-----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, LmvH8VnqE9SgktmJ5a3RH9VpfFo7jFqk7lqAVHujhaqN8siO3gy3rZ/2CkBB4Gdk qNJ3MnXJQCaStFRkRvqXbA== 0000950153-97-000207.txt : 19970312 0000950153-97-000207.hdr.sgml : 19970312 ACCESSION NUMBER: 0000950153-97-000207 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970311 SROS: AMEX 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06828 FILM NUMBER: 97554659 BUSINESS ADDRESS: STREET 1: 2231 E CAMELBACK RD STREET 2: STE 10 CITY: PHOENIX STATE: AZ ZIP: 80516 BUSINESS PHONE: 6028523900 MAIL ADDRESS: STREET 1: 2231 E CAMELBACK RD STREET 2: STE 10 CITY: PHOENIX STATE: AZ ZIP: 85016 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07959 FILM NUMBER: 97554660 BUSINESS ADDRESS: STREET 1: 2231 E CAMELBACK RD, 4TH FL CITY: PHOENIX STATE: AZ ZIP: 85016 BUSINESS PHONE: 6028523900 MAIL ADDRESS: STREET 1: 2231 E CAMELBACK RD. 4TH FL CITY: PHOENOX STATE: AZ ZIP: 85016 FORMER COMPANY: FORMER CONFORMED NAME: HOTEL INVESTORS CORP DATE OF NAME CHANGE: 19920703 10-K 1 FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 1996 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ------------------------ [X] JOINT ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER: 1-6828 COMMISSION FILE NUMBER: 1-7959 STARWOOD LODGING STARWOOD LODGING TRUST CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CHARTER) ------------------------ MARYLAND MARYLAND (STATE OR OTHER JURISDICTION (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) OF INCORPORATION OR ORGANIZATION) 52-0901263 52-1193298 (I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.) 2231 E. CAMELBACK ROAD, SUITE 410 2231 E. CAMELBACK ROAD, SUITE 400 PHOENIX, ARIZONA 85016 PHOENIX, ARIZONA 85016 (ADDRESS OF PRINCIPAL EXECUTIVE (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) OFFICES, INCLUDING ZIP CODE) (602) 852-3900 (602) 852-3900 (REGISTRANT'S TELEPHONE NUMBER, (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) INCLUDING AREA CODE)
------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(b)OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - ---------------------------------------------------------------------------------------------------------- Shares of Beneficial Interest, $0.01 per value, of New York Stock Exchange Starwood Lodging Trust ("Trust Shares") paired with Shares of Common Stock, $0.01 par value, of Starwood Lodging Corporation ("Corporation Shares")
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT NONE Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of each Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of March 7, 1997, the aggregate market value of the Registrants' voting stock held by non-affiliates(1) was $1,730,804,119. As of February 28, 1997 the Registrants had outstanding 42,975,478 Trust Shares and 42,975,478 Corporation Shares. - --------------- (1) For purposes of this Joint Annual Report only, includes all voting shares other than those held by the Registrants' Trustees or Directors and Executive Officers. ================================================================================ 2 TABLE OF CONTENTS
ITEM NUMBER IN FORM 10-K PAGE - ------- ---- PART I 1. Business....................................................................... 1 2. Properties..................................................................... 10 3. Legal Proceedings.............................................................. 18 4. Submission of Matters to a Vote of Security Holders............................ 18 PART II 5. Market for Registrants' Common Equity and Related Stockholder Matters.......... 19 6. Selected Financial Data........................................................ 20 Management's Discussion and Analysis of Financial Condition and Results of 7. Operations..................................................................... 22 8. Financial Statements and Supplementary Data.................................... 30 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................................................................... 30 PART III 10. Trustees, Directors and Executive Officers of the Registrants.................. 31 11. Executive Compensation......................................................... 37 12. Security Ownership of Certain Beneficial Owners and Management................. 44 13. Certain Relationships and Related Transactions................................. 48 PART IV Exhibits, Financial Statements, Financial Statement Schedules and Reports on 14. Form 8-K....................................................................... 50
(i) 3 This Joint Annual Report of Starwood Lodging Trust (the "Trust") and Starwood Lodging Corporation (the "Corporation" and, together with the Trust, "Starwood Lodging" or the "Company") on Form 10-K contains statements which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this Report, including, without limitation, Acquisition and Development Strategy, Operating Strategy, Other Information, and Management's Discussion and Analysis of Financial Condition and Results of Operations. Such forward-looking statements include statements regarding the intent, belief or current expectations of Starwood Lodging, its Trustees, Directors or its officers with respect to the matters discussed in this Report. Prospective investors are cautioned that any such forward-looking statements involve risks and uncertainties, and that actual results may differ materially from those in the forward-looking statements as a result of various uncertainties and other factors, including, without limitation, those set forth below. GENERAL FACTORS AFFECTING INVESTMENTS IN THE HOTEL INDUSTRY Operating Risks. The properties of the Company are subject to all operating risks common to the hotel industry. These risks include: changes in general economic conditions; the level of demand for rooms and related services; cyclical over-building in the hotel industry; restrictive changes in zoning and similar land use laws and regulations or in health, safety and environmental laws, rules and regulations; the inability to secure property and liability insurance to fully protect against all losses or to obtain such insurance at reasonable rates; and changes in travel patterns. In addition, the hotel industry is highly competitive. The properties of the Company compete with other hotel properties in their geographic markets. However, some of the Company's competitors may have substantially greater marketing and financial resources than the Company. The Company may compete for acquisition opportunities with entities which have substantially greater financial resources than the Company. These entities may generally be able to accept more risk than the Company can prudently manage. Competition may generally reduce the number of suitable investment opportunities offered to the Company and increase the bargaining power of property owners seeking to sell. Further, management believes that it will face competition for acquisition opportunities from entities organized for purposes substantially similar to the objectives of the Company. Franchise Agreement Risks. The majority of the Company's hotels are operated pursuant to existing franchise or license agreements. Franchise agreements generally contain specific standards for, and restrictions and limitations on, the operation and maintenance of a hotel property in order to maintain uniformity in the system created by the franchisor. In addition, compliance with such standards could require a franchisee to incur significant expenses or capital expenditures. Certain of the franchise agreements require the Company to obtain the consent of the franchisor to certain matters, including certain securities offerings. Seasonality of Hotel Business. The hotel industry is seasonal in nature. Generally, hotel revenues are greater in the second and third quarters than in the first and fourth quarters. As a result, the Trust may be required from time to time to borrow to provide funds necessary to make quarterly distributions. Regulation of Gaming Operations. The Company's casino gaming facilities located in Las Vegas, Nevada, are subject to extensive licensing and regulatory control by the Nevada Gaming Commission and other Nevada authorities. These regulatory authorities have broad powers with respect to the licensing of gaming operations, and may revoke, suspend, condition or limit the gaming approvals and licenses of the Corporation (ii) 4 and its gaming subsidiary, impose substantial fines and take other actions, any of which could have a material adverse effect on the Corporation's business and the going concern value of the Trust's hotel/casinos. Directors, officers and certain key employees of the Corporation and its gaming subsidiary are subject to licensing or suitability determinations by the Nevada Gaming Commission and local gaming authorities. If the Nevada Gaming Commission were to find a person occupying any such position unsuitable, the Corporation would be required to sever its relationship with that person. REAL ESTATE INVESTMENT RISKS General Risks. Real property investments are subject to varying degrees of risk. The investment returns available from equity investments in real estate depend in large part on the amount of income earned and capital appreciation generated by the related properties as well as the expenses incurred. If the properties of the Company do not generate revenue sufficient to meet operating expenses, including debt service and capital expenditures, the income of the Company and its ability to make distributions to its shareholders will be adversely affected. In addition, income from properties and real estate values are also affected by a variety of other factors, such as governmental regulations and applicable laws (including real estate, zoning and tax laws), interest rate levels and the availability of financing. In addition, equity real estate investments, such as the investments held by the Company and any additional properties that may be acquired by the Company, are relatively illiquid. Possible Liability Relating to Environmental Matters. Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may become liable for the costs of removal or remediation of hazardous or toxic substances on, under or in such property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. The presence of hazardous or toxic substances, or the failure properly to remediate such substances when present, may adversely affect the owner's ability to sell or rent such real property or to borrow using such real property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic wastes may be liable for the costs of removal or remediation of such wastes at the disposal or treatment facility, regardless of whether such facility is owned or operated by such person. Other federal, state and local laws, ordinances and regulations require abatement or removal of certain asbestos-containing materials in the event of demolition or certain renovations or remodeling and govern emissions of and exposure to asbestos fibers in the air. The operation and subsequent removal of certain underground storage tanks also are regulated by federal and state laws. Future remediation costs are not expected to have a material adverse effect on the Company's results of operations or financial position and compliance with environmental laws has not had and is not expected to have a material effect on the capital expenditures, earnings or competitive position of the Company. RISKS OF DEBT FINANCING As a result of incurring debt, the Company is subject to the risks normally associated with debt financing, including the risk that cash flow from operations will be insufficient to meet required payments of principal and interest. A majority of the hotels are mortgaged to secure payment of certain of this indebtedness, and if the mortgage payments cannot be made, a loss could be sustained as a result of a foreclosure by the mortgagee. The Company currently maintains floating rate indebtedness, and may utilize floating rate financing in future transactions. Increases in these interest rates could adversely affect the Company's results from operations and adversely impact its ability to meet its debt service. The Company is obligated to repay certain of this indebtedness in the near future when it matures. Although the Company anticipates that it will be able to repay or refinance such indebtedness and any other indebtedness, there can be no assurance that it will be able to do so or that the terms of such refinancings will be favorable to the Company. (iii) 5 PART I ITEM 1. BUSINESS. Starwood Lodging Trust, formerly Hotel Investors Trust, was organized in 1969 as a Maryland real estate investment trust, and has invested in fee, ground leasehold and mortgage loan interests in hotel properties located throughout the United States. In order for the Trust to qualify for favorable tax status as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986 (the "Code"), the Trust leases its properties to third-party operators. In 1980, Starwood Lodging Corporation, formerly Hotel Investors Corporation, was organized as a Maryland corporation and has leased hotel properties from the Trust since that date. Unless the context otherwise requires, all references herein to "Starwood Lodging" or the "Company" refer to the Trust and the Corporation, and all references to the "Trust" and to the "Corporation" include the Trust and the Corporation, respectively, and those entities respectively owned or controlled by the Trust or the Corporation, including the Realty Partnership (defined below) and the Operating Partnership (defined below). Since 1980, the shares of beneficial interest of the Trust ("Trust Shares") and the shares of common stock of the Corporation ("Corporation Shares") have been "paired" on a one-for-one basis and may only be held or transferred in units consisting of one Trust Share and one Corporation Share ("Paired Shares"). The Code has prohibited the "pairing" of shares between a REIT and a management company since 1983. This rule does not apply to the Trust because its Paired Share structure has existed since 1980. At December 31, 1996, Starwood Lodging owned equity interests in 62 hotel properties and owned mortgage interests in another 14 hotel properties. At such date, of the 62 hotels in which Starwood Lodging owned an equity interest, seven hotels were being managed by third-party operators including four hotels being managed pursuant to leases to third-party operators. For information as to such interests and properties, see Item 2 of this Joint Annual Report. At March 10, 1997 (the "date of this Joint Annual Report"), Starwood Lodging owned equity or mortgage interests in, or managed for third-party owners, a total of 98 hotels containing over 26,000 rooms located in 27 states and the District of Columbia. ACQUISITION AND DEVELOPMENT STRATEGY Starwood Lodging intends to continue to expand and diversify its hotel portfolio through the acquisition of primarily upscale hotels in major metropolitan areas. Starwood Lodging believes that hotels in this segment can be purchased at prices below replacement cost and offer better potential for cash flow growth than hotels in other market segments. Starwood Lodging generally seeks investments in hotels where management believes that profits can be increased by the introduction of more professional and efficient management techniques, a change of franchise affiliation or the injection of capital for renovating, repositioning or expanding a property. Properties are targeted throughout the United States, but Starwood Lodging generally focuses on markets with favorable demographic trends, significant barriers to entry or major room demand generators such as office or retail complexes, airports, tourist attractions, or universities. 1 6 Consistent with this strategy, Starwood Lodging acquired equity interests in the following 30 hotels during 1996 (the "1996 Properties"):
APPROXIMATE DATE APPROXIMATE PURCHASE PRICE OF PURCHASE PRICE PER ROOM HOTEL LOCATION PURCHASE (000'S) ROOMS (000'S) - --------------------------------- ---------------------- -------- -------------- ------ -------------- Westin Hotel..................... Washington, DC 1/04/96 $ 33,000 263 $125 Boston Park Plaza................ Boston, MA 1/24/96 96,478(1)(2) 960 85 Midland Hotel.................... Chicago, IL 3/22/96 21,000 257 82 Clarion Hotel, San Francisco Airport........................ Milbrae, CA 4/25/96 30,000 442 68 Doubletree DFW Airport........... Irving, TX 4/26/96 28,568 308 93 Doubletree Cypress Creek......... Ft. Lauderdale, FL 4/26/96 23,220 254 91 Westin Hotel..................... Tampa, FL 4/26/96 21,462 260 83 Doubletree Guest Suites.......... Philadelphia, PA 6/03/96 18,230 251 73 Days Inn......................... Philadelphia, PA 7/01/96 3,570 177 20 The Institutional Portfolio consisting of: Ritz Carlton..................... Philadelphia, PA 8/12/96 290 Ritz Carlton..................... Kansas City, MO 8/12/96 373 Westin Hotel..................... Waltham, MA 8/12/96 347 Westin LAX....................... Los Angeles, CA 8/12/96 739 Westin Horton Plaza.............. San Diego, CA 8/12/96 450 Westin Hotel Concourse........... Atlanta, GA 8/12/96 370 Doubletree Grand at Mall of America........................ Bloomington, MN 8/12/96 321 The Wyndham Hotel................ Ft. Lauderdale, FL 8/12/96 251 -------- ----- ---- 315,000 3,141 100 Hotels of Distinction Portfolio consisting of: The Hotel Park Tucson............ Tucson, AZ 8/16/96 215 Embassy Suites................... Palm Desert, CA 8/16/96 198 The Marque of Atlanta............ Atlanta, GA 8/16/96 275 Arlington Park Hilton............ Arlington Heights, IL 8/16/96 422 Sheraton Needham................. Needham, MA 8/16/96 247 Embassy Suites................... St. Louis, MO 8/16/96 297 Radisson Marque.................. Winston-Salem, NC 8/16/96 293 Allentown Hilton................. Allentown, PA 8/16/96 224 Sheraton Minneapolis Metrodome... Minneapolis, MN 9/05/96 254 -------- ----- 135,000 2,425 56 Marriott Forrestal Village....... Princeton, NJ 8/29/96 19,600 294 67 Doral Court...................... New York, NY 9/19/96 21,028 199 106 Doral Tuscany.................... New York, NY 9/19/96 12,888 121 107 Westwood Marquis................. Los Angeles, CA 12/31/96 35,000(3) 257 136 -------- ----- ---- $814,044 9,609 $ 85 ======== ===== ====
- --------------- (1) Represents 100% interest. Starwood Lodging acquired a 58.2% interest in a joint venture that acquired the property. (2) Includes $14 million allocated to the purchase price of the office building portion of the hotel property. (3) Represents 100% interest. Starwood Lodging acquired a 93.5% interest in a joint venture that acquired the property. 2 7 In addition, as of March 10, 1997, Starwood Lodging had acquired equity interests in 1997 in the following 13 hotels containing approximately 4,100 rooms (the "1997 Properties"):
APPROXIMATE DATE APPROXIMATE PURCHASE PRICE OF PURCHASE PRICE PER ROOM HOTEL LOCATION PURCHASE (000'S) ROOMS (000'S) - -------------------------------- -------------------- -------- -------------- ----- -------------- Deerfield Beach Hilton.......... Deerfield Beach, FL 1/08/97 $ 11,500 220 $ 52 Radisson Denver South........... Denver, CO 1/17/97 21,750 263 83 The HEI Portfolio of owned hotels consisting of: The Sheraton Hotel.............. Long Beach, CA 2/14/97 460 Omni Waterside Hotel............ Norfolk, VA 2/14/97 446 BWI Airport Marriott............ Baltimore, MD 2/14/97 310 Crown Plaza Edison.............. Edison, NJ 2/14/97 274 Courtyard by Marriott Crystal City.......................... Arlington, VA 2/14/97 272 Charleston Hilton............... Charleston, SC 2/14/97 296 Park Ridge Hotel................ King of Prussia, PA 2/14/97 265 Sonoma County Hilton............ Santa Rosa, CA 2/14/97 245 Novi Hilton..................... Novi, MI 2/14/97 239 Embassy Suites.................. Atlanta, GA 2/14/97 233 -------------- ----- ------ 312,000 3,040 103 Days Inn Chicago................ Chicago, IL 2/21/97 48,000 578 83 -------------- ----- ------ $393,250 4,101 $ 96 =========== ===== ===========
On February 14, 1997, in addition to the acquisition of the ten hotels referred to above as the HEI Portfolio of owned hotels (together, the "HEI Portfolio") from PRISA II, an institutional real estate investment fund managed by Prudential Real Estate Investors, and HEI Hotels LLC ("HEI"), a Westport, Connecticut based hotel operating company, the Company also completed the acquisition of the management company, HEI ($15 million). The Company paid $112 million in cash and notes and the remainder in limited partnership interests in the Realty Partnership and the Operating Partnership exchangeable for 6.548 million Paired Shares of the Trust and Corporation (an approximate value of $215 million). The HEI Portfolio also included contracts to manage the following nine hotels:
HOTEL LOCATION ROOMS - ---------------------------------------------------------------- ------------------ ----- Sheraton Gateway Houston Airport................................ Houston, TX 418 Ontario Airport Hilton.......................................... Ontario, CA 309 Grand Junction Hilton........................................... Grand Junction, CO 264 Danbury Hilton & Towers......................................... Danbury, CT 242 Residence Inn By Marriott....................................... Princeton, NJ 208 Long Island Sheraton Hotel...................................... Smithtown, NY 211 Wilmington Hilton Hotel......................................... Wilmington, DE 193 Ramada Hotel Bethesda........................................... Bethesda, MD 160 The Pavillion Hotel............................................. Virginia Beach, VA 292 ----- 2,297 =====
