as a result thereof the Trust would not satisfy the REIT Requirements in any respect or if such registration or Transfer would result in any Person Beneficially Owning Paired Shares in excess of the Ownership Limit. For purposes of the preceding sentence, registration shall not be deemed to have been effected (i) unless a registration statement with respect thereto has become effective, or (ii) if after such registration statement has become effective, the related offer, sale or distribution of Registrable Securities thereunder is prohibited by any stop order, injunction or other order or requirement of the Commission or other governmental agency or court for any reason not attributable to HSR or the Selling Holders and such prohibition is not thereafter eliminated. If the Trust and the Corporation shall have complied with their respective obligations under this Agreement, a right to demand a registration pursuant to this Section 2 shall be deemed to have been satisfied upon the effective date of the Shelf Registration, provided no stop order or similar order, or proceedings for such an order, is thereafter entered or initiated. 2.5. A registration pursuant to this Section 2 shall be on such appropriate registration form of the Commission as shall be selected by the Trust and the Corporation and shall permit the disposition of the Registrable Securities in accordance with the intended method or methods of disposition specified in the request pursuant to Section 2.1. 2.6. If any registration pursuant to Section 2 involves an underwritten offering (whether on a "firm commitment", "best efforts" or "all reasonable efforts" basis or otherwise), HSR shall select the underwriter or underwriters and manager or managers to administer such underwritten offering; provided, however, that each Person so selected shall be acceptable to the Trust and the Corporation. 2.7. Whenever the Trust and the Corporation shall effect a registration pursuant to this Section 2 in connection with an underwritten offering by one or more Selling Holders of Registrable Securities: (i) if such Selling Holders have requested the inclusion therein of more than one class of Registrable Securities and the Underwriters' Representative advises HSR that, in its opinion, the inclusion of more than one class of Registrable Securities would adversely affect such offering, HSR shall decide which class of Registrable Securities shall be included therein in such offering and the related registration and the other class shall be excluded and (ii) if the Underwriters' Representative advises HSR that, in its opinion, the amount of securities requested to be included in such offering (whether by Selling Holders or others, including the Trust and the Corporation) exceeds the amount which can be sold in such offering within a price range acceptable to the Majority Selling Holders, securities shall be included in such offering and the related registration, to the -7- 8 extent of the amount which can be sold within such price range in the following order of priority: first, the Registrable Securities requested to be included in such registration pursuant to this Section 2, pro rata based on the estimated gross proceeds from the sale thereof; and second all other securities requested to be included in such registration. If the amount of Registrable Securities requested by HSR to be included in such offering pursuant to this Section 2 is reduced pursuant to the preceding sentence, then HSR will not be deemed to have exercised its demand right pursuant to Section 2.1. SECTION 3. PIGGYBACK REGISTRATION. 3.1. If at any time the Trust and the Corporation propose to register securities under the Securities Act in connection with the public offering solely for cash on Form S-1, S-2, S-3, or S-11 (or any replacement or successor forms), the Trust and the Corporation shall promptly give HSR written notice of such registration. Upon the written request of each Holder given as promptly as practicable but in any event within 20 days following the date of such notice, the Trust and the Corporation shall cause to be included in such registration statement and use their respective reasonable efforts to be registered under the Securities Act all the Registrable Securities that each such Holder shall have requested to be registered; provided, however, that such right of inclusion shall not apply to any registration statement covering an offering of debt securities or convertible debt securities (any such registration in which Selling Holders participate pursuant to this Section 3.1 being referred to as a "Piggyback Registration"). The Trust and the Corporation shall have the absolute right to delay, withdraw or cease to prepare or file any registration statement for any offering referred to in this Section 3 without any obligation or liability to HSR or any Holder, it being understood that any Registrable Securities previously included in any such withdrawn Registration Statement shall not cease to be Registrable Securities by reason of such inclusion or withdrawal. Any exercise of Holders of their rights pursuant to this Section 3, will not be characterized as an exercise of demand rights pursuant to Section 2.1. 3.2. If the Underwriters' Representative shall advise the Trust and the Corporation that, in its opinion, the amount or type of Registrable Securities requested to be included in such registration would adversely affect such offering, or the timing thereof, then the Trust and the Corporation will include in such registration, to the extent of the amount and class which the Trust and the Corporation are so advised can be sold without such adverse effect in such offering: first, all securities proposed to be sold by the Trust and the Corporation for their own accounts; second, all other securities requested to be included in such registration by Starwood Capital Group, L.P., pursuant to its Registration Rights Agreement with the Trust and the Corporation; and third, the Registrable Securities requested to be included in such registration by Holders pursuant to this Section 3 and all other securities requested to be included in such registration, pro rata based on the estimated gross proceeds from the sale thereof. SECTION 4. REGISTRATION PROCEDURES. Whenever required under Section 2 or Section 3 to effect the registration of any Registrable Securities, the Trust and the Corporation shall, as expeditiously as practicable: -8- 9 4.1. Prepare and file with the Commission a registration statement with respect to such Registrable Securities and use their respective reasonable efforts to cause such registration statement to become effective; provided, however, that before filing a registration statement or prospectus or any amendments or supplements thereto, the Trust and the Corporation shall furnish to one firm of counsel for the Selling Holders, copies of all such documents in the form substantially as proposed to be filed with the Commission. 4.2. Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act and rules thereunder with respect to the disposition of all securities covered by such registration statement. If the registration is for an underwritten offering, the Trust and the Corporation shall amend the registration statement or supplement the prospectus whenever required by the terms of the underwriting agreement entered into pursuant to Section 5.2. If the registration statement is for a Shelf Registration, the Trust and the Corporation shall amend the registration statement or supplement the prospectus so that it will remain current and in compliance with the requirements of the Securities Act for the period specified in Section 2.3(ii), and if during such period any event or development occurs as a result of which the registration statement or prospectus contains a misstatement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading, the Trust or the Corporation shall promptly notify each Selling Holder, amend the registration statement or supplement the prospectus so that each will thereafter comply with the Securities Act and furnish to each Selling Holder of Registrable Securities such amended or supplemented prospectus, which each such Holder shall thereafter use in the Transfer of Registrable Securities covered by such registration statement. Pending any such amendment or supplement described in this Section 4.2, each such Holder shall cease making offers or Transfers of Registrable Shares pursuant to the prior prospectus. In the event that any Registrable Securities included in a registration statement subject to, or required by, this Agreement remain unsold at the end of the period during which the Trust and the Corporation are obligated to use their respective reasonable efforts to maintain the effectiveness of such registration statement, the Trust and the Corporation may file a post-effective amendment to the registration statement for the purpose of removing such Registrable Securities from registered status. 4.3. Furnish to each Selling Holder of Registrable Securities, without charge, such numbers of copies of the registration statement, any pre-effective or post-effective amendment thereto, the prospectus, including each preliminary prospectus and any amendments or supplements thereto, in each case in conformity with the requirements of the Securities Act and the rules thereunder, and such other related documents as any such Selling Holder may reasonably request in order to facilitate the disposition of Registrable Securities owned by such Selling Holder. 4.4. Use their respective reasonable efforts (i) to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such states where an exemption from registration is not available and as shall be reasonably requested by the Underwriters' Representative and (ii) to obtain the withdrawal of -9- 10 any order suspending the effectiveness of a registration statement, or the lifting of any suspension of the qualification (or exemption from qualification) of the offer and transfer of any of the Registrable Securities in any state, at the earliest possible moment; provided, however, that neither the Trust nor the Corporation shall be required in connection therewith or as a condition thereto to qualify to do business or to consent to general service of process in any state. 4.5. In the event of any underwritten offering, use their respective reasonable efforts to enter into and perform their respective obligations under an underwriting agreement (including indemnification and contribution obligations of underwriters), in usual and customary form, with the managing underwriter or underwriters of such offering. The Trust and the Corporation shall also cooperate with the Majority Selling Holders, and the Underwriters' Representative for such offering in the marketing of the Registerable Securities, including making available the officers, accountants, counsel, premises, books and records of the Trust and the Corporation for such purpose, but neither the Trust nor the Corporation shall be required to incur any material out-of-pocket expense pursuant to this sentence. 4.6. Promptly notify each Selling Holder of any stop order issued or threatened to be issued by the Commission in connection therewith and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered. 4.7. Make available for inspection by any Selling Holder, any underwriter participating in such offering and the representatives of such Selling Holder and Underwriter (but not more than one firm of counsel to such Selling Holders), all financial and other information as shall be reasonably requested by them, and provide any Selling Holder, any underwriter participating in such offering and the representatives of such Selling Holder and Underwriter the reasonable opportunity to discuss the business affairs of the Trust and the Corporation with their principal executives and independent public accountants who have certified the audited financial statements included in such registration statement, in each case all as necessary to enable them to exercise their due diligence responsibility under the Securities Act; provided, however, that information that the Trust or the Corporation determine to be confidential and which the Trust or the Corporation advise such Person in writing, is confidential shall not be disclosed unless such Person signs a confidentiality agreement reasonably satisfactory to the Trust and the Corporation or the related Selling Holder of Registrable Securities agrees to be responsible for such Person's breach of confidentiality on terms reasonably satisfactory to the Trust and the Corporation. 4.8. Use their respective reasonable efforts to obtain a so-called "comfort letter" from the independent public accountants of the Trust and the Corporation, and legal opinions of counsel to the Trust and the Corporation addressed to the Selling Holders, in customary form and covering such matters of the type customarily covered by such letters, and in a form that shall be reasonably satisfactory to HSR. Delivery of any such opinion or comfort letter shall be subject to the recipient furnishing such written representations or acknowledgements as are customarily provided by selling shareholders who receive such comfort letters or opinions. -10- 11 4.9. Use their respective reasonable efforts to cause the Registrable Securities covered by such registration statement (i) if the Paired Shares are then listed on a securities exchange or included for quotation in a recognized trading market, to continue to be so listed or included for a reasonable period of time after the offering, and (ii) to be registered with or approved by such other United States or state governmental agencies or authorities as may be necessary by virtue of the business and operations of the Trust and the Corporation to enable the Selling Holders of Registrable Securities to consummate the disposition of such Registrable Securities. 4.10. Take such other actions as are reasonably required in order to expedite or facilitate the disposition of Registrable Securities included in each such registration. SECTION 5. SELLING HOLDERS' OBLIGATIONS. It shall be a condition precedent to the obligations of the Trust and the Corporation to take any action pursuant to this Agreement with respect to the Registrable Securities of any Selling Holder of Registrable Securities that such Selling Holder shall: 5.1. Furnish to the Trust and the Corporation such information regarding such Selling Holder, the number of the Registrable Securities owned by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Selling Holder's Registrable Securities, and to cooperate fully with the Trust and the Corporation in preparing such registration. 5.2. Agree to sell their Registrable Securities to the underwriters at the same price and on substantially the same terms and conditions as the Trust and the Corporation or the other Persons on whose behalf the registration statement was being filed have agreed to sell their securities, and to execute the underwriting agreement agreed to by the Majority Selling Holders (in the case of a registration under Section 2) or the Trust and the Corporation and the Majority Selling Holders (in the case of a registration under Section 3). SECTION 6. EXPENSES OF REGISTRATION. Expenses in connection with registrations pursuant to this Agreement shall be allocated and paid as follows: 6.1. With respect to the Shelf Registration, HSR, HIR and the Selling Holders shall bear and pay all expenses incurred in connection with any registration, filing, or qualification of Registrable Securities with respect to such Registration for each Selling Holder, including all registration, filing and National Association of Securities Dealers, Inc. fees, all fees and expenses of complying with securities or blue sky laws, all printing expenses, messenger and delivery expenses, the reasonable fees and disbursements of counsel for the Trust and the Corporation, and of the independent public accountants for the Trust and the Corporation, including the expenses of "cold comfort" letters required by or incident to such performance and compliance (the "Registration Expenses"), underwriting discounts and commissions relating to Registrable Securities (which shall be paid on a pro rata basis by the Selling Holders) and all fees and expenses of counsel for the Selling Holders. -11- 12 6.2. The Trust and the Corporation shall bear and pay all Registration Expenses incurred in connection with any Piggyback Registrations pursuant to Section 3 but excluding underwriting discounts and commissions relating to Registrable Securities (which shall be paid on a pro rata basis by the Selling Holders) and all fees and expenses of counsel for the Selling Holders. The Trust and the Corporation each agree between themselves that they shall bear and pay such Registration Expenses in an amount equal to its respective Issuance Percentage of such Registration Expenses and that they shall reimburse each other to the extent necessary to cause each of them to so bear and pay such respective amounts. SECTION 7. INDEMNIFICATION; CONTRIBUTION. If any Registrable Securities are included in a registration statement under this Agreement: 7.1. To the extent permitted by applicable law, each of the Trust and the Corporation, severally and not jointly, shall indemnify and hold harmless each Selling Holder, each Person, if any, who controls such Selling Holder within the meaning of the Securities Act, and each officer, director, partner and employee of such Selling Holder and such controlling Person, against any and all losses, claims, damages, liabilities and expenses (joint or several), including reasonable attorneys' fees and disbursements and reasonable expenses of investigation, incurred by such party pursuant to any actual or threatened action, suit, proceeding or investigation, or to which any of the foregoing Persons may otherwise become subject under the Securities Act, the Exchange Act or other federal or state laws, insofar as such losses, claims, damages, liabilities and expenses arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) Any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein, or any amendments or supplements thereto; or (ii) The omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; provided, however, that the indemnification required by this Section 7.1 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or expense if such settlement is effected without the consent (not to be unreasonably withheld or delayed) of the Trust or the Corporation, nor shall the Trust or the Corporation be liable in any such case for any such loss, claim, damage, liability or expense to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with information furnished to the Trust or the Corporation by the indemnified party expressly for use in connection with such registration; and provided, further, that the indemnity agreement contained in this Section 7 shall not apply to the extent that any such loss is based on or arises out of an untrue statement or alleged untrue statement of a material fact, or an omission or alleged omission to state a material fact, contained in or omitted from any preliminary prospectus if the final prospectus shall correct such untrue statement or alleged untrue statement, or such omission or alleged omission, and a copy of the final prospectus has not been sent or given to such person at or prior to the confirmation of sale to such person if an underwriter was under an obligation to deliver such final prospectus and failed to do so. -12- 13 7.2. To the extent permitted by applicable law, each Selling Holder shall indemnify and hold harmless the Trust, the Corporation, each of the Trustees of the Trust, each of the directors of the Corporation, each of the officers of the Trust or the Corporation who shall have signed the registration statement, each Person, if any, who controls the Trust or the Corporation within the meaning of the Securities Act, any other Selling Holder, any controlling Person of any such other Selling Holder and each officer, director, partner, and employee of such other Selling Holder and such controlling Person, against any and all losses, claims, damages, liabilities and expenses (joint and several), including reasonable attorneys' fees and disbursements and reasonable expenses of investigation, incurred by such party pursuant to any actual or threatened action, suit, proceeding or investigation, or to which any of the foregoing Persons may otherwise become subject under the Securities Act, the Exchange Act or other federal or state laws, but only insofar as such losses, claims, damages, liabilities and expenses arise out of or are based upon any Violation, in each case to the extent that such Violation arises out of or is based upon information furnished by such Selling Holder expressly for use in connection with such registration; provided, however, that (x) the indemnification required by this Section 7.2 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or expense if such settlement is effected without the consent of HSR (which consent shall not be unreasonably withheld) and (y) in no event shall the amount of any indemnity under this Section 7.2 exceed the gross proceeds from the applicable offering received by such Selling Holder. 7.3. Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any action, suit, proceeding, investigation or threat thereof made in writing for which such indemnified party may make a claim under this Section 7, such indemnified party shall deliver to the indemnifying party a written notice thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and disbursements and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time following the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 7 to the extent of such prejudice but shall not relieve the indemnifying party of any liability that it may have to any indemnified party otherwise than pursuant to this Section 7. Any fees and expenses incurred by the indemnified party (including any fees and expenses incurred in connection with investigating or preparing to defend such action or proceeding) shall be paid to the indemnified party, as incurred, within thirty (30) days of written notice thereof to the indemnifying party (regardless of whether it is ultimately determined that an indemnified party is not entitled to indemnification hereunder). Any such indemnified party shall have the right to employ separate counsel in any such action, claim or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be the expenses of such indemnified party unless (i) the indemnifying party has agreed to pay such -13- 14 fees and expenses or (ii) the indemnifying party shall have failed to promptly assume the defense of such action, claim or proceeding or (iii) the named parties to any such action, claim or proceeding (including any impleaded parties) include both such indemnified party and the indemnifying party, and such indemnified party shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or in addition to those available to the indemnifying party and that the assertion of such defenses would create a conflict of interest such that counsel employed by the indemnifying party could not faithfully represent the indemnified party (in which case, if such indemnified party notifies the indemnifying party in writing that it elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such action, claim or proceeding on behalf of such indemnified party, it being understood, however, that the indemnifying party shall not, in connection with any one such action, claim or proceeding or separate but substantially similar or related actions, claims or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for all such indemnified parties, unless in the reasonable judgment of such indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such action, claim or proceeding, in which event the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel or counsels). 7.4. If the indemnification required by this Section 7 from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to in this Section 7: (i) The indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any Violation has been committed by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such Violation. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 7.1 and Section 7.2, any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. (ii) The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 7.4 were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in Section 7.4(i). No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. -14- 15 7.5. If indemnification is available under this Section 7, the indemnifying parties shall indemnify each indemnified party to the full extent provided in this Section 7 without regard to the relative fault of such indemnifying party or indemnified party or any other equitable consideration referred to in Section 7.4. 7.6. The obligations of the Trust, the Corporation and the Selling Holders of Registrable Securities under this Section 7 shall survive the completion of any offering of Registrable Securities pursuant to a registration statement under this Agreement, and otherwise. SECTION 8. HOLDBACK. Each Holder, if so requested by the Underwriters' Representative in connection with an offering of any securities covered by a registration statement filed by Trust and the Corporation, whether or not Holder's securities are included therein, shall not effect any public sale or distribution of Paired Shares or any securities convertible into or exchangeable or exercisable for Paired Shares, including a sale pursuant to Rule 144 under the Securities Act (except as part of such underwritten registration), during the 15-day period prior to, and during the 180-day period beginning on, the date such registration statement is declared effective under the Securities Act by the Commission. In order to enforce the foregoing covenant, the Trust and the Corporation shall be entitled to impose stop-transfer instructions with respect to the Registrable Securities of each Selling Holder until the end of such period. SECTION 9. AMENDMENT, MODIFICATION AND WAIVERS; FURTHER ASSURANCES. (i) This Agreement may be amended with the consent of the Trust and the Corporation, and the Trust and the Corporation may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Trust and the Corporation shall have obtained the written consent of HSR to such amendment, action or omission to act and no consent or agreement of any Holder shall be required for such amendment, action or omission to act. (ii) No waiver of any terms or conditions of this Agreement shall operate as a waiver of any other breach of such terms and conditions or any other term or condition, nor shall any failure to enforce any provision hereof operate as a waiver of such provision or of any other provision hereof. No written waiver hereunder, unless it by its own terms explicitly provides to the contrary, shall be construed to effect a continuing waiver of the provisions being waived and no such waiver in any instance shall constitute a waiver in any other instance or for any other purpose or impair the right of the party against whom such waiver is claimed in all other instances or for all other purposes to require full compliance with such provision. (iii) Each of the parties hereto shall execute all such further instruments and documents and take all such further action as any other party hereto may reasonably require in order to effectuate the terms and purposes of this Agreement. -15- 16 SECTION 10. Assignment; Benefit. This Agreement and all of the provisions hereof shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, assigns, executors, administrators or successors; provided, however, that neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned or delegated (i) by the Trust and the Corporation without the consent of HSR (which consent shall not be unreasonably withheld) or (ii) by a Holder, unless the transferee of the Registrable Securities is an heir or a direct or indirect partner of such Holder. SECTION 11. MISCELLANEOUS. 11.1. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving regard to the conflict of laws principles thereof. 11.2. NOTICES. All notices and requests given pursuant to this Agreement shall be in writing and shall be made by hand-delivery, first-class mail (registered or certified, return receipt requested), confirmed facsimile or overnight air courier guaranteeing next business day delivery to the relevant address specified in the Exchange Rights Agreement. Except as otherwise provided in this Agreement, the date of each such notice and request shall be deemed to be, and the date on which each such notice and request shall be deemed given shall be: at the time delivered, if personally delivered or mailed; when receipt is acknowledged, if sent by facsimile; and the next business day after timely delivery to the courier, if sent by overnight air courier guaranteeing next business day delivery. 11.3. ENTIRE AGREEMENT; INTEGRATION. This Agreement supersedes all prior agreements between or among any of the parties hereto with respect to the subject matter contained herein and therein, and such agreements embody the entire understanding among the parties relating to such subject matter. 11.4. SECTION HEADINGS. Section headings are for convenience of reference only and shall not affect the meaning of any provision of this Agreement. 11.5. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which shall together constitute one and the same instrument. All signatures need not be on the same counterpart. 11.6. SEVERABILITY. If any provision of this Agreement shall be invalid or unenforceable, such invalidity or unenforceability shall not affect the validity and enforceability of the remaining provisions of this Agreement, unless the result thereof would be unreasonable, in which case the parties hereto shall negotiate in good faith as to appropriate amendments hereto. 11.7. TERMINATION. This Agreement may be terminated at any time by a written instrument signed by the Trust, the Corporation and HSR. Unless sooner terminated in accordance with the preceding sentence, this Agreement (other than Section 7 hereof) shall terminate in its entirety on such date as there shall be (a) no Registrable Securities -16- 17 outstanding, and (b) no securities outstanding which are convertible or exchangeable into Registrable Securities; provided that any Paired Shares previously subject to this Agreement shall not be Registrable Securities following the sale of any such shares in an offering registered pursuant to this Agreement. 11.8. STARWOOD LODGING TRUST. The parties hereto understand and agree that the name "Starwood Lodging Trust" is a designation of the Trust and its Trustees (as Trustees but not personally) under the Declaration of Trust, and all persons dealing with the Trust shall look solely to the Trust's assets for the enforcement of any claims against the Trust, and that the Trustees, officers, agents and security holders of the Trust assume no personal liability for obligations entered into on behalf of the Trust, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. 11.9. SUBMISSION TO JURISDICTION. Each of the parties hereto and each of the Holders irrevocably submits and consents to the jurisdiction of the United States District Court for the Southern District of New York and United States District Court for the Central District of California in connection with any action or proceeding arising out of or relating to this Agreement, and irrevocably waives any immunity from jurisdiction thereof and any claim of improper venue, forum non conveniens or any similar basis to which it might otherwise be entitled in any such action or proceeding. IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the date first written above. STARWOOD LODGING TRUST By: --------------------------------- Name: Title: STARWOOD LODGING CORPORATION By: --------------------------------- Name: Title: -17- 18 PHILADELPHIA HSR LIMITED PARTNERSHIP By: --------------------------------- Name: Title: -18- EX-10.3 4 EMPLOYMENT AGREEMENT FOR TED DARNALL 1 STARWOOD LODGING CORPORATION c/o Starwood Capital Group, L.P. Three Pickwick Plaza Suite 250 Greenwich, CT 06830 VIA FAX April 19, 1996 Mr. Ted Darnall 226 Salem Pittsburgh, PA 15241 Dear Ted: We are very pleased to submit this offer for your full-time employment by Starwood Lodging Corporation (the "Company") as the Chief Operating Officer of the Company. As you know, shares of the Company trade on the NYSE and are paired with those of Starwood Lodging Trust (the "REIT"), which, in 1995, was the nation's number #1 performing hotel company and the number #1 performing real estate investment trust in all asset categories. We expect the total combined capitalization of the Company and the REIT to be well in excess of $1 billion in the near future and, at present, have over $500 million of transactions in our acquisitions "pipeline". We are very excited about the prospects of having someone with your talent and abilities join our effort to build one of the nation's best vertically- integrated hotel companies. The following will serve to confirm the principal attributes of your employment: 1. START DATE: Your employment will commence on or before May 9, 1996. 2. DUTIES: You shall be the Chief Operating Officer of the Company and shall perform such duties and services as may be assigned to you from time to time by the Chief Executive Officer and/or the Board of Directors. You shall devote your full time and attention to the affairs of the Company and to your duties as Chief Operating Officer. 3. BASE SALARY: Your initial base salary expressed in annualized terms will be $275,000 per year, payable bi-weekly and subject to the usual withholdings for FICA, 401(k) contributions (to the extent the Company has or adopts a 401(k) program), state and federal unemployment tax and Medicare. The initial base salary shall be operative for the balance of the calendar year 1996 and for 1997 and will be subject to annual review and potential increase by the Board of Directors for subsequent calendar years in which you remain in the employ of the Company. 2 4. BONUS: You will be eligible to receive a performance bonus based upon achieving specified performance criteria which will be established by the Board of Directors. The bonus will be up to 100% of your base salary in effect for the period for which a bonus is being considered. However, for the calendar year 1996 you will be guaranteed a minimum bonus equal to 50% of your annualized base salary as if you had been in the employ of the Company for the entire calendar year 1996. Any additional bonus for 1996 will be based upon meeting or exceeding the criteria established by the Board of Directors. 5. EMPLOYEE BENEFITS: You shall be eligible to participate in all employee benefit programs of the Company as are generally available to other executives of the Company. 6. OPTIONS: You will receive 50,000 options for paired shares in the Company and Starwood Lodging Trust on the date your employment commences. Such options will be at the fair market value (i.e., closing price) of the paired shares on the NYSE on such date. Such options will vest one-third annually on each anniversary of your employment commencement date. The contingencies to vesting and any acceleration of vesting will be the same as are applicable generally to the options held by other senior executives of the Company. You will be considered for additional options in the future, based on your and the Company's performance. At the time shares are delivered pursuant to the exercise of your options, such shares shall be subject to resale pursuant to the requirements of Rule 144. 7. RESTRICTED STOCK: You will receive an initial award of $1,000,000 of restricted stock or of securities having equivalent value pursuant to a restricted stock and other incentive program, the details of which are currently being worked on by the Company. The performance criteria and other contingencies associated with such restricted stock or other securities shall be the same as those generally applicable to other senior executives of the Company. In no event will the vesting period for such restricted stock exceed three years and you will be entitled to receive dividends on your restricted stock even though the same are not fully vested (subject to prospective forfeiture in the event and to the extent that the restricted stock grant falls to vest in whole or in part). We anticipate that, under the program which the Company is currently developing you will be eligible for additional grants of restricted stock in the future based on your and the Company's performance. 8. RELOCATION EXPENSES: The Company will pay the reasonable, out-of-pocket costs of relocating your household furnishings and your family from Pittsburgh to the Company's new headquarters. As you know, the Company anticipates moving its current offices from LA in the near future. At the present time, Atlanta and Fairfield County, CT are both under consideration as potential areas in which to relocate the Company. While Atlanta appears to be our lead candidate at the moment, no final decision has been made to this point. We would anticipate that this decision will be made within the next 30 to 60 days. Relocation expenses will include the payment of normal escrow costs and financing costs (up to two (2) points of the loan amount) of a new home. In addition, such costs will include the actual real estate commissions (to a maximum of six (6) percent) and other closing costs on the sale of your Pittsburgh residence. -2- 3 You will receive a bridge loan of up to $250,000 to enable you to purchase a new home at the Company's new headquarters while you are selling your home in Pittsburgh. Upon sale of your Pittsburgh home, you will pay the bridge loan down to $150,000. The bridge loan would be secured by a second mortgage on your new home, would be non-interest bearing and would mature when your employment ceases with the Company. In the event you purchase a new home at a time when you still have not sold your home in Pittsburgh, the Company agrees to reimburse you the cost of utilities, first mortgage interest, taxes and insurance on your home in Pittsburgh or, if you prefer, on your new home through the earlier to occur of the first anniversary of your acquisition of your new home or the sale of your home in Pittsburgh. The Company will also reimburse you for out of pocket temporary housing expenses (for up to six months) and for three househunting trips for you and your family. In addition, the Company shall reimburse you for up to $3,000 of out-of-pocket costs incurred by you on weekend visits to your family while you are employed at a location away from you family's place of residence. 9. TERMINATION/SEVERANCE: The Company reserves the right to terminate your employment with or without cause at any time. In the event of an involuntary termination without cause or in the event of any breach by the Company of your employment agreement entitling you to terminate same (after expiration of applicable notice and cure periods for the benefit of the Company), you shall receive, as your sole right, exclusive remedy and liquidated damages, a termination package equal to twelve (12) months base salary and the vesting of your options and restricted stock shall be accelerated to the date of such termination. The Company will also continue to provide medical benefits coverage during the 12 month period subsequent to the termination of your employment. No severance shall be due in the event that you are terminated for cause or in the event that you leave the full-time employ of the Company voluntarily. In the event of any employment-related disputes with respect to your employment by the Company, then you and the Company agree that the same shall be resolved through binding arbitration in the jurisdiction of the Company's headquarters and in accordance with the rules and procedures from time to time of the American Arbitration Association. 10. REIMBURSEMENT: The Company has reviewed your existing employment agreement with Interstate Hotels Corporation dated December 1, 1995. The Company has no desire to obtain nor to utilize any proprietary or confidential information to which you may have had access in your current employment with Interstate. Thus, in the performance of your duties for the Company, you shall not utilize nor disclose (whether to the Company or to any of its officers, employees, directors or agents), and the Company agrees that it shall not request that you utilize or disclose, any trade secrets or other proprietary or confidential information of your existing employer, including, but without limitation, customer lists. The Company -3- 4 agrees to reimburse you your legal fees for your defense (by counsel to be chosen by the Company) of any equitable or legal relief which your current employer may seek against you for any alleged breach of said employment contract resulting from your employment by the Company and to indemnify you against any damages sought to be recovered by your current employer for alleged breach of said employment contract, provided, however, that such reimbursement and indemnification obligations shall not extend to legal fees incurred with respect to, nor to damages resulting from, any alleged breach of such contract other than an alleged violation of the non-competition, confidentiality or non-solicitation covenants resulting from your employment by the Company. In the event that, as a result of the foregoing limitations, you are not entitled to full reimbursement of your legal fees by the Company or to full indemnification for any damages resulting from alleged breaches of said employment contract, then your legal fees and any obligation to pay damages shall be prorated between reimbursable and non-reimbursable components in a fair and equitable manner, as to be determined from time to time by a mutually acceptable, independent third party knowledgeable in such matters, who shall be designated in your employment contract with the Company. The Company reserves the right to settle, in whole or in part, without your consent and at the Company's sole cost and expense, any matter for which reimbursement or indemnification obligations have been undertaken by the Company hereunder so long as the terms of any such settlement shall not include any admission of liability or of wrongdoing on your part. This letter represents the entirety of our agreement with respect to your employment and any prior discussions or negotiations are hereby merged herein. Once you've accepted this offer, the Company's counsel will prepare a more formal employment agreement that will incorporate, without limitation, the principal terms of your employment set forth herein. Such employment will include mutually acceptable provisions as to the maintenance by you of agreement with confidentiality with respect to the Company's confidential and/or proprietary information, as well as a non-compete that will be operative during the term of your employment. If this offer is acceptable to you, then please sign this letter in the space provided below and return a copy of this letter to Barry Sternlicht by Monday, April 22, 1996. Ted, on a personal note, I know I speak on behalf of all of the senior executives of the Company and the REIT in saying that we are delighted for the Company's extending you this offer and we look forward to building a great company in tandem with your capabilities -4- 5 and experience. You are ready to be the COO of a major company and I believe that your will find this position to be as challenging and rewarding as you care to make it. Very truly yours, STARWOOD LODGING CORPORATION By: ------------------------------- Barry S. Sternlicht Authorized Signatory ACCEPTED AND AGREED TO: - ------------------------------ Ted Darnall -5- EX-10.4 5 EMPLOYMENT AGREEMENT FOR ERIC DANZIGER 1 EMPLOYMENT AGREEMENT between STARWOOD LODGING CORPORATION and ERIC A. DANZIGER Employment Agreement dated as of June 27, 1996 between Eric A. Danziger (the "Executive") and Starwood Lodging Corporation, a Maryland corporation (the "Company"), with its principal office at 11835 West Olympic Boulevard, Suite 675, West Los Angeles, California 90064. WHEREAS, the Company desires to employ the Executive as its President and Chief Executive Officer, and the Executive desires to accept such employment, upon the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the agreements and covenants contained herein, the Executive and the Company hereby agree as follows: ARTICLE I Employment Section 1.01 Position; Responsibilities. The Company hereby employs the Executive as its President and Chief Executive Officer commencing on July 8, 1996 (the "Commencement Date"). The employment hereunder shall be at will and shall be terminable by either party with or without cause and with or without notice; provided, however, the Executive shall give the Company at least 30 days' advance written notice prior to any voluntary termination by the Executive without cause. The Executive shall perform such duties and services as may be assigned to him from time to time by the Board of Directors of the Company or the Management Committee of SLC Operating Limited Partnership (collectively, the "Board") or any committee of the Board. Section 1.02 Performance of Duties. The Executive shall duly and faithfully perform all of the duties assigned to him to the best of his abilities, and he shall devote his full time, attention and best efforts to the performance of such duties and shall not engage in any other business activities except with the prior written approval of the Board. Section 1.03 Representation and Warranty of Executive. The Executive hereby represents and warrants to the Company that the Executive is not aware of any presently existing fact, circumstance or event (including, but without limitation, any health condition or legal constraint) which would preclude or restrict him from providing to the Company the services contemplated by this Agreement, or which would give rise to any breach of any term or provision hereof, or which could otherwise result in the termination of his employment hereunder for cause. 2 ARTICLE II Compensation Section 2.01 General. The Company shall compensate the Executive for all of his services under this Agreement, as set forth below. Section 2.02 Basic Compensation. The Executive's minimum annual salary ("Base Salary") shall be at the rate of $365,000 and shall be payable in bi-weekly or other installments in accordance with the Company's normal payment schedule for senior management. The Base Salary shall be subject to annual review commencing at the end of 1997 and at the end of each year thereafter, if the Executive is employed by the Company at that time, and may be increased (but not decreased) for subsequent years. Section 2.03 Incentive Compensation. In addition to the Base Salary, the Company shall pay to the Executive as incentive compensation ("Incentive Compensation") in respect of each fiscal year of the Company which ends during the time when the Executive is employed by the Company, an amount determined in accordance with any bonus or short term incentive compensation program based upon achieving specified performance criteria which may be established by the Board either for the Executive or for senior management generally; provided, however, that in no event may such Incentive Compensation in respect of any fiscal year of the Company exceed 75% of the Executive's Base Salary for that year; and provided, further, that the minimum Incentive Compensation for the Executive for 1996 shall be $150,000. All Incentive Compensation earned under this Section 2.03 shall be payable as soon as reasonably practicable, but in no event later than 120 days after the end of the relevant fiscal year of the Company. Section 2.04 Stock Options. The Option Committee of the Board has granted to the Executive, conditioned upon the commencement of his employment by the Company hereunder, a "Paired Option" under the Starwood Lodging Corporation 1995 Share Option Plan (the "Option Plan") as approved by the stockholders of the Company at a meeting held December 7, 1995, to purchase 125,000 Paired Shares of the Company and Starwood Lodging Trust, exercisable at a Purchase Price equal to the closing price per Paired Share on the New York Stock Exchange on the date of this Employment Agreement. Such option vests 33 1/3% annually on each anniversary of the Commencement Date, starting in 1997. Such option expires ten years from the Commencement Date, and is subject to all other provisions of the Option Plan; provided, however, that no contingency shall exist to vesting of the aforesaid Paired Option based on the economic performance of the Company. The Executive shall be eligible for grants in the future of additional options under the Option Plan or "Amended Option Plan" (as hereinafter defined) at the discretion of the Option Committee of the Board. Upon exercise of any option, all Paired Shares delivered pursuant thereto will be subject to resale and other restrictions as set forth in the Option Plan or Amended Option Plan, as applicable. The Board is scheduled to consider at its meeting on June 27, 1996, certain amendments to the Option Plan which are expected to provide, in addition to options to purchase Paired Shares for awards of stock appreciation rights, restricted Paired Shares, -2- 3 bonus Paired Shares and performance shares (as so amended the Option Plan is herein referred to as the "Amended Option Plan"). Section 2.05 Restricted Stock. The Option Committee of the Board has granted to the Executive, conditioned upon the commencement of his employment by the Company, $2,500,000 in value of restricted Paired Shares based on the trailing average three-trading- day closing price of the Paired Shares on the New York Stock Exchange immediately preceding the date of this Employment Agreement. The foregoing grant of restricted Paired Shares is not contingent upon the adoption by the Board of the Amended Option Plan; but in the event the Board adopts the Amended Option Plan, such grant shall be deemed a grant pursuant to the Amended Option Plan. The Amended Option Plan, including the provisions thereof dealing with the issuance of restricted Paired Shares, will be subject to stockholder approval at the 1996 Annual Meeting of the stockholders of the Company. The aforesaid restricted Paired Shares shall vest 33 1/3% annually on each anniversary of the Commencement Date, starting in 1997. Such restricted Paired Shares grant shall be subject to all of the terms and provisions of the Amended Option Plan in the event the Amended Option Plan is adopted by the Board; provided, however, that (i) the Executive shall be entitled to receive dividends on such Restricted Stock even though said grant shall not be fully vested (subject, however, to forfeiture (of future dividends only) in the event and to the extent that the restricted Paired Shares fail to vest in whole or in part); and (ii) no contingency shall exist to vesting of the aforesaid restricted Paired Shares based on the economic performance of the Company. The Executive shall be eligible for grants in the future of additional restricted Paired Shares under the Amended Option Plan at the discretion of the Option Committee of the Board. Restricted stock shall be subject to resale and other restrictions as set forth in the Amended Option Plan. Section 2.06 Performance Units. Subject to the adoption of the Amended Option Plan by the Board, and effective on the Commencement Date, the Option Committee of the Board has granted to the Executive 40,000 Performance Shares ("Performance Units") pursuant to the Amended Option Plan. The Amended Option Plan, including the provisions thereof dealing with the issuance of Performance Units, will be subject to stockholder approval at the 1996 Annual Meeting of the stockholders of the Company. Such Performance Units grant and any subsequent grant shall be subject to all of the terms and provisions of the Amended Option Plan. The Executive shall be eligible for grants in the future of additional Performance Units under the Amended Option Plan at the discretion of the appropriate Committee of the Board. Any Paired Shares issued pursuant to Performance Units shall be subject to resale and other restrictions as set forth in the Amended Option Plan. The Company reserves the right to deliver cash in lieu of Paired Shares pursuant to the Performance Unit program. In connection with the aforesaid grant of 40,000 Performance Units: (i) The performance criteria and other contingencies associated with the Executive's participation in the Performance Unit program shall be the same as those generally applicable to other senior executives of the Company except as otherwise expressly set forth in this Employment Agreement; -3- 4 (ii) The Reference Period for the initial grant of 40,000 Performance Units shall be from January 1, 1996 through December 31, 2000. In the event that, during said Reference Period, the Executive's employment is terminated by the Executive (without cause against the Company) or by the Company with cause against the Executive, then the Board may require Executive to forfeit any interest in the Performance Unit program, including, but without limitation, in the aforesaid 40,000 Performance Units; (iii) "Applicable Percentage" as to Executive in respect of the aforesaid 40,000 Performance Units shall be (1) 10% in 1996, (2) 25% in 1997, (3) 45% in 1998, (4) 70% in 1999 and (5) 100% in 2000; (iv) In the event that Executive's employment is terminated by the Company without cause or by the Executive with cause against the Company, then the Applicable Percentage at the time of termination of said 40,000 Performance Units shall vest (with any remainder of said 40,000 Performance Units to be forfeited at the discretion of the Board) and the Reference Period for determining the number of Paired Shares, if any, to be issued in exchange for the vested Performance Units shall be from January 1, 1996 through such date of termination or through December 31, 2000 (if December 31, 2000 shall occur prior to such termination); and (v) Subject to review and modification by the Board or the appropriate Committee from time to time, the Company has established that up to 50% of the maximum potential Paired Shares to be awarded pursuant to the Performance Unit Program (i.e., 140,000 Paired Shares in respect of the Executive's initial 40,000 Performance Units grant) shall be granted based on the Company's and Starwood Lodging Trust's achieving or exceeding their combined funds from operation ("FFO") targets for each fiscal year of the Company ending during the Reference Period and that the remaining maximum potential Paired Shares to be awarded shall be granted based on the Company and Starwood Lodging Trust's achieving, on a combined basis, the following percentile rankings to their combined competitive set (as established and modified by the Board or the appropriate Committee from time to time) during the applicable Reference Period:
Total Shareholder Return Paired Shares per Performance Unit to Vest A. 95th percentile or better 7.0 B. 85th percentile or better, but less than A. 6.0 C. 80th percentile or better, but less than B. 5.0 D. 75th percentile or better, but less than C. 3.0 E. 60th percentile or better, but less than D. 2.0 F. 50th percentile or better, but less than E. 1.0 G. Below 50th percentile 0.0
-4- 5 The performance criteria respecting the 40,000 Performance Units referenced above in this Section 2.06 and in any other Performance Units which may be granted to Executive, shall be established immediately prior to the grant or at such other times as may be necessary to comply with the provisions of Section 162(m) of the Internal Revenue Code. Section 2.07 Proviso. All grants of restricted Paired Shares, of Performance Units and of any Paired Shares to issue from Performance Units referred to in this Employment Agreement, are subject to the approval of the Amended Option Plan by the stockholders of the Company at the 1996 Annual Meeting of Stockholders of the Company. No assurances can be given by the Company that such stockholder approval shall be obtained. In the event that such approval is not obtained, then this Employment Agreement shall continue in effect and shall be construed without regard to any grants of restricted Paired Shares, Performance Units or any Paired Shares to issue from Performance Units and no such grants or the failure thereof to have been approved by the stockholders of the Company shall be taken into account in connection with the Executive's compensation and/or severance, nor shall the Executive be entitled to any compensation in lieu of any such grants or of Paired Shares that would or might otherwise have issued as a result of such grants. However, in the event that and so long as the stockholders of the Company shall have approved the Amended Option Plan, in no event will the Executive be issued less than $2,500,000 in value of restricted Paired Shares as set forth in Section 2.05 above nor less than 40,000 Performance Units as set forth in Section 2.06 above (and the Company shall not request that any shareholder approval of Executive's aforesaid grants be made separately from shareholder approval of the Amended Option Plan generally, subject to the requirements of applicable law or the rules of the New York Stock Exchange). Section 2.08 Relocation Expenses. In recognition of the necessity for the Executive to relocate his residence from Dallas, Texas, where he currently resides ("Executive's Dallas Residence"), to the Company's new executive offices in Phoenix, Arizona (the "New Offices"), the Company shall reimburse the Executive for his reasonable out-of-pocket expenses for transporting his family and household furnishings and belongings from Executive's Dallas Residence to his new residence ("Executive's New Residence") in the community of the Company's New Offices. Relocation expenses will include, with respect to Executive's Dallas Residence, (i) normal escrow Costs and (ii) the actual real estate commission, up to a maximum of 6% of the selling price, and other out-of-pocket closing costs in respect of the sale of the Executive's Dallas Residence. Relocation expenses shall also include, in the event the Executive purchases Executive's New Residence prior to the sale of Executive's Dallas Residence, the cost of interest on any first Mortgage on Executive's Dallas Residence from the date of purchase of Executive's New Residence through the earlier of that date which is 180 days subsequent to the Executive's purchase of Executive's New Residence or the date as of which Executive's Dallas Residence shall have been sold; provided, however, that the aggregate amount of such first mortgage interest included in relocation expenses shall not exceed $35,400. The Company will also reimburse the Executive for out-of-pocket temporary housing expenses for the Executive and his family for up to six months respecting the Executive's employment at the New Offices; provided, however, that in no event shall the aggregate amount of such temporary housing expenses to be reimbursed by the Company exceed $30,000. -5- 6 In addition, in order to assist the Executive to purchase Executive's New Residence, the Company will loan the Executive the sum of up to $250,000 (the "Bridge Loan"). Upon the sale of the Executive's Dallas Residence, the Bridge Loan shall mature. The Bridge Loan will be secured by a second mortgage on the Executive's New Residence (second only to a conventional first mortgage), will be non-interest bearing prior to maturity and will mature, if not earlier, then on the first anniversary of the Commencement Date. The Bridge Loan shall be funded at closing on the Executive's New Residence. As a condition to the Company's obligation to make the Bridge Loan and to include the aforesaid first mortgage interest in relocation expenses, Executive confirms and agrees that prior to the Commencement Date, (i) Executive will list Executive's Dallas Residence for sale at a listing price that does not exceed 110% of the Executive's Dallas Residence's fair market value, and (ii) from and after the date hereof, Executive shall use his best efforts to sell Executive's Dallas Residence as expeditiously as possible. Section 2.09 Other Programs. The Executive shall also be entitled to participate in all employee benefit plans, including group health care plans, to take time off for vacation or illness in accordance with the Company's policy for senior management and to receive all other fringe benefits as are from time to time made generally available to the senior management of the Company. Section 2.10 Expense Reimbursements. The Company shall reimburse the Executive for all proper expenses incurred by him in the performance of his duties hereunder in accordance with the policies and procedures established by the Company. Section 2.11 Withholding. The Base Salary and all other payments to the Executive for his services to the Company shall be subject to all withholding and deductions required or permitted by federal, state or other law, including those authorized by the Executive but not otherwise required by law, including but not limited to state, federal and local income taxes, unemployment tax, Medicare, FICA and any contributions pursuant to any employee benefit program which may be adopted by the Company for the benefit of its senior executives. ARTICLE III Termination of Employment Section 3.01 Events of Termination. As indicated in Section 1.01 above, the Executive's employment by the Company is at will. Accordingly, it may be terminated at any time by the Company or the Executive with or without cause (subject in the case of the Executive to compliance with applicable notice provisions of this Article III and Section 1.01 above). The Executive shall have the right to terminate this Agreement for cause in the event of failure by the Company to provide any of the compensation or benefits to be made available to the Executive under this Agreement, which is not cured within 30 days following written notice from the Executive to the Company. For all purposes of this Agreement, in the event the scope of Executive's duties and responsibilities as the President and Chief Executive Officer of the Company are, in the aggregate, materially reduced, or in the event that Executive is requested by the Board to -6- 7 assume duties that are inappropriate for the President and Chief Executive Officer of the Company, and, in either such event, such reduction or inappropriate assignment of duties is not cured by the Company within 30 days following written notice from the Executive to the Company of same, then at any time within 15 days subsequent to the expiration of the aforesaid 30-day period, Executive shall have the right to resign from his employment with the Company (upon 30-days prior written notice) by reason of such reduction or inappropriate assignment and such termination of employment shall be treated, for all purposes of this Agreement, as if Executive had been terminated by the Company other than for "cause"; provided, however, that (i) the foregoing shall not apply to reductions in Executive's duties due to Executive's illness or disability, and (ii) the foregoing shall not apply to any temporary suspension of Executive's duties, in whole or in part, pending results of any Board-commissioned investigation as to any potential "cause" for termination of Executive's employment. The Company shall have the right to terminate for "cause" in the event of (a) a material breach of this agreement by Executive, including, but without limitation, Executive's neglect in performing his duties (which shall include without limitation any such neglect resulting from the Executive's excessive absenteeism not related to physical or mental illness), (b) any breach by Executive of his fiduciary duties under Maryland law as an officer of the Company, or (c) Executive's conviction of a felony. For all purposes of this agreement, "cause" shall have the applicable defined meaning as set forth above in this Section 3.01 Section 3.02 Severance Package. In the event the Executive's employment under this Agreement is terminated under Section 3.01 above either by the Company other than for "cause" (which shall be deemed to include, without limitation, a termination due to the Executive's death or permanent disability) or by the Executive for "cause," then the Executive shall be entitled to receive the following ("Severance Package"): (i) an amount equal to one year's Base Salary based on the Base Salary then in effect; (ii) the immediate vesting of all outstanding stock options granted pursuant to Section 2.04 hereof (and, following timely exercise of any such options, the Executive shall receive title to the shares issued in respect of such options free and clear of any lien, claim or encumbrance by, through or under the Company); (iii) the immediate vesting of all restricted Paired Shares which may have theretofore been granted to the Executive pursuant to Section 2.05 hereof (and, following such vesting, the Executive shall enjoy title to such Paired Shares free and clear of any lien, claim or encumbrance by, through or under the Company); (iv) Paired Shares, if any, that are issuable in exchange for all Performance Units that shall then be vested or which shall have theretofore vested in accordance with the terms and provisions of Section 2.06 and, in particular, of paragraph (iv) of said Section 2.06 (and -7- 8 following the issuance of any such Paired Shares, the Executive shall enjoy title to such Paired Shares free and clear of any lien, claim or encumbrance by, through or under the Company); and (v) Company paid medical insurance benefits available to all other senior executives of the Company during the 12-month period subsequent to termination of employment shall be paid by the Company, and thereafter all COBRA rights available to the Executive shall be paid by the Executive, but COBRA rights shall be measured from the termination date. The parties agree that the foregoing shall be the Executive's sole and exclusively monetary remedy by reason of termination by the Executive for "cause" or by reason of any termination by the Company other than for "cause", it being agreed that as his actual damages would be difficult to measure or quantify and would be impracticable to determine, such amount shall constitute liquidated damages for the Executive by reason of such termination by Executive due to "cause" or by reason of any termination by the Company other than for "cause". No Severance Package shall be due or owing to the Executive in the event that the Company shall terminate the Executive's employment for "cause" or in the event that the Executive shall terminate his employment with the Company for reasons other than "cause". In addition, in the event that the Company shall terminate the Executive's employment for "cause" or in the event that the Executive shall terminate his employment with the Company for reasons other than "cause", then all unvested options or unvested restricted Paired Shares then held by Executive, as well as all Performance Units then held by Executive, shall be automatically forfeited (subject, however, to any contrary determination of the Board in its sole discretion). ARTICLE IV Noncompetition; Confidential Information Section 4.01 Other Business Ventures. In addition to the restriction from having other employment provided in Section 1.02 hereof and except as expressly contemplated by Article VI below, during the term of the Executive's employment hereunder the Executive shall not, without the prior written approval of the Board, directly or indirectly engage in, represent, be connected with or have a financial interest in any business which is or, to the best of his knowledge, is about to become competitive with the business of the Company; provided, however, that nothing herein contained shall be deemed to prohibit the Executive from being a passive investor owning up to 2% of any class of outstanding securities of any company whose stock is publicly traded. Section 4.02 Confidential Information. Except (i) in the course of his employment with the Company, or (ii) as he may be required pursuant to any law or court order or similar process, the Executive shall not at any time during or after the term of the Executive's employment hereunder, directly or indirectly disclose or use any confidential information or proprietary data with respect to the Company, Starwood Lodging Trust, or -8- 9 any of their respective subsidiaries or affiliates that is not otherwise in the public domain. In the event of any dispute between the Executive and the Company or between the Executive or the Company and others, the Executive shall cooperate with the Company as to redaction or other protective measures with respect to any unnecessary public disclosure of any such confidential information or proprietary data. Section 4.03 Inducing of Company Employees. During the term of the Executive's employment hereunder, the Executive shall not, except in the course of the performance of his duties hereunder or with the prior approval of the Board, in any way directly or indirectly induce or attempt to induce or otherwise counsel, advise or encourage any person to leave the employ of the Company. In addition, the Executive shall not, with respect to any person or persons who to the Executive's best knowledge was employed by the Company, Starwood Lodging Trust, or their respective subsidiaries or SLT Realty Limited Partnership or SLC Operating Limited Partnership ("Company Employee") at any time during the period commencing six months prior to such termination: (i) for a period of 12 months following the date on which such termination becomes effective as aforesaid, in any way directly or indirectly hire, attempt to hire, or cause to be hired any Company Employee, without the prior written approval of the Board; and (ii) for a period of 12 months following the date on which such termination becomes effective as aforesaid, in any way directly or indirectly induce or attempt to induce or otherwise counsel, advise or encourage any Company Employee to leave the employment of the Company, Starwood Lodging Trust or their respective subsidiaries or SLT Realty Limited Partnership or SLC Operating Limited Partnership, without the prior written approval of the Board. ARTICLE V Miscellaneous Section 5.01 Notices. Any notice or request required or permitted to be given hereunder shall be sufficient if in writing and delivered personally or sent by registered or certified mail, return receipt requested, as follows: if to the Executive, to his address as set forth in the records of the Company, and if to the Company, to its address hereinabove set forth, or to any other address designated by either party by notice similarly given. Such notice shall be deemed to have been given upon the personal delivery or such mailing thereof, as the case may be. Section 5.02 Assignment and Succession. The rights and obligations of the Company under this Agreement shall inure to the benefit of and be binding upon its successors and assigns. The Executive's rights and obligations hereunder are personal and may not be assigned; provided, however that in the event of the termination of the Executive's employment due to the Executive's death or permanent disability, the Executive's legal representative shall have the right to receive the Severance Package as more particularly set forth in Section 3.02 above. -9- 10 Section 5.03 Headings. The Article, Section , paragraph and subparagraph headings are for convenience of reference only and shall not define or limit the provisions hereof. Section 5.04 Arbitration. In the event of any controversy, dispute or claim arising out of or related to this Agreement or the Executive's employment by the Company, the parties shall negotiate in good faith in an attempt to reach a mutually acceptable settlement of such dispute. If negotiations in good faith do not result in a settlement of any such controversy, dispute or claim, it shall be finally settled by arbitration in accordance with the commercial arbitration rules of the American Arbitration Association, subject to the following: (a) The Arbitrator shall be determined from a list of names of five impartial arbitrators (each of whom shall be a retired judge) experienced in commercial arbitration matters supplied by the American Arbitration Association (the "Association") chosen by Executive and the Company each in turn striking a name from the list until one name remains. (b) The expenses of the arbitration shall be borne equally by each party; and each party shall bear its own legal fees and expenses, except that the prevailing party shall be awarded his or its reasonable attorney's fees. (c) The Arbitrator shall determine whether and to what extent any party shall be entitled to damages under this agreement. No party shall be entitled to punitive damages, and each party waives all such rights if any. (d) The Arbitrator shall not have the power to add to nor modify any of the terms or conditions of the this Agreement. The Arbitrator's decision shall not go beyond what is necessary for the interpretation and application of the provision of this Agreement in respect of the issue before the Arbitrator. The Arbitrator shall not substitute his or her judgement for that of the parties in the exercise of rights granted or retained by this Agreement. The Arbitrator's award or other permitted remedy, if any, and the decision shall be based upon the issue as drafted and submitted by the respective parties and the relevant and competent evidence adduced at the hearing. (e) The Arbitrator shall have the authority to award any remedy or relief provided for in this Agreement, in addition to any other remedy or relief (including provisional remedies and relief) that a court of competent jurisdiction could order or grant. In addition, the Arbitrator shall have the authority to decide issues relating to the interpretation, meaning or performance of this Agreement even if such decision would constitute an advisory opinion in a court proceeding or if the issues would otherwise not be ripe for resolution in a court proceeding, and any such decision shall bind the parties in their continuing performance of this Agreement. The Arbitrator's written decision shall be rendered within sixty days of the hearing. The decision reached by the Arbitrator shall be final and binding upon the parties as to the matter in dispute. To the extent that the relief or remedy granted by the Arbitrator is relief or remedy on which a court could enter judgement, a judgement upon the award rendered by the Arbitrator shall be entered in any court having -10- 11 jurisdiction thereof (unless in the case of an award of damages, the full amount of the award is paid within 10 days of its determination by the Arbitrator). Otherwise, the award shall be binding on the parties in connection with their continuing performance of this Agreement and in any subsequent arbitral or judicial proceedings between the parties. (f) The arbitration shall take place in the locale of the Company's principal executive offices. (g) The arbitration proceeding and all filing, testimony, documents and information relating to or presented during the arbitration proceeding shall be disclosed exclusively for the purpose of facilitating the arbitration process and for no other purpose and shall be deemed to be information subject to the confidentiality provisions of this Agreement. (h) The parties shall continue performing their respective obligations under this Agreement notwithstanding the existence of a dispute while the dispute is being resolved unless and until such obligations are terminated or expire in accordance with the provisions hereof. (i) The Arbitrator may, in his or her sole discretion, order a pre-hearing exchange of information including production of documents, exchange of summaries of testimony or exchange of statements of position, and shall schedule promptly all discovery and other procedural steps and otherwise assume case management initiative and control to effect an efficient and expeditious resolution of the Dispute. At any oral hearing of evidence in connection with an arbitration proceeding, each party and its counsel shall have the right to examine its witness and to cross-examine the witnesses of the other party. No testimony of any witness shall be presented in written form unless the opposing party or parties shall have the opportunity to cross-examine such witness, except as the parties otherwise agree in writing. (j) Notwithstanding the dispute resolution procedures contained in this Section 11, either party may apply to any court having jurisdiction (i) to enforce this Agreement to arbitrate, (ii) to seek provisional injunctive relief so as to maintain the status quo until the arbitration award is rendered or the Dispute is otherwise resolved, or (iii) to challenge or vacate any final judgment, award or decision of the Arbitrator that does not comport with the express provisions of this Section 11. Section 5.05 Invalidity. If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect under any law, the validity, legality or enforceability of the remaining provisions hereof shall not in any way be affected or impaired. Section 5.06 Waivers. No omission or delay by either party hereto in exercising any right, power or privilege hereunder shall impair such right, power or privilege, nor shall any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof, or the exercise of any other right, power or privilege. -11- 12 Section 5.07 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Section 5.08 Entire Agreement. This Agreement contains the entire understanding of the parties and supersedes all prior agreements and understandings relating to the subject matter hereof. No representation, promise or inducement has been made by either party hereto that is not embodied in this Agreement and neither party shall be bound by or liable for any alleged representation, promise or inducement not set forth herein. This Agreement may not be amended, except by a written instrument hereafter signed by each of the parties hereto. Section 5.09 Interpretation. The parties hereto acknowledge and agree that each party and its or his counsel reviewed and negotiated the terms and provisions of this Agreement and have contributed to its drafting. Accordingly, (i) the rules of construction to the effect that any ambiguities are resolved against the drafting party shall not be employed in the interpretation of this Agreement, and (ii) the terms and provisions of this Agreement shall be construed fairly as to all parties hereto and not in favor of or against any party regardless of which party was generally responsible for the preparation of this Agreement. Section 5.10 Governing Law. This Agreement and the performance hereof shall be construed and governed in accordance with the internal laws of the State of Arizona without reference to principles of conflict of laws. ARTICLE VI SPECIAL PROVISIONS Section 6.01 Prior Employment. Prior to his employment by the Company, the Executive was employed by Wyndham Hotels Corporation ("Wyndham"). The Company has no desire to obtain nor to utilize any proprietary or confidential information to which the Executive may have had access in his current employment with Wyndham. The Executive shall not in the performance of his duties hereunder utilize or disclose (whether to the Company or any of its officers, employees, directors or agents) any trade secrets or other proprietary or confidential information of Wyndham to which the Executive may have had access during his employment with Wyndham. The Company agrees that it will not request the Executive to utilize or disclose any trade secrets or other proprietary or confidential information of Wyndham, including but without limitation, customer lists. Section 6.02 Special Company Obligations. The obligations of the Company set forth in the following paragraphs (a), (b) and (c) are herein individually and collectively referred to as the "Special Company Obligations." The Special Company Obligations shall terminate, prospectively, and be of no further prospective force or effect in the event that Executive shall terminate his employment voluntarily for any reason or in the event that the Company shall terminate the Executive's employment with "cause." In addition, in the event that, within 12 months after Executive's receipt of any benefit in respect of the Special Company Obligations, Executive shall terminate his employment voluntarily for any reason -12- 13 or in the event that the Company shall terminate the Executive's employment with "cause," then Executive shall, within 30 days after written demand by the Company, return any such benefit received within such 12-month period (but Executive shall not be obligated to return any such benefit received prior to such 12-month period). The Special Company Obligations are as follows: (i) In the event that the Executive's $2,700,000 stock loan ("Existing Loan") is required to be prepaid in the context of a settlement of any and all issues which Executive may have with Wyndham that is on a basis reasonably acceptable to the Company, then the Company shall use its best efforts to cause a third party to make Executive a loan ("Replacement Loan") to refinance such Existing Loan. Any such Replacement Loan shall be secured by a first lien pledge of 168,000 shares of Wyndham and shall mature (or be renewed to mature) on the earlier of (i) the scheduled maturity date of the Existing Loan or (ii) that date which is 18 months following the date as of which Executive's Wyndham shares shall have been registered for sale under the Securities Act of 1933 as amended. The rate of interest on and other terms of such Replacement Loan shall be commercially reasonable for similar such loans provided by commercial lenders. Executive shall, in any event, use his best efforts to divest himself of at least a sufficient number of Executive's shares in Wyndham by that date which is 18 months following the date as of which Executive's Wyndham shares shall have been registered so that the value of Executive's interest in the Company and Starwood Lodging Trust thereafter exceed the value of Executive's shareholder interests in Wyndham (and, for all purposes in this subparagraph (i), shares held for the benefit of Executive's immediate family shall be deemed to be part of Executive's shareholder interest in, as appropriate, the Company, Starwood Lodging Trust or Wyndham). In addition, as the Company would prefer not to have to use its best efforts to cause to be made the Replacement Loan, Executive shall use reasonable efforts to modify the Existing Loan, if so requested by Wyndham or in respect to a response by Wyndham for Executive's prepayment of the Existing Loan, by increasing the rate of interest thereunder to a market rate and/or agreeing to a shorter maturity for said Existing Loan. (ii) Executive represents and warrants to the Company that to the best of Executive's knowledge, Executive is not obligated to sell his Wyndham stock at any time at a price less than market. In consideration and in reliance on such representation, the Company agrees that in the event there currently is such an obligation, then the Company shall make Executive whole of any excess of such stock's fair market value at the time of sale over the price that Executive is obligated to accept for such stock; provided, however, that (i) in the event any such obligation exists, Executive shall use his best efforts to sell such stock to the Company or its designee at fair market value rather than to any other party (including, but without limitation, Wyndham) and (ii) in no event shall the Company be obligated to make Executive whole for the excess, if any, of the fair market value at time of sale over the fair market value of the Wyndham stock on that date which is 18 months following the date as of which Executive's Wyndham shares shall have been registered. (iii) Executive represents and warrants to the Company that to the best of Executive's knowledge, Executive is not obligated to accept deferred consideration on any sale of his Wyndham stock. In consideration and in reliance on such representation, the -13- 14 Company agrees that in the event there currently is such an obligation, then the Company shall make Executive whole for any excess of (i) an amount equal to (a) such stock's fair market value at the time of sale less (b) all current consideration received at the time of sale, over (ii) the net present value of any deferred consideration on any sale of Executive's Wyndham stock. For purposes of determining the net present value of any such deferred consideration, the stream of scheduled payments comprising such deferred consideration shall be discounted to the date of sale at a discount rate equal to the average annual yield to maturity, as of the date of sale of such Wyndham stock, of U.S. Treasury obligations having maturities comparable to the maturity of such deferred consideration. IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by its duly authorized officer and the Executive has signed this Agreement as of the day and year fist above written. STARWOOD LODGING CORPORATION By: ---------------------------- Name: -------------------------- Its: --------------------------- ------------------------------- ERIC A. DANZIGER -14- EX-10.5 6 SEPARATION AGREEMENT FOR JEFF LAPIN 1 SEPARATION AGREEMENT BETWEEN STARWOOD LODGING TRUST AND JEFFREY C. LAPIN This Separation Agreement (the "Agreement") is entered into as of June 18, 1996 between Starwood Lodging Trust, a Maryland real estate investment trust (the "Company") and Jeffrey C. Lapin ("Lapin"). RECITALS WHEREAS, Lapin has been employed by the Company as a senior executive since 1988, and the Company and Lapin are parties to a currently effective Executive Employment Agreement dated November 11, 1994 (the "Employment Agreement"); and WHEREAS, the Company and Lapin mutually desire to terminate the Employment Agreement and Lapin's employment by the Company. AGREEMENT NOW, THEREFORE, in consideration of the mutual promises contained herein, the parties agree as follows: 1. Termination. Lapin's employment by the Company will terminate on June 18, 1996 (the "Termination Date"). The Company and its Board of Trustees recognize and acknowledge the contributions which Lapin has made, as referenced in the Press Release referred to in Paragraph (a) of Section 9 and the recommendation letter referred to in Section 17 hereof. 2. Resignation. Lapin hereby resigns as an officer of the Company and as a member of the Board of Trustees of the Company, and as an officer or director of any subsidiary of the Company or Starwood Lodging Corporation (the "Corporation"), effective on the Termination Date. 3. Payments. Promptly upon the Termination Date, the Company will pay to Lapin: (a) any unpaid portion of Lapin's current Base Salary (as defined in the Employment Agreement) of $225,000 per annum accrued through the Termination Date, as well as an amount equal to such Base Salary for the balance of the term of the Employment Agreement (through January 31, 1997); 2 (b) $75,000, representing the minimum Bonus that Lapin would have received under the Employment Agreement for 1996; (c) $37,500, representing mutually agreed upon vacation time accrued and unpaid through the Termination Date. The Company shall deduct from all payments to Lapin under this Section 3, all amounts required by law to be withheld for Social Security contributions and Federal and state income taxes, and shall pay them over to the appropriate tax receiving agency. 4. Medical Insurance. Lapin and his dependents will continue to be covered, at the Company's cost, under the Company's medical, dental and related insurance program (or if such coverage is not available the Company will at its cost supply equivalent coverage), for a period of eighteen months from the Termination Date, or for such shorter period until Lapin commences other employment and receives medical insurance coverage that is at least equivalent to that of the Company's. Lapin shall have COBRA rights for such coverage for eighteen months thereafter, at Lapin's expense. 5. Lapin Loan. Lapin is currently indebted to the Company in the amount of $250,000 pursuant to a Promissory Note in that principal sum dated July 6, 1995 (the "Lapin Loan"). Subject to Paragraph (d) of Section 7, on the first anniversary of the Termination Date, the Company shall be deemed to have forgiven $150,000 of the said principal sum of $250,000 including all interest on such forgiven amount accrued and unpaid to that date; and the unpaid balance of the Lapin Loan shall mature on the third anniversary of the Termination Date. The Note evidencing the Lapin Loan shall be amended to reflect such changes; and in all other respects the terms of the Lapin Loan shall remain unchanged. 6. Options. (a) In June 1995, Lapin was granted an option (the "1995 Option") under the Company's 1995 Share Option Plan (the "Plan") to purchase 25,000 paired shares ("Paired Shares") of the Company and the Corporation which was to vest in three equal annual increments. On the Termination Date, the 1995 Option shall be amended to provide as of that date it is 50% vested; and subject to Paragraph (d) of Section 7, the balance shall vest on the first anniversary of the Termination Date. The Options Committee of the Trust has determined to make the foregoing amendments, subject to execution of this Agreement and the occurrence of the Termination Date. (b) The Options Committee of the Trust has granted to Lapin, subject to the execution of this Agreement and the occurrence of the Termination Date, an additional ten year option under the Plan (the "1996 Option") to purchase 5,000 Paired Shares at $37 7/8 per Paired Share (the "Strike Price" which is the fair market value of a Paired Share on the date of grant). The 1996 Option will be 66 2/3% vested on the Termination Date, and the balance will vest in full on January 31, 1997 and will not be subject to any contingencies. Upon each exercise of the 1996 Option, the Company will also 2 3 pay to Lapin an amount per Paired Share purchased pursuant to such exercise equal to the excess, if any, over $16.50 of the lesser of (i) the then fair market value of a Paired Share (which shall be the closing price of a Paired Share on the New York Stock Exchange on the date of exercise), or (ii) the Strike Price. The 1996 Option will be exercisable in minimum increments of 1000 Paired Shares. (c) The above options, as well as all prior options granted to Lapin by the Company, shall be deemed amended to the extent necessary to provide that they are exercisable for their full maximum term, and that any provision requiring an earlier exercise as a consequence of any cessation or termination of employment by Lapin shall be inapplicable. 7. Standstill, Etc. (a) Lapin agrees that for a period of three years following the Termination Date (the "Three Year Period"), neither Lapin nor any person or entity controlled by Lapin shall directly or indirectly, without the consent of the Company, (i) commence or be involved with others who commence any tender or exchange offer, proxy contest or solicitation, or any similar transaction involving the Company or the Corporation, or (ii) purchase or be part of a group which purchases any Paired Shares in excess of 4.9% of the then outstanding Paired Shares or any other class of securities of the Company or the Corporation in excess of 4.9% of the outstanding securities of such class. (b) During the Three Year Period, neither on the one hand Lapin, nor on the other hand the Company or the Corporation or any current or future executive officers or trustees or directors of the Company or the Corporation or of Starwood Capital Group, L.P. or Starwood Capital Group L.L.C. (collectively, the "Company Parties") shall make any disparaging comments or remarks respecting the other party. For this purpose, "disparaging" shall be limited to comments or remarks which impugn or cast doubt upon past, present or future employment performance or business accomplishments or business activities, or the likelihood of future business success, which comments or remarks are made in such a way as to be reasonably likely to have a deleterious affect on the reasonable efforts of the other party to further his or its business career or business. No such disparagement shall be deemed to have occurred (i) if made by Lapin to members of his immediate family or to any of the Company Parties (unless made in such a way as to require reporting under Item 6 of Form 8-K under the Securities Exchange Act of 1934, as amended), (ii) if made by a member of the Company Parties to another member thereof or to Lapin, (iii) if made in the context of a legally recognized privilege (e.g., comments made by a party to his or its legal counsel), or (iv) if made of record and under oath in any judicial or administrative proceedings before a court or other body of competent jurisdiction, including but without limitation, any arbitration proceeding pursuant to this Agreement. In addition, no such disparagement shall be deemed to have occurred if (i) such comments or remarks are not made to "Excluded Parties" (which means, 3 4 individually and collectively, members of the press, financial analysts or persons who work for financial analysts, holders of any class of the Company's or the Corporation's securities (other than Lapin, members of his immediate family or Company Parties or holders of less than 0.5% of the Paired Shares) or prospective employers or business associates of Lapin or the Company who identify themselves as such or persons or groups including persons who can reasonably be expected to be or include prospective employers or business associates of Lapin or the Company), and (ii) the person allegedly making such comments or remarks shall have issued a written retraction thereof, with a copy to the aggrieved party within 10 days following receipt of a written demand for retraction from the aggrieved party which demand is given within 10 days after the aggrieved party receives knowledge of such comments or remarks (a "Retraction Demand") and such person has not within the previous twelve-month period either issued a retraction of another alleged comment or remark in response to a Retraction Demand or been determined by the Arbitrator to have disparaged the aggrieved party under this Paragraph (b) of Section 7. (c) No violation of the above Paragraph (b) of this Section 7 shall be deemed to have occurred unless the Arbitrator shall have so determined under Section 26 (the "Arbitrator"), and as a condition to assessing damages (but not as a condition to awarding equitable relief) shall also determine that disparaging comments or remarks within the meaning of such Paragraph have not been made by the complaining party or if made and subject to cure by retraction under Paragraph (b) that a Retraction Demand was given by the aggrieved party and that no such retraction was issued. (d) Subject to the above Paragraph (c)and except as provided in paragraph (e) of this Section 7, for each violation of Paragraph (b) of this Section 7 which the Arbitrator determines to have occurred, the aggrieved party shall be entitled to his or its actual damages according to proof and he or it shall also be entitled to punitive damages but only if the Arbitrator determines that the disparaging comments or remarks (i) constitute defamation or other willful tort, or (ii) are made to an Excluded Party. In addition, in the event that the Arbitrator determines that there has been a violation of this Paragraph (b) of this Section 7 by the Company, then the Arbitrator may determine if and the extent to which the forgiveness of the Lapin Loan referred to in Section 5 and the vesting of the unvested portion of the 1995 Option referred to in Paragraph (a) of Section 6 shall accelerate; and in the event that the Arbitrator determines that Lapin has violated the provisions of Paragraph (b) of Section 7, then the Arbitrator may determine if and if and the extent to which the Lapin Loan forgiveness referred to in Section 5 shall not occur or the remaining vesting of the 1995 Option referred to in Paragraph (a) of Section 6 shall not occur. (e) Subject to the above Paragraph (c), for the first violation of Paragraph (b) of this Section 7 which the Arbitrator determines to have occurred, the aggrieved party shall be entitled to receive as liquidated damages, and not as a forfeiture, the amount of $100,000. The parties agree that with respect to the foregoing provision for liquidated damages, actual damages would be difficult to measure or quantify and would be impracticable to determine and, accordingly, the liquidated damages so provided shall be the sole and exclusive monetary remedy for the first such violation. 4 5 8. Consulting Services. (a) For a period of time commencing on the Termination Date and ending eighteen months thereafter (the "Eighteen Month Period"), Lapin shall serve the Company as a consultant. Lapin's duties shall be to continue as in the past for at least 90 days to oversee the properties currently owned by the Company in Las Vegas, Nevada (the King 8 Hotel and Casino and the Bourbon Street Hotel and Casino), and to assist in the attempted sale of such properties, and otherwise as shall be reasonably requested by the Company's Board of Trustees consistent with Lapin's prior duties and position and in such a way so as to not interfere with his other duties or activities subsequent to the Termination Date. For his services under this Paragraph (a) of Section 8, Lapin shall be paid by the Company the total sum of $235,000 in eighteen equal monthly installments on the first day of each month of the Eighteen Month Period, commencing July 1, 1996. In addition, if in the performance of any duties under the Consulting Agreement, Lapin shall incur any reasonable out of pocket costs and expenses, the same shall be promptly reimbursed by the Company following a written request in accordance with the Company's normal expense reimbursement procedures. Lapin shall render such services at times and places that are reasonably convenient to the Company and Lapin. Lapin shall not be required to spend more than 40 hours in any month in the first 90 days and 20 hours in any month thereafter in the performance of his duties under the above provisions of Paragraph (a). The above payments and reimbursements shall continue to be made notwithstanding any charge or allegation that Lapin has not or may not have fulfilled his obligations under this Paragraph (a) until and unless the Arbitrator under Section 26 shall determine that the provisions of this Paragraph (a) have been breached by Lapin and shall determine the extent, if any, to which the Company may be excused from its performance obligations under this Paragraph (a). (b) The amounts payable under this Section 8 shall be due and payable without regard as to the extent to which the Company shall request Lapin's services hereunder and without regard to the number of hours actually devoted by Lapin to such consulting services. The Company acknowledges that it is not retaining Lapin's exclusive services under any of this Section 8, and that Lapin shall be free to engage in such other employment and business activities as Lapin in his sole discretion may determine. Lapin shall be under no obligation to account for any amounts he may otherwise earn or receive during or after the Eighteen Month Period, whether by other employment or otherwise, and the Company shall have no right or claim in or to any compensation or profit that may accrue to Lapin during such period or otherwise. (c) Except for the casino oversight responsibilities during the first 90 days after the Termination Date referenced in the above Paragraph (a) of this Section 8, nothing herein shall obligate the Company to utilize Lapin's services at any time or from time to time, and the Company reserves the right to have other persons or parties (who may or may not be employees of the Company) perform supplementary oversight functions with respect to the casinos at any time during the aforesaid 90 days period or exclusive oversight functions with respect to the casinos at any time subsequent to the aforesaid 90 day period. 5 6 (d) The Company is currently seeking to sell its interest in the King 8 Hotel and Casino in Las Vegas, Nevada (the "King 8 Property"). If, during the Eighteen Month Period, the Company enters into a binding agreement (which may be subject to normal conditions, including, but not limited to, approval by gaming authorities) to sell or to lease for longer than 1 year ("Long-Term Lease"), which subsequently closes (whether before or after the expiration of the Eighteen Month Period), then the Company shall pay to Lapin the higher of (i) $200,000 (increased to $250,000 if Lapin introduces the buyer or otherwise assists in the sale of the King 8 Property), or (ii) if the purchase price (including assumption of debt), or in the case of a lease the implied present value of the property, exceeds $20 million, one percent of the purchase price or such implied present value, as the case may be. Such payment shall be made upon the closing of the transaction (and in the event of a dispute over whether Lapin shall be entitled to more than $200,000, the Company shall pay to Lapin at the closing no less than $200,000 and shall arbitrate with Lapin pursuant to Section 26 hereof, whether any further amount is due.) (e) In the event the King 8 Property is not sold during the Eighteen Month Period, but during such time, the Company receives and declines a bona fide offer from a credible party to purchase or enter into a Long-Term Lease of the King 8 Property for a purchase price or implied present value, as the case may be, of $20 million or more, then the Company shall be obligated pay $200,000 to Lapin at the expiration of such Eighteen Month Period (increased to $250,000 if Lapin introduces the offeror or otherwise assists the Company's consideration of such offer). In the event that the Company disputes Lapin's entitlement to any payment pursuant to this Paragraph (e), then the Company shall pay to Lapin the amount, if any, it concedes Lapin has earned hereunder and shall arbitrate the dispute over the balance pursuant to Section 26 hereof. (f) For purposes of determining the implied present value of the property under this Section 8, the total of lease rental payments or proposed lease rental payments (net of property expenses and capital costs required by the lease to be incurred by the Landlord) shall be valued at their then present value using as the applicable discount rate the average yield to maturity ratio on United States Treasury obligations of comparable maturity to the term of the lease as of the date such lease was entered into or, as applicable, was proposed to have been entered into. (g) The Company acknowledges that any offer during such Eighteen Month Period directly or indirectly by or on behalf of Tito Tiberti or Tom Smiley or any group in which either of them participates, directly or indirectly, shall be deemed for purposes of this Section 8 to be an introduction by Lapin. 9. Publicity. (a) Prior to the execution of this Agreement, Lapin and the Company have agreed on the text of a press release ("Press Release") announcing Lapin's resignation as an officer and Trustee of the Company, and Lapin's termination of employment with the Company, the form of which is attached hereto as Exhibit A; and except as the Company may be required by law to disclose, the Company shall not make any 6 7 materially different public statements regarding Lapin's resignation and termination of employment without Lapin's prior written consent. Lapin likewise agrees not to issue any other Press Release or make any materially different public statements regarding his resignation as an officer and Trustee or the termination of his employment with the Company without the Company's prior written consent. The Press Release shall be released by the Company immediately following the execution and delivery of this Agreement by all parties hereto. (b) Other than the disclosure set forth in the Press Release, the terms of this Agreement and the negotiations culminating in the execution and delivery of this Agreement shall be kept confidential by each of the parties, except only (i) to the extent that disclosure thereof is required by the legal obligations of a party, (ii) such disclosure is made by Lapin to members of his immediate family or to any of the Company Parties or to a prospective employer or business associate who requests the same, (iii) such disclosure is made by a member of the Company Parties to another member thereof or to Lapin, (iv) such disclosure is made in the context of a legally recognized privilege, or (v) such disclosure is made of record and under oath in any judicial or administrative proceedings before a court or other body of competent jurisdiction, including but without limitation any arbitration proceeding pursuant to this Agreement. In addition, from and after the Termination Date, (1) Lapin shall not purport to act in any official capacity for the Company in connection with any activities, including but not limited to any contact with the press, financial analysts, or holders of securities of the Company or the Corporation, and (2) Lapin agrees not to discuss with persons known to him to be shareholders of the Company or the Corporation (other than members of his family, members of the Company Parties or holders of immaterial amounts of Paired Shares) the business of the Company or Corporation. (c) The Company agrees that all responses to inquiries from prospective employers or business associates of Lapin shall be consistent with statements in the Press Release referred to in Paragraph (a) of Section 9, and the Recommendation Letter referred to Section 17, and shall not in any way contradict those statements. 10. Use of Office, Etc. The Company intends to remove its executive offices from Los Angeles, California to Phoenix, Arizona or another location in the near future. Lapin shall continue to have the use of his existing office, including HVAC, office staff and support as in the past during normal business hours, until the executive offices of the Trust and the Corporation are physically moved to Phoenix, Arizona or another location. Thereafter, Lapin shall be entitled to remain in such office until such time as the Trust and Corporation sublease the existing office space and the sub-tenant requires physical possession (or access for tenant improvements work) or until such earlier time as the Company abandons such space and surrenders to the landlord in whole or partial settlement of its obligations; provided however, that during such period as Lapin shall be entitled to remain in such office following the relocation of the executive offices of the Company and the Corporation, no office staff or support services need be provided other than as may be provided by Ms. Jayne Gordon pursuant to any separate agreement she may enter into with the Company. Lapin may retain all of his furniture and computer equipment currently in his personal office at no cost and the Company relinquishes any claim thereto. 7 8 11. Termination. Upon execution of this Agreement, the Employment Agreement shall be deemed terminated and of no further force and effect, except that the indemnification provisions of Section 3.5 (which shall not be deemed to apply to any breach by Lapin of this Agreement) and the confidentiality provisions of Section 4.2 shall continue to be applicable and the non-inducement provisions of clause (ii) of Section 4.3 thereof shall also be applicable (without regard to any reason or basis for termination of Lapin's employment) for the Eighteen Month Period. Without limitation on the foregoing, Lapin will promptly return to the Company all business records of the Company in his possession (subject to Lapin's retaining copies of items such as his rolodex, chron copies of correspondence and the like), including but not limited to Company files, computer tapes or diskettes. However, except as and to the extent specifically provided, nothing contained in this Agreement shall be deemed to affect any option agreement between the Company and Lapin or the Corporation and Lapin or the Indemnification Agreement between the Company and Lapin dated June 8, 1995 or the Indemnification Agreement between the Corporation and Lapin dated June 8, 1995. 12. Representations and Warranties. (a) Lapin represents and warrants that there is not now pending any action, complaint, petition, charge, grievance, or any other form of administrative, legal or arbitral proceeding by Lapin against the Company or any of its officers or trustees or any other of the Company Parties. (b) The Company represents and warrants that any and all actions on the part of the Board of Trustees of the Company, or of the Options Committee, the Compensation Committee or any of the other committees of the Board of Trustees necessary to authorize or implement any of the provisions of this Agreement have been duly and validly taken. 13. Mutual Release. (a) Except for the obligations set forth in this Agreement, Lapin, on his own behalf and on behalf of any Individual Retirement Account or pension trust solely for his benefit which is the holder of Paired Shares, hereby fully, unconditionally and irrevocably releases the Company, the Corporation, SLT Realty Limited Partnership, SLC Operating Limited partnership ("SLC"), all officers, trustees or directors of the Company or the Corporation, all members of the Management Committee of SLC, all entities controlled by or under common control with the Company or the Corporation, Starwood Capital Group, L.P., Starwood Capital Group, L.L.C. and all entities controlled by Barry S. Sternlicht (the "General Releasees") of and from any and all claims, demands, actions and causes of action of any kind and nature, in law, equity or otherwise, under contract, tort, statutory or common law, known or unknown, suspected or unsuspected, disclosed or undisclosed, which Lapin may have had, may now have or may in the future have by reason of any matter, cause or thing done, omitted or suffered to be done prior to the date hereof. In addition, and without limitation on the foregoing, except for the obligations in this Agreement, Lapin hereby fully, unconditionally and irrevocably releases the General Releasees and all entities 8 9 controlled by or under common control with any of them, all past and present employees, officers and directors of any of the General Releasees and any of such entities and all owners of direct or indirect interests in any of the General Releasees or such entities, and their respective counsel, of and from any and all claims, demands, actions and causes of action of any kind and nature, in law, equity or otherwise under contract, tort, statutory or common law, known or unknown, suspected or unsuspected, disclosed or undisclosed, directly or indirectly, which Lapin may have had, may now have, or may in the future have, arising out of or in any way connected with Lapin's relationship in any and all capacities with the Company or the Corporation prior to the date hereof, and the employment of Lapin by the Company or the termination of that employment, including without limitation, claims, if any, pursuant to the Employment Agreement or pursuant to any federal, state or local law, such as, but not limited to, the Age Discrimination in Employment Act of 1967, 29 U.S.C. Section 621, et seq.; Title VII of the Civil rights Act of 1964, as amended, 42 U.S.C. Section 2000(e), et seq.; the Civil Rights Act of 1866, as amended, 42 U.S.C. Section 1981, et seq.; the Fair Labor Standards Act of 1939, as amended, 29 U.S.C. Section 201, et seq.; the Equal Pay Act, 29 U.S.C. Section 206(d); the Orders of the California Industrial Welfare Commission regulating wages, hours and working conditions; each and every provision of the California Labor and Insurance Codes; Article 1, Section 1 of the California Constitution; the Rehabilitation Act of 1973, as amended, 29 U.S.C., Section 701, et seq.; Americans with Disabilities Act, 104 Stat. 327; the Employee Retirement Income Security Act of 1974, 29 U.S.C., Section 1001, et seq.; the National Labor Regulations Act, as amended, 29 U.S.C., Section 151, et seq.; the California Fair Employment and Housing Act, as amended, California Government Code, Section 12900, et seq.; the Uruh Civil Rights Act, as amended, California Civil Code, Section 51, et seq. (b) Except for the obligations set forth in this Agreement, the Company on its own behalf and on behalf of all General Releasees hereby fully, unconditionally and irrevocably releases Lapin of and from any and all claims, demands, actions and causes of action of any kind and nature, in law, equity or otherwise, under contract, tort, statutory or common law, known or unknown, suspected or unsuspected, disclosed or undisclosed, which any of them may have had, may now have, or may in the future have by reason of any matter, cause or thing done, omitted or suffered to be done prior to the date hereof. Except for the obligations set forth in this Agreement, the Company on its own behalf and on behalf of all the persons and entities released in any way by Lapin under Paragraph (a) of Section 13, hereby fully, unconditionally and irrevocably releases Lapin and all of the persons released by Lapin in the above paragraph (a) of Section 13 of and from any and all claims, demands, actions and causes of action of any kind and nature, in law, equity or otherwise, under contract, tort, statutory or common law, known or unknown, suspected or unsuspected, and disclosed or undisclosed, which any of them may have had, may now have or may in the future have arising out of or in any way connected with Lapin's relationship in any and all capacities with the Company or the Corporation prior to the date hereof, and the employment of Lapin by the Company or the termination of that employment. Without limitation on the generality of the foregoing, included in the foregoing release is a release of any and all such claims, demand, actions, and causes of action, directly or indirectly arising out of or in any way connected with Lapin's relationship in any and all capacities with the Company or the Corporation prior to the date hereof, including 9 10 but not limited to the employment of Lapin by the Company or the termination of that employment or Lapin's actions or non-actions as an officer or trustee of the Company. 14. (Intentionally Omitted.) 15. Waiver of Civil Code Section 1542. Lapin and the Company each acknowledge that he or it has read and understands Section 1542 of the Civil Code of the State of California which reads as follows: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. Lapin and the Company each hereby expressly waives and relinquishes all rights and benefits under that section and any similar law of any state or territory of the United States with respect to the release he or it is granting in this Agreement. 16. (Intentionally Omitted) 17. Recommendation Letter. The Company has given a favorable recommendation letter with respect to Lapin, in the form of Exhibit B hereto, which Lapin may show to any prospective employers or business associates or others. Lapin has responded with a letter to Barry Sternlicht in the form of Exhibit C hereto. 18. Integration; Counterparts. This Agreement contains the entire agreement between the parties and constitutes the complete, final and exclusive embodiment of their agreement with respect to the subject matter hereof. This Agreement supersedes and renders null and void any other prior agreement between the parties. This Agreement is executed without reliance upon any promise, warranty or representation by the parties or any representative of the parties other than those expressly contained herein, and the parties have carefully read this Agreement, and sign the same of their own free will. This Agreement may be executed in counterparts. 19. Choice of Law. This Agreement shall be deemed to have been entered into and shall be construed and enforced in accordance with the laws of the State of California as applied to contracts made and to be performed entirely within California. 20. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, personal representatives, successors and assigns. 21. Costs and Expenses. The Company and Lapin shall each bear their own legal fees in connection with the negotiation, preparation, execution and enforcement of this Agreement except that the Company shall pay directly $15,000 of Lapin's legal fees. In other respects, except as specifically provided herein, Lapin and the Company will each bear 10 11 their own costs and expenses including attorneys' fees incurred in or arising out of or the matters released herein. 22. Severability. Should any provision hereof for any reason be deemed or held invalid or unenforceable, in whole or in part, by a court of law, such determination shall not affect any other provision of this Agreement. This Agreement shall not be subject to avoidance or rescission as a result of any matter or circumstance, including but without limitation, the invalidity or unenforceability of any particular provision hereof or of the application of any such provision to any particular matter or circumstance, nor as a result of any breach or default of any party to perform, in whole or in part, any of its duties or obligations hereunder. 23. Notices. All notices and other communications required or provided for in this Agreement shall be in writing and shall be personally delivered or sent by registered or certified mail postage pre-paid with return receipt requested, or sent by telegram, telex, telecopy or similar form of telecommunication, and shall be deemed given when received at the address of the addressee. Any such notices or communication shall be addressed as follows: If to the Company: Starwood Lodging Trust c/o Starwood Capital Group, L.P. Three Pickwick Plaza, Suite 250 Greenwich, Connecticut 06830 Attn: Barry S. Sternlicht, Chairman and Chief Executive Officer with copies to: Starwood Capital Group, L.P. Three Pickwick Plaza, Suite 250 Greenwich, Connecticut 06830 Attn: Madison F. Grose, Esq. and to: Jeffer, Mangels, Butler & Marmaro, LLP 2121 Avenue of the Stars, 10th Floor Los Angeles, California 90067-5010 Attn: Marc Marmaro, Esq. If to Lapin: Jeffrey C. Lapin 1317 Palisades Drive Pacific Palisades, California 90272 11 12 with a copy to: Bright & Lorig 633 West Fifth Street, Suite 3330 Los Angeles, California 90071 Attn: Frederick A. Lorig, Esq. 24. Settlement of Claims. It is understood that this is a compromise settlement of disputed claims, and that the promises of payments in consideration of this Agreement shall not be construed to be an admission of any liability or obligation whatever, by either party to the other party, or to any other person whomsoever. 25. Further Assurances. Each party hereto shall prepare, execute and deliver such other instruments, agreements or documents as may be reasonably required in order to carry out the purposes of this Agreement. 26. Arbitration. Any and all disputes, controversies or claims ("Dispute") between the parties relating to the interpretation or enforcement or performance of this Agreement shall be resolved by binding arbitration in accordance with the then current Commercial Arbitration Rules of the American Arbitration Association, subject only to the following provisions: (a) The Arbitrator shall be determined from a list of names of five impartial arbitrators (each of whom shall be a retired judge of the Superior Court of the State of California or a retired Justice of the Court of Appeal of the State of California) experienced in commercial arbitration matters supplied by the American Arbitration Association (the "Association") chosen by Lapin and the Company each in turn striking a name from the list until one name remains. (b) The expenses of the arbitration shall be borne equally by each party, and each party shall bear its own legal fees and expenses, except that Lapin's fees and expenses in connection with each such arbitration shall be advanced by the Company if Lapin shall undertake to reimburse the Company if the Arbitrator determines that Lapin is not the prevailing party in the Arbitration. (c) The Arbitrator shall determine whether and to what extent any party shall be entitled to damages or equitable relief and, if applicable, the extent, if any, which the forgiveness of the Lapin Loan referenced in Section 5 and the future vesting of the 1995 Option referenced in Paragraph (a) of Section 6 shall be accelerated or shall not occur. No party shall be entitled to punitive damages, except that as provided in Paragraph (d) of Section 7, the Arbitrator may assess punitive damages against the Company or Lapin. (d) The Arbitrator shall not have the power to add to nor modify any of the terms or conditions of the this Agreement. The Arbitrator's decision shall not go beyond what is necessary for the interpretation and application of the provision of this Agreement in respect of the issue before the Arbitrator. The Arbitrator shall not substitute his or her judgement for that of the parties in the exercise of rights granted or retained by this Agreement. The Arbitrator's award or other permitted remedy, if any, and the decision 12 13 shall be based upon the issue as drafted and submitted by the respective parties and the relevant and competent evidence adduced at the hearing. (e) The Arbitrator shall have the authority to award any remedy or relief provided for in this Agreement, in addition to any other remedy or relief (including provisional remedies and relief) that a court of competent jurisdiction could order or grant. In addition, the Arbitrator shall have the authority to decide issues relating to the interpretation, meaning or performance of this Agreement even if such decision would constitute an advisory opinion in a court proceeding or if the issues would otherwise not be ripe for resolution in a court proceeding, and any such decision shall bind the parties in their continuing performance of this Agreement. The Arbitrator's written decision shall be rendered within sixty days of the hearing. The decision reached by the Arbitrator shall be final and binding upon the parties as to the matter in dispute. To the extent that the relief or remedy granted by the Arbitrator is relief or remedy on which a court could enter judgement, a judgement upon the award rendered by the Arbitrator shall be entered in any court having jurisdiction thereof (unless in the case of an award of damages, the full amount of the award is paid within 10 days of its determination by the Arbitrator). Otherwise, the award shall be binding on the parties in connection with their continuing performance of this Agreement and in any subsequent arbitral or judicial proceedings between the parties. (f) The arbitration shall take place in Los Angeles, California if commenced by Lapin, or in Phoenix, Arizona or Los Angeles, California if commenced by the Company. (g) The arbitration proceeding and all filing, testimony, documents and information relating to or presented during the arbitration proceeding shall be disclosed exclusively for the purpose of facilitating the arbitration process and for no other purpose and shall be deemed to be information subject to the confidentiality provisions of this Agreement. (h) The parties shall continue performing their respective obligations under this Agreement notwithstanding the existence of a Dispute while the Dispute is being resolved unless and until such obligations are terminated or expire in accordance with the provisions hereof. In the event that the Arbitrator determines that the Company in bad faith has failed to continue to perform its payment or other obligations to Lapin under this Agreement without a determination by the Arbitrator that it is entitled to do so, the Arbitrator shall have the authority to accelerate the full amount of all sums which are then or which may thereafter become due or payable under this Agreement from the Company to Lapin or to require that the Company post an unconditional Bank letter of credit which Lapin may draw upon at any time for the amount of all such sums which may thereafter become payable by the Company to Lapin and in addition, order that the Company pay all of Lapin's legal fees and other costs in connection with the Arbitration and any enforcement of the Arbitrator's judgment or award. (i) The Arbitrator may, in his or her sole discretion, order a pre- hearing exchange of information including production of documents, exchange of summaries of testimony or exchange of statements of position, and shall schedule promptly all discovery 13 14 and other procedural steps and otherwise assume case management initiative and control to effect an efficient and expeditious resolution of the Dispute. At any oral hearing of evidence in connection with an arbitration proceeding, each party and its counsel shall have the right to examine its witness and to cross-examine the witnesses of the other party. No testimony of any witness shall be presented in written form unless the opposing party or parties shall have the opportunity to cross-examine such witness, except as the parties otherwise agree in writing. (j) Notwithstanding the dispute resolution procedures contained in this Section 26, either party may apply to any court having jurisdiction (i) to enforce this Agreement to arbitrate, (ii) to seek provisional injunctive relief so as to maintain the status quo until the arbitration award is rendered or the Dispute is otherwise resolved, or (iii) to challenge or vacate any final judgment, award or decision of the Arbitrator that does not comport with the express provisions of this Section 26. 27. No Presumption Against Drafter. The Company and Lapin have jointly participated in the negotiation and drafting of this Agreement. In the event of any ambiguity or question of intent or interpretation, this Agreement shall be construed as if drafted jointly by them, and no presumptions or burdens of proof shall arise favoring any party by virtue of the authorship of any provision of this Agreement. 28. Disclaimer. The name "Starwood Lodging Trust" is the 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), and all persons dealing with Starwood Lodging Trust must look solely to Starwood Lodging Trust's property 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 obligations of Starwood Lodging Trust, and their respective properties shall not be subject to claims of any person relating to such obligation. 14 15 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above written. The Company: Starwood Lodging Trust, a Maryland real estate investment trust By --------------------------------------------- Barry S. Sternlicht, Chairman of the Board and Chief Executive Officer Lapin: ----------------------------------- Jeffrey C. Lapin 15 EX-10.6 7 ASSET PURCHASE AGREEMENT, EFFECTIVE MAY 14, 1996 1 PURCHASE AND SALE AGREEMENT THIS PURCHASE AND SALE AGREEMENT (this "Agreement") is made this 3rd day of May, 1996, by and among 730 CAL HOTEL PROPERTIES II, Inc., a Delaware corporation, 730 GEORGIA HOTEL PROPERTIES I, INC., a Delaware corporation, 730 MASS HOTEL PROPERTIES I, INC., a Delaware corporation, 730 MO HOTEL PROPERTIES I, INC., a Delaware corporation, 730 MINN HOTEL PROPERTIES I, INC., a Delaware corporation, 730 PENN. HOTEL PROPERTIES I, INC., a Delaware corporation, CAL HOTEL PROPERTIES I ASSOCIATES, a California general partnership, and MRC PROPERTIES, INC., a Delaware corporation (as "Sellers"), and SLT REALTY LIMITED PARTNERSHIP, a Delaware Limited Partnership ("SLT"), and SLC OPERATING LIMITED PARTNERSHIP, a Delaware Limited Partnership ("SLC"), jointly (SLT and SLC are collectively hereinafter referred to as "Buyer"). WITNESSETH: In consideration of the Earnest Money Deposit (as that term is hereinafter defined) and the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties hereto, Sellers, Buyer and Escrow Agent hereby agree as follows: ARTICLE I DEFINITIONS AND CONSTRUCTION 1.1 Definitions. For the purposes of this Agreement (including all of the Exhibits and Schedules attached hereto), the following terms will have the meanings ascribed thereto below: "Acknowledgment and Assumption Agreement" has the meaning set forth in Section 2.10 hereof. "ADA" means Title III of the Americans with Disabilities Act of 1990, as amended, together with all rules and regulations now or hereafter promulgated thereunder. "Additional Earnest Money Deposit" has the meaning set forth in Section 3.2.4 hereof. "Adverse Title Claim" has the meaning set forth in Section 4.3.1 hereof. "Affiliate" has the meaning set forth in Rule 12b-2 promulgated under the Securities Exchange Act of 1934. 2 "Affiliated Group" means an affiliated group as defined in Section 1504 of the Code (or any similar combined, consolidated or unitary group defined under state, local or foreign income tax law). "Alcoholic Beverage Licensing Agency" means all of the governmental agencies, authorities, boards, and other bodies which have the authority to license the sale and consumption of alcoholic beverages in each of the jurisdictions in which the Hotels are located. "Allocation Schedule" has the meaning set forth in Section 3.1 hereof. "Approved Group Receivables" means city ledger receivables relating to airline crew bookings or cruise line group bookings. "As Is" has the meaning set forth in Section 5.9. "Assignment of Intangibles" has the meaning set forth in Section 9.5.6 hereof. "Assignment of Management Agreement" has the meaning set forth in Section 9.5.4 hereof. "Assignment of Third Party Agreements" has the meaning set forth in Section 9.5.3 hereof "Assumed Liabilities" has the meaning given in Section 2.9. "Atlanta Consumables" means all food and beverages (including alcoholic to the extent permitted by applicable law and non-alcoholic), engineering, maintenance, guest room and housekeeping supplies (including soap, cleaning materials and matches), stationery, menus, printing and other supplies of all kinds owned by the Atlanta Seller which are located upon and used in connection with the operation and maintenance of the Atlanta Hotel as of the Closing Date, excluding, however, any item described above that the Atlanta Seller is not permitted to transfer pursuant to the terms of the Atlanta Management Agreement. "Atlanta Deed" means the special or limited warranty deed to be executed and delivered by the Atlanta Seller at the Closing in the form attached hereto as Exhibit B-1 conveying title to the Atlanta Hotel, subject only to the Permitted Exceptions. "Atlanta Equipment Leases" means those certain leases (whether operating or capital) relating to tangible personal property used in the operation and maintenance of the Atlanta Hotel which can be assigned to Buyer and which are more particularly described on Schedule C-1 attached hereto. 2 3 "Atlanta FF&E" means all tangible personal property, excluding the Atlanta Consumables, owned by the Atlanta Seller as of the Closing Date and located on the Atlanta Real Property and used in connection with the ownership, operation and maintenance of the Atlanta Hotel, including, without limitation, all fixtures, furniture, furnishings, fittings, equipment, computer hardware, and non-proprietary software, machinery, apparatus, artwork, books and records of the Atlanta Seller, appliances, china, glassware, linens, silverware, keys and uniforms owned by the Atlanta Seller. "Atlanta Hotel" means the Doubletree Hotel at Concourse located in Atlanta, Georgia, and includes collectively and without limitation, the Atlanta Real Property, the Atlanta FF & E, the Atlanta Consumables, the Atlanta Intangibles, the Atlanta Leases, the Atlanta Equipment Leases, the Atlanta Operating Agreements, the Atlanta Management Agreement, and any and all other aspects of the ownership and operation thereof. "Atlanta Intangibles" means all of the Atlanta Seller's rights, if any, to any telephone numbers currently in use at the Atlanta Hotel; all as built plans and specifications in the possession of the Atlanta Seller; warranties and guaranties (to the extent assignable) relating to the Atlanta Hotel; original, or where appropriate, copies of all financial, personnel and other books, records and files relating to the ownership or operation of the Atlanta Hotel wherever located and held by the Atlanta Seller or its agents, in computer readable form where available without additional cost or expense, and all Intellectual Property used in the operation of the Atlanta Hotel; in each case including, without limitation, the items set forth on Schedule F-] attached hereto, excluding, however, any item described above that the Atlanta Seller is not permitted to transfer pursuant to the terms of the Atlanta Management Agreement. "Atlanta Leases" means those certain leases relating to space within the Atlanta Hotel as more particularly described on Schedule B-1 attached hereto. "Atlanta Management Agreement" means that certain Management Agreement, dated April 5, 1994, by and between the Atlanta Seller and the Atlanta Manager, relating to the management of the Atlanta Hotel. "Atlanta Manager" means Doubletree Hotels Corporation. "Atlanta Operating Agreements" means those certain service contracts and other agreements, licenses, franchises, concessions or other arrangements relating to the operation and maintenance of the Atlanta Hotel other than the Atlanta Equipment Leases, the Atlanta Lease or the Atlanta Management Agreement, and more particularly described on Schedule D-1 attached hereto. "Atlanta Real Property" means that certain tract of land located in Atlanta, Georgia which is more particularly described on Schedule A-1 attached hereto, together with all buildings, improvements and fixtures located thereon as of the Closing Date, and all rights, 3 4 privileges and appurtenances pertaining thereto including all of Atlanta Seller's right, title and interest in and to all rights-of-way, open or proposed streets, alleys, easements, strips or gores of land adjacent thereto. "Atlanta Seller" means 730 Georgia Hotel Properties I, Inc. "Bloomington Consumables" means all food and beverages (including alcoholic to the extent permitted by applicable law and non-alcoholic), engineering, maintenance, guest room and housekeeping supplies (including soap, cleaning materials and matches), stationery, menus, printing and other supplies of all kinds owned by the Bloomington Seller which are located upon and used in connection with the operation and maintenance of the Bloomington Hotel as of the Closing Date, excluding, however, any item described above that the Bloomington Seller is not permitted to transfer pursuant to the terms of the Bloomington Management Agreement. "Bloomington Deed" means the special or limited warranty deed to be executed and delivered by the Bloomington Seller at the Closing in the form attached hereto as Exhibit B-3 conveying title to the Bloomington Hotel, subject to only the Permitted Exceptions. "Bloomington Equipment Leases" means those certain leases (whether operating or capital) relating to tangible personal property used in the operation and maintenance of the Bloomington Hotel which can be assigned to Buyer and which are more particularly described on Schedule C-3 attached hereto. "Bloomington FF&E" means all tangible personal property, excluding the Bloomington Consumables, owned by the Bloomington Seller as of the Closing Date and located on the Bloomington Real Property and used in connection with the ownership, operation and maintenance of the Bloomington Hotel, including, without limitation, all fixtures, furniture, furnishings, fittings, equipment, computer hardware, and non-proprietary software, machinery, apparatus, artwork, books and records of the Bloomington Seller, appliances, china, glassware, linens, silverware, keys and uniforms owned by the Bloomington Seller. "Bloomington Hotel" means the Doubletree Grand Hotel located in Bloomington, Minnesota, and includes collectively and without limitation, the Bloomington Hotel Real Property, the Bloomington Hotel FF & E, the Bloomington Hotel Consumables, the Bloomington Hotel Intangibles, the Bloomington Hotel Leases, the Bloomington Hotel Equipment Leases, the Bloomington Hotel Operating Agreements, the Bloomington Hotel Management Agreement, and any and all other aspects of the ownership and operation thereof. "Bloomington Intangibles" means all of the Bloomington Seller's rights, if any, to any telephone numbers currently in use at the Bloomington Hotel; all as built plans and specifications in the possession of the Bloomington Seller; warranties and guaranties (to the extent assignable) relating to the Bloomington Hotel; original, or where appropriate, copies of all financial, personnel and other books, records and files relating to the ownership or operation of 4 5 the Bloomington Hotel wherever located and held by the Bloomington Seller or its agents, in computer readable form where available without additional cost or expense, and all Intellectual Property used in the operation of the Bloomington Hotel; in each case including, without limitation, the items set forth on Schedule F-3 attached hereto, excluding, however, any item described above that the Bloomington Seller is not permitted to transfer pursuant to the terms of the Bloomington Management Agreement. "Bloomington Leases" means those certain leases relating to space within the Bloomington Hotel as more particularly described on Schedule B-3 attached hereto. "Bloomington Management Agreement" means that certain Management Agreement, dated November, 1993, by and between the Bloomington Seller and the Bloomington Manager, relating to the management of the Bloomington Hotel, as amended. "Bloomington Manager" means DT Management, Inc., as successor by merger to Harbor Hotel Corporation. "Bloomington Operating Agreements" means those certain service contracts and other agreements, licenses, franchises, concessions or other arrangements relating to the operation and maintenance of the Bloomington Hotel other than the Bloomington Equipment Leases, the Bloomington Leases or the Bloomington Management Agreement, and being more particularly described on Schedule D-3 attached hereto. "Bloomington Real Property" means that certain tract of land located in Bloomington, Minnesota which is more particularly described on Schedule A attached hereto, together with all buildings, improvements and fixtures located thereon as of the Closing Date, and all rights, privileges and appurtenances pertaining thereto including all of Bloomington Seller's right, title and interest in and to all rights-of-way, open or proposed streets, alleys, easements, strips or gores of land adjacent thereto. "Bloomington Seller" means 730 Minn Hotel Properties I, Inc., a Delaware corporation. "Bloomington Sponsorship Agreement" means that certain Mall of America Official Sponsor Agreement between the Bloomington Seller and Minntertainment Company, dated February 23, 1994, as amended. "Buyer's Conditions" has the meaning set forth in Section 8.1. "Capital Expenditures" means any expenditure for replacement, repair, improvement or addition to the Hotels which is, in accordance with generally accepted accounting principles, consistently applied, an expenditure which should be capitalized on the books and records of Seller. 5 6 "Capital Expenditure Deficiency" means the deficiency) if any, for all of the Hotels, computed as of the Closing Date of(a) the Capital Expenditures actually made by Sellers at the Hotels for the period January 1, 1996 through the Closing Date (excluding Capital Expenditures which were budgeted for prior years in the books and records of each Hotel but deferred until 1996), below (b) 4.75% of the aggregate Hotel Revenues for such period. "Capital Expenditure Excess" means the excess (other than expenditures that are attributable to the payment of any Cost of Defects) if any, for all of the Hotels, computed as of the Closing Date of (a) the Capital Expenditures actually made by Sellers at the Hotels for the period January 1, 1996 through the Closing Date (excluding Capital Expenditures which were budgeted for prior years in the books and records of each Hotel but deferred until 1996), over (b) 4.75% of the aggregate Hotel Revenues for such period. "Capital Lease Obligations" means all capital leases pertaining to the Hotels except those set forth on Schedule 9.3.18. "Casualty Notice" has the meaning set forth in Section 12.1 hereof "Certificate and Release" has the meaning set forth in Section 5.15 hereof. "Closing" has the meaning set forth in Section 9.1 hereof. "Closing Date" means July 15, 1996, or such earlier date as may be mutually agreed upon by the parties hereto, and subject to extension as provided in this Agreement. "Closing Statement" has the meaning set forth in Section 9.5.19 hereof. "Code" means the Internal Revenue Code of 1986, as amended. "Confidentiality Agreement" means that certain Confidentiality Agreement dated February 8, 1996 and executed by Sellers and Buyer. "Consumables" means collectively the Atlanta Consumables, the Fort Lauderdale Consumables, the Bloomington Consumables, the San Diego Consumables, the Kansas City Consumables, the LAX Consumables, the Philadelphia Consumables, and the Waltham Consumables. "Continuing Inspection Period" means that period commencing upon the expiration of the Preliminary Inspection Period and ending on the expiration of the Full Inspection Period. "Conveyance Documents" means collectively, the Deeds, Bills of Sale, Assignments of Management Agreements, Assignments of Third Party Agreements, Assignments 6 7 of Intangibles and LAX Assignment of Lessee's Interest, the Assignment of Bloomington Sponsorship Agreement, and the Assignment of Fort Lauderdale License Agreement. "Cost of Defects" has the meaning set forth in Section 5.6.2 hereof as finally determined and adjusted. "Cost of Defects Refund Agreement" has the meaning set forth in Section 9.3.17 hereof. "Cost of Omitted Liabilities" has the meaning set forth in Section 6.2.6 hereof. "Deeds" means collectively the Atlanta Deed, the Fort Lauderdale Deed, the Bloomington Deed, the San Diego Deed, the Kansas City Deed, the LAX Deed, the Philadelphia Deed, and the Waltham Deed. "Deficiency Amount" means the sum of the Cost of Defects and the Cost of Omitted Liabilities. "Designated Personnel" has the meaning set forth in Section 13.17. "Earnest Money Deposits" has the meaning set forth in Section 3.2 hereof. "Earnest Money Escrow Agreement" means the escrow agreement to be entered into by and among Sellers, Buyer and Escrow Agent in substantially the same form as Exhibit L pursuant to which the Earnest Money Deposit will be held by Escrow Agent. "Effective Date" means May 3, 1996. "Eminent Domain Notice" has the meaning set forth in Section 12.2 hereof. "Employees" means all employees of the Hotels. "Environmental Laws" means collectively (a) the Resource Conservation and Recovery Act of 1976, 42 USC +SC6901 et. seq. (RCRA), as amended; (b) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 USC +SC9601 et. seq. (CERCLA), as amended; (c) the Hazardous Materials Transportation Act, 49 USC +SC 1801, et. seq., as amended; (d) applicable laws of the State in which the Project is located; and (e) any federal, state or local regulations, rules or orders issued or promulgated under or pursuant to any of the foregoing or otherwise by any department, agency or other administrative, regulatory or judicial body. "Equipment Leases" means collectively the Atlanta Equipment Leases, the Fort Lauderdale Equipment Leases, the Bloomington Equipment Leases, the San Diego Equipment 7 8 Leases, the Kansas City Equipment Leases, the LAX Equipment Leases, the Philadelphia Equipment Leases, and the Waltham Equipment Leases. "Escrow Agent" means the Title Company, or a trust company affiliated therewith, in either case, in its capacity as escrowee under the Earnest Money Escrow Agreement. "Excluded Liabilities " means all liabilities of Sellers other than the Assumed Liabilities. ""Failure of Title" has the meaning set forth in Section 4.3 hereof. "FF&E" means collectively the Atlanta FF&E, the Fort Lauderdale FF&E, the Bloomington FF&E) the San Diego FF&E, the Kansas City FF&E, the LAX FF&E, the Philadelphia FF&E, and the Waltham FF&E. "Fort Lauderdale Consumables" means all food and beverages (including alcoholic to the extent permitted by applicable law and non-alcoholic), engineering, maintenance, guest room and housekeeping supplies (including soap, cleaning materials and matches), stationery, menus, printing and other supplies of all kinds owned by the Fort Lauderdale Seller which are located upon and used in connection with the operation and maintenance of the Fort Lauderdale Hotel as of the Closing Date, excluding, however, any item described above that the Fort Lauderdale Seller is not permitted to transfer pursuant to the terms of the Fort Lauderdale Management Agreement. "Fort Lauderdale Deed" means the special or limited warranty deed to be executed and delivered by the Fort Lauderdale Seller at the Closing in the form attached hereto as Exhibit B-2 conveying title to the Fort Lauderdale Hotel, subject only to the Permitted Exceptions. "Fort Lauderdale Equipment Leases" means those certain leases (whether operating or capital) relating to tangible personal property used in the operation and maintenance of the Fort Lauderdale Hotel which can be assigned to Buyer and which are more particularly described on Schedule C-2 attached hereto. "Fort Lauderdale FF&E" means all tangible personal property, excluding the Fort Lauderdale Consumables, owned by the Fort Lauderdale Seller as of the Closing Date and located on the Fort Lauderdale Real Property and used in connection with the ownership, operation and maintenance of the Fort Lauderdale Hotel, including, without limitation, all fixtures, furniture, furnishings, fittings, equipment, computer hardware, and non-proprietary software, machinery, apparatus, artwork, books and records of the Fort Lauderdale Seller, appliances, china, glassware, linens, silverware, keys and uniforms owned by the Fort Lauderdale Seller. 8 9 "Fort Lauderdale Hotel" means the Sheraton Fort Lauderdale Airport Hotel located in Dania, Florida and includes collectively and without limitation, the Fort Lauderdale Real Property, the Fort Lauderdale FF&E, the Fort Lauderdale Consumables, the Fort Lauderdale Intangibles, the Fort Lauderdale Leases, the Fort Lauderdale Equipment Leases, the Fort Lauderdale Operating Agreements, the Fort Lauderdale Management Agreement, and any and all other aspects of the ownership and operation thereof. "Fort Lauderdale Intangibles" means all of the Fort Lauderdale Seller's rights, if any, to any telephone numbers currently in use at the Fort Lauderdale Hotel; all as built plans and specifications in the possession of the Fort Lauderdale Seller; warranties and guaranties (to the extent assignable) relating to the Fort Lauderdale Hotel; original, or where appropriate, copies of all financial, personnel and other books, records and files relating to the ownership or operation of the Fort Lauderdale Hotel wherever located and held by the Fort Lauderdale Seller or its agents, in computer readable form where available without additional cost or expense, and all Intellectual Property used in the operation of the Fort Lauderdale Hotel; in each case including, without limitation, the items set forth on Schedule F-2 attached hereto, excluding, however, any item described above that the Fort Lauderdale Seller is not permitted to transfer pursuant to the terms of the Fort Lauderdale Management Agreement. "Fort Lauderdale Leases" means those certain leases relating to space within the Fort Lauderdale Hotel as more particularly described on Schedule B-2 attached hereto. "Fort Lauderdale License Agreement" means that certain License Agreement at the Fort Lauderdale Hotel between the Fort Lauderdale Seller and ITT Sheraton Corp. which is anticipated by Sellers to be executed by the parties thereto and to become effective prior to Closing. "Fort Lauderdale Management Agreement" means that certain Management Agreement, dated August, 1995, by and between the Fort Lauderdale Seller and the Fort Lauderdale Manager, relating to the management of the Fort Lauderdale Hotel. "Fort Lauderdale Manager" means Seaway Hospitality Corporation. "Fort Lauderdale Operating Agreements" means those certain service contracts and other agreements, licenses, franchises, concessions or other arrangements relating to the operation and maintenance of the Fort Lauderdale Hotel other than the Fort Lauderdale Equipment Leases, the Fort Lauderdale Leases and the Fort Lauderdale Management Agreement, and being more particularly described on Schedule D-2 attached hereto. "Fort Lauderdale Real Property" means that certain tract of land located in Dania, Florida which is more particularly described on Schedule A-2 attached hereto, together with all buildings, improvements and fixtures located thereon as of the Closing Date, and all rights, privileges and appurtenances pertaining thereto including all of Fort Lauderdale Seller's right, title 9 10 and interest in and to all rights-of-way, open or proposed streets, alleys, easements, strips or gores of land adjacent thereto. "Fort Lauderdale Seller" means MRC Properties, Inc, a Delaware corporation. "Full Inspection Period" means the period Commencing on the date of the execution and delivery of this Agreement by the last executing party and ending on June 28, 1996 at 5:00 p.m. Eastern Daylight Time. "Gross Receipts Tax Mutual Indemnity" has the meaning set forth in Section 9.7.2 hereof. "Hotel Revenue" means, for any period, the gross revenues, as determined under the Uniform System, arising or derived from the operations of the Hotels during such period, including, without limitation, all room revenues, food and beverage revenues, group sales revenues, banquet sales revenues, and any and all other revenues associated therewith. "Hotel" means any one of the Hotels or a particular Hotel as the context requires. "Hotels" means collectively the Atlanta Hotel, the Fort Lauderdale Hotel, the Bloomington Hotel, the San Diego Hotel, the Kansas City Hotel, the LAX Hotel, the Philadelphia Hotel, and the "Waltham Hotel. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, together with the rules and regulations promulgated thereunder. " "Income and Expense Statements means those certain income and expense statements for 1995 pertaining to each of the Hotels which were prepared by Managers and have been furnished by Sellers to Buyer and which are more particularly described on Schedule 5.1.3 attached hereto. "Indemnity Fund" has the meaning set forth in Section 9.8 hereof. "Information Documents" has the meaning set forth in Section 5.1 hereof. "Initial Earnest Money Deposits " has the meaning set forth in Section 3.2.3 hereof. "Inspecting Engineer" has the meaning set forth in Section 5.6 hereof. "Intangibles" means collectively the Atlanta Intangibles, the Fort Lauderdale Intangibles, the Bloomington Intangibles, the San Diego Intangibles, the Kansas City Intangibles, the LAX Intangibles, the Philadelphia Intangibles, and the Waltham Intangibles. 10 11 "Intellectual Property" means all of the following owned by, issued to or licensed to any Seller and used in the conduct of the business of the Hotels: trademarks, service marks, trade dress, logos and trade names, together with all goodwill associated therewith and all registrations, applications, renewals, translations, adaptations, derivations and combinations thereof, copyrights and copyrightable works and all registrations, applications and renewals therefor; trade secrets and confidential information (including, without limitation, ideas, drawings, specifications, designs, plans, proposals, financial and accounting data, business and marketing plans, and customer and supplier lists); computer software; other intellectual property rights; and all copies and tangible embodiments of the foregoing (in whatever form or medium). "Kansas City Consumables" means all food and beverages (including alcoholic to the extent permitted by applicable law and non-alcoholic), engineering, maintenance, guest room and housekeeping supplies (including soap, cleaning materials and matches), stationery, menus, printing and other supplies of all kinds owned by the Kansas City Seller which are located upon and used in connection with the operation and maintenance of the Kansas City Hotel as of the Closing Date, excluding, however, any item described above that the Kansas City Seller is not permitted to transfer pursuant to the terms of the Kansas City Management Agreement. "Kansas City Deed" means the special or limited warranty deed to be executed and delivered by the Kansas City Seller at the Closing in the form attached hereto as Exhibit B-5 conveying title to the Kansas City Hotel, subject only to the Permitted Exceptions. "Kansas City Equipment Leases" means those certain leases (whether operating or capital) relating to tangible personal property used in the operation and maintenance of the Kansas City Hotel which can be assigned to Buyer and which are more particularly described on Schedule C-5 attached hereto. "Kansas City FF&E" means all tangible personal property, excluding the Kansas City Consumables, owned by the Kansas City Seller as of the Closing Date and located on the Kansas City Real Property and used in connection with the ownership, operation and maintenance of the Kansas City Hotel, including, without limitation, all fixtures, furniture, furnishings, fittings, equipment, computer hardware, and non-proprietary software, machinery, apparatus, artwork, books and records of the Kansas City Seller, appliances, china, glassware, linens, silverware, keys and uniforms owned by the Kansas City Seller. "Kansas City Hotel" means The Ritz-Carlton Kansas City located in Kansas City, Missouri, and includes collectively and without limitation, the Kansas City Real Property, the Kansas City FF&E, the Kansas City Consumables, the Kansas City Intangibles, the Kansas City Leases, the Kansas City Equipment Leases, the Kansas City Operating Agreements, the Kansas City Management Agreement, and any and all other aspects of the ownership and operation thereof. 11 12 "Kansas City Intangibles" means all of the Kansas City Seller's rights, if any, to any telephone numbers currently in use at the Kansas City Hotel; all as built plans and specifications in the possession of the Kansas City Seller; warranties and guaranties (to the extent assignable) relating to the Kansas City Hotel; original, or where appropriate, copies of all financial, personnel and other books, records and files relating to the ownership or operation of the Kansas City Hotel wherever located and held by the Kansas City Seller or its agents, in computer readable form where available without additional cost or expense, and all Intellectual Property used in the operation of the Kansas City Hotel; in each case including, without limitation, the items set forth on Schedule F-5 attached hereto, excluding, however, any item described above that the Kansas City Seller is not permitted to transfer pursuant to the terms of the Kansas City Management Agreement. "Kansas City Leases" means those certain leases relating to space within the Kansas City Hotel as more particularly described on Schedule B-5 attached hereto. "Kansas City Management Agreement" means that certain Management Agreement, dated October 1, 1994, by and between the Kansas City Seller and the Kansas City Manager, relating to the management of the Kansas City Hotel. "Kansas City Manager" means The Ritz-Carlton Hotel Company, L.L.C. "Kansas City Operating Agreements" means those certain service contracts and other agreements, licenses, franchises, concessions or arrangements relating to the operation and maintenance of the Kansas City Hotel other than the Kansas City Equipment Leases, the Kansas City Leases and the Kansas City Management Agreement, and being more particularly described on Schedule D-5 attached hereto. "Kansas City Real Property" means that certain tract of land located in Kansas City, Missouri which is more particularly described on Schedule A-5 attached hereto, together with all buildings, improvements and fixtures located thereon as of the Closing Date, and all rights, privileges and appurtenances pertaining thereto including all of Kansas City Seller's right, title and interest in and to all rights-of-way, open or proposed streets, alleys, easements, strips or gores of land adjacent thereto. "Kansas City Seller" means 730 Mo Hotel Properties I, Inc., a Delaware corporation. "LAX Assignment of Lessee's Interest" means the Assignment of Lessee's Interest in the form attached hereto as Exhibit C pursuant to which the leasehold interest of the LAX Seller in and to the LAX Ground Lease will be transferred and assigned to Buyer. "LAX Consumables" means all food and beverages (including alcoholic to the extent permitted by applicable law and non-alcoholic), engineering, maintenance, guest room and 12 13 housekeeping supplies (including soap, cleaning materials and matches), stationery, menus, printing and other supplies of all kinds owned by the LAX Seller which are located upon and used in connection with the operation and maintenance of the LAX Hotel as of the Closing Date, excluding, however, any item described above that Sellers are not permitted to transfer pursuant to the terms of the LAX Management Agreement. "LAX Deed" means the special or limited warranty deed to be executed and delivered by the LAX Seller at the Closing in the form attached hereto as Exhibit B-6 conveying title to the LAX Improvements, subject only to the Permitted Exceptions. "LAX Equipment Leases" means those certain leases (whether operating or capital) relating to tangible personal property used in the operation and maintenance of the LAX Hotel which can be assigned to Buyer and which are more particularly described on Schedule C-6 attached hereto. "LAX FF&E" means all tangible personal property, excluding the LAX Consumables, owned by the LAX Seller as of the Closing Date and located on the LAX Real Property and used in connection with the ownership, operation and maintenance of the LAX Hotel, including, without limitation, all fixtures, furniture, furnishings, fittings, equipment, computer hardware, and non-proprietary software, machinery, apparatus, artwork, books and records of the LAX Seller, appliances, china, glassware, linens, silverware, keys and uniforms owned by the LAX Seller. "LAX Ground Lease" means that certain Ground Lease, dated January 31, 1984, entered into by and between S. Charles Lee and George E. Keiter, as trustees under the will of Miriam A. Lee, Lee & Keiter Development Co., a limited partnership, Coast Mortgage Corporation, and S. Charles Lee and George E. Keiter, as trustees under Trust Agreement dated August 17, 1970, as "Landlord," and Watt High-Rise Aviation Co., a California limited partnership, as "Tenant," as amended, transferred and assigned to the LAX Seller. "LAX Hotel" means the Doubletree Hotel-LAX located in Los Angeles, California, and includes collectively and without limitation, the LAX Real Property, the LAX FF & E, the LAX Consumables, the LAX Intangibles, the LAX Leases, the LAX Equipment Leases, the LAX Operating Agreements, the LAX Management Agreement, and any and all other aspects of the ownership and operation thereof. "LAX Improvements" all buildings, structures, and other improvements located upon the LAX Real Property. "LAX Intangibles" means all of the LAX Seller's rights, if any, to any telephone numbers currently in use at the LAX Hotel; all as built plans and specifications in the possession of the LAX Seller; warranties and guaranties (to the extent assignable) relating to the LAX Hotel; original, or where appropriate, copies of all financial, personnel and other books, records and files 13 14 relating to the ownership or operation of the LAX Hotel wherever located and held by the LAX Seller or its agents, in computer readable form where available without additional cost or expense, and all Intellectual Property used in the operation of the LAX Hotel; in each case including, without limitation, the items set forth on Schedule F-6 attached hereto, excluding, however, any item described above that the LAX Seller is not permitted to transfer pursuant to the terms of the LAX Management Agreement. "LAX Leases" means those certain leases relating to space within the LAX Hotel as more particularly described on Schedule B-6 attached hereto. "LAX Management Agreement" means that certain Management Agreement, dated July 1, 1994, by and between the LAX Seller and the LAX Manager, relating to the management of the LAX Hotel. "LAX Manager" means Doubletree Hotels Corporation. "LAX Operating Agreements" means those certain service contracts and other agreements, licenses, franchises, concessions or other arrangements relating to the operation and maintenance of the LAX Hotel other than the LAX Equipment Leases, the LAX Leases and the LAX Management Agreement, and being more particularly described on Schedule D-6 attached hereto. "LAX Real Property" means the LAX Seller's leasehold estate in and to that certain tract of land located in Los Angeles, California which is more particularly described on Schedule A-6 attached hereto, together with all buildings, improvements and fixtures located thereon as of the Closing Date, and all rights, privileges and appurtenances pertaining thereto including all of LAX Seller's right, title and interest in and to all rights-of-way, open or proposed streets, alleys, easements, strips or gores of land adjacent thereto. "LAX Seller" means 730 Cal Hotel Properties II, Inc., a Delaware corporation. "Leases" means collectively the Atlanta Leases, the Fort Lauderdale Leases, the Bloomington Leases, the San Diego Leases, the Kansas City Leases, the LAX Leases, the Philadelphia Leases, and the Waltham Leases. "Legal Requirements" means all federal, state and local laws, statutes, ordinances, rules and regulations affecting or in any way relating to the Hotels or their operations, including, without limitation, the Environmental Laws, ADA, and the Occupational Safety and Health Act of 1970, as amended. "Liabilities" means any liability, obligation, cost or expense of any nature whatsoever, whether now known or unknown, asserted or unasserted, accrued or unaccrued, 14 15 liquidated, unliquidated or due or to become due, including, without limitation, any liability in respect of taxes of any kind whatsoever that affect the Hotels or the operation thereof. "Limitation Date" has the meaning set forth in Section 6.5 hereof. "Liquor License" means with respect to each of the Hotels the license or licenses pursuant to which the sale of alcoholic beverages for on-site consumption is authorized by the Alcoholic Beverage Licensing Authority having jurisdiction over the particular Hotel. "Major Building System" has the meaning set forth in Section 5.6 hereof. "Major Defects" has the meaning set forth in Section 5.6.1 hereof. "Management Agreements" means collectively the Atlanta Management Agreement, the Fort Lauderdale Management Agreement, the Bloomington Management Agreement, the San Diego Management Agreement, the Kansas City Management Agreement, the LAX Management Agreement, the Philadelphia Management Agreement, and the Waltham Management Agreement. "Managers" means collectively the Atlanta Manager, the Fort Lauderdale Manager, the Bloomington Manager, the San Diego Manager, the Kansas City Manager, the LAX Manager, the Philadelphia Manager, and the Waltham Manager. "Omitted Liabilities" has the meaning set forth in Section 6.2.6.1 hereof. "Operating Agreements" means collectively the Atlanta Operating Agreements, the Fort Lauderdale Operating Agreements, the Bloomington Operating Agreements, the San Diego Operating Agreements, the Kansas City Operating Agreements, the LAX Operating Agreements, the Philadelphia Operating Agreements, and the Waltham Operating Agreements. "Ordinary Course of Business" means, with respect to each Hotel, the ordinary course of business generally consistent with past custom and practice (including with respect to quantity and frequency) for such Hotel, giving due regard and effect to the terms and conditions of Management Agreement and the Third Party Agreements. "Permitted Exceptions" means the easements, restrictions, encumbrances and other exceptions to title to the Hotels, as set forth in Schedules E-1 through E-8 attached hereto. "Permitted Investments" has the meaning set forth in the Earnest Money Escrow Agreement. "Personal Property" has the meaning set forth in Section 4.3.1 hereof. 