Also, as a part of its acquisition strategy Starwood Lodging intends to continue to acquire debt interests in hotels at discounts to their face amounts with the intention of acquiring the hotel. In line with this strategy, in 1996 Starwood Lodging acquired debt interests in the 305-room Holiday Inn in Milpitas, California, for $17.0 million and the 480-room Sheraton in Stamford, Connecticut, for $10.25 million. Also in 1996, equity interests were acquired by the Company in the Westin in Washington, D.C., and the Doubletree Guest Suites and Days Inn, both in Philadelphia, Pennsylvania, which combined with debt interests previously acquired by the Company provided the Company with full equity ownership of each hotel. Starwood Lodging also intends to develop, on a limited basis, new hotels, either through new construction or conversion of office buildings, in certain underserved markets. In this respect, in November 1996, the Trust 3 8 paid $7.0 million to acquire a site in downtown Seattle, Washington, which has entitlements for construction of a 410-room hotel. The Trust expects to begin construction on this hotel in mid-1997. Starwood Lodging is evaluating numerous other hotel properties for acquisition and, as of the date of this Joint Annual Report has entered into agreements to purchase and has made offers on 20 properties in the aggregate amount of approximately half a billion dollars, all of which are subject to the satisfaction of a number of conditions prior to closing. Starwood Lodging intends to finance the acquisition of these or other hotel properties through cash flow from operations, through borrowings under new or existing credit facilities and, when market conditions warrant, through the issuance of debt or equity securities. As part of its continuous evaluation of its portfolio and efforts to redeploy capital in high growth assets, the Company has identified certain properties for sale. These properties include the Company's gaming assets and other hotels primarily in market segments that the Company believes have limited growth potential. In 1996, the Company sold the Best Western Columbus North in Columbus, Ohio, for approximately $3.1 million; the Bourbon Street Hotel & Casino ("Bourbon Street") in Las Vegas, Nevada, for $7.6 million; and the real property of the King 8 Hotel, Gambling Hall and Truck Plaza (the "King 8") in Las Vegas, Nevada, for approximately $18.8 million. The Corporation has entered into an agreement to sell the personal property relating to the King 8 for $3 million and expects the closing to occur in the next 18 months following receipt by the purchaser of required gaming approvals. The Company is currently engaged in efforts to sell the Radisson Marque in Winston-Salem, North Carolina, and the Best Western hotels in Savannah, Georgia; El Paso, Texas; Las Cruces, New Mexico; and Albuquerque, New Mexico. OPERATING STRATEGY The Trust and the Corporation intend that the Operating Partnership lease and operate hotels owned or acquired by the Realty Partnership thereby retaining for shareholders the economic benefits otherwise captured by third-party operators. During 1996, the Operating Partnership assumed management of 29 hotels, including 27 of the 30 hotels acquired in 1996 and, as of the date of this Joint Annual Report, had assumed management in 1997 of an additional 22 hotels including all 13 hotels acquired in 1997 together with 9 other hotels owned by third parties. In 1996, the Corporation significantly expanded its operational capabilities with the hiring of key executives and other corporate staff in the areas of operations, sales, revenue management, food and beverage, human resources, finance, accounting, tax, MIS and capital project management. The Corporation intends to continue to reposition hotels in order to increase cash flows and asset values by changing or initiating franchise affiliations and implementing renovations, expansions and upgrades of hotel facilities. In 1996, the Corporation entered into new franchise affiliations with respect to seven hotels, of which six were acquired in 1996, including five hotels converted to Westin, one converted to Wyndham and one converted to Doubletree Guest Suites. In January 1997 the Dallas Park Central was converted to a Radisson hotel. The Corporation also intends to manage hotels on behalf of third-party owners, thereby capitalizing on the enhanced operational management infrastructure of the Corporation. The Company believes that third-party management contracts could provide the Company with an additional source of earnings as well as a source of potential acquisitions including minority equity investments in hotel properties. 1995 REORGANIZATION On January 31, 1995 (the "Reorganization Date"), the Trust and the Corporation consummated a reorganization (the "Reorganization") with a predecessor of Starwood Capital Group, L.L.C. ("Starwood Capital"), and certain affiliates of Starwood Capital (the "Starwood Partners") effective January 1, 1995. The Reorganization involved a number of related transactions that occurred simultaneously on the Reorganization Date. Such transactions included (i) the contribution by the Trust to SLT Realty Limited Partnership (the "Realty Partnership"), a newly formed Delaware limited partnership, of substantially all of the properties and assets of the Trust, subject to substantially all of the liabilities of the Trust (including senior 4 9 debt of the Trust (the "Senior Debt")), in exchange for an approximate 28.3% interest as a general partner in the Realty Partnership, (ii) the contribution by the Starwood Partners to the Realty Partnership of approximately $12.6 million in cash and certain hotel properties and first mortgage notes, in exchange for limited partnership units representing the remaining approximate 71.7% interest in the Realty Partnership, (iii) the contribution by the Corporation and its subsidiaries to SLC Operating Limited Partnership (the "Operating Partnership" and together with the Realty Partnership, the "Partnerships"), a newly formed Delaware limited partnership, of substantially all of their properties and operating assets (except for their gaming assets), subject to substantially all of their liabilities, in exchange for an approximate 28.3% interest as a general partner in the Operating Partnership, and (iv) the contribution by the Starwood Partners to the Operating Partnership of approximately $1.4 million in cash and fixtures, furnishings and equipment of certain hotel properties, in exchange for limited partnership units representing the remaining approximate 71.7% interest in the Operating Partnership. On March 24, 1995, a Starwood Partner exchanged $12 million of Senior Debt for additional limited partnership units of the Realty Partnership and the Operating Partnership resulting in the Starwood Partners owning approximately 74.6% of each of the Partnerships. STRUCTURE As of the date of this Joint Annual Report, the structure of Starwood Lodging is as follows: [HOLDERS OF PAIRED SHARES CHART] The limited partnership units of the Realty Partnership and the Operating Partnership held by the limited partners are (subject to the ownership limitation provisions of the Trust and the Corporation) exchangeable for, at the option of the Trust and the Corporation, either cash, Paired Shares representing up to approximately 22.8% of the Paired Shares after such exchange, or a combination of cash and such Paired Shares. The ownership limitation provisions of Starwood Lodging are designed to preserve the status of the Trust as a REIT for tax purposes by providing in general that no shareholder may own, directly or indirectly, more than 8% of the outstanding Paired Shares. 5 10 Since the Reorganization, the Trust has conducted substantially all of its business and operations through the Realty Partnership. As of December 31, 1996, the Realty Partnership held fee interests, ground leaseholds and mortgage loan interests in 76 hotel properties containing over 19,000 rooms located in 24 states throughout the United States and the District of Columbia. The Trust controls the Realty Partnership as the sole general partner of the Realty Partnership. Since the Reorganization, the Corporation (together with its wholly-owned subsidiaries) has conducted substantially all of its business and operations (other than its gaming operations) through the Operating Partnership. As of December 31, 1996, the Operating Partnership leased from the Realty Partnership all but four of the 59 hotel properties owned in fee or held pursuant to long-term leases by the Realty Partnership. In addition, the Operating Partnership owns the Milwaukee Marriott hotel, the Midland Hotel, both subject to mortgages to the Trust, and the Radisson Marque Hotel which is currently held for sale. GAMING APPROVALS Upon receipt of certain Nevada gaming regulatory approvals, the Corporation will control the Operating Partnership as its managing general partner. Prior to the receipt of such approvals, the Operating Partnership is being managed by a management committee, the members of which are identical to the members of the Board of Directors of the Corporation that will hold office upon receipt of Nevada gaming regulatory approvals (see Item 10 of this Joint Annual Report). The gaming operations (which, as of the date of this Joint Annual Report, consist of one hotel/casino located in Las Vegas, Nevada) are being operated through Hotel Investors Corporation of Nevada ("HICN"), a wholly-owned subsidiary of the Corporation. Upon receipt of such approvals (or such time as such approvals are no longer required), HICN will become a wholly-owned subsidiary of the Operating Partnership. The real property of the Company's hotel/casino has been sold and the sale of the personal property and gaming assets will close once the buyer or its designee has received Nevada gaming regulatory approval. Pending receipt of such approvals, which are expected by the end of 1997, the Corporation is operating the hotel/casino pursuant to a lease from the buyer. 1996 OFFERINGS APRIL 1996 OFFERING The Company completed a public offering of 3,000,000 Paired Shares (after giving effect to the three-for-two stock split in January 1997) in April 1996 (the "April 1996 Offering"). Net proceeds from the April 1996 Offering of approximately $62.4 million were used, in part, to fund the acquisition of the 442-room Clarion Hotel located at the San Francisco Airport (acquired on April 24, 1996) and three Doubletree Guest Suite hotels located in Irving, Texas; Ft. Lauderdale, Florida; and Tampa, Florida (now a Westin) (all three properties were acquired on April 26, 1996). AUGUST 1996 OFFERING In August 1996, the Company completed a public offering of 15,000,000 Paired Shares (after giving effect to the three-for-two stock split in January 1997) and on August 23, 1996, the underwriter exercised its over-allotment option to purchase 1.2 million Paired Shares (after giving effect to the three-for-two stock split in January 1997) (together, the "August 1996 Offering" and, with the April 1996 Offering, the "1996 Offerings"). Net proceeds from the August 1996 Offering of approximately $367.2 million were used to fund the acquisition of a portfolio of 8 hotels owned by an institution (the "Institutional Portfolio") and partially fund the acquisition of a portfolio of 9 hotels owned by Hotels of Distinction Ventures, Inc. (the "HOD Portfolio"). LINES OF CREDIT AND MORTGAGES At December 31, 1996, the Company had two loan facilities and a term loan with Lehman Brothers, Inc., and certain of its affiliates ("Lehman Brothers") and a loan facility with Goldman Sachs (together, the "Lines of Credit"). 6 11 MORTGAGE FACILITY In October 1995, the Company amended its Mortgage Loan Funding Facility Agreement, dated July 25, 1995 (the "Mortgage Facility"), with Lehman Brothers to increase the amount available under this facility to $70.6 million. The Mortgage Facility is recourse to the Realty Partnership, is secured by certain mortgage loans owned by the Realty Partnership, bore interest at a rate equal to 1.5% plus the one-month LIBOR for the first 12 months, and bears interest at a rate of 1.75% plus the one-month LIBOR thereafter. In August 1996, the maturity date for the Mortgage Facility was extended to July 1997. As of December 31, 1996, the Company had borrowed $70.6 million under the Mortgage Facility. ACQUISITION FACILITY In October 1995, the Company entered into a three-year, $135 million secured revolving credit facility (the "Acquisition Facility") with Lehman Brothers. In August 1996, a portion of the Acquisition Facility was syndicated amongst a number of banks, whereupon First National Bank of Boston became the lead agent bank. The Acquisition Facility is recourse to the Realty Partnership, is secured by certain properties of the Company and may be secured by other properties acquired by the Company, all on a cross-collateralized basis within various pools. Amounts drawn under the Acquisition Facility bear interest at a rate equal to 1.625% plus the one, two or three-month LIBOR at the Company's option. The Acquisition Facility matures in October 1998. As of December 31, 1996, the Company had borrowed $117.8 million under the Acquisition Facility. BPP MORTGAGE In March 1996, the joint venture in which the Company holds a 58.2% interest, refinanced a mortgage secured by the Boston Park Plaza with a new non-recourse mortgage in the amount of $25 million with the Life Insurance Company of Georgia at an interest rate of 8.4% due July, 2003 (the "BPP Mortgage"). As of December 31, 1996, the balance outstanding under the BPP Mortgage was $25 million. TERM LOAN In March 1996, the Company entered into a $24 million one year non-recourse secured term loan (the "Term Loan") with Lehman Brothers. In April 1996, the Company amended the Term Loan to increase the amount available under this facility to $94 million. The Term Loan is secured by certain properties of the Company and bears interest at a rate equal to the one, two or three-month LIBOR, at the Company's option, plus (a) 1.95% for the first $24 million drawn, and (b) 1.75% for the remaining balance drawn. The Term Loan matures in April 1997. As of December 31, 1996, the Company had borrowed $94 million under the Term Loan. GOLDMAN FACILITY In August 1996, the Company entered into a loan facility with an affiliate of Goldman Sachs for a one-year (extendible to 18 months) loan of up to $300 million to fund a portion of the acquisition cost of the Institutional Portfolio and the HOD Portfolio (the "Goldman Facility"). The Goldman Facility is recourse to the Realty Partnership, bears interest at one-month LIBOR plus 1.75% (an extendible six month period bears interest at one-month LIBOR plus 2.75%) and is secured by interests in the Institutional Portfolio and the HOD Portfolio. As of December 31, 1996, the Company had borrowed $140 million under the Goldman Facility. DORAL MORTGAGE In September, 1996, upon acquisition of the Doral Court and Doral Tuscany in New York, the Company assumed liability under and amended the terms of a mortgage with The Sumitomo Trust and Banking Co., Ltd. (the "Doral Mortgage"). As amended, the Doral Mortgage is recourse to the Realty Partnership, bears interest at a rate of 7.64% and is due September 2001. As of December 31, 1996, the balance outstanding under the Doral Mortgage was $27.4 million. 7 12 TREASURY LOCKS In January 1996, the Company entered into two interest-rate-hedging agreements (the "January Treasury Locks"), which had the effect of fixing the base rate of interest at 5.70% for debt the Company intended to issue in October 1996 with an aggregate notional principal amount of $100 million and a term to maturity of seven years. The Company has extended the settlement date to March 31, 1997, and the base rate increased to 5.86%. The actual interest rate on debt the Company intends to issue will be determined by reference to this base rate. At settlement, the Trust will pay or receive an amount which will be capitalized and amortized over the term of the related debt of seven years. Such amount is not anticipated to have a material effect on the Trust's liquidity or operating results. If the Trust did not issue any such debt, such amount would still be payable or receivable and would be treated as a loss or gain, accordingly. Such a gain or loss could have a material effect on the Trust's results from operations; however, due to management's current intention to issue $100 million of debt in 1997, with a term to maturity of seven years, no such gain or loss is anticipated. If the January Treasury Locks had been settled on December 31, 1996, the Trust would have received $2.5 million. In August 1996, the Company entered into another interest rate hedging agreement (the "August Treasury Lock"), which has the effect of fixing the base rate of interest at 6.67% for debt the Company had intended to issue in March 1997, with an aggregate notional principal amount of $150 million and a term to maturity of ten years. The Company, due to other financing circumstances, has decided to postpone the issuance of the ten year, $150 million debt to June 30, 1997. Accordingly, the Company plans to extend the settlement date in respect of the August Treasury Lock. The actual interest rate of debt to be issued at that time will be determined by reference to the base rate determined at the time of extension of the settlement date. At settlement, the Company will pay or receive an amount which will be capitalized and amortized over the term of the related debt of ten years. Such amount is not anticipated to have a material effect on the Company's liquidity or operating results. If the Company did not issue any such debt, such amount would still be payable or receivable and would be treated as a loss or gain, accordingly. Such a gain or loss could have a material effect on the Company's results from operations; however due to Management's current intention to issue $150 million of debt with a term to maturity of ten years, no such gain or loss is anticipated. If the August Treasury Lock had been settled on December 31, 1996, the Trust would have paid $2.96 million. PRUDENTIAL LOAN On February 14, 1997, in connection with the acquisition of the HEI Portfolio, the Company entered into a short term loan with The Prudential Insurance Company of America in the principal amount of $97.5 million (the "Prudential Loan") in order to partially fund the acquisition of the HEI Portfolio. As of the date of this Joint Annual Report, the Company had borrowed $72.0 million under the Prudential Loan, which bears interest at a rate of 7.0% and is due April 15, 1997. The Company may elect to extend the maturity date to May 14, 1997. Presently, the Company intends to make the election to extend the maturity date. TAX EXEMPT BONDS On February 20, 1997, the Company issued bonds in the principal amount of $39.5 million due October, 2013 (the "Tax Exempt Bonds"). The Tax Exempt Bonds bear interest at a rate of 6.5% with no principal amortization, were issued at a discount to yield 6.7% and are secured by two hotels of the Company located at the Philadelphia International Airport. Net proceeds from the Tax Exempt Bonds of approximately $37.6 million were used to partially fund the acquisition of the 578-room Days Inn in Chicago, Illinois. TAX STATUS OF THE TRUST The Trust elected to be taxed as a REIT, commencing with its taxable year ended December 31, 1995. The Trust expects to also make this election for the year ended December 31, 1996, when it files its tax return for such period, which is due no later than September 15, 1997. The Trust was taxed as a REIT beginning in 1969 through and including its taxable year ended December 31, 1990. During 1994, the Trust discovered that 8 13 it may not have qualified as a REIT in 1991 through 1994, due to its failure to comply with certain procedural requirements of the Code. The Trust requested and received a letter from the Internal Revenue Service providing that the Trust's election to be taxed as a REIT terminated beginning with the Trust's taxable year ended December 31, 1991, and permitting the Trust to re-elect to be taxed as a REIT commencing with its taxable year ended December 31, 1995. Because the Trust had net losses for tax purposes for its 1991 through 1994 taxable years, the Trust does not owe any Federal income tax for such years. OTHER INFORMATION SEASONALITY AND COMPETITION. The hotel industry is seasonal in nature. Generally, hotel revenues are greater in the second and third quarters than in the first and fourth quarters due to generally decreased travel during winter months. The hotel industry is highly competitive. The properties of the Company compete with other hotel properties in their geographic markets. Many of the Company's competitors may have substantially greater marketing and financial resources than the Company. The Company may compete for acquisition opportunities with entities which have greater financial resources than the Company or which may accept more risk than the Company. Competition may generally reduce the number of suitable investment opportunities and increase the bargaining power of property owners seeking to sell. Further, management of the Company believes that it will face competition for acquisition opportunities from entities organized for purposes substantially similar to the objectives of the Trust or the Company. ENVIRONMENTAL MATTERS. None of the Trust, the Corporation, the Realty Partnership or the Operating Partnership has been identified by the United States Environmental Protection Agency or any similar state agency as a responsible or potentially responsible party for, nor have they been the subject of any governmental proceeding with respect to, any hazardous waste contamination. If the Trust, the Corporation, the Realty Partnership or the Operating Partnership were to be identified as a responsible party, they would in most circumstances be strictly liable, jointly and severally with other responsible parties, for environmental investigation and clean-up costs incurred by the government and, to a more limited extent, by private persons. Since January 1, 1995, preliminary or "Phase I" environmental site assessments have been prepared with respect to each of the Company's 62 fee interest and ground leasehold properties owned as of December 31, 1996. The results of the Phase I assessments and subsequent "Phase II" assessments performed at six of the properties has led to an assessment by the Company and its outside consultants that the Company's overall potential for environmental impairment is low. Based upon the environmental reports described above, the Company believes that a substantial number of its hotels incorporate potentially asbestos-containing materials. Under applicable current Federal, state and local laws, asbestos need not be removed from or encapsulated in a hotel unless and until the hotel is renovated or remodeled. The Company has asbestos operation and maintenance plans for each property testing positive for asbestos. Based upon the above-described environmental reports and testing, future remediation costs are not expected to have a material adverse effect on the results of operations, financial position or cash flows of the Trust or the Corporation and compliance with environmental laws has not had and is not expected to have a material effect on the capital expenditures, earnings or competitive position of the Trust or the Corporation. REGULATION AND LICENSING. The ownership and operation of the casino gaming facilities of the Corporation in Nevada are subject to extensive licensing and regulatory control by the Nevada Gaming Commission, the Nevada State Gaming 9 14 Control Board and the Clark County Liquor and Gaming Licensing Board. See Item 2, "Regulation and Licensing" of this Joint Annual Report. EMPLOYEES. As of December 31, 1996, the Trust had three employees and the Corporation had approximately 8,900 employees. The Trust's executive offices are located at 2231 East Camelback Road, Suite 410, Phoenix, Arizona 85016 (telephone (602) 852-3900) and the Corporation's executive offices are located at 2231 East Camelback Road, Suite 400, Phoenix, Arizona 85016 (telephone (602) 852-3900). Financial information with respect to the two segments of the hospitality industry (hotels and gaming) in which the Corporation operates is included in Note 16 of the Notes to Financial Statements included in Item 8 of this Joint Annual Report. ITEM 2. PROPERTIES. At December 31, 1996, the Company owned, operated and managed a geographically diverse portfolio of hotel assets, including fee, ground lease and first mortgage interests in 76 hotel properties, comprising approximately 20,000 rooms located in 24 states and the District of Columbia. Sixty of such hotels are operated under licensing, membership, franchise or management agreements or leases with national hotel organizations, including Ritz Carlton(R), Westin(R), Marriott(R), Hilton(R), Sheraton(R), Omni(R), Doubletree(R), Embassy Suites(R), Harvey(R), Radisson(R), Clarion(R), Holiday Inn(R), Residence Inn(R), Days Inn(R), Best Western(R) and Vagabond Inn(R). EQUITY INVESTMENTS. As of December 31, 1996, the Company had equity investments in 62 properties containing a total of over 16,200 guest rooms. All but three of the properties are owned by the Trust. Of these three properties, the Operating Partnership owns the Milwaukee Marriott hotel and the Midland Hotel, both subject to mortgages to the Trust, and the Radisson Marque Hotel which is currently held for sale. Of the 59 hotels owned by the Trust, all but five are leased to the Corporation or its subsidiaries pursuant to leases between the Trust and the Corporation (the "Intercompany Leases"). Each of the Intercompany Leases provides for the lessee's payment of annual minimum rent in a specified amount plus additional rent based on a percentage of the gross revenues (or items thereof) of the leased property. The Intercompany Leases have an average remaining term of three years. The Intercompany Leases are "triple-net" -- i.e., the lessee is generally responsible for paying all operating expenses of the hotel property, including maintenance and repair costs, insurance premiums and real estate and personal property taxes, and for making all rental and other payments required pursuant to any underlying ground leases. As lessee, the Operating Partnership retains all of the profits, net of rents and other expenses, and bears all risk of losses, generated by the hotel property's operations. In addition to the Intercompany Leases, three Vagabond Inns (the "Vagabond Inns") are leased by the Trust to a third-party pursuant to ground leases which expire in 2001, 2007 and 2008, respectively. The remaining two properties, the Doral Inn and the Marriott Forrestal Village are leased to third parties and such leases expire in 2005 and 2007, respectively. In respect of the Doral Inn, the Trust owns the land and holds a leasehold mortgage on the building and personal property and the Operating Partnership operates the hotel pursuant to a sublease. In respect of the Marriott Forrestal Village, the Trust can terminate the lease beginning in 1999 for a stipulated fee. The following table sets forth the 1996, 1995, and 1994 average occupancy, room rates ("ADR"), revenue per available room ("REVPAR") and certain other information concerning the Company's non-gaming hotels (excluding the Vagabond Inns) as of December 31, 1996. Each hotel in the following table is owned by the Trust and leased to the Corporation, except as noted. 10 15
ADR($) -------------------------- # OF YEAR YEAR YEAR ENDED DECEMBER 31, HOTEL/LOCATION STATE ROOMS OPENED ACQUIRED(1) 1996 1995 1994 - --------------------------------------------- ----- ------ ------ ----------- ------ ------ ------ Embassy Suites -- Phoenix(6)................. AZ 227 1981 1983 97.71 85.14 80.23 Embassy Suites -- Tempe(6)................... AZ 224 1984 1995 104.96 95.75 83.37 Hotel Park -- Tucson(9)...................... AZ 215 1986 1996 79.63 74.12 69.29 Plaza Hotel & Conference Center -- Tucson(6)........................ AZ 149 1971 1983 51.83 48.34 46.12 Clarion Hotel SFO Airport -- Milbrae(8)...... CA 442 1962 1996 73.89 60.36 55.09 Doubletree Club -- Rancho Bernardo(6)........ CA 209 1988 1995 74.63 71.02 65.68 Embassy Suites -- Palm Desert(9)............. CA 198 1985 1996 102.43 97.30 96.81 Westin Horton Plaza -- San Diego(9).......... CA 450 1987 1996 111.78 98.64 92.44 Westin LAX Airport -- Los Angeles(9)......... CA 720 1986 1996 65.68 55.82 56.87 Westwood Marquis -- Los Angeles(12).......... CA 257 1969 1996 171.09 161.83 157.02 Capitol Hill Suites -- Washington(6)......... DC 152 1955 1995 99.62 95.09 91.93 Westin Grand -- Washington(7)................ DC 263 1984 1995 135.36 127.62 N/A Doubletree Guest Suites -- Cypress Creek(8)................................... FL 254 1985 1996 82.16 77.10 82.07 Radisson Hotel -- Gainesville(6)............. FL 195 1974 1986 61.82 60.43 59.89 Westin Airport -- Tampa(8)................... FL 260 1987 1996 89.47 84.46 86.14 Wyndham Ft. Lauderdale Airport -- Dania(9)... FL 251 1986 1996 84.20 77.18 77.71 Best Western Historic District- Savannah(5)(6)............................. GA 142 1971 1986 51.64 46.75 47.27 Holiday Inn -- Albany(6)..................... GA 151 1989 1989 61.61 59.08 56.06 Lenox Inn -- Atlanta(8)...................... GA 180 1965 1995 82.82 69.48 63.57 Sheraton Colony Square -- Atlanta(6)......... GA 462 1973 1995 111.01 89.59 86.57 Terrace Garden Inn -- Atlanta(8)............. GA 364 1975 1995 110.56 93.51 88.39 The Marque -- Atlanta(9)..................... GA 275 1980 1996 99.30 82.21 74.66 Westin at Concourse -- Atlanta(9)............ GA 370 1986 1996 109.40 96.25 87.32 Arlington Park Hilton -- Arlington Heights(9)................................. IL 422 1968 1996 83.08 77.76 71.55 The Midland Hotel -- Chicago(2)(8)........... IL 257 1934 1996 127.72 111.48 107.43 Harvey Hotel -- Wichita(6)................... KS 259 1974 1995 58.07 62.52 50.62 Doubletree Guest Suites -- Lexington(6)...... KY 155 1989 1995 91.74 82.93 84.96 Park Plaza -- Boston(10)..................... MA 960 1927 1996 106.88 101.42 98.12 Sheraton Hotel -- Needham(9)................. MA 247 1986 1996 97.12 84.60 80.01 Westin Hotel -- Waltham(9)................... MA 347 1990 1996 111.28 100.15 97.17 Holiday Inn Calverton -- Beltsville(8)....... MD 206 1987 1995 71.01 67.49 63.37 Bay Valley Resort -- Bay City(6)............. MI 151 1973 1984 64.03 62.02 62.22 Doubletree Grand at MOA -- Bloomington(9).... MN 321 1975 1996 94.23 88.34 79.28 Sheraton Hotel Metrodome -- Minneapolis(9)... MN 254 1980 1996 75.22 72.00 66.96 Embassy Suites -- St. Louis(9)............... MO 297 1985 1996 96.77 88.02 86.48 Ritz Carlton -- Kansas City(9)............... MO 373 1973 1996 129.49 122.82 116.76 Omni Europa -- Chapel Hill(6)................ NC 168 1981 1995 91.34 84.33 74.54 Radisson Marque -- Winston-Salem(3)(5)(9).... NC 293 1974 1996 72.48 71.88 69.32 Marriott Forestal Village -- Princeton(4)(8)................. NJ 294 1987 1996 102.09 94.46 89.47 Best Western -- Las Cruces(5)(6)............. NM 166 1974 1982 50.00 44.94 42.74 Best Western Airport Inn -- Albuquerque(5)(6)................... NM 123 1980 1984 58.41 56.70 54.45 Doral Court -- New York(11).................. NY 199 1927 1996 149.43 131.57 130.25 Doral Inn -- New York(13).................... NY 652 1927 1995 108.83 96.34 88.31 Doral Tuscany -- New York(11)................ NY 121 1935 1996 189.02 178.18 175.35 Days Inn City Center -- Portland(6).......... OR 173 1962 1984 69.25 60.71 53.12 Riverside Inn -- Portland(6)................. OR 137 1964 1984 92.18 71.35 64.69 Days Inn -- Philadelphia..................... PA 177 1984 1996 65.11 67.20 66.14 Doubletree Guest Suites -- Philadelphia...... PA 251 1985 1996 89.58 95.94 91.41 Hilton Hotel -- Allentown(9)................. PA 224 1981 1996 64.68 60.57 57.96 Ritz Carlton -- Philadelphia(9).............. PA 290 1990 1996 157.96 153.28 144.13 Best Western Airport -- El Paso(5)(6)........ TX 175 1974 1985 37.42 36.12 34.76 Doubletree Guest Suites DFW -- Irving(8)..... TX 308 1985 1996 99.29 91.18 91.24 Park Central -- Dallas(6).................... TX 445 1972 1972 56.44 55.03 59.97 Residence Inn Tysons Corner -- Vienna(6)..... VA 96 1984 1984 112.44 103.87 99.68 Days Inn Town Center -- Seattle(6)........... WA 90 1957 1984 73.89 62.73 60.99 Meany Tower -- Seattle(6).................... WA 155 1932 1984 78.42 72.83 70.47 Sixth Avenue Inn -- Seattle(6)............... WA 166 1959 1984 84.08 74.42 70.04 The Tyee Hotel -- Olympia(6)................. WA 155 1961 1987 64.57 61.64 60.63 Marriott Brookfield -- Milwaukee(2)(7)....... WI 393 1972 1990 74.72 72.19 67.91 ALL HOTELS................................... 15,910 94.41 85.05 81.01 OCCUPANCY (%) REVPAR($) ---------------------- -------------------------- YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, HOTEL/LOCATION 1996 1995 1994 1996 1995 1994 - --------------------------------------------- ------ ------- ------ ------ ------ ------ Embassy Suites -- Phoenix(6)................. 76.5 80.3 75.6 74.73 68.37 60.65 Embassy Suites -- Tempe(6)................... 81.9 80.2 82.8 85.93 76.79 69.03 Hotel Park -- Tucson(9)...................... 67.6 70.4 71.3 53.83 52.18 49.40 Plaza Hotel & Conference Center -- Tucson(6)........................ 71.0 77.3 77.1 36.79 37.37 35.56 Clarion Hotel SFO Airport -- Milbrae(8)...... 80.4 86.3 81.3 59.43 52.09 44.79 Doubletree Club -- Rancho Bernardo(6)........ 67.8 68.3 65.6 50.61 48.51 43.09 Embassy Suites -- Palm Desert(9)............. 71.1 72.2 69.1 72.80 70.25 66.90 Westin Horton Plaza -- San Diego(9).......... 71.0 70.0 67.9 79.38 69.05 62.77 Westin LAX Airport -- Los Angeles(9)......... 71.6 79.9 70.9 47.05 44.60 40.32 Westwood Marquis -- Los Angeles(12).......... 63.6 56.8 59.0 108.86 91.98 92.57 Capitol Hill Suites -- Washington(6)......... 67.4 69.2 64.1 67.14 65.80 58.93 Westin Grand -- Washington(7)................ 56.8 45.5 N/A 76.95 58.07 N/A Doubletree Guest Suites -- Cypress Creek(8)................................... 72.3 71.8 65.1 59.39 55.36 53.43 Radisson Hotel -- Gainesville(6)............. 60.1 58.0 59.4 37.13 35.05 35.57 Westin Airport -- Tampa(8)................... 69.7 63.5 62.9 62.36 53.63 54.18 Wyndham Ft. Lauderdale Airport -- Dania(9)... 75.4 82.4 76.2 63.48 63.60 59.22 Best Western Historic District- Savannah(5)(6)............................. 63.0 63.7 56.9 32.54 29.78 26.90 Holiday Inn -- Albany(6)..................... 69.5 77.2 78.9 42.79 45.61 44.23 Lenox Inn -- Atlanta(8)...................... 76.4 79.2 77.0 63.24 55.03 48.95 Sheraton Colony Square -- Atlanta(6)......... 68.0 72.4 72.4 75.44 64.86 62.68 Terrace Garden Inn -- Atlanta(8)............. 55.9 65.4 65.2 61.82 61.16 57.63 The Marque -- Atlanta(9)..................... 63.1 69.2 68.0 62.69 56.89 50.77 Westin at Concourse -- Atlanta(9)............ 71.9 71.6 74.2 78.67 68.92 64.79 Arlington Park Hilton -- Arlington Heights(9)................................. 69.2 69.4 64.2 57.45 53.97 45.94 The Midland Hotel -- Chicago(2)(8)........... 72.4 73.5 71.2 92.50 81.94 76.49 Harvey Hotel -- Wichita(6)................... 61.8 63.7 57.7 35.89 39.83 29.21 Doubletree Guest Suites -- Lexington(6)...... 72.8 74.6 69.4 66.82 61.87 58.96 Park Plaza -- Boston(10)..................... 80.2 76.0 76.0 85.67 77.08 74.57 Sheraton Hotel -- Needham(9)................. 76.9 74.8 73.6 74.72 63.28 58.89 Westin Hotel -- Waltham(9)................... 75.3 72.3 69.8 83.76 72.41 67.82 Holiday Inn Calverton -- Beltsville(8)....... 62.0 63.0 58.0 44.03 42.52 36.75 Bay Valley Resort -- Bay City(6)............. 61.9 63.1 63.5 39.65 39.13 39.51 Doubletree Grand at MOA -- Bloomington(9).... 76.0 77.2 74.7 71.62 68.20 59.22 Sheraton Hotel Metrodome -- Minneapolis(9)... 74.8 85.3 75.7 56.27 61.42 50.69 Embassy Suites -- St. Louis(9)............... 68.0 72.0 71.7 65.79 63.37 62.01 Ritz Carlton -- Kansas City(9)............... 76.0 74.9 73.2 98.44 91.99 85.47 Omni Europa -- Chapel Hill(6)................ 69.6 71.0 64.8 63.56 59.87 48.30 Radisson Marque -- Winston-Salem(3)(5)(9).... 50.6 54.0 51.2 36.70 38.82 35.49 Marriott Forestal Village -- Princeton(4)(8)................. 84.1 81.8 77.3 85.91 77.27 69.16 Best Western -- Las Cruces(5)(6)............. 61.6 75.1 71.2 30.82 33.75 30.43 Best Western Airport Inn -- Albuquerque(5)(6)................... 77.4 82.9 86.4 45.22 47.00 47.04 Doral Court -- New York(11).................. 77.9 75.9 74.8 116.46 99.86 97.43 Doral Inn -- New York(13).................... 81.8 75.0 81.0 89.04 72.26 71.53 Doral Tuscany -- New York(11)................ 70.7 65.0 63.5 133.65 115.82 111.35 Days Inn City Center -- Portland(6).......... 72.4 77.8 70.6 50.17 47.23 37.50 Riverside Inn -- Portland(6)................. 64.9 77.5 78.1 59.80 55.30 50.52 Days Inn -- Philadelphia..................... 71.9 71.5 75.7 46.82 48.05 50.07 Doubletree Guest Suites -- Philadelphia...... 74.0 70.3 73.1 66.26 67.45 66.82 Hilton Hotel -- Allentown(9)................. 77.4 77.5 73.5 50.07 46.94 42.60 Ritz Carlton -- Philadelphia(9).............. 80.0 71.7 73.3 126.35 109.90 105.65 Best Western Airport -- El Paso(5)(6)........ 62.4 79.4 80.4 23.36 28.68 27.95 Doubletree Guest Suites DFW -- Irving(8)..... 78.1 78.7 67.8 77.51 71.76 61.86 Park Central -- Dallas(6).................... 24.6 36.0 42.3 13.90 19.81 25.37 Residence Inn Tysons Corner -- Vienna(6)..... 82.5 85.0 83.0 92.80 88.29 82.73 Days Inn Town Center -- Seattle(6)........... 76.4 81.4 79.4 56.46 51.06 48.43 Meany Tower -- Seattle(6).................... 68.1 72.9 71.2 53.40 53.09 50.17 Sixth Avenue Inn -- Seattle(6)............... 75.4 78.7 75.1 63.39 58.57 52.60 The Tyee Hotel -- Olympia(6)................. 55.7 58.4 57.4 35.96 36.00 34.80 Marriott Brookfield -- Milwaukee(2)(7)....... 74.1 71.3 69.8 55.37 51.47 47.40 ALL HOTELS................................... 70.4 71.7 70.3 66.46 61.00 56.98
11 16 - --------------- (1) "Year acquired" represents the calendar year in which the Trust or Corporation (or a predecessor) made its initial investment in the property. (2) Property owned by the Corporation subject to a first mortgage to the Trust. (3) Property owned by the Corporation. (4) Property is subject to a ground lease expiring in December, 2055, which is terminable by the ground lessor after September, 1999, upon six months' notice under certain circumstances. (5) Property is an asset held for sale at December 31, 1996. (6) Property is subject to a mortgage under the Acquisition Facility. (7) Property is subject to a mortgage under the Mortgage Facility. (8) Property is subject to a mortgage under the Term Loan. (9) Property is subject to a security interest under the Goldman Facility. (10) The Trust owns a 58.2% general partnership interest in this hotel and property is subject to a mortgage under the BPP Mortgage. (11) Property is subject to a mortgage under the Doral Mortgage. (12) The Trust owns a 93.5% general partnership interest in this hotel. (13) The Trust owns the land and holds a leasehold mortgage on the building and personal property and the Operating Partnership operates the hotel pursuant to a sublease. MORTGAGE AND OTHER NOTES RECEIVABLES. At December 31, 1996, the Trust held five intercompany promissory notes issued by the Operating Partnership, three of which ($29.6 million in aggregate principal amount at December 31, 1996) are related to the Marriott in Milwaukee, Wisconsin; one note ($40.3 million in principal amount at December 31, 1996) is secured by the Doral Inn in New York, New York; and one note ($18.2 million in principal amount at December 31, 1996) is secured by the Midland Hotel in Chicago, Illinois. At December 31, 1996, the Trust held nineteen promissory notes either contributed by the Starwood Partners as part of the Reorganization, executed by third-party purchasers of its hotels, or purchased during 1996 by the Trust, all of which are secured by mortgages (including deeds of trust) on fourteen hotels in the aggregate. Of these nineteen promissory notes, thirteen notes ($112.0 million in aggregate principal amount at December 31, 1996) are secured by first mortgages; four notes ($1.3 million in aggregate principal amount as of December 31, 1996) are secured by second mortgages; one note ($1.3 million in principal amount as of December 31, 1996) is secured by a third mortgage; and one note ($169,000 in principal amount as of December 31, 1996) is secured by a fourth mortgage. Of these nineteen promissory notes, nine notes have fixed interest rates that currently range from 7.0% to 10.0% per annum; six notes have variable interest rates that range from 6.81% to 13.5% per annum at December 31, 1996; three notes require principal payments only; one note also provides for contingent interest based on a percentage of the gross revenue of the property securing such note; and one note was purchased at a significant discount with no payment of interest expected. The maturity dates of the notes range from 1997 to 2010. For additional information with respect to the mortgage notes receivable held by the Trust, see Notes 8 and 9 of Notes to Financial Statements included in Item 8 of this Joint Annual Report. In December 1987, in connection with the acquisition by the Company of an interest in two Atlanta, Georgia, area hotels (which have been subsequently sold), John F. Rothman, a former President and Chief Executive Officer of the Trust, assumed certain obligations of the seller, which obligations are evidenced by an unsecured promissory note to the Trust in the principal amount of $800,000. Interest on the outstanding principal amount of this note accrues interest at an annual rate of 10% and is payable annually; the entire principal amount of the note is due in December 1999. In addition, during 1995 the Trust loaned Jeffery C. Lapin, a former President of the Trust, $250,000. During 1996, the Corporation made a $150,000 non-interest bearing bridge loan to Eric A. Danziger, the President and Chief Executive Officer of the Corporation. The bridge loan is secured by a second mortgage on Mr. Danziger's residence in Phoenix, Arizona. The bridge loan matures in September 1997. During 1996, the Corporation made a $266,667 non-interest bearing bridge loan to an officer of the Corporation, Theodore W. Darnall. The bridge loan is secured by a second mortgage on Mr. Darnall's residence in Phoenix, Arizona. The 12 17 bridge loan will mature as to $100,000 upon the sale of Mr. Darnall's home in Pittsburgh, Pennsylvania, and the balance upon termination of his employment with the Corporation. (see Note 15 of Notes to Financial Statements included in Item 8 of this Joint Annual Report and Item 11 of this Joint Annual Report -- "Employment and Compensation Agreements with Executive Officers"). FRANCHISE AGREEMENTS Forty-seven of the 62 hotel properties in which Starwood Lodging had an equity interest at December 31, 1996, are operated pursuant to franchise or license agreements ("Franchise Agreements"). The Franchise Agreements generally require the payment of a monthly royalty fee based on gross room revenue and various other fees associated with certain marketing or advertising and centralized reservation services, also generally based on gross room revenues. The Franchise Agreements have various durations but generally may be terminated upon prior notice no greater than three years or upon payment of certain specified fees. The Franchise Agreements generally contain specific standards for, and restrictions and limitations on, the operation and maintenance of the hotels which are established by the franchisors to maintain uniformity in the system created by each such franchisor. Such standards generally regulate the appearance of the hotel, quality and type of goods and services offered, signage, and protection of marks. Compliance with such standards may from time to time require significant expenditures for capital improvements. The Franchise Agreements also generally contain financial reporting requirements relating to the calculation of royalty and other fees and insurance requirements with respect to specified liabilities, approved coverage limits and minimum insurance company rating. The Franchise Agreements generally require the consent of the franchisor to a transfer of an interest in the applicable franchise, and both the consent of the franchisor and the execution of a new franchise agreement in the event of a transfer of all or controlling portion of the franchisee under the relevant Franchise Agreement. In addition, some Franchise Agreements may require payment of an initial fee upon establishment of a franchise relationship. MANAGEMENT AGREEMENTS As of December 31, 1996, four of the Company owned hotels were managed by third-party operators: The Marriott Forrestal Village is operated by Marriott International, Inc. ("Marriott") pursuant to a lease expiring in 2007 (subject to earlier termination if certain annual financial performance standards are not met or upon payment of a termination fee by the Company), the Ritz Carlton Hotels in Philadelphia, Pennsylvania, and Kansas City, Missouri, are operated by an affiliate of Marriott pursuant to operating agreements that terminate in 1999 (subject to earlier termination if certain annual financial performance standards are not met) and the Harvey Hotel in Wichita, Kansas, is operated by Bristol Hotel Company pursuant to a management agreement that terminates in 1998 (subject to earlier termination if certain annual financial performance standards are not met or upon payment of a fee by the Company). Each such agreement with a third-party provides that the operator has the exclusive right to direct the operations of the hotel subject to that agreement. The operator is responsible for maintaining and making all necessary repairs to the managed hotel, hiring, training and supervising all hotel employees, and performing all hotel bookkeeping and other administrative duties. Each operator is required to submit to the Company for its approval an annual budget that includes proposed capital expenditures, and the operator makes only those capital expenditures that are approved by Company. The Company is required to make available to each operator sufficient working capital to operate the hotel. For their services in managing the hotels, each third-party operator receives a fee equal to a specified percentage (generally 2% - 3%) of the gross revenues of the managed hotel, plus additional incentive fees based upon the hotel's operating profits. As of the date of this Joint Annual Report, the Company manages nine hotels owned by third-parties. The management agreements have expiration dates ranging from 1997 to 2016 with management fees ranging from 2.5% of hotel revenues to 4% of hotel revenues. 