15 16 "Philadelphia Consumables" means all food and beverages (including alcoholic to the extent permitted by applicable law and non-alcoholic), engineering, maintenance, guest room and housekeeping supplies (including soap, cleaning materials and matches), stationery, menus, printing and other supplies of all kinds owned by the Philadelphia Seller which are located upon and used in connection with the operation and maintenance of the Philadelphia Hotel as of the Closing Date, excluding, however, any item described above that the Philadelphia Seller is not permitted to transfer pursuant to the terms of the Philadelphia Management Agreement. "Philadelphia Deed" means the special or limited warranty deed to be executed and delivered by the Philadelphia Seller at the Closing in the form attached hereto as Exhibit B-7 conveying title to the Philadelphia Hotel, subject only to the Permitted Exceptions. "Philadelphia Equipment Leases" means those certain leases (whether operating or capital) relating to tangible personal property used in the operation and maintenance of the Philadelphia Hotel which can be assigned to Buyer and which are more particularly described on Schedule C-7 attached hereto. "Philadelphia FF&E" means all tangible personal property, excluding the Philadelphia Consumables, owned by the Philadelphia Seller as of the Closing Date and located on the Philadelphia Real Property and used in connection with the ownership, operation and maintenance of the Philadelphia Hotel, including, without limitation, all fixtures, furniture, furnishings, fittings, equipment, computer hardware, and non-proprietary software, machinery, apparatus, artwork, books and records of the Philadelphia Seller, appliances, china, glassware, linens, silverware, keys and uniforms owned by the Philadelphia Seller. "Philadelphia Hotel" means The Ritz-Carlton Philadelphia located in Philadelphia, Pennsylvania, and includes collectively and without limitation, the Philadelphia Real Property, the Philadelphia FF&E, the Philadelphia Consumables, the Philadelphia Intangibles, the Philadelphia Leases, the Philadelphia Equipment Leases, the Philadelphia Operating Agreements, the Philadelphia Management Agreement, and any and all other aspects of the ownership and operation thereof. "Philadelphia Intangibles" means all of the Philadelphia Seller's rights, if any, to any telephone numbers currently in use at the Philadelphia Hotel; all as built plans and specifications in the possession of the Philadelphia Seller; warranties and guaranties (to the extent assignable) relating to the Philadelphia Hotel; original, or where appropriate, copies of all financial, personnel and other books, records and files relating to the ownership or operation of the Philadelphia Hotel wherever located and held by the Philadelphia Seller or its agents, in computer readable form where available without additional cost or expense, and all Intellectual Property used in the operation of the Philadelphia Hotel; in each case including, without limitation, the items set forth on Schedule F-7 attached hereto, excluding, however, any item described above that the Philadelphia Seller is not permitted to transfer pursuant to the terms of the Philadelphia Management Agreement. 16 17 "Philadelphia Leases" means those certain leases relating to space within the Philadelphia Hotel as more particularly described on Schedule B-7 attached hereto. "Philadelphia Management Agreement" means that certain Amended and Restated Operating Agreement, dated July 18, 1988, by and between Liberty Place Hotel Associates and the Philadelphia Manager, relating to the management of the Philadelphia Hotel. "Philadelphia Manager" means The Ritz-Carlton Hotel Company. "Philadelphia Operating Agreements" means those certain service contracts and other agreements, licenses, franchises, concessions or other arrangements relating to the operation and maintenance of the Philadelphia Hotel other than the Philadelphia Equipment Leases, the Philadelphia Leases and the Philadelphia Management Agreement, and being more particularly described on Schedule D-7 attached hereto. "Philadelphia Real Property" means that certain tract of land and certain air rights parcel located in Philadelphia, Pennsylvania which are more particularly described on Schedule A- 7 attached hereto, together with all buildings, improvements and fixtures located thereon and therein as of the Closing Date, and all rights, privileges and appurtenances pertaining thereto including all of Philadelphia Seller's right, title and interest in and to all rights-of-way, open or proposed streets, alleys, easements, strips or gores of land adjacent thereto, and all so-called "touch down" sites and easements necessary to provide vertical support to the improvements located within the air rights parcel. "Philadelphia Seller" means 730 Penn. Hotel Properties I, Inc., a Delaware corporation. "Preliminary Earnest Money Deposit" has the meaning set forth in Section 3.2.2 hereof. "Preliminary Inspection" has the meaning set forth in Section 5.6 hereof. "Preliminary Inspection Period" means the period commencing on the date of the execution and delivery of this Agreement by the last executing party and ending on May 31, 1996 at 5:00 p.m. Eastern Daylight Time. "Purchase Price" has the meaning set forth in Section 3.1 hereof. "Purchase Price Adjustment Amount" has the meaning specified in Section 3.4 hereof. 17 18 "Readily Achievable ADA Work" means the readily achievable repairs, improvements and other work required to be performed at each of the Hotels substantially in accordance with the guidelines set forth on Schedule 7.2.12 hereto. "Real Property" means collectively the Atlanta Real Property, the Fort Lauderdale Real Property, the Bloomington Real Property, the San Diego Real Property, the Kansas City Real Property, the LAX Real Property, the Philadelphia Real Property, and the Waltham Real Property. "San Diego Consumables" means all food and beverages (including alcoholic to the extent permitted by applicable law and non-alcoholic), engineering) maintenance, guest room and housekeeping supplies (including soap, cleaning materials and matches), stationery, menus, printing and other supplies of. all kinds owned by the San Diego Seller which are located upon and used in connection with the operation and maintenance of the San Diego Hotel as of the Closing Date, excluding, however, any item described above that the San Diego Seller is not permitted to transfer pursuant to the terms of the San Diego Management Agreement. "San Diego Deed" means the special or limited warranty deed to be executed and delivered by the San Diego Seller at the Closing in the form attached hereto as Exhibit B-4 conveying title to the San Diego Hotel, subject only to the Permitted Exceptions. "San Diego Equipment Leases" means those certain leases (whether operating or capital) relating to tangible personal property used in the operation and maintenance of the San Diego Hotel which can be assigned to Buyer and which are more particularly described on Schedule C-4 attached hereto. "San Diego FF&E" means all tangible personal property, excluding the San Diego Consumables, owned by the San Diego Seller as of the Closing Date and located on the San Diego Real Property and used in connection with the ownership, operation and maintenance of the San Diego Hotel, including, without limitation, all fixtures, furniture, furnishings, fittings, equipment, computer hardware, and non-proprietary software, machinery, apparatus, artwork, books and records of the San Diego Seller, appliances, china, glassware, linens, silverware, keys and uniforms owned by the San Diego Seller. "San Diego Hotel" means the Doubletree Hotel at Horton Plaza located in San Diego, California and includes collectively and without limitation, the San Diego Real Property, the San Diego FF&E, the San Diego Consumables, the San Diego Intangibles, the San Diego Leases, the San Diego Equipment Leases, the San Diego Operating Agreements, the San Diego Management Agreement, and any and all other aspects of the ownership and operation thereof. "San Diego Intangibles" means all of the San Diego Seller's rights, if any, to any telephone numbers currently in use at the. San Diego Hotel; all as built plans and specifications in the possession of the San Diego Seller; warranties and guaranties (to the extent assignable) 18 19 relating to the San Diego Hotel; original, or where appropriate, copies of all financial, personnel and other books, records and files relating to the ownership or operation of the San Diego Hotel wherever located and held by the San Diego Seller or its agents, in computer readable form where available without additional cost or expense, and all Intellectual Property used in the operation of the San Diego Hotel; in each case including, without limitation, the items set forth on Schedule F-4 attached hereto, excluding, however, any item described above that the San Diego Seller is not permitted to transfer pursuant to the terms of the San Diego Management Agreement. "San Diego Leases" means those certain leases relating to space within the San Diego Hotel as more particularly described on Schedule B-4 attached hereto. "San Diego Management Agreement" means that certain Management Agreement, dated as of January 3, 1992, by and between the San Diego Seller and the San Diego Manager, relating to the management of the San Diego Hotel. "San Diego Manager" means DT Management, Inc. "San Diego Operating Agreements" means those certain service contracts and other agreements, licenses, franchises, concessions or other arrangements relating to the operation and maintenance of the San Diego Hotel other than the San Diego Equipment Leases, the San Diego Leases and the San Diego Management Agreement, and being more particularly described on Schedule D-4 attached hereto. "San Diego Real Property" means that certain tract of land located in San Diego, California which is more particularly described on Schedule A-4 attached hereto, together with all buildings, improvements and fixtures located thereon as of the Closing Date, and all rights, privileges and appurtenances pertaining thereto including all of San Diego Seller's right, title and interest in and to all rights-of-way, open or proposed streets, alleys, easements, strips or gores of land adjacent thereto. "San Diego Seller" means Cal Hotel Properties I Associates, a California general partnership. "San Diego Seller Managing Partner" means 730 Cal Hotel Properties I, Inc., a California corporation. "San Diego Seller Non-Managing Partners" means DT Real Estate, Inc., an Arizona corporation, and DTR Limited Partnership, an Arizona limited partnership. "Satisfactory Insurer" has the meaning given in Section 4.3.3. 19 20 "Sellers" means collectively the Atlanta Seller, the Fort Lauderdale Seller, the Bloomington Seller, the San Diego Seller, the Kansas City Seller, the LAX Seller, the Philadelphia Seller, and the Waltham Seller. "Sellers' Accountant" means Pannell Kerr Forster. "Sellers' Conditions" has the meaning set forth in Section 8.2 hereof. "Sellers' Default" has the meaning set forth in Section 11.2 hereof. "Sellers' Knowledge" has the meaning set forth in Section 13.17 hereof. "Signing Deposit" has the meaning set forth in Section 3.2.1 hereof. "Specific Disclosures" has the meaning given in Section 5.3 hereof. "Surveys" has the meaning set forth in Section 4.1 hereof. "Third Party Agreements" means collectively the Leases, the LAX Ground Lease, the Equipment Leases and the Operating Agreements. "Title Commitments" has the meaning set forth in Section 4.2. "Title Company" means Chicago Title Insurance Company or any other Satisfactory Insurer selected by Buyer. "Trade Payables" means open accounts payable to trade vendors or suppliers of each of the Hotels. "Transaction" means the purchase and sale transaction contemplated by this Agreement. "Uniform System" means the Uniform System of Accounts for Hotels, 8th Edition. "Waltham Consumables" means all food and beverages (including alcoholic to the extent permitted by applicable law and non-alcoholic), engineering, maintenance, guest room and housekeeping supplies (including soap, cleaning materials and matches), stationery, menus, printing and other supplies of all kinds owned by the Waltham Seller which are located upon and used in connection with the operation and maintenance of the Waltham Hotel as of the Closing Date, excluding, however, any item described above that the Waltham Seller is not permitted to transfer pursuant to the terms of the Waltham Management Agreement. 20 21 "Waltham Deed" means the special or limited warranty deed to be executed and delivered by the Waltham Seller at the Closing in the form attached hereto as Exhibit B-8 conveying title to the Waltham Hotel, subject only to the Permitted Exceptions. "Waltham Equipment Leases" means those certain leases (whether operating or capital) relating to tangible personal property used in the operation and maintenance of the Waltham Hotel which can be assigned to Buyer and which are more particularly described on Schedule C-8 attached hereto. "Waltham FF&E" means all tangible personal property, excluding the Waltham Consumables, owned by the Waltham Seller as of the Closing Date and located on the Waltham Real Property and used in connection with the ownership, operation and maintenance of the Waltham Hotel, including, without limitation, all fixtures, furniture, furnishings, fittings, equipment, computer hardware, and non-proprietary software, machinery, apparatus, artwork, books and records of the Waltham Seller, appliances, china, glassware, linens, silverware, keys and uniforms owned by the Waltham Seller. "Waltham Hotel" means the Westin Hotel located in Waltham, Massachusetts, and includes collectively and without limitation, the Waltham Real Property, the Waltham FF & E, the Waltham Consumables, the Waltham Intangibles, the Waltham Leases, the Waltham Equipment Leases, the Waltham Operating Agreements, the Waltham Management Agreement, and any and all other aspects of the ownership and operation thereof. "Waltham Intangibles" means all of the Waltham Seller's rights, if any, to any telephone numbers currently in use at the Waltham Hotel; all as built plans and specifications in the possession of the Waltham Seller; warranties and guaranties (to the extent assignable) relating to the Waltham Hotel; original, or where appropriate, copies of all financial, personnel and other books, records and files relating to the ownership or operation of the Waltham Hotel wherever located and held by the Waltham Seller or its agents, in computer readable form where available without additional cost or expense, and all Intellectual Property used in the operation of the Waltham Hotel; in each case including, without limitation, the items set forth on Schedule F-8 attached hereto, excluding, however, any item described above that the Waltham Seller is not permitted to transfer pursuant to the terms of the Waltham Management Agreement. "Waltham Leases" means those certain leases relating to space within the Waltham Hotel as more particularly described on Schedule B-8 attached hereto. "Waltham Management Agreement" means that certain Management Agreement, dated as of April 1, 1993, by and between the Waltham Seller and the Waltham Manager, relating to the management of the Waltham Hotel. "Waltham Manager" means Westin Hotel Company. 21 22 "Waltham Operating Agreements" means those certain service contracts and other agreements, franchises, concessions or other arrangements relating to the operation and maintenance of the Waltham Hotel other than the Waltham Equipment Leases, the Waltham Leases and the Waltham Management Agreement and being more particularly described on Schedule D-8 attached hereto. "Waltham Real Property" means that certain tract of land located in Waltham Massachusetts which is more particularly described on Schedule A-8 attached hereto, together with all buildings, improvements and fixtures located thereon as of the Closing Date, and all rights, privileges and appurtenances pertaining thereto including all of Waltham Seller's right, title and interest in and to all rights-of-way, open or proposed streets, alleys, easements, strips or gores of land adjacent thereto. "Waltham Seller" means 730 Mass Hotel Properties I, Inc., a Delaware corporation. 1.2 CAPTIONS. Titles and captions of articles and Sections set forth in this Agreement are inserted only as a matter of convenience and for reference, and in no way define, limit, extend or describe the scope of this Agreement or the meaning of any provision set forth herein. 1.3 NUMBER AND GENDER. Whenever required by the context, the singular number shall include the plural and the gender of any pronoun shall include the other genders. ARTICLE II PURCHASE AND SALE OF HOTELS 2.1 THE ATLANTA HOTEL. The Atlanta Seller hereby agrees to sell and Buyer hereby agrees to purchase the Atlanta Hotel on the terms and conditions set forth in this Agreement. 2.2 THE BLOOMINGTON HOTEL. The Bloomington Seller hereby agrees to sell and Buyer hereby agrees to purchase the Bloomington Hotel on the terms and conditions set forth in this Agreement. 2.3 THE FORT LAUDERDALE HOTEL. The Fort Lauderdale Seller hereby agrees to sell and Buyer hereby agrees to purchase the Fort Lauderdale Hotel on the terms and conditions set forth in this Agreement. 2.4 THE KANSAS CITY HOTEL. The Kansas City Seller hereby agrees to sell and Buyer hereby agrees to purchase the Kansas City Hotel on the terms and conditions set forth in this Agreement. 22 23 2.5 THE LAX HOTEL. The LAX Seller hereby agrees to sell and Buyer hereby agrees to purchase the LAX Hotel on the terms and conditions set forth in this Agreement. 2.6 THE PHILADELPHIA HOTEL. The Philadelphia Seller hereby agrees to sell and Buyer hereby agrees to purchase the Philadelphia Hotel on the terms and conditions set forth in this Agreement. 2.7 THE SAN DIEGO HOTEL. The San Diego Seller hereby agrees to sell and Buyer hereby agrees to purchase the San Diego Hotel on the terms and conditions set forth in this Agreement. 2.8 THE WALTHAM HOTEL. The Waltham Seller hereby agrees to sell and Buyer hereby agrees to purchase the Waltham Hotel on the terms and conditions set forth in this Agreement. 2.9 ASSUMPTION OF LIABILITIES. On and subject to the terms and conditions of this Agreement, Buyer shall assume and become responsible for all of the Assumed Liabilities at and after the Closing. The Buyer shall not assume and shall have no responsibility for any Excluded Liability. For purposes of this Agreement, "Assumed Liabilities" shall mean: (i) all Liabilities of Sellers under the Third Party Agreements, Bloomington Sponsorship Agreement, and Fort Lauderdale License Agreement arising or accruing in respect to periods on or after the Closing Date except for any such liabilities relating to a breach or default which arose prior to the Closing Date; (ii) Liabilities of Sellers under the Third Party Agreements arising or accruing in respect to periods prior to the Closing Date and for which Liabilities Buyer receives an adjustment to the Purchase Price pursuant to Section 9.3 hereof; and (iii) those Liabilities (if any) of Seller set forth on Schedule 2.9. 2.10 DESIGNEES OF BUYER. At or prior to Closing, Buyer may designate Affiliates of Buyer as the grantees to be named in one or more of the Conveyance Documents and may instruct Sellers in writing to execute and deliver one or more of the Conveyance Documents to the designees so designated by Buyer. Each such designee must execute and deliver an Acknowledgment and Assumption Agreement in the form attached hereto as Exhibit K pursuant to which each such designee shall acknowledge that such designee is an assignee of Buyer with respect to one or more of the Hotels or a portion thereof; and shall agree to assume and discharge all of the obligations of Buyer at Closing and thereafter arising under this Agreement with respect to such Hotel or portion thereof. The designation of such Affiliates and the execution and delivery of the Conveyance Documents to them by Sellers in accordance with Buyer's instructions shall not relieve or discharge Buyer of any of its obligations arising under this Agreement, and Buyer shall remain jointly and severally and primarily liable for the performance of all such obligations by it and by its designated Affiliates. Sellers hereby acknowledge that Buyer has advised Sellers that Buyer contemplates that SLT Realty Limited Partnership, a Delaware limited partnership, will be the grantee under the Deeds and the LAX Assignment of Lessee's Interest, and certain other Conveyance Documents to be designated by Buyer not later than three (3) business days prior to the Closing Date, and SLC Operating Limited Partnership, a Delaware 23 24 limited partnership, will be the transferee under the balance of the Conveyance Documents. Buyer assumes all risks associated with the designation of such entities including, without limitation, any and all risks arising from or related to the designation of one entity as the transferee under the Deeds and another entity as the transferee under the balance of the Conveyance Documents. Buyer acknowledges that whether such a division of ownership is permitted under the Management Agreements and Third Party Agreements is an issue to he resolved solely by Buyer, and Sellers have made no representation whatsoever with respect thereto. ARTICLE III PURCHASE PRICE, DEPOSITS; AND ADJUSTMENT 3.1 PURCHASE PRICE. The aggregate purchase price to be paid by Buyer for the purchase of the Hotels (the "Purchase Price") is the sum of Three Hundred and Nine Million and No/100 Dollars ($309,000,000), which sum shall be allocated to the Hotels in accordance with the Allocation Schedule attached hereto as Schedule 3.1 or such other allocation schedule as Buyer and Sellers mutually agree upon acting reasonably and in good faith. The Purchase Price will be paid in full at Closing by federal wire transfer of good and collected funds for same day credit on the Closing Date to the account of Sellers or such other account as Sellers may in their sole discretion direct in writing in one or more bank accounts maintained by Sellers or Affiliates of Sellers in one or more National Banking Associations in the New York, New York metropolitan area. Sellers may designate in writing one or more of Sellers or one or more Affiliates of Sellers as the designee for receipt of the Purchase Price, and payment of the Purchase Price to such designee in accordance with Sellers' instructions shall constitute full and complete payment of the Purchase Price for all purposes of this Agreement. 3.2 EARNEST MONEY DEPOSITS. Buyer has made or agreed to make certain Earnest Money Deposits as more particularly described in this Section 3.2, which when fully funded will equal Ten Million and No/100 ($10,000,000). The Signing Deposit will be paid by Buyer to Sellers and the remainder of the Earnest Money Deposits will be paid by Buyer to the Escrow Agent and will be held, invested, and applied by Escrow Agent in accordance with the terms and conditions of this Agreement and the Earnest Money Escrow Agreement. At closing, Buyer will receive a credit against the Purchase Price for the entire principal amount of all Earnest Money Deposits, and shall receive a further credit against the Purchase Price for one-half of the interest earned on the Preliminary and Additional Earnest Money Deposits. The remaining amount of the interest earned on the Preliminary and Additional Earnest Money Deposits will be paid by Escrow Agent to Sellers or to their designee at Closing. 3.2.1 SIGNING DEPOSIT. Contemporaneously with the execution and delivery hereof; Buyer has paid to Sellers the sum of Five Hundred Thousand and No/100 Dollars ($500,000), which sum will constitute the Signing Deposit under this Agreement. 24 25 3.2.2 PRELIMINARY EARNEST MONEY DEPOSIT. On or before 5:00 p.m. Eastern Daylight Time on May 13,1996, Buyer will deposit with Escrow Agent the sum of Four Million Five Hundred Thousand and No/100 Dollars ($4,500,000) by wire transfer (in accordance with the wire transfer instructions set forth in Schedule 3.2.2 hereof) of immediately available funds, which sum will constitute the Preliminary Earnest Money Deposit under this Agreement. 3.2.3 INITIAL EARNEST MONEY DEPOSITS. The Signing Deposit and the Preliminary Earnest Money Deposit together will constitute the Initial Earnest Money Deposits under this Agreement. 3.2.4 ADDITIONAL EARNEST MONEY DEPOSIT. Unless Buyer elects to terminate this Agreement prior to the expiration of the Full Inspection Period as provided in Section 5.7 hereof; then not later than 5:00 p.m. Eastern Daylight Time on the later to occur of: (i) the last business day of the Full Inspection Period and (ii) the first business day following final determination of the Purchase Price Adjustment, if any, pursuant to the provisions of this Agreement, Buyer will deposit with Escrow Agent the additional sum of Five Million and No/100 Dollars ($5,000,000) by wire transfer in accordance with the instructions set forth on Schedule 3.2.2 hereof of immediately available funds, which sum shall constitute the Additional Earnest Money Deposit. 3.2.5 REFUNDABLE AND NONREFUNDABLE DEPOSITS. Except for Buyer's right to receive a refund of the principal amount of the Preliminary Earnest Money Deposit in the event Sellers elect to terminate this Agreement prior to the expiration of the Preliminary Inspection Period as provided in Section 3.5 hereof; the Earnest Money Deposits will be nonrefundable for any reason whatsoever, other than a Failure of Title, a Seller's Default, or as provided in Section 12.2.3 hereof. Accordingly, in the event Sellers do elect to terminate this Agreement prior to the expiration of the Preliminary inspection Period in accordance with the provisions of Section 3.5 hereof; then unless Buyer's election is due to a Failure of Title, the Signing Deposit, together with all interest earned thereon, will become the sole property of Sellers without restriction or any obligation to refund all or any portion thereof to Buyer, and Escrow Agent will refund to Buyer the entire principal amount of' the Preliminary Earnest Money Deposit, together with all interest earned thereon during the Preliminary Inspection Period. If Sellers do not elect to terminate this Agreement prior to the expiration of the Full Inspection Period, then the entire amount of the Earnest Money Deposits will be nonrefundable for any reason whatsoever, other than a Failure of Title, a Seller's Default, or as provided in Section 12.2.3 hereof. Buyer acknowledges and agrees that the Earnest Money Deposits represent reasonable compensation to Sellers for withholding the Hotels from the market during the Inspection Periods and for allowing Buyer access to financial, operating, title and other information concerning the Hotels that would otherwise be confidential information, and Buyer therefore agrees that loss of any or all of the Initial Earnest Money Deposits in accordance with the terms of this Agreement will not constitute a forfeiture or penalty, but is intended by the parties to represent reasonable compensation to Sellers for the actions of Sellers described above, regardless of whether Buyer closes the Transaction. 25 26 3.3 INVESTMENT OF EARNEST MONEY DEPOSITS. Under the terms of the Earnest Money Escrow Agreement, Escrow Agent shall be obligated to invest the Earnest Money Deposits held by Escrow Agent in one or more Permitted Investments designated by Buyer and approved by Sellers in their reasonable discretion, or otherwise invested in accordance with the mutual agreement of Buyer, Sellers and Escrow Agent. 3.4 PURCHASE PRICE ADJUSTMENT. Buyer will be entitled to an adjustment to the Purchase Price (the "Purchase Price Adjustment") equal to the excess of the Deficiency Amount over One Million Two Hundred Fifty Thousand and No/100 Dollars ($1,250,000), but in no event will any Purchase Price Adjustment exceed the sum of Six Million Two Hundred Fifty Thousand and No/100 Dollars ($6,250,000). In the event the Deficiency Amount is equal to or less than the sum of One Million Two Hundred Fifty and No/100 Dollars ($1,250,000), Buyer will not be entitled to any credit against or reduction to the Purchase Price and shall have no claim whatsoever against any of Sellers with respect to any of the matters which gave rise to the Omitted Liabilities, the Cost of Defects or other costs of curing any deficiencies related to the physical condition of the Hotels, the Legal Requirements, or the ADA. 3.5 SELLERS' RIGHT TO TERMINATE. In the event the Purchase Price Adjustment would otherwise exceed the sum of Six Million Two Hundred Fifty Thousand and No/100 Dollars ($6,250,000), then within ten (10) days after the amount of the Deficiency Amount has been finally determined pursuant to Sections 5.6 and 7.5 hereof; Sellers shall have the option either: (i) to elect by written notice to Buyer to terminate this Agreement by written notice to Buyer, or (ii) to elect to withdraw from the Transaction one (but not more than one) Hotel that is identified by the Inspecting Engineer (as provided in Section 5.6 hereof) as one with Major Defects, but only if the withdrawal of such Hotel would cause the Purchase Price Adjustment to be equal to or less than $6,250,000. In the event Sellers elect to terminate this Agreement, the entire principal amount of the Preliminary Earnest Money Deposit, together with all interest earned thereon will be paid over to Buyer, and Sellers will be entitled to retain the entire amount of the Signing Deposit without restriction or any further obligation to Buyer with respect thereto. In the event Sellers elect to withdraw a Hotel from the Transaction, then the Purchase Price shall be reduced by an amount equal to the portion of the Purchase Price shown on the Allocation Schedule as being allocated to the withdrawn Hotel, and the cost of curing the Major Defects attributed to the withdrawn Hotel will be disregarded for all purposes of this Agreement. In such event, for the purpose of calculating the Purchase Price Adjustment, as provided in Section 3.4, the $1,250,000 threshold will be reduced in the same proportion as the proportion the value of the withdrawn Hotel as set forth on the Allocation Schedule bears to the Purchase Price. If Sellers elect to terminate this Agreement pursuant to clause (i) above, Buyer may, by written notice to Sellers within five (5) business days following such election by Sellers, require Sellers to proceed with the Closing under this Agreement in which case Buyer will receive a Purchase Price Adjustment of $6,250,000. 26 27 ARTICLE IV SURVEY AND TITLE 4.1 SURVEY. Within five(5) business days after the Effective Date, Sellers will deliver to Buyer a copy of the most recent surveys of the Hotels as Sellers have in their possession. Buyer shall obtain, at Buyer's cost and expense, no later than the expiration of the Preliminary Inspection Period, a current survey of the Real Property with respect to each Hotel, prepared by a licensed surveyor satisfactory to Buyer, which surveys will be in accordance with the 1992 Minimum Standard Requirements for ALTA/ASCM Land Title Surveys jointly established and adopted by the American Land Title Association and the American Society of Cartographers and Mapmakers for a Class A Urban Area Survey) and certified to Buyer, Buyer's designees, the Title Company and such other parties as Buyer may request (collectively, the "Surveys"). 4.2 TITLE REVIEW. Prior to or contemporaneously with the execution and delivery of this Agreement, Sellers will deliver to Buyer copies of Sellers' existing title insurance policies. Buyer shall obtain, at Buyer's cost and expense, no later than the expiration of the Preliminary Inspection Period, a title insurance commitment from the Title Company for an ALTA Owner's Title Insurance Policy Form B-1970 (or such other form reasonably acceptable to Buyer) for each Real Property, other than the LAX Real Property, and an ALTA Leasehold Title Insurance Policy Form B-1970 (or such other form reasonably acceptable to Buyer) for the LAX Real Property, naming Buyer or Buyer's designees as the proposed insured for the amounts set forth in the Allocation Schedule (the "Title Commitments"). Buyer agrees to accept title to the Real Property subject to the Permitted Exceptions, and Buyer will notify Sellers of any objections to the title exceptions (other than Permitted Exceptions) or other matters set forth in the Title Commitments not later than the expiration of the Preliminary Inspection Period. 4.3 FAILURE OF TITLE. For all purposes of this Agreement, a Failure of Title shall be deemed to have occurred if and only if each and every one of the conditions set forth Sections 4.3.1 through 4.3.4 hereof shall have occurred and be continuing as of the date of the Failure of Title. 4.3.1 TITLE DEFECTS. There shall exist of record in the official deed records of the jurisdiction in which any Hotel exists, or otherwise in written notice form, a lien or other claim by a person or entity other than Sellers, Buyer, or their respective Affiliates of any right, title, or interest in or to the Real Property or the FF&E or any of the other personal property, tangible or intangible, to be transferred to Buyer pursuant to this Agreement (collectively, the "Personal Property"), other than the Permitted Exceptions, and if; with respect to any such claim which is not a lien securing a liquidated amount, such claim, if adjudicated and decided adversely to the owner of the Hotels, would have a substantial, material and adverse effect upon the income producing potential of the Hotels or the right of the owner of the Hotels to operate them in substantially the same manner in which they are presently operated (such liens and claims being hereinafter referred to as an "Adverse Title Claim"). Any lien, security interest or other claim 27 28 pertaining to the LAX Real Property that would have priority over the LAX Ground Lease will be an "Adverse Title Claim." 4.3.2 NOTICE TO SELLERS. Prior to the expiration of the Preliminary Inspection Period, Buyer shall have provided notice to Sellers specifying the existence of an Adverse Title Claim and providing Sellers with all facts and Circumstances known to Buyer with respect to the Adverse Title Claim, including, without limitation, a copy of the Title Commitment or other written evidence showing the Adverse Title Claim as an exception to title to any of the Real Property or Personal Property; provided, however, in the event Buyer first learns of the Adverse Title Claim after the expiration of the Preliminary Inspection Period, then the notice to Sellers shall have been provided not later than 10 days after Buyer first learned of the Adverse Title Claim or the Closing Date, whichever first occurs. 4.3.3 NON-INSURABILITY. Sellers shall have refused or been unable, after the expiration of thirty days after Seller has received the notice contemplated by Section 4.3.2 hereof; to cause a Satisfactory Title Insurer to issue a commitment to insure title to any portion of the Real Property that is the subject of an Adverse Title Claim either without exception for the Adverse Title Claim or with affirmative insurance against the enforcement of the Adverse Title Claim; provided, however, that any such affirmative insurance shall be from a Satisfactory Insurer and that such policy shall include the obligation of such Satisfactory Insurer to give identical coverage to Buyer's current and future lenders (if any) and to any transferee of Buyer's interest in the affected property (and such transferee's lenders, if any). For purposes of this Agreement, a "Satisfactory Insurer" means one or more of the title insurers listed on 4.3.3. 4.3.4 REFUSAL TO WITHDRAW. In the event the conditions set forth in Sections 4.4.1 through 4.4.3 hereof are all present and continuing, Sellers shall refuse for a period often days after the expiration of the thirty day period specified in Section 4.3.3 hereof to agree either: (i) provided the Adverse Title Claim does not relate solely to Personal Property, to withdraw the Hotel (but not more than one (1)) that is affected by the Adverse Title Claim from the Transaction and to give to Buyer a credit against the Purchase Price in an amount equal to the portion of the purchase price allocated to the affected Hotel as shown on the Allocation Schedule, or (ii) if the Adverse Title Claim is one that can be cured solely by the payment of money, or is one that relates solely to the Personal Property, to pay the full amount of the Adverse Title Claim at or prior to Closing. 4.3.5 REFUND OF SIGNING DEPOSIT AND INTEREST. If a Failure of Title shall occur, then Buyer may elect by written notice to Sellers delivered at or prior to Closing: (i) to terminate this Agreement if such Failure of Title effects more than one (1) Hotel, in which case, Seller shall refund to Buyer the Signing Deposit, together with interest thereon at the rate of 4.5% per annum, and Buyer shall be entitled to a refund by Escrow Agent of Earnest Money Deposits, together with all interest earned thereon; (ii) to terminate this Agreement as to only the Hotel affected by such Failure of Title (but not more than one (1) such Hotel), in which case Buyer shall receive a credit against the Purchase Price in an amount equal to the portion of the Purchase Price 28 29 allocated to the affected Hotel as shown on the Allocation Schedule; or (iii) to waive such Failure of Title and proceed to Closing pursuant to the terms hereof without offset or other adjustment to the Purchase Price other than for matters Sellers are required to cure pursuant to Section 4.6. 4.4 TITLE CONCLUSIVELY SATISFACTORY. Unless there occurs a Failure of Title, then subject to the provisions of Section 4.6 hereof; title to the Real Property and Personal Property shall be deemed conclusively satisfactory to Buyer for all purposes of this Agreement, and Buyer will not be entitled to terminate this Agreement on account of any title defect or receive a credit against the Purchase Price with respect thereto. 4.5 POSTPONEMENT OF CLOSING. In the event the Closing Date would otherwise occur prior to the expiration of any of the time periods specified in Section 4.3 hereof; the Closing Date will be extended to a date specified by Sellers, which date will be not less than 30 days nor more than 60 days from the date on which the Closing Date would have otherwise occurred. 4.6 PAYMENT OF CERTAIN TITLE CLAIMS. In the event Buyer's objection to Sellers' title to the Real Property or the Personal Property relates to a claim arising by, through or under Sellers, and: (i) such claim can be cured solely by the payment of money; and (ii) such claim is not a Permitted Exception, then regardless of whether such claims result in a Failure of Title, Seller will pay and discharge (or otherwise discharge the lien of or bond over) such claim at or prior to Closing. Notwithstanding any other provision hereof to the contrary) Sellers' liability under this Section 4.6 will not exceed $2,500,000 unless such claim is attributable to or arises from facts and circumstances within Sellers' Knowledge in which case Sellers' liability under this Section 2.6 will not be limited. ARTICLE V INFORMATION CONCERNING THE HOTELS 5.1 INFORMATION DOCUMENTS. Sellers have or will promptly make available to Buyer certain documentation (collectively, the "Information Documents") pertaining to the Hotels, in each case, however, only to the extent available and in the possession of Sellers, Managers and their Affiliates, including, without limitation, the information described below. 5.1.1 PLANS AND SPECIFICATIONS. Plans and specifications relating to the Hotels and the construction of any component of the Hotels will be made available for Buyer's inspection. 5.1.2 MISCELLANEOUS AGREEMENTS. Copies of the Third Party Agreements and all warranties, guaranties and commission agreements relating to the Hotels on the date this Agreement is executed by Sellers will be made available for Buyer's inspection. 29 30 5.1.3 INCOME AND EXPENSE STATEMENTS. Unaudited detailed income and expense statements for calendar years 1994 and 1995 and the first quarter of 1996 (or such shorter period with respect to Hotels acquired by Sellers in 1994 or later) for the Hotels will be made available for Buyer's inspection. 5.1.4 MANAGEMENT AGREEMENTS. Copies of the Management Agreements, the Fort Lauderdale License Agreement and the Bloomington Sponsorship Agreement will be made available for Buyer's inspection. 5.1.5 TITLE INFORMATION. The existing surveys) title insurance policies, and other title information in the possession of Sellers, Managers or their Affiliates will be made available for Buyer's inspection. 5.1.6 MISCELLANEOUS. Subject to the provisions of Sections 5.2, 5.13 and 5.14 hereof, Sellers will also make available such other documents and information as may be requested by Buyer or as Sellers may determine is appropriate in connection with Buyer's inspection of the Hotels, including, Without limitation, information and documentation relating to the matters described in Section 5.3 hereof. 5.2 CERTAIN CONFIDENTIAL INFORMATION. Buyer acknowledges and agrees that Sellers or Affiliates of Sellers may have the following confidential information concerning the Hotels: state and federal income tax returns and filing information, internal evaluations and appraisals, loan files pertaining to mortgage financing provided by an Affiliate of Sellers to Sellers' predecessors in title to each of the Hotels, personnel files relating to discharged employees of the Hotels, and privileged attorney-client communications. Buyer disclaims any interest in examining any such confidential information and acknowledges and agrees that Sellers and Affiliates of Sellers may withhold such information from Buyer, and that the withholding of such information is not in violation of any duty or obligation owed to Buyer under this Agreement or otherwise, regardless of the content thereof. Buyer and Sellers ratify and affirm the Confidentiality Agreement and agree that any documents delivered under this Agreement are subject to the Confidentiality Agreement. Nothing in this Agreement shall be deemed a modification or waiver of the Confidentiality Agreement, and in the event of a conflict between the Confidentiality Agreement and this Agreement, the terms of the Confidentiality Agreement will control. 5.3 SPECIFIC DISCLOSURES. Buyer acknowledges and agrees that Sellers have made certain specific disclosures concerning certain of the Hotels, and that notwithstanding such disclosures, Buyer desires to proceed with the Transaction, including without limitation, the deposit of the Earnest Money Deposits. Buyer acknowledges and agrees that the descriptions of the disclosures set forth in this Section (the "Specific Disclosures") are intended only as a summary of certain disclosures made to Buyer and not as a complete disclosure of the full scope of the problems, defects, and conditions identified and disclosed by Sellers to Buyer with respect to each Hotel. Buyer understands that such problems, defects, and conditions may be more extensive than indicated in the following summaries or in other information furnished to Buyer by 30 31 Sellers. Buyer also understands that such problems, defects, and conditions may not be curable in all cases, and that if curable, the cost may exceed Buyer's expectations. 5.3.1 ACQUISITION OF HOTELS. Each of the Hotels was acquired by its respective Sellers either through foreclosure or the acceptance of a deed in lieu of foreclosure on the respective dates described in Schedule 5.3.1. As a result, Sellers have little, if any, operational information with respect to the Hotels prior to the ownership thereof by Sellers. 5.3.2 THE BLOOMINGTON HOTEL. According to local press reports, expansion of the existing airport facilities is under consideration, which expansion may include the development of a new east-west runway which could impact the Bloomington Hotel. 5.3.3 THE FORT LAUDERDALE HOTEL. 5.3.3.1 ADA COMPLIANCE. On January 16, 1996, a complaint was filed in the U.S. District Court, Southern District of Florida, alleging that the Fort Lauderdale Hotel violates the ADA and seeking certain injunctive relief. The Fort Lauderdale Seller is negotiating a settlement With the plaintiff whereby certain modifications would be performed to the Fort Lauderdale Hotel and the case would be dismissed. The settlement will probably require certain modifications to be made immediately and others that would be required to be performed after the Closing Date. 5.3.3.2 EXTERIOR GLASS. The Fort Lauderdale Seller is investigating deficiencies with the Fort Lauderdale Hotel's exterior window glass. 5.3.4 THE KANSAS CITY HOTEL. 5.3.4.1 CABLE AGREEMENTS. The Kansas City Hotel is serviced by a cable television service provider that is engaged in various disputes concerning the term of its agreement and ownership rights to cable installed in the Kansas City Hotel. The existing contract with the cable television provider runs through September 6, 1996, and notice of intent to terminate must be given by the owner of the Kansas City Hotel before June 8, 1996. 5.3.4.2 TENANT LEASE EXPIRATION. The existing office lease with Smith Barney, Inc. will expire prior to Closing and the Kansas City Seller has engaged a broker to assist in locating a new tenant. 5.3.5 THE PHILADELPHIA HOTEL. 5.3.5.1 LABOR ELECTION. The Engineering Department of the Philadelphia Hotel recently elected to join the Teamsters Union and the Housekeeping Department has filed a petition with the National Labor Relations Board seeking a union election. 31 32 5.3.5.2 MANAGEMENT AGREEMENT. By letter dated January 2, 1996, counsel for the Philadelphia Seller notified the Philadelphia Manager of its intent to terminate the Philadelphia Management Agreement effective sixty (60) days after the date of such notice. By letter dated January 15, 1996, counsel for the Philadelphia Seller notified the Philadelphia Manager that the Philadelphia Seller either would require any subsequent manager to hire not less than 66 2/3% of the Employees of the Philadelphia Hotel or would extend the termination notice period to the extent necessary to comply with the requirements of the WARN Act. Copies of these letters have been provided to Buyer. 5.3.5.3 EQUITABLE MORTGAGE. A claim of a right to an equitable mortgage has been asserted in a lawsuit styled "HCB Contractors v. Liberty Place Hotel Associates," now pending in the United States District Court for the Eastern District of Pennsylvania as Civil Action No. 91 CV 5350. 5.3.5.4 AIR RIGHTS. Substantially all of the Philadelphia Real Property consists of air rights and certain appurtenances thereto. 5.3.6 THE WALTHAM HOTEL. Environmental studies performed on behalf of the Waltham Owner have disclosed the potential for contamination to the Waltham Real Property remaining after remediation efforts that were performed by a prior owner of the Waltham Real Property and before construction of the Hotel. Notices concerning the potential contamination have been sent to agencies of the Commonwealth of Massachusetts. 5.4 ASSIGNABILITY OF RIGHTS. Buyer has the obligation to determine the assignability of the Third Party Agreements, the Management Agreements, the LAX Ground Lease, the Bloomington Sponsorship Agreement and the Fort Lauderdale License Agreement. Sellers will cooperate with Buyer and will use diligent efforts (but will not be obligated) to obtain any consents required in connection with an assignment of the Management Agreements, the Fort Lauderdale License Agreement, the Bloomington Sponsorship Agreement, Third Party Agreements, and the LAX Ground Lease described in the LAX Assignment of Lessee's Interest. The Management Agreements, Third Party Agreements, and the LAX Ground Lease are confidential and will not be distributed or disclosed by Buyer to any person or entity not associated with Buyer. If the Transaction fails to close for any reason whatsoever, Buyer will return to Sellers all of the Documents which Sellers have delivered to Buyer in accordance with this Section 5.4 and will not retain any copies thereof. THE FURNISHING OF ANY MATERIALS, DOCUMENTS, REPORTS OR AGREEMENTS DESCRIBED ABOVE WILL NOT BE INTERPRETED IN ANY MANNER AS A REPRESENTATION OR WARRANTY OF ANY TYPE OR K[ND BY SELLERS OR ANY OFFICER, DIRECTOR, EMPLOYEE, AGENT, OR OTHER PARTY RELATED IN ANY WAY TO SELLERS, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OR REPRESENTATION WITH RESPECT TO THE TRUTH OR ACCURACY OF ANY WARRANTY, REPRESENTATION, OR STATEMENT OF FACT MADE THEREIN. 32 33 5.5 INSPECTION OF HOTELS. During the Full Inspection Period, Buyer covenants and agrees that it will inspect the Hotels at its sole cost and expense. Buyer will also (i) examine the books and records of each of the Hotels; (ii) interview the Managers with respect to the operation and management of the Hotels; (iii) interview the general manager of each of the Hotels and other key employees; (iv) examine the physical structures; environmental condition and, the FF&E of each Hotel; (v) review the Management Agreements, the Fort Lauderdale License Agreement, the Bloomington Sponsorship Agreement and Third Party Agreements; (vi) conduct studies to determine compliance of the Hotels with the Legal Requirements; and (vii) otherwise CONDUCT A COMPLETE AND THOROUGH INVESTIGATION AND EXAMINATION OF THE HOTELS EMPLOYING THE HIGHEST LEVELS OF DUE DILIGENCE. To the extent Buyer does not presently have available its own employees to conduct such examinations and inspections, Buyer will retain such consultants, independent contractors, and other professional advisors as necessary to enable it to fulfill its obligation to employ the highest levels of due diligence. Buyer will provide Managers with reasonable prior written notice regarding the scope and execution of such studies, and shall not unreasonably disturb or interfere with the operation, management or use of the Hotels by the Managers, or Sellers, or Sellers' agents, or any tenant of the Hotels or by any such tenant's customers, invitees or guests, not unreasonably interfere with or disturb any guest or occupant or customer of the Hotels, and not damage or affect the physical structure or the appearance of the Hotels in any way. Buyer will be responsible for any and all losses, damages, charges and other costs associated with such inspections and studies, and Buyer covenants and agrees to return the Hotels to the same condition as existed prior to such inspections and studies. Buyer agrees not to allow any liens to attach against the Hotels as a result of such inspections and studies and agrees to indemnify and hold Sellers harmless from and against any and all claims, charges, actions, costs, Suits, damages, injuries, or other liabilities which arise, either directly or indirectly from Buyer or its agent's or employee's entry onto the Hotels prior to Closing. The obligation provided in the immediately preceding sentence will survive the Closing. Notwithstanding any provision of this Agreement to the contrary, no failure on the part of Buyer to perform any specified level of due diligence shall be asserted by any Seller, whether or not in connection with any litigation, (i) as a default by Buyer under this Agreement, (ii) as the failure of a covenant under this Agreement pursuant to Section 8.2.2, (iii) as an action giving rise to a claim by any Seller for damages or a right to specifically enforce such covenant, or (iv) as an action, in whole or in part, that mitigates or excuses Sellers' obligations and covenants under this Agreement. 5.6 PRELIMINARY INSPECTION PERIOD. Not later than 5:00 p.m. Eastern Daylight Time on the third business day after the execution and delivery of this Agreement by the last executing party, Buyer and Sellers shall designate a mutually acceptable engineering firm (the "Inspecting Engineer") to be retained by Buyer at Buyer's sole expense to conduct an investigation (the "Preliminary Inspection") of the soundness of the structural components of improvements constituting a part of the Real Property and the adequacy and condition of the mechanical, electrical and plumbing, elevator, and HVAC systems and components thereof (collectively, the "Major Building Systems"). Sellers will have the right to review and approve the terms of the engagement of the Inspecting Engineer, including the scope of the work the Inspecting Engineer 33 34 will be asked to perform. The Preliminary Inspection must be conducted and completed prior to the expiration of the Preliminary Inspection Period. The Inspecting Engineer will be required to submit to Buyer a written report of the Preliminary Inspection, an original of which Buyer will promptly provide to Sellers prior to the expiration of the Preliminary Inspection Period. The written report will identify any Major Defects discovered by the Inspecting Engineer during the course of the Preliminary Inspection and will include the Inspecting Engineer's estimate of the cost to correct any Major Defects. 5.6.1 MAJOR DEFECTS. For the Purposes of this Agreement, the term "Major Defects" shall mean with respect to the Major Building Systems only those conditions which in the reasonable, good faith opinion of the Inspecting Engineer: (i) render one or more of the Major Building Systems (or any component thereof) inadequate to serve its intended purposes and require repair or replacement to permit operation of the Hotels at the existing levels of operation without any extraordinary increase in maintenance operating or replacement costs; (iii) render economically impractical the continued operation of the affected Hotel as it is presently being operated; or (iv) present danger to life and property or fail to conform to Legal Requirements. NO MATTERS OTHER THAN THOSE WHICH ARE DESCRIBED IN THE PRECEDING CLAUSES (i), (ii) AND (iii) OF THIS SECTION 5.6.1 WILL QUALIFY AS MAJOR DEFECTS, AND NOTWITHSTANDING THE FOREGOING, THE FOLLOWING MATTERS SHALL NOT CONSTITUTE MAJOR DEFECTS, REGARDLESS OF WHETHER THEY WOULD OTHERWISE BE INCLUDED WITHIN THE SCOPE OF CLAUSES (i), (ii) AND (iii)) OF THIS SECTION 5.6.1: (A) ANY MATTER DISCLOSED TO BUYER IN SECTION 5.3 OF THIS AGREEMENT, (B) ANY MATTER, THE CORRECTION OF WHICH IS CONTEMPLATED UNDER ANY EXISTING BUDGET FOR ANY OF THE HOTELS AS A MATTER TO BE CORRECTED DURING THE ORDINARY COURSE OF BUSINESS AND WHICH SELLERS HAVE COMPLETED ON OR PRIOR TO CLOSING, OR (C) ANY FAILURE OF ANY COMPONENT OF THE HOTELS TO CONFORM TO THE REQUIREMENTS OF THE ADA (OTHER THAN THE MATTERS DESCRIBED ON SCHEDULE 7.2.12) OR TO ANY ENVIRONMENTAL LAWS; OR (D) ANY INEFFICIENCY OR OBSOLESCENCE DUE TO AGE, AS LONG AS THE MAJOR BUILDING SYSTEM IS OTHERWISE IN WORKING ORDER AND HAS BEEN PROPERLY MAINTAINED. 5.6.2 COST OF CURING MAJOR DEFECTS. Unless objected to by Sellers, the cost of correcting all Major Defects shall be the amount of the Inspecting Engineer's estimate (referred to as the "Cost of Defects"). In the event Sellers object to the identification by the Inspecting Engineer of a Major Defect or object to the Inspecting Engineer's estimated cost of curing any identified Major Defect, Sellers may provide written notice of Sellers' objection to Buyer, and Sellers and Buyer agree to act diligently and in good faith to resolve Sellers' objections as promptly as reasonably practicable. If the parties are unable to resolve Sellers' objection within five days after receipt by Buyer of Sellers objections, then Sellers, may notify Buyer of Sellers' intention to retain an independent engineering firm selected and paid for by Sellers subject to Buyer's reasonable approval to review the report of the Inspecting Engineer and to make independent determinations of whether any particular facts and conditions give rise to a Major Defect, and if so, to provide an independent estimate of the cost of curing the Major Defect. Failure by Sellers to give such notice within said five (5) day period shall for all purposes hereof 34 35 be deemed to be and constitute acceptance by Sellers of the determination of the Inspecting Engineer as to the existence and cost to repair of any Major Defects identified by the Inspecting Engineer. Any independent engineering firm retained by Sellers (the "Reviewing Engineer") must complete its investigation and provide a written report thereof to the Sellers and Buyer not later than fifteen days after Sellers notice to Buyer of Sellers' intention to retain an independent engineering firm, which report shall specify those Major Defects identified in the Inspecting Engineer's report which, in the reasonable good faith opinion of the Reviewing Engineer do not qualify as Major Defects and shall further provide an estimate by the Reviewing Engineer of the cost of correcting those Major Defects with respect to which the Reviewing Engineer disagrees with the estimate of the Inspecting Engineer. Upon receipt of the report of the Reviewing Engineer, the Inspecting Engineer will review the report of the Reviewing Engineer and if the Inspecting Engineer agrees with the determinations of the Reviewing Engineer, then the report of the Reviewing Engineer may be adopted in whole or in part as the report of the Inspecting Engineer and shall be binding and conclusive upon the parties to the extent so adopted. If the Inspecting Engineer disagrees with any portions of the report of the Reviewing Engineer, then not later than five days after receipt by the Inspecting Engineer of the report of the Reviewing Engineer, the Inspecting Engineer and the Reviewing Engineer will select a third engineering firm which shall be directed to review the reports and conclusions of the two engineers and to resolve any differences between the two reports. The determination of the third engineering firm shall be binding and conclusive upon the parties for all purposes. Sellers and Buyer will each pay one half of the costs and expenses of such third engineering firm. 5.7 BUYER'S DISCRETIONARY RIGHT TO TERMINATE. During the Continuing Inspection Period, Buyer shall have the right to terminate this Agreement if Buyer determines that the Hotels or The Management Agreements, the Fort Lauderdale License Agreement, the Bloomington Sponsorship Agreement and the Third Party Agreements are not satisfactory to Buyer, or Buyer otherwise elects not to pursue the purchase of the Hotels for any reason. Any such election shall be in writing, and upon receipt thereof by Sellers, this Agreement will terminate with respect to any and all obligations of the parties hereto with respect to further performance of any obligations arising under or out of this Agreement. In the event Buyer elects to terminate this Agreement pursuant to this Section 5.7, the entire amount of the Initial Earnest Money Deposits shall be nonrefundable. Promptly upon any such termination, Escrow Agent shall pay over to Sellers the entire amount of the Preliminary Earnest Money Deposit, together with all interest earned thereon. 5.8 CONTINUING AGREEMENT. If Buyer does not elect to terminate this Agreement during the Continuing Inspection Period, then: (i) this Agreement will remain in full force and effect; (ii) Buyer will deposit the Additional Earnest Money Deposit not later than the time specified in Section 3.2.4, and (iii) BUYER WILL BE DEEMED TO HAVE ACCEPTED THE HOTELS ON AN "AS IS" BASIS, SUBJECT TO THE PROVISIONS OF ARTICLES VII, VIII, IX, XI AND XII AND THE TERMS AND CONDITIONS OF THE CONVEYANCE DOCUMENTS. In the event Buyer does not elect to terminate this Agreement prior to the expiration of the Full Inspection Period, then the sole obligation of the Sellers with respect to the physical condition of the Hotels will be 35 36 to deliver possession of the Hotels to Buyer in substantially the same physical condition (excluding normal wear and tear) as existed on the last day of the Full Inspection Period. Subject to the provisions of Articles VII, VIII, IX and XII, BUYER HAS AGREED TO ACCEPT POSSESSION OF THE HOTELS ON THE CLOSING DATE ON AN "AS IS" BASIS. SELLERS AND BUYER AGREE THAT THE HOTELS WILL BE SOLD "AS IS," AND, EXCEPT AS SET FORTH IN SECTION 6.2 HEREOF, SUCH SALE WILL BE WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED (INCLUDING, WITHOUT LIMITATION, WARRANTY OF INCOME POTENTIAL, OPERATING EXPENSES, USES, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE), AND SELLERS DO HEREBY DISCLAIM AND RENOUNCE ANY SUCH REPRESENTATION OR WARRANTY. 5.9 AS IS DEFINED. For purposes of this Agreement, the term "As Is" means, as and where the Hotels presently exist as of the last day of the Inspection Period, including, without limitation, all faults, defects, claims, liens, and other conditions of every kind or description with respect to (a) the physical and environmental condition of the Hotels (including defects seen and unseen and conditions natural and artificial), (b) provided there exists no Failure of Title to the Real Property as disclosed by Buyer's title examination, (c) provided there exists no Failure of Title to the FF&E, (d) Sellers' rights and liabilities under the Management Agreements, the Fort Lauderdale License Agreement, the Bloomington Sponsorship Agreement and the Third Party Agreements, (e) Sellers' rights, title, and interest in and to the Intangibles, (f) all laws, ordinances, rules and regulations to which the Hotels are subject under any applicable governmental or regulatory jurisdiction, (g) the financial operations of the Hotels, (h) all claims, demands, actions, or causes of action that relate in any way to the Hotels or the ownership and operation thereof, whether known or unknown, and (i) all other matters related in any way to the ownership and operation of the Hotels, whether known or unknown, subject in each case to the obligations of. Sellers under Articles VII, VIII, IX, XI and XII and the terms of the Conveyance Documents. 5.10 ACCESS TO THE HOTELS. Buyer or a representative of Buyer will have access to the Hotels (subject to the rights of guests of the Hotels and the rights of others under the Management Agreements, the Fort Lauderdale License Agreement, the Bloomington Sponsorship Agreement and the Third Party Agreements) prior to the Closing during normal business hours provided Buyer notifies Sellers a reasonable period in advance of the time Buyer desires access to the Hotels and Buyer is accompanied by a representative of Sellers during any such visit to the Hotels or to any one of them. In addition to the foregoing rights of access, Buyer will have the right, from and after expiration of the Full Inspection Period, to designate up to three employees of Buyer or its Affiliates, which employees will have access to the Hotels for the purposes of monitoring Sellers' obligations under Article VII and generally preparing for transfer of the Hotels upon the Closing Date. 5.11 OPERATION AND MAINTENANCE PRIOR TO CLOSING. Notwithstanding Buyer's right to purchase the Hotels pursuant to this Agreement, Sellers hereby retain, subject to the conditions, limitations and covenants of Sellers set forth in Article VII, all rights to own, operate, lease, 36 37 contract or otherwise exercise the rights of ownership of the Hotels prior to Closing without the consent or approval of Buyer. 5.12 HAZARDOUS MATERIALS. Sellers make no representations or warranties whatsoever to Buyer regarding: (i) compliance with any Environmental Laws or other Legal Requirements, or (ii) the presence, location or scope of any materials, waste, contaminates, pollutants, or other substances or conditions which are toxic, dangerous, radioactive, disease causing, carcinogenic, infectious, caustic, or contain petroleum products or by-products, asbestos, heavy metals, or are defined as toxic, dangerous to health or otherwise hazardous by reference to an Environmental Laws. During the Inspection Period, Buyer will make such studies and investigations, conduct such tests and surveys and engage such independent contractors, environmental engineers, environmental consultants, and experts as necessary to enable Buyer to evaluate any and all environmental risks associated with the ownership and operation of the Hotels. 5.13 AVAILABILITY OF INFORMATION FROM SELLERS. Buyer acknowledges that it understands that Sellers have files and documents regarding the Hotels in more than one location. BUYER ASSUMES THE RESPONSIBILITY TO NOTIFY SELLERS OF THE FILES AND DOCUMENTS BUYER WISHES TO INSPECT. ALL SUCH FILES AND DOCUMENTS (OTHER THAN CONFIDENTIAL INFORMATION OF THE TYPE IDENTIFIED IN SECTION 5.2) WILL BE MADE AVAILABLE FOR BUYER'S INSPECTION, REVIEW AND COPYING AND SELLERS SHALL USE REASONABLE EFFORTS TO COLLECT SUCH DOCUMENTS AND FILES FOR SUCH INSPECTION, REVIEW AND COPYING AT SELLERS' OFFICE AT 730 THIRD AVENUE, NEW YORK, NEW YORK 10017, AND TO OTHERWISE FACILITATE SUCH ACTIVITIES BY BUYER. Buyer has been informed that Sellers' files may not be complete in all respects and that Sellers may not have complete information concerning the Hotels or any one of them, particularly with respect to any period prior to ownership by Sellers. Much of the information that Sellers have about the Hotels was obtained from third parties; therefore, such information may not be accurate or complete, and Buyer understands and agrees that such information should not be relied upon and should be verified to Buyer's satisfaction during the Inspection Period. 5.14 INFORMATION FROM SELLERS' AGENTS. Subsequent to the date of this Agreement, Buyer may request from the Hotel Managers and the other parties to the Third Party Agreements and from other agents, employees, and independent contractors of the Sellers certain information or opinions regarding the Hotels or some aspect of the Hotels, and their history, condition or prospects for future use or development by Buyer. Although Sellers are willing to cooperate with Buyer, and Sellers will instruct their respective agents, employees, independent contractors and Hotel Managers to cooperate with Buyer, SELLERS ARE UNWILLING TO SELL THE HOTELS UNLESS SELLERS ARE RELEASED FROM LIABILITY BY BUYER FOR (i) STATEMENTS OR OPINIONS MADE BY OR INFORMATION FURNISHED BY SELLERS' AGENTS UNLESS THE STATEMENTS OR OPINIONS ARE INCORPORATED AS SELLERS REPRESENTATIONS INTO THIS AGREEMENT OR THE CLOSING DOCUMENTS EXECUTED BY SELLERS, OR (ii) INFORMATION WITHHELD BY SELLERS' AGENTS, EMPLOYEES, INDEPENDENT CONTRACTORS, AND HOTEL 37 38 MANAGERS UNLESS SUCH INFORMATION WAS WITHHELD FROM BUYER AT THE EXPRESS DIRECTION OF AN OFFICER OF ONE OF THE SELLERS AND WAS UNKNOWN TO THE BUYER. 5.15 BUYER CERTIFICATE AND RELEASE. It is a condition precedent to the obligations of Sellers under this Agreement that the Certificate and Release attached hereto as Exhibit A be fully executed by Buyer and delivered to Sellers at Closing. The Certificate and Release certifies the truth and accuracy as of. Closing of the statements of fact, together with supporting documentation, as set forth in this Section. The Certificate and Release is intended to reflect and support the fact that Buyer and consultants, independent contractors, and other professional advisors of Buyer's choice have (or could have) (i) physically inspected the Hotels, (ii) determined the fair market value of the Hotels in their As Is condition, (iii) analyzed the present and projected uses of the Hotels, (iv) independently verified the completeness and accuracy of the Information Documents and all other information provided by Sellers and/or their agents which Buyer deems necessary or material to close the Transaction, and (v) independently tested and examined the Hotels from a physical, structural and environmental standpoint, and (vi) otherwise conducted a complete and thorough investigation and examination of the Hotels, employing prudent due diligence and that Buyer accepts the Hotels As is. The Certificate and Release further releases Sellers from and waives all claims against and liability of Sellers to Buyer for any structural, physical or environmental condition at the Hotels and further releases Sellers from and waives all liability of Sellers to Buyer for any and all claims or causes of action based on, connected with or arising out of, any Environmental Laws, requirement or liability imposed under the ADA or any other Legal Requirements or otherwise asserted against the Hotels or Sellers or Buyer by any person or entity whatsoever. The Certificate and Release confirms that Buyer is not relying upon any representation, inducement or unperformed promise of. Sellers or Sellers' agents except to the extent such inducement, representation or unperformed promise is set forth herein, in the Certificate or the Closing Documents to be executed by Sellers. 5.16 ANTITRUST NOTIFICATION. Buyer and Sellers will promptly determine whether the Transaction is subject to the notification requirements of the HSR Act and, if such approval is required, will complete any required reports and file with the appropriate governmental agencies the notification and report form required and any supplemental information which may be reasonably requested in connection therewith pursuant to the HSR Act. It will be a condition of Closing that the filing and waiting period requirements of the HSR Act relating to the Transaction have been complied with in all material respects and that both Sellers and Buyer have obtained clearance, to the extent required under the HSR Act, to the Transaction. Sellers and Buyer will make a request for an early termination of the waiting period requirements. Each party will be responsible for all filing fees, application fees and other fees payable in connection with any filing or submission made by such party pursuant to the HSR Act. 38 39 ARTICLE VI REPRESENTATIONS AND WARRANTIES 6.1 Buyer. Buyer represents and warrants to Sellers as follows: 6.1.1 CORPORATE AUTHORITY. Buyer has full power and authority to enter into this Agreement and to assume and perform all of Buyer's obligations under this Agreement, and the person executing this Agreement on behalf of Buyer has been duly authorized and is empowered to bind Buyer to this Agreement. 6.1.2 SOPHISTICATED BUYER. Buyer is an experienced investor that specializes in the investment in and ownership and operation of hotel properties in geographically diverse markets. As such, it is a sophisticated real estate owner, investor and manager with particular experience in the acquisition, ownership and operation of hotels similar to the Hotels. Buyer warrants and represents that it has the ability through its own employees, or through agents, independent contractors, consultants or other experts with whom it has a relationship, to evaluate fully the investment characteristics of the Hotels and to assess fully all issues pertaining to title to the Real Estate and the FF&E, the value of the Consumables, the rights and liabilities of Sellers and Buyer as the successor to Sellers under the Management Agreements, the License Agreement, the Sponsorship Agreement and the Third Party Agreements, the value of each of the Hotels, the past performance of each of the Hotels, the projected performance of each of the Hotels, the structural integrity and soundness of all improvements and structures located on the Real Estate, the environmental condition of each of the Hotels, and the compliance of the Hotels and the operation and management thereof with all Legal Requirements. Accordingly, Buyer warrants and represents that, except for the representations and warranties expressly made by Sellers in this Agreement, Buyer has not and will not rely upon any warranty, representation, statement of fact, or other information made by or furnished by or on behalf of Sellers or any of their Affiliates, but is relying solely on its own investigations, assessments, evaluations, and those of its own employees, agents, independent contractors, consultants, and other experts with whom it is dealing in connection with this Transaction. 6.2 SELLERS. Sellers represent and warrant to Buyer as follows: 6.2.1 ORGANIZATION AND GOOD STANDING. Each of the Sellers is duly organized, validly existing and in good standing under the laws of the State of its organization and is qualified to do business and is in good standing in the state in which such Seller's Hotel is located. 6.2.2 AUTHORITY. Each of Sellers has the full power and authority to enter into this Agreement and to assume and perform all of its respective obligations under this Agreement and the person executing this Agreement on behalf of each of them has been duly authorized and is empowered to bind each of such Sellers. This Agreement constitutes the valid and legally binding obligation of each of the Sellers (other than the San Diego Seller), and is enforceable in accordance with its terms and conditions. 39 40 6.2.3 SPECIAL PARTNERSHIP NOTICE. Buyer has been informed and understands that the owner of the San Diego Hotel is a California general partnership in which the San Diego Seller Managing Partner, an Affiliate of Sellers, is the managing general partner. Under the terms of the partnership agreement pursuant to which the San Diego Seller was formed, the San Diego Seller Managing Partner is obligated to provide notice to the San Diego Seller Non-Managing Partners of any proposed sale of the San Diego Hotel accompanied by a copy of the offer that the San Diego Seller desires to accept and Sellers have provided such notice on or prior to execution and delivery hereof. 6.2.4 NONCONTRAVENTION. To the best of Sellers' Knowledge, neither the execution and the delivery of this Agreement by Sellers, nor the consummation of the transactions contemplated in this Agreement will (i) cause a material violation of any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge or other restriction of any government, governmental agency or court to which Sellers or the San Diego Managing Partner are subject or any provision of the certificate of incorporation, bylaws or partnership agreement of Sellers or the San Diego Seller Managing Partner, or (ii) cause a material conflict with, result in a material breach of, constitute a material default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any notice under any agreement, contract, lease, license, instrument or other arrangement set forth on Schedules B, C, D, other than those for which Required Consents shall be obtained or those which would not have a material adverse effect with respect to the Hotels taken as a whole. To the best of Sellers' Knowledge, none of the Sellers nor the San Diego Seller Managing Partner needs to give any notice to, make any filing with, or obtain any authorization, consent or approval of any government or governmental agency in order to consummate the transactions contemplated in this Agreement. 6.2.5 NO LITIGATION. Except for the Specific Disclosures and as set forth on Schedule 6.2.8, to the best of Sellers' Knowledge there is no litigation, claim, action or proceeding, actual or threatened, by any person, entity or governmental agency which would materially and adversely affect the use or occupancy of any of the Real Property or operation of the Hotel located thereon or any part thereof. 6.2.6 INCOME AND EXPENSE STATEMENTS. To the best of Sellers' Knowledge, the Income and Expense Statements fairly and accurately reflect the financial operation of the Hotels as of the date of each such statement. 6.2.6.1 OMITTED LIABILITIES. In the event Buyer claims that the Income and Expense Statements and state the net operating income of the Hotels or otherwise fail to disclose any Liabilities (other than extraordinary, non-recurring expenses) which, under generally accepted accounting principles consistently applied, should have been included as an expense on the Income and Expense Statements but was omitted, as finally determined pursuant to Section 6.2.6.2 hereof (referred to as the "Omitted Liabilities"), then Buyer must notify Sellers in writing of its claim prior to 5:00 p.m. Eastern Daylight Time on June 12, 1996. Any such notice must 40 41 state in detail the basis for Buyer's calculation of the aggregate amount of all Omitted Liabilities, broken down by Hotel. Omitted Liabilities will not include any amounts attributable to adjustments to depreciation, amortization and accrual schedules adopted by Sellers or Managers, but the foregoing exclusion shall not apply to disputes regarding the inclusion of any items appearing on such schedules. 6.2.6.2 DISPUTE RESOLUTION. In the event Sellers disagree in any respect with Buyer's notice provided in Section 6.2.6.1, the parties agree to act diligently and in good faith to resolve their differences. In the event the parties have not resolved their differences within five days from the date Sellers receive such notice, Sellers may then retain at their expense their own independent certified public accounting firm to review such notice and Buyer's calculation of the Omitted Liabilities and submit a report to Buyer within fifteen days from the expiration of said five day period. Buyer and Seller will then instruct their respective independent certified public accounting firms to confer in good faith in an effort to resolve the differences of the parties with respect to the any continuing differences with respect to the Omitted Liabilities. Any resolution by the two independent certified public accounting firms will be binding and conclusive upon the parties for all purposes of this Agreement. In the event the two independent certified accounting firms are unable to resolve the differences within five days after the expiration of said fifteen day period, then the two accounting firms shall be instructed by the parties to agree upon a third independent certified public accounting firm that will be instructed to resolve the differences of the parties and their respective accountants with respect to the Omitted Liabilities and the determination of the third accounting firm will be binding and conclusive on the parties for all purposes of this Agreement. The cost of the third accounting firm will be divided equally between Buyer and Sellers. The Closing Date will be extended to the extent necessary to resolve differences with respect to the calculation of the Omitted Liabilities. Notwithstanding the foregoing, if Buyer retains the same accounting firm (with the same engagement partner) as prepared the Income and Expense Statements, then the determination by such accounting firm shall be binding and conclusive upon Buyer and Seller with respect to the existence of and calculation of Omitted Liabilities. 6.2.6.3 COST OF OMITTED LIABILITIES. In the event the aggregate amount of all Omitted Liabilities exceeds the sum of $450,000, then and only then the Cost of Omitted Liabilities will be included in the calculation of the Deficiency Amount for the purposes of determining the amount, if any, of the Purchase Price Adjustment pursuant to Section 3.4 hereof and the right of Seller's to elect to terminate this Agreement as provided in Section 3.5 hereof. For the purposes of this Agreement, the "Cost of Omitted Liabilities" shall be equal to $3,000,000 plus the quotient obtained by dividing (i) the aggregate amount of all Omitted Liabilities (as finally determined in accordance with the provisions of Section 6.2.6.2) exceeding $450,000, by, (ii) a capitalization rate of 12%. In the event the Omitted Liabilities are equal to or less than $450,000, then there shall be absolutely no Purchase Price Adjustment on account of any Omitted Liabilities. 6.2.6.4. RECIPROCAL ADJUSTMENT. To the extent the Income and Expense Statements for the Philadelphia and Fort Lauderdale Hotels are determined through the dispute 41 42 resolution process of Section 6.2.6.2 to understate the net operating income of those Hotels and the result thereof is that the net operating income of the Hotels is understated, then the calculation of the Cost of Omitted Liabilities will be reduced (but not below zero) following as closely as possible reciprocal calculations to those set forth in Section 6.2.6.3. 6.3 WAIVER OF BREACH. If Buyer obtains actual knowledge of any breach of any of the warranties and representations of Sellers in Section 6.2 hereof prior to the Closing Date, but proceeds to consummate the Closing pursuant to the terms of this Agreement, Buyer will be deemed to have waived any such breach and will have no rights or remedies with respect thereto after Closing. 6.4 REMEDY FOR BREACH. With respect to any breach of a warranty or representation in Section 6.2 of which Buyer becomes aware only after Closing, Buyer shall have only such rights and remedies in respect thereof as shall be specifically provided in the Mutual Indemnity and Buyer hereby waives and releases any other claim or right in respect of such breach. 