13 18 REGULATION AND LICENSING The lease and operation of the casino gaming facilities by Starwood Lodging in Nevada are subject to extensive licensing and regulatory control of the Nevada Gaming Commission (the "Nevada Commission"), the Nevada State Gaming Control Board (the "Nevada Board") and the Clark County Liquor and Gaming Licensing Board (the "Clark County Board" and, together with the Nevada Commission and the Nevada Board, the "Nevada Gaming Authorities"). The gaming laws, regulations and supervisory procedures of Nevada seek to (i) prevent unsavory or unsuitable persons from having any direct or indirect involvement with gaming at any time or in any capacity; (ii) establish and maintain responsible accounting practices and procedures; (iii) maintain effective control over the financial practices of licensees, including establishing minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record keeping and making periodic reports to the Nevada Gaming Authorities; (iv) prevent cheating and fraudulent practices; and (v) provide a source of state and local revenues through taxation and licensing fees. Changes in these laws, regulations and procedures could have an adverse effect on the Corporation's gaming operations. The Corporation is registered with the Nevada Commission as a publicly traded corporation and has been found suitable as a holding company by the Nevada Gaming Authorities to own all of the outstanding capital stock of HICN. HICN operates the King 8 pursuant to licenses granted by the Nevada Gaming Authorities. No person may become a stockholder of, or receive any percentage of profits from, HICN without first obtaining licenses and approvals from the Nevada Gaming Authorities. Prior approval of the Nevada Commission is required for the sale, assignment, transfer, pledge or other disposition of any security issued by HICN. During 1996, Starwood Lodging sold Bourbon Street and the real property related to the King 8. The Company continues to own the personal property related to the King 8 and to operate the King 8 pending the buyer's receipt of the requisite licenses and approvals from the Nevada Gaming Authorities. The licenses and approvals held by HICN are not transferable and must be renewed periodically upon the payment of appropriate taxes and license fees. The licensing authorities have broad discretion with regard to the renewal of the licenses. The issuing agency may at any time revoke, suspend, condition, limit or restrict a license or approval to own stock in a corporate licensee for any cause deemed reasonable by the issuing agency. Substantial fines for each violation of gaming laws or regulations may be levied against HICN, the Corporation and the individuals involved. A violation under any one of the licenses held by HICN may be deemed a violation of one or more other licenses or approvals held by HICN. If HICN's licenses are revoked or suspended or are not renewed, the Nevada Commission may petition a Nevada district court to appoint a supervisor to operate the affected property until a new operator is licensed. Suspension or revocation of the license of HICN, disapproval of the Corporation to own the stock of HICN or court appointment of a supervisor over operations of the King 8 could have a material adverse effect upon the Trust and the Corporation. Directors, officers and certain key employees of HICN must file license applications with the Nevada Gaming Authorities. Certain officers, directors and key employees of HICN are licensed by the Nevada Gaming Authorities, and any required license applications of the remaining officers, directors or key employees have been filed with the Nevada Board. An application for licensing may be denied for any cause deemed reasonable by the issuing agency. Changes in corporate management or executive positions must be reported to the Nevada Gaming Authorities. In addition to its authority to deny an application for a license, the Nevada Commission has jurisdiction to disapprove a change in a management or executive position with a regulated corporation. If the Nevada Gaming Authorities were to find a director, officer or key employee unsuitable for licensing or unsuitable to continue having a relationship with HICN or the Corporation, the Corporation and HICN would have to sever all relationships with that person. The Corporation and HICN would have similar obligations with regard to any person who refused to file appropriate applications. Each gaming employee must obtain, and periodically renew, a work permit, which may be revoked upon the occurrence of certain specified events. 14 19 HICN must submit detailed financial and operating reports to the Nevada Commission, which are subject to routine audit by the Nevada Board. Substantially all loans, leases, sales of securities and similar financing transactions entered into by HICN must be reported to or approved by the Nevada Commission. The fiscal stability of HICN must be adequate to satisfy gaming financial obligations such as state and local government taxes and fees, and the payment of winning wagers to patrons. Failure to satisfy these gaming financial obligations is grounds for the Nevada Gaming Authorities to limit, condition, restrict, suspend or revoke the gaming licenses and approvals of HICN and the registration and approvals of the Corporation, or to impose administrative fines against HICN or the Corporation. As a registered publicly traded holding company found suitable as the sole stockholder of HICN, the Corporation is required periodically to submit detailed financial and operating reports to the Nevada Commission and to furnish any other information that the Nevada Commission or Nevada Board may require. The Corporation's directors, officers and key employees who are actively and directly engaged in the administration or supervision of gaming are subject to licensing and findings of suitability by the Nevada Commission. Certain directors and officers of the Corporation have filed their license applications as requested by the Nevada Board. The finding of suitability is comparable to licensing, and both require submission of detailed personal background and personal financial information followed by a thorough investigation, and payment by the applicant of all investigative costs and charges. Any individual who is found to have a material relationship to or material involvement with the Corporation also may be required to be found suitable or be licensed and may be investigated. Key employees, controlling persons or others who exercise significant influence upon the management or affairs of the Corporation, or are actively engaged in the administration or supervision of gaming activities, may be deemed to have this type of a relationship or involvement. Any beneficial holder of the Corporation's voting securities, regardless of the number of shares owned, may be required to file an application, be investigated, and have his suitability as a beneficial holder of the Corporation's voting securities determined if the Nevada Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the state of Nevada. The applicant must pay all costs of investigation incurred by the Nevada Gaming Authorities in conducting any such investigation. Any person who acquires more than 5% of any class of voting securities of the Corporation must report the acquisition to the Nevada Commission. Beneficial owners of more than 10% of any class of the Corporation's voting securities must apply to be found suitable by the Nevada Commission within 30 days after the Chairman of the Nevada Board mails the written notice requiring such filing, and any beneficial owner of the Corporation's voting securities, whether or not such person is a controlling stockholder, may be required to be found suitable if the Nevada Commission has reason to believe that such ownership would be inconsistent with the declared policy of the state of Nevada that licensed gaming be conducted honestly and competitively and that the gaming industry be free from criminal and corruptive elements. An "institutional investor" (as defined by the Regulations of the Nevada Commission) holding at least 10%, and in certain circumstances up to 15%, of the voting securities of the Corporation may apply for and hold a waiver of the mandatory suitability determination requirement prescribed by the Nevada Gaming Control Act. To qualify as an "institutional investor," a person or entity must satisfy one of several alternative criteria under the federal Securities Exchange Act of 1934, the Investment Company Act of 1940, or state and federal pension and retirement laws, as well as acquire and hold the voting securities for investment purposes in the ordinary course of business and not for the purpose of effecting any change of control in or the management or policies of the registered holding company or its gaming affiliates. Activities which are not deemed to be inconsistent with holding voting securities for investment purposes only include: (i) voting on all matters voted on by stockholders; (ii) making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in its management, policies or operations; and (iii) such other activities as the Nevada Commission may determine to be consistent with such investment intent. A change in investment intent of an institutional investor must be reported to the Chairman of the Nevada Board within two business days of such change of intent. The Chairman of the Nevada Board may 15 20 require an institutional investor to apply for a finding of suitability upon receipt of notice of change in investment intent, or at any time deemed necessary to protect the public interest. An aggrieved institutional investor may apply for Nevada Commission review of the decision of the Chairman of the Nevada Board ordering the filing of a suitability determination application. The Corporation or HICN must promptly report to the Nevada Commission any information that materially affects the institutional investor's eligibility to hold a waiver. If the stockholder who must be found suitable is a corporation, partnership or trust, that stockholder must submit detailed business and financial information including a list of beneficial owners. In addition, the Clark County Board has taken the position that it has the authority to approve all persons owning or controlling more than two percent of the stock of a gaming licensee or of any corporation controlling a gaming licensee. The applicant is required to pay all costs of investigation. Any stockholder found unsuitable by the Nevada Commission who directly or indirectly holds any beneficial or ownership interest in Corporation shares beyond whatever period of time may be prescribed by the Nevada Commission may be guilty of a criminal offense. Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Nevada Commission or Chairman of the Nevada Board may be found unsuitable. The same restrictions that apply to a security holder who is found unsuitable may be held to apply to a beneficial owner of the Corporation's securities if the record owner, after request, fails to identify the beneficial owner. The Corporation is subject to disciplinary action if, after receiving notice that a person is unsuitable to be a stockholder or to have any other relations with the Corporation or its gaming subsidiaries, the Corporation (i) pays the unsuitable person any dividend or interest upon any voting securities of the Corporation or makes any other unpermitted payment or distribution of any kind whatsoever; (ii) recognizes the exercise, directly or indirectly, of any voting rights in the Corporation's securities by the unsuitable person; (iii) pays the unsuitable person any remuneration in any form for services rendered or otherwise, except in certain limited and specific circumstances; or (iv) fails to pursue all lawful efforts to require the unsuitable person to divest himself of his voting securities, including, if necessary, the immediate purchase by the Corporation of the voting securities for cash at fair market value. In addition, Nevada law requires that any holder or owner of a voting security who is found unsuitable by the Nevada Commission immediately offer those securities to the Corporation for purchase, which securities would be purchased by the Corporation for cash at fair market value within 10 days from the date the securities are offered. The Nevada Commission may, in its discretion, require the holder of any debt security of a corporation registered under the Nevada Gaming Control Act to file applications, be investigated and be found suitable to own the debt security of a registered corporation. If the Nevada Commission determines that a person is unsuitable to own such debt security, then pursuant to the Regulations of the Nevada Commission, the registered corporation can be sanctioned, including the loss of its approvals, if without the prior approval of the Nevada Commission it (i) pays to the unsuitable person any dividend, interest or other distribution whatsoever; (ii) recognizes any voting right of such unsuitable person in connection with such securities; (iii) pays the unsuitable person remuneration in any form; or (iv) makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation, or similar transaction. The Corporation is required to maintain a current and comprehensive stock ledger in the state of Nevada, which ledger may be examined by the Nevada Gaming Authorities at all reasonable times, but without notice. If any securities are held in trust, by an agent or by a nominee, the owner of record of those securities may be required to disclose the identity of the beneficial owner to the Nevada Gaming Authorities. A failure to make this disclosure may be grounds for finding the owner of record unsuitable. The Corporation must render maximum assistance to the Nevada Gaming Authorities in determining the identity of the beneficial owner. The Nevada Commission has the power at any time to require that the Corporation's stock certificates bear a legend to the general effect that the securities of the Corporation are subject to the Nevada Gaming Control Act and the regulations of the Nevada Commission. However, to date, the Nevada Commission has not imposed such a requirement on the Corporation. The Clark County Board also claims jurisdiction to approve or disapprove holders of the Corporation's securities. The Nevada Gaming Authorities, through the 16 21 power to regulate licensees and otherwise by Nevada law, have the power to impose additional restrictions on the holders of the Corporation's securities at any time. The Regulations of the Nevada Commission provide that changes in the control of the Corporation or HICN through a merger, consolidation, acquisition of assets, management or consulting agreements or any form of takeover cannot occur without the prior approval of the Nevada Commission. Entities seeking to acquire control of the Corporation must satisfy the Nevada Board and Nevada Commission in a variety of stringent standards prior to assuming control of the Corporation. The Nevada Commission may also require controlling stockholders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control, to be investigated and licensed as part of the approval process relating to the transaction. The Nevada Legislature has declared that some corporate acquisitions opposed by management, repurchases of securities and corporate defense tactics affecting corporate gaming licensees in Nevada, and publicly traded corporations affiliated with those licensees may be injurious to stable and productive corporate gaming operations. The Nevada Commission has established a regulatory scheme to ameliorate the potential adverse effects of these business practices upon Nevada's gaming industry and to advance Nevada's policy to (i) assure the financial stability of corporate gaming operators and their affiliates; (ii) preserve the beneficial aspects of conducting business in the corporate form; and (iii) promote a neutral environment for the orderly governance of corporate affairs. Approvals may be required from the Nevada Commission before the corporation may make exceptional repurchases of securities above current market price (commonly referred to as "greenmail"), and before a corporate acquisition opposed by management can be consummated. Nevada's gaming regulations also require prior approval of the Nevada Commission in the event of a corporation plan of recapitalization proposed by the board of directors in opposition to a tender offer made directly to shareholders for the purpose of acquiring control of the corporation. Nevada law prohibits the Corporation from making a public offering of its securities without the approval of the Nevada Commission if any part of the proceeds of the offering is to be used to finance the construction, acquisition or operation of gaming facilities in Nevada, or to retire or extend obligations incurred for one or more such purposes. Approval of the public offering will not constitute a finding by the Nevada Commission as to the accuracy, adequacy or investment merit of the securities offered to the public. Any representation to the contrary is unlawful. The gaming regulatory requirements discussed above apply to certain aspects of the Reorganization. The contribution by HICN of the Gaming Assets (and the transfer of certain liabilities to be retained by HICN) to the Operating Partnership will occur on receipt of certain licenses or approvals by the Nevada Gaming Authorities. Likewise, the election of the new members of the Board of Directors of the Corporation since the Reorganization will be effective upon receipt of certain licenses or approvals by the Nevada Commission. Nevada gaming regulatory approvals are expected to be received by the end of 1997, unless previously received by the purchaser of the King 8. In conjunction with applying for and obtaining such licenses and approvals, the Corporation has developed various policies and procedures subject to review, approval and oversight by the Nevada Board. The purpose of these corporate policies and procedures is to ensure compliance with the regulatory requirement that prior approval of the Nevada Commission is obtained for any transaction that would result in either Starwood Capital or the Starwood Partners acquiring control of the Corporation or its Nevada gaming operations. The Corporation expects that these policies and procedures will be eliminated upon receipt of certain licenses and approvals from the Nevada Commission. If the required licenses or approvals of the Nevada Gaming Authorities are not received on or before December 31, 1997, then on such date HICN has agreed to contribute to the Operating Partnership cash equal to the fair value of the Gaming Assets on such date. License fees and taxes, computed in various ways depending on the type of gaming involved, are payable to the State of Nevada and to the County of Clark where HICN's gaming operations are conducted. Depending upon the particular fee or tax involved, these assessments are payable either monthly, quarterly, or annually and are based upon either (i) a percentage of the gross gaming revenues received by the casino operations; (ii) the number of slot machines or other gaming devices operated by the casino; or (iii) the 17 22 number of table games operated by the casino. A casino entertainment tax is also paid by the licensees where entertainment is furnished in connection with the selling of food or refreshments. The sale of alcoholic beverages by HICN is subject to licensing, control and regulation by the Clark County Board. Such liquor licenses are revocable and are not transferable. The Clark County Board has full power to limit, condition, suspend or revoke any liquor license, and any disciplinary action of this nature or license revocation would have a material adverse effect on HICN's gaming operations. ITEM 3. LEGAL PROCEEDINGS. None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On December 30, 1996, (i) the Trust held its 1996 annual meeting of shareholders of the Trust (the "Trust Meeting") to elect two Trustees to the Board of Trustees of the Trust and to approve the amendment and restatement of the 1995 Share Option Plan of the Trust as the Starwood Lodging Trust 1995 Long-Term Incentive Plan and (ii) the Corporation held its 1996 annual meeting of stockholders of the Corporation (the "Corporation Meeting") to elect three Directors to the Board of Directors of the Corporation (to take effect upon receipt of a Gaming Approval) and to approve the amendment and restatement of the 1995 Stock Option Plan of the Corporation as the Starwood Lodging Corporation 1995 Long-Term Incentive Plan. At the Trust Meeting, shareholders of the Trust voted upon and approved (i) the election as Trustees of the Trust of Stephen R. Quazzo and Steven R. Goldman and (ii) the adoption of the Starwood Lodging Trust 1995 Long-Term Incentive Plan (Amended and Restated as of August 12, 1996) (the "Trust LTIP"). Messrs. Grose, Simms, Duncan, Stern and Sternlicht continued as Trustees. The following sets forth, with respect to each matter voted upon at the Trust Meeting, the number of votes cast for, the number of votes cast against, and the number of votes abstaining (or, with respect to the election of Trustees, the number of votes withheld) with respect to such matter and are presented after giving effect to the three-for-two stock split in January 1997:
VOTES VOTES VOTES FOR AGAINST ABSTENTIONS WITHHELD ---------- --------- ----------- --------- Election of Trustees: Stephen R. Quazzo................................ 34,620,521 0 0 60,215 Steven R. Goldman................................ 34,551,746 0 0 128,990 Adoption of the Starwood Lodging Trust 1995 Long-Term Incentive Plan (Amended and Restated as of August 12, 1996).............................. 22,737,539 7,560,834 58,995
At the Corporation Meeting, stockholders of the Corporation voted upon and approved (i) the election as Directors of the Corporation of the following nominees: Jean-Marc Chapus, Eric A. Danziger and Michael A. Leven (Messrs. Chapus, Danziger and Leven to take office upon receipt of Gaming Approval), and (ii) the adoption of the Starwood Lodging Corporation 1995 Long-Term Incentive Plan (Amended and Restated as of August 12, 1996) (the "Corporation LTIP"). Messrs. Ford, Jones and Henderson continued to serve as the Directors of the Corporation. These three individuals, as well as Messrs. Yih, Eilian, Sternlicht, Chapus, Danziger and Leven serve as the Management Committee of the Operating Partnership. Messrs. Yih, Eilian, Sternlicht, Chapus, Danziger and Leven are Directors-Elect of the Corporation and will take office as Directors on the receipt of the Gaming Approvals or sale of all the gaming assets. Messrs. Ford and Henderson have indicated that upon the sale of Starwood Lodging's gaming operations or receipt of the approval of the Nevada Gaming Authorities (see Item 2, "Regulation and Licensing" of this Joint Annual Report) by the Directors who have not yet received such approval, they intend to resign as Directors. The following sets forth, with respect to each matter voted upon at the Corporation Meeting, the number of votes cast for, the number of votes cast against, and the number of votes abstaining (or, with respect to the 18 23 election of Directors, the number of votes withheld) with respect to such matter and are presented after giving effect to the three-for-two stock split in January 1997:
VOTES VOTES VOTES FOR AGAINST ABSTENTIONS WITHHELD ---------- --------- ----------- --------- Election of Directors: Jean-Marc Chapus................................. 31,036,356 0 0 3,644,379 Eric A. Danziger................................. 34,551,098 0 0 129,638 Michael A. Leven................................. 34,619,913 0 0 60,822 Adoption of Starwood Lodging Corporation 1995 Long-Term Incentive Plan (Amended and Restated as of August 12, 1996)..... 24,584,796 6,509,378 55,199
PART II ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. MARKET INFORMATION The Paired Shares are traded principally on the New York Stock Exchange (the "NYSE") under the symbol "HOT". The following table sets forth, for the fiscal periods indicated, the high and low sales prices per Paired Share on the NYSE Composite Tape (as adjusted for the one-for-six reverse stock split in June 1995 and the three-for-two stock split in January 1997).
DISTRIBUTIONS RETURN OF CAPITAL HIGH LOW MADE GAAP BASIS(a) ------ ------ ------------- ----------------- 1996 First quarter.................................. $23.25 $19.67 $0.31 $0.11 Second quarter................................. $25.75 $21.17 $0.33 -- Third quarter.................................. $27.92 $22.08 $0.33 $0.14 Fourth quarter................................. $36.75 $27.42 $0.39(b)(c) $0.22 1995 First quarter.................................. $16.00 $10.50 None N/A Second quarter................................. $16.50 $14.00 None N/A Third quarter.................................. $19.42 $15.75 $0.31 $0.14 Fourth quarter................................. $20.00 $17.92 $0.31(d) $0.11
- --------------- (a) Represents distributions per Paired Share in excess of net income per Paired Share on a GAAP basis, and is not the same as return of capital on a tax basis. (b) The Trust declared a distribution for the fourth quarter of 1996 to shareholders of record on December 30, 1996. The distribution was paid in January 1997. (c) During the fourth quarter of 1996 the Trust and the Corporation each declared a three-for-two stock split in the form of a 50% stock dividend payable to shareholders of record on December 30, 1996. The stock dividend was paid in January 1997. (d) The Trust declared a distribution for the fourth quarter of 1995 to shareholders of record on December 29, 1995. The distribution was paid in January 1996. HOLDERS As of February 28, 1997, there were approximately 1,869 holders of record of Paired Shares. 19 24 DISTRIBUTIONS MADE/DECLARED During the fourth quarter of 1996 the Trust and the Corporation each declared a three-for-two stock split in the form of a 50% stock dividend payable to shareholders of record on December 30, 1996. The stock dividend was paid in January 1997. The Trust declared and paid dividends of $0.31, $0.33, $0.33 and $0.39 per share (as adjusted for the three-for-two stock split in January 1997) for the first, second, third and fourth quarters of 1996 respectively. The fourth quarter dividend was paid in January 1997. The Trust declared and paid a dividend of $0.31 per share (as adjusted for the three-for-two stock split in January 1997) for the third and fourth quarters of 1995. The fourth quarter dividend was paid in January 1996. No distributions were made by the Trust during 1994. The Corporation has not paid any cash dividends since its organization and does not anticipate that it will make any such distributions in the near future. Under the terms of the Lines of Credit, Starwood Lodging is generally permitted to distribute to its shareholders on an annual basis an amount equal to the greatest of (1) 95% of combined funds from operations for any four consecutive calendar quarters; (2) an amount sufficient to maintain the Trust's tax status as a real estate investment trust; and (3) the amount necessary for the Trust to avoid the payment of federal income or excise tax. ITEM 6. SELECTED FINANCIAL DATA. The following data sets forth certain financial information for each of the Trust and the Corporation, and the Trust and the Corporation on a combined basis. This information is based on and should be read in conjunction with the financial statements and the notes thereto appearing elsewhere in this Joint Annual Report.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------------ 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) OPERATING DATA Revenue: Trust........................... $115,059 $ 44,023 $ 21,671 $ 20,342 $ 26,784 Corporation..................... 410,156 149,184 110,962 114,828 116,172 Combined(1)..................... 428,538 161,716 113,997 117,155 117,656 Net Income (Loss): Trust(2)........................ $ 33,589 $ 10,709 $ (3,465) $ (3,889) $ (9,818) Corporation(2).................. (6,638) (1,739) (1,198) (3,143) (9,925) -------- -------- -------- -------- -------- Combined........................ 26,951 8,970 (4,663) (7,032) (19,743) Net Income (Loss) Per Share/Paired Share(3): Trust........................... $ 1.12 $ 0.92 $ (1.14) $ (1.28) $ (3.24) Corporation..................... (0.22) (0.15) (0.39) (1.04) (3.27) -------- -------- -------- -------- -------- Combined........................ $ 0.90 $ 0.77 $ (1.53) $ (2.32) $ (6.51)
20 25
AT DECEMBER 31, -------------------------------------------------------------- 1996 1995 1994 1993 1992 ---------- -------- -------- -------- -------- (IN THOUSANDS) BALANCE SHEET DATA Total Assets: Trust............................ $1,233,366 $425,737 $162,245 $232,845 $245,540 Corporation...................... 185,192 120,721 48,626 49,993 53,611 Combined(1)...................... 1,312,740 459,994 183,955 195,352 210,945 Total Debt: Trust............................ $ 477,603 $119,200 $146,734 $156,526 $157,541 Corporation...................... 107,781 90,749 40,664 101,846 100,246 Combined(1)...................... 479,566 123,485 160,482 170,886 170,297 Shareholders' Equity (Deficit): Trust............................ $ 569,300 $204,728 $ 10,450 $ 72,205 $ 76,371 Corporation...................... 23,361 10,740 (1,742) (58,879) (55,752) ---------- -------- -------- -------- -------- Combined......................... 592,661 215,468 8,708 13,326 20,351 Paired Shares outstanding at end of period(3)........................ 40,078 20,697 3,033 3,033 3,033
AS OF AND FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------------ 1996 1995 1994 1993 1992 --------- --------- -------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) CASH FLOW AND DIVIDEND DATA Net cash provided by operating activities: Trust............................. $ 61,589 $ 11,267 $ 4,455 $ 3,136 $ 2,773 Corporation....................... 12,578 5,144 4,438 2,396 1,917 Combined.......................... 74,167 16,411 8,893 5,532 4,690 Net cash provided by (used in) investing activities: Trust............................. $(726,427) $(175,506) $ 8,239 $ 2,474 $ (161) Corporation....................... (33,774) (44,003) 215 (4,426) (942) Combined(1)....................... (746,800) (181,995) 4,489 (3,645) (1,514) Net cash provided by (used in) financing activities: Trust............................. $ 667,938 $ 164,694 $(13,357) $(7,307) $ (850) Corporation....................... 34,190 42,671 (4,577) (1,138) (816) Combined(1)....................... 688,727 169,851 (13,969) (6,752) (1,255) Cash distributions to shareholders -- Trust(4).......... 46,218 9,265 $ 0 $ 0 $ 0 Cash distributions per share -- Trust(3)(4)....................... $ 1.36 $ 0.62 $ 0 $ 0 $ 0
- --------------- (1) The individual amounts with respect to the Trust and Corporation do not add to Combined amounts due to accounting elimination entries. (2) For the Trust, includes gains (losses) on sales in the amount of $4,290,000, ($125,000), $432,000, ($53,000) and ($791,000) for the years ended December 31, 1996, 1995, 1994, 1993 and 1992 respectively, and provisions for investment losses of $759,000, $2,369,000 and $3,419,000 in the years ended December 31, 1994, 1993 and 1992, respectively. For the Corporation, includes gains on sales of $24,000, $74,000 and $4,000 for the years ended December 31, 1994, 1993 and 1992, respectively. 21 26 (3) As adjusted for a one-for-six reverse stock split in June 1995 and a three-for-two stock split in January 1997. (4) Presented only for the Trust, as the Corporation did not pay cash dividends for the periods presented. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HISTORICAL RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 THE TRUST Rents from the Corporation, which are based largely on hotel revenues, increased $60.9 million for the year ended December 31, 1996, as compared to the corresponding period of 1995. The increase was primarily the result of rents earned by the Trust on 33 hotels containing approximately 9,700 rooms (the "Acquired Hotels") acquired by the Trust since April 1995. The investment in 33 hotels (the 168-room Omni Europa acquired in April 1995; the 462-room Sheraton Colony Square acquired in July 1995; the 224-suite Embassy Suites Tempe acquired in July 1995; the 364-room Terrace Garden Inn, and 180-room Lenox Inn acquired in October 1995; the 206-room Holiday Inn Calverton acquired in November 1995; the 263-room Westin, Washington, D.C. acquired in January 1996; the 960-room Boston Park Plaza acquired in January, 1996; the 442-room Clarion Hotel acquired in April 1996; the three Doubletree Guest Suites hotels acquired in April 1996; the 177-room Days Inn and 251-suite Doubletree Guest Suites acquired in July 1996; the Institutional Portfolio, the HOD Portfolio (excluding the 293-room Radisson Marque which was acquired by the Corporation) and the 294-room Marriott Forrestal Village acquired in August 1996, and the 121-room Doral Tuscany and the 199-room Doral Court acquired in September 1996) accounted for increased rents of $59.7 million for the year ended December 31, 1996, as compared to the corresponding period in 1995. In addition, rents earned by the Trust from continuously owned properties leased to the Corporation increased by $1.2 million for the year ended December 31, 1996, as compared to the corresponding period in 1995. Interest from the Corporation increased by $4.3 million for the year ended December 31, 1996, as compared to the corresponding period of 1995. The increase in interest income was primarily a result of interest on the mortgage interests relating to the Milwaukee hotel which mortgage interests were purchased by the Trust in July 1995 and interest on the first mortgage of the Midland Hotel, which hotel was acquired by the Corporation in March 1996. Interest from mortgage and other notes amounted to $11.2 million for the year ended December 31, 1996 as compared to $10.8 million for the corresponding period in 1995. The increase resulted from the purchase during the year of debt, a portion of which is secured by the 305-room Holiday Inn in Milpitas, California, offset in part by principal amortization. Other income for the year ended December 31, 1996, includes a $290,000 gain (net of related expenses) realized in conjunction with the sale of securities which were purchased in contemplation of acquiring a portfolio of hotel properties and $750,000 gain (net of related expenses) realized in connection with the sale of other securities. Also included in other income is $314,500 recorded as a result of the Ross Litigation settlement (see Item 3 of Part I of this Joint Annual Report). Interest expense increased by $10.7 million for the year ended December 31, 1996, as compared to the corresponding period of 1995. The increase was due to borrowings under the Lines of Credit, the Doral Mortgage and the BPP Mortgage, used to acquire the above mentioned properties offset by the net proceeds from the 1996 Offerings used to partially fund the acquisition of the above mentioned properties. Depreciation and amortization expense increased by $33.5 million during the year ended December 31, 1996, as compared to the corresponding period of 1995, principally due to the acquisition of the Acquired Hotels. 22 27 Administrative and general expenses for the year ended December 31, 1996, increased by $1.7 million to $4.1 million, as compared to $2.4 million for the corresponding period of 1995. The increase resulted predominantly from expenses incurred as a result of the Trust LTIP as well as costs incurred relating to the investigation of hotels which ultimately were not acquired. Administrative and general expenses includes payments of approximately $242,000 to Jeffrey C. Lapin, a former President of the Trust pursuant to his separation agreement with the Trust. Minority interest represents primarily the interest of the Starwood Partners in the Realty Partnership for the year ended December 31, 1996, and the 41.8% minority interest of a third-party in the joint venture that owns the Boston Park Plaza hotel. THE CORPORATION Hotel revenues increased by $263.9 million for the year ended December 31, 1996, as compared to the corresponding period of 1995. The assumption of management of the Acquired Hotels and the addition of the 652-room Doral Inn in New York, New York; the 293-room Radisson Marque hotel in Winston-Salem, North Carolina and the 257-room Midland Hotel in Chicago, Illinois resulted in increases in hotel revenues of $249.1 million for the year ended December 31, 1996. The remaining increase of $14.8 million for the year ended December 31, 1996, is attributable to other continuously owned properties. Hotel gross margin for the year ended December 31, 1996, was $110.1 million, or 28.6% of hotel revenues, as compared to $36.2 million, or 29.9% of hotel revenues, for the same period of 1995. The decrease in gross margin was primarily due to the increase in the food and beverage revenue component of total hotel revenue resulting from the Company's continued investment in full-service hotels offset, in part, by increases in REVPAR and the termination of third-party management agreements. Gaming revenues for the year ended December 31, 1996 as compared to the corresponding period of 1995 decreased by $3.3 million to $23.6 million. Gaming gross margin for the year ended December 31, 1996 was $1.8 million or 8% of gaming revenues, as compared to $2.7 million or 10% of gaming revenues, for the corresponding period in 1995. The decrease in gaming revenues and the decline in gaming gross margin predominately resulted from operations at Bourbon Street which was sold on September 12, 1996. The real property of the other gaming asset, the King 8, was also sold in 1996 for approximately $18.8 million. The sale of the personal property of the King 8, for $3 million, will close following the receipt by the purchaser or his designee of required gaming approval. HICN, a subsidiary of the Corporation, leases the real property from the purchaser and has agreed to continue to operate the hotel and casino while the purchaser obtains required gaming licenses and approvals. Management fees and other income for the year ended December 31, 1996, includes $314,500 of income recorded as a result of the Ross Litigation settlement (see Item 3 of Part I of this Joint Annual Report) and $953,500 of management fee income from the joint venture that owns the Boston Park Plaza hotel. Administrative and general expenses for the year ended December 31, 1996, increased to $12.4 million or 3.0% of revenues as compared to $3.3 million or 2.2% of revenues for the corresponding period of 1995. The increase was primarily a result of increases in payroll costs commensurate with the Company's growth, the assumption of management of hotels previously operated by third-parties, and expenses incurred as a result of the Corporation LTIP. Administrative and general expenses for the year ended December 31, 1996, included a $1.9 million charge relating to costs relating to the relocation of the corporate office from Los Angeles, California to Phoenix, Arizona. Depreciation and amortization expense increased by $6.7 million for the year ended December 31, 1996, as compared to the corresponding period of 1995. The increase was primarily a result of depreciation relating to hotels acquired by the Corporation. Minority interest represents primarily the interest of the Starwood Partners in the Operating Partnership and the 41.8% minority interest of a third-party in the joint venture that owns the Boston Park Plaza hotel. 23 28 Net income for the year ended December 31, 1996, includes an extraordinary gain of $1.5 million before minority interest resulting from early extinguishment of debt. The extraordinary gain resulted from the early payoff, at a discount, of a note secured by the Milwaukee Marriott. In addition, the Corporation purchased the remaining equity interest for $240,000 and became the 100% owner of the hotel. For more information with respect to rent and interest paid to the Trust during the years ended December 31, 1996 and 1995, see, "The Trust" immediately above. EXTERNAL GROWTH During the year ended December 31, 1996, the Company acquired equity and debt interests in 32 hotels containing more than 10,000 rooms at a combined cost exceeding $840 million. Of the 32 hotels, the Company acquired equity interests in 30 hotels as follows: the 263-room Grand Hotel (renamed the Westin Hotel) in Washington, DC (January 1996); a 58.2% interest in the 960-room Boston Park Plaza Hotel Complex in Boston, Massachusetts (January 1996); the 257-room Midland Hotel in Chicago, Illinois (March 1996); the 442-room Clarion Hotel at the San Francisco Airport in Milbrae, California (April 1996), the 260-suite Doubletree Guest Suites hotel (renamed the Westin Hotel) in Tampa, Florida, the 254-suite Doubletree Guest Suites Hotel in Cypress Creek, Florida, and the 308-suite Doubletree Guest Suites Hotel in Irving, Texas (April 1996); the 251-suite Doubletree Guest Suites Hotel and the 177-room Days Inn, both located at the Philadelphia Airport in Philadelphia, Pennsylvania (June 1996); the Institutional Portfolio (August 1996); the HOD Portfolio (August 1996); the 294-room Marriott Forrestal Village in Princeton, New Jersey (August 1996); the 199-room Doral Court and 121-room Doral Tuscany in New York, New York (September 1996); and a 93.5% interest in the 257-room Westwood Marquis in Los Angeles, California (December 1996). INTERNAL GROWTH On a same-store-sales basis, including the results of all hotels acquired prior to December 31, 1996, for the period from their respective dates of acquisition if acquired in 1996 as compared to the same period in 1995, REVPAR for the year ended December 31, 1996, increased 9.2% (8.7% if the Dallas Park Central, which underwent a substantial renovation in 1996 is included), from $60.24 to $65.76 over the same period in 1995. The increase in REVPAR resulted from an increase in ADR of 11.5%, from $82.96 to $92.54, while the occupancy rate decreased by 1.5 percentage points. The overall increase in REVPAR for the year ended December 31, 1996, was largely attributable to the strong increase in REVPAR at the Company's upscale hotels. These hotels experienced an increase in REVPAR of 10.4% for the year ended December 31, 1996, as compared to the corresponding period of 1995. ADR for the Company's upscale hotels increased 11%, for the year ended December 31, 1996, as compared to the corresponding period in 1995. The following tables summarize average occupancy, ADR and REVPAR on a year-over-year basis for the Company's 58 owned and operated (including owned but third-party managed hotels and including the Acquired Properties and properties acquired by the Corporation for the period beginning with their respective dates of acquisition and ending at the end of each period; and excluding the Westwood Marquis which was acquired on December 31, 1996), non-gaming hotels for the year ended December 31, 1996 and 1995:
YEAR ENDED DECEMBER 31, --------------------- 57 NON-GAMING HOTELS (EXCLUDING DALLAS PARK CENTRAL): 1996 1995 --------------------------------------------------------------- ------ ------ Occupancy rate................................................. 71.1% 72.6% ADR............................................................ $92.54 $82.96 REVPAR......................................................... $65.76 $60.24 REVPAR % change................................................ 9.2%
24 29
YEAR ENDED DECEMBER 31, --------------------- 41 UPSCALE HOTELS: 1996 1995 --------------------------------------------------------------- ------ ------ Occupancy rate................................................. 72.1% 72.4% ADR............................................................ $99.63 $89.73 REVPAR......................................................... $71.79 $65.00 REVPAR % change................................................ 10.4%
YEAR ENDED DECEMBER 31, --------------------- 16 MIDSCALE/ECONOMY HOTELS (EXCLUDING DALLAS PARK CENTRAL): 1996 1995 --------------------------------------------------------------- ------ ------ Occupancy rate................................................. 67.6% 73.2% ADR............................................................ $66.52 $59.96 REVPAR......................................................... $45.00 $43.89 REVPAR % change................................................ 2.5%