6.5 SURVIVAL AND LIMITATION DATE. Buyer and Sellers hereby agree that, notwithstanding any provision of this Agreement or any provision of law to the contrary, any action which may be brought by Buyer against Sellers for breach of this Agreement or any representations or warranties under this Agreement or arising out of or in connection with this Transaction will be forever barred unless Buyer (a) delivers to Sellers, no later than one year after the Closing Date (or such longer period as may be specified in any express warranty hereunder), a written notice of its claim setting forth in reasonable detail the factual basis for such claim and Buyer's good faith estimate of darn ages arising out of such claim, and (b) files a complaint or petition against Sellers alleging such claim in an appropriate Federal District Court no later than one year after the Closing Date ("Limitation Date"). All of Buyer's warranties and representations and all indemnities by Buyer and Sellers which indemnities are specifically stated to survive the Closing, will survive both the Closing and the Limitation Date and will not merge into the Deeds, and will be enforceable at any time by Sellers or the indemnified party, as applicable. ARTICLE VII PRE-CLOSING COVENANTS 7.1 SELLERS' COVENANTS PRIOR TO EXPIRATION OF FULL INSPECTION PERIOD. Sellers hereby covenant with and for the benefit of Buyer that from and after the Effective Date up to and including the Closing Date (or the sooner termination of this Agreement): 7.1.1 OBLIGATIONS. Each and every material undertaking and obligation of Sellers under this Agreement shall be performed in all material respects by Sellers when due. 42 43 7.1.2 COMPLIANCE WITH LAWS. Sellers will use commercially reasonable good faith efforts to cause the Managers to comply in all material respects at all times with all Legal Requirements pertaining to the ownership, use or occupation of the Real Property or operation of the Hotels. 7.1.3 INSURANCE. Sellers shall keep the Hotels insured against all usual risks pursuant to existing insurance policies maintained in the Ordinary Course of Business. 7.1.4 OPERATION AND CONDITION PENDING CLOSING. Sellers shall use its reasonable efforts to preserve, protect and maintain the Hotels in substantially the same condition as exists on the Effective Date, will operate the Hotels as going concerns consistent with the Ordinary Course of Business, and will continue to enforce the Sellers' rights under the Third Party Agreements and the Management Agreements in accordance with Sellers' presently existing business practices, and Sellers will not, individually or in the aggregate, nor direct any Managers to, engage in any action or enter into any transaction outside the Ordinary Course of Business, except as may be authorized or required pursuant to this Agreement and except for casualty or other events contemplated by Article XII hereof. 7.1.5 COOPERATION. Sellers will act in a commercially reasonable good faith manner to cooperate with Buyer in connection with the Transaction, including, without limitation, cooperating with Buyer's accountants in developing audited or auditable financial information for inclusion in any filings with the Securities and Exchange Commission. Sellers will provide to Buyer copies of all documents reasonably requested by Buyer, including, without limitation, the documents described on the schedules attached hereto. 7.1.6 INCOME AND EXPENSES. Sellers shall cause, at Sellers' expense, Sellers' Accountants to certify to Buyer the audited financial statements which had been previously certified to Sellers for 1995. 7.2 SELLERS' COVENANTS AFTER EXPIRATION OF FULL INSPECTION PERIOD. In addition to the foregoing, and without limiting the generality thereof, from and after the expiration of the Full Inspection Period and provided Buyer has not elected to terminate this Agreement pursuant to Section 5.6, except for transactions expressly approved in writing by Buyer, Sellers shall: 7.2.1 INVENTORIES. Use commercially reasonable good faith efforts to cause the Managers to maintain inventories of Consumables substantially at current levels, except for sales in the Ordinary Course of Business. 7.2.2 INSURANCE. Use commercially reasonable good faith efforts to cause the Managers to keep in full force and effect all insurance for the benefit of employees of the Hotels, all liability insurance, and all bonds on personnel presently carried. 43 44 7.2.3 AGREEMENTS. Not enter into or agree to enter into any lease, contract, purchase or sale order, or other obligation or commitment regarding the Hotels which involves an expenditure, obligation, purchase or sale unless such obligation or commitment is entered into in the Ordinary Course of Business or can be fully performed or terminated without a substantial premium or penalty upon not more than sixty (60) days prior written notice. 7.2.4 LIENS. Not incur any liens with respect to any of the Real Property or the Hotels, other than any such liens which will be removed or otherwise satisfied or cured at the Closing as provided herein. 7.2.5 OBLIGATIONS. Pay when due all bills for labor or services for work performed on or with respect to the Real Property or the Hotels, not breach in any material respect or violate in any material respect the terms of any covenants) restrictions, easements or agreements, affecting the Real Property or the Hotels, and otherwise substantially perform all of the material obligations of Sellers to be performed pursuant to the terms of the Third Party Agreements and the Management Agreements. 7.2.6 TITLE EXCEPTIONS. Not agree to or consent to any new restrictions, covenants, conditions, easements, encroachments or similar matters affecting any of the Real Property or Hotels or any part thereof if such matter would cause a Failure of Title. 7.2.7 ZONING. Not seek or consent to any new zoning, platting, replatting, subdivision or other change affecting the use or administrative classification of any of the Real Property. 7.2.8 IMPROVEMENTS. Not extend or add to any existing improvements or construct additional improvements on any of the Real Property except pursuant to existing budgeted improvements or in the Ordinary Course of Business. 7.2.9 GOODWILL. Use reasonable efforts to cause the Managers preserve the goodwill of the Hotels' guests and suppliers. 7.2.10 TAXES. Use commercially reasonable good faith efforts to assure that Managers pay all sales taxes and employee withholding taxes when due and payable. 7.2.11 CAPITAL EXPENDITURES. Continue Sellers' existing program of Capital Expenditures at the Hotels in accordance with the capital improvement plan more particularly described on Schedule 7.2.11. 7.2.12 READILY ACHIEVABLE ADA WORK. Perform all Readily Achievable ADA Work as described on Schedule 7.2.12 hereof. 44 45 7.3 INTERIM LIQUOR LICENSES. Sellers will be cooperative with Buyer's efforts to obtain a Liquor License for each Hotel to the extent that Sellers can do so without incurring expense or liability. Notwithstanding the foregoing, Buyer is solely responsible for obtaining a liquor license with respect to the Hotels. If, despite Buyer's commercially reasonable efforts, Buyer is unable to obtain a Liquor License for any of the Hotels by the Closing Date, then, to the extent allowable under applicable law, Sellers shall designate Buyer as its nominee to operate under Sellers' Liquor License or enter into such other interim arrangement as shall be customary in the jurisdiction in which the Hotel is located for a period to expire on the earlier of ninety (90) days after the Closing Date, or the date on which Buyer obtains a Liquor License for the Hotel, subject to the conditions that (i) Buyer shall execute a full and complete indemnity of Sellers and related parties, in form and substance satisfactory to Sellers relating to Buyer's use of the Liquor License after Closing, (ii) Buyer shall continue to proceed with due diligence to obtain a Liquor License for the Property, (iii) Buyer shall operate under the Liquor License at all times in accordance with applicable laws and regulations, and (iv) Buyer shall maintain dram shop and commercial general liability insurance naming Buyer and Sellers as beneficiaries, in such amounts as shall be reasonably required by Sellers and including contractual liability coverage insuring the obligations of Buyer under the indemnification contained in this Section 7.3. Buyer hereby agrees to indemnify Sellers and to hold Sellers, and Sellers' agents and employees, harmless from and against any and all losses, costs, damages, claims or liabilities, including, but not limited to, reasonable attorneys' fees, arising out of or in connection with Buyer's, or its employees' or agents' activities at the Hotel in connection with a Liquor License or the sale or serving of alcoholic beverages. Buyer agrees that it shall use commercially reasonable good faith efforts to obtain a Liquor License for each Hotel, including, without limitation, prompt submission of all required applications and supporting information and diligent prosecution of the application process. 7.4 EXCLUSIVITY. Sellers agree that during the Exclusivity Period, Sellers will not offer to sell any of the Hotels to any person or entity other than Buyer, will not solicit or accept offers to purchase any of the Hotels from any other person or entity other than Buyer, and will not otherwise seek to enter into or negotiate any agreement with any other person or entity with respect to the purchase and sale of the Hotels. The term "Exclusivity Period" means the period commencing on the Effective Date and ending on the earlier to occur of; (i) the commencement of litigation by Buyer against any of Sellers, or (ii) if the Transaction fails to close on the Closing Date, the fifth day after delivery by Sellers to Buyers of a notice stating that Sellers have elected to terminate the Exclusivity Period. ARTICLE VIII CONDITIONS TO CLOSING 8.1 BUYER'S CONDITIONS. The obligation of Buyer to purchase the Hotels from Sellers is subject to satisfaction on or before Closing of the following conditions (the "Buyer's Conditions"), any of which may be waived in whole or in part by Buyer, but only in writing at or 45 46 prior to Closing. A failure to discover, or a waiver of, any circumstances made a condition under this Section 8.1 shall not constitute a waiver of any warranties and representations provided for elsewhere in this Agreement, unless any such waiver specifically so states, and Buyer's sole remedies in the event any such conditions are not satisfied or waived shall be as set forth in Section 11.2 hereof. 8.1.1 TITLE. There shall not have occurred a Failure of Title. 8.1.2 SELLERS' PROCEEDINGS. All proceedings to be taken by Sellers in connection with the transactions contemplated by this Agreement shall have been completed in all material respects. 8.1.3 SELLERS' PERFORMANCE. All covenants, actions and agreements made by the Sellers which are to be performed or completed on or before the Closing, shall have been performed or completed in all material respects. 8.1.4 NO MATERIAL MISREPRESENTATION. There shall not be any material error, misstatements or omission in the representations or warranties made by Buyer in this Agreement. 8.2 SELLERS' CONDITIONS. The obligation of Sellers to sell the Hotels to Buyer is subject to satisfaction on or before Closing of the following conditions (the "Sellers' Conditions") (any of which may be waived in whole or in part by any of the Sellers, but only in writing at or prior to the Closing). A failure to discover, or a waiver of, any circumstances made a condition under this Section 8.2 shall not constitute a waiver of any warranties and representations provided for elsewhere in this Agreement unless any such waiver specifically so states: 8.2.1 BUYER'S PROCEEDINGS. All proceedings to be taken by the Buyer in connection with the transactions contemplated by this Agreement shall have been completed in all material respects. 8.2.2 BUYER'S PERFORMANCE. All covenants, actions and agreements made by Buyer which are to be performed or completed on or before the Closing shall have been performed or completed in all material respects. 8.2.3 NO MATERIAL MISREPRESENTATION. There shall not be any material error, misstatements or omission in the representations or warranties made by Buyer in this Agreement. ARTICLE IX CLOSING 9.1 CLOSING DATE. The Transaction will close (the "Closing") on the Closing Date. The Closing will take place at 9:00 a.m. Eastern Time in the offices of Kirkland & Ellis, 153 E. 46 47 53rd Street, Suite 3900, New York, NY, or at such other place or in such other manner as agreed 10 by Buyer and Sellers, and Buyer and Sellers will conduct a "preclosing" on the last business day prior to the Closing Date with title transfer and payment of the Purchase Price to be completed on the Closing Date as set forth in Section 9.2 hereof. Notwithstanding the foregoing, Buyer will have the right to extend the Closing Date until August 15, 1996, upon notice to Seller on or before July 10, 1996. 9.2 TITLE TRANSFER AND PAYMENT OF PURCHASE PRICE. Sellers agree to convey title (or, in the case of the LAX Real Property, transfer and assign the LAX Ground Lease) to the Real Property to Buyer by execution and delivery of the Deeds and the LAX Assignment of Lessee's Interest in Lease, subject in each case only to the Permitted Exceptions, and upon confirmation of receipt of the Purchase Price by the Title Company. Effective upon the delivery of the Deeds and the LAX Assignment of Lessee's Interest, actual and exclusive possession (subject to the Management Agreements, Third Party Agreements, Fort Lauderdale License Agreement, Bloomington Sponsorship Agreement, and Permitted Exceptions) will pass, from Sellers to Buyer. Buyer's acceptance of the Deeds, the LAX Assignment of Lessee's Interest, and the other documents Sellers deliver to Buyer at Closing will be deemed to be the full performance and discharge of any and all of Sellers' and Buyer's obligations hereunder, except (a) those expressly set forth in Section 6.5 hereof to survive until the Limitation Date, and (b) those indemnities and agreements specifically stated to survive the Closing. At Closing, Buyer agrees to deliver the Purchase Price in accordance with the provisions of Section 3.1 hereof and subject to the adjustment thereto made pursuant to this Article IX. If Sellers are unable to confirm receipt of the funds by the Title Company by the time specified in Section 3.1, then at Sellers' option this Agreement will terminate unless Buyer is able to evidence to Sellers' satisfaction that Buyer has deposited and transferred funds to the Title Company in the amount of the full Purchase Price (e.g., by providing Sellers with a verified federal bank wire confirmation number showing that the funds were in fact timely wired to the Title Company in accordance with the requirements of this Agreement), in which event Buyer will pay to Sellers one (1) day's interest on the unpaid funds at the then current Federal Funds Rate for each and every day that the funds are not timely received as set forth above up to a maximum period of two (2) business days, after which, If funds have still not been received by the Title Company, Buyer will be in material default hereunder and Sellers may terminate the Agreement and retain the Earnest Money Deposit as liquidated damages. Buyer and Sellers agree that Sellers' actual damages due to Buyer's failure timely to deliver such funds are difficult, if not impossible, to ascertain and the Earnest Money Deposit represents a reasonable pre-estimate of such damages. 9.3 ADJUSTMENTS AND PRORATIONS. The following adjustments and prorations will be made at Closing: 9.3.1 LEASE RENTALS, SECURITY DEPOSITS AND HOTEL RESTAURANT AND BAR REVENUES. Sellers will be entitled to all revenues and rents (including any percentage rent and any accrued tax and operating expense escalations, subject to the provisions of Section 9.3.14 hereof) and all other revenue of any kind attributable to any period under the Leases, all food service, bar, 47 48 beverage and liquor revenues and charges and all revenues and charges from restaurant operations, hotel banquet and conference facility operations, and other revenue of any kind attributable to the same to but not after 12:01 a.m. Eastern Time on the Closing Date. Buyer shall be entitled to all rents (including any percentage rent and any accrued tax and operating expense escalations, subject to the provisions of Section 9.3.14 hereof) and all other revenue of any kind attributable to any period under the Leases, all food service, bar, beverage and liquor revenues and charges and all revenues and charges from restaurant operations, hotel banquet and conference facility operations, and all other revenue of any kind attributable to any of the same on and after 12:01 a.m. Eastern Time on the Closing Date. Rents and expense escalations or other reimbursements due landlord under the Leases collected prior to the Closing Date and attributable to both Sellers' and Buyer's period of ownership will be prorated as of the Closing Date. Uncollected rents and expense escalations or other reimbursements or payments due landlord under the Leases for the month in which the Closing Date occurs and which are past due as of the Closing Date will be prorated at Closing and Buyer shall accept the risk of collection of same. All such payments due under any of the Leases for any period prior to the month in which the Closing Date occurs shall not be prorated and Sellers shall retain the right to receive payment therefor; provided, however, that any such amounts as may be received by Buyers may be applied by Buyers first to cure any delinquency under the Lease in question relating to the period commencing on the Closing Date with the balance to be promptly paid to Sellers or at their direction. Buyer will receive a credit against the Purchase Price for: (i) all security or other deposits of any kind, excluding any certificates of deposit or letters of credit held as security under any of the Leases (which will be assigned to Buyer at Closing); provided that if at Closing any such letters of credit or certificates of deposit held as security deposits under the Leases are not otherwise assignable to Buyer, Sellers will obtain new documents which can be assigned to Buyer; and (ii) prepaid rentals held by Sellers under the Leases. This provision will survive the Limitation Date. 9.3.2 HOTEL ACCOUNTS RECEIVABLE AND PETTY' CASH. At Closing, Sellers will receive a credit for and be entitled to all receivables relating to the letting of hotel rooms within the Hotels through check out time for the hotel on the calendar day immediately preceding the Closing Date. Buyer will receive and be entitled to all such receivables from and after check out time for the Hotels on the Closing Date. From check out time on the calendar day immediately preceding the Closing Date through and including check out time on the Closing Date, Buyer and Sellers will each be entitled to one-half (1/2) or fifty percent (50%) of such receivables for such twenty-four (24) hour period. At Closing, Buyer will purchase at face value the following items: (i) Seller's share of the receivables for the period ending at check out time on the Closing Date, and (ii) all petty cash funds in the hands of the Hotels (or its manager) in connection with the hotel guest operations at the Hotels. In addition, Buyer will purchase from Sellers the outstanding "city ledger" accounts receivables on the following basis: accounts receivable that have been outstanding for 90 days or less will be purchased at 95% of face value; accounts receivable that have been outstanding for more than 90 days but less than 120 days will be purchased at 75% of face value; and any accounts receivable that have been outstanding for more than 120 days will be transferred at no additional charge to Buyer. The purchase price for such 48 49 guest receivables, petty cash funds and city ledger receivables, as determined above, will be paid to Sellers at Closing by a credit to Sellers on the Closing Statement and then paid as part of the total net Purchase Price for the Hotels, the same to be paid by Buyer based on the net debit or credit to the Purchase Price resulting from such computations. Except for the petty cash funds to be sold to Buyer, all cash, checks and other funds pertaining to or arising from the Hotels (whether held in hand at the Hotels or in deposits with banks or other financial institutions) as of the Closing Date will remain the sole property of Sellers and are not included in the purchase and sale of the Hotels under this Agreement; and except for said receivables purchased by Buyer at Closing, all other accounts receivable pertaining to or arising from the Hotels as of the Closing Date (whether rents due, notes or other security), unless otherwise expressly provided in this Article IX, will remain the sole property of Sellers and are not included in the purchase and sale of the Hotels under this Agreement. Expenses for the operation of the Hotels will be prorated between Buyer and Sellers as provided under Section 9.3.7 hereof as part of the proration of expenses for the Hotels. 9.3.3 FOOD AND BEVERAGE INVENTORY. Sellers will sell to Buyer, and Buyer will purchase from Sellers, in addition to the Purchase Price for the Hotels, all of the food and beverage inventory of the Hotels free and clear of all liens, claims and other encumbrances, the same to be sold at Sellers' actual cost as disclosed by Sellers' books; provided, however, if no cost is ascertainable with respect to particular components of the food and beverage inventory on Sellers' books, the first in, first out method of valuation will be used. The purchase price of the food and beverage inventory will be determined by an actual inventory of all usable items of food and beverages taken the day preceding the Closing Date (or such other date as the parties hereto may reasonably agree upon) and will be paid to Sellers at Closing in a credit to Sellers on Buyer's closing statement in the computation of adjustments and prorations on the Closing Date. The closing inventory will be conducted jointly by representatives of Buyer and Sellers. Buyer will pay for (i) all unopened cases, boxes or other containers of food and beverages, (ii) all unopened individual items of food and beverages which are a part of an opened case, box or other container whether or not the same has been stocked in the guest rooms of the Hotels, and (iii) to the extent permitted by applicable Legal Requirements, all other food and beverages and similar unused perishables usable in the ordinary course of the operation of the Hotels. 9.3.4 TRADE PAYABLES. Sellers agree to pay all Trade Payables for their respective Hotels arising on or prior to 12:01 a.m. Eastern Time on the Closing Date and will and hereby do indemnify and hold Buyer harmless from payment of the same. Buyer agrees to pay all trade payables from the Hotels arising after 12:01 a.m. Eastern Time on the Closing Date (including payment for services or supplies ordered but not delivered as of the Closing Date) and will and hereby does indemnify and hold Sellers harmless from payment of the same. The indemnities contained or provided for in this Section will survive Closing and shall be included in the Mutual Indemnity. 9.3.5 ADVANCE DEPOSITS. Buyer will receive a credit against the Purchase Price for all prepaid deposits for reservations, banquets and other functions scheduled for after the 49 50 Closing Date in accordance with the terms of this Agreement. Sellers will indemnify and hold Buyer harmless from and against any liability for the return of any such prepaid deposits which Sellers fail to disclose to Buyer and such indemnity shall be included in the Mutual Indemnity. 9.3.6 REAL ESTATE AND PERSONAL PROPERTY TAXES. Real estate and personal property taxes and assessments will be prorated as of the Closing Date. Sellers will pay all real estate and personal property taxes and assessments (including the full amount of any being paid in installments) attributable to the Hotels to but not including the Closing Date. If the real estate and/or personal property tax rate and assessments have not been set for the year in which the Closing occurs, then the proration of such taxes will be based upon the rate and assessments for the preceding tax year, and such proration will be adjusted in cash between Sellers and Buyer upon presentation of written evidence that the actual taxes paid for the year in which the Closing occurs differ from the amounts used at Closing and in accordance with the provisions of Section 9.3.15 hereof. Notwithstanding the foregoing, to the extent Buyer is entitled to recover an increase in taxes prorated and paid by Sellers from the tenants under the Leases, Buyer will use its best efforts in good faith to collect all such taxes prorated and paid by Sellers for which such reimbursement by tenants is due under the Leases and will promptly tender all such sums to Sellers upon collection. All future taxes imposed due to a change of use of the Hotels after the Closing Date shall be paid by Buyer, including any such taxes relating to any period prior to the Closing Date. Any refunds or reductions in taxes made after the Closing Date pertaining to periods prior to the Closing Date will be prorated as of the Closing Date, Buyer paying to Sellers the entire amount of any refunds due for tax years prior to 1996 and Sellers' pro rata share of tax year 1996, based upon the Closing Date. 9.3.7 HOTELS OPERATING EXPENSES. Operating expenses for the Hotels will be prorated as of the Closing Date. Sellers will pay all utility charges and other operating expenses attributable to the Hotels to but not including the Closing Date (except for those utility charges and operating expenses payable by tenants in accordance with the Leases). Buyer will pay all Hotels operating expenses on and after the Closing Date. Sellers will cooperate with Buyer in transferring or continuing any existing utility accounts for the Hotels. Sellers will receive a credit at the Closing for any deposits actually paid by Sellers in connection with any such accounts. Sellers will request that the respective Managers arrange for meter readings necessary to make the adjustments contemplated hereby. 9.3.8 EXCISE AND GROSS RECEIPTS TAXES. Buyer will pay all excise and gross receipts taxes (if any) and all recording fees, mortgage taxes (if any) imposed with respect to the Transaction and will indemnify and hold Sellers harmless from the payment of such taxes. 9.3.9 OPERATIONAL PAYMENTS. Buyer will receive a credit at Closing for any management fees and other sums owing to Managers pursuant to the Management Agreements through and including the day preceding the Closing Date. Except to the extent, if any, provided in the Conveyance Documents and the Mutual Indemnity, Sellers will have absolutely no other liabilities or obligations with respect to the Managers, Employees or others working at the Hotels 50 51 for any period on or after the Closing Date. Buyer will be responsible for all Employees and all costs, expenses, health coverage, benefits, sick leave, vacation time, wages, salaries, unemployment coverage and any and all other matters relating to the Hotels commencing as of the Closing Date; provided, however, all such amounts which are payable after the Closing Date but arose, accrued, or are attributable to any period prior to the Closing Date will be proportionately allocated to and paid by Sellers or credited to Buyers at closing. 9.3.10 OPERATING AGREEMENTS, EQUIPMENT LEASES. Any amounts prepaid or (payable) under any Operating Agreements or Equipment Leases or any other prepaid items (or amounts payable) pertaining to the Hotels will be prorated at the Closing as of the Closing Date with the respective Sellers entitled to (or responsible for) all sums pertaining to the period prior to 12:01 a.m. on the Closing Date and Buyer entitled to (or responsible for) all sums pertaining to the period after 12:01 a.m. on the Closing Date. 9.3.11 LAX GROUND LEASE RENTALS. All ground rents and other payments due and payable by the lessee under the LAX Ground Lease will be prorated as of the Closing Date. 9.3.12 CLOSING COSTS. Sellers will pay the cost of Sellers' counsel, one-half of the total transfer taxes payable with respect to the transfer of ownership of the Philadelphia Hotel, all other transfer taxes, one-half of all escrow costs and expenses under the Earnest Money Escrow Agreement, and the other costs and expenses to be paid by Sellers as set forth herein. Buyer will pay for costs of Buyer's counsel, the Surveys, Title Commitments, Title Policies, and one-half of the total transfer taxes payable with respect to the transfer of ownership of the Philadelphia Hotel, any gross receipts tax otherwise payable by Sellers on the sale of the FF & E and Consumables, one-half of all escrow costs and expenses under the Earnest Money Escrow Agreement, and all other expenses incurred by Buyer. 9.3.13 INSURANCE. Unless otherwise agreed in writing by the parties prior to the Closing Date, Sellers will cancel all insurance coverage for the Hotels as of the Closing Date and Buyer will bear the risk of obtaining insurance coverage for the Hotels on the Closing Date and for all risk of loss thereafter. Risk of loss prior to the Closing Date will be borne by Sellers. 9.3.14 CAPITAL EXPENDITURE ADJUSTMENT. At Closing, Buyer will pay Sellers an additional amount equal to the Capital Expenditure Excess, if any, and Buyer will be entitled to a credit for the Capital Expenditure Deficiency, if any. 9.3.15 LEASING COMMISSIONS AND EXPENSE CREDIT. Sellers will receive a credit for any amounts that Buyer is obligated to reimburse to Sellers pursuant to Section 10.1 hereof. 9.3.16 EARNEST MONEY CREDIT. At Closing, the entire principal amount of the Earnest Money Deposits will be credited against the Purchase Price, together with one half of the interest earned on the Preliminary Earnest Money Deposits and the Additional Earnest Money Deposit. The remaining interest on such Earnest Money Deposits shall be paid to Seller. 51 52 9.3.17 COST OF DEFECTS REFUND AGREEMENT. In the event Buyer is entitled to a Purchase Price Adjustment as provided in Section 3.4 hereof, then to the extent the Purchase Price Adjustment is attributable to any Cost of Defects, then Buyer and Sellers will enter into a Cost of Defects Refund Agreement at Closing substantially in the form of the Cost of Defects Refund Agreement attached hereto as Exhibit N, whereby at the expiration of one year after the Closing Date (subject to extension for force majeure as therein provided), Buyer will be obligated to provide Sellers with a certificate stating the amount of all expenditures made by Buyer to repair or otherwise cure Major Defects and to the extent the amount expended by Buyer is less than the amount of the Purchase Price Adjustment attributable to any Cost of Defects, Seller will be entitled to a refund of the deficiency. 9.3.18 CAPITAL LEASE OBLIGATIONS. Unless satisfied and discharged by Sellers prior to Closing, Buyer shall be entitled, at Closing, to a credit equal to the present value of the lessee's liability under all of the Capital Lease Obligations from and after the Closing Date through the end of the lease term of each of the capital Lease Obligations. The annual discount rate to be applied in calculating the present value of the remaining liability will be 9%. 9.3.19 TAXES. At closing, Buyer shall be entitled to a credit equal to the amount, if any, of all sales and employee withholding taxes the liability for which accrued prior to the Closing Date, but which have not been paid by Seller or Managers, but only to the extent Buyer would otherwise bear the economic burden of such taxes. 9.3.20 DELAYED ADJUSTMENT. If at any time following the Closing Date the amount of an item listed in any subsection of Section 9.3 hereof proves to be incorrect, the party in whose favor the error was made will promptly pay to the other party the sum necessary to correct such error upon receipt of proof of such error, provided that such proof is delivered to the party from whom payment is requested on or before one (1) year after Closing. 9.4 COMMISSIONS. Buyer and Sellers acknowledge and agree that no broker has been engaged by either party with respect to the Transaction. Sellers agree to indemnify Buyer and hold Buyer harmless from any loss, liability, damage, cost or expense (including, without limitation, court costs and reasonable attorneys' fees) paid or incurred by Buyer by reason of any claim to any broker's, finder's, or other fee in connection with the transaction by any party claiming by, through or under Sellers. Buyer agrees to indemnify Sellers and hold Sellers harmless from any loss, liability, damage, cost or expense (including, without limitation, court costs and reasonable attorneys' fees) paid or incurred by Sellers by reason of any claim to any broker's, finder's, or other fee in connection with the transaction by any party claiming by, through or under Buyer. The indemnities contained herein will survive Closing, and shall be included in the Mutual Indemnity. 9.5 SELLERS' CLOSING DOCUMENTS. At the Closing, Sellers will deliver or cause to be delivered to Buyer the following documents: 52 53 9.5.1 DEEDS. Each of the Atlanta Seller, the Fort Lauderdale Seller, the Bloomington Seller, the San Diego Seller, the Kansas City Seller, the LAX Seller, the Philadelphia Seller, and the Waltham Seller will execute and deliver the appropriate Deeds in the forms attached hereto as Exhibits B-1 through B-7 conveying to Buyer all of their respective rights, titles and interests in and to the Real Property, subject only to the Permitted Exceptions. 9.5.2 LAX ASSIGNMENT OF LESSEE'S INTEREST. The LAX Seller will execute and deliver the LAX Assignment of Lessee's Interest in Lease in the form attached hereto as Exhibit C conveying to Buyer all of the right, title and interest of the LAX Seller in and to the LAX Ground Lease. Under the terms of the Assignment of Lessee's Interest, Buyer shall (i) accept, ratify and assume all obligations imposed upon the lessee under the LAX Ground Lease arising or accruing on or after the Closing Date, and (ii) agree to indemnify, defend, and hold harmless the LAX Seller from and against all losses, costs (including reasonable attorneys' fees), liabilities, expenses and demands of whatever nature arising or accruing under the LAX Ground Lease and from and after the Closing Date. 9.5.3 BILLS OF SALE AND ASSIGNMENT. Each of the Sellers will execute and deliver a bill of sale, in the form attached hereto as Exhibit D, conveying to Buyer all of their respective rights, titles and interests in and to all of the Intangibles, FF & E, Consumables and the Liquor Licenses with respect to the Hotel and by each of them. 9.5.4 ASSIGNMENT OF MANAGEMENT AGREEMENTS, LICENSE AGREEMENT AND BLOOMINGTON SPONSORSHIP AGREEMENT. Each of the Sellers will execute and deliver an Assignment of Management Agreement in the form attached hereto as Exhibit E (the "Assignment of Management Agreement") assigning and transferring all of their respective interests in the Management Agreements. In each Assignment of Management Agreement, Buyer will expressly (i) assume all obligations imposed upon the owner of the Hotel identified in the Assignment of Management Agreement first arising or accruing on or after the Closing Date, and (ii) agree to indemnify, defend, and hold harmless Sellers from and against all losses, costs (including reasonable attorneys' fees), liabilities, expenses, and demands of whatever nature first arising or accruing under the Management Agreements on or after the Closing Date. The Fort Lauderdale Seller will execute and deliver and Assignment of Fort Lauderdale License Agreement assigning and transferring all of its interests in the Fort Lauderdale License Agreement. In the Assignment of Fort Lauderdale License Agreement, Buyer will expressly (i) assume all obligations imposed upon the Fort Lauderdale Seller first arising or accruing on or after the Closing Date, including, without limitation, any fees, charges, liquidated damages, and other amounts which may be incurred in the event of a termination of the Fort Lauderdale License Agreement, and (ii) agree to indemnify, defend, and hold harmless Fort Lauderdale Seller from and against all losses, costs (including reasonable attorneys' fees), liabilities, expenses, and demands of whatever nature first arising or accruing under the Fort Lauderdale License Agreement on or after the Closing Date. The Bloomington Seller will execute and deliver an Assignment of Bloomington Sponsorship Agreement assigning and transferring all of its interest in the Bloomington Sponsorship Agreement. In the Assignment of Bloomington Sponsorship Agreement, Buyer will expressly (i) 53 54 assume all obligations imposed upon the Bloomington Seller first arising or accruing on or after the Closing Date, and (ii) agree to indemnify, defend, and hold harmless Bloomington Seller from and against all losses, costs (including reasonable attorneys' fees), liabilities, expenses, and demands of whatever nature first arising or accruing under the Bloomington Sponsorship Agreement on or after the Closing Date. 9.5.5 ASSIGNMENT OF TENANT LEASES, EQUIPMENT LEASES, AND OPERATING AGREEMENTS. Each of the Sellers will execute and deliver an assignment of the Third Party Agreements in the form attached hereto as Exhibit F (the "Assignment of Third Party Agreements") assigning and transferring all of their respective interests in the Third Party Agreements. Sellers will not assign any contracts or policies of insurance for the Hotels. In the Assignment of Third Party Agreements, Buyer will expressly (i) assume (a) the obligation to pay any and all leasing commissions payable (pursuant to written lease commission agreements or the Leases) on the Leases after the expiration of the current terms of the Leases and (b) all other liabilities and obligations of Sellers under the Third Party Agreements first arising or accruing on or after the Closing Date and (ii) agree to indemnify, defend and hold harmless Sellers from and against all losses, costs (including reasonable attorneys' fees), liabilities, expenses, and demands of whatever nature first arising or accruing under the Third Party Agreements on or after the Closing Date. In connection with such assignment, Buyer will post letters of credit or other security as may be required to release any letters of credit or security posted by any Sellers. 9.5.6 ASSIGNMENT OF INTANGIBLES. Each of the Sellers will execute and deliver an Assignment of Intangibles, in the form attached hereto as Exhibit G assigning to Buyer the Intangibles pertaining to the Hotels, to the extent any warranties and guarantees forming a part of such Intangibles are assignable by Sellers to Buyer (without expense to Sellers). 9.5.7 NON-FOREIGN STATUS AFFIDAVIT. Each of the Sellers will execute and deliver a non-foreign status affidavit in substantially the form attached hereto as Exhibit H, as required by Section 1445 of the Internal Revenue Code and Section 18662 of the California Revenue and Taxation Code, and the regulations thereunder. 9.5.8 NOTICE TO TENANTS. Each of the Sellers will execute and deliver to Buyer letters to each tenant under the Leases notifying them of the sale of the Hotels to Buyer and advising them that all future payments of rent and other payments due under the Leases are to be made to Buyer at an address designated by Buyer. 9.5.9 NO LIEN CERTIFICATES. Each of the Sellers will execute and deliver certificates in form and content as reasonably required by the Title Company reciting that there are no mechanics', materialmen's or laborers' liens against the Real Property and that the Real Property is free of all liens, encumbrances and charges, and claims of parties in possession, except for the Permitted Exceptions. 54 55 9.5.10 EVIDENCE OF AUTHORITY. Each of the Sellers will provide satisfactory evidence from Sellers authorizing the execution and delivery by Sellers of this Agreement and such other documents as may be necessary or advisable to consummate the Transaction. 9.5.11 ORIGINAL DOCUMENTS. To the extent available to Sellers, each of the Sellers will deliver originals of all the Third Party Agreements to be assumed by Buyer in accordance with the terms hereof 9.5.12 PERMITS. To the extent available to Sellers, each of the Sellers will deliver originals of all certificates of occupancy and permits affecting the Hotels. 9.5.13 TELEPHONE NUMBERS; POST OFFICE BOX. Subject to any required approval by the Managers (or licensee under the Fort Lauderdale License Agreement or sponsor under the Bloomington Sponsorship Agreement), each of the Sellers will execute and deliver a written instrument conveying and transferring to Buyer (without representation or warranty of control) to the extent authorized by the telephone company and post office, all of the Sellers' right, title and interest in any telephone numbers relating to the Hotels, and, if Sellers maintain a post office box, conveying to the Buyer all of its interest in and to such post office box and the number associated therewith, so as to assure continuity in operation and communication. Any fees or charges associated with the transfer will be paid by Buyer. 9.5.14 EMPLOYEE MATTERS. Each of the Sellers will use reasonable good faith efforts to provide executed affidavits from an authorized officer or manager of each Hotel, setting forth the date to which all Employees of the Hotel covered by the affidavit have been paid. 9.5.15 GUEST INFORMATION. Each of the Sellers will direct the respective Managers to make available to Buyer complete sets of all guest registration cards, guest transcripts, guest histories, and all other guest information at the Hotels. 9.5.16 SCHEDULE OF EMPLOYEES. Each of Sellers will use reasonable good faith efforts to provide updated schedules of Employees of their respective Hotels, showing salaries, with statements of the length of service of each Employee, brought current to a date not more than forty-eight (48) hours prior to the Closing. 9.5.17 ROOM RESERVATIONS; FUNCTION RESERVATIONS. Each of Sellers will provide complete lists of all advance room reservations, functions and the like, in reasonable detail so as to enable Buyer to honor Sellers' commitments with respect to reservations and advance sales at each of the Hotels. 9.5.18 MAINTENANCE RECORDS. Each of Sellers will provide all maintenance records for their respective Hotels, to the extent in possession of Sellers, Manager or their Affiliates. 55 56 9.5.19 CLOSING STATEMENT. Each of the Sellers shall execute and deliver six (6) originals of a closing statement (the "Closing Statement") setting forth the prorations described in Section 6.3 above, the allocation of the Purchase Price to each of the Hotels, the allocation and proration of all Closing costs and expenses in accordance with the terms of this Agreement, and otherwise accounting for all funds required to effect Closing. 9.5.20 OTHER DOCUMENTS. Each of the Sellers shall execute and deliver such other documents as may be reasonably required by the Title Company or as may reasonably be agreed upon by Sellers and Buyer to consummate the Transaction. 9.6 BUYER'S CLOSING DOCUMENTS. At the Closing, Buyer will deliver or cause to be delivered to Sellers: 9.6.1 ASSIGNMENTS. Buyer shall execute and deliver the LAX Assignment of Lease, the Assignment of Management Agreements, and the Assignment of Intangibles. 9.6.2 EVIDENCE OF AUTHORITY. Buyer shall deliver satisfactory evidence from Buyer authorizing the execution and delivery by Buyer of this Agreement and such other documents executed and delivered by Buyer in connection with the Transaction. 9.6.3 CERTIFICATE AND RELEASE. Buyer shall deliver the Certificate and Release in the form attached hereto as Exhibit A. 9.6.4 Acknowledgment & Assumption. If Buyer make the election contemplated under Section 2.10 hereof Buyer's designees shall each execute and deliver the Acknowledgment and Assumption Agreement in the form attached hereto as Exhibit K as provided in Section 2.10 hereof. 9.6.5 Closing Statement. Buyer shall execute and deliver six (6) fully executed originals of the Closing Statement. 9.6.6 LAX Ground Lease Information. Buyer shall provide the LAX Seller with such information as may be requested by the LAX Seller to provide the landlord under the LAX Ground Lease with information concerning Buyer's net worth and ability to pay the rents and other amounts required to be paid by the tenant under the LAX Ground Lease, and such other information concerning Buyer's financial standing, responsibility and experience in the operation of hotels as the LAX Seller shall reasonably request in connection with the LAX Sellers' desire to be released from liability under the LAX Ground Lease as contemplated in Section 17 thereof provided, however, that Sellers' obligations with respect to Required Consents in Section 8.1.4 are not subject to the LAX Sellers' release from liability under the LAX Ground Lease. 56 56 57 9.6.7 Other Documents. Buyer shall execute and deliver such other documents as may reasonably be required by the Title Company or as may be reasonably required by Sellers to consummate the Transaction. 9.7 Other Deliveries. At the Closing, the following additional acts will occur: 9.7.1 Keys and Original Documents. To the extent reasonably practicable, Sellers will deliver, or cause Managers to deliver, either to the Hotels or to Buyer keys to all locks on or in the Hotels and, if in the possession of Sellers or Managers, originals of the Third Party Agreements. 9.7.2 Mutual Indemnities. Each of the Sellers and Buyer shall execute a Mutual Indemnity in the form attached hereto as Exhibit J under the terms of which Buyer will agree that it will indemnify and hold Sellers, and their Affiliates, parent corporations, officers, directors, shareholders, employees, agents and contractors harmless from and against all actions, claims, penalties, damages and expenses, including reasonable attorneys' fees, based upon or arising out of: (i) the failure by Buyer to honor any room reservations, banquet reservations, or other arrangements and obligations for the use of the Hotels made prior to, on or after the Closing Date to be honored after the Closing Date; (ii) any claim for personal injury or property damage based on an event occurring in or about the Hotels after the date immediately preceding the Closing Date; (iii) any matter for which Buyer has agreed to indemnify Sellers under the provisions of Article IX or any of the Conveyance Documents. Under the Mutual Indemnity, Sellers will agree that they will indemnify and hold Buyer and its Affiliates, parent corporation, officers, directors, shareholders, employees, agents and contractors harmless from and against all costs, claims, penalties, damages and expenses including reasonable attorneys' fees, based upon or arising out of (i) the failure by Sellers to honor any room reservations, banquet reservations, or other arrangements and obligations for the use of the Hotels for periods prior to the Closing Date, and (ii) any claim for personal injury or property damage based upon an event occurring in or about the Hotels prior to the Closing Date, and (iii) any other matters set forth in the Mutual Indemnity Agreement. Sellers hereby agree to indemnify and hold Buyer harmless from the payment of any and all gross receipts and lodgers' taxes due in connection with the operation of the Hotels on or prior to the Closing Date, and in connection therewith each of the Sellers will execute and deliver the Gross Receipts Tax Mutual Indemnity in the form attached hereto as Exhibit I under which Sellers agree to indemnify Buyer for all required gross receipts and lodgers' taxes due on rentals or operations of the Hotels and state unemployment compensation contributions required of it as an employer with respect to the Hotels through the date immediately preceding the Closing Date. Buyers agree to indemnify and hold Sellers harmless from the payment of any and all gross receipts and lodgers' taxes due in connection with the operation of the Hotels from and after the Closing Date, and in connection therewith Buyer shall execute and deliver the Gross Receipts Tax Mutual Indemnity in the form attached hereto as Exhibit I under which Buyer agrees to indemnify Sellers for all required gross receipts and lodgers' taxes due on rentals or operations of the Hotels and state unemployment compensation 57 57 58 contributions required of it as an employer with respect to the Hotels from and after the Closing Date. The indemnities contained in this Section will survive Closing. 9.7.3 Personal Property; Inventory. The parties will arrange for hotel guests to sign new deposit box or other appropriate receipts on the day before the Closing Date with respect to baggage, personal property, laundry, valet packages and other property of hotel guests checked or left in the care of Sellers by transient hotel guests or tenants and, to the extent such receipts are not obtained, such property shall be sealed, listed in an inventory prepared and signed jointly by the parties as of the Closing Date and Buyer will be responsible from and after the Closing Date for all such property listed in said inventory. 9.8 Indemnity Fund Agreement. At Closing, Buyer and Sellers will enter into an Indemnity Fund Agreement in the form attached hereto as Exhibit M, under the terms of which Sellers will deliver to one of them, as the designee and agent of all of the Sellers, the sum of $4,000,000, which shall be held by the designee and agent in a segregated bank account and will not be pledged, hypothecated, or otherwise disposed of or subjected to any claims of any other persons or entities (referred to as the "Indemnity Fund"). In the event Buyer makes a claim under any of the indemnity agreements set forth in this Agreement or in any of the agreements to be executed and delivered among the parties at Closing, and if the indemnifying party is ultimately determined by a court of competent jurisdiction or otherwise in a mutually acceptable dispute resolution forum to have liability on the claim for indemnity, then if the indemnifying party fails to pay the claim on demand, then Buyer will have the right to notify the designee agent of the indemnifying party's failure to pay the claim and promptly upon receipt of such notice, the designee agent will pay the claim in full, not to exceed, however, the balance then remaining in the Indemnity Fund after taking into account all previous claims by Buyer, if any. The Indemnity Fund Agreement will expire one year after Closing and all funds then held by the designee agent under the Indemnity Fund Agreement will be paid by the designee and agent to Sellers; unless prior to the expiration of such one year period Buyer shall have either commenced litigation to enforce the terms and conditions thereof, or provided notice to Sellers setting forth in reasonable detail the facts and circumstances of any claim made by a third party pursuant to which Buyer is entitled to indemnification hereunder, in which case the term of the Indemnity Trust Agreement will be extended until the final resolution of such litigation without any appeal pending; provided, however, an amount equal to the greater of $500,000 or the balance remaining in the Indemnity Fund on the date the Indemnity Fund Agreement would otherwise expire shall remain on deposit under the terms and conditions of the Indemnity Fund Agreement for an additional one-year period, subject to extension as provided above. Article X Leases 10.1 Lease Expense Reimbursement. If the Transaction is consummated, Buyer will (i) reimburse Sellers on the Closing Date for any and all fees paid, expenses incurred (including, 58 58 59 without limitation, tenant concessions and tenant improvement costs) and leasing commissions arising out of or in connection with (a) any extensions, renewals or expansions under the Leases, and (b) any new leases within the Hotels, which in each case were disclosed to and approved by Sellers and Buyer on or after the execution of this Agreement by Sellers and Buyer and paid by Sellers prior to Closing, and (ii) indemnify and hold Sellers harm:less from and against any and all claims for any such expenses which remain unpaid for any reason at the time of Closing If Sellers desire to execute a renewal, amendment, extension or expansion of a Lease or a new lease with a potential tenant for space in any Hotel after the date hereof but prior to Closing, Sellers will promptly provide Buyer with a copy of the proposed document for its review. Buyer will advise Sellers, in writing, whether or not it approves or rejects such proposed document within ten (10) business days after receipt of the proposed document. If Buyer fails to notify Sellers within such time period, Buyer will be deemed to have rejected the proposed document. If Buyer rejects the proposed document, Sellers nevertheless retain full right, power and authority to execute such proposed lease, and Sellers will promptly advise Buyer of same. Buyer will advise Sellers, in writing, whether or not it elects to terminate this Agreement with respect to the Hotel affected by such document within ten (10) business days after receipt of Sellers' notice that Sellers have executed the proposed document over Buyer objection. Upon such termination, the Purchase Price shall be reduced by the amount allocated to such Hotel in the Allocation Schedule. If Buyer fails to notify Sellers within such time period, Buyer will be deemed to have fully waived any rights to terminate this Agreement pursuant to this Section 10.1. Article XI Earnest Money, Default and Remedies 11.1 Duties of Escrow Agent. The duties of Escrow Agent will be as provided in the Earnest Money Escrow Agreement and shall include: 11.1.1 Earnest Money Deposits. During the term of this Agreement, Escrow Agent will hold, deposit, invest and deliver the Earnest Money Deposits in accordance with the terms and provisions of this Agreement. 11.1.2 Disputes. If this Agreement is terminated by the mutual written agreement of Sellers and Buyer, or if Escrow Agent is unable to determine at any time to whom any of the Earnest Money Deposits should be delivered, or if a dispute develops between Sellers and Buyer concerning to whom the Earnest Money Deposits should be delivered, then in any such event, Escrow Agent will request joint written instructions from Sellers and Buyer and will deliver the Earnest Money Deposits in accordance with such joint written instructions. In the event that such written instructions are not received by Escrow Agent within ten (10) days after Escrow Agent has served a written request for instructions upon Sellers and Buyer, Escrow Agent will have the night to pay the Earnest Money Deposits into a court of competent jurisdiction and interplead Sellers and Buyer in respect thereof, and thereafter Escrow Agent will be discharged of any obligations in connection with this Agreement. 59 59 60 11.13 Costs. If costs or expenses are incurred by Escrow Agent because of litigation or a dispute between Sellers and Buyer arising out of the holding of the Earnest Money Deposits in escrow, Sellers and Buyer will each pay Escrow Agent one-half of such reasonable and direct costs and expenses. Except for such costs and expenses, no fee or charge will be due or payable to Escrow Agent for its services as escrow holder other than its usual and customary investment fees, if any. 11.1.4 Limited Duties. By joining in the Earnest Money Escrow Agreement, Escrow Agent undertakes only to perform the duties and obligations imposed upon it under the terms of the Earnest Money Escrow Agreement and expressly does not undertake to perform any of the other covenants, terms and provisions incumbent upon Sellers and Buyer hereunder. 11.1.5 Liability. Buyer and Sellers hereby agree and acknowledge that Escrow Agent assumes no liability in connection herewith except for gross negligence or willful misconduct; that Escrow Agent will never be responsible for the validity, correctness or genuineness of any document or notice referred to under this contract; and that Escrow Agent may seek advice from its own counsel and will be fully protected in any action taken by it in good faith in accordance with the opinion of its counsel. 11.2 Sellers' Default. If Sellers, or any one of them, fail to perform any of their obligations or agreements contained herein and if Buyer is not then in default of any of its obligations and agreements contained herein (a "Sellers Default"), then as its sole and exclusive remedy Buyer may either (i) terminate this Agreement by giving written notice of termination and the reasons therefor to Sellers, in which event neither Sellers nor Buyer will have any further obligations or liabilities one to the other hereunder (except for any indemnity of one party by the other which expressly survives Closing or termination of this Agreement), Buyer will promptly return the Documents to Sellers and Seller and Escrow Agent will thereafter return the entire amount of all Earnest Money Deposits to Buyer, together with all of the interest earned thereon (with interest on the Signing Deposit calculated at the rate of 4.5% per annum); or (ii) waive all other actions, rights or claims for damages, and may bring an equitable action for specific performance of the terms of this Agreement for conveyance of the Hotels in accordance with this Agreement. 11.3 Buyer's Default. If Buyer fails to close the Transaction (except for permitted terminations set forth herein) and Sellers are not then in default of any of their material obligations or agreements contained herein, then Sellers' sole option hereunder will be to terminate this Agreement, whereupon Escrow Agent will pay the Earnest Money Deposits together with all of the interest earned thereon to Sellers as liquidated damages, and Buyer will return the Documents to Sellers and thereafter Sellers and Buyer will have no further obligations or liabilities one to the other hereunder (except for any indemnity or liability of Buyer pursuant to Section 5.2 hereof). Sellers' election to receive the Earnest Money Deposits as liquidated damages is agreed to due to the difficulty, inconvenience, and uncertainty of ascertaining actual damages for such breach by Buyer and Buyer agrees that the same is a reasonable and fair estimate of such damages Buyer 60 60 61 waives and releases any night to (and covenants that it will not) sue Sellers or seek or claim a refund of all or any portion of the Earnest Money Deposit on the grounds that it is unreasonable in amount and exceeds Sellers' actual damages or that its retention by Sellers constitutes a penalty. Article XII Casualty and Condemnation 12.1 Casualty. If one or more of the Hotels is damaged by any casualty prior to Closing, the Sellers of such damaged Hotel will immediately notify Buyer in writing of the same (a "Casualty Notice"). The Casualty Notice will include a reasonably detailed description of the property damage and such Sellers' best estimate of the cost and time required to repair such damage. 12.1.1 Minor Casualty. If the cost of repairing such damage is estimated by an architect or other qualified consultant retained by Sellers to be equal to or less than $1,000,000, then the affected Sellers will repair such damage and restore the damaged property as promptly as is reasonably possible and in any event within 60 days after the date of such damage to at least as good a condition as existed immediately prior to such casualty and in such event Closing will be deferred until such repair and restoration is substantially completed. 12.1.2 Sellers' Election. If the cost of repairing such damage to any one Hotel is estimated by an architect or other qualified consultant retained by Sellers to be greater than $1,000,000, but less than $7,500,000, then the affected Sellers may proceed in accordance with Section 12.1.1 or elect to not repair any one such damaged Hotel and (i) proceed with the Transaction without one such Hotel (but not more than one), with a reduction in the Purchase Price based on the Allocation Schedule, or (ii) proceed with the Transaction with such Hotel, with Buyer to receive an assignment of Sellers' rights in any insurance proceeds which remain unpaid to Sellers in connection with such casualty and a credit against the Purchase Price in the amount of the deductible under Sellers' property casualty insurance coverage for the damaged Hotel plus any amounts previously paid to Sellers as insurance proceeds in connection with such casualty and not expended by Sellers in connection with restoration of the Hotel plus any inadequacy of the insurance proceeds to cover the cost of repairing the damaged Hotel. 12.1.3 Buyer's Election. If the cost of repairing such damage is estimated by an architect or other qualified consultant retained by Sellers to be greater than $7,500,000, or if more than one Hotel is affected then Buyer must elect (as its sole and exclusive remedy) (i) to terminate this Agreement by giving notice to such effect to Sellers and returning the Documents to Sellers not later than the latest to occur of the last business day prior to Closing or fifteen (15) business days after receipt of the Casualty Notice or (ii) to proceed with Closing as set forth herein without such damaged Hotel, with a reduction in the Purchase Price based upon the Allocation Schedule, or (iii) proceed with Closing as set forth herein with such damaged Hotel (but not more than one), 61 61 62 and receive an assignment of Sellers' rights in any insurance proceeds which remain unpaid to Sellers in connection with such casualty and a credit against the Purchase Price in the amount of the deductible under Sellers' property casualty insurance coverage for the Hotels plus any amounts previously paid to Sellers as insurance proceeds in connection with such casualty and not expended by Sellers in connection with restoration of the Hotels. Buyer's failure to give timely notice under this Section 12.1.3 will be deemed to be an election under clause (ii) of this Section 12.1.3. 12.2 Eminent Domain. In the event that a portion of one or more of the Hotels is taken by eminent domain or becomes subject to a taking by eminent domain or a deed in lieu of condemnation prior to Closing, the affected Sellers of such Hotel will immediately notify Buyer in writing of the same (a "Eminent Domain Notice"); and 12.2.1 Sellers' Election. If the value of the portion of the Hotels taken is equal to or more than $1,000,000 but less than $7,500,000.00, then the affected Sellers may elect to not repair or restore such Hotel and either (i) proceed with the Transaction without such Hotel, with a reduction in the Purchase Price based on the Allocation Schedule, or (ii) proceed with the Transaction with such Hotel, with Buyer to receive an assignment of Sellers' rights in any condemnation proceeds which remain unpaid to Sellers in connection with such taking and a credit against the Purchase Price in the amount of the condemnation proceeds received by Sellers plus any amounts paid to Sellers as condemnation proceeds in connection with such taking and not expended by Sellers in connection with restoration of the Hotel. 12.2.2 Buyer's Election. If the value of the portion of the Hotel taken is greater than $7,500,000 or if more than one Hotel is so taken, then any election by Sellers pursuant to clause (i) or (ii) of Section 12.2.1 shall be disregarded and Buyer must elect (as its sole and exclusive remedy) (i) to terminate this Agreement by giving notice to such effect to Sellers and returning the Documents to Sellers not later than the latest to occur of the last business day prior to Closing or fifteen (15) business days after receipt of the Casualty Notice or (ii) to proceed with Closing as set forth herein without such taken Hotel, with a reduction in the Purchase Price based upon the Allocation Schedule, or (iii) proceed with Closing as set forth herein with such taken Hotel, and to receive an assignment of Sellers' rights in any condemnation proceeds which remain unpaid to Sellers in connection with such taking and a credit against the Purchase Price in the amount of the condemnation proceeds received by Sellers plus any amounts paid to Sellers as condemnation proceeds in connection with such taking and not expended by Sellers in connection with restoration of the Hotel. Buyer's failure to give timely notice under this Section 12.2.2 will be deemed to be an election under clause (ii) hereof. 12.2.3 Refund of Earnest Money Deposits. In the event this Agreement is terminated as provided in Section 12.1 or 12.2 hereof, then the entire amount of all Earnest Money Deposits, together with all interest earned thereon, will be refunded to Buyer, except that Sellers will be entitled to retain the entire amount of the Signing Deposit, together with all interest earned thereon. 62 62 63 Article XIII Miscellaneous 13.1 Notices. Any notice, request, demand, instruction or other communication to be given to either party hereunder (except those required to be delivered at Closing) will be in writing, and will be deemed to be delivered upon the earlier to occur of (i) actual receipt if delivered by hand or by commercial courier or by registered or certified United States Postal Service mail, return receipt requested, postage prepaid, to the address indicated or (ii) upon confirmation of receipt if by facsimile transmission addressed as follows: If to Buyer: Starwood Capital Group, L.P. Three Pickwick Plaza Suite 250 Greenwich, Connecticut 06830 Attn: Mr. Jonathan D. Eilian Fax No.: (203) 861-2101 With a copy to: Starwood Lodging Trust 11845 W. Olympic Blvd. Suite 560 Los Angeles, California 90064 Attn: Steven Goldman Fax No.: (310) 575-9143 Kirkland & Ellis 200 East Randolph Drive Chicago, Illinois 60601 Attn: Stephen G. Tomlinson Fax No.: (312) 861-2200 and Kirkland & Ellis 153 East 53rd Street New York, New York 10022 Attn: Mark J. Eagan Fax No.: (212) 446-4900 63 63 64 If to Atlanta Seller: 730 Georgia Hotel Properties I, Inc. 730 Third Avenue New York, New York 10017 Attention: Joseph W. Luik, Executive Vice President Fax No.: (212) 916-5993 If to Bloomington Seller: 730 Minn Hotel Properties I, Inc. 730 Third Avenue New York, New York 10017 Attention: Joseph W. Luik, Executive Vice President Fax No.: (212) 916-5993 If to Fort Lauderdale Seller: MRC Properties, Inc. 730 Third Avenue New York, New York 10017 Attention: Joseph W. Luik, Executive Vice President Fax No.: (212) 916-5993 If to Kansas City Seller: 730 Mo Hotel Properties I, Inc. 730 Third Avenue New York, New York 10017 Attention: Joseph W. Luik, Executive Vice President Fax No.: (212) 916-5993 If to LAX Seller: 730 Cal Hotel Properties II, Inc. 730 Third Avenue New York, New York 10017 Attention: Joseph W. Luik, Executive Vice President Fax No.: (212) 916-5993 64 64 65 If to Philadelphia Seller 730 Penn. Hotel Properties I, Inc. 730 Third Avenue New York, New York 10017 Attention: Joseph W. Luik, Executive Vice President Fax No.: (212) 916-5993 If to San Diego Seller: Cal Hotel Properties I Associates 730 Third Avenue New York, New York 10017 Attention: Joseph W. Luik, Executive Vice President Fax No.: (212) 916-5993 If to Waltham Seller: 730 Mass Hotel Properties I, Inc. 730 Third Avenue New York, New York 10017 Attention: Joseph W. Luik, Executive Vice President Fax No.: (212) 916-5993 In the case of all Sellers, with a copy to: 730 Properties, Inc. 730 Third Avenue New York, New York 10017 Attention: Anthony Grimaldi, Vice President Fax No.: (212) 953-9879 and a further copy to: Sutherland, Asbill & Brennan 999 Peachtree Street, N.E. Atlanta, Georgia 30309-3996 Attn: H. Edward Hales, Jr. Fax No.: (404) 853-8806 The addresses and facsimile numbers for the purpose of this Section may be changed by either party by giving written notice of such change to the other party in the manner provided herein. 65 65 66 13.2 Attorneys' Fees. In the event it becomes necessary for either Buyer or Sellers to file a suit to enforce this Agreement or any provisions contained herein, the prevailing party in such suit will be entitled to recover, in addition to all other remedies or damages, reasonable attorneys fees and costs of court incurred in connection with such suit. 13.3 Entire Agreement and Modification. This Agreement constitutes the entire agreement between Buyer and Sellers and supersedes all prior agreements and understandings (if any) relating to the subject matter hereof This Agreement cannot be amended, modified or altered except by an agreement in writing executed by both Buyer and Sellers. 13.4 Binding Effect. This Agreement will be binding upon and shall inure to the benefit of the parties hereto, and their respective successors, permitted assigns and legal representatives. 13.5 Effective Date. This Agreement has been executed by the parties on the dates set forth below their respective signatures and will be effective as of the later of such dates. 13.6 Assignment. Except as provided in Section 2.10, this Agreement cannot be assigned by Buyer in whole or in part without the prior written consent of Sellers, which consent may be withheld by Sellers for any reason whatsoever. 13.7 Incorporation of Exhibits and Schedules. All exhibits and schedules referred to in this Agreement and attached hereto are hereby made a part of this Agreement by this reference. 13.8 Governing Law. The substantive laws of the states in which each of the Hotels is located and the applicable federal laws of the United States of America will govern the validity, construction, enforcement and interpretation of this Agreement. 13.9 Confidentiality. The parties hereto agree not to disclose any of the material terms of this Agreement (except to the extent as may be required by law or as required by the Title Company or to the advisors, agents, officers, directors, partners and employees of the parties hereto in the ordinary course of business) without the prior written consent of the other party. 13.10 Full Execution. This Agreement will be deemed fully executed and binding upon Buyer and Sellers on the Effective Date. 13.11 ERISA Compliance. Buyer has informed Sellers and Buyer hereby represents and warrants to Sellers that Buyer is not a "plan" nor a plan "fiduciary" (as those terms are defined under ERISA) and is acquiring the Hotels for Buyer's own personal account and not as part of any investment for any plan or plan assets subject to ERISA and the Hotels shall not constitute plan assets subject to ERISA upon conveyance of the Hotels by Sellers and the closing of this Agreement between Buyer and Sellers. Sellers shall not have any obligation to close the 66 66 67 Transaction if the Transaction for any reason constitutes a prohibited transaction under ERISA or if Buyer's representation is found to be false or misleading in any respect. 13.12 Work Product. In the event this Agreement is terminated for any reason whatsoever, Buyer will promptly thereafter return to Sellers all Information Documents and other materials provided to Buyer by Sellers. 13.13 No Joint and Several Liability. The obligations and liabilities of Sellers hereunder are several and independent, not joint. Without limitation of the foregoing and notwithstanding any other provision contained in this Agreement to the contrary, (i) all representations, warranties, covenants, agreements and obligations contained herein which relate to the Atlanta Hotel are made, and shall be performed, as the case may be, solely by the Atlanta Seller, and none of the other Sellers shall have any liability or obligations whatsoever with respect thereto; (ii) all representations, warranties, covenants, agreements and obligations contained herein which relate to the Fort Lauderdale Hotel are made, and shall be performed, as the case may be, solely by the Fort Lauderdale Seller, and none of the other Sellers shall have any liability or obligations whatsoever with respect thereto; (iii) all representations, warranties, covenants, agreements and obligations contained herein which relate to the Bloomington Hotel are made, and shall be performed, as the case may be, solely by the Bloomington Seller, and none of the other Sellers shall have any liability or obligations whatsoever with respect thereto; (iv) all representations, warranties, covenants, agreements and obligations contained herein which relate to the San Diego Hotel are made, and shall be performed, as the case may be, solely by the San Diego Seller, and none of the other Sellers shall have any liability or obligations whatsoever with respect thereto; (v) all representations, warranties, covenants, agreements and obligations contained herein which relate to the Kansas City Hotel are made, and shall be performed, as the case may be, solely by the Kansas City Seller, and none of the other Sellers shall have any liability or obligations whatsoever with respect thereto; (vi) all representations, warranties, covenants, agreements and obligations contained herein which relate to the LAX Hotel are made, and shall be performed, as the case may be, solely by the LAX Hotel Seller, and none of the other Sellers shall have any liability or obligations whatsoever with respect thereto; (vii) all representations, warranties, covenants, agreements and obligations contained herein which relate to the Philadelphia Hotel are made, and shall be performed, as the case may be, solely by the Philadelphia Seller, and none of the other Sellers shall have any liability or obligations whatsoever with respect thereto; and (viii) all representations, warranties, covenants, agreements and obligations contained herein which relate to the Waltham Hotel are made, and shall be performed, as the case may be, solely by the Waltham Seller, and none of the other Sellers shall have any liability or obligations whatsoever with respect thereto. 13.14 Publicity. Subject to the provisions of Section 13.9 hereof, either party may disclose this Agreement or the Transaction only with the prior consent of the other, and Buyer and Sellers agree to act cooperatively regarding any press release concerning this Agreement or the Transaction. In releasing any information regarding this Agreement or the Transaction, neither party will violate the Confidentiality Agreement. 67 67 68 13.15 Limitation of Liability. No advisor, trustee, director, officer, partner, employee, beneficiary, shareholder, participant or agent or in either Buyer or Sellers shall have any personal liability, directly or indirectly, under or in connection with this Agreement, including but not limited to any representation, warranty or indemnity contained herein or) except as may be expressly provided therein to the contrary, under or in connection with any agreement made or entered into under or pursuant to the provisions of this Agreement, or any amendment or amendments to any of the foregoing made at any time or times, and each party and their respective successors and assigns, and without limitation, all other persons and entities, shall look solely to the assets of the subject party for the payment of any claim or for any performance, and both Buyer and Sellers hereby waive any and all such personal liability. The limitations of liability provided in this Section 11.17 are in addition to, and not in limitation of any limitation on liability applicable to either Sellers or Buyer provided by law or by any other contract, agreement or instrument. 13.16 Radon Gas Statement. The Florida Seller hereby makes the following statement pursuant to Florida Statutes Section 404.056(6): "RADON GAS: Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit." 13.17 Sellers' Knowledge. All references in this Agreement to the "actual knowledge" or "knowledge" of Sellers or similar references will refer only to the current (i.e. upon execution of this Agreement and at Closing) actual knowledge of the Designated Personnel (as hereinafter defined) of Sellers and will not be construed to refer to the knowledge of any other office, officer, agent or employee of Sellers or any affiliate thereof but will not include any implied or constructive knowledge. For purposes of this Agreement, the term "Designated Employees" will refer to Joseph W. Luik, Rick Rogovin, Jonathan Kurnit, Joseph Romano, and Mary Jo Dimino. 13.18 Trustees' Exculpation. Each of the parties hereto acknowledge and agree that the name "Starwood Lodging Trust" is a designation of such Trust and its Trustees (as Trustees but not personally) under a Declaration of Trust dated August 25, 1969, as amended and restated, and all persons dealing with such Trust shall look solely to such Trust's assets for the enforcement of any claims against such Trust and the Trustees, officers, agents and security holders of such Trust assume no personal liability for obligations entered into on behalf of such Trust, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. 68 68 69 IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto in multiple counterparts and is effective as of the date of Sellers' execution hereof as set forth below. SELLERS: Date of Execution by MRC PROPERTIES, INC. all Sellers: By: /s/ Jonathan D. Kurnit May 3, 1996 _______________________ Jonathan D. Kurnit Title: Vice President 730 CAL HOTEL PROPERTIES II, INC. By: /s/ Jonathan D. Kurnit _______________________ Jonathan D. Kurnit Title: Vice President 730 GEORGIA HOTEL PROPERTIES I, INC. By: /s/ Jonathan D. Kurnit _______________________ Jonathan D. Kurnit Title: Vice President 730 MASS HOTEL PROPERTIES I, INC. By: /s/ Jonathan D. Kurnit _______________________ Jonathan D. Kurnit Title: Vice President 730 MO HOTEL PROPERTIES I, INC. By: /s/ Jonathan D. Kurnit _______________________ Jonathan D. Kurnit Title: Vice President [Signatures Continued on Next Page] 69 70 [Signatures Continued from Previous Page] 730 MINN HOTEL PROPERTIES I, INC. By: /s/ Jonathan D. Kurnit _______________________ Jonathan D. Kurnit Title: Vice President 730 PENN. HOTEL PROPERTIES I, INC. By: /s/ Jonathan D. Kurnit _______________________ Jonathan D. Kurnit Title: Vice President CAL HOTEL PROPERTIES I ASSOCIATES By: 730 CAL. HOTEL PROPERTIES I, INC. Its: General Partner By: /s/ Jonathan D. Kurnit __________________________ Jonathan D. Kurnit Title: Vice President [Signatures Continued on Next Page] 70 71 [Signatures Continued From Previous Page] BUYER: Date of Execution SLT REALTY LIMITED PARTNERSHIP, by Buyer: a Delaware Limited Partnership May 3, 1996 By: STARWOOD LODGING TRUST, a Maryland real estate investment trust, General Partner By: /s/ Ronald C. Brown -------------------------------- Title: VP & CFO ----------------------------- SLC OPERATING LIMITED PARTNERSHIP, a Delaware Limited Partnership By: STARWOOD LODGING CORPORATION, a Maryland corporation By: /s/ Steven R. Goldman -------------------------------- Title: Senior Vice President ----------------------------- 71 EX-10.7 8 ASSET PURCHASE AGREEMENT, EFFECTIVE JULY 3, 1996 1 EXECUTION COUNTERPART ASSET PURCHASE AGREEMENT BY AND BETWEEN HOTELS OF DISTINCTION, INC., AS SELLER AND SLT REALTY LIMITED PARTNERSHIP, AS BUYER DATED AS OF MARCH __, 1996 2 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") made as of the latest date of execution hereof (the "EFFECTIVE DATE"), by and between HOTELS OF DISTINCTION, INC., a Florida corporation, with a principal place of business at 380 South County Road, Palm Beach, FL 33480 ("SELLER"), and SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership, having an address c/o Starwood Lodging Trust, 11835 Olympic Boulevard, Suite 675, Los Angeles, CA 90064 ("BUYER"). Seller and Buyer are sometimes collectively referred to as the "PARTIES" or individually as a "PARTY". PRELIMINARY STATEMENT A. Seller is a hotel management company that has owned, operated and managed numerous first-class hotels, including such properties as the Copley Plaza in Boston, the Cotton Bay Club on the Island of Eluethera in the Bahamas, and the Hyatt Hotel in Montreal. Seller was formed in 1974 by Alan Tremain and Jean- Claude Mathot, both hotel operators with many years of worldwide experience in hotel management. Over the past two decades, Seller has developed effective managerial systems, considerable marketing tools and expertise, and sophisticated financial controls. It has developed many innovative new restaurant concepts for its hotel properties, including "Boodles" (which was originally developed for the Back Bay Hilton Hotel in 1984), "The Ranchers' Club" (which was originally developed for the Albuquerque Hilton in 1985), "Trophies" (which was originally developed for the Hotel Park Tucson in 1988), and "The Dirtwater Fox" (which was originally developed for the Marque of Winston-Salem in 1991). For the past decade, Seller has also provided its properties with access to Market Byte, a computerized database of pre-qualified sales contacts, including meeting planners, travel agents, and other providers of group business to hotels. Seller currently manages nine (9) hotels throughout the United States (each, a "HOTEL" and, collectively, the "HOTELS"), all as more particularly identified on Schedule A, pursuant to agreements more particularly described on Schedule B (each, a "MANAGEMENT AGREEMENT" and, collectively, the "MANAGEMENT AGREEMENTS") with the owners of each Hotel (each, a "HOTEL OWNER" and, collectively, the "HOTEL OWNERS"). In addition, Seller is the owner of certain Intellectual Property used in connection with the Hotels, including Market Byte. -1- 3 B. Seller desires to sell, assign, and transfer to Buyer, and Buyer desires to purchase and acquire all of Seller's right, title and interest in and to the Assets for a Purchase Price of One Million Dollars ($1,000,000) (subject to adjustment as set forth herein), and to secure the Termination Agreements and the Non-Competition Agreements from Seller's Principals, all as subject to the terms and conditions set forth in this Agreement. C. The Parties acknowledge that Buyer and SLC Operating Limited Partnership, a Delaware limited partnership (the "OPERATING PARTNERSHIP") (collectively the "HOTEL ASSETS BUYER"), and Hotels of Distinction Ventures, Inc. ("HODV"), a Delaware corporation, and certain of its directly and indirectly, wholly-owned affiliates (together with HODV collectively, referred to as the "HOTEL ASSETS SELLERS") have simultaneously herewith entered into that certain Asset Purchase Agreement (the "HOTEL ASSETS PURCHASE AGREEMENT") with respect to the acquisition of all of the assets owned by the Hotel Assets Sellers and which comprise the Hotels. The Hotel Assets Purchase Agreement is attached hereto as Schedule C. ARTICLE 1 DEFINITIONS/PURCHASE AND SALE OF ASSETS 1.1 DEFINITIONS. The capitalized terms in this Agreement shall have the meanings set forth in Article 13, unless the context otherwise requires. 