Management believes that increases in REVPAR resulted primarily from increases in demand due to continued favorable economic conditions which have resulted in increased business and leisure travel throughout the United States, while the supply of hotel rooms has not increased as rapidly, particularly in major urban locations. Revenue increases for the year were greatest at the recently acquired properties in Atlanta, New York, San Diego, Chicago, Philadelphia and Washington. REVPAR declined significantly at the Dallas Park Central which was virtually closed for renovation. REVPAR at the Harvey Hotel in Wichita, which is managed by a third-party, declined 10%. Management believes that there are several important factors that have contributed to the improved profitability of hotel properties, including increased ADR and effective cost management. Because a substantial portion of the hotels' operating costs and expenses are generally fixed, the Company derives substantial operating leverage from increases in revenue. However, the Company's continued investment in full-service properties has led to a larger component of food and beverage revenue when compared to the same period last year. Consequently, gross margins for the year ended December 31, 1996, declined to 29% from 30% in the corresponding period in 1995. During the year ended December 31, 1996, consistent with its business objective to capture the economic benefits otherwise retained by a third-party operator, the Company assumed management of a total of 29 hotels including 27 hotels acquired during the period and two properties acquired prior to January 1, 1996. Management believes that the assumption of direct control over the operations of these hotels will allow the Company to effectively use the experience of management to improve operations. During the year ended December 31, 1996, the Company completed a $1.9 million renovation of the Riverside Inn in Portland, Oregon, and a $1.6 million renovation of the Terrace Garden Inn in Atlanta, Georgia. The $12 million renovation of the Dallas Park Central was substantially completed in 1996, and on January 15, 1997, the property was renamed the Radisson Hotel. Other hotels with significant renovations in progress at the end of the year include the Sheraton Colony Square in Atlanta, Georgia ($6.5 million total renovation), and the Westin in Washington, DC ($6.0 million total renovation). Both renovations are expected to be completed by June 1997. The renovation for the Meany Tower Hotel in Seattle, Washington, the Clarion Hotel at the San Francisco Airport, the Radisson Hotel in Gainesville, Florida, the Doral Inn, the Doral Tuscany, and the Doral Court in New York have also begun and should be completed in 1997 and 1998. In addition, the Boston Park Plaza's renovation is currently scheduled to begin in November 1997, during a seasonally weak period. SEASONALITY AND DIVERSIFICATION Demand is affected by normally recurring seasonal patterns. Generally the Company's portfolio of hotels as a whole has performed better in the second and third quarters due to decreased travel in the winter months. Further acquisitions may further affect the seasonality of the Company's current portfolio. The Company has continued to implement a business strategy of franchise and geographic diversification. 25 30 COMBINED LIQUIDITY AND CAPITAL RESOURCES CASH FLOW PROVIDED BY OPERATING ACTIVITIES The principal source of cash to be used to fund the Company's operating expenses, interest expense, recurring capital expenditures and distribution payments by the Trust will be cash flow provided by operating activities. The Company anticipates that cash flow provided by operating activities will provide the necessary funds on a short and long term basis to meet operating cash requirements including all distributions to shareholders by the Trust. During the first quarter of 1996, the Trust paid a distribution of $0.31 per share (after giving effect to the three-for-two stock split in January 1997) for the fourth quarter of 1995. During the second quarter of 1996, the Trust paid a distribution of $0.31 per share (after giving effect to the three-for-two stock split in January 1997) for the quarter ending March 31, 1996. During the third quarter of 1996, the Trust paid a distribution of $0.33 per share (after giving effect to the three-for-two stock split in January 1997) for the quarter ended June 30, 1996. During the fourth quarter of 1996, the Trust paid a distribution of $0.33 per share (after giving effect to the three-for-two stock split in January 1997) for the quarter ended September 30, 1996, and declared a distribution of $0.39 per share (after giving effect to the three-for-two stock split in January 1997) for the quarter ended December 31, 1996. This distribution was paid on January 27, 1997. CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES The Company intends to finance the acquisition of additional hotel properties, hotel renovations and capital improvements and provide for general corporate purposes through the Lines of Credit, through additional lines of credit, and when market conditions warrant, to issue additional equity or debt securities. In March 1996, the Realty Partnership entered into the Term Loan to fund the acquisition in March 1996 of the 257-room Midland Hotel in Chicago and, in April 1996, the amount of the Term Loan was increased to $94 million. The Term Loan is secured by nine properties of the Company on a cross-collateralized basis but is non-recourse to the Realty Partnership. As of December 31, 1996, the Realty Partnership had borrowed $94 million under the Term Loan, which accrues interest at a rate equal to the one, two, or three-month LIBOR, at the Company's option, plus (a) 1.95% for the first $24 million and (b) 1.75% for the balance of the Term Loan. The Term Loan becomes due in April 1997. In July 1996, the maturity date of the Mortgage Facility, which is secured by six notes receivable, was extended from January 25, 1997, to July 25, 1997. As of December 31, 1996, Realty had borrowed $70.6 million under the Mortgage Facility. In August 1996, the Company entered into the Goldman Facility for a one-year (extendible to 18 months) loan of up to $300 million to fund a portion of the acquisition cost of the HOD Portfolio and for general corporate purposes. The Goldman Facility bears interest at one-month LIBOR plus 1.75% (2.75% during the six month extension period) and is secured by interests in the Institutional Portfolio and the HOD Portfolio. At December 31, 1996, the Company had borrowed $140 million under the Goldman Facility. On April 12, 1996, the Company completed a public offering of 3,000,000 Paired Shares at a net price to the Company of approximately $21.00 per share (after giving effect to the three-for-two stock split in January 1997). The net proceeds of approximately $62.4 million were used, in part, to fund the acquisition of the 442-room Clarion Hotel at the San Francisco Airport and the three Doubletree Guest Suite hotels located in Irving, Texas; Ft. Lauderdale, Florida; and Tampa, Florida (renamed a Westin). On August 12, 1996, the Company completed a public offering of 15,000,000 Paired Shares (after giving effect to the three-for-two stock split in January 1997) and on August 23, 1996, the underwriter exercised its over-allotment option to purchase 1.2 million Paired Shares (after giving effect to the three-for-two stock split in January 1997). Net proceeds of approximately $367.2 million were used to fund the acquisition of the Institutional Portfolio and the balance was used to fund a portion of the acquisition of the HOD Portfolio. The remaining portion of the HOD Portfolio was funded through the Goldman Facility. As previously discussed, during the year, the Company completed a $1.9 million renovation of the Portland Riverside Inn, in Portland, Oregon, and a $1.6 million renovation of the Terrace Garden Inn in Atlanta, Georgia. 26 31 The $12 million renovation of the Dallas Park Central was substantially completed in 1996, with completion expected in the first quarter of 1997. Other hotels with significant renovations in progress at the end of 1996, include the Sheraton Colony Square in Atlanta, Georgia; the Westin Hotel in Washington, DC; the Meany Tower Hotel in Seattle, Washington; the Clarion Hotel at the San Francisco Airport, the Radisson Hotel in Gainesville, Florida, the Doral Inn, Doral Tuscany and Doral Court in New York, New York. The Company expects to expend an aggregate of in excess of $100 million in 1997 including the hotels mentioned above. Major and minor renovations, expansions and upgrades of other hotels are also being contemplated. In addition, the Company intends to develop new hotels on a selective basis. Sources of capital for major renovations, expansions and upgrades of hotels as well as new construction are expected to be: (i) excess funds from operations, (ii) additional debt financing, and (iii) additional equity raised in the public and private markets. As of the date this Joint Annual Report, since January 1, 1996, the Company has invested over $1.2 billion in hotel assets (including approximately $27.8 million in capital expenditures for the year ended December 31, 1996). As part of its investment strategy, the Company plans to acquire additional hotels. Future acquisitions are expected to be funded through further draws under the Lines of Credit, draws under new lines of credit, issuance of long-term debt on either a secured or unsecured basis, issuance of limited partnership units in the Realty Partnership and Operating Partnership exchangeable for Paired Shares and the issuance of additional equity or debt securities. The Company intends to incur additional indebtedness in a manner consistent with its policy of maintaining a Ratio of Debt-to-Total Market Capitalization of not more than 50%. On February 14, 1997, the Company issued 6,548,225 limited partnership units (valued for purposes of the transaction at approximately $215 million) exchangeable for Paired Shares and entered into a short term loan with The Prudential Insurance Company of America in the principal amount of $97.5 million (the "Prudential Loan") in order to partially fund the acquisition of the HEI Portfolio. As of the date of this Joint Annual Report, the Company had borrowed $72.0 million under the Prudential Loan, which bears interest at a rate of 7.0% and is due April 15, 1997. The Company may elect to extend the maturity date to May 14, 1997. Presently, the Company intends to make the election to extend the maturity date. On February 20, 1997, the Company issued bonds in the principal amount of $39.5 million due October, 2013 (the "Tax Exempt Bonds"). The Tax Exempt Bonds bear interest at a rate of 6.5% with no principal amortization, were issued at a discount to yield 6.7% and are secured by two hotels of the Company located at the Philadelphia International Airport. Net proceeds from the Tax Exempt Bonds of approximately $37.6 million were used to partially fund the acquisition of the 578-room Days Inn in Chicago, Illinois. Management of each of the Trust and of the Corporation believes that it will have access to capital resources sufficient to satisfy the cash requirements of each of the Trust and the Corporation and to expand and develop their business in accordance with their strategy for future growth. FUNDS FROM OPERATIONS Management believes that funds from operations ("FFO") is one measure of financial performance of an equity REIT such as the Trust. Combined FFO (as defined by the National Association of Real Estate Investment Trusts)(1) for the year ended December 31, 1996, grew by 150% to $82.7 million, compared to - --------------- (1) With respect to the presentation of FFO, management elected early adoption of the "new definition" as recommended in the March 1995 NAREIT White Paper on FFO beginning January 1, 1995. Management and industry analysts generally consider funds from operations to be one measure of the financial performance of an equity REIT that provides a relevant basis for comparison among REIT's and it is presented to assist investors in analyzing the performance of the Company. FFO is defined as income before minority interest (computed in accordance with generally accepted accounting principles), excluding gains (losses) from debt restructuring and sales of property, and real estate related depreciation and amortization (excluding amortization of financing costs). FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs. FFO should not be considered an alternative to net income as an indication of the Company's financial performance or as an alternative to cash flows from operating activities as a measure of liquidity. 27 32 combined FFO of $33.1 million for the corresponding period in 1995. The following table shows the calculation of historical combined FFO for the indicated periods:
YEAR ENDED DECEMBER 31, ------------------- 1996 1995 ------- ------- (IN THOUSANDS) Income before extraordinary item and minority interest........... $36,112 $18,138 Real estate related depreciation and amortization, net of amortization of financing costs................................ 51,197 14,799 Minority interest -- Boston Park Plaza........................... (2,121) -- (Gain) loss on sales of hotel assets............................. (4,290) 125 Corporate relocation costs....................................... 1,850 -- ------- ------- Funds From Operations............................................ $82,748 $33,062 ======= =======
FFO includes $3.1 million and $3.3 million of interest income recognized in excess of the interest received on mortgage notes receivable (as a result of the notes having been purchased at a discount) for the years ended December 31, 1996 and 1995, respectively. HISTORICAL RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 The following discussion and analysis of the historical results of operations for the years ended December 31, 1995 and 1994, give effect to transactions on the actual date they were consummated. COMBINED FUNDS FROM OPERATIONS Management believes that FFO is one measure of financial performance of an equity REIT such as the Trust. Combined FFO for the year ended December 31, 1995, grew by 379% to $33.1 million on combined revenues of $161.7 million, compared to combined FFO of $6.9 million on combined revenues of $114.0 million for the comparable period in 1994. The following table shows the calculation of historical combined FFO for the indicated periods:
YEAR ENDED DECEMBER 31, ------------------- 1995 1994 ------- ------- (IN THOUSANDS) Income before minority interest and extraordinary items.......... $18,138 $(4,663) Shareholder litigation expense................................... -- 2,648 Provision for loss............................................... -- 759 Real estate related depreciation and amortization, net of amortization of financing costs................................ 14,799 8,161 Loss on sales of hotel assets.................................... 125 ------- ------- Funds From Operations............................................ $33,062 $ 6,905 ======= =======
THE TRUST Net income for the Trust for the year ended December 31, 1995, was $10.7 million as compared to a loss of $3.5 million in the prior year. Rents from the Corporation, which are primarily based on hotel revenues, increased $9.8 million to $26.7 million for the year ended December 31, 1995, as compared to the corresponding period in 1994. The increase was primarily the result of rents earned by the Realty Partnership on four hotels contributed by the Starwood Partners to the Realty Partnership and the Operating Partnership effective January 1, 1995, and seven additional hotels acquired during the year ended December 31, 1995. The four contributed hotels (the Doubletree Hotel in Rancho Bernardo, California; Capitol Hill Suites in Washington, DC; the Harvey Wichita in Wichita, Kansas; and the French Quarter Suites in Lexington, 28 33 Kentucky) and the seven hotels acquired during the year accounted for increased rents of $9.5 million for the year. In addition, rents earned by the Trust from continuously owned properties leased by the Corporation increased $838,000. These increases were offset by a decrease in rents of $543,000 resulting from the sale of hotels in Austin, Texas (May 1994), Brunswick, Georgia (August 1994), New Port Richey, Florida (August 1994), Fayetteville, North Carolina (November 1994) and Jacksonville, Florida (November 1994). Interest from the Corporation increased by $3.0 million to $4.8 million for the year ended December 31, 1995, as compared to the corresponding period in 1994. The increase in interest income resulted primarily from (i) interest on the intercompany mortgage note relating to the Doral Inn from September 20, 1995, to the end of the year; (ii) interest on unsecured notes from the Corporation having an average balance of $11.1 million and bearing interest at prime plus two percent for the year ended December 31, 1995, (a moratorium on the payment of interest on such unsecured notes was in effect throughout 1994); and (iii) interest on the first mortgage of the Milwaukee Marriott Hotel (then owned by a partnership of which the Operating Partnership was the sole general partner) which was purchased by the Realty Partnership in July 1995. Interest from mortgage and other notes amounted to $10.8 million for the year ended December 31, 1995, as compared to $1.5 million for the corresponding period in 1994. The increase primarily resulted from the contribution of notes receivable by the Starwood Partners to the Realty Partnership in the Reorganization, together with interest earned on the mortgage note receivable relating to the Westin Hotel in Washington, D.C., purchased in September 1995. Other income for the year ended December 31, 1995, of $1.1 million resulted primarily from the retention of a $500,000 deposit related to the proposed sale of Bourbon Street and the receipt of $289,000 and $48,000 of proceeds relating to land comprising part of the King 8 and Bourbon Street, respectively, which was transferred pursuant to eminent domain proceedings. The Trust and the Corporation evaluate the carrying values of each of their hotel assets and compare these values to the net book values of the hotel assets. For hotel assets not held for sale, the expected undiscounted future cash flows of the assets (generally over a six-year period), are compared to the net book value of the assets. If the expected undiscounted future cash flows are less than the net book value of the assets, the excess of the net book value over the estimated fair value is charged to current earnings. When an asset is identified by management as held for sale, the Company discontinues depreciation and estimates the fair value of such assets. If in management's opinion the fair value of a hotel asset which has been identified for sale is less than the net book value of the asset, a reserve for loss is established. Fair value is determined based upon the discounted cash flow of the properties at rates deemed reasonable for the type of property and prevailing market conditions, and, if appropriate, current estimated net sales proceeds from pending offers. A gain or loss is recorded to the extent the amounts ultimately received differ from the adjusted book values of the hotel assets. Gains on sales of hotel assets are recognized at the time the hotel assets are sold provided there is reasonable assurance of the collectibility of the sales price and any future activities to be performed by the Company relating to the hotel assets sold are insignificant. Based on the foregoing methodology, a provision for loss in the amount of $759,000 was recorded in 1994. Interest expense decreased by $3.8 million to $12.4 million for the year ended December 31, 1995, as compared to the corresponding period in 1994. The decrease was due to the repayment of approximately $206.5 million of existing indebtedness following the completion of a public offering on July 6, 1995, of 17,681,250 Paired Shares (after giving effect to the three-for-two stock split in January 1997) at a price of $15.33 per Paired Share, which raised approximately $245.7 million in net proceeds and to the retiring of mortgage notes in 1995, which were secured by the Embassy Suites Hotel in Phoenix, Arizona, and the Bay Valley Resort in Bay City, Michigan, and was partially offset by the assumption of additional notes payable by the Realty Partnership in the Reorganization, three of which were also repaid during 1995. Depreciation and amortization expense increased by $3.8 million for the year ended December 31, 1995, as compared to the corresponding period in 1994, principally due to the above mentioned property contributions and acquisitions and to the amortization of reorganization and financing costs which were partially offset by the above mentioned property sales. 29 34 Administrative and general expenses for the year ended December 31, 1995 increased $856,000 to $2.4 million reflecting increased payroll costs due to the growth of the Trust and costs incurred relating to the potential acquisition of hotels which ultimately were not acquired. Minority interest represents the interest of the Starwood Partners in the Realty Partnership for the year ended December 31, 1995. During 1995, the Trust recognized an extraordinary loss of $2.2 million net of minority interests of $163,000 relating to two items: (a) An extraordinary loss before minority interest of $3.6 million due to the early extinguishment of debt in respect of a loan agreement which was terminated during the year; and (b) An extraordinary gain before minority interest of $1.3 million relating to the reversal of outstanding amounts accrued in 1993, due to the early extinguishment of debt. THE CORPORATION Hotel revenues increased by $38.6 million for the year ended December 31, 1995, as compared to the corresponding period in 1994. The addition of the four contributed properties and the seven acquired properties as discussed above resulted in increases in hotel revenues of $42.2 million for the year ended December 31, 1995. This increase was offset by the hotel sales discussed above resulting in decreased revenues of $7.2 million. The remaining increase of $3.6 million for the year ended December 31, 1995, is attributable to other continuously owned properties. Gaming revenues for the year ended December 31, 1995, as compared to the year ended December 31, 1994, decreased by $1.1 million to $26.9 million. Included in other income for the year ended December 31, 1995, is $800,000 received by the Corporation as a result of the termination of management contracts in connection with the settlement of certain shareholder actions against former officers of Starwood Lodging (see Item 3 of Part I). Administrative and general expenses increased by $653,000 for the year ended December 31, 1995, as compared to the corresponding period in 1994. The increase was primarily the result of increases in payroll costs due to the Corporation's growth. Depreciation and amortization expense increased by $3.5 million for the year ended December 31, 1995, as compared to the corresponding period in 1994. The increase was primarily the result of the hotels contributed by Starwood Capital in connection with the Reorganization and those hotels acquired by Starwood Lodging and amortization of Reorganization costs as discussed above. Minority interest represents the interest of the Starwood Partners in the Operating Partnership for the year ended December 31, 1995. For information with respect to rent and interest paid to the Trust during the years ended December 31, 1995 and 1994, see "The Trust" immediately above. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements and supplementary data required by this Item are included in Item 14 of this Joint Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. N/A 30 35 PART III ITEM 10. TRUSTEES, DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS. TRUSTEES AND EXECUTIVE OFFICERS OF THE TRUST The following table sets forth, for each of the members of the Trust's Board of Trustees as of the date of this Joint Annual Report, the class of Trustees to which such Trustee has been elected, the name and age of such Trustee, the principal occupation or employment of such Trustee during the past five years and the principal business of such Trustee's employer, other directorships held by such Trustee and the year in which such Trustee first became a Trustee of the Trust.