1.2 PURCHASE AND SALE OF ASSETS. Pursuant to the provisions of this Agreement, at Closing, Seller shall sell, transfer, grant, assign, deliver and convey to Buyer, and Buyer shall purchase, acquire, accept and assume from Seller, all right, title and interest of Seller in and to the following: 1.2.1 PERSONAL PROPERTY. Certain tangible personal property used by Seller in the day-to-day operations of Seller's business, as set forth on Schedule 1.2.1 (collectively, the "PERSONAL PROPERTY"), including, as part of the Personal Property, Seller's right, title and interest in and to the computer software, certain computer hardware and data comprising Seller's computerized sales data base known as "Market Byte" and Seller's rights in the trade name "Market Byte" (collectively "MARKET BYTE"); 1.2.2 TERMINATION OF THE MANAGEMENT AGREEMENTS. Termination Agreements with respect to the Management Agreements, -2- 4 in the form set forth on Schedule E annexed hereto and made a part hereof (the "TERMINATION AGREEMENTS"); 1.2.3 INTELLECTUAL PROPERTY RIGHTS. All trademarks, registered trademarks, trade names, registered trade names, service marks, logos, phrases and other identifications used by Seller and/or the Hotel Assets Sellers in the day-to-day operations of Seller's business and the Hotels, including, without limitation, registrations and applications therefor, and the trade names: "The Marque" "The Marque of Winston-Salem" "The Marque of Atlanta" "The Hotel Park Tucson" "Boodles" "The Rancher's Club" "Trophies" "The Dirtwater Fox" "Agent to Agent" "Preferred Partners Program" "100% Meeting Services Guarantee" "Meetings in a Minute" and all goodwill associated therewith, as set forth on Schedule 1.2.3 (collectively, the "INTELLECTUAL PROPERTY"); and 1.2.4 NON-COMPETITION AGREEMENTS. The Non-Competition Agreements. The Personal Property, Market Byte, the Termination Agreements, the Intellectual Property and the Non-Competition Agreements are hereinafter referred to collectively as the "ASSETS". ARTICLE 2 PURCHASE PRICE 2.1 PURCHASE PRICE. Seller agrees to sell and Buyer agrees to purchase the Assets for One Million Dollars ($1,000,000) (the "PURCHASE PRICE"), subject to adjustment pursuant to the terms of Section 2.2 hereof and to the other terms and conditions set forth in this Agreement. On the Closing Date, Buyer shall pay the Purchase Price (as adjusted by all adjustments and offsets provided for in this Agreement) by wire transfer of immediately available federal funds in New York, New York, actually received and unconditionally available for distribution to Seller prior to 3:00 p.m. (New York time) on the Closing Date. -3- 5 2.2 ADJUSTMENTS TO PURCHASE PRICE. 2.2.1 ELIMINATED HOTELS. The Parties acknowledge that the Hotel Assets Purchase Agreement provides that under certain circumstances one (1) or more of the Hotels may be eliminated from the terms, provisions, covenants and conditions of the Hotel Assets Purchase Agreement. In the event one (1) or more Hotels are eliminated from the asset sale contemplated under the Hotel Assets Purchase Agreement, the Purchase Price shall be decreased in an amount equal to the product obtained by multiplying One Million Dollars ($1,000,000) by a fraction, the numerator of which shall be the "Allocated Purchase Price" (as defined in the Hotel Assets Purchase Agreement) of such eliminated Hotel, and the denominator of which shall be One Hundred Thirty-Four Million Dollars ($134,000,000). 2.2.2 MULTIPLE CLOSINGS. The Parties acknowledge that the Hotel Assets Purchase Agreement provides that under certain circumstances there may me more than one (1) closing with respect to the assets to be sold, transferred, assigned and conveyed thereunder. In the event there is more than one (1) closing under the Hotel Assets Purchase Agreement, the Parties agree that the Purchase Price shall be paid in installments. At each such closing, Buyer shall pay an amount equal to the allocable portion of the Purchase Price with respect to each of the Hotels being sold, transferred, assigned and conveyed at such closing pursuant to the formula set forth at Section 2.2.1. 2.3 ALLOCATION OF THE PURCHASE PRICE. The Purchase Price shall be allocated among the Assets being conveyed, as follows: (i) Market Byte. The allocation attributed to Market Byte has been arrived at by multiplying an amount of 10,000 (estimated) active pre-qualified sales contacts by Seventy- Seven Dollars ($77) per contact to arrive at an allocated price of Seven Hundred Seventy Thousand Dollars ($770,000). (ii) Covenants Not to Compete. In the Non-Competition Agreements being executed by Alan Tremain and Jean-Claude Mathot, each of them is agreeing that, for a period of two (2) years following the Closing, neither of them will own, operate or manage a competing full-service hotel property within ten (10) miles of any of the nine (9) Hotels being sold pursuant to the Hotel Assets Purchase Agreement (each of the nine (9) covenants not to compete being referred to hereafter as a "COVENANT NOT TO COMPETE"). For the purposes of this allocation, a value of Twenty Thousand Dollars ($20,000) has been assigned to each Covenant Not to Compete -4- 6 for a total allocated value of One Hundred Eighty Thousand Dollars ($180,000). (iii) Trademarks and Trade Names. Understanding that these trademarks and trade Names were conceived by Seller for their potential as franchise sales opportunities, a value of Ten Thousand Dollars ($10,000) has been attributed to each of the trade names "Boodles" and "The Ranchers' Club". No value has been attributed to the trade names "Trophies" and "The Dirtwater Fox". A value of Ten Thousand Dollars ($10,000) has been attributed to the trade name "The Marque", and no value has been attributed to the trade names "The Marque of Winston-Salem", "The Marque of Atlanta", and "The Hotel Park Tucson". A value of Five Thousand Dollars ($5,000) has been attributed to each of the trade names "Meetings in a Minute", "100% Meeting Services Guarantee", "Preferred Partners Program", and "Agent to Agent". Any value for the trade name "Market Byte" has been included in Paragraph 2.3(i) above. Thus, the total value attributed to the trade names being assigned by Seller to Buyer is Fifty Thousand Dollars ($50,000). (iv) Termination of the Management Contracts. No value has been attributed to the termination of the nine (9) Management Agreements for the purposes of this allocation. The Parties agree that the allocation of the Purchase Price has been arrived at by a process of arm's-length negotiations, including the Parties' best judgment as to the fair market value of each of the Hotels, and the Parties specifically agree to the above allocation as final and binding (as between the Parties), and each Party will consistently reflect those allocations on their respective federal, state and local tax returns. The terms of this Section 2.3 shall survive the Closing in accordance with Section 4.3 hereof. ARTICLE 3 BUYER'S DUE DILIGENCE TERMINATION RIGHT 3.1 BUYER'S DUE DILIGENCE TERMINATION RIGHT. In the event that Hotel Assets Buyer exercises its termination right under Section 3.2.1 of the Hotel Assets Purchase Agreement, this Agreement shall automatically terminate and be of no further force and effect. In such event the Parties shall have no further rights or obligations arising hereunder. The Parties agree that the notice given to Hotel Assets Sellers under the Hotel Assets Purchase Agreement shall constitute notice hereunder of the termination of this Agreement and that no additional notice shall be required hereunder. -5- 7 ARTICLE 4 SELLER'S REPRESENTATIONS AND WARRANTIES 4.1 SELLER'S REPRESENTATIONS AND WARRANTIES. Seller hereby covenants, represents and warrants to Buyer as of the Effective Date and as of the Closing Date, as follows: 4.1.1 GOOD STANDING. Seller is a corporation duly organized and in good standing under the laws of the State of Florida; 4.1.2 DUE AUTHORITY. This Agreement has been duly authorized, executed and delivered by Seller and in conformance with Seller's organizational charter and by-laws and pursuant to a validly existing vote of Seller's Board of Directors, duly constituted. All documents that are to be executed by Seller and delivered to Seller on the Closing have been or, on the Closing Date, will be duly executed, authorized and delivered by Seller. This Agreement and all such documents are and, on the Closing Date, will be legal, valid and binding obligations of Seller, enforceable in accordance with their terms (subject to customary bankruptcy exceptions) and do not and, at the time of Closing, will not violate any provisions of any agreement or judicial or administrative order to which Seller is a party or to which Seller is subject; 4.1.3 CONSENTS. No consent, right of first refusal, approval, order or authorization of any Person not a party to this Agreement, and no consent, approval, declaration or filing with any governmental authority on the part of Seller is required in connection with the execution and delivery of this Agreement or the performance of the transactions contemplated herein, except such governmental and other consents as may be required by law or otherwise as are specifically set forth on Schedule 4.1.3 (collectively the "CONSENTS"); 4.1.4 NO DEFAULT. Assuming all Consents are obtained, neither the execution and delivery of this Agreement by Seller, nor the consummation by Seller of the transactions contemplated hereby (i) has constituted or resulted in, or with the passage of time, will constitute or result in a breach of, or constitute a default under any contract, agreement or understanding (including any Management Agreements) whether written or oral by and between Seller and any other Party, (ii) has violated, or with the passage of time, will violate any court order, judgment, law, ordinance, regulation, or restriction to which Seller is a party or by which Seller, or any of Seller's assets, may be bound, the result of which could have a material adverse effect on one (1) or more of the Assets or on Seller's financial condition; -6- 8 4.1.5 LITIGATION. Schedule 4.1.5 sets forth a list of all litigations, governmental or administrative proceedings or arbitrations presently pending against Seller. Except as set forth on Schedule 4.1.5, there are no litigations, governmental or administrative proceedings or arbitrations presently pending or, to Seller's Actual Knowledge, threatened (i) against Seller which would have a material adverse effect on any of the Hotels or on Seller's financial condition, or (ii) with respect to the Assets, except for actions fully covered by insurance (subject to commercially reasonable deductibles) and those set forth on Schedule 4.1.5 annexed hereto. For the purposes of this Section 4.1.5, the term "material" shall mean any litigation, proceeding or arbitration which could result in a judgment or award in excess of $10,000; 4.1.6 PERSONAL PROPERTY. The Personal Property (including, without limitation, Market Byte) has been fully paid for and is owned by Seller free and clear of all liens, mortgages, chattel mortgages, security interests, attachments, claims or other encumbrances, whether or not of record. Seller shall, at Closing, sell, transfer, grant and convey to Buyer all right, title and interest of Seller in and to the Personal Property by a warranty Bill of Sale, in the form set forth as Exhibit 7.2.1; 4.1.7 MANAGEMENT AGREEMENTS. Other than as identified on Schedule B, Seller is not a party to any other contracts or agreements with respect to the management, use, ownership, operation and/or maintenance of the Hotels. Each Management Agreement referenced on Schedule B, a copy of which has been (or will be) provided to Buyer, is (i) a true and accurate copy, including all amendments, (ii) the entire agreement between Seller and the applicable Hotel Assets Seller named therein, (iii) in good standing and in full force and effect, and is fully enforceable against the parties thereto in accordance with their respective terms, and (iv) not in default in any material respect by any party, nor has Seller received any written or oral notice or other communication of any alleged breach or default thereunder by Seller, nor does there exist any event, which, with notice or lapse of time or both, would constitute a default thereunder. Seller shall, at Closing, terminate the Management Agreements pursuant to the Termination Agreements; 4.1.8 INTELLECTUAL PROPERTY. Other than the Intellectual Property being conveyed to Buyer hereunder, there is no other Intellectual Property owned by Seller or used by Seller with respect to the existence, use, ownership, occupancy, operation and/or maintenance of the Hotels or the operation of the Seller's hotel management business. Except as set forth on Schedule 1.2.3, the registrations and applications for all such Intellectual Property are in full force and effect and are standing in the name of Seller as of record and are valid and enforceable. Certain of Seller's respective names have been registered on the Principal Register maintained by the -7- 9 U.S. Patent and Trademark Office or comparable state trademark offices, all as set forth on Schedule 4.1.8. To Seller's Actual Knowledge, all affidavits, proofs or other documents to be submitted or action to be taken by Seller in order to avoid the cancellation of such registration prior thereto have been timely submitted or taken by Seller. Except as set forth on Schedule 1.2.3, to Seller's Actual Knowledge (i) Seller is the sole and exclusive owner of all rights to the Intellectual Property, the same are fully assignable, and Seller has the right to use the same without the payment of any license fee, royalty or similar charge, (ii) there is no claim of any other Person, firm or corporation or any proceeding pending or threatened which relates to any of the Intellectual Property, and (iii) the Intellectual Property includes all of the intellectual property used in the operation of Seller's business or in the conduct of the Hotels. Seller shall, at Closing, assign and transfer the Intellectual Property to Buyer pursuant to the Assignment of Intellectual Property in the form set forth as Exhibit 7.2.3; 4.1.9 BROKERS, FINDERS, ETC. The Parties hereto confirm that all negotiations relating to this Agreement and the transactions contemplated hereby have been carried on without the intervention of any Person acting on behalf of Seller, in such manner as to give rise to any valid claim against Seller or Buyer for any brokerage or finder's commission, fee or similar compensation. Seller and/or Hotel Assets Sellers shall be fully responsible for and shall assume and pay any and all fees or brokerage commissions due (or claimed to be due) to HOD Realty, Inc. with respect to the transactions contemplated (i) in the Hotel Assets Purchase Agreement or (ii) herein, and Seller shall indemnify and hold Buyer harmless therefrom; 4.1.10 MATERIAL FACTS. No statement by Seller in this Agreement contains any untrue statement of a material fact or, considered in the context of which presented, knowingly omits a material fact necessary to make the statement contained therein not misleading. All documents delivered by Seller to Buyer are true and complete originals or copies thereof and have not been modified or terminated in any way other than as indicated on the documents furnished to Buyer. 4.2 BUYER'S REPRESENTATIONS AND WARRANTIES. Buyer hereby covenants, represents and warrants to Seller as of the Effective Date and as of the Closing Date as follows: 4.2.1 BUYER'S REPRESENTATIONS AND WARRANTIES. Buyer hereby covenants, represents and warrants to Seller as of the Effective Date and as of the Closing Date that Buyer is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware. Buyer has full power and authority to make, execute, deliver and perform this Agreement, and neither the execution and delivery of this Agreement nor the consummation of any of the -8- 10 transactions contemplated herein will violate or contravene the provisions of any agreement, order, judgment or directive to which it may be a party or by which it may be bound. The person executing this Agreement on behalf of Starwood Lodging Trust, a Maryland real estate investment trust, the general partner of Buyer, has been duly authorized to do so. The consummation of the transactions contemplated by this Agreement will not render Buyer insolvent; 4.2.2 CONSENTS. No Consents on the part of Buyer are required in connection with the execution and delivery of this Agreement or the performance of the transactions contemplated herein, except as are specifically set forth on Schedule 4.1.3; 4.2.3 NO DEFAULT. Assuming all Consents are obtained, neither the execution and delivery of this Agreement by Buyer, nor the consummation by Buyer of the transactions contemplated hereby (i) has constituted or resulted in, or with the passage of time, will constitute or result in a breach of, or constitute a default under any contract, agreement or understanding (including any Management Agreements) whether written or oral by and between Buyer and any other Party, (ii) has violated, or with the passage of time, will violate any court order, judgment, law, ordinance, regulation, or restriction to which Buyer is a party or by which Buyer, or any of Buyer's assets, may be bound; 4.2.4 MATERIAL FACTS. No statement by Buyer in this Agreement contains any untrue statement of a material fact or, considered in the context of which presented, knowingly omits a material fact necessary to make the statement contained therein not misleading. Any documents delivered by Buyer to Seller are true and complete originals or copies thereof and have not been modified or terminated in any way other than as indicated on the documents furnished to Seller. 4.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties herein or in any Schedule, Exhibit, Certificate or Financial Statement delivered by Seller to Buyer incident to the transactions contemplated hereby shall be deemed to have been relied upon by Buyer and shall survive the Closing (regardless of any investigation made by or on behalf of Buyer) for a period of one hundred eighty (180) days after the Closing Date (or if the closing with respect to any individual Hotel(s) is adjourned, until one hundred eighty (180) days after the closing with respect to such Hotels (any such adjourned closing date being referred to as a "POSTPONED CLOSING DATE"), and in no event shall any claim or action be brought by either Party for breach of any representation or warranty after the expiration of such period; except that there shall be no limitation (other than the applicable statute of limitations) in respect of any claim brought by Buyer hereunder for fraud by Seller or -9- 11 any of Seller's officers, employees or agents in connection with any representation or warranty made by Seller herein or the transactions contemplated hereby. ARTICLE 5 OBLIGATIONS OF THE PARTIES UNTIL CLOSING 5.1 OBLIGATIONS OF THE PARTIES UNTIL THE CLOSING. Seller and Buyer agree that between the date hereof and the Closing Date, the Parties shall undertake the following: 5.1.1 OPERATION OF THE HOTELS. Subject only to conditions beyond Seller's reasonable control, Seller shall continue to operate Seller's hotel management business in the usual and customary manner, and shall not, among other things, and subject to Buyer's prior written consent, which consent may be withheld in Buyer's sole discretion, amend any of the Management Agreements or enter into any new management agreements; provided, however, that Buyer's consent shall not be required, if the new management agreement or any such renewal will by its terms terminate on or prior to the Closing Date; and 5.1.2 INSURANCE. Seller will maintain the insurance set forth on Schedule 5.1.2 in full force and effect and will not decrease the amount thereof without Buyer's prior written consent. Seller shall comply with any notice or request from any such insurance company received prior to the Closing Date. 5.1.3 DUE DILIGENCE ACTIVITIES. Seller will give to Buyer, its attorneys, accountants, engineers and other representatives, during normal business hours and as often as may be requested, full access to all books, records and files relating to (i) Seller's business, (ii) the Assets or (iii) the Hotels. Seller will furnish to Buyer all information concerning the Assets and/or the Hotels which Buyer, its attorneys, accountants, engineers or other representatives shall reasonably request or which Buyer reasonably believes is material or could result in a material adverse change in the business operations or financial condition of Seller or any Hotel. Buyer may, during the hours of 9:00 a.m. to 5:00 p.m., and upon reasonable advance notice, at Buyer's sole expense, undertake a review and physical count of the Personal Property. Such review and inspections shall in any material respect be conducted in a manner and at such times as shall not interfere with the Seller's operations. 5.1.4 NO BREACH OF REPRESENTATIONS AND WARRANTIES. Seller will not take any action which would cause or constitute a breach of any of the representations or warranties set forth herein, nor will Seller fail to take any action, the omission of which would cause -10- 12 or constitute a breach of any of the representations or warranties set forth herein. 5.1.5 NOTICE OF BREACH OF REPRESENTATIONS AND WARRANTIES. Promptly after becoming aware of any event which could cause or constitute a breach, or, if it occurred prior to the date of this Agreement, would have caused or constituted a breach, of any of the representations and warranties set forth herein. Seller will notify Buyer of such event and will use its best efforts to promptly remedy or to prevent such breach. 5.1.6 NO LIENS; NO NEW AGREEMENTS. Seller will not make, grant or suffer any mortgage, lien, pledge, chattel mortgage, charge, restriction or other encumbrance on or with respect to the Assets, nor will Seller enter into any other agreements, contracts or commitments with respect to the Assets except in the ordinary course of business and as otherwise permitted herein. 5.1.7 COMPLIANCE WITH LAW. Seller will comply in all material respects with all material federal, state and municipal laws, ordinances, directives, orders, regulations and requirements which apply to the Assets, and will promptly remedy any violation thereof of which notice shall have been given by any governmental authority having jurisdiction so that the Assets shall be conveyed free of the same. 5.1.8 TAXES. (i) Seller will pay, as and when due and payable, all taxes and assessments imposed on or against Seller or the Assets or due in connection with the operation of Seller's hotel management business, all payments due to vendors, purveyors and other trade creditors, and all other debts and obligations relating to the Assets or the operation of Seller's hotel management business. (ii) In the State of Florida and in each other state in which one (1) or more of the Hotels is located, Seller shall comply with the applicable state taxing authorities', commissions' and agencies' rules, regulations and procedures which exist to determine that Seller has paid all state income taxes, employment taxes (including but not limited to FICA, unemployment insurance and workers' compensation) and all sales, use and other state taxes relating to Seller or Seller's hotel management business (collectively, "MISCELLANEOUS TAXES"). Seller shall apply to such state taxing authorities, commissions or agencies sufficiently far in advance of the Closing Date to ensure that Buyer shall have "comfort" and "safe harbor" on a date not more than five (5) Business Days before the Closing Date that all applicable Miscellaneous Taxes have been paid. In the event that any state taxing authority, commission or agency -11- 13 notifies Seller that any amounts are (or shall become) due and payable with respect to any Miscellaneous Taxes, Seller shall pay such amounts to the applicable state taxing authority, commission or agency (by certified check) on or prior to the Closing Date. Buyer shall have the right to make such applications on Seller's behalf as Buyer shall deem necessary to confirm that all such Miscellaneous Taxes have been (or shall be) paid. 5.1.9 PERMITS; LIQUOR LICENSES. There are no licenses (including any liquor licenses with respect to the ownership, use or maintenance of any Hotel), in Seller's name. 5.1.10 CONSENTS. Seller shall promptly request, and shall use Seller's best efforts to obtain, the Consents. Upon written request from Seller, Buyer shall cooperate reasonably to obtain such Consents. 5.1.11 MISCELLANEOUS TAXES. Seller shall comply with any pre-closing requirements and deliver any necessary notifications with respect to any Miscellaneous Taxes which may be payable by Seller, including any Miscellaneous Taxes arising in connection with the transactions contemplated herein. ARTICLE 6 CONDITIONS TO CLOSING 6.1 BUYER'S CONDITIONS TO CLOSING. Satisfaction of each of the following conditions, any of which may be waived in writing by Buyer, shall be deemed a condition to Buyer's obligation to close hereunder: 6.1.1 STATUS OF TITLE TO THE ASSETS; DELIVERY OF REQUIRED DOCUMENTS. Seller shall be able to deliver title to the Asset free and clear of all liens and encumbrances and shall be able to deliver each of the documents referred to in Section 7.2, including any consents or approvals required of third parties; 6.1.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties of Seller set forth herein shall be true and correct in all material respects as of the Closing Date, with the exception of Exhibits which must be updated at the Closing Date to reflect changes permitted under the terms of this Agreement (to the extent such changes are acceptable to Buyer in its sole discretion); 6.1.3 PERFORMANCE OF PRE-CLOSING OBLIGATIONS. Seller shall have performed, observed and complied with all of the pre-Closing covenants, agreements and conditions required by this Agreement to be performed, observed and complied with by Seller prior to or as of the -12- 14 Closing, including but not limited to each of the covenants set forth in Article 5 hereof; 6.1.4 NO BANKRUPTCY. Seller shall not have made an assignment for the benefit of creditors or admitted in writing its inability to pay its debts as they mature or have been adjudicated as bankrupt or have filed a petition in voluntary bankruptcy or a petition or answer seeking reorganization or an arrangement with creditors under the Federal bankruptcy law or any other similar law or statute of the United States or any State, and no such petition shall have been filed against it; 6.1.5 CONSUMMATION OF CLOSING UNDER HOTEL ASSETS PURCHASE AGREEMENT. The Closing shall have occurred (or shall be occurring simultaneously) under the Hotel Assets Purchase Agreement. It shall be a default of Seller hereunder in the event that Hotel Assets Seller default under the Hotel Assets Purchase Agreement and such default is not cured within any applicable notice and/or cure period; 6.1.6 NON-COMPETITION AGREEMENTS. Seller's Principals shall have entered into (or shall simultaneously with the Closing enter into) the Non-Competition Agreements between Buyer and Seller's Principals, in the form set forth on Schedule D attached hereto and made a part hereof (collectively, the "NON- COMPETITION AGREEMENTS"); and 6.1.7 TERMINATION OF MANAGEMENT AGREEMENTS. Seller shall have entered into (or simultaneously with the Closing enter into) the Termination Agreements between Hotel Owners and Seller terminating the Management Agreements, in the form set forth on Schedule E attached hereto and made a part hereof for all purposes (the "TERMINATION AGREEMENTS"). 6.2 SELLER'S CONDITIONS TO CLOSING. Satisfaction of each of the following conditions, any of which may be waived in writing by Seller, shall be deemed a condition to Seller's obligation to close hereunder: 6.2.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of Buyer set forth herein shall be true and correct in all material respects as of the Closing Date, with the exception of Exhibits which must be updated at the Closing Date to reflect changes permitted under the terms of this Agreement. 6.2.2 PERFORMANCE OF PRE-CLOSING OBLIGATIONS. Buyer shall have performed, observed and complied with all of the pre-Closing covenants, agreements and conditions required by this Agreement to be performed, observed and complied with by Buyer prior to or as of the Closing, including but not limited to, each of the covenants set forth in Article 5 hereof. -13- 15 6.2.3 CONSUMMATION OF CLOSING UNDER HOTEL ASSETS PURCHASE AGREEMENT. The Closing shall have occurred (or shall be occurring simultaneously) under the Hotel Assets Purchase Agreement. It shall be a default of Buyer hereunder in the event that Hotel Asset Buyer defaults under the Hotel Assets Purchase Agreement and such default is not cured within any applicable notice and/or cure period. ARTICLE 7 CLOSING 7.1 CLOSING. The consummation of the transaction contemplated in this Agreement (the "CLOSING") shall occur simultaneously on the date (the "CLOSING DATE") and in the same location as the closing of the Hotel Assets Purchase Agreement. The Parties agree that the Closing hereunder shall occur if and only if the closing contemplated in the Hotel Assets Purchase Agreement occurs. 7.2 SELLER'S CLOSING DOCUMENTS. At Closing, Seller shall deliver or cause to be delivered to Buyer the following: 7.2.1 BILL OF SALE. A warranty bill of sale (the "BILL OF SALE") covering the Personal Property, executed and acknowledged by Seller, in the form set forth on Exhibit 7.2.1 attached hereto and made a part hereof for all purposes; 7.2.2 TERMINATION AGREEMENTS. The Termination Agreements executed, acknowledged by Seller and Hotel Owners and delivered by Seller to Buyer; 7.2.3 ASSIGNMENT OF INTELLECTUAL PROPERTY. An Assignment of Intellectual Property (the "ASSIGNMENT OF INTELLECTUAL PROPERTY"), executed, acknowledged and delivered by Seller to Buyer, and executed, acknowledged and assumed by Buyer, in the form set forth on Exhibit 7.2.3 attached hereto and made a part hereof for all purposes; 7.2.4 ORIGINAL DOCUMENTS. To the extent the same are in Seller's possession, the originals of all documents associated with the Assets; 7.2.5 SELLER'S AUTHORIZATION. Secretary's Certificates certifying that Seller's Board of Directors has duly adopted resolutions authorizing the within transaction and executed and acknowledged Incumbency Certificates certifying to the authority of the officers of Seller executing the documents to be delivered by Seller on the Closing Date; -14- 16 7.2.6 CONSENTS. The Consents set forth on Schedule 4.1.3 in form and substance acceptable to Buyer in its reasonable discretion; 7.2.7 GOOD STANDING CERTIFICATES. Certificates of good standing for Seller from all relevant jurisdictions; 7.2.8 NON-COMPETITION AGREEMENTS. The Non- Competition Agreements, executed and delivered by Seller's Principals; and 7.2.9 ADDITIONAL DOCUMENTS. Any and all other documents reasonably required by Buyer to consummate the Closing, duly executed, sworn to, and/or acknowledged (when the form of the document so provides) by Seller. 7.3 BUYER'S CLOSING DOCUMENTS. At Closing, Buyer shall execute, swear to, acknowledge (when the form of the document so provides), and/or deliver to Seller the following: 7.3.1 PURCHASE PRICE. The Purchase Price, after all adjustments provided for herein; 7.3.2 SECRETARY'S CERTIFICATE. A duly executed Secretary's Certificate certifying that the Board of Directors of Starwood Lodging Trust, as general partner of Buyer, has duly adopted resolutions authorizing the within transaction and executed and acknowledged Incumbency Certificates certifying to the authority of the officers of Starwood Lodging Trust executing the documents on behalf of Buyer to be delivered by Buyer on the Closing Date; 7.3.3 GOOD STANDING CERTIFICATES. A Certificate of good standing for Buyer from the State of Delaware; and 7.3.4 ADDITIONAL DOCUMENTS. Any and all other documents reasonably required by Seller to consummate the Closing, duly executed, sworn to and/or acknowledged (when the form of document so provides), by Buyer. 7.4 BUYER'S CLOSING COSTS. Buyer shall pay the following at Closing: 7.4.1 BUYER'S ATTORNEYS' FEES. Buyer's attorneys' fees incurred in connection with the transactions contemplated herein; 7.4.2 BUYER'S DUE DILIGENCE COSTS. All costs incurred by Buyer in performing Buyer's due diligence review and inspection of the Assets; and -15- 17 7.4.3 RECORDING FEES. One-half (1/2) the cost of any and all filing and/or recording fees required by law or requested by Buyer to be filed or recorded. 7.5 SELLER'S CLOSING COSTS. Seller shall pay each and all of the following Closing costs: 7.5.1 SELLER'S ATTORNEYS' FEES. Seller's attorneys' fees incurred in drafting and negotiating this Agreement and in Closing the transactions contemplated in this Agreement; 7.5.2 TRANSFER TAXES; SALES AND USE TAXES. At Closing, except as set forth in Section 7.4.3 hereof, Seller shall pay (i) any and all transfer taxes, conveyance taxes, "gains" taxes, sales taxes and other taxes or charges due under local or state law as a result of the transactions contemplated hereby, including the sale of the Assets, and (ii) any and all sales and use taxes due under local or state law as a result of the transactions contemplated hereby, including the sale of the Personal Property; and 7.5.3 RECORDING FEES. One-half (1/2) the cost of any and all filing and/or recording fees required by law or requested by Buyer to be filed or recorded. ARTICLE 8 INTENTIONALLY OMITTED ARTICLE 9 POST-CLOSING COVENANTS 9.1 POST-CLOSING COVENANTS. Seller and Buyer agree that from and after the Closing Date: 9.1.1 BUSINESS RECORDS. Seller will make all books and records retained by Seller which pertain to the Assets or Seller's hotel management business available for inspection by Buyer and its representatives during business hours on reasonable advance notice. For a period of five (5) years after the Closing Date, Buyer will make all Business Records transferred to Buyer available for inspection by Seller and its representatives during business hours on reasonable advance notice for the purpose of responding to tax authorities and/or governmental inquiries arising out of Seller's hotel management business and the ownership and operation of the Assets prior to the Closing Date. -16- 18 9.1.2 TAX FILINGS. Seller and Buyer shall cooperate in timely making any filing required pursuant to Section 1060 of the Code or any regulations promulgated thereunder. 9.1.3 GUARANTEES AND WARRANTIES. Seller shall cooperate with Buyer, at Buyer's sole expense, in enforcing any rights under any unexpired guarantees or warranties given by Persons other than Seller in connection with any of the Assets. 9.1.4 INTELLECTUAL PROPERTY. Neither Seller nor any of Seller's affiliates, officers, directors or employees, or any of their respective affiliates shall use any of the Intellectual Property in connection with any property or business owned or operated by them, or in connection with any property or business in which they have an interest, direct or indirect. 9.1.5 SALES, USE AND/OR HOTEL/MOTEL LICENSES. Sellers shall pay any and all Miscellaneous Taxes relating to (i) the period prior to the Closing Date (or the Postponed Closing Date, as the case may be) or (ii) the consummation of the sale, transfer and conveyance of the Assets. 9.1.6 NAMES FOLLOWING THE CLOSING. Seller agrees that, Seller shall not adopt or use any name which includes any trademark or trade name being assigned and conveyed to Buyer hereunder and will not otherwise infringe upon the Intellectual Property or any portion thereof, or hold itself out as the successors to the business of Seller or the Hotel Assets Sellers. ARTICLE 10 NOTICES 10.1 NOTICES. All notices, consents, approvals and other communications provided for herein or given in connection herewith shall be validly given, made, delivered or served if in writing and delivered personally against receipt, or sent by registered, certified mail, receipted overnight service, postage prepaid to: SELLER AT: HOTELS OF DISTINCTION, INC. 380 South County Road Palm Beach, FL 33480 Attention: Alan Tremain, Chairman Telephone: (407) 835-9500 -17- 19 WITH A COPY TO: Andrew C. Culbert, Esquire MASTERMAN, CULBERT & TULLY One Lewis Wharf Boston, MA 02110 Telephone: (617) 227-8010 BUYER AT: SLT REALTY LIMITED PARTNERSHIP c/o Starwood Lodging Trust 11835 Olympic Boulevard, Suite 675 Los Angeles, CA 90064 Attention: Ronald C. Brown, Vice President Telephone: (310) 575-3900 WITH COPIES TO: STARWOOD CAPITAL GROUP, L.P. Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Attention: Michael C. Mueller Telephone: (203) 861-2100 AND: Alan S. Weil, Esquire SIDLEY & AUSTIN 875 Third Avenue New York, NY 10022 Telephone: (212) 906-2315 or to such other addresses as either Party hereto may from time to time designate in writing and deliver to the other Party in a like manner. Notices, consents, approvals and communications given by mail or delivery service shall be deemed delivered as of the date of postmark or deposit with an overnight delivery service. ARTICLE 11 DEFAULT/REMEDIES 11.1 SPECIFIC CONTINGENCY. The Parties specifically agree and acknowledge that Buyer's and Seller's obligation to close and consummate the transaction contemplated in this Agreement is contingent upon the closing and consummation of the transactions contemplated in the Hotel Assets Purchase Agreement. Either Party's default of its obligation to close and consummate the Hotel Assets Purchase Agreement in accordance with the terms thereof, shall be deemed a default by such Party under this Agreement. 11.2 BUYER'S DEFAULT. If the conditions to Buyer's obligations set forth in Section 6.1 hereof have been satisfied, Seller is not in default hereunder and Buyer shall default in any obligation hereunder to consummate the purchase of the Assets, Seller's sole and exclusive remedy shall be that the Hotel Assets Sellers shall be entitled to exercise the remedies provided in Section 15.1 of the Hotel Assets -18- 20 Purchase Agreement. Seller hereby agrees that the foregoing remedy shall be the sole remedy of Seller hereunder in the event the Closing does not occur by reason of a breach of this Agreement by Buyer. In no event shall Buyer become liable to pay any damages of any kind whatsoever to Seller in connection with any default by Buyer hereunder. Upon the exercising by Hotel Assets Sellers of the foregoing remedy, this Agreement shall become null and void and neither Party hereto shall have any further rights or obligations hereunder. 11.3 SELLER'S DEFAULT. If the conditions to Seller's obligations set forth in Section 6.2 hereof have been satisfied, Buyer is not in default hereunder and Seller shall default in any obligation hereunder or shall wrongfully fail to consummate the sale of the Assets for any reason, such default (i) shall constitute a default under the Hotel Assets Purchase Agreement entitling the Hotel Assets Buyer to exercise its remedies thereunder and (ii) shall entitle Buyer to pursue any and all legal or equitable remedies available to it hereunder, including but not limited to the right to seek specific performance against Seller. 11.4 ATTORNEYS' FEES. In the event either Party hereto finds it necessary to bring an action at law or other proceeding against the other Party to enforce or interpret any of the terms, covenants or conditions hereof or any instrument executed pursuant to this Agreement or by reason of any breach or default hereunder or thereunder, the Party prevailing in any such action or proceeding shall be paid all costs, including reasonable attorneys' fees. 11.5 NO WAIVER. No delay in exercising any right or remedy shall constitute a waiver thereof, and no waiver by Seller or Buyer of the breach of any covenant of this Agreement shall be construed as a waiver of any preceding or succeeding breach of the same or any other covenant or condition of this Agreement. No extension of time for performance of any obligation or act shall be deemed an extension of the time for performance of any other obligation or act. ARTICLE 12 MISCELLANEOUS 12.1 ENTIRE AGREEMENT. This Agreement and the Hotel Assets Purchase Agreement contain the entire agreement between the Parties concerning the Assets. This Agreement supersedes all prior and contemporaneous oral and written representations, warranties, covenants and agreements by or between the Parties with respect to the Assets. -19- 21 12.2 SATURDAY, SUNDAY, AND LEGAL HOLIDAYS; TIMES. If any date for the performance of any matter under this Agreement (including the date for the giving of Notice and the date on which any Notice is deemed to have been received, pursuant to Article 10 hereof) falls on a day other than a Business Day, then such date shall be extended to the next Business Day. All references herein to a particular time on a particular date refer to the local time (daylight or standard) in New York City. 12.3 PRESUMPTION CONCERNING INTERPRETATION AND CONSTRUCTION. There shall be no presumption in favor of either Party with respect to the interpretation or construction hereof. 12.4 ASSIGNMENT. This Agreement may be assigned by Buyer to any Person which controls, is controlled by or is under common control with Hotel Assets Buyer without the prior written consent of Seller. In the event of any such assignment, any references in this Agreement to Buyer shall be construed to mean the assignee to which Buyer named herein shall have assigned its rights under this Agreement and which shall have assumed all obligations of Buyer under this Agreement. For the purposes of this provision, the term "CONTROL" shall mean the ownership (or right to control, by contract or otherwise, the voting rights) with respect to thirty-five percent (35%) or more of the outstanding voting interests in the applicable Person. 12.5 ARTICLES/SECTION HEADINGS. The headings of the various Sections in this Agreement are for the convenience of the Parties and do not alter, modify, or limit the provisions thereof and shall not be used in construing or interpreting the provisions thereof. 12.6 NON-RECORDATION. Buyer shall not file or record this Agreement or any evidence or memorandum of this Agreement in any public records. A violation of this provision shall constitute a default by Buyer hereunder. 12.7 WAIVERS; MODIFICATIONS. No delay on the part of a Party in exercising any rights or remedies hereunder shall operate as a waiver thereof, nor shall any specific waiver by a Party of any right or remedy hereunder operate or be construed as a waiver of any other right or remedy hereunder nor shall any single or partial exercise of any right or remedy hereunder preclude any other or further exercise thereof, or the exercise of any other right or remedy hereunder (unless the provisions of this Agreement which establish any such right or remedy provide otherwise). No waiver of any right or remedy hereunder shall be valid or enforceable unless in writing and signed by the Party against whom such waiver is sought to be enforced. No modification of this Agreement shall be effective unless in writing, signed by the Parties. -20- 22 12.8 GOVERNING LAW; VENUE. This Agreement and the rights and obligations of the Parties shall be governed by and construed in accordance with the internal laws of the State of New York without application of conflict of law principles. The Parties agree that any legal action or proceeding with respect to this Agreement shall be brought in the courts of the State of New York or the United States District Court for the Southern District of the State of New York, sitting in New York, New York, and by execution and delivery of this Agreement, the Parties accept for themselves and in respect of their property, generally and unconditionally, the jurisdiction of the aforesaid courts. The Parties irrevocably consent to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing or delivery of copies thereof as provided in Article 10 (Notices), such service to become effective thirty (30) days after such mailing. Nothing herein shall affect the right to serve process in any other manner permitted by law. Except to the extent prohibited by law which cannot be waived, each Party hereto waives trial by jury in connection with any action or proceeding of any nature whatsoever arising under, out of, or in connection with this Agreement and in connection with any claim, counterclaim, offset or defense arising in connection with such action or proceeding, whether arising under statute (including any federal or state constitution) or under the law of contract, tort or otherwise and including, without limitation, any challenge to the legality, validity, binding effect or enforceability of this Section 12.8 or this Agreement. 12.9 DUE AUTHORITY. The individuals signing below represent that they have the requisite authority to bind the entities on whose behalf they are signing. 12.10 FURTHER ASSURANCES. Each Party shall, at the request of any other Party, at any time and from time to time following the Closing, promptly execute and deliver, or cause to be executed and delivered, to such requesting Party all such further instruments and take all such further action as may be reasonably necessary or appropriate to more effectively transfer, assign, convey, grant and confirm to Buyer, or to perfect or record Buyer's title to or interest in, or to enable Buyer to possess and use, the Assets or otherwise to confirm or carry out the provisions and intents of this Agreement, and of the instruments delivered pursuant to this Agreement. 12.11 SECTIONS, EXHIBITS AND SCHEDULES. All references herein to Sections, Exhibits and Schedules, unless otherwise identified, are to Sections of, Exhibits to, and Schedules to this Agreement. All Exhibits and all Schedules referred to herein are hereby incorporated in and made a part of this Agreement as if set forth herein. -21- 23 12.12 EXPENSES. Except as otherwise expressly provided in this Agreement, whether or not the Closing occurs, each Party shall pay its own expenses incidental to the preparation of this Agreement, the carrying out of the provisions hereof and the consummation of the transactions contemplated herein. 12.13 RELATIONSHIP OF PARTIES. Nothing contained in this Agreement shall be deemed or construed by any Party, Person, or entity as creating any relationship of principal and agent, of partnership, of joint venture, or of any association whatsoever between the Parties. No provision of this Agreement and no act or failure to act of the Parties shall be deemed to create any relationship between the Parties other than the relationship of a vendor and a vendee. 12.14 NUMBER OF GENDER OF WORDS. Whenever any number (singular or plural) is used herein, the same includes and applies to any one or more thereof, and to each thereof, jointly and severally, and words of any gender include each other gender. 12.15 COUNTERPARTS. This Agreement is executed in multiple counterparts, each of which is an original, but all of which constitute but one and the same document. The signatures of each of the Parties and the Broker may appear on multiple separate signature pages. 12.16 TERMINATION; CONFIDENTIALITY. Simultaneously with any termination of this Agreement, regardless of which Party terminates this Agreement or of the cause of such termination, Buyer shall deliver to Seller all documents received from Seller pursuant to the terms of this Agreement. 12.17 PUBLICITY. Other than as required by law, prior to the Closing, neither Party will divulge, disclose, publish, publicize, or announce to any Person or entity whatsoever, including, without limitation, any print, radio, television, or other media representatives, any of the tenants, or any real estate broker or salesperson, the existence of this Agreement or any of the provisions of this Agreement; provided, however, that the Parties may disclose this Agreement and the transactions contemplated herein to their respective employees, agents and consultants. 12.18 DELIVERY OF SCHEDULES AND EXHIBITS. The Parties acknowledge that this Agreement is being executed and delivered before the Parties have completed the preparation of the Schedules and Exhibits to be attached hereto. Buyer agrees to prepare and deliver to Sellers the forms of the Bill of Sale, the Termination Agreements, the Assignment of Intellectual Property and the Non-Competition Agreements, and Sellers agree to prepare and deliver to Buyer all other Schedules and Exhibits, in each case on or before the date that -22- 24 is fifteen (15) days from the Effective Date. The Parties agree to cooperate with one another to prepare a draft set of Schedules and Exhibits not later than the date that is fifteen (15) days after the Effective Date, or if such date is not a Business Day, on the next succeeding Business Day. At such time as the Parties agree upon such Schedules and Exhibits, the Parties shall execute a confirmation agreement to which such approved Schedules and Exhibits shall be attached. In the event that the Parties, after all good faith efforts, cannot agree upon the Schedules and Exhibits to be annexed hereto on or before the date that is thirty (30) days after the Effective Date, or if such date is not a Business Day, on the next succeeding Business Day, either Party may, by delivery of written notice to the other Party, terminate this Agreement, whereupon this Agreement shall terminate and be of no further force and effect, and neither Party shall have any further rights or obligations hereunder. ARTICLE 13 DEFINITIONS AGREEMENT means this Asset Purchase Agreement dated as of the Effective Date by and between Seller and Buyer. ASSETS has the meaning given in Section 1.2.4. ASSIGNMENT OF INTELLECTUAL PROPERTY has the meaning given in Section 7.2.3. BILL OF SALE has the meaning given in Section 7.2.1. BUSINESS DAY shall have the meaning provided in the Hotel Assets Purchase Agreement. BUSINESS RECORDS means, collectively, those items of Personal Property, including all documents, records and data, including computerized records, maintained by Seller (or other third parties at Seller's direction or under Seller's control), in regard to the existence, use, ownership, occupancy, operation, marketing and/or maintenance of the Assets, or the operation of Seller's hotel management business, including, without limitation, all books of account, tax returns, purchase records, sales and invoice records, correspondence, equipment maintenance data, operating manuals, employee and personnel files, inventory records, sales and promotional data, customer lists, cost and pricing information, supplier lists, business plans, advertising materials, warranties and guaranties of any nature, stationery and other imprinted materials, office supplies, training manuals, materials, correspondence, all computer programs and data files, reference catalogs and all other records, data, documents and information maintained in connection with the existence, -23- 25 use, ownership, occupancy, operation and/or maintenance of the Assets or the operation of Seller's hotel management business. BUYER means SLT Realty Limited Partnership, a Delaware limited partnership. CLOSING DATE/CLOSING has the meaning given in Section 7.1. CODE means the Internal Revenue Code of 1986, as the same may be amended from time to time, and as interpreted in Treasury Regulations adopted or promulgated thereunder. CONSENTS has the meaning given in Section 4.1.3. EFFECTIVE DATE means the latest date of execution of this Agreement by the Parties as set forth opposite each Party's signature. HODV means Hotels of Distinction Ventures, Inc., a Delaware corporation. HOTEL/HOTELS means the Hotels identified on Schedule A annexed hereto and made a part hereof. HOTEL ASSETS BUYER means the buyer under the Hotel Assets Purchase Agreement. HOTEL ASSETS PURCHASE AGREEMENT means that certain Asset Purchase Agreement of even date herewith between Hotel Assets Sellers, as seller, and Hotel Assets Buyer, as buyer, with respect to the Hotels. HOTEL ASSETS SELLERS means, collectively, the sellers under the Hotel Assets Purchase Agreement. HOTEL OWNERS means the owners of the Hotels. INTELLECTUAL PROPERTY has the meaning given in Section 1.2.3. MANAGEMENT AGREEMENTS means those certain management agreements set forth on Schedule B annexed hereto and made a part hereof. MARKET BYTE has the meaning given in Section 1.2.1. MISCELLANEOUS TAXES has the meaning given in Section 5.1.8(ii). NON-COMPETITION AGREEMENT means the Non-Competition Agreement in the form set forth on Exhibit D annexed hereto and made a part hereof. OPERATING PARTNERSHIP shall mean SLC Operating Limited Partnership, a Delaware limited partnership. -24- 26 PARTY/PARTIES means, individually, Seller or Buyer, and collectively, Seller and Buyer. PERSON means a natural person, partnership, limited partnership, corporation, trust, estate, association, unincorporated association or other entity. PERSONAL PROPERTY means, collectively, all tangible personal property of owned by Seller as identified on Schedule 1.2.1. POSTPONED CLOSING DATE has the meaning given in Section 4.3. PURCHASE PRICE has the meaning given in Section 2.1. SELLER means Hotels of Distinction, Inc., a Florida corporation. SELLER'S ACTUAL KNOWLEDGE means the actual current knowledge of any of the following: Alan Tremain, William H. Lanting, Jean- Claude Mathot, Cindy Niebur and the general managers of each of the Hotels. SELLER'S PRINCIPALS means Alan Tremain and Jean-Claude Mathot. TERMINATION AGREEMENTS the meaning given in Section 1.2.2. -25- 27 IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the Effective Date. SELLER: HOTELS OF DISTINCTION, INC. Dated: March __, 1996 By:___________________________ Alan Tremain, Chairman of the Board hereunto duly authorized BUYER: SLT REALTY LIMITED PARTNERSHIP By: STARWOOD LODGING TRUST, General Partner Dated: March __, 1996 By:_______________________ Name: Title: hereunto duly authorized The undersigned have executed this Agreement for the purpose of agreeing to execute, at or before the Closing Date, the Non- Competition Agreements. __________________________ Alan Tremian __________________________ Jean-Claude Mathot -26- 28 Broker has executed this Agreement solely for the purpose of evidencing Broker's agreement to and acceptance of the provisions of Section 4.1.9 and to confirm to Buyer that in no event whatsoever shall Buyer be liable to pay any commission, fee or other compensation to Broker, regardless of whether or not the transactions contemplated herein or in the Hotel Assets Purchase Agreement close. BROKER: HOD Realty, Inc. By:_____________________________ Name: Title: hereunto duly authorized -27- EX-10.8 9 ASSET PURCHASE AGREEMENT WITH SLT RLP & SLC OLP 1 ASSET PURCHASE AGREEMENT BY AND BETWEEN HOTELS OF DISTINCTION VENTURES, INC. AND THE SUBSIDIARY ENTITIES DESCRIBED HEREIN, COLLECTIVELY, AS SELLER AND SLT REALTY LIMITED PARTNERSHIP AND SLC OPERATING LIMITED PARTNERSHIP, COLLECTIVELY, AS BUYER 2
TABLE OF CONTENTS Page ---- PRELIMINARY STATEMENT...........................................................................................-1- ARTICLE 1 DEFINITIONS/PURCHASE AND SALE OF ASSETS...................................-3- 1.1 Definitions......................................................................................-3- 1.2 Purchase and Sale of Assets......................................................................-3- 1.2.1 Real Properties.......................................................................-3- 1.2.2 Real Property Leases..................................................................-3- 1.2.3 Improvements..........................................................................-3- 1.2.4 Personal Property.....................................................................-3- 1.2.5 Personal Property Leases..............................................................-5- 1.2.6 Prepaid Accounts......................................................................-5- 1.2.7 Spaces Leases/Rents/Hotel Deposits....................................................-5- 1.2.8 Contracts.............................................................................-6- 1.2.9 Permits/Liquor License................................................................-6- 1.2.10 Intellectual Property Rights.........................................................-7- 1.2.11 Franchise Agreements.................................................................-7- 1.3 Excluded Assets..................................................................................-7- ARTICLE 2 PURCHASE PRICE/ESCROW AGENT.........................................-8- 2.1 Purchase Price...................................................................................-8- 2.1.1 Aggregate Purchase Price...............................................................-8- 2.1.2 Allocation of Purchase Price...........................................................-8- 2.2 Terms of Payment..................................................................................-8- 2.2.1 Initial Deposit........................................................................-8- 2.2.2 Additional Deposit.....................................................................-8- 2.2.3 Balance of Purchase Price..............................................................-9- 2.2.4 Assumption of Existing IDA Debt........................................................-9- 2.3 Escrow Agent/Instructions.....................................................................-9- 2.3.1 Interest-Bearing Account...............................................................-9- 2.3.2 Delivery Upon Closing of Sale..........................................................-9- 2.3.3 Termination of Agreement...............................................................-9- 2.3.4 Duties of Escrow Agent.................................................................-9- 2.3.5 Disputes as to Disposition of the Deposit.............................................-10- 2.3.6 Execution of This Agreement...........................................................-11- 2.3.7 Right to Represent Sellers............................................................-11-
-2- 3 2.3.8 Procedure to Release Deposit Upon Default.............................................-11- ARTICLE 3 BUYER'S DUE DILIGENCE...........................................-12- 3.1 Inspection Period...............................................................................-12- 3.1.1 Title Commitment......................................................................-12- 3.1.2 Survey................................................................................-12- 3.1.3 Buyer's Title Objections..............................................................-13- 3.1.4 Future Encumbrances...................................................................-14- 3.2 Buyer's Discretionary Termination...............................................................-14- 3.2.1 Buyer's Absolute Right to Terminate This Agreement...........................................................................-14- 3.2.2 Major Deficiencies....................................................................-15- ARTICLE 4 CONDITION OF THE ASSETS..........................................-16- 4.1 Condition of the Assets; No Warranty; Buyer's Assumption of Risk...........................................................................-16- 4.1.1 Physical Condition of the Assets.....................................................-16- 4.1.2 Development Potential of the Assets..................................................-16- 4.1.3 Legal Compliance of Assets...........................................................-17- 4.1.4 Matters Disclosed in the Scheduled Documents...........................................................................-17- 4.1.5 Insurance............................................................................-17- 4.1.6 Condition of Title...................................................................-17- 4.2 No Warranty or Representation...................................................................-17- ARTICLE 5 REPRESENTATIONS AND WARRANTIES.......................................-19- 5.1 Sellers' Representations and Warranties..........................................................-19- 5.1.1 Good Standing.........................................................................-19- 5.1.2 Due Authority.........................................................................-19- 5.1.3 Consents..............................................................................-19- 5.1.4 No Default............................................................................-19- 5.1.5 Litigation............................................................................-20- 5.1.6 Real Property/Improvements............................................................-20- 5.1.7 Real Property Leases..................................................................-20- 5.1.8 Personal Property.....................................................................-21- 5.1.9 Personal Property Leases..............................................................-21- 5.1.10 Space Leases.........................................................................-22- 5.1.11 Contracts............................................................................-23- 5.1.12 Permits..............................................................................-23-
-3- 4 5.1.13 Liquor Licenses......................................................................-24- 5.1.14 Intellectual Property................................................................-24- 5.1.15 Franchise Agreements.................................................................-24- 5.1.16 Property Taxes.......................................................................-25- 5.1.17 Miscellaneous Taxes..................................................................-25- 5.1.18 Tax Returns..........................................................................-26- 5.1.19 Non-Compliance With Law..............................................................-26- 5.1.20 Hotel Employees/Collective Bargaining Agreements..........................................................................-27- 5.1.22 Sellers' Environmental Representations...............................................-31- 5.1.23 Eminent Domain Taking................................................................-33- 5.1.24 Brokers, Finders, Etc................................................................-33- 5.1.25 Construction and Renovation Work; Payment for Services........................................................................-33- 5.1.26 Insurance............................................................................-34- 5.1.27 FIRPTA...............................................................................-34- 5.1.28 Prepaid Fees and Deposits............................................................-34- 5.1.29 Trade Associations...................................................................-34- 5.1.30 Billboards/Signs.....................................................................-34- 5.1.31 Sellers' Financial Statements; Operating Statements..........................................................................-34- 5.1.32 Physical Condition of the Assets.....................................................-35- 5.1.33 Existing IDA Debt....................................................................-35- 5.1.34 No Competing Ventures................................................................-35- 5.1.35 Rate Agreements......................................................................-35- 5.1.36 Material Facts.......................................................................-36- 5.2 Buyer's Representations and Warranties...........................................................-36- 5.2.1 Good Standing; Due Authorization.....................................................-36- 5.2.2 Material Facts........................................................................-37- 5.3 Survival of Representations and Warranties.......................................................-37- 5.4 Indemnification..................................................................................-37- 5.4.1 Sellers' Indemnification of Buyer.....................................................-37- 5.4.2 Buyer's Indemnification of Sellers....................................................-38- 5.4.3 Procedure for Claims under Indemnity Provisions..........................................................................-38- 5.4.4 Limitations on Indemnity Claims.......................................................-39- 5.4.5 No Limitation on Claims for Fraud.....................................................-40- 5.5 Disputes to be Resolved Through Expedited Arbitration..................................................................................-40- 5.6 No Distributions or Liquidations by Sellers..................................................-42- ARTICLE 6 ELIMINATED HOTELS.............................................-42-
-4- 5 6.1 Eliminated Hotels................................................................................-42- 6.2 Sellers' Obligation to Close Conditional on Minimum Number of Hotels.....................................................................-43- 6.2.1 Right to Terminate This Agreement.....................................................-43- 6.2.2 Sellers' Additional Termination Right.................................................-43- ARTICLE 7 COVENANTS OF THE PARTIES UNTIL CLOSING...................................-44- 7.1 Covenants of the Parties Until the Closing......................................................-44- 7.1.1 Operation of the Hotels...............................................................-44- 7.1.2 Franchise Agreements..................................................................-46- 7.1.3 Existing IDA Debt.....................................................................-46- 7.1.4 Repairs, Maintenance and Capital Improvements........................................................................-47- 7.1.5 Insurance.............................................................................-47- 7.1.6 Due Diligence Activities..............................................................-47- 7.1.7 No Breach of Representations and Warranties ...................................................................................-48- 7.1.8 Notice of Breach of Representations and Warranties..........................................................................-48- 7.1.9 No Liens; No New Agreements...........................................................-48- 7.1.10 Compliance with Law..................................................................-48- 7.1.11 Taxes................................................................................-48- 7.1.12 Permits..............................................................................-49- 7.1.13 Consents; Estoppel Certificates......................................................-50- 7.1.14 Hart-Scott-Rodino....................................................................-50- 7.1.15 Miscellaneous Taxes..................................................................-51- 7.1.16 Bulk Sales...........................................................................-51- 7.1.17 Notification Under Collective Bargaining Agreements..........................................................................-51- 7.1.18 Employment Matters on the Closing Date...............................................-51- 7.1.19 Sellers' "Tail" Liability Insurance Policy ...................................................................................-52- 7.1.20 Continued Health Coverage............................................................-52- ARTICLE 8 CASUALTY LOSS/CONDEMNATION.........................................-52- 8.1 Risk of Loss....................................................................................-52- 8.2 Casualty Loss...................................................................................-52- 8.3 Non-Substantial Casualty........................................................................-53- 8.4 Substantial Casualty............................................................................-53- 8.5 Condemnation....................................................................................-54-
-5- 6 8.6 Non-Substantial Condemnation....................................................................-54- 8.7 Substantial Condemnation........................................................................-54- ARTICLE 9 CONDITIONS TO CLOSING...........................................-55- 9.1 Buyer's Conditions to Closing....................................................................-55- 9.1.1 Status of Title; Delivery of Required Documents...........................................................................-55- 9.1.2 Representations and Warranties........................................................-55- 9.1.3 Franchise Agreements..................................................................-55- 9.1.4 Existing IDA Debt.....................................................................-56- 9.1.5 Performance of Pre-Closing Covenants..................................................-56- 9.1.6 No Bankruptcy.........................................................................-56- 9.1.7 All Required Terminations Obtained....................................................-56- 9.1.8 Consummation of Closing Under Management Company Purchase Agreement..........................................................-56- 9.1.9 Dismissal of Hotel Employees..........................................................-57- 9.2 Sellers' Conditions to Closing...................................................................-57- 9.2.1 Representations and Warranties........................................................-57- 9.2.2 Assumption of Assumed Liabilities.....................................................-57- 9.2.3 Consummation of Closing Under Management Company Purchase Agreement..........................................................-57- 9.2.4 Performance of Pre-Closing Covenants..................................................-57- ARTICLE 10 CLOSING..................................................-57- 10.1 Closing........................................................................................-57- 10.2 Sellers' Closing Documents and Deliveries......................................................-58- 10.2.1 Deeds...............................................................................-58- 10.2.2 Bill of Sale........................................................................-58- 10.2.3 Assignment and Assumption of Space Leases ...................................................................................-58- 10.2.4 Assignment and Assumption of Contracts/Permits...................................................................-58- 10.2.5 Assignment and Assumption of Personal Property Leases.....................................................................-59- 10.2.6 Assignment and Assumption of Real Property Leases.....................................................................-59- 10.2.7 Assignment and Assumption of Intellectual Property............................................................................-59- 10.2.8 Motor Vehicles......................................................................-59- 10.2.9 Original Documents..................................................................-59-
-6- 7 10.2.10 Plans and Specifications............................................................-59- 10.2.11 Liquor Licenses and Permits.........................................................-59- 10.2.12 Warranties and Guarantees...........................................................-59- 10.2.13 Reservation Deposits................................................................-60- 10.2.14 Evidence of Due Authorization.......................................................-60- 10.2.15 Required Title Insurance Documents..................................................-60- 10.2.16 Certificates of Occupancy; Permits and Authorizations......................................................................-60- 10.2.17 Real Property Lease Estoppel Certificates ...................................................................................-60- 10.2.18 Consents............................................................................-61- 10.2.19 Space Lease Tenant Estoppel Certificates............................................-61- 10.2.20 Franchise Agreements................................................................-61- 10.2.21 FIRPTA Certification................................................................-61- 10.2.22 Existing IDA Debt Estoppel Certificate(s) ...................................................................................-61- 10.2.23 Keys................................................................................-61- 10.2.24 Good Standing Certificates..........................................................-61- 10.2.25 Business Records....................................................................-61- 10.2.26 Notices to Third Parties............................................................-61- 10.2.27 Sellers' "Tail" Liability Insurance Policy..............................................................................-62- 10.2.28 Schedule of Accrued Vacation Days...................................................-62- 10.2.29 Additional Documents................................................................-62- 10.3 Buyer's Closing Documents and Deliveries.......................................................-62- 10.3.1 Purchase Price.......................................................................-62- 10.3.2 Secretary's Certificate..............................................................-62- 10.3.3 Good Standing Certificates...........................................................-62- 10.3.4 Hart-Scott Legal Opinion.............................................................-62- 10.3.5 Additional Documents.................................................................-62- 10.4 Jointly Executed Documents......................................................................-63- 10.4.1 Release of Escrow Agent..............................................................-63- 10.4.2 Continued Sale of Alcoholic Beverages................................................-63- 10.4.3 Collective Bargaining Agreements.....................................................-63- 10.5 Transaction Costs...............................................................................-63- 10.5.1 Transfer Taxes; Sales and Use Taxes..................................................-63- 10.5.2 Recording Charges and Fees...........................................................-63- 10.5.3 Title Insurance and Survey Charges...................................................-63- 10.5.4 Indemnity............................................................................-64- 10.5.5 Survival.............................................................................-64- 10.6 Buyer's Closing Costs...........................................................................-64- 10.6.1 Buyer's Attorneys' Fees..............................................................-64- 10.6.2 Buyer's Due Diligence Costs..........................................................-64- 10.6.3 Buyer's Pro Rata Share...............................................................-64-
-7- 8 10.6.4 Buyer's Miscellaneous Costs..........................................................-64- 10.7 Sellers' Closing Costs..........................................................................-64- 10.7.1 Sellers' Attorneys' Fees.............................................................-64- 10.7.2 Sellers' Pro Rata Share..............................................................-64- 10.7.3 Sellers' Miscellaneous Closing Costs.................................................-64- 10.8 Multiple Closings...............................................................................-64- ARTICLE 11 PRORATIONS/ADJUSTMENTS...........................................-65- 11.1 Costs and Prorations............................................................................-65- 11.1.1 Property Taxes.......................................................................-65- 11.1.2 Water Charges........................................................................-65- 11.1.3 Utilities............................................................................-65- 11.1.4 Transferable Permits.................................................................-65- 11.1.5 Contracts, Real Property Leases, Personal Property Leases and Franchise Agreements............................................-65- 11.1.6 Room Charges; Other Guest Charges....................................................-65- 11.1.7 Association Dues.....................................................................-66- 11.1.8 Travel Agents' Commissions...........................................................-66- 11.1.9 Wages, Salaries, etc.................................................................-66- 11.1.10 Space Leases........................................................................-66- 11.1.11 Consumables.........................................................................-66- 11.1.12 Existing IDA Debt...................................................................-66- 11.1.13 Insurance...........................................................................-66- 11.1.14 Prepaid Accounts....................................................................-66- 11.1.15 Laundry and Vending Machines........................................................-66- 11.2 Property Tax Apportionment......................................................................-67- 11.3 Water Meters....................................................................................-67- 11.4 Utilities.......................................................................................-67- 11.5 Room Rental Revenue/Other Revenue...............................................................-68- 11.6 Wages, Salaries, etc............................................................................-68- 11.7 Space Leases....................................................................................-69- 11.8 Accounts Receivable and Payable, Mutual Indemnities..................................................................................-70- 11.8.1 Accounts Receivable..................................................................-70- 11.8.2 Collection of Accounts Receivable....................................................-70- 11.8.3 Sellers' Indemnity...................................................................-70- 11.8.4 Buyer's Indemnity....................................................................-71- 11.8.5 Survival.............................................................................-71- 11.9 Apportionment of Reservation Deposits...........................................................-71- 11.9.1 Reservation Deposits.................................................................-71- 11.9.2 Indemnity............................................................................-71- 11.9.3 Survival.............................................................................-72-
-8- 9 11.10 Post-Closing Reconciliation; Resolutions of Disputes; Final Reconciliation...............................................................-72- 11.10.1 Post-Closing Reconciliation.........................................................-72- 11.10.2 Resolutions of Disputes as to Apportionments......................................................................-72- 11.10.3 Final Reconciliation................................................................-72- 11.10.4 No Distributions or Liquidations....................................................-73- 11.11 Safes and Baggage..............................................................................-73- 11.11.1 Safe Deposit Boxes..................................................................-73- 11.11.2 Inventory of Guest Property.........................................................-74- 11.12 Collection Period..............................................................................-74- ARTICLE 12 BROKER'S COMMISSION............................................-74- 12.1 Commission......................................................................................-74- 12.2 Indemnity.......................................................................................-74- 12.3 Release of Buyer................................................................................-75- 12.4 Survival........................................................................................-75- ARTICLE 13 POST-CLOSING COVENANTS...........................................-75- 13.1 Post-Closing Covenants..........................................................................-75- 13.1.1 Permits..............................................................................-75- 13.1.2 Business Records.....................................................................-75- 13.1.3 Tax Filings..........................................................................-75- 13.1.4 Guarantees and Warranties............................................................-75- 13.1.5 Intellectual Property................................................................-76- 13.1.6 Liquor Licenses......................................................................-76- 13.1.7 Sales, Use and/or Hotel/Motel Licenses...............................................-76- 13.1.8 Names Following the Closing..........................................................-76- ARTICLE 14 NOTICES..................................................-76- 14.1 Notices.........................................................................................-76- ARTICLE 15 DEFAULT/REMEDIES..............................................-77- 15.1 Buyer's Default.................................................................................-77- 15.2 Sellers' Default................................................................................-78- 15.3 Attorneys' Fees.................................................................................-78-