NAME AND AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE TRUSTEE SINCE - ------------------------------ --------------------------------------------- -------------- TRUSTEES WHOSE TERMS EXPIRE AT THE 1997 ANNUAL MEETING Bruce W. Duncan (45).......... President and Chief Executive Officer of The August 1995 Cadillac Fairview Corporation Limited since December 1995. From October 1994 to December 1995, President of Blakely Capital, Inc., a private firm focusing on investments in real estate and telecommunications. From 1992 to April 1994, Mr. Duncan was President and Co-Chief Executive Officer of JMB Institutional Realty Corporation and from 1984 to 1991 Executive Vice President of JMB Realty Corporation. Daniel H. Stern (36).......... President of Ziff Brothers Investments, August 1995 L.L.C., a diversified New York based investment management firm. Prior to co-founding Ziff Brothers Investments in December 1992, Mr. Stern was the Co-Managing Director of William A.M. Burden & Co., a private investment management firm where he was responsible for asset allocation and investment policy. Mr. Stern is a member of the Board of Directors of Westin Hotel Company and a Trustee of Big Apple Circus. Barry S. Sternlicht (36)...... Chairman and Chief Executive Officer of the December 1994 Trust. He is founder and General Manager of Starwood Capital Group, L.L.C., (and co-founder of its predecessor entities in 1991) and has been the President and CEO of Starwood Capital Group, L.P. since its formation in 1991. Mr. Sternlicht is currently a member of the Management Committee of SLC Operating Limited Partnership and, upon receipt of Gaming Approval, a director of the Corporation, is a Trustee of each of Equity Residential Properties Trust, a multi-family REIT, and Angeles Participating Mortgage Trust, a REIT, and a director of Westin Hotel Company and U.S. Franchise Systems. Mr. Sternlicht is on the Board of Governors of NAREIT and is a member of the Urban Land Institute and of the National Multi-Family Housing Council. Mr. Sternlicht is a member of the Board of Directors of the Council for Christian and Jewish Understanding, is a member of the Young Presidents
31 36
NAME AND AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE TRUSTEE SINCE - ------------------------------ --------------------------------------------- -------------- <-> Organization and is on the Board of Directors of Junior Achievement for Fairfield County, Connecticut. TRUSTEES WHOSE TERMS EXPIRE AT 1998 ANNUAL MEETING Madison F. Grose (43)......... Executive Vice President, Managing Director December 1994 and General Counsel of Starwood Capital Group, L.L.C. (and its predecessor entities) since July 1992. From November 1983 through June 1992, he was a Partner in the law firm of Pircher, Nichols & Meeks. Mr. Grose is currently a Trustee of Angeles Participating Mortgage Trust. William E. Simms (52)......... President of the Risk Management Product August 1995 Services Group, Transamerica Life Companies and a member of its board of directors. Over the past 24 years, he has held various other management positions with that company. He is active in civic organizations; he is Chairman of the Charlotte-Mecklenburg County Urban League and the Charlotte-Mecklenburg Arts and Science Council, and he is a member of the board of directors of the Mecklenburg County United Way and the Mecklenburg Hospital Authority. He is part owner of the Carolina Panthers National Football League team. Mr. Simms is a director of NationsBank N.A. Gary M. Mendell (40).......... President of Starwood Lodging Trust since February 1997 February 1997. Prior to joining the Trust, Mr. Mendell co-founded HEI Hotels, L.L.C., a hotel operating company based in Westport Connecticut, which specializes in the management and ownership of full-service hotels, and served as its Chief Executive Officer, Chairman and President from 1985 through February 1997. TRUSTEES WHOSE TERMS EXPIRE AT 1999 ANNUAL MEETING Steven R. Goldman (35)........ Senior Vice President of the Trust since September 1996 September 1996. Mr. Goldman served as Senior Vice President of the Corporation from March 1995 to September 1996 and as a member of the Management Committee of SLC Operating Limited Partnership from December 1994 to September 1996. Mr. Goldman was a Vice President of Starwood Capital Group, L.P. (predecessor of Starwood Capital Group, L.L.C.), specializing in hotel acquisitions and hotel asset management, from August 1993 to February 1995. From 1990 to 1993, he was Senior Development Manager of Disney Development Company, the real estate investment development and management division of Walt Disney Company.
32 37
NAME AND AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE TRUSTEE SINCE - ------------------------------ --------------------------------------------- -------------- Stephen R. Quazzo (37)........ Managing Director and co-founder of August 1995 Transwestern Investment Company, L.L.C., a real estate principal investment firm, since March 1996. Prior thereto Mr. Quazzo was President of Equity Institutional Investors, Inc. a subsidiary of Equity Group Investments, Inc., a Chicago based holding company controlled by Samuel Zell. Mr. Quazzo is an advisory board member of City Year Chicago, is a member of the Pension Real Estate Association (PREA) and serves on the Commercial and Retail Council of the Urban Land Institute (ULI). Roger S. Pratt (44)........... Managing Director and Senior Portfolio February 1997 Manager of Prudential Real Estate Investors. Since January 1992, Mr. Pratt has been the portfolio manager for PRISA II, a real estate fund managed by Prudential Real Estate Investors for pension fund clients. Mr. Pratt has been with Prudential for fifteen years, serving in a variety of roles in development, asset management, hotel management and administration. Mr. Pratt is a member of the American Institute of Certified Planners and serves on the Multi-Family Council of the Urban Land Institute.
The following table includes certain information with respect to the current executive officers of the Trust other than Messrs. Sternlicht, Mendell, and Goldman:
NAME AGE POSITION(S) WITH THE TRUST - ------------------------------ --- ------------------------------------------------ Ronald C. Brown............... 42 Senior Vice President and Chief Financial Officer
Ronald C. Brown. Mr. Brown has been Senior Vice President and Chief Financial Officer of the Trust since July 1995. Prior to joining the Trust, Mr. Brown was President of Sonoran Hotel Advisors, L.L.C., a hotel REIT advisory firm from August 1994 to July 1995. From December 1993 to August 1994, Mr. Brown was President of Doubletree Corporation, a public hotel operating company. From December 1990 to December 1993, Mr. Brown was Executive Vice President -- Finance & Planning and CFO and then from April 1992, Chairman and CEO of Doubletree Hotels Corporation. From March 1988 to April 1992, Mr. Brown was Vice President -- Finance & Accounting and CFO, and then Executive Vice President and CFO for Canadian Pacific Hotels Corporation, a hotel operating company. The executive officers of the Trust serve at the pleasure of the Board of Trustees. There is no family relationship among any of the Trustees or executive officers of the Trust. DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION The current Board of Directors of the Corporation consists of Earle F. Jones, Bruce M. Ford, and Graeme W. Henderson. In addition, the stockholders of the Corporation have elected Mr. Sternlicht and Daniel W. Yih, Jean-Marc Chapus, Eric A. Danziger, Michael A. Leven and Jonathan D. Eilian as directors of the Corporation to take office upon the receipt of necessary regulatory approvals from the Nevada Gaming Authorities ("Gaming Approval"). Gaming Approval is expected to be received by the end of 1997. Messrs. Henderson and Ford have indicated their intention to resign from the Board of Directors of the Corporation when the required Gaming Approval is received. Pending receipt of any required Gaming Approval, the current Directors of the Corporation are continuing as such and the Operating Partnership is being managed by a management committee (the "Management Committee") consisting of the current Directors of the Corporation as well as the additional 33 38 persons elected to take office upon receipt of any required Gaming Approval. While awaiting Gaming Approval, the Corporation's existing management and Board of Directors will be responsible for the operation and control of the gaming assets of the Corporation, and the other Management Committee members will be prohibited from any influence or control of the gaming assets. The following table sets forth, for each of the current members of the Corporation's Board of Directors as of the date of this Joint Annual Report, the name and age of such Director, the principal occupation or employment of such Director during the past five years and the principal business of such Director's employer, other directorships held by such Director and the year in which such Director first became a Director of the Corporation. The terms of each of such Directors will expire at the 1998 Annual Meeting.
NAME AND AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE DIRECTOR SINCE - ------------------------------ --------------------------------------------- -------------- Bruce M. Ford (57)............ President of FST and Associates and President September 1983 of F.K.B. Management Corporation, hotel and restaurant management companies, since 1988. Member of Gibson 25 Associates, LLC, a hotel developer, since March 1995. President of Ford Management Corporation, a hotel/motel management and development company since June 1988. Prior to that time, Mr. Ford was Senior Vice President of Operations of Ramada Inns. Graeme W. Henderson (63)...... Chairman of the Trust from July 1989 to September 1986 December 1994 and Trustee of the Trust from September 1986 to December 1994. He has been a private investor since January 1990. Prior to January 1990, Mr. Henderson was President of Henderson Consulting, Inc., a private financial consulting firm. Mr. Henderson has been President of Capstan, Inc. (formerly Seymour, Inc.), a manufacturer of machine tool controls, since 1982. Mr. Henderson is currently a director of Capital Southwest Corporation. Earle F. Jones (70)........... Mr. Jones is the Chairman of the Board of September 1985 Directors of the Corporation since February 1989. He is Co-Chairman since 1988 of MMI Hotel Group, a hotel company. From 1967 to 1968, Mr. Jones was President of the International Association of Holiday Inns and served two terms as a director. Mr. Jones is a Trustee and Chairman of Communications Improvement Trust, whose beneficiaries are public broadcasting and Tougaloo College Trust, a member of the Board of Trustees for Millsaps College and the Catholic Foundation and Co-Chairman of the Mississippi Olympic Committee. Mr. Jones is a general partner of Orlando Plaza Suite Hotel, Ltd-A which filed a petition under Chapter 11 of the U.S. Bankruptcy Code in May 1996. An order confirming the debtor's plan of reorganization was issued by the court on January 27, 1997.
34 39 The following table sets forth, for each of the current members of the Management Committee (other than Messrs. Ford, Henderson, and Jones) who will become Directors of the Corporation upon receipt of any required Gaming Approval, the name and age of such member, the principal occupation or employment of such member during the past five years and the principal business of such member's employer, other directorships held by such member and the year in which such member first became a member of the Management Committee.
MEMBER OF PRINCIPAL OCCUPATION AND BUSINESS MANAGEMENT NAME AND AGE EXPERIENCE COMMITTEE SINCE - --------------------------------- ------------------------------------------- ---------------- MEMBERS WHOSE TERMS EXPIRE AT THE 1997 ANNUAL MEETING Jonathan D. Eilian (29).......... Managing Director of Starwood Capital August 1995 Group, L.L.C. (and a senior executive of its predecessor entities) since its formation in September 1991. Prior to being a founding member of Starwood Capital, Mr. Eilian served as an Associate for JMB Realty Corporation, a real estate investment firm, and for The Palmer Group, L.P., a private investment firm specializing in corporate acquisitions. Barry S. Sternlicht (36)......... Chairman and Chief Executive Officer of the December 1994 Trust. He is founder and General Manager of Starwood Capital Group, L.L.C., (and co-founder of its predecessor entities in 1991) and has been the President and CEO of Starwood Capital Group, L.P. since its formation. Mr. Sternlicht is currently a Trustee of the Trust, a Trustee of each of Equity Residential Properties Trust, a multi-family REIT, and Angeles Participating Mortgage Trust, a REIT, and is a director of each of Westin Hotel Company and U.S. Franchise Systems. Mr. Sternlicht is on the Board of Governors of NAREIT and is a member of the Urban Land Institute and of the National Multi-Family Housing Council. Mr. Sternlicht is a member of the Board of Directors of the Council for Christian and Jewish Understanding, is a member of the Young Presidents Organization and is on the Board of Directors of Junior Achievement for Fairfield County, Connecticut. MEMBER WHOSE TERM EXPIRES AT THE 1998 ANNUAL MEETING Daniel W. Yih (38)............... A general partner of Chilmark Partners, August 1995 L.P. since June 1995. Mr. Yih served as interim Chief Financial Officer of Midway Airlines (from September 1995 to December 1995), President of Merco-Savory, Inc., a manufacturer of food preparation equipment (from March 1995 to June 1995) and as a senior executive of Welbilt Corporation (from September 1993 to March 1995).
35 40
MEMBER OF PRINCIPAL OCCUPATION AND BUSINESS MANAGEMENT NAME AND AGE EXPERIENCE COMMITTEE SINCE - --------------------------------- ------------------------------------------- ---------------- MEMBERS WHOSE TERMS EXPIRE AT THE 1999 ANNUAL MEETING Jean-Marc Chapus (37)............ Managing Director and Portfolio Manager of August 1995 Trust Company of the West since March 1995. Prior to that time he was a Managing Director and Principal of Crescent Capital Corporation with primary responsibility for the firm's private lending and private placement activities. Eric A. Danziger (42)............ President and Chief Executive Officer of September 1996 the Corporation since July 1996. Mr. Danziger has been in the hotel industry for over 26 years. Prior to joining the Corporation, he served as the Executive Vice President of Wyndham Hotel Corporation and President of Wyndham Hotels and Resorts Division from August 1990 to June 1996. Michael A. Leven (59)............ President and Chief Executive Officer of August 1995 U.S. Franchise Systems, a hotel franchising and development company, since October 1995. From November 1990 to September 1995, Mr. Leven was President and Chief Operating Officer of Holiday Inn Worldwide. Mr. Leven is a director of U.S. Franchise Systems. Mr. Leven is also a member of the Board of Governors of the American Red Cross and a Trustee of National Realty Trust.