-9- 10 15.4 No Waiver.......................................................................................-78- ARTICLE 16 MISCELLANEOUS...............................................-78- 16.1 Entire Agreement...............................................................................-78- 16.2 Saturday, Sunday, and Legal Holidays; Times....................................................-78- 16.3 Presumption Concerning Interpretation and Construction.................................................................................-79- 16.4 Assignment.....................................................................................-79- 16.5 Articles/Section Headings......................................................................-79- 16.6 Non-Recordation................................................................................-79- 16.7 Waivers; Modifications.........................................................................-79- 16.8 Governing Law; Venue...........................................................................-79- 16.9 Due Authority..................................................................................-80- 16.10 Further Assurances.............................................................................-80- 16.11 Sections, Exhibits and Schedules...............................................................-80- 16.12 Expenses.......................................................................................-81- 16.13 Relationship of Parties........................................................................-81- 16.14 Number of Gender of Words......................................................................-81- 16.15 Counterparts...................................................................................-81- 16.16 Termination; Confidentiality...................................................................-81- 16.17 Publicity......................................................................................-81- 16.18 Exculpation of Trustees of Starwood Lodging Trust........................................................................................-81- 16.19 Exculpation of Trustees of H.O.D. Allentown Trust........................................................................................-82- 16.20 Joint and Several Liability....................................................................-82- 16.21 Allocation of Assets...........................................................................-82- 16.22 Delivery of Schedules and Exhibits.............................................................-82- 16.23 Return of Asset Documents Upon Termination.....................................................-83- ARTICLE 17 DEFINITIONS....................................................................................................-83-
-10- 11 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") made as of the latest date of execution hereof (the "EFFECTIVE DATE") by and between H.O.D. ALLENTOWN TRUST, a Pennsylvania Trust; H.O.D. ALLENTOWN I CORP., a Delaware corporation; H.O.D. ALLENTOWN II CORP, a Delaware corporation; ALLENTOWN HOTEL VENTURES, INC., a Delaware corporation; MINNEAPOLIS HOTEL VENTURES, INC., a Minnesota corporation; PALM DESERT HOTEL VENTURES, INC., a California corporation; HOTELS OF DISTINCTION SOUTHWEST, INC., a California corporation; WINSTON-SALEM HOTEL VENTURES, INC., a Delaware corporation; ATLANTA HOTEL VENTURES, INC., a Delaware corporation; NEEDHAM HOTEL VENTURES L.P., a Delaware limited partnership; NEEDHAM HOTEL VENTURES, INC., a Delaware corporation; NEEDHAM HOTEL VENTURES II, INC., a Delaware corporation; TUCSON HOTEL VENTURES, INC., a Delaware corporation; ST. LOUIS HOTEL VENTURES, INC., a Delaware corporation; ARLINGTON HEIGHTS HOTEL VENTURES, INC., a Delaware corporation (collectively the "SUBSIDIARY ENTITIES"), and HOTELS OF DISTINCTION VENTURES, INC., a Delaware corporation ("HOD VENTURES"), each Subsidiary Entity and HOD Ventures, having a place of business at 380 South County Road, Palm Beach, FL 33480, collectively, as Sellers, and SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership, with its principal place of business at c/o Starwood Lodging Trust, 11835 West Olympic Boulevard, Suite 695, Los Angeles, California 90064 ("REALTY PARTNERSHIP"), and SLC OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership, with its principal place of business at c/o Starwood Lodging Corporation, 11835 West Olympic Boulevard, Suite 675, Los Angeles, California 90064 ("OPERATING PARTNERSHIP"). Realty Partnership and Operating Partnership are sometimes collectively referred to as "BUYER", and HOD Ventures and Subsidiary Entities are sometimes collectively referred to as the "SELLERS". Sellers and Buyer are sometimes collectively referred to as the "PARTIES" or individually as a "PARTY". PRELIMINARY STATEMENT A. HOD Ventures is the sole shareholder of all outstanding shares of capital stock, or owner of all the beneficial interest, as the case may be, of each Subsidiary Entity (other than Hotels of Distinction Southwest, Inc.). Palm Desert Hotel Ventures, -1- 12 Inc. is the sole shareholder of all outstanding shares of capital stock of Hotels of Distinction Southwest, Inc. B. The Subsidiary Entities own hotel properties situated on the Real Properties (together with the other Assets used in connection with the ownership, operation or maintenance of such hotel properties, collectively the "HOTELS" and individually a "HOTEL") each being known and numbered as follows: 1. Allentown Hilton ("ALLENTOWN HILTON") 904 Hamilton Mall Allentown, PA 18101 2. Minneapolis Hilton ("MINNEAPOLIS HILTON") 1330 Industrial Boulevard Minneapolis, MN 55413 3. Palm Desert Embassy Suites ("PALM DESERT") 74-700 U.S. Highway 111 Palm Desert, CA 92260 4. The Radisson Marque of Winston-Salem ("MARQUE OF WINSTON-SALEM") 460 North Cherry Street Winston-Salem, NC 27101 5. Sheraton Needham ("SHERATON NEEDHAM") 100 Cabot Street Needham, MA 02194 6. The Marque of Atlanta ("MARQUE OF ATLANTA") 111 Perimeter Center West Atlanta, GA 30346 7. St. Louis Embassy Suites ("ST. LOUIS SUITES") 901 North First Street St. Louis, MO 63102 8. Hotel Park Tucson ("PARK TUCSON") 5151 East Grant Road Tucson, AZ 85172 9. Arlington Park Hilton ("ARLINGTON HILTON") 3400 West Euclid Avenue -2- 13 Arlington Heights, IL 60005 C. Sellers desire to sell, assign, and transfer to Buyer, and Buyer desires to purchase and acquire all of Sellers' right, title and interest in and to the Assets for an aggregate Purchase Price of $134,000,000.00, subject to the terms and conditions set forth in this Agreement. D. The Parties acknowledge that Realty Partnership has simultaneously entered into an Asset Purchase Agreement (the "MANAGEMENT COMPANY ASSET PURCHASE AGREEMENT") with Hotels of Distinction, Inc., a Florida corporation (the "MANAGEMENT COMPANY"). The Management Company manages each of the Hotels. The Management Company Asset Purchase Agreement is attached hereto as Exhibit 1. E. Sellers acknowledge that Sellers have received complete disclosure regarding the agreement (the "LANTING AGREEMENT") that Buyer intends to enter into with William H. Lanting, pursuant to which Mr. Lanting will provide consulting services to Buyer (or one (1) of Buyer's affiliates) after the Closing. Buyer shall provide a copy of the Lanting Agreement to Sellers upon Sellers' request therefor. ARTICLE 1 DEFINITIONS/PURCHASE AND SALE OF ASSETS 1.1 DEFINITIONS. The capitalized terms in this Agreement shall have the meanings set forth in Article 17. 1.2 PURCHASE AND SALE OF ASSETS. Pursuant to the provisions of this Agreement, at Closing, Sellers shall sell, transfer, grant, assign, deliver and convey to Buyer, and Buyer shall purchase, acquire, accept and assume from Sellers, all right, title and interest of Sellers in and to the following: 1.2.1 REAL PROPERTIES. The parcels of real property described on Schedule 1.2.1, together with all right, title and interest of Sellers in and to any and all (i) strips or gores, roads, easements, rights of way, appurtenances, covenants, streets, and ways bordering upon such real property, and rights of ingress and egress thereto, (ii) land within the right-of-way -3- 14 of any street, road, avenue, open or proposed, public or private, in front of or adjacent to the above-described real property or any portion thereof, (iii) unpaid awards for damage to the Assets or any portion thereof by reason of a change of grade of any highway, street, road or avenue, and (iv) oil, gas and mineral rights appurtenant to the above-described real property (collectively the "REAL PROPERTIES"); 1.2.2 REAL PROPERTY LEASES. All of the rights and incidents of interest of Sellers in and to leases of real property (or rights to parking spaces, as the case may be) used in connection with the ownership, use or maintenance of the Assets, all as more particularly identified on Schedule 1.2.2 (collectively the "REAL PROPERTY LEASES"); 1.2.3 IMPROVEMENTS. All improvements situated upon the Real Properties including, without limitation, those certain buildings, structures, fixtures, and other improvements of every kind and nature presently situated on, in, under or hereafter erected, installed or used in or about the Real Properties in connection with each Hotel, all as more particularly identified on Schedule 1.2.3 (collectively the "IMPROVEMENTS"); 1.2.4 PERSONAL PROPERTY. All tangible personal property set forth on Schedule 1.2.4 and all other tangible personal property of every kind and nature owned by Sellers as of the date hereof (and all replacements thereof purchased prior to the Closing Date), located in or upon the Hotels, and used in connection with the existence, use, ownership, occupancy, operation and/or maintenance of the Assets (except as specifically set forth herein, excluding cash, checks, charge slips and other negotiable instruments), including, without limitation: (a) the Motor Vehicles; and (b) all office equipment, furniture, fixtures and furnishings including, without limitation, all carpeting, movable partitions, desks, chairs, sofas, filing cabinets and systems, tables, lamps and lighting fixtures, artwork and objects, computers, printers, typewriters, telexes, telefax equipment, two-way radio and paging-music systems, stationery, office supplies, brochures and Business Records; and -4- 15 (c) all operating machinery and equipment, whether or not affixed to the Hotels or Real Properties, including, without limitation, all electrical vaults and conduits, heating and air conditioning facilities and equipment (including heat pumps, oil burners, incinerators, furnaces and other fuel-burning devices), air intake and exhaust systems, electrical generators, lighting and alarm systems, elevators and compressor systems, laundry and dry-cleaning facilities, all plumbing and sanitary disposal systems (including septic or leaching systems, if any), swimming pool and spa supplies, equipment and materials, all inventories of replacement and/or spare parts, all maintenance, equipment, tools and machinery, and all manuals and instructional materials associated therewith; and (d) all telephone and telecommunication and wired cable systems and equipment including, without limitation, all telephones, television and radio receivers, loud speaker and paging systems, satellite and microwave communication equipment, movie videotape, film, slide and rear-screen projection equipment; and (e) all case goods for the Hotel rooms, suites, function and common areas and all furniture, fixtures, furnishings and equipment, including, without limitation, all beds, bedding, tables, chairs, sofas, lamps and lighting equipment, desks, artwork and objects, carpeting, mirrors, armoires, linens, blankets, plants, all other operational and guest supplies, wherever located, and all inventories of replacement items; and (f) all restaurant and kitchen furniture, fixtures, furnishings, and equipment, whether or not affixed to the Hotels or Real Properties, including, without limitation, all tables, chairs, banquettes, stools, bars, lighting fixtures, bar equipment, china, glassware, linens, silverware, artwork and objects, kitchen appliances, refrigerators, freezers, stoves, grills, microwave ovens, dishwashing equipment and all kitchen and food preparation equipment and utensils; and (g) all inventories and supplies of food and alcoholic beverages in unopened cases and bottles and all supplies and replacement items arising out of or in connection with the -5- 16 existence, use, ownership, occupancy, operation and/or maintenance of the Assets, including cleaning and maintenance equipment of any kind or nature, but excluding those items which are owned by Tenants or the Management Company (collectively the "PERSONAL PROPERTY"); 1.2.5 PERSONAL PROPERTY LEASES. All of the rights and incidents of interest of Sellers in and to leases of Personal Property used in connection with the ownership, use or maintenance of the Assets, all as more particularly identified on Schedule 1.2.5 (collectively the "PERSONAL PROPERTY LEASES"); provided, however, that Buyer, by written notice to Sellers may elect to exclude any one (1) or more Personal Property Leases from the Personal Property Leases to be assigned to Buyer if and to the extent that (i) such Personal Property Leases are terminable at will by the applicable Seller and (ii) Buyer notifies Sellers and directs Sellers to terminate such Personal Property Leases in a sufficient time in advance of the Closing Date as will allow Sellers at least five (5) days more than the required notice period under such Personal Property Lease to terminate such Personal Property Lease effective on or prior to the Closing Date; 1.2.6 PREPAID ACCOUNTS. All reservations, deposits, advance payments, security deposits and prepaid items and other amounts, deposits or credits paid to or received by Sellers or the Hotels prior to Closing to the extent same are attributable to periods subsequent to the Closing (collectively the "PREPAID ACCOUNTS"); 1.2.7 SPACES LEASES/RENTS/HOTEL DEPOSITS. All of the rights and incidents of interest of Sellers in and to (i) leases and other agreements, whether written or oral, demising space in or providing for the use or occupancy of all or any portion of the Real Properties or the Improvements and all guaranties thereof (the "SPACE LEASES"), (ii) rents, if any, actually received by Sellers which are allocable to any period of time after the Closing Date (the "RENTS"), and (iii) security, damage, and other deposits (the "HOTEL DEPOSITS"), if any, actually received by Sellers from existing tenants under the Space Leases ("TENANTS"), to the extent the Hotel Deposits are refundable to Tenants after the Closing Date and are not, in accordance with the terms of such Space Leases, offset, charged against, or -6- 17 refunded to Tenants prior to the Closing Date, all as more particularly identified on Schedule 1.2.7; 1.2.8 CONTRACTS. All of the rights and incidents of interest of Sellers in and to (i) contracts and/or agreements, including, without limitation, the Collective Bargaining Agreements, maintenance, service, supply, purchase orders, work orders, and utility service contracts, but expressly excluding (except as otherwise expressly agreed herein) contracts of insurance, employment agreements, the Management Agreements, the Franchise Agreements, all ERISA Benefit Plans, Prior Pension Plans and Non-ERISA Commitments (irrespective of whether such ERISA Benefit Plans, Prior Pension Plans and Non-ERISA Commitments are maintained, sponsored, contributed to or otherwise provided pursuant to a Collective Bargaining Agreement), (ii) contracts and leases for off-premises signs and billboards advertising one (1) or more of the Hotels, (iii) warranties, indemnities and guaranties thereunder, and (iv) telephone numbers and directory listings of or relating to the Hotels, all as more particularly identified on Schedule 1.2.8 (collectively the "CONTRACTS"); provided, however, that Buyer, by written notice to Sellers may elect to exclude any one (1) or more Contracts from the Contracts to be assigned to Buyer if and to the extent that (x) such Contracts are terminable at will by the applicable Seller and (y) Buyer notifies Sellers and directs Sellers to terminate such Contracts in sufficient time in advance of the Closing Date as will allow Sellers at least five (5) days more than the required notice period under such Contract to terminate such Contract effective on or prior to the Closing Date; and provided, further, that any obligations under the Collective Bargaining Agreements to maintain, sponsor, contribute to, or provide, benefits of the types described in Section 5.1.21(a), Section 5.1.21(b) or Section 7.1.18(ii) shall not be assumed by, or assigned or transferred to, Buyer except with respect to periods of employment beginning after the Closing Date with respect to persons employed by Buyer after the Closing Date and any such obligations for which Buyer shall have any liability shall be satisfied by Buyer. 1.2.9 PERMITS/LIQUOR LICENSE. To the extent assignable, all alcoholic beverage licenses (the "LIQUOR LICENSES") and all other licenses, permits, authorizations, consents, and approvals (collectively the "PERMITS") in effect as of the date hereof (together with any renewals thereof issued -7- 18 prior to the Closing Date) and issued to Sellers or Management Company with respect to the use or operation of the Assets, all as more particularly identified on Schedule 1.2.9. 1.2.10 INTELLECTUAL PROPERTY RIGHTS. All trademarks, service marks, logos, designs, brand names, phrases and other identifications, including, without limitation, the registrations, applications and material common law marks listed on Schedule 1.2.10 (collectively the "INTELLECTUAL PROPERTY"); 1.2.11 FRANCHISE AGREEMENTS. All of the rights and incidents of interest of Sellers in and to the franchise agreements entered into between Sellers and any Person (a "FRANCHISOR") with respect to the Hotels, all as more particularly identified on Schedule 1.2.11 (collectively the "FRANCHISE AGREEMENTS"). The Real Properties, Real Property Leases, Improvements, Personal Property, Personal Property Leases, Prepaid Accounts, Space Leases, Rents, Hotel Deposits, Contracts, Permits, Liquor Licenses, Intellectual Property and Franchise Agreements are hereinafter referred to collectively as the "ASSETS". 1.3 EXCLUDED ASSETS. Notwithstanding any other provisions of this Agreement to the contrary, the following properties, rights and interests are excluded from the Assets and will be expressly excluded from the Conveyance Documents (i) tax deposits, utility deposits and other deposits, except for any transferable deposits assigned to Buyer, for which Sellers are to be reimbursed as provided herein and except for the Prepaid Accounts, (ii) all cash and uncollected credit card charges relating to the period prior to the Closing Date and all cash reserves for furniture, fixtures, equipment, or for any other purposes, whether maintained on or off the Real Properties, by or on behalf of Sellers with respect to the Assets, (iii) all receivables due to Sellers on the Closing Date relating to the period prior to the Closing Date, (iv) prepaid expenses; (v) inventory, equipment and other property owned by Tenants and (vi) those certain assets being sold, conveyed, transferred and assigned to Realty Partnership pursuant to the Management Company Asset Purchase Agreement including, without limitation, the management agreements (the "MANAGEMENT AGREEMENTS") and intellectual property rights described therein (collectively the "EXCLUDED ASSETS"). -8- 19 ARTICLE 2 PURCHASE PRICE/ESCROW AGENT 2.1 PURCHASE PRICE. 2.1.1 AGGREGATE PURCHASE PRICE. Sellers agree to sell and Buyer agrees to purchase the Assets for ONE HUNDRED THIRTY FOUR MILLION ($134,000,000.00) DOLLARS (the "PURCHASE PRICE"), subject to the terms, conditions and adjustments set forth in this Agreement. 2.1.2 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated among the Hotels, and the Parties agree that the Purchase Price allocable to each Hotel (the "ALLOCATED PURCHASE PRICE") shall be further allocated between Personal Property and Real Property, Improvements and the other Assets relating to such applicable Hotel, as follows:
Real Allocated Property/ Personal Hotel Purchase Price Improvements Property ----- ------------ ------------ --------- 1. Allentown Hilton $ 7,500,000 $ 6,375,000 1,125,000 2. Minneapolis Hilton 18,000,000 15,300,000 2,700,000 3. Palm Desert Embassy 14,000,000 11,900,000 2,100,000 Suites 4. The Radisson Marque 7,500,000 6,375,000 1,125,000 of Winston-Salem 5. Sheraton Needham 20,000,000 17,000,000 3,000,000 6. Hotel Park Tucson 11,000,000 9,350,000 1,650,000 7. St. Louis Embassy 20,000,000 17,000,000 3,000,000 Suites 8. Arlington Park Hilton 13,000,000 11,050,000 1,950,000 9. The Marque of Atlanta 23,000,000 19,550,000 3,450,000 ============ $134,000,000
The Parties agree that this allocation has been arrived at by a process of arm's-length negotiations, including the Parties' best judgment as to the fair market value of each respective Asset, and the Parties specifically agree to the allocation as final and binding (as between the Parties) and will consistently reflect those allocations on their respective federal, state and local -9- 20 tax returns. The terms of this Section 2.1.2 shall survive the Closing in accordance with Section 5.3 hereof. 2.2 TERMS OF PAYMENT. The Purchase Price shall be paid as follows: 2.2.1 INITIAL DEPOSIT. Within three (3) Business Days after execution and delivery by the Parties of this Agreement, Buyer shall deposit in escrow with Escrow Agent an earnest money deposit in the amount of ONE MILLION ($1,000,000.00) DOLLARS (together with all interest thereon, the "INITIAL DEPOSIT"); 2.2.2 ADDITIONAL DEPOSIT. Unless Buyer shall have terminated this Agreement on or before expiration of the Inspection Period pursuant to Article 3, Buyer shall deposit with Escrow Agent on or before expiration of the Inspection Period the additional sum of ONE MILLION ($1,000,000.00) DOLLARS (together with all interest thereon, the "ADDITIONAL DEPOSIT"); and 2.2.3 BALANCE OF PURCHASE PRICE. Upon the consummation of the sale of the Assets, at Closing (i) the Initial Deposit and Additional Deposit (collectively the "DEPOSIT"), shall be paid to Sellers and shall be credited against the balance of the Purchase Price, and (ii) Buyer shall deliver to Sellers, as the balance of the Purchase Price, subject to the provisions of Section 2.2.4, the sum of ONE HUNDRED THIRTY-FOUR MILLION ($134,000,000.00) DOLLARS, less the amount delivered to Sellers pursuant to clause (i) above, by wire transfer of immediately available federal funds in New York, New York, actually received and unconditionally available for distribution to Sellers prior to 3:00 p.m. (New York time) on the Closing Date, as adjusted by all adjustments, offsets and prorations provided for in this Agreement. 2.2.4 ASSUMPTION OF EXISTING IDA DEBT. In the event that Buyer shall have elected pursuant to Section 7.1.3(i) hereof to purchase the Allentown Hilton subject to the Existing IDA Debt and to assume the Existing IDA Debt, the balance of the Purchase Price payable to Sellers pursuant to Section 2.2.3 hereof shall be reduced by an amount equal to the outstanding balance of the Existing IDA Debt as of the Closing Date. -10- 21 2.3 ESCROW AGENT/INSTRUCTIONS. All funds deposited with Escrow Agent pursuant hereto shall be held in escrow by Escrow Agent upon the following terms: 2.3.1 INTEREST-BEARING ACCOUNT. If the funds deposited are in the form of a check, Escrow Agent shall deposit such funds in its escrow account and shall invest the proceeds in such Permitted Investments as Buyer shall select. Escrow Agent shall keep such funds invested in Permitted Investments selected by Buyer for so long as Escrow Agent shall hold such funds in escrow. 2.3.2 DELIVERY UPON CLOSING OF SALE. If the Closing takes place, Escrow Agent shall deliver the Deposit to Sellers at the Closing. 2.3.3 TERMINATION OF AGREEMENT. If this Agreement is terminated solely by reason of the default of Buyer, the Escrow Agent shall pay the Deposit to Sellers as liquidated damages in accordance with Section 15.1 hereof. If this Agreement is terminated for any other reason, Escrow Agent shall pay the Deposit to Buyer. 2.3.4 DUTIES OF ESCROW AGENT. It is agreed that: (i) the duties of Escrow Agent are only as herein specifically provided, and are purely ministerial in nature, and Escrow Agent shall incur no liability whatever, except for its negligence or willful misconduct, as long as Escrow Agent has acted in good faith; (ii) Escrow Agent shall not be liable or responsible for the collection of the proceeds of any check delivered to Escrow Agent; (iii) in the performance of its duties hereunder, Escrow Agent shall be entitled to rely upon any document, instrument or signature reasonably believed by it to be genuine and purportedly signed by either of the other Parties or their successors or assigns; (iv) Escrow Agent may assume that any person purporting to give any notice or instructions in accordance -11- 22 with the provisions hereof has been duly authorized to do so; (v) Escrow Agent shall not be bound by any modification, cancellation or rescission of this Agreement unless in writing and signed by it, Sellers and Buyer; (vi) Sellers and Buyer shall jointly and severally reimburse and indemnify Escrow Agent for, and hold it harmless against, any and all loss, liability, costs or expenses in connection herewith, including reasonable attorneys' fees and disbursements, incurred by Escrow Agent in connection with its acceptance or performance of its duties and obligations under this Agreement, as well as the reasonable costs and expenses of defending against any claim or liability arising out of or relating to this Agreement; and (vii) Sellers and Buyer each hereby release Escrow Agent from any act done or omitted to be done by Escrow Agent in good faith in the performance of its duties hereunder. 2.3.5 DISPUTES AS TO DISPOSITION OF THE DEPOSIT. Escrow Agent is acting as a stakeholder only with respect to the Deposit. If there is any dispute as to whether Escrow Agent is obligated to deliver the Deposit or any part thereof or as to whom the Deposit, or any part thereof, is to be delivered, Escrow Agent shall not make any delivery, but in such event Escrow Agent shall hold the same until receipt by Escrow Agent of an authorization in writing, signed by all of the Parties having any interest in such dispute, directing the disposition of the Deposit, or in the absence of such authorization Escrow Agent shall hold the Deposit until the final determination of the rights of the Parties in an appropriate proceeding. If such written authorization is not given, or proceedings for such determination are not begun within thirty (30) days after the date set forth herein for the Closing (as the same may have been changed by agreement of the Parties) and diligently continued, Escrow Agent may, but is not required to, bring an appropriate action or proceeding for leave to deposit the Deposit in court pending such determination. Escrow Agent shall be reimbursed for all reasonable out-of-pocket costs and expenses of such action or proceeding including, without limitation, reasonable attorneys' -12- 23 fees and disbursements, by the Party determined not to be entitled to the Deposit, or if the Deposit is split between the Parties hereto, such costs of Escrow Agent shall be split, pro rata, between Sellers and Buyer, based upon the portion of the Deposit received by each. Upon making delivery of the Deposit in the manner provided for in this Agreement, Escrow Agent shall have no further liability hereunder. 2.3.6 EXECUTION OF THIS AGREEMENT. Escrow Agent has executed this Agreement solely to confirm that Escrow Agent has received the Initial Deposit (subject to collection, if in the form of a check) and will hold the Initial Deposit and the Additional Deposit, if same is delivered by Buyer pursuant to the terms hereof, in escrow, pursuant to the provisions of this Agreement. 2.3.7 RIGHT TO REPRESENT SELLERS. Escrow Agent shall have the right to represent Sellers in any dispute between Sellers and Buyer with respect to the Deposit or otherwise. 2.3.8 PROCEDURE TO RELEASE DEPOSIT UPON DEFAULT. Prior to the expiration of the Inspection Period, upon receipt by Escrow Agent of written notice from Buyer that Buyer has terminated this Agreement pursuant to Section 3.2.1 hereof, Escrow Agent shall promptly deliver to Buyer the Initial Deposit. From and after the expiration of the Inspection Period, upon receipt of any written notice by Escrow Agent from Sellers or Buyer demanding the release of the Deposit or any part thereof because of an alleged default hereunder, Escrow Agent shall promptly deliver a copy of such demand to the other Party. If Escrow Agent has not received a written notice of objection to such release within five (5) Business Days after the delivery (or deemed delivery) of the copy of the demand, Escrow Agent shall be entitled to release the Deposit or such portion thereof as demanded, including any interest accrued on such sum being released. If Escrow Agent has received a written notice of objection to such release within five (5) Business Days after the delivery (or deemed delivery) of the copy of the demand, then Escrow Agent shall follow the procedure set forth in Section 2.3.5 hereof with respect to a dispute as to Escrow Agent's obligation to deliver the Deposit. -13- 24 ARTICLE 3 BUYER'S DUE DILIGENCE 3.1 INSPECTION PERIOD. From the Effective Date until 5:00 p.m. on June 24, 1996 (the "INSPECTION PERIOD"), with reasonable prior notice to Sellers or the Management Company, as the case may be, Buyer and Buyer's designated agents, employees and independent contractors shall have the right, at Buyer's sole risk, cost and expense, during normal business hours and with as little disruption as reasonably possible to the operation of the Hotels, to enter upon the Real Properties and the Improvements and the Management Company's offices (i) to conduct engineering, environmental, operational, market, economic feasibility, and other inspections, studies and tests of the Assets, (ii) to review and analyze the Assets and the Condition of the Assets, and (iii) otherwise to evaluate and assess the Assets (collectively the "DUE DILIGENCE STUDIES"). Upon written request therefor by Sellers, Buyer shall forthwith deliver copies to Sellers of any Phase I environmental assessments and any architectural or engineering studies of the Hotels prepared by third parties on behalf of Buyer. Sellers hereby acknowledge and agree that any such assessments or studies delivered to Sellers pursuant to the immediately preceding sentence shall be delivered without any warranty or representation whatsoever by Buyer. In the event of any damage to the Real Properties and the Improvements caused by Buyer or its agents, employees and independent contractors in the course of the Due Diligence Studies, Buyer shall repair and restore (or cause to be repaired and restored) same to substantially their condition prior to Buyer's entry thereon. Sellers shall make available to Buyer at the Hotels all documents in Sellers' or the Management Company's possession relating to the Assets. In addition, upon request by Buyer, Sellers shall deliver to Buyer or Buyer's attorneys copies of any such documents. As part of Buyer's due diligence review of the Assets, Buyer shall: 3.1.1 TITLE COMMITMENT. Review ALTA title commitments (the "TITLE COMMITMENTS") for owner's policies of title insurance (the "OWNER'S POLICIES") covering the Real Properties and Improvements and setting forth the matters which the Title Company believes affect the Real Properties and Improvements. Sellers shall order the Title Commitments not later than five (5) days after the Effective Date. Buyer acknowledges that title to -14- 25 the Real Properties and Improvements shall be subject to the Permitted Encumbrances; 3.1.2 SURVEY. At Buyer's election, secure a survey or an update of an existing survey (the "SURVEY") of the Real Properties showing the boundaries of the Real Properties and the location on the Real Properties of all Improvements and all recorded easements and building setback lines, accompanied by a metes and bounds description of the Real Properties. Upon Sellers' request therefor, Buyer shall forthwith deliver a copy of each of the Surveys to Sellers; 3.1.3 BUYER'S TITLE OBJECTIONS. Prior to expiration of the Inspection Period, examine the Title Commitments, copies of all items referred to as exceptions therein, and the Surveys (collectively the "REAL PROPERTIES DOCUMENTS"), and notify Sellers of any matters referred to in or discoverable from any of the Real Properties Documents to which Buyer objects (the "TITLE OBJECTIONS"). Promptly after receipt of Buyer's notice of Title Objections, Sellers shall commence whatever action is required to eliminate all such unacceptable exceptions. Sellers shall be obligated to eliminate all mechanics' and materialmen's liens, regardless of amount, as well as those liens and encumbrances affecting the Assets (other than Permitted Encumbrances to which Buyer agrees to take subject) (i) which were created by Sellers or to which Sellers agreed to take subject or otherwise consented to or (ii) which, if not described in clause (i) above, may be removed, satisfied or discharged by the payment of a liquidated sum of money not to exceed ten percent (10%) of the Allocated Purchase Price of the Hotel affected by such Title Objection; provided, however, in no event shall Sellers be obligated to expend in excess of $2,500,000 in the aggregate to eliminate liens and encumbrances described in clause (ii) above. Sellers shall use their best efforts to remove all other Title Objections; however, Sellers shall not be obligated to commence any litigation to remove any such Title Objections. If Sellers are unable to eliminate such Title Objections (or any other exceptions that are subsequently reported which Buyer is not required to accept) by the Closing Date, unless the same are waived by Buyer, Sellers may adjourn the Closing Date as to the Hotel(s) affected by the Title Objections for a period of time (not to exceed forty-five (45) days) in order to attempt to eliminate such Title Objection(s). If, after exerting their best efforts, Sellers remain unable to eliminate such Title Objections -15- 26 (other than those exceptions which Sellers are obligated to remove) within the time provided herein, Sellers shall so notify Buyer in writing and Buyer shall thereafter notify Sellers in writing of its intention either (x) to accept the Hotel affected by such Title Objection(s) without any abatement of the Purchase Price, in which event (a) such Title Objection(s) shall no longer be objections to title and shall be deemed to be for all purposes Permitted Encumbrances, (b) Buyer shall close hereunder not with standing the existence of same and (c) Sellers shall have no obligations whatsoever after the Closing with respect to Sellers' failure to eliminate such Title Objection(s), or (y) to terminate this Agreement as to the Hotel(s) with the Title Objection(s) by notice given to Sellers, in which event Buyer shall be entitled to a return of the Allocable Deposit, the Purchase Price shall be decreased by the Allocated Purchase Price of such deleted Hotel(s), and Sellers shall reimburse Buyer for the cost of the survey(s) prepared (or updated) in connection with the affected Hotel(s) (collectively, "SURVEY COSTS"). Upon such return of the Allocable Deposit and payment of the Survey Costs, this Agreement shall terminate as to the Hotels(s) with the Title Objection(s) and neither Party hereto shall have any further obligations hereunder as to such Hotel(s). As set forth in more detail in Article 6 hereof, Buyer acknowledges that pursuant to the provisions of Section 6.2.2 hereof, Sellers shall have the right to terminate this Agreement in the event that Buyer exercises the termination right in this Section 3.1.3 with respect to more than one (1) Hotel; and 3.1.4 FUTURE ENCUMBRANCES. If, during the period between the expiration of the Inspection Period and the Closing Date, it comes to Buyer's attention that additional matters which are not Permitted Encumbrances and are not specifically referred to in the Real Properties Documents adversely affect title to the Real Properties and Improvements, the same shall constitute Title Objections and shall be subject to the cure requirements and termination rights in Section 3.1.3 hereof. 3.2 Buyer's Discretionary Termination. 3.2.1 BUYER'S ABSOLUTE RIGHT TO TERMINATE THIS AGREEMENT. Except as provided in Section 3.2.2 hereof, if Buyer decides, for any reason whatsoever, in Buyer's sole discretion, not to purchase the Assets, Buyer shall so notify Sellers in writing prior to expiration of the Inspection Period. -16- 27 Such notification from Buyer shall constitute an absolute and final termination of this Agreement, in which event Buyer shall receive a full refund of the Initial Deposit, and no Party shall have any further rights or claims hereunder or arising out of this Agreement. The Parties agree that the foregoing right of termination shall be effective if given at any time prior to the expiration of the Inspection Period and notwithstanding any default (or any alleged default) by Buyer hereunder. If Buyer fails to notify Sellers prior to the expiration of the Inspection Period of Buyer's election under this Article 3 not to purchase the Assets, Buyer shall be deemed to have agreed to purchase the Assets, subject to and in accordance with the terms, provisions and conditions in this Agreement. Subject to Section 3.2.2, Buyer's payment to Sellers of the Additional Deposit shall be deemed to acknowledge Buyer's acceptance as of the date of such payment of the physical condition of the Assets (as described in Section 4.1.1); provided, however, that such acknowledgment shall in no way diminish or otherwise affect Buyer's rights under this Agreement, including, without limitation, Buyer's rights under Articles 5 and 9 hereof, and shall in no way release Sellers from Sellers' obligations under this Agreement, including, without limitation, Sellers' obligations under Articles 5, 7, 8 and 9 hereof. 3.2.2 MAJOR DEFICIENCIES. In the event that prior to the expiration of the Inspection Period Buyer discovers any deficiencies, defects or other problems associated with any of the Hotels, and the cost, individually or in the aggregate with respect to any Hotel, to remediate any such deficiencies, defects or other problems would in Buyer's reasonable judgment exceed an amount equal to five percent (5%) of the Allocated Purchase Price of the applicable Hotel (a "MAJOR DEFICIENCY"), Buyer shall have the right, exercisable in writing by notice given any time prior to the Closing Date, to terminate this Agreement as it relates to the Assets relating to such Hotel. Any such notice shall specify whether in Buyer's reasonable judgment the deficiencies, defects or other problems are of a nature (i.e., the location of a Hotel within a flood plain, violations of zoning laws or ordinances or other material zoning deficiencies, violations of Environmental Laws or such other significant environmental contamination (or an environmental contamination anticipated in Buyer's reasonable judgment) or structural deficiencies the cure of which would cost, in the reasonable judgment of Buyer, in excess of five percent (5%) of the Allocated Purchase Price of the applicable -17- 28 Hotel), which deficiencies, defects or other problems would, even if cured or ameliorated, materially adversely affect Buyer's ability to obtain financing for such Hotel from an institutional lender (collectively, "UNCURABLE DEFECTS"). In the event Buyer exercises such termination right as to a Hotel, provided such Major Deficiency is not an Uncurable Defect, Sellers, within ten (10) days after delivery of such termination notice, may request an adjournment (not to exceed forty-five (45) days) of the Closing with respect to the affected Hotel in which to cure such Major Deficiency. In such event, the Parties shall close the sale of the remaining Hotels as contemplated herein on the Closing Date. Prior to commencing to cure any such Major Deficiency that is not an Uncurable Defect, Sellers shall consult with Buyer as to the specific actions to be undertaken by Sellers to cure such Major Deficiency, and Sellers shall not commence any such cure unless it is acceptable to Buyer in its reasonable discretion. In the event that Buyer approves of the actions to be taken by Sellers, Sellers shall promptly commence and diligently pursue such cure, and if Sellers cure each of the matters itemized by Buyer in its notice citing a Major Deficiency (in a manner acceptable to Buyer in its reasonable discretion) on or before such adjourned closing date, then Buyer shall acquire such Hotel on a date mutually acceptable to the Parties not later than ten (10) Business Days after the end of the adjournment period. If Buyer's notice alleges that the Major Deficiency is an Uncurable Defect, or if Sellers fail either to elect to adjourn the Closing as to the affected Hotel or to cure such Major Deficiency prior to the expiration of such forty-five (45) day adjournment period, Escrow Agent shall return to Buyer the Allocable Deposit with respect to the applicable Hotel, this Agreement will continue in full force and effect, except it will be deemed to have terminated as to the Hotel with the Major Deficiency, and no Party shall have any further rights or claims hereunder or arising out of this Agreement which relate to the applicable Hotel and the Assets relating thereto. Buyer agrees that deficiencies, defects and other problems identified in a Franchisor's property improvement plan shall not constitute a Major Deficiency merely because of their inclusion in any such Franchisor's property improvement plan; provided, however, that Buyer shall not be restricted from raising any such issue(s) raised in any such Franchisor's property improvement plan as constituting or contributing to any Major Deficiency. As set forth in more detail in Article 6 hereof, Buyer agrees that Buyer shall not be permitted to exercise the termination right -18- 29 described in this Section 3.2.2 on account of a Major Deficiency with respect to more than one (1) Hotel. ARTICLE 4 CONDITION OF THE ASSETS 4.1 CONDITION OF THE ASSETS; NO WARRANTY; BUYER'S ASSUMPTION OF RISK. The term "Condition of the Assets" means the following: 4.1.1 PHYSICAL CONDITION OF THE ASSETS. The quality, nature and adequacy of the physical condition of the Assets, including, without limitation, the quality of the design, labor and materials used to construct the Improvements; the condition of structural elements, foundations, roofs, glass, mechanical, plumbing, electrical, HVAC, sewage, and utility components and systems; the capacity or availability of sewer, water, or other utilities; the geology, flora, fauna, soils, subsurface conditions, groundwater, landscaping, and irrigation of or with respect to the Real Properties; the location of the Assets in or near any special taxing district, flood hazard zone, wetlands area, protected habitat, geological fault or subsidence zone, hazardous waste disposal or clean-up site, or other special area, the existence, location, or condition of ingress, egress, access, and parking; the condition of the Personal Property and any fixtures; and the presence of any asbestos or other Hazardous Materials, dangerous, or toxic substance, material or waste in, on, under or about the Real Properties and Improvements; 4.1.2 DEVELOPMENT POTENTIAL OF THE ASSETS. The development potential, economic feasibility, cash flow and expenses of the Assets; the habitability, merchantability, fitness, suitability and adequacy of the Assets for any particular use or purpose; 4.1.3 LEGAL COMPLIANCE OF ASSETS. The compliance or non-compliance of Sellers or any other Person or entity or the operation of the Assets or any part thereof in accordance with, and the contents of (i) all codes, laws, ordinances, regulations, agreements, licenses, permits, approvals and applications of or with any governmental authorities asserting jurisdiction over the Assets, including, without limitation, those relating to zoning, building, public works, parking, fire and police access, handicap -19- 30 access, life safety, subdivision and subdivision sales, and Hazardous Materials, dangerous, and toxic substances, materials, conditions or waste, including, without limitation, the presence of Hazardous Materials in, on, under or about the Assets that would cause state or federal agencies to order a clean up of the Assets under any Environmental Laws, and (ii) all agreements, covenants, conditions, restrictions (public or private), condominium plans, development agreements, site plans, building permits, building rules, and other instruments and documents governing the use, management, and operation of the Assets. "ENVIRONMENTAL LAWS" shall mean and include the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601, et seq., Resource Conservation and Recovery Act, 42 U.S.C. 6901, et seq. and all other and similar existing and future federal, state and municipal statutes, rules, regulations, ordinances governing the environment or the generation, disposal or storage of any Hazardous Materials, all as amended from time to time, and all rules and regulations promulgated thereunder; 4.1.4 MATTERS DISCLOSED IN THE SCHEDULED DOCUMENTS. Those matters referred to in this Agreement and the documents listed on the Schedules attached hereto (to the extent true and correct copies thereof have been provided by Sellers to Buyer). 4.1.5 INSURANCE. The availability, cost, terms and coverage of liability, hazard, comprehensive and any other insurance of or with respect to the Assets; and 4.1.6 CONDITION OF TITLE. The condition of title to the Assets, including, without limitation, vesting, legal description, matters affecting title, title defects, liens, encumbrances, boundaries, encroachments, mineral rights, options, easements, and access; violations of restrictive covenants, zoning ordinances, setback lines, or development agreements; the availability, cost, and coverage of title insurance; leases, rental agreements, occupancy agreements, rights of parties in possession of, using, or occupying any of the Assets; and standby fees, taxes, bonds and assessments. 4.2 NO WARRANTY OR REPRESENTATION. Buyer acknowledges that, other than as expressly set forth in this Agreement, Sellers make no representations or warranties whatsoever, express, implied, or arising by operation of law, with respect to the Assets or the Condition of the Assets. Buyer hereby -20- 31 represents and warrants to Sellers that Buyer has not entered into this Agreement based upon any representation, warranty, agreement, statement, or expression of opinion by Sellers, the Management Company or the Broker, or any other Person or entity acting, or allegedly acting, for or on behalf of Sellers with respect to Sellers, the Assets, or the Condition of the Assets (other than the representations and warranties of Sellers and Management Company expressly set forth in this Agreement). Other than as expressly set forth in this Agreement, Buyer agrees that the Assets will be sold and conveyed to (and accepted by) Buyer at the Closing in the then condition of the Assets, AS IS, WHERE IS, WITH ALL FAULTS, AND WITHOUT ANY WRITTEN OR ORAL REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS, IMPLIED, OR ARISING BY OPERATION OF LAW, other than (i) the representations and warranties of Sellers and Management Company expressly set forth in this Agreement, and (ii) the Bill of Sale and the limited special warranty of title in the Deeds. Without limiting the generality of the foregoing, except for (a) the representations and warranties of Sellers and Management Company expressly set forth in this Agreement, and (b) the Bill of Sale and the limited special warranty of title in the Deeds, the transactions contemplated by this Agreement are without any statutory, express, or implied warranty, representation, agreement, statement, or expression of opinion of or with respect to (i) the Condition of the Assets or any aspect thereof, including, without limitation, any and all statutory, express, or implied representations or warranties related to suitability for habitation, merchantability, or fitness for a particular use or purpose, (ii) the nature or quality of construction, structural design, or engineering of the improvements, (iii) the quality of the labor or materials included in the Improvements, (iv) the soil conditions, drainage, topographical features, flora, fauna, or other conditions of or which affect the Assets, (v) any conditions at or which affect the Assets with respect to any particular use, purpose, development potential, or otherwise, (vi) area, size, shape, configuration, location, access, capacity, quantity, quality, cash flow, expenses, value, condition, make, model, composition, accuracy, completeness, applicability, assignability, enforceability, exclusivity, usefulness, authenticity, or amount, (vii) any statutory, express, or implied representations or warranties created by any affirmation of fact or promise, by any description of the Assets, or by operation of law, (viii) any environmental, botanical, zoological, hydrological, geological, meteorological, structural, -21- 32 or other condition or hazard or the absence thereof heretofore, now, or hereafter affecting in any manner any of the Assets, and (ix) all other statutory, express, or implied representations and warranties by Sellers whatsoever. Buyer acknowledges that Buyer has knowledge and expertise in financial and business matters that enable Buyer to evaluate the merits and risks of the transactions contemplated by this Agreement. ARTICLE 5 REPRESENTATIONS AND WARRANTIES 5.1 SELLERS' REPRESENTATIONS AND WARRANTIES. Sellers and Management Company hereby covenant, represent and warrant to Buyer as of the Effective Date and as of the Closing Date as follows: 5.1.1 GOOD STANDING. Sellers are duly organized, validly existing and in good standing, and each Subsidiary Entity is licensed to do business in the State wherein each Hotel, applicable to such Subsidiary Entity, is located; 5.1.2 DUE AUTHORITY. This Agreement has been duly authorized, executed and delivered by Sellers in conformance with (i) Sellers' organizational documents, and (ii) the charter and by-laws and pursuant to a validly existing vote of the Board of Directors duly constituted, with respect to each Subsidiary Entity which is a corporation. All documents that are to be executed by Sellers and delivered to Buyer on the Closing have been, or on the Closing Date will be, duly executed, authorized and delivered by Sellers. This Agreement and all such documents are, and on the Closing Date, will be legal, valid and binding obligations of Sellers, enforceable in accordance with their terms (subject to customary bankruptcy exceptions) and do not, and at the time of Closing will not, violate any provisions of any agreement or judicial or administrative order to which Sellers are a party or to which Sellers or the Assets are subject; 5.1.3 CONSENTS. No consent, right of first refusal, approval, order or authorization of any Person not a party to this Agreement, and no consent, approval, declaration or filing with any governmental authority on the part of Sellers is required in connection with the execution and delivery of this -22- 33 Agreement or the performance of the transactions contemplated herein, except for (i) the Hart-Scott filing, and (ii) such other governmental and other consents as may be required by law or otherwise as are specifically set forth on Schedule 5.1.3 (collectively the "CONSENTS"); 5.1.4 NO DEFAULT. Assuming all Consents are obtained, neither the execution and delivery of this Agreement by Sellers, nor the consummation by Sellers of the transactions contemplated hereby (i) has constituted or resulted in, or with the passage of time, will constitute or result in a breach of, or constitute a default under any contract, agreement or understanding (including any Contracts) whether written or oral by and between Sellers and any other party, (ii) has violated, or with the passage of time, will violate any court order, judgment, law, ordinance, regulation, or restriction to which any Seller is a party or by which Sellers, or any of Sellers' assets, may be bound, the result of which could have a material adverse effect on any one (1) or more of the Assets or on the financial condition of any Person comprising Sellers; 5.1.5 LITIGATION. Schedule 5.1.5 sets forth a list of all litigations, governmental or administrative proceedings or arbitrations presently pending against any Person comprising Sellers. There are no litigations, governmental or administrative proceedings or arbitrations presently pending or, to Sellers' Actual Knowledge, threatened (i) against Sellers which would have a material adverse effect on any of the Hotels, or (ii) with respect to the Hotels, except for personal injury or other actions fully covered by insurance (subject to commercially reasonable deductibles) and those set forth on Schedule 5.1.5 annexed hereto. For the purposes of this Section 5.1.5, the term "material" shall mean any litigation, proceeding or arbitration which could result in a judgment or award in excess of $10,000; 5.1.6 REAL PROPERTY/IMPROVEMENTS. Schedule 1.2.1 and Schedule 1.2.3 set forth a complete description of all Real Properties and Improvements, and such Real Properties and Improvements constitute all of the real property and improvements owned by (or subject to the terms of an installment contract of sale in favor of) Sellers. Sellers own fee simple title to the Real Properties and Improvements (other than the Real Property and Improvements relating to the Allentown Hilton which are subject to an installment contract of sale in favor of H.O.D. -23- 34 Allentown Trust, successor-by-assignment to Hamilton at Ninth Associates), and to Sellers' Actual Knowledge, there are no liens, encumbrances or other matters affecting Sellers' title other than the Permitted Encumbrances, and the Real Properties are not subject to any outstanding contracts of sale (other than with respect to the Existing IDA Debt) or purchase options in favor of any Person; 5.1.7 REAL PROPERTY LEASES. Except as may be set forth in Schedule 1.2.2, Sellers hereby represent as to each Real Property Lease: (i) the applicable Seller (listed on Schedule 1.2.2 is the owner of a valid and subsisting interest as tenant under the Real Property Lease, (ii) the Real Property Lease is in full force and effect, unmodified and not supplemented by any writing or otherwise, and true, correct and complete copies thereof have been (or will be) delivered to Buyer, (iii) all rent, additional rent and other charges reserved therein have been paid to the extent they are due and payable on the date hereof, (iv) the applicable Seller(s) enjoys the quiet and peaceful possession of the estate demises thereby, subject to any Space Lease at such Hotel, (v) the applicable Seller(s) 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) to Sellers' Actual Knowledge the lessor under the Real Property 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 Real Property Lease has satisfied all of its repair or construction obligations, if any, to the date pursuant to the terms of the Real Property Lease, (viii) the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby do not require the consent (other than those consents which have been obtained and are in full force and effect) under, and will not contravene any provision of or cause a default under, the Real Property Lease, (ix) Schedule 1.2.2 lists all Real Property Leases and all amendments and modifications thereto to which any Person comprising Sellers is a party and (x) the lessor indicated on Schedule 1.2.2 for each Real Property Lease is the current lessor under such Real Property Lease. Seller shall, at Closing, assign and transfer the Real Property Leases to Buyer pursuant to the Assignment and Assumption of Real Property Leases in the form set forth as Exhibit 10.2.6; -24- 35 5.1.8 PERSONAL PROPERTY. The Personal Property has been fully paid for and is owned by Sellers free and clear of all liens and encumbrances, except for the Permitted Encumbrances. Each Hotel is furnished, equipped and stocked in a manner, consistent with Sellers' prior practice. Buyer acknowledges that the Personal Property will fluctuate from time to time in the ordinary course of Sellers' business. The Personal Property shall include on the Closing Date sufficient quantities of operating supplies for the normal day-to-day operation of the Hotels in accordance with Sellers' prior practice. The Personal Property shall include, without limitation, bedroom sheets, pillowcases, towels and washcloths and sufficient dining room linens, china, glassware and silver in amounts consistent with Sellers' prior practice. Sellers shall, at Closing, sell, transfer, grant and convey to Buyer all right, title and interest of Sellers in and to the Personal Property by a warranty Bill of Sale, in the form set forth as Exhibit 10.2.2; 5.1.9 PERSONAL PROPERTY LEASES. Other than each Personal Property Lease summarized by rent, term and security deposit on Schedule 1.2.5, there are no other Personal Property Leases affecting the existence, use, ownership, occupancy, operation and/or maintenance of the Personal Property or otherwise relating to the Real Properties and the Improvements. Each Personal Property Lease described on Schedule 1.2.5, a copy of which has been (or will be) provided to Buyer, is (i) a true and accurate copy, including all amendments, (ii) the entire agreement between Sellers and the Person named therein, (iii) in good standing and in full force and effect, and is fully enforceable against the parties thereto in accordance with its terms, and (iv) except as set forth on said Schedule 1.2.5, not in default in any material respect by any party, nor, to Sellers' Actual Knowledge, have Sellers received any written or oral notice or other communication of any alleged breach or default thereunder by Sellers, nor does there exist any event, which, with notice or lapse of time or both, would constitute a default thereunder. Seller shall, at Closing, assign and transfer the Personal Property Leases to Buyer pursuant to the Assignment and Assumption of Personal Property Leases in the form set forth as Exhibit 10.2.5; 5.1.10 SPACE LEASES. Other than each Space Lease summarized by rent, term and security deposit on Schedule 1.2.7, there are no other Space Leases affecting the existence, use, -25- 36 ownership, occupancy, operation and/or maintenance of the Real Property and the Improvements, nor are there any other tenants or occupants with rights to occupy space within the Hotel. Each Space Lease referenced on Schedule 1.2.7, a copy of which has been (or will be) provided to Buyer, is (i) a true and accurate copy, including all amendments, (ii) the entire agreement between Sellers and the Person named therein, (iii) in good standing and in full force and effect, and is fully enforceable against the parties thereto in accordance with its terms, and (iv) except as set forth on said Schedule 1.2.7, not in default in any material respect by any party, nor, to Sellers' Actual Knowledge, have Sellers received any written or oral notice or other communication of any alleged breach or default thereunder by Sellers, nor does there exist any event, which, with notice or lapse of time or both, would constitute a default thereunder. There are no security deposits or advance payments of rent being held by Sellers pursuant to any of the Space Leases except as set forth on Schedule 1.2.7. All of the Tenants named in the Space Leases are in possession of the premises leased to them and conducting business in the ordinary course. To Sellers' Actual Knowledge, no Space Lease has been assigned, pledged or encumbered by the Tenant thereunder. No brokerage or leasing commission, fee or other compensation is or will be due from Sellers or Management Company as of the Closing Date or thereafter in connection with any Space Lease or any renewal or extension thereof. All decorating, installation, alteration and repair work which the landlord was or may be obligated to perform for any Tenant prior to the Closing Date has been performed or will be performed prior thereto at the cost of Sellers. There are no obligations on the part of the landlord under the Space Leases to provide any concessions or inducements to any Tenant under any Space Lease, and the landlords under the Space Leases are not subject to any offset rights, nor are they obligated to make any payments with respect to any "so-called" take-over agreements relating to space previously occupied by the Tenant(s) under any Space Lease(s). There is no breach or violation of any provision of any Space Lease granting "exclusive" uses or prohibiting or restricting competing or similar uses, and no Space Lease allows the space demised to be used for any purpose which is prohibited by a restrictive covenant or the terms of any other Space Lease. No representation, covenant or promise has been made by Sellers or, to Sellers' Actual Knowledge, by any of Sellers' predecessors, to any of the Tenants, except as may be contained in the Space Leases. Seller shall, at Closing, assign -26- 37 and transfer the Space Leases to Buyer pursuant to the Assignment and Assumption of Space Leases in the form set forth as Exhibit 10.2.3; 5.1.11 CONTRACTS. Other than as identified on Schedule 1.2.8 (and excepting each Space Lease, Personal Property Lease, Real Property Lease and Franchise Agreement), there are no other contracts or agreements affecting the existence, use, ownership, occupancy, operation and/or maintenance of the Assets. Each Contract referenced on Schedule 1.2.8, a copy of which has been (or will be) provided to Buyer, is (i) a true and accurate copy, including all amendments, (ii) the entire agreement between Sellers and the Person named therein, (iii) in good standing and in full force and effect, and is fully enforceable against the parties thereto in accordance with these terms, and (iv) not in default in any material respect by any party, nor, to Sellers' Actual Knowledge, have Sellers received any written or oral notice or other communication of any alleged breach or default thereunder by Sellers, nor does there exist any event, which, with notice or lapse of time or both, would constitute a default thereunder. Except as set forth on Schedule 1.2.8, none of the Contracts require payments in excess of $10,000 per year by any Person comprising Sellers. Seller shall, at Closing, assign and transfer the Contracts to Buyer pursuant to the Assignment and Assumption of Contracts/Permits in the form set forth as Exhibit 10.2.4; 5.1.12 PERMITS. Other than as identified on Schedule 1.2.9, there are no other Permits affecting the existence, use, ownership, occupancy, operation and/or maintenance of the Assets. Each Permit referenced on Schedule 1.2.9, a copy of which has been (or will be) provided to Buyer, is, to Sellers' Actual Knowledge (i) a true and accurate copy, including all amendments, and (ii) in good standing and in full force and effect. Sellers have not received any written notice that any default has occurred in the due observance of any condition to any Permit, nor, to Sellers' Actual Knowledge, is there lacking any license, permit or certificate needed in connection with the ownership or operation of the Hotels or the operation of their business. Valid permanent certificates of occupancy have been issued for each of the Improvements and remain in full force and effect. True, correct and complete copies of the certificates of occupancy have been (or will be) delivered to Buyer. Seller shall, at Closing, assign and -27- 38 transfer the Permits, to the extent assignable, to Buyer pursuant to the Assignment and Assumption of Contracts/Permits in the form set forth as Exhibit 10.2.4; 5.1.13 LIQUOR LICENSES. Each Liquor License is referenced on Schedule 1.2.9, a copy of which has been (or will be) provided to Buyer. Sellers hold all licenses required under applicable laws relating to the sale and service of alcoholic beverages at the Hotels, and all of such Liquor Licenses are in full force and effect. To Sellers' Actual Knowledge, and except as set forth in Schedule 1.2.9, the sale and service of alcoholic beverages at the Hotels has been in compliance with all applicable laws and regulations, and Sellers have not received any written notification of any violation or alleged violation of any such laws or regulations during their respective periods of ownership which are outstanding and have not been cured; 5.1.14 INTELLECTUAL PROPERTY. Other than as identified on Schedule 1.2.10, there is no other Intellectual Property used by Sellers with respect to the existence, use, ownership, occupancy, operation and/or maintenance of the Assets. Except as set forth on Schedule 1.2.10, the registrations and applications for all such Intellectual Property are in full force and effect and are standing in the name of Sellers as of record and are valid and enforceable. None of Sellers' respective names have been registered on the Principal Register maintained by the U.S. Patent and Trademark office. Except as set forth on Schedule 1.2.10, to Sellers' Actual Knowledge (i) Sellers are the sole and exclusive owners of all rights to the Intellectual Property, the same are fully assignable and Sellers have the right to use the same without the payment of any license fee, royalty or similar charge, (ii) there is no claim of any other Person, firm or corporation or any proceeding pending or threatened which relates to any of the Intellectual Property, and (iii) the Intellectual Property includes all of the intellectual property used in the conduct of the Hotels. Sellers shall, at Closing, assign and transfer the Intellectual Property to Buyer pursuant to the Assignment and Assumption of Intellectual Property in the form set forth as Exhibit 10.2.7; 5.1.15 FRANCHISE AGREEMENTS. Each Franchise Agreement, a copy of which has been (or will be) provided to Buyer, is, other than as provided on Schedule 1.2.11, (i) a true and accurate copy, together with all amendments, (ii) the entire -28- 39 agreement between Sellers and Franchisor, and (iii) except as set forth below, in good standing and in full force and effect, and is fully enforceable against the parties thereto in accordance with its terms. Except with respect to the Franchise Agreement affecting St. Louis Suites and as set forth on Schedule 1.2.11, Sellers have not received any written or oral notice or other communication of an alleged breach or default under the Franchise Agreements by Sellers, nor to Sellers' Actual Knowledge does there exist any event, which, with notice or lapse of time or both, would constitute a default thereunder. True, correct and complete copies of all franchise inspection or compliance reports or property improvement plans within the last two (2) years have been delivered to Buyer and are identified on Schedule 1.2.11. Except with respect to the Franchise Agreement affecting St. Louis Suites, each Hotel meets all standards for acceptance as a licensed facility pursuant to the Franchise Agreement relating to such Hotel; provided, however, that the Parties acknowledge that the Franchisor inspection reports refer to certain improvements, upgrades and betterments which are suggested or required by the various Franchisors. Notwithstanding the fact that such items appear in the existing Franchisor inspection reports, the Parties agree that Sellers shall be obligated to complete only those items set forth on Schedule 5.1.15, and Sellers shall commence such work only after Buyer has approved Sellers' intended course of action, which approval shall not be unreasonably withheld. The Hotels are not and at the Closing will not be subject to the burdens or obligations of any management, operating or franchise agreement, except for the Real Property Leases, the Contracts, the Personal Property Leases, the Management Agreements and the Franchise Agreements. Buyer acknowledges that Sellers are presently in default under the Franchise Agreement applicable to St. Louis Suites; 5.1.16 PROPERTY TAXES. Sellers have paid, or by the Closing Date will pay, all Property Taxes due and owing by the Closing Date of every kind and nature. True and complete copies of bills for such Property Taxes for the past two (2) years are annexed hereto on Schedule 5.1.16. Except as set forth on Schedule 5.1.16, to Sellers' Actual Knowledge, Sellers (i) are not a party to any action or proceeding to abate any Property Tax, nor aware of any proceeding by any governmental authority for assessment or collection of Property Taxes, and (ii) have not granted any waiver of any statute of limitation with respect to, -29- 40 or any extension of a period for the assessment of Property Taxes; 5.1.17 MISCELLANEOUS TAXES. All state income taxes, employment taxes (including but not limited to FICA, unemployment insurance and workers' compensation) and all sales, use and hotel/motel occupancy taxes, if any, due and payable in connection with the ownership and operation of the Real Properties and the operation of the hotel businesses thereon (collectively, "MISCELLANEOUS TAXES"), have been paid in full through the most recent period for which they were due and payable. Except as set forth on Schedule 5.1.17, Sellers (i) are not a party to any action or proceeding to abate any Miscellaneous Tax nor aware of any proceeding by any governmental authority for collection of Miscellaneous Taxes, and (ii) have not granted any waiver of any statute of limitation with respect to, or any extension of a period for the assessment of Miscellaneous Taxes; 5.1.18 TAX RETURNS. Sellers have filed or will file all federal, state and local tax returns for all Property Taxes and Miscellaneous Taxes required by law and have fully paid or, by the Closing Date, will have fully paid all Property Taxes and Miscellaneous Taxes and penalties due and payable. To Sellers' Actual Knowledge, Sellers have not received written or oral notice or other communication, and are unaware of any dispute or claim by any taxing authority regarding any Property Taxes or Miscellaneous Taxes of any nature due and payable by Sellers, which if not paid could become a lien against the Assets; 5.1.19 NON-COMPLIANCE WITH LAW. Except as set forth in Schedule 5.1.19, to Sellers' Actual Knowledge, Sellers have received no notice of any violation of law or municipal ordinance, order or requirement noted in or issued by any governmental entity asserting jurisdiction against or affecting Sellers or any of the Hotels. Sellers agree to cause any violations mentioned in Schedule 5.1.19 and any other violations of law of which Sellers receive notice between the Effective Date and the Closing Date, to be removed and cured at Sellers' sole cost and expense prior to the Closing; provided, however, that Sellers shall not be obligated to cure any written notice of violation received by Sellers after the Effective Date which cites a violation of the Americans with Disabilities Act of 1992 ("ADA") and with respect to any one (1) Hotel would cost in -30- 41 excess of $250,000 to cure (a "MAJOR ADA VIOLATION"). In the event Sellers elect not to cure a Major ADA Violation, then Buyer may elect either (i) to acquire the affected Hotel subject to the Major ADA Violation, or (ii) to terminate this Agreement as it relates to the applicable Hotel whereupon (a) this Agreement shall remain in full force and effect as to the remaining Hotels, (b) the Allocable Deposit with respect to the affected Hotel shall immediately be returned to Buyer, (c) the Purchase Price shall be decreased by the Allocated Purchase Price of such deleted Hotel and (d) this Agreement shall be deemed null and void as to the deleted Hotel. Except as set forth in Schedule 5.1.19, to Sellers' Actual Knowledge, (i) the Hotels and the businesses conducted thereon are in compliance in all material respects with all applicable federal, state and local laws and regulations, including zoning laws, and (ii) all necessary permits and licenses for the lawful conduct of such business have been obtained and are in full force and effect. To Sellers' Actual Knowledge, except as set forth on Schedule 5.1.19, no variance or conditional permit has been granted with respect to any of the Hotels. The present use and occupancy of the Improvements complies with the existing certificates of occupancy issued therefor; provided, however, that Buyer acknowledges that the use referred to on the certificate of occupancy for the Marque of Atlanta is different from the present use and occupancy of such Hotel. Sellers represent that the present use at such Hotel is in compliance with law. Except as set forth in Schedule 5.1.19, Sellers have not received any written notice from any insurance company, Board of Fire Underwriters, any governmental or quasi-governmental agency or any of the Persons that are parties to the Loan Documents, requiring any repairs or work to be done at the Hotels or pertaining to the maintenance of the Hotels, employment of labor or working conditions; 5.1.20 HOTEL EMPLOYEES/COLLECTIVE BARGAINING AGREEMENTS. All employees working at the Hotels are listed on Schedule 5.1.20 (the "HOTEL EMPLOYEES"), which includes for each employee his or her (i) name, (ii) job description, (iii) salary (iv) date of employment, and (v) the Hotel at which he or she is employed. Except as additionally described on Schedule 5.1.20 or on Schedule 5.1.21(a) or Schedule 5.1.21(b), no Hotel Employee is covered by a union contract, collective bargaining agreement, employment agreement, deferred compensation agreement or other agreement of any kind. Schedule 5.1.20 also sets forth a list of the documents and employee manuals which describe Sellers' -31- 42 existing employment policies and practices with respect to vacations, sick days, personal days, bonuses, raises, promotions, discharges, overtime, work responsibilities, benefits, retirement, severance pay and other relevant matters. Except as set forth on Schedule 5.1.20, there is no strike, lockout, picketing, work stoppage or other labor dispute pending or threatened, nor is there any pending grievance or arbitration proceeding, charge or complaint before the NLRB, the various civil rights agencies, federal or state departments of labor or the various occupational health and safety agencies, with respect to any of the Hotels. To Sellers' Actual Knowledge, (a) Sellers have received no written notice of violation with the Immigration Reform and Control Act of 1986 ("IRCA"), and (b) all United States Department of Justice Immigration and Naturalization I-9 forms required to be completed and maintained by Sellers have been properly filled out and are maintained in Seller's personnel files. To Sellers' Actual Knowledge, except as set forth on Schedule 5.1.20, there are no discrimination charges pending against Sellers arising under the anti-discriminatory provisions of IRCA. Sellers agree to be fully responsible for payments of any kind to all Hotel Employees for any period prior to the Closing Date and for services rendered through the Closing Date, including any severance payments or other benefits arising due to the transactions contemplated by this Agreement except for Buyer's obligations under Section 7.1.18(ii) and Section 7.1.19 hereof. Arlington Heights Hotel Ventures, Inc. and St. Louis Hotel Ventures, Inc. are the only parties to any collective bargaining agreements described on Schedule 5.1.21(b) and those agreements are the only collective bargaining agreements with respect to Hotel Employees (the "COLLECTIVE BARGAINING AGREEMENTS"). Other than the Collective Bargaining Agreements, there are no other collective bargaining agreements, nor are there any other agreements regarding labor unions or other organized labor organizations or associations with respect to the Hotels. Sellers have delivered true, correct and complete copies of each Collective Bargaining Agreement (including any amendments thereto), and each Collective Bargaining Agreement (i) constitutes the entire agreement between Sellers and the Person named therein, (ii) is in good standing and in full force and effect, and is fully enforceable against the parties thereto in accordance with these terms, and (iii) is not in default in any material respect by any party thereto, nor, to Sellers' Actual Knowledge, have Sellers received any written or oral notice or other communication of any alleged breach or default thereunder -32- 43 by Sellers, nor does there exist any event, which, with notice or lapse of time or both, would constitute a default thereunder. Sellers shall, at Closing, subject to Section 1.2.8, assign and transfer the Collective Bargaining Agreements to Buyer pursuant to the Assignment and Assumption of Contracts/Permits in the form set forth as Exhibit 10.2.4; 5.1.21 EMPLOYEE BENEFIT PLANS. (a) Set forth in Schedule 5.1.21(a) is a true and complete list of each "employee pension benefit plan" (as such term is defined in Section 3(2) of ERISA) currently maintained by a Seller or an ERISA Affiliate, or with respect to which a Seller or an ERISA Affiliate is or will be required to make any payment, or which provides or will provide benefits to present or prior employees of a Seller or an ERISA Affiliate due to such employment (the "PENSION PLANS"). All of the Pension Plans are "multiemployer plans" (as such term is defined in Section 3(37) of ERISA). Set forth in Schedule 5.1.21(a) is a true and complete list of each "employee welfare benefit plan" (as such term is defined in Section 3(1) of ERISA) currently maintained by a Seller, or with respect to which a Seller is or will be required to make any payment, or which provides or will provide benefits to present or prior employees of a Seller due to such employment (the "WELFARE PLANS") (the Pension Plans and Welfare Plans being the "ERISA BENEFIT PLANS"). In addition, set forth in Schedule 5.1.21(a) is a true and complete list of each other "employee pension benefit plan" (as such term is defined in Section 3(2) of ERISA) ever subject to Section 302 of ERISA and (i) maintained by a Seller or an ERISA Affiliate at any time during the six-year period prior to the Closing Date, or (ii) with respect to which a Seller or an ERISA Affiliate was required to make any payment at any time during such period (the "PRIOR PENSION PLANS"). All of the Prior Pension Plans, if any, are "multiemployer plans" (as such term is defined in Section 3(37) of ERISA). (b) For the purposes hereof, "Non-ERISA Commitments" shall mean each of the following to which any Person comprising Sellers is a party, or with respect to which any Person comprising Sellers is or will be required to make any payment, and which is not an ERISA Benefit Plan: -33- 44 (i) each retirement, savings, profit sharing, deferred compensation, severance, stock ownership, stock purchase, stock option, performance, bonus, incentive, vacation or holiday pay, hospitalization or other medical, disability, life or other insurance, or other welfare, benefit or fringe benefit plan, policy, trust, contract or agreement of any kind, whether written or oral; (ii) each employee Collective Bargaining Agreement; and (iii) each understanding, arrangement, contract or agreement of any kind, whether written or oral, with or for the benefit of any present or prior officer, director, employee or consultant (including, without limitation, each employment, compensation, deferred compensation, severance or consulting agreement or arrangement and any agreement and arrangement associated with a change in ownership of a Seller). Set forth in Schedule 5.1.21(b) hereof is a true and correct list of each of the items described in clauses (i) and (ii) above (other than those items already listed in Schedule 5.1.21(a)). The Sellers have delivered to Buyer correct and complete copies of (x) all written Non-ERISA Commitments referred to in clauses (i) and (ii) above and (y) all insurance and annuity policies and contracts and other documents relevant to any Non-ERISA Commitment. Schedule 5.1.21(b) contains a complete and accurate description of (1) all oral Non-ERISA Commitments referred to in clause (i) of the first (1st) sentence of this Section 5.1.21(b), and (2) all Non-ERISA Commitments with regard to health insurance or coverage. (c) Sellers have delivered (or will deliver) to Buyer with respect to each Welfare Plan, other than any Welfare Plan which is a "multiemployer plan" (as such term is defined in Section 3(37) of ERISA), correct and complete copies, where applicable, of (A) all plan documents and amendments thereto, trust agreements and amendments thereto and insurance and annuity contracts and policies, (B) the current summary plan description, (C) the Annual Report (Form 5500 series) and accompanying schedules, as filed, for the most recently completed plan year for which such report has been filed, (D) the financial -34- 45 statements for the most recently completed plan year for which such statements have been prepared, (E) the actuarial report for the most recently begun plan year for which such reports exist, and (F) all correspondence with the IRS and Department of Labor concerning any controversy. With respect to each Pension Plan that is a "multiemployer plan" (the "MULTIEMPLOYER PLANS"), (i) Sellers have delivered (or will use Sellers' best efforts to secure and deliver as soon as reasonably possible) to Buyer correct and complete copies of all plan documents and amendments thereto and trust agreements and amendments thereto, the items described in clauses (B), (C) and (E) of the preceding sentence, and all correspondence and other information in a Seller or any ERISA Affiliate's possession relating to any anticipated increases in contribution rates with respect to such plan, and (ii) set forth in Schedule 5.1.21(c) is a true and complete list of the amounts which each of the Sellers and each ERISA Affiliate paid to such plan with respect to each of the calendar years 1993 through 1995. Sellers have delivered (or will deliver) to Buyer with respect to each of the Multiemployer Plans and with respect to each of the Prior Pension Plans which is a "multiemployer plan" (the "PRIOR MULTIEMPLOYER PLANS") correct and complete copies of all correspondence and other information in the Seller or any ERISA Affiliate's possession relating to the amount for which a Seller or any ERISA Affiliate is or could be liable under Title IV of ERISA for a total or partial withdrawal as of any date or for any other reason. (d) Except as to Multiemployer Plans (as to which this representation is made only to Sellers' Actual Knowledge), there is no pending claim or, to Sellers' Actual Knowledge, threatened claim in respect of any of the ERISA Benefit Plans other than claims for benefits in the ordinary course of business. Except as set forth in Schedule 5.1.21(d), to Sellers' Actual Knowledge, each of the ERISA Benefit Plans other than any Multiemployer Plans (i) has been administered in accordance with its terms and (ii) complies in form, and has been administered in accordance, with the requirements of ERISA and, where applicable, the Code. Except as specifically identified and explained in Schedule 5.1.21(d), Sellers and each ERISA Affiliate has complied with the health care continuation requirements of Part 6 of Title I of ERISA. Except as provided in Schedule 5.1.21(d), Sellers have no obligation under any ERISA Benefit Plans or otherwise to provide health or other welfare benefits to any prior employees or any other person, except as required by Part 6 of Title I of ERISA. -35- 46 Immediately after the Closing and at all times thereafter, no Seller or any ERISA Affiliate except for any Eliminated Hotel will continue to provide a group health plan to employees within the meaning of Section 4980B(g)(2) of the Code. The consummation of the transaction contemplated by this Agreement will not result in an increase in the amount of compensation or benefits or accelerate the vesting or timing of payment of any compensation or benefits payable to or in respect of any participant. Sellers are in compliance with the requirements of the Workers Adjustment and Retraining Notification Act of 1988 (the "WARN ACT") and have no liabilities pursuant to WARN, except to the extent Buyer breaches its representation in Section 7.1.18(ii) hereof. (e) To Sellers' Actual Knowledge, no proceeding has been initiated to terminate any Multiemployer Plan, and there has been no "reportable event" (as such term is defined in Section 4043(b) of ERISA) with respect to any such plan. To Sellers' Actual Knowledge, no Multiemployer Plan is in reorganization as described in Section 4241 of ERISA or insolvent as described in Section 4245 of ERISA. Except as described in Schedule 5.1.21(e), neither any of Sellers nor any ERISA Affiliate has failed to make a required or disputed contribution to any Multiemployer Plan or any Prior Multiemployer Plan. Except as described in Schedule 5.1.21(e), (i) neither any of Sellers nor any ERISA Affiliate has incurred any liability on account of a "partial withdrawal" or a "complete withdrawal" (within the meaning of Sections 4205 and 4203, respectively, of ERISA) from any multiemployer plan (as such term is defined in Section 3(37) of ERISA) and no such liability has been asserted, and (ii) neither any of Sellers nor any ERISA Affiliate is bound by a contract or agreement or has any obligation or liability described in Section 4204 of ERISA. (f) Except as to Multiemployer Plans (as to which this representation and warranty is made only to Sellers' Actual Knowledge), neither the Sellers nor, to Sellers' Actual Knowledge, any other "disqualified person" (within the meaning of Section 4975 of the Code) or "party in interest" (within the meaning of Section 3(14) of ERISA) has taken any action with respect to any ERISA Benefit Plan which could subject any such plan (or its related trust) or Sellers or any officer, director or employee of any of the foregoing to the penalty or tax under Section 502(i) or Section 502(l) of ERISA or Section 4975 of the Code. -36- 47 (g) To Sellers' Actual Knowledge, Sellers have no potential liability, whether direct or indirect, contingent or otherwise, under Section 4212(c) of ERISA and with regard to the transactions contemplated herein, there is no liability under such sections of ERISA. (h) For purposes of this Agreement, "ERISA AFFILIATE" means (i) any corporation which at any time on or during the last six years before the Closing Date is or was a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as a Seller; (ii) any partnership, trade or business (whether or not incorporated) which at any time on or during the last six years before the Closing Date is or was under common control (within meaning of section 414(c) of the Code) with a Seller; and (iii) any entity which at any time on or during the last six years before the Closing Date is or was a member of the same affiliated service group (within the meaning of Section 414(m) of the Code) as either a Seller, any corporation described in clause (i) or any partnership, trade or business described in clause (ii); 5.1.22 SELLERS' ENVIRONMENTAL REPRESENTATIONS. Sellers have delivered to Buyer true, correct and complete copies of all written environmental site assessments, reports and summaries, asbestos surveys, and operations and maintenance plans described on Schedule 5.1.22 (collectively, the "ENVIRONMENTAL REPORTS"). To Sellers' Actual Knowledge, the Environmental Reports are the only reports in Sellers' possession regarding environmental matters and Hazardous Materials at or near the Hotels. Except as set forth on Schedule 5.1.22, Sellers have not received any written or, to Sellers' Actual Knowledge, any oral notice or other communication concerning (i) any violation or alleged violation of the Environmental Laws, or (ii) any alleged liability for environmental damages in connection with the existence, use, ownership, occupancy, operation and/or maintenance of the Real Property and the Improvements. No writ, injunction, decree, order or judgment relating to the foregoing is outstanding. There is no pending law suit, claim, proceeding, citation, directive, summons or, to Sellers' Actual Knowledge, any investigation pending relating to the existence, use, ownership, occupancy, operation and/or maintenance of the Real Property and the Improvements, by any Person relating to any alleged violation of any Environmental Laws or the suspected presence of any Hazardous Materials thereon. Except as may be -37- 48 set forth in the Environmental Reports, no Hazardous Materials are located at the Hotels, except for such Hazardous Materials as are used in the ordinary course of Sellers' business and are stored, used and disposed of in compliance with law. To Sellers' Actual Knowledge, the Real Properties have never been used for manufacturing, storage or as a dump site for Hazardous Materials, nor are the Real Properties affected by any Hazardous Materials Contamination. To Sellers' Actual Knowledge, no real property adjoining the Real Properties has ever been used as a manufacturing, storage or dump site for Hazardous Materials, nor is any such adjoining real property affected by Hazardous Materials Contamination. As used herein, the term "HAZARDOUS MATERIALS" shall mean any material or substance (i) which is defined as a "hazardous waste" under the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Sections 6901 et seq.), as amended from time to time, and regulations promulgated thereunder; (ii) which is defined as a "hazardous substance" under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. Sections 9601 et seq.), as amended from time to time, and regulations promulgated thereunder ("CERCLA"); (iii) which is defined as a hazardous or toxic substance or waste in any statute, regulation or ordinance adopted by the State in which any of the Real Properties are located or its agencies or political subdivisions; (iv) which is petroleum; (v) which is asbestos; (vi) which is designated as a "hazardous substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C. Section 1251 et seq. (33 U.S.C. Section 1321) or listed pursuant to Section 307 of the Clean Water Act (33 U.S.C. Section 1317); or (vii) the presence of which on the Real Property is prohibited by any legal requirement of any governmental authority or which may give rise to a lien for the benefit of a governmental authority; and which, under the circumstances and quantities in which any of the foregoing may be found, requires remediation. "HAZARDOUS MATERIALS CONTAMINATION" shall mean the contamination (whether presently existing or hereafter occurring) of any of the Real Properties and Improvements, facilities, soil, ground water, air or other elements on, or of, the Real Properties by Hazardous Materials, or the contamination of the Improvements, facilities, soil, ground water, air or other elements on, or of, any other property as a result of Hazardous Materials at any time emanating from any of the Real Properties. Except as may be set forth in the Environmental Reports, to Sellers' Actual Knowledge, there are no underground gasoline, oil or other storage tanks at any of the Real Properties; -38- 49 5.1.23 EMINENT DOMAIN TAKING. To Sellers' Actual Knowledge, there is no federal, state, county, municipal or other governmental plans to change the highway or road system in the vicinity of the Real Properties, nor have Sellers received oral or written notice or other communication from any governmental authority or officer thereof having the power of eminent domain, of any pending, proposed or actual eminent domain taking relating to or affecting all or any portion of any Real Property or of any improvement liens or special assessments to be made against any of the Assets by any governmental authority; 5.1.24 BROKERS, FINDERS, ETC. Other than Broker, all negotiations relating to this Agreement and the transactions contemplated hereby have been carried on without the intervention of any Person acting on behalf of Sellers, in such manner as to give rise to any valid claim against Sellers or Buyer for any brokerage or finder's commission, fee or similar compensation. Sellers shall be fully responsible for and shall assume and pay any and all fees or brokerage commissions due Broker, and Sellers shall indemnify and hold Buyer harmless therefrom; 5.1.25 CONSTRUCTION AND RENOVATION WORK; PAYMENT FOR SERVICES. Except as set forth on Schedule 5.1.25, there is no construction or renovation work which is incomplete on the date hereof. Any previous construction or renovation work has been or will be paid for in full by Sellers (except as indicated to the contrary on Schedule 5.1.25) and, to Sellers' Actual Knowledge, has been completed in accordance with all applicable governmental regulations. The remaining work described on Schedule 5.1.25, if any, shall be completed by Sellers at Sellers' sole cost and expense (except as indicated to the contrary on said Schedule 5.1.25), shall be performed in a good workmanlike manner in accordance with all applicable governmental regulations and shall be completed by the date(s) set forth on Schedule 5.1.25. No services, materials or work have been supplied to any Hotel for which payment has not been made in full, and no dispute or claim exists in regard to any such services, materials or work which could result in any mechanic's or other lien, charge or order for payment of money being filed against the Assets or the owner of any Hotel. Sellers will, on or before the Closing Date, pay for all services, materials or work supplied to the Hotels on or before the Closing Date with respect to the items listed on Schedule 5.1.25; -39- 50 5.1.26 INSURANCE. The insurance covering Sellers and the Assets is listed in the insurance schedule annexed hereto as Schedule 5.1.26. Each of said policies is in full force and effect. No notice has been received by Sellers from the insurance company which issued any of such policies stating that any of such policies is not in full force and effect, will not be renewed or will be renewed only at a higher premium rate than is presently payable therefor. True and correct copies of each insurance policy have been (or will be) furnished to Buyer. Since the dates on which Sellers purchased each of the Hotels, all liability insurance policies maintained by Sellers with respect to the Hotels for each year that Sellers have owned the respective Hotels (collectively, "SELLERS' PRIOR LIABILITY INSURANCE POLICIES") have been, except as provided in Schedule 5.1.26, written on an "occurrence" basis, and copies of Sellers' Prior Liability Insurance Policies (or certificates or other documentation acceptable to Buyer in its reasonable discretion to evidence such "occurrence" basis coverage was in effect during all periods of ownership) have been (or will be) delivered to Buyer; 5.1.27 FIRPTA. Each Person comprising "Sellers" represents and warrants that it is not a "foreign person" or a "U.S. real property holding corporation" for purposes of Section 1445 of the Internal Revenue code or any applicable regulations promulgated thereunder; 5.1.28 PREPAID FEES AND DEPOSITS. Annexed hereto as Schedule 5.1.28 is a list of all prepaid fees and deposits relating to the Hotels; 5.1.29 TRADE ASSOCIATIONS. Annexed hereto as Schedule 5.1.29 is a list of all trade associations to which Sellers or any of the Hotels belong and the respective dues and fees therefor; 5.1.30 BILLBOARDS/SIGNS. All billboards or signs located off the Real Property which are used to advertise the Hotels, and the contracts or leases therefor, are identified on Schedule 5.1.30 (collectively, the "BILLBOARD LEASES"). The Billboard Leases are in full force and effect and there are no defaults thereunder by either party thereto. True and complete copies of the Billboard Leases have been delivered to Buyer; -40- 51 5.1.31 SELLERS' FINANCIAL STATEMENTS; OPERATING STATEMENTS. Sellers have furnished to Buyer true, correct and complete copies of the following (collectively, the "FINANCIAL STATEMENTS"): (i) annual audited consolidated financial statements of HOD Ventures for the past three (3) years, prepared in accordance with GAAP by Coopers & Lybrand, (ii) the financial statements for each of the Subsidiary Entities for the past three (3) years, prepared in accordance with GAAP, to the extent same have been prepared, (iii) monthly and annual financial statements and detailed operating statements (prepared in accordance with GAAP) for each Hotel for the past three (3) years), (iv) annual operating and capital budgets for 1994, 1995 and 1996 for each of the Hotels, including cash flow projections for the upcoming year, presented on a monthly basis. The information contained in the Financial Statements is true, correct and complete in all material respects, and there is no material liability (contingent or otherwise) of HOD Ventures or any Subsidiary Entity not reflected in such Financial Statements or in the notes thereto. No event, act or condition has occurred which has had (or could result in) a material adverse change in the financial condition of any of the Persons constituting Sellers or in the financial operations of any of the Hotels since the date of the most recent Financial Statements delivered to Buyer; 5.1.32 PHYSICAL CONDITION OF THE ASSETS. Sellers have delivered to Buyer true, correct and complete copies of all written architectural and engineering surveys, assessments, reviews, report and summaries described on Schedule 5.1.32 (collectively, the "ARCHITECTURAL AND ENGINEERING REPORTS"). The Architectural and Engineering Reports are the only reports in Sellers' possession regarding architectural, engineering, structural matters at the Hotels and the structural soundness thereof; 5.1.33 EXISTING IDA DEBT. Annexed hereto as Schedule 5.1.33 is a list of all of the documents evidencing or otherwise related to the Existing IDA Debt (the "LOAN DOCUMENTS"), and there have been no modifications or amendments thereto except as set forth in said Schedule 5.1.33. True and complete copies of each of the Loan Documents have been (or will be) delivered to Buyer. The loans constituting the Existing IDA Debt are all in good standing, and the applicable Seller(s) are not in default thereunder, nor, to Sellers' Actual Knowledge, has any event occurred which with the passage of time or the giving of notice -41- 52 or both would constitute a default under the Loan Documents. The Loan Documents permit the sale of the Hotels subject to the Existing IDA Debt without the consent of the holder(s) thereof, or, if such consent is required, Sellers will use Sellers' best efforts to obtain such consent on or prior to the Closing Date. As of February 29, 1996, the outstanding principal balance of the Existing IDA Debt is $5,508,154.58; 5.1.34 NO COMPETING VENTURES. Neither Sellers nor any affiliate of Sellers owns, leases or operates any lodging or restaurant facility, or any other real property (including, but not limited to, vacant land), within a two (2) mile radius of any of the Hotels. Neither Sellers nor any affiliate of Sellers has entered into an option or contract to acquire any such facility or other real property within that area; 5.1.35 RATE AGREEMENTS/RESERVATIONS. Neither Sellers nor any affiliate, agent or employee of Sellers has entered into any written agreement or commitment to make rooms or any portion of any of the Hotels available at any time after the Closing Date or quoting or guaranteeing certain rates or fees, except for the agreements described in Exhibit 5.1.35 (the "RATE AGREEMENTS") and reservations entered into by Sellers in the ordinary course of Sellers' business at rates consistent with Sellers' past practices. True and complete copies of each of the Rate Agreements have been (or will be) delivered to Buyer. During the Inspection Period, Sellers shall provide Buyer and its agents free access to Sellers' reservations, records and files and immediately after the expiration of the Inspection Period, Sellers will deliver to Buyer (from time to time) copies of all schedules of advance bookings with respect to the period after the Closing Date; 5.1.36 MATERIAL FACTS. No statement by Sellers in this Agreement contains any untrue statement of a material fact or, considered in the context of which presented, knowingly omits a material fact necessary to make the statement contained therein not misleading. All documents delivered by Sellers to Buyer are true and complete originals or copies thereof and have not been modified or terminated in any way other than as indicated on the documents furnished to Buyer. -42- 53 5.2 BUYER'S REPRESENTATIONS AND WARRANTIES. Buyer hereby covenants, represents and warrants to Sellers as of the Effective Date and as of the Closing Date as follows: 5.2.1 GOOD STANDING; DUE AUTHORIZATION. (i) REALTY PARTNERSHIP. Realty Partnership is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware. Realty Partnership has full power and authority to make, execute, deliver and perform this Agreement, and neither the execution and delivery of this Agreement nor the consummation of any of the transactions contemplated herein will violate or contravene the provisions of any agreement, order, judgment or directive to which it may be a party or by which it may be bound. The person executing this Agreement on behalf of Starwood Lodging Trust, a Maryland real estate investment trust, the general partner of Realty Partnership, has been duly authorized to do so. The consummation of the transactions contemplated by this Agreement will not render Realty Partnership insolvent; (ii) OPERATING PARTNERSHIP. Operating Partnership is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware. Operating Partnership has full power and authority to make, execute, deliver and perform this Agreement, and neither the execution and delivery of this Agreement nor the consummation of any of the transactions contemplated herein will violate or contravene the provisions of any agreement, order, judgment or directive to which it may be a party or by which it may be bound. The person executing this Agreement on behalf of Starwood Lodging Corporation, a Maryland corporation, the general partner of Operating Partnership, has been duly authorized to do so. The consummation of the transactions contemplated by this Agreement will not render Operating Partnership insolvent; and 5.2.2 MATERIAL FACTS. No statement by Buyer in this Agreement contains any untrue statement of a material fact or, considered in the context of which presented, knowingly omits a material fact necessary to make the statement contained therein not misleading. Any documents delivered by Buyer to Sellers are -43- 54 true and complete originals or copies thereof and have not been modified or terminated in any way other than as indicated on the documents furnished to Sellers. 5.3 SURVIVAL PERIOD - PARTIES' OBLIGATIONS. Any and all representations, warranties, agreements, covenants, obligations and undertakings of any kind or nature, made by, or to be performed or undertaken by any Party or the Management Company, as the case may be, whether prior to or after the Closing Date, as set forth herein, or in any Schedule, Exhibit, Certificate or Financial Statement delivered by any Party and/or the Management Company incident to the transactions contemplated hereby (collectively, the "PARTIES' OBLIGATIONS") shall be deemed to have been relied upon by the receiving Party and shall survive the Closing Date (regardless of any investigation made by or on behalf of any Party or the Management Company) for a period of one hundred eighty (180) days after the Closing Date; provided, however, that if the Closing with respect to any individual Hotel(s) is adjourned, as to such Hotel(s), the Parties' Obligations shall survive until one hundred eighty (180) days after the Closing with respect to such Hotel(s) (any such adjourned closing date, a "POSTPONED CLOSING DATE"), and in no event shall any claim be made or action be brought by any Party for breach of any Parties' Obligations after the expiration of the applicable one hundred eighty (180) day period; except that there shall be no limitation (other than the applicable statute of limitations) in respect of any claim brought by any Party for fraud by any other Party and/or Management Company, or any Party's and/or Management Company's respective officers, employees or agents in connection with any of the Parties' Obligations made by any Party and/or Management Company, as the case may be, or the transactions contemplated hereby. 5.4 INDEMNIFICATION. 5.4.1 SELLERS' INDEMNIFICATION OF BUYER. Sellers shall jointly and severally indemnify and hold Buyer harmless against all claims, suits, obligations, liabilities, damages, losses, costs, and expenses, including, without limitation, reasonable attorneys' fees and disbursements, based upon, arising out of, or resulting from: (i) any breach of any of the representations or warranties of Sellers and/or Management Company set forth herein; (ii) any of the Excluded Assets; (iii) any actual or alleged failure by Sellers to comply with any -44- 55 applicable bulk sales or fraudulent conveyance act or other applicable law requiring the giving of notice prior to transfer of all or substantially all of a corporation's assets or a substantial portion of any business operated by it; (iv) any actual or alleged liability under CERCLA, any successor statute, or any analogous state law arising with respect to any of the Hotels and relating to the period prior to the Closing Date, or any Postponed Closing Date, as the case may be; (v) any liability arising from or connected with the improper storage, handling or disposal by Sellers of any Hazardous Material prior to the Closing Date, or any Postponed Closing Date, as the case may be; (vi) the ERISA Benefit Plans, the Prior Pension Plans, the Non-ERISA Commitments, except to the extent expressly assumed by Buyer hereunder, multiemployer plan withdrawal liability resulting from Sellers' withdrawal from any multiemployer plan, Sellers' liability under Section 4204 of ERISA, and violations existing as of the Closing Date under Part 6 of Title I of ERISA; and (vii) except to the extent prorated pursuant to the provisions hereof or expressly assumed by Buyer, any and all liability relating to the Hotels or otherwise relating to Sellers' business, other than the items described in clauses (i) through (vi) above, inclusive, with respect to the period prior to the Closing Date or the Postponed Closing Date, as the case may be, with respect to a particular Hotel; and (viii) obligations of Sellers pursuant to Section 7.1.19 hereof. 5.4.2 BUYER'S INDEMNIFICATION OF SELLERS. Buyer shall indemnify and hold Sellers harmless against all claims, suits, obligations, liabilities, and damages, including, without limitation, reasonable attorneys' fees and disbursements, based upon, arising out of, or resulting from: (i) any breach of any of the representations or warranties of Buyer set forth herein; (ii) any of the Assumed Liabilities; (iii) any liability under the WARN Act, and any similar state statute applicable to the Hotel Employees, except any such liability with respect to which Sellers have breached a representation set forth in the last sentence of Section 5.1.21(d) hereof and except with respect to Hotel Employees of Eliminated Hotels; (iv) any actual or alleged liability under CERCLA, any successor statute, or any analogous state law arising with respect to any of the Hotels and relating to the period from and after the Closing Date, or -45- 56 any Postponed Closing Date, as the case may be; (v) any liability arising from or connected with the improper storage, handling or disposal by Buyer of any Hazardous Material on or after the Closing Date, or any Postponed Closing Date, as the case may be; (vi) except to the extent prorated pursuant to the provisions hereof or expressly assumed by Sellers or expressly not assumed by Buyer, any and all liability relating to the Hotels, other than the items described in clauses (i) through (v) above, inclusive, with respect to the period from and after the Closing Date or the Postponed Closing Date, as the case may be, with respect to a particular Hotel, and (vii) obligations of Buyer pursuant to Section 7.1.18(ii) or Section 7.1.19 hereof. 5.4.3 PROCEDURE FOR CLAIMS UNDER INDEMNITY PROVISIONS. Any claim for indemnification under this Agreement shall be asserted by written notice from the Party seeking indemnification (the "INDEMNITEE") to the other Party (the "INDEMNITOR"), describing in reasonable detail the nature and amount of such claim. Claims for indemnification hereunder that are not related to any action or claim filed or made against the Indemnitee by a third party shall be resolved in accordance with Section 5.5 hereof. In the event of any claims for indemnification hereunder that are based upon an action or claim filed or made against the Indemnitee by a third party, then the Indemnitor shall have the right to negotiate a settlement of such action or claim or to defend any such action or claim at its sole cost and expense, but subject to the consent of the Indemnitee, which consent shall not be unreasonably withheld, conditioned or delayed. If the amount in controversy in connection with any such third party claim exceeds Fifty Thousand Dollars ($50,000.00), then such claim will be defended by counsel approved by the Indemnitee, which approval shall not be unreasonably withheld, conditioned or delayed. In calculating the loss or damage which an Indemnitee is entitled to recover hereunder (i) no loss or damage shall be deemed to have been sustained by such Party to the extent of any proceeds received by such Party from any insurance policies with respect thereto and (ii) the amount of such loss or damage shall take into account any beneficial tax effect of such loss or damage to the Indemnitee. 5.4.4 LIMITATIONS ON INDEMNITY CLAIMS. Notwithstanding anything to the contrary contained herein and except as otherwise provided in Section 5.4.5 hereof: (i) Buyer shall not assert any claims under Section 5.4.1(i), Section 5.4.1(iv) or Section 5.4.1(v) hereof, and Seller shall not assert any claims under Section 5.4.2(i), -46- 57 Section 5.4.2(iv) or Section 5.4.2(v) hereof, as the case may be, unless and until the aggregate of such Party's claims thereunder exceeds Two Hundred Fifty Thousand Dollars ($250,000) (the "INDEMNIFICATION THRESHOLD"), and Buyer and Sellers shall each bear the amount of such claims up to the Indemnification Threshold; provided, however, that in the event that the aggregate amount of any claim(s) asserted by a Party exceeds the Indemnification Threshold, then subject to the procedures set forth in Section 5.4.3 hereof, the Indemnitor shall be liable to pay the entire amount of all such claims (including the portion of such claims constituting the Indemnification Threshold) up to the Initial Maximum Indemnity Amount or the Subsequent Maximum Indemnity Amount, as the case may be; (ii) the aggregate liability of either Buyer or Sellers for breach of any representation, warranty, agreement or covenant in this Agreement shall not exceed Five Million Dollars ($5,000,000) (the "INITIAL MAXIMUM INDEMNITY AMOUNT") with respect to claims made on or prior to the ninetieth (90th) day after the latest to occur of the Closing Date or the last Postponed Closing Date, as the case may be (such date, the "FIRST INDEMNITY REDUCTION DATE"); provided, however, that the aggregate liability of either Buyer or Sellers for breach of any representation, warranty, agreement or covenant in this Agreement shall be reduced to Two Million Five Hundred Thousand Dollars ($2,500,000) (the "SUBSEQUENT MAXIMUM INDEMNITY AMOUNT") from and after the ninety-first (91st) day after the latest to occur of (a) the Closing Date or (b) the last Postponed Closing Date, as the case may be (such date, the "SECOND INDEMNITY REDUCTION DATE"), if and to the extent that the other Party hereto shall not have made claims in the aggregate amount of at least $2,500,000 prior to such ninety-first (91st) day; and (iii) no claim for indemnification under this Section 5.4 shall be made or asserted after the expiration of the survival period specified in Section 5.3 hereof; provided, however, that any claim made under Section 5.4 hereof for which notice has been delivered prior to the expiration of such survival period shall be deemed to have been made and asserted in a timely manner and shall be prosecuted to completion, regardless of whether such survival period expires prior to the resolution thereof. -47- 58 5.4.5 NO LIMITATION ON CLAIMS FOR FRAUD. None of the limitations contained in Section 5.4.4 hereof shall apply to any claim based on any fraud by Sellers, Management Company or any of their respective officers, employees, or agents in connection with any representation or warranty made by Sellers and/or Management Company herein or the transactions contemplated by this Agreement and the Conveyance Documents. 5.5 DISPUTES TO BE RESOLVED THROUGH EXPEDITED ARBITRATION. The Parties hereto agree that any claims for indemnification hereunder that are not related to any action or claim filed or made against the Indemnitee by a third party shall be resolved under the expedited arbitration procedure set forth below. 5.5.1 In any circumstance for which arbitration is specifically provided hereunder, the Party desiring arbitration shall give notice to that effect to the other Party meeting the requirements of the New York Civil Practice Law and Rules ("CPLR") Section 7503(c), or any successor statute, and shall in such notice appoint a person as arbitrator on its behalf. Within ten (10) days after receipt of such notice, the other Party by notice to the original Party shall appoint a second person as arbitrator on its behalf. The arbitrators thus appointed shall appoint a third person, and such three (3) arbitrators shall as promptly as possible determine such matter, provided, however, that: (i) If the second arbitrator shall not have been appointed within the ten (10) day period as aforesaid, the first arbitrator shall proceed to determine such matter and shall render his decision and award in writing within thirty (30) days after the expiration of said ten (10) day period; and (ii) If the two (2) arbitrators are appointed by the parties and shall be unable to agree, within ten (10) days after the appointment of the second arbitrator, upon the appointment of a third arbitrator, they shall give written notice to the Parties of such failure to agree, and, if the Parties fail to agree upon the selection of such third arbitrator within ten (10) days after the arbitrators appointed by the Parties give notice as aforesaid, then within five (5) days thereafter either of the Parties upon notice to -48- 59 the other Party may request such appointment by the New York City Office of the American Arbitration Association or any successor organization (the "AAA"), or in its absence, refusal, failure or inability to act, may apply to the presiding Justice of the Appellate Division of the Supreme Court of the State of New York (First Department) (the "COURT"), for the appointment of such arbitrator, and the other Party shall not raise any question as to the Court's full power and jurisdiction to entertain the application and make the appointment. 5.5.2 Each arbitrator shall be a qualified and impartial person who shall have had at least ten (10) years' experience in a calling connected with the matter of the dispute. 5.5.3 The arbitration shall be conducted, to the extent consistent with this Section, in accordance with the then prevailing rules of the AAA. The arbitrators, if more than one, shall render their decision and award in writing, upon the concurrence of at least two of their number, within thirty (30) days after the appointment of the third arbitrator. Such decision and award or the decision and award of the single arbitrator as provided in Section 5.5.1(i) hereof, shall be binding and conclusive on the Parties, shall constitute an "award" by the arbitrator within the meaning of the AAA rules and applicable law, and counterpart copies thereof shall be delivered to each of the Parties. In rendering such decision and award, the arbitrators shall not add to, subtract from or otherwise modify the provisions of this Agreement. Judgment may be had on the decision and award of the arbitrators so rendered in any court of competent jurisdiction. 5.5.4 Each Party shall pay the fees and expenses of the one of the two original arbitrators appointed by or for such Party, and the fees and expenses of the third arbitrator and all other expenses of the arbitration (other than the fees and disbursements of attorneys or witnesses for each Party) shall be borne by the Parties equally. 5.6 NO DISTRIBUTIONS OR LIQUIDATIONS BY SELLERS. Each of HOD Ventures and the Subsidiary Entities hereby agrees that for the period prior to the First Indemnity Reduction Date such entities shall reserve and shall retain possession, dominion and control over at least Five Million Dollars ($5,000,000) in liquid assets and, for the period commencing on the First Indemnity Reduction Date and ending on the Second Indemnity Reduction Date, such entities shall reserve and shall retain possession, dominion and -49- 60 control over at least Two Million Five Hundred Thousand Dollars (2,500,000) and, during such periods (collectively, the "RESTRICTED PERIOD"), shall not distribute (by dividend, loan, in liquidation or otherwise) to their respective equityholders, creditors, shareholders, officers, directors or any other party whatsoever any of the proceeds of the sale of the Assets which would leave Sellers with less than the aforementioned minimum amounts in liquid assets. On or before the expiration of the Restricted Period, Buyer may notify Sellers in writing (each, an "ADJUSTMENT CLAIM") that Buyer has one (1) or more claims with respect to, arising from, or relating to (i) a readjustment of any of the Closing prorations and apportionments under Article 11 hereof, (ii) any claim under the indemnification provisions set forth in this Agreement, (iii) any breach of any representation, warranty or agreement set forth herein or (iv) any of Sellers' obligations under this Agreement. Any such Adjustment Claim shall set forth the maximum possible aggregate amount of such claim(s) (the "MAXIMUM RESERVE AMOUNT"), as determined by Buyer in its reasonable discretion, subject to the Initial Maximum Indemnity Amount or the Subsequent Maximum Indemnity Amount, as applicable, in accordance with Section 5.4.4(ii) hereof. In the event that Sellers have received an Adjustment Claim on or before the end of the Restricted Period, then Sellers shall deposit with Escrow Agent a sum equal to the Maximum Reserve Amount not later than two (2) Business Days after the expiration of the Restricted Period. Escrow Agent shall hold such amounts pursuant to Section 2.3 hereof (except that such funds shall be invested in Permitted Investments selected by Sellers) until such time as all Adjustment Claim(s) have been resolved in accordance with this Agreement and such resolution has been confirmed in a written instrument executed by the Parties or by the arbitrator(s), whereupon Escrow Agent shall disburse the funds in accordance with the Parties' joint instructions or the arbitrators' instructions. -50- 61 ARTICLE 6 ELIMINATED HOTELS 6.1 ELIMINATED HOTELS. This Agreement contemplates the sale, transfer, assignment and conveyance of all nine (9) of the Hotels; however, under certain contingencies set forth in Section 3.1.3 (Title Objections), Section 3.2.2 (Major Deficiencies), Section 5.1.19 (Non-Compliance with Laws), Section 9.1.3 (Franchise Agreements [St. Louis Suites]), Section 8.4 (Substantial Casualty) and Section 8.7 (Substantial Condemnation), this Agreement provides for either or both of the Parties, as the case may be, to elect to exclude one (1) or more of the Hotels from the terms, provisions, covenants and conditions of this Agreement and to terminate this Agreement as to such excluded Hotel (any such Hotel which is eliminated from the terms, provisions, covenants and conditions of this Agreement is hereinafter sometimes referred to, individually, as an "ELIMINATED HOTEL," or, collectively, with any other Hotels which have been so eliminated, the "ELIMINATED HOTELS"). Buyer acknowledges that pursuant to Section 3.2.2 hereof, no more than one (1) of the Hotels may become an Eliminated Hotel as a result of a Major Deficiency, and the Parties agree that Sellers failure under Section 9.1.3 to cure the existing defaults presently affecting St. Louis Suites shall not be included within the definition of "Major Deficiency." 6.2 SELLERS' OBLIGATION TO CLOSE CONDITIONAL ON MINIMUM NUMBER OF HOTELS. 6.2.1 RIGHT TO TERMINATE THIS AGREEMENT. Buyer and Sellers acknowledge that, in the event that Buyer for any reason whatsoever does not acquire (or is not obligated to acquire) an aggregate of at least five (5) of the Hotels, or if this Agreement has been terminated with respect to more than three (3) Eliminated Hotels, either Party may, by written notice to Escrow Agent and to the other Party, direct Escrow Agent to return the Deposit to Buyer, and upon the delivery of the Deposit to Buyer, this Agreement shall be null and void, and neither Party shall have any further rights against, or obligations to, the other Party. For the purposes of this Section 6.1.2, the Parties confirm that in the event St. Louis Suites is eliminated from the scope of this Agreement in accordance with Section 9.1.3 hereof, St. Louis Suites shall not be considered an Eliminated Hotel for -51- 62 the purposes of determining whether there are three (3) Eliminated Hotels. 6.2.2 SELLERS' ADDITIONAL TERMINATION RIGHT. Sellers shall have the right to terminate this Agreement by written notice to Escrow Agent and Buyer in the event that either (i) there is more than one (1) Eliminated Hotel which was eliminated from the terms, provisions, covenants and conditions of this Agreement under Section 3.1.3 (Title Objections), (ii) if there is more than one (1) Eliminated Hotel which was eliminated from the terms, provisions, covenants and conditions of this Agreement under Section 3.2.2 (Major Deficiency), (iii) if there is more than one (1) Eliminated Hotel which was eliminated from the terms, provisions, covenants and conditions of this Agreement under Section 5.1.19 (Major ADA Violation) or (iv) if there is more than one (1) Eliminated Hotel which was eliminated from the terms, provisions, covenants and conditions of this Agreement under the provisions of either or both of Section 8.4 (Substantial Casualty) or Section 8.7 (Substantial Condemnation). For the purposes of this Section 6.2.2, Sellers acknowledge that they shall have no rights to terminate this Agreement with respect to the elimination of St. Louis Suites under the provisions of Section 9.1.3 hereof. Upon receipt of such termination notice, Escrow Agent shall return the Deposit to Buyer, and upon the delivery of the Deposit to Buyer, this Agreement shall be null and void, and neither Party shall have any further rights or obligations hereunder. ARTICLE 7 COVENANTS OF THE PARTIES UNTIL CLOSING 7.1 COVENANTS OF THE PARTIES UNTIL THE CLOSING. The Sellers and Buyer agree that between the date hereof and the Closing Date, the Parties shall undertake the following: 7.1.1 OPERATION OF THE HOTELS. Subject only to conditions beyond Sellers' reasonable control, Sellers shall continue to operate and maintain the Hotels in the usual and customary manner, and shall, among other things: (i) BOOKINGS; RESERVATIONS. Accept cancellations of Reservations and return Reservation Deposits, and make new Reservations and accept new Reservation Deposits, and enter -52- 63 into new rate agreements, all in accordance with Sellers' prior practices; provided, however, that Sellers shall not enter into any contract rate agreement(s), unless Buyer has approved such contract rate agreement(s), in writing; (ii) PERSONAL PROPERTY; Inventory. Order and purchase Personal Property in quantities sufficient to satisfy the representations and warranties contained in Article 5 hereof, and Sellers agree that Sellers shall not place any order for Personal Property or inventory in excess of $10,000 without Buyer's prior written consent which shall not be unreasonably withheld, conditioned or delayed; (iii) EMPLOYEE MATTERS PRIOR TO CLOSING. Hire and discharge Hotel Employees consistent with Sellers' prior practices, except that no General Manager or Assistant General Manager shall be hired or fired (except for cause), and no union contract or other employment agreement of any kind shall be entered into, without, in each such instance, Buyer's prior written consent, which consent may be granted or withheld in Buyer's sole discretion; provided, however, that the foregoing restrictions shall not be deemed to restrict Sellers' ability to transfer any General Manager or Assistant General Manager from one (1) Hotel to another Hotel. Sellers shall continue making all payments required under any and all Benefit Plans; (iv) REAL PROPERTY LEASES, CONTRACTS, SPACE LEASES, PERSONAL PROPERTY LEASES, BILLBOARD LEASES. Subject to Buyer's prior written consent, which consent shall not be unreasonably withheld or delayed, renew any of the existing Real Property Leases, Contracts, Personal Property Leases, Billboard Leases or Space Leases or enter into new Real Property Leases, Contracts, Personal Property Leases, Billboard Leases or Space Leases, all in the ordinary course of Sellers' business and consistent with Sellers' prior practices. No consent shall be required if the renewal or new Contract, Personal Property Lease, Billboard Lease or Space Lease is terminable upon thirty (30) days notice at Buyer's option commencing on the Closing Date. Buyer's withholding of consent to any renewal or new Space Lease shall not be deemed unreasonable if the proposed Space Lease either (w) is to an affiliate of Seller or to a party with little or no retail experience or who would otherwise be -53- 64 financially or morally unacceptable to a reasonably prudent landlord, or (x) provides for a rental below the rental currently being charged for the space, or (y) is for a term in excess of one (1) year, or (z) contains other terms which are not customary in a lease of this nature. If Buyer objects to the renewal of an existing Space Lease or to the execution of a new Space Lease, notwithstanding that such objection might otherwise be deemed "unreasonable," Sellers shall nevertheless refrain from entering into the proposed Space Lease, provided Buyer agrees to pay to Sellers an amount equal to the rental which would have been paid to Sellers under the proposed Space Lease during the period prior to the Closing, as and when such rent would have been due and payable; and (v) TAX PROCEEDINGS; TAX REFUNDS. Sellers may institute and/or continue any proceeding or proceedings for the reduction of the assessed valuation of the Real Properties, the Improvements or any portion thereof for real estate taxes, or of any rate applicable thereto. The net amount of any tax refunds or credits (after deduction of all costs and expenses thereof, including legal fees) with respect to any portion of a Real Property and the related Improvements for a tax period in which the Apportionment Date occurs, subject to Section 11.11.3, shall be apportioned between Sellers and Buyer as of the Apportionment Date and promptly paid. The provisions of this Section 7.1.1(v) shall survive the Closing Date in accordance with Section 5.3 hereof. 7.1.2 FRANCHISE AGREEMENTS. Sellers shall not cancel, renew, modify or enter into any new Franchise Agreement without Buyer's prior written approval, which approval may be granted or withheld by Buyer for any reason or no reason in Buyer's sole discretion. Sellers shall use their best efforts to obtain any necessary consents of the Franchisors under the Franchise Agreements. Buyer acknowledges that the Franchise Agreements may not be assignable by Sellers to Buyer, and in such event, Buyer shall apply for and use Buyer's reasonable efforts to obtain the applicable Franchisor's consent. 7.1.3 EXISTING IDA DEBT. -54- 65 (i) BUYER'S OPTION TO ASSUME THE EXISTING IDA DEBT. On or before the date which is thirty (30) days after the Effective Date, Buyer shall notify Sellers whether Buyer desires to assume Sellers' obligations under the Loan Documents and purchase the Allentown Hilton subject to the Existing IDA Debt. Until such time as Buyer has notified Sellers whether Buyer will elect to assume the Sellers' obligations under the Loan Documents, Sellers shall not cancel, renew or modify the Loan Agreements, nor shall Sellers prepay any amounts payable thereunder. In the event Buyer does not elect to assume the Existing IDA Debt, then Sellers shall prepay the amounts outstanding under the Loan Documents and shall exercise its rights to acquire the fee simple interest in and to the Allentown Hilton, and Sellers shall be obligated to cause the Lehigh County Industrial Development Authority to sell, transfer and convey to Buyer the Allentown Hilton free and clear of the Loan Documents or any other exception to title relating to the Existing IDA Debt and subject only to the Permitted Encumbrances. Sellers shall pay any fees, charges or other costs incurred in connection with any such prepayment; provided, however, that Buyer and Sellers shall each pay one-half (1/2) of any state or local real property transfer taxes imposed in connection with the conveyance of the Allentown Hilton by the Lehigh County Industrial Development Authority to Buyer (or its affiliated designee, in accordance with the terms of this Agreement). (ii) BUYER'S ELECTION TO ASSUME THE EXISTING IDA DEBT. In the event that Buyer elects to assume Sellers' obligations under the Loan Documents, Sellers shall not cancel, renew or modify any document evidencing or securing the Existing IDA Debt or any part thereof without Buyer's prior written approval, which approval may be granted or withheld by Buyer for any reason or no reason in Buyer's sole discretion. Sellers shall continue to make all regularly scheduled payments due on the Existing IDA Debt in a timely manner, and shall not voluntarily prepay any portion of the Existing IDA Debt without Buyer's prior written consent, which consent may be granted or withheld in Buyer's sole discretion. Sellers shall use Sellers' reasonable efforts to obtain consent of parties to the Existing IDA Debt documents, to the extent such consent is required in connection with the sale, subject to the -55- 66 Existing IDA Debt, of the Allentown Hilton, and upon request by Sellers, Buyer agrees to cooperate reasonably with Sellers in obtaining such consent. Buyer shall pay the assumption fee which may be imposed by the Lehigh County Industrial Development Authority in connection with Buyer's assumption of the Loan Documents. 7.1.4 REPAIRS, MAINTENANCE AND CAPITAL IMPROVEMENTS. Sellers, at Sellers' sole cost and expense, shall continue to make all repairs and replacements, structural and non-structural, ordinary and extraordinary, required with respect to any portion of the Hotels, which a prudent owner and operator would make in the ordinary course in a manner consistent with Sellers' prior practice. 7.1.5 INSURANCE. Sellers will maintain the insurance set forth on Schedule 5.1.26 in full force and effect and will not decrease the amount thereof without Buyer's prior written consent. Sellers shall comply with any notice or request from any such insurance company received prior to the Closing Date. 7.1.6 DUE DILIGENCE ACTIVITIES. Sellers will give to Buyer, its attorneys, accountants, engineers and other representatives, during normal business hours and as often as may be requested, full access to any and all parts of the Assets and to all books, records, reservation records and information and files relating to the Assets. Sellers will furnish to Buyer all information concerning the Assets which Buyer, its attorneys, accountants, engineers or other representatives shall reasonably request or which Sellers reasonably believe is material or could result in a material adverse change in the business operations or financial condition of any Person comprising Sellers or any Hotel. Buyer may, during the hours 9 A.M. to 5 P.M., and upon reasonable advance notice, at Buyer's sole expense, (i) cause the Hotels and any part thereof to be inspected by such engineers, architects and others acting on behalf of Buyer, as Buyer may designate, and (ii) cause a full or partial physical count of the Personal Property to be made. Such inspections and counts shall in all material respects be conducted in a manner and at such times as shall not interfere (in other than a de minimus amount) with the use and enjoyment of the Hotels by any guests, tenants, employees or occupants thereof or thereat. -56- 67 7.1.7 NO BREACH OF REPRESENTATIONS AND WARRANTIES. Sellers will not take any action which would cause or constitute a breach of any of the representations or warranties set forth herein, nor will Sellers fail to take any action, the omission of which would cause or constitute a breach of any of the representations or warranties set forth herein. 7.1.8 NOTICE OF BREACH OF REPRESENTATIONS AND WARRANTIES. Promptly after becoming aware of any event which could cause or constitute a breach, or, if it occurred prior to the date of this Agreement, would have caused or constituted a breach, of any of the representations and warranties set forth herein, Sellers will notify Buyer of such event and will use its best efforts to promptly remedy or to prevent such breach. 7.1.9 NO LIENS; NO NEW AGREEMENTS. Sellers will not make, grant or suffer any mortgage, lien, pledge, charge, easement, right-of-way, covenant, restriction or other encumbrance on or with respect to the Assets, except for Permitted Encumbrances, nor will they enter into any other agreements, contracts or commitments with respect to the Assets except in the ordinary course of business and as otherwise permitted herein. 7.1.10 COMPLIANCE WITH LAW. Sellers will comply in all material respects with all material federal, state and municipal laws, ordinances, directives, orders, regulations and requirements which apply to the Assets, and (except as expressly set forth to the contrary in Section 5.1.19 with respect to Major ADA Violations) will promptly remedy any violation thereof of which notice shall have been given by any governmental authority having jurisdiction so that the Assets shall be conveyed free of the same. 7.1.11 TAXES. (i) Sellers will pay, as and when due and payable, all taxes and assessments imposed on or against the Assets or due in connection with the operation of the Assets or the hotel businesses thereon, all payments due to vendors, purveyors and other trade creditors, and all other debts and obligations relating to the Assets or the operation of the hotel businesses thereon. -57- 68 (ii) In each state in which one (1) or more of the Hotels is located, Sellers shall comply with the applicable state taxing authorities', commissions' and agencies' rules, regulations and procedures which exist to determine that Sellers have paid all Miscellaneous Taxes relating to Sellers', Sellers' hotel businesses and/or the operation of the Hotels. Sellers shall apply to such state taxing authorities, commissions or agencies sufficiently far in advance of the Closing Date to ensure that Buyer shall have "comfort" and "safe harbor" on a date not more than five (5) Business Days before the Closing Date that all applicable Miscellaneous Taxes have been paid. In the event that any state taxing authority, commission or agency notifies Sellers that any amounts are (or shall become) due and payable with respect to any Miscellaneous Taxes, Sellers shall pay such amounts to the applicable State taxing authority, commission or agency (by certified check) on or prior to the Closing Date. Buyer shall have the right to make such applications on Sellers' behalf as Buyer shall deem necessary to confirm that all such Miscellaneous Taxes have been (or shall be) paid. 7.1.12 PERMITS; LIQUOR LICENSES. (i) PERMITS. Sellers shall cooperate with Buyer and Buyer's representatives to enable and assist Buyer to procure and maintain, at Buyer's sole expense, all licenses, permits and authorizations necessary for Buyer's ownership and operation of the Assets and the hotel businesses thereon. Buyer shall promptly apply for and use all reasonable efforts to obtain all such requisite licenses, permits and authorizations. Notwithstanding the foregoing, Sellers shall remain obligated to procure, maintain and renew, at Sellers' sole expense, any and all licenses, permits and authorizations necessary for its continued ownership and operation of the Hotels and the hotel businesses thereon pending the Closing (including any license, permit or authorization required for the sale and service of alcoholic beverages). If valid permanent certificates of occupancy (or similar permit or authorization from the appropriate local authorities permitting occupancy of any Improvement) have not been issued for all of the Improvements, Sellers shall obtain, at Sellers' sole cost and expense, either (i) all such missing -58- 69 certificates of occupancy or (ii) letters from the appropriate local authorities stating that at the time the applicable Improvements were constructed such certificates of occupancy were not issued and are not required now for the continued occupancy and use of such Improvements. (ii) LIQUOR LICENSES. Prior to the Closing Date, Buyer shall seek to have all existing Liquor Licenses at the Hotels transferred to Buyer or to an entity designated by Buyer, or shall seek to have new liquor licenses issued in the name of Buyer or an entity designated by Buyer, whichever shall be in compliance with local law. Buyer acknowledges that the Liquor Licenses may not be assignable by Sellers to Buyer, and in such event Buyer shall apply for such Liquor Licenses. Buyer shall use all reasonable efforts at Buyer's sole expense to obtain the approval of the applicable state and local authorities for such transfer or issuance. Sellers shall cooperate with Buyer and Buyer's representatives to assist Buyer to procure and maintain all Liquor Licenses necessary and required for the sale and service of alcoholic beverages at the Hotels. In the event that such transfer or issuance has not been approved prior to the Closing Date, and provided that Buyer, in Buyer's sole discretion, shall desire to proceed with the Closing notwithstanding the lack of such approval, Sellers shall cooperate with Buyer to permit the continued sale of alcoholic beverages at the Hotels after the Closing in accordance with all applicable laws, notwithstanding the sale of the Hotels to Buyer, until such approval has been obtained. Sellers agree to execute such leases, management agreements and other documents as are legal and customary in the respective jurisdictions to permit the continued sale of alcoholic beverages after the Closing pending such approval. Buyer agrees to maintain liquor liability insurance in amounts no less than those previously maintained by Sellers naming Sellers as an additional insured, and further agrees to indemnify, defend and hold Sellers harmless from and against any liability, cost or expense arising out of Sellers' cooperation with Buyer during this interim period, exclusive of any gross negligence or willful misconduct by Sellers or Sellers' employees. -59- 70 7.1.13 CONSENTS; ESTOPPEL CERTIFICATES. Sellers shall promptly request and shall use Sellers' best efforts to obtain the Consents and the estoppel certificates referred to in Articles 9 and 10 hereof. Upon written request from Sellers, Buyer shall cooperate reasonably to obtain such Consents and estoppel certificates. 7.1.14 HART-SCOTT-RODINO. Sellers and Buyer each shall, on or before the day that is thirty-five (35) days before the Closing Date, make all filings which are required of such Party under the Hart-Scott-Rodino Anti-Trust Improvement Act of 1976, as amended ("HART-SCOTT"), and shall proceed with all due diligence to supply any additional information required by the Federal Trade Commission in connection therewith. Each Party shall furnish to the other such necessary information and reasonable assistance as the Parties may request in connection with the preparation of necessary filings or submissions to any governmental agency including, without limitation, any filings necessary under the provisions of Hart-Scott. All filings required to be made under Hart-Scott shall have been made, and the waiting period thereunder shall have expired or earlier terminated, on or before the Closing Date. In lieu of the foregoing, if Buyer believes that neither it nor this transaction is subject to the provisions of Hart-Scott, it may proceed to Closing notwithstanding its failure to comply with the requirements described above, provided Buyer delivers to Sellers at or prior to the Closing an opinion from an attorney or law firm reasonably acceptable to Sellers, stating that compliance with Hart-Scott is not required. 7.1.15 MISCELLANEOUS TAXES. Sellers shall comply with any pre-closing requirements and deliver any necessary notifications with respect to any Miscellaneous Taxes which may be payable by Sellers, including any Miscellaneous Taxes arising in connection with the transactions contemplated herein. 7.1.16 BULK SALES. The Parties agree to waive compliance with the provisions of the Uniform Commercial Code Bulk Sales Act as adopted in the States wherein the Hotels are located. Sellers shall remain liable for and will promptly pay when due and discharge all of Sellers' liabilities and obligations of every kind and nature accrued or occurring up to and including the Closing Date. Sellers shall and hereby agree to indemnify, hold harmless and defend Buyer for any loss, -60- 71 damage, liability, claim or expense (including, without limitation, reasonable attorneys' fees and expenses) on account of claims of Sellers' creditors arising from Sellers' failure to comply with any applicable bulk transfers laws. The aforesaid indemnity shall survive the Closing Date in accordance with Section 5.3 hereof. 7.1.17 NOTIFICATION UNDER COLLECTIVE BARGAINING AGREEMENTS. Sellers shall deliver any pre-closing notification or other requirements under any union contract or Collective Bargaining Agreement noted on Schedule 5.1.20. 7.1.18 EMPLOYMENT MATTERS ON THE CLOSING DATE. (i) SELLERS' OBLIGATIONS. On the Closing Date, Sellers shall terminate the employment of all Hotel Employees (including the Hotel Employees at Hotels subject to the Collective Bargaining Agreements), except for Hotel Employees of an Eliminated Hotel. Such termination shall be effective on the Closing Date, and Sellers agree to coordinate Sellers' termination of such Hotel Employees with Buyer's obligations with respect to offering employment to certain of the Hotel Employees, as more particularly set forth in clause (ii) below; and (ii) BUYER'S OBLIGATIONS. Promptly after Sellers dismiss Hotel Employees of Hotels other than Eliminated Hotels as required under Section 9.1.9, Buyer shall offer employment to a sufficient number of such employees necessary to avoid a successful claim being made under the WARN Act with respect to Hotels other than Eliminated Hotels and any similar State statute applicable to such Hotel Employees. At Closing, Buyer shall, subject to Section 1.2.8, assume the Collective Bargaining Agreements with respect to Hotel Employees of Hotels other than Eliminated Hotels and the contribution obligations (excluding any withdrawal liability of Sellers under ERISA) to the Multiemployer Plans with respect to such Hotel Employees for the period after the Closing Date and Buyer's obligations with respect to such Hotel Employees under Section 11.6 hereof. Buyer shall indemnify Seller from and against any liability arising under any of such Collective Bargaining Agreements with respect to any such Hotel Employee covered thereby who is not offered employment by Buyer. -61- 72 7.1.19 CONTINUED HEALTH COVERAGE. Prior to the Closing, Sellers shall provide Buyer with accurate and complete information (including lists of appropriate persons) and provide notices deemed satisfactory to Buyer so that effective as of the Closing Buyer shall be able to (and Buyer hereby covenants and agrees to) provide continued health coverage as may be required by Part 6 of Title I of ERISA to Hotel Employees (whether such Hotel Employees are or are not subsequently employed by Buyer), the spouses and dependent children of Hotel Employees, persons who prior to the Closing Date are already receiving or entitled to receive as, or with respect to, a Hotel Employee or a prior employee of a Hotel such continued health coverage under a group health plan of Sellers, and persons who may after the Closing Date become entitled to receive such continued health coverage as a result of having been a spouse or dependent child of a Hotel Employee or other person who was prior to Closing an employee of a Hotel. For the purposes of the preceding sentence, the term "Hotel Employees" shall be deemed to exclude those Hotel Employees who are employed by an Eliminated Hotel (until such time as the Eliminated Hotel is no longer an Eliminated Hotel), and to include those individuals who are listed on Schedule 7.1.19, only if such individuals are employed on or before March 31, 1996 by a Person comprising Sellers (and not by Hotels of Distinction, Inc.) from whom Buyer is purchasing a Hotel (i.e. excluding Eliminated Hotels) and is not employed by an Eliminated Hotel, and provided, further, that such individuals remain so employed by such Person(s) (and not by Hotels of Distinction, Inc.) on the Closing Date (or the Postponed Closing Date, as the case may be) with respect to the applicable Hotel(s). For purposes of the second preceding sentence, the terms "a prior employee of a Hotel" and "an employee of a Hotel" shall not include such employees of an Eliminated Hotel. Management Company covenants that it shall transfer the employment of the individuals listed on Schedule 7.1.19 to the applicable Person(s) comprising Sellers on or prior to March 31, 1996, and shall not rehire any of such individuals, if at all, prior to the Closing Date (or the Postponed Closing Date, as the case may be) with respect to the applicable Hotel(s). Sellers covenant and agree to provide continued health coverage as may be required by Part 6 of Title I of ERISA to all other persons entitled to such coverage as, or with respect to, any other employee or prior employee of Sellers or any ERISA Affiliate. If, after the Closing, any Seller continues to own an Eliminated Hotel, and if such Seller provides a group health plan for its employees, such -62- 73 Seller covenants and agrees to offer continued health coverage to all individuals described in the first sentence of this Section 7.1.19, so that each such indivisual shall be permitted to choose continued health coverage under Buyer's group health plan or under the Eliminated Hotel's group health plan. Buyer covenants and agrees to cooperate with Sellers in providing appropriate notices to affected individuals. If Buyer subsequently purchases any Eliminated Hotel, then the provisions of this Section 7.1.19 shall apply again as of the closing date for the purchase of such Eliminated Hotel, but at such time, the term "Hotel Employee" or "employee of a Hotel" or "prior employee of a Hotel" shall refer only to employees of the purchased Eliminated Hotel. ARTICLE 8 CASUALTY LOSS/CONDEMNATION 8.1 RISK OF LOSS. Sellers shall bear the risk of loss or damage to the Improvements and the Personal Property until the Closing, and thereafter, Buyer shall bear the risk of loss. 8.2 CASUALTY LOSS. Any loss, damage, or destruction to the Improvements or the Personal Property after the Effective Date and prior to the Closing Date shall be a "CASUALTY". Sellers shall notify Buyer of any Casualty not later than three (3) days after the occurrence thereof. Thereafter, Sellers and Buyer shall determine in good faith and in their reasonable discretion whether a Casualty is "substantial" within ten (10) days after Buyer's receipt of such notice. In the event the Parties cannot agree within such period, either Party may submit the matter to arbitration in accordance with Section 11.10.2, except that the arbitrator shall be an engineer living within fifty (50) miles of the affected Hotel. A Casualty shall be deemed "substantial" if the cost of restoring, replacing, and/or repairing such Improvements and/or Personal Property exceeds One Hundred Thousand ($100,000.00) Dollars or if such Casualty materially adversely affects the access to a Hotel or the business operations of a Hotel and such access or business operations are reasonably expected to be interfered with for longer than two (2) weeks. 8.3 NON-SUBSTANTIAL CASUALTY. In the event of a Casualty which is not "substantial", at Sellers' sole option and without notice to Buyer except as set forth in this Section 8.3. -63- 74 with respect to postponing the Closing Date, Sellers may (i) before or after the Closing (at Sellers' sole option), repair the Casualty, in which event Sellers shall cause the Improvements and/or Personal Property to be restored to substantially the condition in which they existed immediately prior to the Casualty, and Sellers shall be entitled, but not obligated, in Sellers' sole discretion, to postpone the Closing Date as to such Hotel for up to thirty (30) days upon notice of such postponement to Buyer, which notice shall specify a new Closing Date for such Hotel (and thereafter all references in this Agreement to "Closing" and "Closing Date" as to such Hotel shall refer to the date set forth in Sellers' notice to Buyer), whereupon the sale and conveyance of the remaining Assets shall be consummated on the Closing Date; or (ii) without repairing the Casualty, without recourse or warranty on Sellers, quitclaim to Buyer at the Closing all of Sellers' right, title, and interest, if any, in and to all hazard insurance proceeds payable with respect to the Casualty, and pay Buyer the amount of the deductible (or the self-insured retainage) under Sellers' insurance policy, whereupon the Closing as to such affected Hotel shall take place as if no Casualty had occurred and without any reduction in the Purchase Price. 8.4 SUBSTANTIAL CASUALTY. In the event of a "substantial" Casualty, within fifteen (15) days after such Casualty is "substantial," Buyer shall elect with respect to the affected Hotel either (i) to terminate this Agreement as it relates to such Hotel, whereupon the Allocable Deposit with respect to such Hotel, shall be forthwith returned to Buyer and this Agreement shall continue in full force and effect, except it shall be deemed null and void and without recourse to either Party hereto as to the Hotel which sustained the "substantial" Casualty, or (ii) to purchase the affected Hotel on the Closing Date in its then current condition, without any reduction in the Purchase Price, and accept a quitclaim, without recourse or warranty on Sellers, of all of Sellers' right, title, and interest, if any, in and to all hazard insurance proceeds payable with respect to such Casualty, and pay Buyer the amount of the deductible (or the self-insured ) under Sellers' insurance policy. Buyer agrees that Buyer may not exercise the termination option set forth in clause (i) above with respect to more than one (1) Hotel. 8.5 CONDEMNATION. After the Effective Date and prior to the Closing, the institution of any proceeding seeking the taking of all or any portion of or interest in the Assets shall -64- 75 constitute a "TAKING". Sellers shall notify Buyer of the institution of any such proceedings not later than three (3) days after the commencement thereof, and the Parties shall determine within ten (10) days after Buyer's receipt of such notice whether in good faith and in the Parties' reasonable discretion such Taking is "substantial." In the event the Parties cannot agree within such period, either Party may submit the matter to arbitration in accordance with Section 11.10.2, except that the arbitrator shall be an engineer living within fifty (50) miles of the affected Hotel. A Taking shall be deemed "substantial" if the value of the Assets which is the subject of the Taking exceeds a value of One Hundred Thousand ($100,000.00) Dollars or if such Taking materially adversely affects access to the affected Hotel or the business operations thereof. 8.6 NON-SUBSTANTIAL CONDEMNATION. In the event of a Taking which is not "substantial", Buyer shall have no right to terminate this Agreement as to such Hotel or to receive any reduction in the Purchase Price, and the Closing shall occur as if no Taking had occurred except, at the Closing, Sellers shall quitclaim to Buyer, without recourse or warranty on Sellers, all of Sellers' right, title, and interest, if any, in and to all awards, damages, and compensation payable to Sellers on account of such Taking. 8.7 SUBSTANTIAL CONDEMNATION. In the event of a Taking which is "substantial", within fifteen (15) days after the determination by Sellers that such Taking is "substantial," Buyer shall elect with respect to the affected Hotel (i) to terminate this Agreement to the extent same relates to the affected Hotel, whereupon the Allocable Deposit with respect to such Hotel shall be forthwith returned to Buyer and this Agreement shall continue in full force and effect, except it shall be deemed null and void and without recourse to either Party hereto as to the Hotel subject to the "substantial" Taking, or (ii) to purchase the affected Hotel on the Closing Date subject to the Taking in its then current condition, without any reduction in the Purchase Price, and accept a quitclaim, without recourse or warranty on Sellers, of all of Sellers' right, title, and interest, if any, in and to all awards, damages, and compensation payable to Sellers on account of such Taking. Buyer agrees that Buyer may not exercise the termination option set forth in clause (i) above with respect to more than one (1) Hotel. -65- 76 ARTICLE 9 CONDITIONS TO CLOSING 9.1 BUYER'S CONDITIONS TO CLOSING. Satisfaction of each of the following conditions, any of which may be waived in writing by Buyer, shall be deemed a condition to Buyer's obligation to close hereunder: 9.1.1 STATUS OF TITLE; DELIVERY OF REQUIRED DOCUMENTS. Sellers shall be able to deliver fee title to the Real Properties and Improvements (or, if Buyer shall have elected to assume the Loan Documents under Section 7.1.3(i) hereof, the contract-vendee's interest under the Loan Agreements affecting the Allentown Hilton), subject only to the Permitted Encumbrances and shall be able to deliver each of the documents referred to in Section 10.2, including any estoppels, consents or approvals required of third parties. 9.1.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties of Sellers set forth herein shall be true and correct in all material respects as of the Closing Date, with the exception of Exhibits which must be updated at the Closing Date to reflect changes permitted under the terms of this Agreement (to the extent such changes are acceptable to Buyer in its sole discretion). 9.1.3 FRANCHISE AGREEMENTS. The Franchise Agreements shall all be in good standing with no violations or defaults thereunder, and each Hotel shall be in compliance with and satisfy all requirements and standards set forth in the applicable Franchise Agreement, other than as set forth in any inspection report or property improvement plan (as more particularly described below). Buyer agrees that Sellers shall not be obligated to comply with any matters set forth in any property improvement plans issued by the Franchisors to Buyer as a condition to obtaining such Franchisor's consent to the sale transaction described herein. Sellers shall be required to complete all work referred to on Schedule 5.1.15 and will also be required to perform all "mandatory" or "required" work items which appear on any inspection report(s) received by Seller after the Effective Date, if the failure to cure such items could constitute an imminent default under the applicable Franchise Agreement. All of the Franchisors under the Franchise Agreements -66- 77 shall have consented in writing to the assignment of the Franchise Agreements or to the execution of new franchise agreements with Buyer on terms acceptable to Buyer, and all of the Franchisors shall have delivered estoppel certificates in form acceptable to Buyer in its reasonable discretion. In the event that the Franchisor with respect to St. Louis Suites refuses either to consent to the assignment of the Franchise Agreement affecting such Hotel or to enter into a new franchise agreement with Buyer, Buyer may elect to terminate this Agreement as it relates to St. Louis Suites, whereupon the Allocable Deposit with respect to St. Louis Suites shall immediately be returned to Buyer, the Purchase Price shall be reduced by the Allocated Purchase Price with respect to St. Louis Suites and neither Party shall have any additional rights hereunder with respect to St. Louis Suites. 9.1.4 EXISTING IDA DEBT. If Buyer shall have elected to assume the Loan Documents under Section 7.1.3(i) hereof, the Existing IDA Debt shall be in full force and effect with no defaults thereunder. The other Persons that are party to the Loan Documents shall have consented in writing to the sale of the Hotel(s) subject thereto without any modification of the terms thereof. If Buyer shall not have elected to assume the Loan Documents, Sellers shall have arranged to terminate the Loan Documents and to have the fee simple estate in the Allentown Hilton conveyed by the Lehigh County Industrial Development Authority to Buyer (or its permitted designee hereunder), subject only to the Permitted Encumbrances. 9.1.5 PERFORMANCE OF PRE-CLOSING COVENANTS. Sellers shall have performed, observed and complied with all of the preclosing covenants, agreements and conditions required by this Agreement to be performed, observed and complied with by Sellers prior to or as of the Closing, including but not limited to each of the covenants set forth in Article 7 hereof. 9.1.6 NO BANKRUPTCY. None of Sellers shall have made an assignment for the benefit of creditors or admitted in writing its inability to pay its debts as they mature or have been adjudicated as bankrupt or have filed a petition in voluntary bankruptcy or a petition or answer seeking reorganization or an arrangement with creditors under the Federal bankruptcy law or any other similar law or statute of the United States or any State, and no such petition shall have been filed against it. -67- 78 9.1.7 ALL REQUIRED TERMINATIONS OBTAINED. Sellers shall have terminated any Contracts or Personal Property Leases identified by Buyer under Section 1.2.5 or Section 1.2.8 hereof, and such termination shall be effective on or prior to the Closing Date. 9.1.8 CONSUMMATION OF CLOSING UNDER MANAGEMENT COMPANY PURCHASE AGREEMENT. The Closing shall have occurred (or shall be occurring simultaneously) under the Management Company Purchase Agreement. It shall be a default of Sellers hereunder in the event that Management Company defaults under the Management Company Purchase Agreement and such default is not cured within any applicable notice and/or cure period. 9.1.9 DISMISSAL OF HOTEL EMPLOYEES. Sellers shall have terminated the employment of all Hotel Employees of Hotels other than Eliminated Hotels. Such termination shall be effective on the Closing Date. 9.2 SELLERS' CONDITIONS TO CLOSING. Satisfaction of each of the following conditions, any of which may be waived in writing by Sellers, shall be deemed a condition to Sellers' obligation to close hereunder: 9.2.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of Buyer set forth herein shall be true and correct in all material respects as of the Closing Date, with the exception of Exhibits which must be updated at the Closing Date to reflect changes permitted under the terms of this Agreement. 9.2.2 ASSUMPTION OF ASSUMED LIABILITIES. Buyer shall have assumed all of the Assumed Liabilities with respect to the Assets to be sold, transferred, assigned and conveyed on the Closing Date. 9.2.3 CONSUMMATION OF CLOSING UNDER MANAGEMENT COMPANY PURCHASE AGREEMENT. The Closing shall have occurred (or shall be occurring simultaneously) under the Management Company Purchase Agreement. It shall be a default of Buyer hereunder in the event that Realty Partnership defaults under the Management Company Purchase Agreement and such default is not cured within any applicable notice and/or cure period. -68- 79 9.2.4 PERFORMANCE OF PRE-CLOSING COVENANTS. Buyer shall have performed, observed and complied with all of the preclosing covenants, agreements and conditions required by this Agreement to be performed, observed and complied with by Buyer prior to or as of the Closing, including but not limited to, each of the covenants set forth in Article 7 hereof. ARTICLE 10 CLOSING 10.1 CLOSING. The consummation of the transaction contemplated in this Agreement (the "CLOSING") shall occur at 10:00 a.m., on a date mutually agreed upon by the Parties and not later than July 11, 1996 (the "CLOSING DATE"), in the offices of Sidley & Austin, 875 Third Avenue, New York, New York 10022. If through no fault of either Party the transactions contemplated herein have not been consummated on or before the date that is eighty (80) days after the expiration of the Inspection Period (other than with respect to adjournments contemplated by the express terms hereof or otherwise agreed to in writing by the Parties), and provided that neither Party has at such time commenced an action or other legal proceeding against the other Party hereto in connection with this Agreement, then either Party hereto may, upon written notice to the other Party and Escrow Agent, elect to terminate this Agreement. In the event that either Party exercises the aforesaid termination right, then, not earlier than fifteen (15) days after Escrow Agent's receipt (or deemed receipt) of the termination notice, unless the other Party shall have commenced an action or other legal proceeding against the other Party hereto with respect to this Agreement, Escrow Agent shall return the Deposit to Buyer, this Agreement shall terminate and be null and void and neither Party shall have any further rights or obligations hereunder. 10.2 SELLERS' CLOSING DOCUMENTS AND DELIVERIES. At Closing, Sellers shall execute, swear to, acknowledge (when the form of the document so provides) and/or deliver or cause to be delivered to Buyer the following: 10.2.1 DEEDS. Special warranty deeds (or the local equivalent) (the "DEEDS") covering the Real Properties and the Improvements, executed and acknowledged by Sellers, in the form -69- 80 set forth on Exhibit 10.2.1 attached hereto and made a part hereof for all purposes; 10.2.2 BILL OF SALE. A warranty bill of sale (the "BILL OF SALE") covering the Personal Property, executed and acknowledged by Sellers, in the form set forth on Exhibit 10.2.2 attached hereto and made a part hereof for all purposes; 10.2.3 ASSIGNMENT AND ASSUMPTION OF SPACE LEASES. An Assignment and Assumption of Space Leases (the "ASSIGNMENT AND ASSUMPTION OF SPACE LEASES") assigning the Space Leases, the Rents and the Hotel Deposits, to be executed, acknowledged and delivered by Sellers to Buyer, and executed, acknowledged and assumed by Buyer, in the form set forth on Exhibit 10.2.3 attached hereto and made a part hereof for all purposes; 10.2.4 ASSIGNMENT AND ASSUMPTION OF CONTRACTS/PERMITS. An Assignment and Assumption of all Contracts (and all assignable Permits) (the "ASSIGNMENT AND ASSUMPTION OF CONTRACTS/PERMITS"), to be assigned to Buyer pursuant to Section 1.2.8 hereof, to be executed, acknowledged and delivered by Sellers to Buyer, and executed, acknowledged and assumed by Buyer, in the form set forth on Exhibit 10.2.4 attached hereto and made a part hereof for all purposes; 10.2.5 ASSIGNMENT AND ASSUMPTION OF PERSONAL PROPERTY LEASES. An Assignment and Assumption of Personal Property Leases (the "ASSIGNMENT AND ASSUMPTION OF PERSONAL PROPERTY LEASES"), to be assigned to Buyer pursuant to Section 1.2.5 hereof, to be executed, acknowledged and delivered by Sellers to Buyer, and executed, acknowledged and assumed by Buyer, in the form set forth on Exhibit 10.2.5 attached hereto and made a part hereof for all purposes; 10.2.6 ASSIGNMENT AND ASSUMPTION OF REAL PROPERTY LEASES. An Assignment and Assumption of Real Property Leases (the "ASSIGNMENT AND ASSUMPTION OF REAL PROPERTY LEASES") to be executed, acknowledged and delivered by Sellers to Buyer, and executed, acknowledged and assumed by Buyer, in the form set forth on Exhibit 10.2.6 attached hereto and made a part hereof for all purposes; 10.2.7 ASSIGNMENT AND ASSUMPTION OF INTELLECTUAL PROPERTY. An Assignment and Assumption of Intellectual Property -70- 81 (the "ASSIGNMENT AND ASSUMPTION OF INTELLECTUAL PROPERTY"), to be assigned to Buyer pursuant to Section 1.2.10 hereof, to be executed, acknowledged and delivered by Sellers to Buyer, and executed, acknowledged and assumed by Buyer, in the form set forth on Exhibit 10.2.7 attached hereto and made a part hereof for all purposes; 10.2.8 MOTOR VEHICLES. Certificates of title to all Motor Vehicles identified on Schedule 10.2.8; 10.2.9 ORIGINAL DOCUMENTS. To the extent the same are in Sellers' or Management Company's possession, the originals of all Asset Documents; 10.2.10 PLANS AND SPECIFICATIONS. Plans and specifications, technical manuals and similar material, for the Improvements, if any, in Sellers' possession or control; 10.2.11 LIQUOR LICENSES AND PERMITS. If assignable, any liquor licenses or permits, or copies thereof, in Sellers' possession pertaining to the operation and maintenance of the Hotels, together with a duly executed assignment thereof to Buyer and any documents or other instruments required in connection with the assignment and transfer of any existing liquor license or the issuance of a new liquor license, including any documents or instruments required for an interim arrangement pending the approval of such transfer or issuance; 10.2.12 WARRANTIES AND GUARANTEES. If assignable, any unexpired warranties and guarantees, or copies thereof, in Sellers' possession which Sellers have received (i) in connection with the Improvements and any work or services performed with respect to, or equipment installed in, the Hotels, or (ii) from any prior owners of the Hotels, together with individual or omnibus assignments thereof to Buyer. If any such warranties or guarantees are not assignable, Sellers agree to cooperate with Buyer after the closing to the extent required to enforce any rights under such warranties or guarantees, at Buyer's expense; 10.2.13 RESERVATION DEPOSITS. An assignment of the Reservation Deposits and Buyer's receipt therefor; 10.2.14 EVIDENCE OF DUE AUTHORIZATION. Secretary's Certificates certifying that the Boards of Directors of each -71- 82 Person comprising Sellers have duly adopted resolutions authorizing the within transaction and executed and acknowledged Incumbency Certificates certifying to the authority of the officers of each Person comprising Sellers executing the documents to be delivered by Sellers on the Closing Date; 10.2.15 REQUIRED TITLE INSURANCE DOCUMENTS. Such other instruments and documents as may reasonably be required by the Title Company to issue an owner's title insurance policy (in the forms set forth in the next succeeding sentence) insuring the Real Property against all title defects or encumbrances other than the Permitted Encumbrances, or as may be required to effectuate the transactions contemplated hereunder, including but not limited to such title affidavits, indemnifies and proofs as may be required by the Title Company to eliminate exceptions for unfiled mechanics' or materialmen's liens, for the insolvency of Sellers, for the occupancy of any party other than tenants under the Space Leases (as tenants only) and transient lodging guests and to enable the Title Company to insure the "gap" between Closing and recordation of the Deeds. The owner's title insurance policies shall be written on the following forms: (i) with respect to the Real Property situated in North Carolina, Minnesota, Massachusetts or Illinois, the title insurance policies shall be written on ALTA Form 1970, (ii) with respect to the Real Property situated in Pennsylvania, Georgia, Missouri or Arizona, the title insurance policies shall be written on ALTA Form 1970 (as amended in 1984), and (iii) with respect to the Real Property situated in California, the title insurance policies shall be written on CLTA Form 1992 (to be amended by endorsement to delete from the terms, provisions and conditions thereof the creditors' rights exception); provided, however, in the event that Sellers will incur any additional cost in causing the Title Company to issue one (1) or more of its policies on the forms set forth above (rather than on a different form customarily used in such State(s)), then Buyer, at Buyer's option, may elect either (a) to pay such extra cost incurred to issue the title insurance policies on the forms set forth above, or (b) to waive the requirement that Sellers deliver such title insurance policies on the forms set forth above with respect to the applicable Hotel(s) for which such extra cost will be incurred, whereupon Sellers shall obtain owner's title insurance policies on the ALTA (or CLTA) form then customarily used in the applicable State(s). Sellers shall deliver originals or certified copies of any resolutions, partnership agreements, -72- 83 trust indentures, agency agreements, powers of attorney, consents and other documentation, and shall execute such affidavits and indemnities, as may be required by the Title Company, with respect to the authority of Sellers or of the Person(s) signing on behalf of Sellers; 10.2.16 CERTIFICATES OF OCCUPANCY; PERMITS AND AUTHORIZATIONS. An original or a true copy of the certificates of occupancy or such other permits or authorizations, if any, as are customarily issued in the jurisdictions permitting the use and occupancy of each of the Improvements; 10.2.17 REAL PROPERTY LEASE ESTOPPEL CERTIFICATES. An estoppel certificate signed by each landlord under the Real Property Leases, which estoppel certificates shall be in the form annexed hereto as Exhibit 10.2.17; 10.2.18 CONSENTS. The Consents set forth on Schedule 5.1.3 in form and substance acceptable to Buyer in its reasonable discretion; 10.2.19 SPACE LEASE TENANT ESTOPPEL CERTIFICATES. An estoppel certificate signed by each tenant or occupant under any Space Leases identified by Buyer at least thirty-five (35) days before the Closing Date, which estoppel certificates shall be in the form annexed hereto as Exhibit 10.2.19; 10.2.20 FRANCHISE AGREEMENTS. An assignment of the Franchise Agreements together with Sellers' executed counterparts thereof, or if a Franchisor insists that Buyer enter into a new franchise agreement with such Franchisor, a new franchise agreement. The assignment of the Franchise Agreements shall contain Buyer's indemnity of Sellers against any liability for obligations under the Franchise Agreements from and after the Closing Date and Sellers' indemnity of Buyer against any liability for such obligations relating to periods prior to the Closing Date. Sellers shall also deliver the written estoppel and consent of each Franchisor to such assignment, in the form customarily used by each Franchisor and otherwise in form satisfactory to Buyer in its reasonable discretion; 10.2.21 FIRPTA CERTIFICATION. An affidavit of an officer of each party comprising Sellers stating that none of -73- 84 such parties are a "foreign person" within the meaning of Section 1445 of the Internal Revenue Code of 1954, as amended; 10.2.22 EXISTING IDA DEBT ESTOPPEL CERTIFICATE(S). If Buyer shall have elected to assume the Loan Documents under Section 7.1.3(i) hereof, an estoppel and consent from the Persons that are parties to the Loan Documents, in the form annexed hereto as Exhibit 10.2.22; 10.2.23 KEYS. All keys and master keys to all locks located at the Hotels; 10.2.24 GOOD STANDING CERTIFICATES. Certificates of good standing for each Person comprising Sellers from all relevant jurisdictions; 10.2.25 BUSINESS RECORDS. All original Business Records; 10.2.26 NOTICES TO THIRD PARTIES. Written notices addressed to the tenants under the Space Leases, the parties under the Contracts, the lessors under the Personal Property leases, the lessors under the Billboard Leases, the franchisors under the Franchise Agreements, the Persons that are parties to the Loan Documents, that Buyer is the new party under the applicable agreement (in substitution for the applicable Seller) and that from and after the Closing Date Buyer has assumed all duties and obligations of Sellers under the applicable agreement; 10.2.27 SELLERS' PRIOR LIABILITY INSURANCE POLICIES. Sellers shall deliver to Buyer an endorsement to Sellers' Prior Liability Insurance Policies, naming Buyer as an additional named insured thereunder; 10.2.28 SCHEDULE OF ACCRUED EMPLOYEE BENEFITS. A statement certified by Sellers as true and correct setting forth the number of accrued vacation days for each Hotel Employee through the Closing Date; and 10.2.29 TERMINATION AGREEMENTS. The Termination Agreements with respect to the Management Agreements (in the form annexed as an exhibit to the Management Company Asset Purchase Agreement). 85 10.2.30 ADDITIONAL DOCUMENTS. Any and all other documents reasonably required by Buyer to consummate the Closing, duly executed, sworn to, and/or acknowledged (when the form of the document so provides), by Sellers. 10.3 BUYER'S CLOSING DOCUMENTS AND DELIVERIES. At Closing, Buyer shall execute, swear to, acknowledge (when the form of the document so provides), and/or deliver to Sellers the Conveyance Documents and the following: 10.3.1 PURCHASE PRICE. Cash in the amount of the balance of the Purchase Price, after all adjustments and prorations provided for herein; 10.3.2 SECRETARY'S CERTIFICATE. A duly executed Secretary's Certificate certifying that the Board of Directors of Starwood Lodging Trust, as general partner of Realty Partnership, and Starwood Lodging Corporation, as general partner of Operating Partnership, have each duly adopted resolutions authorizing the within transaction and executed and acknowledged Incumbency Certificates certifying to the authority of the officers of Starwood Lodging Trust and Starwood Lodging Corporation executing the documents on behalf of Realty Partnership and Operating Partnership, as the case may be, to be delivered by Buyer on the Closing Date; 10.3.3 GOOD STANDING CERTIFICATES. Certificates of good standing for Realty Partnership and Operating Partnership from all relevant jurisdictions; 10.3.4 HART-SCOTT LEGAL OPINION. The Hart-Scott legal opinion, if Buyer elects to deliver same in accordance with Section 7.1.14.; and 10.3.5 ADDITIONAL DOCUMENTS. Any and all other documents reasonably required by Sellers or the Title Company to consummate the Closing, duly executed, sworn to and/or acknowledged (when the form of document so provides), by Buyer. 10.4 JOINTLY EXECUTED DOCUMENTS. Sellers and Buyer shall each execute or cause to be executed the following documents and deliver same as indicated: -75- 86 10.4.1 RELEASE OF ESCROW AGENT. A release of Escrow Agent by Sellers and Buyer to be delivered to Escrow Agent. 10.4.2 CONTINUED SALE OF ALCOHOLIC BEVERAGES. All documents required to permit the continued sale of alcoholic beverages at the Hotels. 10.4.3 COLLECTIVE BARGAINING AGREEMENTS. Any documents required under any of the agreements identified in Schedule 5.1.21, such as an assignment and assumption (if required). 10.5 TRANSACTION COSTS. 10.5.1 TRANSFER TAXES; SALES AND USE TAXES. At Closing, except as set forth in Section 10.5.2 hereof, Sellers shall pay (i) any and all transfer taxes, deed stamps, conveyance taxes, "gains" taxes, documentary stamp taxes and other taxes or charges due under local or state law as a result of the trans actions contemplated hereby, including the sale of the Real Properties, and (ii) any and all sales and use taxes due under local or state law as a result of the transactions contemplated hereby, including the sale of the Personal Property. 10.5.2 RECORDING CHARGES AND FEES. At Closing, Sellers and Buyer shall each pay an amount equal to one-half (1/2) of any and all recording charges and fees due under state or local law as a result of the recordation of the Deeds and the other documents contemplated herein. 10.5.3 TITLE INSURANCE AND SURVEY CHARGES. Sellers shall pay all title insurance premiums and other charges associated therewith for Buyer's owner's reports and policies covering the Real Properties, the Real Property Leases and the Improvements, and Buyer shall pay the cost of obtaining current surveys (or survey updates) of the Hotels. Buyer shall pay the cost of any endorsements to the title insurance policies; provided, however, that Sellers shall pay the cost, if any, for Buyer to obtain a so-called "extended coverage" endorsement and for any endorsement required to remove any exception to title which Buyer is not required to accept hereunder. 10.5.4 INDEMNITY. Each Party shall indemnify the other and its respective successors and assigns from and against -76- 87 any and all loss, damage, cost, charge, liability or expense (including court costs and reasonable attorneys' fees) which such other Party may sustain or incur as a result of the failure of either Party to timely pay any of the aforementioned taxes, fees or other charges for which it has assumed responsibility under this Section 10.5. 10.5.5 SURVIVAL. The provisions of this Section 10.5 shall survive the Closing Date in accordance with Section 5.3 hereof. 10.6 BUYER'S CLOSING COSTS. Buyer shall pay in Cash at the Closing each and all of the following Closing costs: 10.6.1 BUYER'S ATTORNEYS' FEES. Buyer's attorneys' fees incurred in drafting and negotiating this Agreement and in Closing the transaction contemplated in this Agreement; 10.6.2 BUYER'S DUE DILIGENCE COSTS. All costs incurred by Buyer in performing Buyer's due diligence review and inspection of the Assets and the Condition of the Assets; 10.6.3 BUYER'S PRO RATA SHARE. Buyer's proportionate share of the items prorated pursuant to Article 11 hereof; and 10.6.4 BUYER'S MISCELLANEOUS COSTS. Unless otherwise expressly provided herein, all other fees, costs, and expenses customarily paid by a purchaser of improved Real Properties in the counties where the Hotels are located. 10.7 SELLERS' CLOSING COSTS. Sellers shall pay in Cash at the Closing each and all of the following Closing costs: 10.7.1 SELLERS' ATTORNEYS' FEES. Sellers' attorneys' fees incurred in drafting and negotiating this Agreement and in Closing the transaction contemplated in this Agreement; 10.7.2 SELLERS' PRO RATA SHARE. Sellers' propor tionate share of the items prorated pursuant to Article 11 hereof; and 10.7.3 SELLERS' MISCELLANEOUS CLOSING COSTS. Unless otherwise expressly provided herein, all other fees, costs, and -77- 88 expenses customarily paid by Sellers of improved Real Properties in the counties where the Hotels are located. 10.8 MULTIPLE CLOSINGS. In the event that the Closing with respect to one (1) or more of the Hotels has been adjourned pursuant to the express provisions of this Agreement or as otherwise agreed in writing by the Parties, the Closing shall nonetheless take place as to the other Hotels on the Closing Date; provided, however, that upon such Closing, Sellers shall be entitled to receive only the Allocable Deposits and Buyer shall be obligated to pay only the Allocated Purchase Price with respect to the Hotels being conveyed on such date, and Escrow Agent shall continue to hold the Allocable Deposits with respect to those Hotels not being conveyed on such date in accordance with the terms of this Agreement. ARTICLE 11 PRORATIONS/ADJUSTMENTS 11.1 COSTS AND PRORATIONS. All items customarily prorated and adjusted in the sale of hotels shall be computed and certified to the Parties by Coopers & Lybrand (the "Coopers & Lybrand Certification"). Such apportionment between Sellers and Buyer shall be performed as of 11:59 P.M. on the day immediately preceding the Closing Date (the "Apportionment Date"): 11.1.1 PROPERTY TAXES. Property Taxes (other than water charges) and any Tax Savings or Tax Refunds referred to in Section 7.1.1.(v), on the basis of the respective periods for which each is assessed or imposed, to be apportioned in accordance with Section 11.2 hereof; 11.1.2 WATER CHARGES. Water charges to be apportioned in accordance with Section 11.3 hereof; 11.1.3 UTILITIES. Charges for electricity, telephone, television, cable television, steam, gas and any other utilities (collectively, "UTILITIES") made by the utility companies servicing the Hotels to be apportioned in accordance with Section 11.4 hereof, and transferable utility deposits, if any, for which Sellers shall be reimbursed if same be assigned, but all amounts refundable under unassigned or unassignable utility arrangements shall remain the property of Sellers; -78- 89 11.1.4 TRANSFERABLE PERMITS. Prepaid fees or other charges for transferable licenses, permits, and other items, if any, but all amounts refundable under unassigned or unassignable licenses and permits shall remain the property of Sellers; 11.1.5 CONTRACTS, REAL PROPERTY LEASES, PERSONAL PROPERTY LEASES AND FRANCHISE AGREEMENTS. Amounts paid or payable under the Contracts (provided that amounts paid or payable under the Collective Bargaining Agreements to be apportioned in a manner consistent with Section 1.2.8), Real Property Leases, Personal Property Leases, Billboard Leases, and Franchise Agreements; 11.1.6 ROOM CHARGES; OTHER GUEST CHARGES. Room charges and other guest charges incurred on or before the Apportionment Date to be apportioned and collected in accordance with Sections 11.5 hereof; 11.1.7 ASSOCIATION DUES. Fees or dues paid or payable for local trade, merchant or business associations listed on Schedule 5.1.29 hereof; 11.1.8 TRAVEL AGENTS' COMMISSIONS. Travel agents' commissions, if any, to be apportioned consistent with the allocation of room revenues referable to each such travel agent; 11.1.9 WAGES, SALARIES, ETC. All wages, salaries, bonuses, employment taxes, vacation days, sick days and personal days, if any, and any and all payments due under or in accordance with any Collective Bargaining Agreement, accrued through the Apportionment Date for all employees of Sellers or their affiliates working at the Hotels, to be apportioned in accordance with Section 11.6; 11.1.10 SPACE LEASES. Rent and all other charges due under the Space Leases, to be apportioned in accordance with Section 11.7; 11.1.11 CONSUMABLES. There will be no apportionment or adjustment for new and used Personal Property, including inventory and consumables, all of which shall be included in the sale contemplated herein; -79- 90 11.1.12 EXISTING IDA DEBT. If Buyer shall have elected to assume the Loan Documents under Section 7.1.3(i), any amounts payable thereunder shall be apportioned as of the Apportionment Date; 11.1.13 INSURANCE. Buyer shall obtain its own insurance and no adjustment shall be made for any premiums which may have been paid by Sellers for any period following the Closing Date. Any refunds for prepaid premiums made to Sellers shall belong to Sellers; 11.1.14 PREPAID ACCOUNTS. Prepaid Accounts (including advance payments in the form of gift certificates) for use of the Hotels' facilities after the Closing Date shall be the property of Buyer (and delivered to Buyer on the Closing Date) and not subject to adjustment; and 11.1.15 LAUNDRY AND VENDING MACHINES. Charges and washing machine and/or vending machine contracts, which Buyer is to assume hereunder, shall be adjusted as of midnight the evening prior to the Closing. Laundry and vending equipment owned or leased by Sellers shall have their coins removed for the account of the Sellers the day prior to the Closing. 11.2 PROPERTY TAX APPORTIONMENT. Property Taxes shall be apportioned on the basis of the fiscal period for which assessed; the Parties agree, however, that Property Taxes with respect to the Minneapolis Hilton shall be apportioned based upon the fiscal year in which the Closing occurs (notwithstanding the fact that such Property Taxes are based upon assessments from earlier years). If the Closing Date shall occur either before an assessment is made or a tax rate is fixed for the tax period in which the Closing occurs, the apportionment of such Property Taxes shall be calculated on the basis of the prior year's Property Taxes, but, after the assessment and tax rate for the current year are fixed, the apportionment thereof shall be recalculated and Sellers or Buyer, as the case may be, shall make an appropriate payment to the other based on such recalculation. If, on the Closing Date, the Real Properties or any part thereof shall be or shall have been affected by a betterment or special assessments for local or regional improvements which were levied or became a lien prior to the Closing and which are payable in installments, all unpaid installments of any such assessments which are to become due and payable after the Closing Date shall -80- 91 be assumed by and paid by Buyer when due. In the event that Buyer receives any Tax Savings or a Tax Refund during the ninety (90) day period after the Closing Date, such amounts shall be for the account of Sellers. In the event that Buyer receives any Tax Savings or a Tax Refund after the expiration of such ninety (90) day period, such amounts shall be for the account of the Buyer, regardless of whether or not such amounts relate to the period prior to the Closing Date. 11.3 WATER METERS. If there are water meters at the Hotels, Sellers shall endeavor to have the water company servicing each Hotel read the meters on or immediately prior to the Apportionment Date. Buyer shall be responsible for all charges based on such final reading for which Buyer shall receive a credit at the Closing, and Buyer shall be responsible for all charges thereafter. If such readings are not obtainable, then, until such time as such readings are obtained, water charges shall be prorated as of the Apportionment Date based upon the per diem rate obtained by using the last period and bills for such charges that are available. Upon the taking of a subsequent actual reading, such apportionment shall be readjusted and Sellers or Buyer, as the case may be, promptly will deliver to the other the amount determined to be so due upon such readjustment. All unpaid water bills in Sellers' possession shall be turned over to Buyer at the Closing and shall be paid by Buyer, for which Buyer shall receive a credit at the Closing equal to the amount of any such bill plus any interest or penalties due thereon as of the Closing Date. 11.4 UTILITIES. The Utilities shall be apportioned (i) by having the utility company servicing each Hotel make a final meter reading on the Apportionment Date, the payment of which shall be Buyer's responsibility and for which Buyer shall receive a credit at the Closing, or (ii) if such readings cannot be obtained, on the basis of the most recent bills that are available. If the apportionment is not based on actual current readings, then, upon the taking of a subsequent actual reading, such apportionment shall be readjusted and Sellers or Buyer, as the case may be, promptly shall deliver to the other the amount determined to be due upon such readjustment. All unpaid Utility bills in Sellers' possession shall be turned over to Buyer at the Closing and shall be paid by Buyer, for which Buyer shall receive a credit at the Closing equal to the amount of any such bill plus any interest or penalties due thereon as of the Closing Date. -81- 92 Any Utility bills received by Sellers after the Closing shall be promptly forwarded to Buyer together with the amount, if any, owed by Sellers therefor pursuant to the provisions hereof. 11.5 ROOM RENTAL REVENUE/OTHER REVENUE. Income from the rental of rooms shall belong to Sellers to the extent attributable to any period through the Apportionment Date. Room charges for the night commencing on the Apportionment Date and ending on the morning of the Closing Date shall be equally divided between Sellers and Buyer. Income from food and beverage and other sales or services through midnight of the Apportionment Date shall belong to Sellers. Income from food and beverage and other sales or services on the Closing Date shall belong to Buyer. No cash adjustment shall be made at the Closing on account of such income. Any such income belonging to Sellers shall be collected as provided in Section 11.1.2 above. 11.6 WAGES, SALARIES, ETC. With respect to wages and benefits of all Hotel Employees of Sellers or their respective affiliates working at any of the Hotels (other than Eliminated Hotels), it is understood and agreed that the only items to be apportioned on the Apportionment Date are wages, salaries, bonuses, employment taxes, and all accrued vacation days, sick days and personal days, for which Buyer shall be paid or shall receive a credit against the cash portion of the Purchase Price at the Closing. Buyer shall not be liable to any Hotel Employee for any wages, salaries, bonuses, vacation days, sick days or personal days in which said employees may have acquired an accrued or vested right by virtue of their employment by Sellers, except with respect to accrued vacation pay, bonuses, sick pay, and personal days (hereinafter collectively referred to as "Employee Benefits"), and then only to the extent that Buyer has been paid or has received a credit against amounts payable hereunder for any such item with respect to any particular Hotel Employee, and to that extent Buyer shall and hereby agrees to indemnify and save Sellers harmless from and against any liability therefor. Sellers shall and hereby agree to indemnify and save Buyer harmless from and against any liability for wages, salaries, bonuses, accrued vacation days, sick days and personal days to be paid to employees on account of services rendered prior to Closing, except to the extent Buyer has been paid or has received a credit therefor. There shall be no apportionment or proration of ERISA Benefit Plans or Non-ERISA Commitments other than Employee Benefits (to the extent provided above), and -82- 93 Sellers shall remain liable for and hereby agree to indemnify and save Buyer harmless from and against all Employee Benefits due to Hotel Employees and all payments due on the plans providing such benefits. Sellers shall also remain responsible for and hereby agree to indemnify and save Buyer harmless from any severance pay which may become due to any of the Hotel Employees as a result of this transaction, whether due to Sellers' employment policies or as a matter of law. 11.7 SPACE LEASES. Prepaid minimum rents and other fixed charges payable under the Space Leases for the month in which the Closing occurs shall be apportioned. If any Tenant is in arrears in the payment of rent or other fixed charges due for months prior to the month in which the Closing occurs, any payments on account of rent or such other fixed charges received by Buyer from such tenant after the Closing shall be applied first to rent and other charges due for the month in which such payments are received and then to preceding months for which there are arrearages (always to the most recent first). If any payments of rent or other fixed charges received by Sellers or Buyer after the Closing are payable to the other Party by reason of this allocation, the appropriate sum (less a proportionate share of any reasonable attorneys' fees, costs and other expenses incurred in the collection thereof) shall be promptly paid to the other Party. At the Closing, Sellers shall furnish to Buyer a complete and correct schedule of all minimum rents and other fixed charges which are then due and payable but which have not been paid. Percentage rents and other variable charges under the Space Leases, such as payments for real estate taxes and other expenses, which are not fixed in amount, shall be adjusted when and as received based upon the number of days in the payment period that each party owned the Hotel. Buyer shall use reasonable efforts to collect any tenant arrearages, but shall be under no obligation to commence any actions or proceedings with respect thereto. After the Closing, Sellers may commence an action or proceeding to collect, or may compromise, any arrearages relating solely to its period of ownership. Any security deposits or advance payments of rent held by Sellers under the Space Leases shall be paid over to Buyer at the Closing or credited against the cash portion of the Purchase Price. -83- 94 11.8 ACCOUNTS RECEIVABLE AND PAYABLE, MUTUAL INDEMNITIES. 11.8.1 ACCOUNTS RECEIVABLE. As described in Section 11.5, the within sale does not include any accounts receivable of Sellers for room, food and beverage and other guest charges incurred at the Hotels for the period through the Apportionment Date, exclusive of room charges for the night commencing on the Apportionment Date (the "Accounts Receivable"). Sellers shall have the sole right to receive, collect, discharge and compromise all Accounts Receivable, except those due from guests on the "Guest Ledger" as of the Closing Date (those guests in occupancy on the night commencing on the Apportionment Date and who do not check out until the closing Date or thereafter), which shall be collected by Buyer in accordance with Section 11.8.2 below. 11.8.2 COLLECTION OF ACCOUNTS RECEIVABLE. Buyer agrees that any moneys received by Buyer after the Closing from any party owing any portion of the Accounts Receivable (including credit card sales when payment thereon is received by Buyer), net of any reasonable collection costs, credit card service fees or travel agent's commissions which may be owed in connection therewith, shall be held in trust by Buyer on account and for payment of such Accounts Receivable. Buyer shall remit to Sellers any such moneys collected by Buyer at least once every thirty (30) days. Buyer shall use due diligence and make all reasonable efforts (short of litigation) to collect all Accounts Receivable. Sellers may, at reasonable times during the hours 9 A.M. to 5 P.M. and upon reasonable requests therefor, examine the books and records of Buyer for the limited purpose of confirming the Accounts Receivable. 11.8.3 SELLERS' INDEMNITY. Sellers agree to indemnify Buyer, its successors and assigns from and against any and all loss, damage, cost, charge, liability or expense (including court costs and reasonable attorneys' fees) for any accounts payable for goods supplied or services performed prior to the Closing Date to or for either Sellers or any of the Hotels, and for any sales taxes and/or hotel/motel occupancy taxes, if any, due in connection with the rental of rooms, the sale of goods or the performance of services prior to the Closing Date, except to the extent Buyer has received a credit therefor against the Purchase Price pursuant to Sections 11.1.12 or 11.5, and to that extent Buyer agrees to indemnify Sellers, their -84- 95 successors and assigns, from and against any and all loss, damage, cost, charge, liability or expense (including court costs and reasonable attorneys' fees) relating to the payable or tax for which it has received a credit. Except as expressly provided in this Agreement or in any agreement executed and/or delivered at the Closing, Buyer shall not and does not assume or undertake any responsibility for any liability or obligation of Sellers, fixed or contingent, disclosed or undisclosed, and assumes no liability for any claims, debts, defaults, duties, taxes, obligations or liabilities of Sellers of any kind or nature, whether known or unknown, contingent or fixed, all of which shall be retained by Seller. Buyer shall not be liable for any claim arising out of any act, event or transactions occurring prior to the Closing Date in connection with the ownership or operation of any Property, and Sellers shall and hereby agree to defend, indemnify and hold Buyer harmless from and against any and all costs, expenses, losses or liabilities, including reasonable attorneys' fees, suffered or incurred by Buyer arising out of any such liability or obligation, including, without limitation, any transferee liability, except to the extent Buyer has expressly assumed or indemnified Sellers against any such liability or obligation. 11.8.4 BUYER'S INDEMNITY. Buyer shall and hereby agrees to indemnify and hold Sellers harmless from and against any and all costs, expenses, losses or liabilities, including reasonable attorneys' fees, suffered or incurred by Sellers arising out of any liability or obligation (i) expressly assumed by Buyer hereunder or in any agreement executed and/or delivered at the Closing, (ii) for which Buyer has indemnified Sellers, or (iii) in connection with the ownership and operation of the Hotels from and after the Closing. 11.8.5 SURVIVAL. The provisions of this Section 11.8 shall survive the Closing Date in accordance with Section 5.3 hereof. 11.9 APPORTIONMENT OF RESERVATION DEPOSITS. 11.9.1 RESERVATION DEPOSITS. On the Closing Date the aggregate amount of any deposits ("RESERVATION DEPOSITS") received by Sellers (whether paid in cash or by credit card) as a down payment for reservations ("RESERVATIONS") made for rooms, banquets, meals or other services to be supplied from and/or -85- 96 after the Closing Date shall be credited against the cash portion of the Purchase Price due at the Closing. 11.9.2 INDEMNITY. Sellers hereby agree to indemnify and hold Buyer harmless from and against all claims by and liabilities to any Person resulting from Sellers' failure to pay over or credit to Buyer any Reservation Deposits allegedly paid to Sellers for the period from and after the Closing Date. Buyer hereby agrees to indemnify and holds Sellers harmless from and against all claims by and liabilities to any person resulting from Buyer's failure to honor or return any Reservation Deposit paid or credited to Buyer. 11.9.3 SURVIVAL. The provisions of this Section 11.9 shall survive the Closing Date in accordance with Section 5.3 hereof. 11.10 POST-CLOSING RECONCILIATION; RESOLUTIONS OF DISPUTES; FINAL RECONCILIATION. 11.10.1 POST-CLOSING RECONCILIATION. The Parties hereby covenant and agree to correct any errors or omissions committed in computing apportionments at Closing. Such corrections shall be made promptly after the Party which discovers such error or omission notifies the other Party that such error or omission occurred. 11.10.2 RESOLUTIONS OF DISPUTES AS TO APPORTIONMENTS. In the event either Party objects to all or any portion of the Coopers & Lybrand Certification (an "Objection"), such Party shall notify the other Party in writing within sixty (60) days following the Closing Date (or the Postponed Closing Date, as the case may be), whereupon the Parties, together with representatives of Coopers & Lybrand, shall use diligent efforts to resolve any such Objection(s). In the event the Parties are unable to resolve such Objection(s) within ninety (90) days following the Closing Date (or the Postponed Closing Date, as the case may be), either Party may, within such ninety (90) day period, submit the matter to final and binding arbitration before a single arbitrator (who shall be a certified public accountant), appointed by the AAA in New York, New York. In the event Buyer believes that any sums are payable to Buyer under this Section , Buyer shall be entitled to file an Adjustment Claim under Section 5.6 hereof. The arbitrator shall, pursuant to the Association's -86- 97 then Rules of Commercial Arbitration, hear the Parties and representatives of Coopers & Lybrand, if either Party determines that testimony of Coopers & Lybrand is relevant, and render a decision within thirty (30) days after the conclusion of such hearing and the submission of all evidence in connection therewith. The determination by the arbitrator shall be final and binding upon the Parties. The fees and expenses of the arbitrator shall be divided equally between the Parties, unless the arbitrator specifically rules otherwise. 11.10.3 FINAL RECONCILIATION. Except for the prorations specifically provided for in this Agreement which shall be paid at Closing, the Parties agree that no other estimates of Closing prorations shall be made, but rather Buyer's manager shall make all payments required under any assumed Contracts, and Buyer shall use reasonable efforts to collect all amounts receivable with respect to the Assets, and shall, within fifteen (15) days following the end of the month after the month in which the Closing occurs and within fifteen (15) days after the end of each month thereafter until final reconciliation occurs, prepare and submit to the Parties a statement of all amounts paid and all accounts collected (less costs of collection, if any) which are attributable to any date prior to the Closing Date and to any proration to be made pursuant to the preceding paragraphs. Subject to Section 11.10.2 hereof, a final reconciliation of all prorations to be made with respect to the Assets, including those specifically addressed elsewhere in this Article 11, shall be made not later than sixty (60) days following the Closing Date. Such final reconciliation shall include, without limitation, an audit by Coopers & Lybrand to confirm that Sellers have paid all Miscellaneous Taxes, including any Miscellaneous Taxes arising as a result of the consummation of the sale, conveyance and transfer of the Assets. The Parties shall each pay one-half (1/2) of the fees charged by Coppers & Lybrand in connection with any such post-closing audit. In the event the Buyer believes that any sums are payable to Buyer under this Section , Buyer shall be entitled to file an Adjustment Claim under Section 5.6 hereof. In the event that a dispute regarding the final reconciliation shall arise which cannot be settled by the Parties, such dispute may be referred to arbitration in the manner provided in Section 11.10.2, except that the decision of the arbitrator shall be rendered within thirty (30) days after submission. The foregoing obligations of the Parties shall survive the Closing in accordance with Section 5.3 hereof. -87- 98 11.10.4 NO DISTRIBUTIONS OR LIQUIDATIONS. In the event that Buyer files an Adjustment Claim with respect to this Section 11.10, Sellers agree not to distribute any of the proceeds of the sale contemplated hereby except in accordance with the terms of Section 5.6 hereof. 11.11 SAFES AND BAGGAGE. 11.11.1 SAFE DEPOSIT BOXES. On the Closing Date, Sellers shall cause the delivery to Buyer of all of Sellers' keys to all safes and safe deposit boxes (collectively, the "safes") at the Hotels. On or prior to the Closing Date, Sellers shall give written notices to those Persons who have deposited items in such safes, advising them of the sale of the applicable Hotel to Buyer and requesting the removal or verification of their contents in the safes on the Closing Date. All such removals or verifications on the Closing Date shall be under the supervision of Sellers' and Buyer's respective representatives. All contents which are to remain in the safes shall be recorded. Safes containing items belonging to guests who have not responded to such written notice by so removing or verifying their safe contents by the end of the day and which cannot be opened without the key in the possession of such guest shall be sealed until such time as the guest appears, at which time the safe shall be opened and the contents recorded in the presence of the respective representatives. Until that time, Buyer shall indemnify, defend and hold Sellers harmless from and against any liability for loss or theft of such contents and Sellers shall assign to Buyer their rights to any insurance proceeds covering such safes. Any such contents so verified or recorded and thereafter remaining in the hands of Buyer shall be the responsibility of Buyer and Buyer hereby agrees to indemnify, defend and hold Sellers harmless from any liability therefor. 11.11.2 INVENTORY OF GUEST PROPERTY. On the Closing Date, representatives of Buyer and Sellers shall take an inventory of all baggage, valises and trunks checked or left in the care of Sellers at the Hotels. From and after the Closing Date, Buyer be responsible for all baggage listed in said inventory, and Buyer hereby agrees to indemnify and to hold Sellers harmless from any liability therefor. Sellers shall remain liable for any negligence or malfeasance with respect to such baggage which occurred prior to the Closing Date as well as for claimed omissions from said inventory, and Sellers hereby -88- 99 agree to indemnify and to hold Buyer harmless from any liability therefor. 11.11.3 The provisions of this Section 11.12 shall survive the Closing Date in accordance with Section 5.3 hereof. 11.12 COLLECTION PERIOD. For a period of ninety (90) days following the Closing Date, Buyer's manager shall remit any monies due Sellers as they are collected (less costs of collection). Buyer shall cooperate with Sellers, at no cost or expense to Buyer, in collecting any amounts due Sellers. With respect to Accounts Receivable attributable to sums to which Sellers shall be entitled hereunder, Buyer agrees that it will not waive, settle nor compromise any claim with respect to such receivables without the prior written consent of Sellers. ARTICLE 12 BROKER'S COMMISSION 12.1 COMMISSION. Sellers and Buyer each warrant and represent to the other that it has not dealt or negotiated with any broker in connection with this transaction other than Broker. Sellers hereby agree to pay Broker a commission pursuant to a separate brokerage agreement. 12.2 INDEMNITY. Sellers and Buyer each hereby agree to indemnify and hold the other harmless from and against any and all claims, demands, causes of action, losses, costs and expenses (including reasonable attorneys' fees and expenses) or other liability arising from or pertaining to any brokerage commissions, fees, or other compensation, which may be due to any brokers or other Persons (other than Broker) claiming to have dealt with the indemnifying Party in connection with the transactions contemplated herein. 12.3 RELEASE OF BUYER. By its execution at the end of this Agreement, Broker hereby irrevocably and absolutely releases Buyer from any and all liability whatsoever with respect to any payment of any fee, commission or other amount in connection with any services Broker may render with respect to the transactions contemplated herein regardless of whether or not the Closing occurs. -89- 100 12.4 SURVIVAL. The provisions of this Article 12 shall survive the Closing Date in accordance with Section 5.3 hereof. ARTICLE 13 POST-CLOSING COVENANTS 13.1 POST-CLOSING COVENANTS. Sellers and Buyer agree that from and after the Closing Date and for so long as Sellers shall remain in existence (which period, Sellers covenant shall extend at least ninety (90) days after the Closing Date or the latest Postponed Closing Date, as the case may be): 13.1.1 PERMITS. Sellers will continue to cooperate with Buyer at Buyer's sole expense to facilitate the acquisition by Buyer of all nonassignable licenses and permits required for the use and operation of the Real Property and the hotel businesses thereon. 13.1.2 BUSINESS RECORDS. Sellers will make all books and records retained by Sellers which pertain to the Assets available for inspection by Buyer and its representatives during business hours on reasonable advance notice. For a period of five (5) years after the Closing Date, Buyer will make all Business Records transferred to Buyer available for inspection by Sellers and their representatives during business hours on reasonable advance notice for the purpose of responding to tax authorities and/or governmental inquiries arising out of Sellers' ownership and operation of the Assets prior to the Closing Date. 13.1.3 TAX FILINGS. Sellers and Buyer shall cooperate in timely making any filing required pursuant to Section 1060 of the Internal Revenue Code or any regulations promulgated thereunder. 13.1.4 GUARANTEES AND WARRANTIES. Sellers shall cooperate with Buyer, at Buyer's sole expense, in enforcing any rights under any unexpired guarantees or warranties given by Persons other than Sellers in connection with any of the Hotels. 13.1.5 INTELLECTUAL PROPERTY. Neither Sellers nor any affiliate of Sellers shall hereafter use the names Hotels of Distinction in connection with any property or business owned or -90- 101 operated by them, or in connection with any property or business in which they have an interest, direct or indirect. 13.1.6 LIQUOR LICENSES. Sellers shall take such actions as are reasonably requested by Buyer to permit the continued and uninterrupted sale of alcoholic beverages at the Hotels. 13.1.7 SALES, USE AND/OR HOTEL/MOTEL LICENSES. Sellers shall pay any and all Miscellaneous Taxes relating to (i) the period prior to the Closing Date (or the Postponed Closing Date, as the case may be) or (ii) the consummation of the sale, transfer and conveyance of the Assets. 13.1.8 NAMES FOLLOWING THE CLOSING. Sellers agree that, following the Closing, Sellers will not adopt any name which includes any trademark or trade name being assigned and conveyed hereunder or pursuant to Realty Partnership under the Management Company Asset Purchase Agreement and will not otherwise infringe upon the Intellectual Property (or the intellectual property being assigned and conveyed under the Management Company Asset Purchase Agreement), nor will Sellers hold themselves out as the successors to the business of Sellers or the Management Company. ARTICLE 14 NOTICES 14.1 NOTICES. All notices, consents, approvals and other communications provided for herein or given in connection herewith shall be validly given, made, delivered or served if in writing and delivered personally against receipt, or sent by registered, certified mail, receipted overnight delivery service, postage prepaid to: SELLERS AT: HOTELS OF DISTINCTION VENTURES, INC. 380 South County Road Palm Beach, FL 33480 Attention: Alan Tremain, President Telephone: (407) 835-9500 -91- 102 WITH A COPY TO: Andrew C. Culbert, Esquire MASTERMAN, CULBERT & TULLY One Lewis Wharf Boston, MA 02110 Telephone: (617) 227-8010 BUYER AT: SLC OPERATING LIMITED PARTNERSHIP c/o Starwood Lodging Corporation 11835 West Olympic Boulevard, Suite 675 Los Angeles, CA 90064 Attention: Michael C. Mueller Telephone: (310) 575-3900 and SLT REALTY LIMITED PARTNERSHIP c/o Starwood Lodging Trust 11835 West Olympic Boulevard Los Angeles, CA 90064, Suite 695 Attention: Ronald C. Brown, Vice President Telephone: (310) 575-3900 WITH A COPY TO: Alan S. Weil, Esquire SIDLEY & AUSTIN 875 Third Avenue New York, NY 10022 Telephone: (212) 906-2315 ESCROW AGENT AT: Andrew C. Culbert, Esq. MASTERMAN, CULBERT & TULLY One Lewis Wharf Boston, MA 02110 Telephone: (617) 227-8010 or to such other addresses as either Party hereto may from time to time designate in writing and deliver to the other Party in a like manner. Notices, consents, approvals and communications given by mail or overnight delivery service shall be deemed delivered as of the date of postmark or deposit with an overnight delivery service. -92- 103 ARTICLE 15 DEFAULT/REMEDIES 15.1 BUYER'S DEFAULT. If the conditions to Buyer's obligations set forth in Section 9.1 hereof have been satisfied, Sellers are not in default hereunder and Buyer shall default in any obligation hereunder to consummate the purchase of the Assets, Sellers shall have the right, as Sellers' sole and exclusive remedy, to receive, draw upon and keep the Deposit, as and for liquidated damages and further consideration for entering into this Agreement, and, thereupon, this Agreement shall become null and void and neither Party to this Agreement shall have any further rights or obligations hereunder, it being the understanding and agreement of the Parties hereto that the actual damages, costs and expenses sustained by Sellers in the event of Buyer's default are difficult, if not impossible, to ascertain. 15.2 SELLERS' DEFAULT. If the conditions to Sellers' obligations set forth in Section 9.2 hereof have been satisfied, Buyer is not in default hereunder and Sellers shall default in any obligation hereunder or shall wrongfully fail to consummate the sale of the Assets for any reason, the Deposit shall be immediately returned by Escrow Agent to Buyer and Buyer shall be entitled to pursue any and all legal or equitable remedies available to it, including but not limited to the right to seek specific performance. 15.3 ATTORNEYS' FEES. In the event either Party hereto finds it necessary to bring an action at law or other proceeding against the other Party to enforce or interpret any of the terms, covenants or conditions hereof or any instrument executed pursuant to this Agreement or by reason of any breach or default hereunder or thereunder, the Party prevailing in any such action or proceeding shall be paid all costs, including reasonable attorneys' fees. 15.4 NO WAIVER. No delay in exercising any right or remedy shall constitute a waiver thereof, and no waiver by Sellers or Buyer of the breach of any covenant of this Agreement shall be construed as a waiver of any preceding or succeeding breach of the same or any other covenant or condition of this Agreement. No extension of time for performance of any obligation or act shall be deemed an extension of the time for performance of any other obligation or act. -93- 104 ARTICLE 16 MISCELLANEOUS 16.1 ENTIRE AGREEMENT. This Agreement contains the entire agreement between the Parties concerning the Assets. This Agreement supersedes all prior and contemporaneous oral and written representations, warranties, covenants and agreements by or between the Parties with respect to the Assets. 16.2 SATURDAY, SUNDAY, AND LEGAL HOLIDAYS; TIMES. If any date for the performance of any matter under this Agreement (including the date for the giving of Notice and the date on which any Notice is deemed to have been received, pursuant to Article 14 hereof) falls on a day other than a Business Day, then such date shall be extended to the next Business Day. All references herein to a particular time on a particular date refer to the local time (daylight or standard) in New York City. 16.3 PRESUMPTION CONCERNING INTERPRETATION AND CONSTRUCTION. There shall be no presumption in favor of either Party with respect to the interpretation or construction hereof. 16.4 ASSIGNMENT. This Agreement may be assigned by Buyer to any Person which controls, is controlled by or is under common control with any Person comprising Buyer without the prior written consent of Sellers. In the event of any such assignment, any references in this Agreement to Buyer shall be construed to mean the assignee to which Buyer named herein shall have assigned its rights under this Agreement and which shall have assumed all obligations of Buyer under this Agreement. For the purposes of this provision, the term "control" shall mean the ownership (or right to control, by contract or otherwise, the voting rights) with respect to thirty-five percent (35%) or more of the outstanding voting interests in the applicable Person. 16.5 ARTICLES/SECTION HEADINGS. The headings of the various Sections in this Agreement are for the convenience of the Parties and do not alter, modify, or limit the provisions thereof and shall not be used in construing or interpreting the provisions thereof. -94- 105 16.6 NON-RECORDATION. Buyer shall not file or record this Agreement or any evidence or memorandum of this Agreement in any public records. A violation of this provision shall constitute a default by Buyer hereunder. 16.7 WAIVERS; MODIFICATIONS. No delay on the part of a Party in exercising any rights or remedies hereunder shall operate as a waiver thereof, nor shall any specific waiver by a Party of any right or remedy hereunder operate or be construed as a waiver of any other right or remedy hereunder nor shall any single or partial exercise of any right or remedy hereunder preclude any other or further exercise thereof, or the exercise of any other right or remedy hereunder (unless the provisions of this Agreement which establish any such right or remedy provide otherwise). No waiver of any right or remedy hereunder shall be valid or enforceable unless in writing and signed by the Party against whom such waiver is sought to be enforced. No modification of this Agreement shall be effective unless in writing, signed by the Parties. 16.8 GOVERNING LAW; VENUE. This Agreement and the rights and obligations of the Parties shall be governed by and construed in accordance with the internal laws of the State of New York without application of conflict of law principles. The Parties agree that other than with respect to the provisions of Section 5.4.6 and Section 11.10 hereof, that any legal action or proceeding with respect to this Agreement shall be brought in the courts of the State of New York or the United States District Court for the Southern District of the State of New York, sitting in New York, New York, and by execution and delivery of this Agreement, the Parties accept for themselves and in respect of their property, generally and unconditionally, the jurisdiction of the aforesaid courts. The Parties irrevocably consent to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing or delivery of copies thereof as provided in Section 14.1 (Notices), such service to become effective thirty (30) days after such mailing. Nothing herein shall affect the right to serve process in any other manner permitted by law. Except to the extent prohibited by law which cannot be waived, each Party hereto waives trial by jury in connection with any action or proceeding of any nature whatsoever arising under, out of, or in connection with this Agreement and in connection with any claim, counterclaim, offset or defense arising in connection with such action or proceeding, whether -95- 106 arising under statute (including any federal or state constitution) or under the law of contract, tort or otherwise and including, without limitation, any challenge to the legality, validity, binding effect or enforceability of this Section 16.8 or this Agreement. 16.9 DUE AUTHORITY. The individuals signing below represent that they have the requisite authority to bind the entities on whose behalf they are signing. 16.10 FURTHER ASSURANCES. Each Party shall, at the request of any other Party, at any time and from time to time following the Closing, promptly execute and deliver, or cause to be executed and delivered, to such requesting Party all such further instruments and take all such further action as may be reasonably necessary or appropriate to more effectively transfer, assign, convey, grant and confirm to Buyer, or to perfect or record Buyer's title to or interest in, or to enable Buyer to possess and use, the Assets or otherwise to confirm or carry out the provisions and intents of this Agreement, and of the instruments delivered pursuant to this Agreement. 16.11 SECTIONS, EXHIBITS AND SCHEDULES. All references herein to Sections, Exhibits and Schedules, unless otherwise identified, are to Sections of, Exhibits to, and Schedules to this Agreement. All Exhibits and all Schedules referred to herein are hereby incorporated in and made a part of this Agreement as if set forth herein. 16.12 EXPENSES. Except as otherwise expressly provided in this Agreement, whether or not the Closing occurs, each Party shall pay its own expenses incidental to the preparation of this Agreement, the carrying out of the provisions hereof and the consummation of the transactions contemplated. 16.13 RELATIONSHIP OF PARTIES. Nothing contained in this Agreement shall be deemed or construed by any Party, Person, or entity as creating any relationship of principal and agent, of partnership, of joint venture, or of any association whatsoever between the Parties. No provision of this Agreement and no act or failure to act of the Parties shall be deemed to create any relationship between the Parties other than the relationship of a vendor and a vendee. -96- 107 16.14 NUMBER OF GENDER OF WORDS. Whenever any number (singular or plural) is used herein, the same includes and applies to any one or more thereof, and to each thereof, jointly and severally, and words of any gender include each other gender. 16.15 COUNTERPARTS. This Agreement is executed in multiple counterparts, each of which is an original, but all of which constitute but one and the same document. The signatures of each of the Parties and Escrow Agent, Management Company and the Broker may appear on multiple separate signature pages. 16.16 TERMINATION; CONFIDENTIALITY. Simultaneously with any termination of this Agreement, regardless of which Party terminates this Agreement or of the cause of such termination, Buyer shall deliver to Sellers all documents received from Sellers pursuant to the terms of this Agreement. 16.17 PUBLICITY. Other than as required by law, prior to the Closing, neither Party will divulge, disclose, publish, publicize, or announce to any Person or entity whatsoever, including, without limitation, any print, radio, television, or other media representatives, any of the tenants, or any real estate broker or salesperson, the existence of this Agreement or any of the provisions of this Agreement; provided, however, that the Parties may disclose this Agreement and the transactions contemplated herein to their respective employees, agents and consultants. 16.18 EXCULPATION OF TRUSTEES OF STARWOOD LODGING TRUST. Notwithstanding anything herein to the contrary, Buyer's obligations hereunder shall be satisfied, if at all, out of the assets, properties or funds of Realty Partnership, Operating Partnership and Starwood Lodging Trust (the "Trust"), a Maryland real estate investment 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, as further amended on February 1, 1995 and on June 19, 1995 and as the same may be further amended from time to time, and Sellers shall look solely to the Trust's assets for the enforcement of any claims against the Trust, as the Trustees, officers, agents and security holders of the Trust assume no personal liability for obligations entered into on behalf of the Trust, and their respective individual assets shall not be subject to the claims -97- 108 of any Person relating to such obligations. The foregoing shall govern all direct and indirect obligations of the Trust under this Agreement. 16.19 EXCULPATION OF TRUSTEES OF H.O.D. ALLENTOWN TRUST. Notwithstanding anything herein to the contrary, the obligations of H.O.D. Allentown Trust hereunder shall be satisfied, if at all, out of the assets, properties or funds of H.O.D. Allentown Trust, a Pennsylvania trust ("Allentown Trust"). The name "H.O.D. Allentown Trust" is a designation of H.O.D. Allentown Trust and its Trustees (as Trustees but not personally) under an Indenture of Trust dated October 23, 1990, as the same may be further amended from time to time, and Buyer shall look solely to Allentown Trust's assets for the enforcement of any claims against Allentown Trust, as the Trustees, officers, agents and security holders of Allentown Trust assume no personal liability for obligations entered into on behalf of Allentown 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 Allentown Trust under this Agreement. 16.20 JOINT AND SEVERAL LIABILITY. To the extent that any Party consists of more than one (1) Person, each constituent Person of such Party shall be jointly and severally liable for the performance or satisfaction of such Party's obligations under this Agreement. 16.21 ALLOCATION OF ASSETS. The Parties acknowledge and agree that the Persons constituting Buyer may agree between themselves as to the allocation between such Persons (and their respective affiliates) of the Assets, and Sellers agree to convey the Assets to such constituent Persons as directed by Buyer. 16.22 DELIVERY OF SCHEDULES AND EXHIBITS. The Parties acknowledge that this Agreement is being executed and delivered before the Parties have completed the preparation of the Schedules and Exhibits to be attached hereto. Buyer agrees to prepare and deliver to Sellers the forms of Conveyance Documents and Sellers agree to prepare and deliver to Buyer all other Schedules and Exhibits, in each case on or before the date that is fifteen (15) days after the Effective Date. The Parties agree to cooperate with one another to prepare a draft set of Schedules and Exhibits not later than the date that is fifteen (15) days -98- 109 after the Effective Date, or if such date is not a Business Day, on the next succeeding Business Day. At such time as the Parties agree upon such Schedules and Exhibits, the Parties shall execute a confirmation agreement to which such approved Schedules and Exhibits shall be attached. In the event that the Parties, after all good faith efforts, cannot agree upon the Schedules and Exhibits to be annexed hereto on or before the date which is thirty (30) days after the Effective Date, or if such date is not a Business Day, on the next succeeding Business Day, either Party may, by delivery of written notice to the other Party and Escrow Agent, terminate this Agreement, whereupon Escrow Agent shall immediately return the Initial Deposit to Buyer, and neither Party shall have any further rights or obligations hereunder. 16.23 RETURN OF ASSET DOCUMENTS UPON TERMINATION. Upon the termination of this Agreement pursuant to the provisions hereof, Buyer shall promptly return to Sellers any Asset Documents then in Buyer's possession and shall destroy any and all other confidential information (including, without limitation, any work notes or other analyses) then in Buyer's possession relating to the Assets. Upon the termination of this Agreement as to an Eliminated Hotel(s), Buyer shall promptly return to Sellers any Asset Documents then in Buyer's possession which relate to the Eliminated Hotel(s) and shall destroy any and all other confidential information (including, without limitation, any work notes or other analyses) then in Buyer's possession relating to the Eliminated Hotel(s). ARTICLE 17 DEFINITIONS 17.1 DEFINITIONS. The following terms used herein shall have the definitions set forth below: AAA has the meaning given in Section 5.5.1. ADA has the meaning given in Section 5.1.19. ACCOUNTS RECEIVABLE has the meaning given in Section 11.8.1. ADDITIONAL DEPOSIT has the meaning given in Section 2.2.2. ADJUSTMENT CLAIM has the meaning given in Section 5.6. -99- 110 AGREEMENT. This Asset Purchase Agreement dated as of the Effective Date by and between Sellers and Buyer. ALLENTOWN HILTON has the meaning given in the Preliminary Statement. ALLOCABLE DEPOSIT shall mean, as to each Hotel, an amount equal to (i) the amount then being held in escrow by Escrow Agent pursuant to Section 2.2.1 or Section 2.2.2 hereof multiplied by (ii) a fraction, the numerator of which is the Allocated Purchase Price of the Hotel in question and the denominator of which is the sum of the Allocated Purchase Prices of the Hotels subject to this Agreement at such time. ALLOCATED PURCHASE PRICE has the meaning given in Section 2.1.2. APPORTIONMENT DATE has the meaning given in Section 11.1. ARCHITECTURAL AND ENGINEERING REPORTS has the meaning given in Section 5.1.32. ARLINGTON HILTON has the meaning given in the Preliminary Statement. ASSETS has the meaning given in Section 1.2.11. ASSET DOCUMENTS means those documents which relate to the Assets and have been (or will be prior to the end of the Inspection Period and with sufficient time remaining in the Inspecting Period for Buyer to perform its due diligence) provided to Buyer by Sellers or the Management Company, including, by way of illustration only, but not limited to, the Real Property Leases, Personal Property Leases, Space Leases, Contracts, Permits, Liquor Licenses, Franchise Agreements, Real Properties Documents, the Business Records, real and personal property tax statements, Tenants' correspondence, operating statements for the Assets, certificates, permits, licenses, drawings, plans, specifications, soils, roof, inspection, engineering, and environmental reports, cost estimates of repairs of the Assets, and written notices of non-compliance with any of the matters described in Section 4.1.3 hereof; excluding, however, from the term "Asset Documents" (except to the extent actually made available by Sellers to Buyer), appraisals, -100- 111 financial analyses, business plans, marketing plans and contracts, cost estimates, budgets, privileged materials, and calculations prepared in connection with Sellers' determination of the terms under which Sellers are willing to sell the Assets. ASSIGNMENT AND ASSUMPTION OF CONTRACTS/PERMITS has the meaning given in Section 10.2.4. ASSIGNMENT AND ASSUMPTION OF INTELLECTUAL PROPERTY has the meaning given in Section 10.2.7. ASSIGNMENT AND ASSUMPTION OF PERSONAL PROPERTY LEASES has the meaning given in Section 10.2.5. ASSIGNMENT AND ASSUMPTION OF REAL PROPERTY LEASES has the meaning given in Section 10.2.6. ASSIGNMENT AND ASSUMPTION OF SPACE LEASES has the meaning given in Section 10.2.3. ASSUMED LIABILITIES means all liabilities with respect to the Assets that arise and relate to transactions or periods that occur on and after the Closing Date under the terms of any Contract, Collective Bargaining Agreement, Real Property Lease, Personal Property Lease, Franchise Agreement, Liquor License, Permit, Intellectual Property, agreement, license, sales order, purchase order or other commitment that is assigned to and assumed by Buyer pursuant to this Agreement, and expressly excluding any withdrawal liability under ERISA and all other liabilities with respect to ERISA Benefit Plans, Prior Pension Plans and Non-ERISA Commitments, except with respect to Buyer's obligations pursuant to Section 7.1.18 (ii) and Section 7.1.19 hereof (except to the extent Sellers have breached a representation set forth in the last sentence of Section 5.1.21(d) hereof). BILL OF SALE has the meaning given in Section 10.2.2. BILLBOARD LEASES has the meaning given is Section 5.1.30. BROKER means HOD Realty, Inc., a Florida corporation. BUSINESS DAY means any day other than a Saturday, Sunday or legal holiday observed by national banks in New York. -101- 112 BUSINESS RECORDS means, collectively, those items of Personal Property, including all documents, records and data, including computerized records, maintained by Sellers (or other third parties at Sellers's direction or under Sellers's control), in regard to the existence, use, ownership, occupancy, operation, marketing and/or maintenance of the Assets, including, without limitation, all books of account, tax returns, purchase records, sales and invoice records, correspondence, equipment maintenance data, operating manuals, employee and personnel files, inventory records, sales and promotional data, customer lists, cost and pricing information, supplier lists, business plans, advertising materials, warranties and guaranties of any nature, stationery and other imprinted materials, office supplies, training manuals, materials, correspondence, all computer programs and data files, reference catalogs and all other records, data, documents and information maintained in connection with the existence, use, ownership, occupancy, operation and/or maintenance of the Assets. BUYER means Realty Partnership and Operating Partnership, collectively, their successors or assigns. CERCLA has the meaning given in Section 5.1.22. CPLR has the meaning given in Section 5.1.5. CASUALTY has the meaning given in Section 8.2. CLOSING DATE/CLOSING has the meaning given in Section 10.1. CODE means the Internal Revenue Code of 1986, as the same may be amended from time to time, and as interpreted in Treasury Regulations adopted or promulgated thereunder. COLLECTIVE BARGAINING AGREEMENTS has the meaning given in Section 5.1.20. CONDITION OF THE ASSETS has the meaning given in Section 4.1. CONSENTS has the meaning given in Section 5.1.3. CONTRACTS has the meaning given in Section 1.2.8. -102- 113 CONVEYANCE DOCUMENTS shall mean, collectively, the Bill of Sale, the Assignment and Assumption of Space Leases, the Assignment and Assumption of Contracts/Permits, the Assignment and Assumption of Personal Property Leases, the Assignment and Assumption of Real Property Leases and the Assignment and Assumption of Intellectual Property. COOPERS & LYBRAND CERTIFICATION has the meaning given in Section 11.1. COURT has the meaning given in Section 5.5.1. DEEDS has the meaning given in Section 10.2.1. DEPOSIT has the meaning given in Section 2.2.3. DUE DILIGENCE STUDIES has the meaning given in Section 3.1. EFFECTIVE DATE means the latest date of execution of this Agreement by the Parties as set forth opposite each Party's signature. ELIMINATED HOTEL has the meaning given in Section 6.1. EMPLOYEE BENEFITS has the meaning given in Section 11.6. ENVIRONMENTAL LAWS has the meaning given in Section 4.1.3. ENVIRONMENTAL REPORTS has the meaning given in Section 5.1.22. ERISA has the meaning given in Section 5.1.21. ERISA AFFILIATE has the meaning given in Section 5.1.21. ERISA BENEFIT PLANS has the meaning given in Section 5.1.21. ESCROW AGENT means Masterman, Culbert & Tully. EXCLUDED ASSETS has the meaning given in Section 1.3. EXISTING IDA DEBT means all principal, interest and other sums of any nature whatsoever outstanding from time to time under -103- 114 the Loan Documents relating to the Industrial Development Authority financing with respect to the Allentown Hilton. FINANCIAL STATEMENTS has the meaning given in Section 5.1.31. FRANCHISE AGREEMENTS has the meaning given in Section 1.2.11. FRANCHISOR has the meaning given in Section 1.2.11. HOD VENTURES means Hotels of Distinction Ventures, Inc., a Delaware corporation. HAZARDOUS MATERIALS has the meaning given in Section 5.1.22. HAZARDOUS MATERIALS CONTAMINATION has the meaning given in Section 5.1.22. HOTEL has the meaning given in the Preliminary Statement. HOTEL DEPOSITS has the meaning given in Section 1.2.7. HOTEL EMPLOYEES has the meaning given in Section 5.1.20. IRCA has the meaning given in Section 5.1.20. IMPROVEMENTS has the meaning given in Section 1.2.3. INDEMNITEE has the meaning given in Section 5.4.3. INDEMNITOR has the meaning given in Section 5.4.3. INDEMNIFICATION THRESHOLD has the meaning given in Section 5.4.4. INITIAL DEPOSIT has the meaning given in Section 2.2.1. INITIAL MAXIMUM INDEMNITY AMOUNT has the meaning given in Section 5.4.4. INSPECTION PERIOD has the meaning given in Section 3.1. -104- 115 INTELLECTUAL PROPERTY has the meaning given in Section 1.2.10. IRCA has the meaning given in Section 5.1.20. LANTING AGREEMENT has the meaning given in the Preliminary Statement. LEASES has the meaning given in Section 1.2.5. LIQUOR LICENSE means all alcoholic beverage license(s) issued and outstanding for the Hotels. LOAN DOCUMENTS has the meaning given in Section 5.1.33. MAJOR ADA VIOLATION has the meaning given in Section 5.1.19. MAJOR DEFICIENCY has the meaning given in Section 3.2.2. MANAGEMENT COMPANY ASSET PURCHASE AGREEMENT has the meaning given in the Preliminary Statement. MANAGEMENT AGREEMENTS has the meaning given in Section 1.3. MANAGEMENT COMPANY has the meaning given in the Preliminary Statement. MARQUE OF ATLANTA has the meaning given in the Preliminary Statement. MARQUE OF WINSTON-SALEM has the meaning given in the Preliminary Statement. MAXIMUM RESERVE AMOUNT has the meaning given in Section 5.6. MINNEAPOLIS HILTON has the meaning given in the Preliminary Statement. MISCELLANEOUS TAXES has the meaning given in Section 5.1.17. MOTOR VEHICLES means, collectively, the Motor Vehicles identified as part of the Personal Property and as specifically identified on Schedule 10.2.8, to be sold and transferred by -105- 116 Sellers to Buyer or assigned to Buyer by assignment of motor vehicle lease, as the case may be. MULTIEMPLOYER PLAN has the meaning given in Section 5.1.21. NON-ERISA COMMITMENTS has the meaning given in Section 5.1.21. OBJECTION has the meaning given in Section 11.10.2. OWNER'S POLICIES has the meaning given in Section 3.1.1. PALM DESERT has the meaning given in the Preliminary Statement. PARK TUCSON has the meaning given in the Preliminary Statement. PARTY means, individually Sellers or Buyer or collectively, as the Parties. PENSION PLANS has the meaning given in Section 5.1.21. PERMITS has the meaning given in Section 1.2.9. PERMITTED ENCUMBRANCES. Collectively, the following matters affecting or otherwise encumbering the Assets: (a) Provisions of existing building and zoning laws, provided that (i) the same do not prohibit the use of the Assets as the same are now constituted and are not violated by the existing use and operation of the Assets, and (ii) the present use and operation of the Assets does not constitute a non-conforming use. (b) Such Property Taxes as are not due and payable on the Closing Date (subject to apportionment as provided in Article 11 hereof); and (c) Easements, restrictions and agreements of record set forth on Schedule 17 hereto; and (d) the occupancy rights of existing transient guests of the Hotels; and -106- 117 (e) the rights of tenants under Space Leases as tenants only; and (f) any other matter or thing affecting any of the Assets which Buyer may expressly agree in writing to take subject to or to waive pursuant to the provisions of this Agreement; provided, however, that "Permitted Encumbrances" shall not include any liens arising under the Code or ERISA with respect to any ERISA Benefit Plan, Prior Pension Plan or Non-ERISA Commitment. PERMITTED INVESTMENTS shall mean: (a) United States Treasury Obligations having maturities of one (1) year or less; (b) Certificates of Deposit issued by commercial banks of recognized standing, the senior debt obligations of which banks are then rated "A" (or the equivalent thereof) or higher by Standard & Poor's Corporation; (c) Commercial paper rated at least A-1 (or the equivalent thereof) or higher by Standard & Poor's Corporation; (d) Money market funds of commercial banks of recognized standing, the senior debt obligations of which banks are then rated "A" (or the equivalent thereof) or higher by Standard & Poor's Corporation; and (e) Eurodollar Time Deposits of commercial banks of recognized standing, or branches thereof located outside the United States, the senior debt obligations of which banks are then rated "A" (or the equivalent thereof) or higher by Standard & Poor's Corporation. PERSON means a natural person, partnership, limited partnership, corporation, trust, estate, association, unincorporated association or other entity. PERSONAL PROPERTY shall have the meaning given in Section 1.2.4. -107- 118 PERSONAL PROPERTY LEASES has the meaning given in Section 1.2.5. POSTPONED CLOSING DATE shall have the meaning given in Section 5.3. PREPAID ACCOUNTS has the meaning given in Section 1.2.6. PRIOR MULTIEMPLOYER PLAN has the meaning given in Section 5.1.21. PRIOR PENSION PLAN has the meaning given in Section 5.1.21. PROPERTY TAXES means, collectively, all taxes, assessments, charges and liens by any federal, state, local or municipal authority, municipality, board or agency with the power to tax, assess, lien or charge against the Real Properties or any portion thereof, or against Sellers, the default in payment of which may result in a lien against the Real Properties or any portion thereof or against the owner of the Assets, including, without limitation, water and sewer taxes and municipal assessments and betterments, taxed, assessed or levied against all or any portion of the Real Properties. PURCHASE PRICE has the meaning given in Section 2.1. RATE AGREEMENTS has the meaning given in Section 5.1.35. REAL PROPERTIES has the meaning given in Section 1.2.1. REAL PROPERTIES DOCUMENTS has the meaning given in Section 3.1.3. REAL PROPERTIES LEASES has the meaning given in Section 1.2.2. RENTS has the meaning given in Section 1.2.7. RESERVATIONS has the meaning given in Section 11.9.1. RESERVATION DEPOSITS has the meaning given in Section 11.9.1. RESTRICTED PERIOD has the meaning given in Section 5.6. -108- 119 SELLERS means collectively HOTELS OF DISTINCTION VENTURES, INC., a Delaware corporation H.O.D. ALLENTOWN TRUST, a Pennsylvania Trust; H.O.D. ALLENTOWN I CORP., a Delaware corporation; H.O.D. ALLENTOWN II CORP, a Delaware corporation; ALLENTOWN HOTEL VENTURES, INC., a Delaware corporation; MINNEAPOLIS HOTEL VENTURES, INC., a Minnesota corporation; PALM DESERT HOTEL VENTURES, INC., a California corporation; HOTELS OF DISTINCTION SOUTHWEST, INC., a California corporation; WINSTON- SALEM HOTEL VENTURES, INC., a Delaware corporation; ATLANTA HOTEL VENTURES, INC., a Delaware corporation; NEEDHAM HOTEL VENTURES L.P., a Massachusetts limited partnership; NEEDHAM HOTEL VENTURES, INC., a Delaware corporation; NEEDHAM HOTEL VENTURES II, INC., a Delaware corporation; TUCSON HOTEL VENTURES, INC., a Delaware corporation; ST. LOUIS HOTEL VENTURES, INC., a Delaware corporation; ARLINGTON HEIGHTS HOTEL VENTURES, INC., a Delaware corporation. SELLERS' ACTUAL KNOWLEDGE means the actual current knowledge of any of the following: Alan Tremain, William H. Lanting, Jean- Claude Mathot, Cindy Niebur and the general managers of each of the Hotels. SELLERS' PRIOR LIABILITY INSURANCE POLICIES has the meaning given in Section 5.1.26. SHERATON NEEDHAM has the meaning given in the Preliminary Statement. SPACE LEASES has the meaning given in Section 1.2.7. ST. LOUIS SUITES has the meaning given in the Preliminary Statement. SUBSEQUENT MAXIMUM INDEMNITY AMOUNT has the meaning given in Section 5.4.4. SUBSIDIARY ENTITIES has the meaning given in the first paragraph. SURVEY has the meaning given in Section 3.1.2. SURVEY COSTS has the meaning given in Section 3.1.3. TAKING has the meaning given in Section 8.5. -109- 120 TENANTS has the meaning given in Section 1.2.7. TITLE COMMITMENTS has the meaning given in Section 3.1.1. TITLE COMPANY means any reputable title insurance company selected by Buyer. TITLE OBJECTIONS has the meaning given in Section 3.1.3. TRUST means Starwood Lodging Trust, a Maryland real estate investment trust. UNCURABLE DEFECT has the meaning given in Section 3.2.2. UTILITIES has the meaning given in Section 11.1.3. WARN ACT has the meaning given in Section 5.1.21. WELFARE PLANS has the meaning given in Section 5.1.21. -110- 121 IN WITNESS WHEREOF the Parties have caused this Agreement to be duly executed as of the Effective Date. Date: March __, 1996 SELLERS: HOTELS OF DISTINCTION VENTURES,INC. __________________________ By:_______________________ Alan Tremain, Chairman of the Board hereunto duly authorized __________________________ Trustee and not individually, H.O.D. ALLENTOWN TRUST ALLENTOWN HOTEL VENTURES, INC. By:_______________________ President hereunto duly authorized, MINNEAPOLIS HOTEL VENTURES, INC. By:_______________________ President hereunto duly authorized, PALM DESERT HOTEL VENTURES, INC. By:______________________ -111- 122 President hereunto duly authorized WINSTON-SALEM HOTEL VENTURES, INC. By:______________________ President hereunto duly authorized ATLANTA HOTEL VENTURES, INC. By:______________________ President hereunto duly authorized NEEDHAM HOTEL VENTURES L.P. By:______________________ President hereunto duly authorized NEEDHAM HOTEL VENTURES, INC. By:______________________ President hereunto duly authorized NEEDHAM HOTEL VENTURES II, INC. By:______________________ President -112- 123 hereunto duly authorized TUCSON HOTEL VENTURES, INC. By:______________________ President hereunto duly authorized ST. LOUIS HOTEL VENTURES, INC. By:______________________ President hereunto duly authorized ARLINGTON HEIGHTS HOTEL VENTURES, INC. By:______________________ President hereunto duly authorized Date: March __, 1996 BUYER: SLT REALTY LIMITED PARTNERSHIP By: STARWOOD LODGING TRUST, General Partner By:__________________________ Name: Title: -113- 124 SLC OPERATING LIMITED PARTNERSHIP By: STARWOOD LODGING CORPORATION, General Partner By:__________________________ Name: Title: -114- 125 Escrow Agent hereby agrees to hold and disburse the Initial Deposit and Additional Deposit and all other funds received by Escrow Agent in accordance with the provisions of this Agreement. ESCROW AGENT: MASTERSON, CULBERT & TULLY By:______________________________ Partner Broker has executed this Agreement solely for the purpose of evidencing Broker's agreement to and acceptance of the provisions of Article 12.3. BROKER: HOD Realty, Inc. By: _____________________________ hereunto duly authorized Management Company has executed this Agreement solely for the purpose of (i) evidencing Management Company's agreement to allow Buyer access to Management Company's office(s) to perform its due diligence pursuant to Section 3.1 hereof, (ii) confirming the representations and warranties set forth in Article 5 hereof and (iii) agreeing to the covenants set forth in Section 7.1.19 hereof. MANAGEMENT COMPANY: HOTELS OF DISTINCTION, INC. By: _____________________________ hereunto duly authorized -i- EX-27.1 10 F.D.S. FOR TRUST
5 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 10-K. 0000048595 STARWOOD LODGING TRUST 1 U.S. DOLLARS 3-MOS DEC-31-1996 APR-01-1996 JUN-30-1996 1 7,340,000 0 16,727,000 0 0 19,992,000 594,756,000 0 638,815,000 15,188,000 0 0 0 158,000 254,284,000 638,815,000 0 17,051,000 0 0 5,034,000 0 4,271,000 5,600,000 5,600,000 5,600,000 0 0 0 5,600,000 .36 0
EX-27.2 11 F.D.S. FOR CORPORATION
5 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 ANNUAL REPORT ON FORM 10-K. 0000316206 STARWOOD LODGING CORPORATION 1 U.S. DOLLARS 3-MOS DEC-31-1996 APR-01-1996 JUN-30-1996 1 10,538,000 0 15,975,000 0 0 9,431,000 109,950,000 0 145,894,000 23,021,000 0 0 0 158,000 14,347,000 145,894,000 66,355,000 68,116,000 0 45,960,000 15,500,000 0 2,047,000 3,998,000 3,998,000 3,998,000 0 0 0 3,998,000 .26 0
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