The following table includes certain information with respect to each of the Corporation's current executive officers other than Mr. Danziger:
NAME AGE POSITION(S) WITH THE CORPORATION - --------------------------------- --- ------------------------------------------------------ Theodore W. Darnall.............. 39 Executive Vice President and Chief Operating Officer Alan M. Schnaid.................. 30 Vice President and Corporate Controller
Theodore W. Darnall. Mr. Darnall has served as the Executive Vice President and Chief Operating Officer of the Corporation since April 1996. Prior to joining the Corporation, Mr. Darnall served as the Senior Vice President -- Operations of Interstate Hotel Company from August 1995 to April 1996. From 1989 to August 1995, Mr. Darnall served as the Regional Vice President -- Operations of Interstate Hotel Company. Alan M. Schnaid. Mr. Schnaid has been with the Corporation since August 1994 and has been a Vice President since July 1996 and Corporate Controller since February 1996. He is a Certified Public Accountant. Mr. Schnaid was employed by Mazars and Company, an international accounting firm from January 1993 to August 1994 and by Kenneth Leventhal and Company, a national real estate accounting firm from January 1991 to January 1993. The executive officers of the Corporation serve at the pleasure of the Board of Directors. There is no family relationship among any of the Directors or executive officers of the Corporation. 36 41 ITEM 11. EXECUTIVE COMPENSATION SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION THE TRUST The following table provides certain summary information concerning the compensation paid for the fiscal years ended December 31, 1996, 1995 and 1994 to the Trust's Chief Executive Officer and each other executive officer of the Trust whose total compensation for 1996 exceeded $100,000 for services rendered in all capacities to the Trust. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION RESTRICTED --------------------- -------------------- STOCK SECURITIES UNDERLYING YEAR SALARY($) BONUS($) AWARD(S)($) OPTIONS/SARS(#)(1)(2) COMPENSATION($) ----- --------- -------- ----------- --------------------- --------------- Barry S. Sternlicht..... 1996 181,252 250,000 956,250(3) 1,554,000 Chairman and Chief 1995 91,667 150,000 625,500 Executive Officer Jeffrey C. Lapin(4)..... 1996 281,250 7,500 75,000(5) President and Chief 1995 199,167 75,000 110,500 Operating Officer 1994 190,000 75,000 3,000(6) Ronald C. Brown......... 1996 175,000 100,000 540,000(7) 85,500 187,513(8) Senior Vice President 1995 66,666 65,000 82,500 and Chief Financial Officer Steven R. Goldman(9).... 1996 43,750 75,000 900,000(10) 90,000 58,862(11) Senior Vice President
- --------------- (1) For information with respect to these options, see "Option Exercises and Holdings" below. (2) Adjusted for three-for-two stock split which occurred in January 1997. (3) At December 31, 1996, Mr. Sternlicht had restricted stock awards of 45,000 Paired Shares (after giving effect to the three-for-two stock split in January 1997) with a value of $1,653,750. Mr. Sternlicht's restricted stock awards are in the form of two warrants to purchase 22,500 Paired Shares each at an exercise price of $0.67 per Paired Share (after giving effect to the three-for-two stock split in January 1997). One warrant was exercisable immediately (the "1996 Warrant") and one became exercisable on January 1, 1997 (the "1997 Warrant"). Any Paired Shares purchased upon exercise of such a warrant will vest ratably over the balance of the year in which the warrant first became exercisable, to the extent Mr. Sternlicht has not theretofore resigned or been discharged for "cause." Exercise of the 1997 Warrant is also subject to the condition that Mr. Sternlicht not have previously resigned or been discharged for "cause." All Paired Shares purchased upon exercise of either the 1996 Warrant or the 1997 Warrant are non-transferable prior to February 21, 1998. Dividends will be paid with respect to the Paired Shares but not the warrants subject to such restricted stock awards. Mr. Sternlicht also has an economic interest in the restricted stock award granted by the Trust to Starwood Capital. See "-- Compensation Committee Interlocks and Insider Participation." (4) Mr. Lapin resigned as an officer of the Trust in June 1996. (5) Amount shown reflects cash paid for severance. (6) Adjusted for one-for-six reverse stock split which occurred in June 1995. (7) At December 31, 1996, Mr. Brown had a restricted stock award of 22,500 Paired Shares (after giving effect to the three-for-two stock split in January 1997), with a value of $826,875. Such restricted stock award vests as to one-third of such amount on August 12, 1997, as to an additional one-third of such amount on August 12, 1998, and as to the remaining amount on August 12, 1999. Dividends will be paid with respect to the Paired Shares subject to such restricted stock award. 37 42 (8) Amount shown reflects $163,963 for taxable relocation reimbursement and $23,550 for dividends on restricted Paired Shares which were not vested at December 31, 1996. (9) Mr. Goldman became an officer of the Trust in September 1996. Prior to September 1996, Mr. Goldman was an officer of the Corporation. During 1996, the Corporation paid Mr. Goldman $131,250 in salary, a bonus of $25,000 and $24,500 for dividends on restricted Paired Shares which were not vested at December 31, 1996. (10) At December 31, 1996, Mr. Goldman had a restricted stock award of 37,500 Paired Shares (after giving effect to the three-for-two stock split in January 1997), with a value of $1,378,125. Such restricted stock award vests as to one-third of such amount on August 12, 1997 as to an additional one-third of such amount on August 12, 1998, and as to the remaining amount on August 12, 1999. Dividends will be paid with respect to the Paired Shares subject to such restricted stock award. (11) Amount shown reflects $44,112 for taxable relocation reimbursement and $14,750 for dividends on restricted Paired Shares which were not vested at December 31, 1996. THE CORPORATION The following table provides certain summary information concerning the compensation paid for the fiscal years ended December 31, 1996, 1995 and 1994, to the Corporation's Chief Executive Officer and each other executive officer of the Corporation whose total compensation for 1996 exceeded $100,000 for services rendered in all capacities to the Corporation. SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION ---------------------------------------- --------------------- RESTRICTED SECURITIES UNDERLYING YEAR SALARY($) BONUS($) STOCK AWARD($) OPTIONS/SARs(#)(1)(2) COMPENSATION($) ----- --------- -------- -------------- --------------------- --------------- Eric A. Danziger(3)....... 1996 175,711 150,000 2,371,954(4) 300,000 306,212(5) President and Chief Executive Officer Theodore W. Darnall(6).... 1996 191,790 137,500 1,033,946(7) 150,000 89,154(8) Executive Vice President and Chief Operating Officer Steven R. Goldman(9)...... 1996 131,250 25,000 24,500(10) Senior Vice President 1995 114,583 75,000 69,000 19,800(11) Alan M. Schnaid(12)....... 1996 85,228 22,500 9,750 69,918(13) Vice President 1995 55,000 8,500 6,750 --------- 1994 18,205 2,000 ---------
- --------------- (1) For information with respect to these options, see "Options Exercises and Holdings" below. (2) Adjusted for three-for-two stock split which occurred January 1997. (3) Mr. Danziger became an officer of the Corporation in July 1996. (4) At December 31, 1996, Mr. Danziger had a restricted stock award of 100,222 Paired Shares (after giving effect to the three-for-two stock split in January 1997), with a value of $3,683,158. Such restricted stock award vests as to one-third of such amount on July 8, 1997, as to an additional one-third of such amount on July 8, 1998, and as to the remaining amount on July 8, 1999. Dividends will be paid with respect to the Paired Shares subject to such restricted stock award. (5) Amount shown reflects $201,312 for taxable relocation reimbursement and $104,900 for dividends on restricted Paired Shares which were not vested at December 31, 1996. (6) Mr. Darnall became an officer of the Corporation in April 1996. (7) At December 31, 1996, Mr. Darnall had a restricted stock award of 45,283 Paired Shares (after giving effect to the three-for-two stock split in January 1997), with a value of $1,664,150. Such restricted stock award vests as to one-third of such amount on May 9, 1997, as to an additional one-third of such amount on May 9, 1998, and as to the remaining amount on May 9, 1999. Dividends will be paid with respect to the Paired Shares subject to such restricted stock award. 38 43 (8) Amount shown reflects $41,758 for taxable relocation reimbursement and $47,396 for dividends on restricted Paired Shares which were not vested at December 31, 1996. (9) Mr. Goldman resigned as an officer of the Corporation in September 1996, at which time he became an officer of the Trust. During 1996, the Trust paid Mr. Goldman $43,750 in salary, a bonus of $75,000, $14,750 for dividends on restricted Paired Shares which were not vested at December 31, 1996, and $44,112 for taxable relocation reimbursement. (10) Amount shown reflects $24,500 for dividends on restricted Paired Shares which were not vested at December 31, 1996. (11) Amount shown reflects cash paid by the Corporation for housing allowance. (12) Mr. Schnaid joined the Corporation in August 1994. (13) Amount shown reflects $46,635 for relocation allowance and $23,303 for taxable relocation reimbursement. OPTION GRANTS The following table shows, as to each executive officer of the Trust and the Corporation named in the Summary Compensation Tables above, information concerning the options granted to that officer during the year ended December 31, 1996. OPTION/SAR GRANTS IN LAST FISCAL YEAR INDIVIDUAL GRANTS
POTENTIAL REALIZABLE VALUE % OF TOTAL AT ASSUMED ANNUAL RATES NUMBER OF OPTIONS/ OF STOCK PRICE SECURITIES SARS GRANTED TO APPRECIATION UNDERLYING EMPLOYEES IN FOR OPTION TERM OPTIONS/ LAST FISCAL EXERCISE PRICE ------------------------ NAME SARS GRANTED(#)(1) YEAR ($/SH)(2) EXPIRATION DATE 5%($) 10%($) - --------------------- ------------------ --------------- -------------- ---------------- ----------- ----------- Barry S. Sternlicht......... 120,000(3) 4.25 22.00 April 30, 2006 1,522,843 3,786,484 9,000(4) 0.32 24.25 June 30, 2006 128,712 321,561 975,000(5) 34.5 23.92 August 12, 2006 13,965,995 35,008,635 450,000(6) 15.9 23.92 August 12, 2006 6,445,844 16,157,832 Ronald C. Brown...... 48,000(3) 1.70 22.00 April 30, 2006 609,137 1,514,594 37,500(6) 1.33 23.92 August 12, 2006 537,154 1,346,486 Steven R. Goldman.... 52,500(3) 1.86 22.00 April 30, 2006 666,244 1,656,587 37,500(6) 1.33 23.92 August 12, 2006 537,154 1,346,486 Eric A. Danziger..... 187,500(7) 6.64 24.50 June 27, 2006 2,706,211 6,759,347 112,500(6) 3.98 23.92 August 12, 2006 1,611,461 4,039,458 Theodore W. Darnall............ 75,000(8) 2.66 22.08 April 26, 2006 953,972 2,371,272 75,000(6) 2.66 23.92 August 12, 2006 1,074,307 2,692,972 Alan M. Schnaid...... 9,750(9) 0.35 22.00 April 30, 2006 123,731 307,652 Jeffrey C. Lapin..... 7,500(10) 0.27 25.58 June 14, 2006 112,504 280,719
- --------------- (1) Adjusted for three-for-two stock split which occurred in January 1997. (2) The per Paired Share exercise prices are equal to the fair market value of a Paired Share on the date the option as adjusted for a three-for-two stock split which occurred in January 1997. (3) Options will become exercisable as to one-third of the amount granted on April 30, 1997, as to an additional one-third of the amount granted on April 30, 1998 and as to the remaining amount granted on April 30, 1999. Performance Awards were also granted to Messrs. Brown and Goldman relating to the Paired Shares subject to these Paired Options. Such Performance Awards provide for cash payments equal to the dividends and distributions on such number of Paired Shares subject to the Paired Options during the period commencing August 12, 1996, and ending on the later of the exercise of the related Paired Option and August 12, 2001, conditioned upon the satisfaction of certain performance measures. (4) Options were immediately exercisable. 39 44 (5) Options will become exercisable as to one-third of the amount granted on August 12, 1997, as to an additional one-third of the amount granted on August 12, 1998, and as to the remaining amount granted on August 12, 1999. Performance Awards were also granted relating to the Paired Shares subject to these Paired Options. Such Performance Awards provide for cash payments equal to the dividends and distributions on such number of Paired Shares subject to the Paired Options during the period commencing August 12, 1996, and ending on the later of the exercise of the related Paired Option and August 12, 2001, conditioned upon the satisfaction of certain performance measures (6) Options will become exercisable over five years as follows: as to one-fourth of the amount on August 12, 1998, as to an additional one-fourth of the amount on each of August 12, 1999, and August 12, 2000, and as to the remaining amount on August 12, 2001. Performance Awards were also granted relating to the Paired Shares subject to these Paired Options. Such Performance Awards provide for cash payments equal to the dividends and distributions on such number of Paired Shares subject to the Paired Options during the period commencing August 12, 1996, and ending on the later of the exercise of the related Paired Option and August 12, 2001, conditioned upon the satisfaction of certain performance measures. (7) Options will become exercisable as to one-third of the amount granted on June 27, 1997, as to an additional one-third of the amount granted on June 27, 1998, and as to the remaining amount granted on June 27, 1999. Performance Awards were also granted relating to the Paired Shares subject to these Paired Options. Such Performance Awards provide for cash payments equal to the dividends and distributions on such number of Paired Shares subject to the Paired Options during the period commencing August 12, 1996, and ending on the later of the exercise of the related Paired Option and August 12, 2001, conditioned upon the satisfaction of certain performance measures. (8) Options will become exercisable as to one-third of the amount granted on April 26, 1997, as to an additional one-third of the amount granted on April 26, 1998, and as to the remaining amount granted on April 26, 1999. Performance Awards were also granted relating to the Paired Shares subject to these Paired Options. Such Performance Awards provide for cash payments equal to the dividends and distributions on such number of Paired Shares subject to the Paired Options during the period commencing August 12, 1996, and ending on the later of the exercise of the related Paired Option and August 12, 2001, conditioned upon the satisfaction of certain performance measures. (9) Options will become exercisable as to one-third of the amount granted on April 30, 1997, as to an additional one-third of the amount granted on April 30, 1998, and as to the remaining amount granted on April 30, 1999. (10) Two-thirds of the amount granted were exercisable upon granting and the remaining amount became exercisable on January 31, 1997. 40 45 OPTION EXERCISES AND HOLDINGS The following table provides information with respect to the options held as of December 31, 1996, by the executive officers of the Trust and the executive officers of the Corporation named in the Summary Compensation Tables above. AGGREGATED OPTION/SAR EXERCISED IN 1996 AND DECEMBER 31, 1996, OPTION VALUES
NUMBER OF SHARES VALUE OF THE UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS AT FISCAL OPTIONS/SARS YEAR-END(#)(1) AT FISCAL YEAR-END($)(2) SHARES ACQUIRED VALUE REALIZED --------------------------- --------------------------- NAME ON EXERCISE(#)(1) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------------- ----------------- -------------- ----------- ------------- ----------- ------------- Barry S. Sternlicht...... 223,500 1,956,000 4,668,387 28,526,769 Jeffrey C. Lapin......... 31,707 610,003 35,960 46,833 689,826 1,053,198 Ronald C. Brown.......... 27,499 140,500 559,075 2,292,853 Steven R. Goldman........ 28,999 130,000 616,154 2,090,181 Eric A. Danziger......... 0 300,000 0 3,689,588 Theodore W. Darnall...... 0 150,000 0 2,037,000 Alan M. Schnaid.......... 2,250 33,188 0 14,250 0 237,767
- --------------- (1) Adjusted for three-for-two stock split which occurred in January 1997. (2) Value is defined as the market price of the Paired Shares at December 31, 1996, less the exercise price of the option. The average of the high and low market prices of the Paired Shares at December 31, 1996, was $36.58 as adjusted for a three-for-two stock split which occurred in January 1997. COMPENSATION OF TRUSTEES AND DIRECTORS Each Trustee or Director who is not also an employee of the Trust or the Corporation, respectively, is entitled to annual trustee's fees of $25,000 per annum (the "Annual Fee") and is reimbursed for any out-of- pocket expenses incurred in attending meetings of the Board of Trustees or the Board of Directors. Commencing January 1, 1997, at least 50% of the Annual Fee will be payable in Paired Shares (or a greater percentage at the election of the Trustee or Director). On June 30, 1996, each non-employee Trustee and Director received a Paired Option to purchase 9,000 Paired Shares at an exercise price of $24.25 per Paired Share (the fair market value of a Paired Share on that date, after giving effect to the three-for-two stock split in January 1997). On June 30 of each year, commencing June 30, 1997, each non-employee Trustee or Director will also receive a Paired Option to purchase 4,500 Paired Shares at an exercise price per Paired Share equal to fair market value on the date of grant. The Chairman of each Board receives an additional fee of $2,500 per year. In addition, each non-employee Trustee or Director receives a fee of $750 for each meeting in which he participates (or, in the case of telephonic meetings, $500) and a fee of $500 for each committee meeting in which he participates ($1,000 per meeting for committee chairmen). EMPLOYMENT AND COMPENSATION AGREEMENTS WITH EXECUTIVE OFFICERS Eric A. Danziger and the Corporation entered into an agreement dated as of June 27, 1996, pursuant to which Mr. Danziger was employed as President and Chief Executive Officer of the Corporation at an annual salary of $365,000 and was guaranteed a minimum bonus of $150,000 for 1996. Mr. Danziger also received a Paired Option to purchase 187,500 Paired Shares exercisable at $24.50 per Paired Share (after giving effect to the three-for-two stock split in January 1997) (the fair market value on the date of grant), which vests in three equal annual increments from the date of grant and a Restricted Stock Award of 100,222 Paired Shares (after giving effect to the three-for-two stock split in January 1997) which also vests in three equal annual increments. Mr. Danziger also received relocation expenses in connection with moving his residence from Dallas, Texas to Phoenix, Arizona, and in connection therewith also received a one-year non-interest bearing loan from the Corporation for $150,000 secured by a second mortgage on his new residence in Phoenix, 41 46 Arizona. Mr. Danziger's employment is terminable by the Corporation or Mr. Danziger with or without cause. In the event his employment is terminated by the Corporation without cause or by Mr. Danziger in the event the Corporation assigns to him duties inappropriate for his position or reduces his responsibilities, then Mr. Danziger is entitled to a severance package of one year's base salary, the immediate vesting of all outstanding Paired Options and Paired Shares subject to Restricted Stock Awards and company-paid medical benefits for 12 months. Theodore W. Darnall and the Corporation entered into an employment agreement dated as of April 19, 1996, pursuant to which Mr. Darnall was employed as Executive Vice President and Chief Operating Officer of the Corporation at an annual salary of $275,000 and was guaranteed a minimum bonus of $137,500 for 1996. Mr. Darnall also received a Paired Option to purchase 75,000 Paired Shares exercisable at $22.08 per Paired Share (after giving effect to the three-for-two stock split in January 1997) (the fair market value on the date of grant), which vests in three equal annual increments from the date of grant and a Restricted Stock Award of 45,284 Paired Shares (after giving effect to the three-for-two stock split in January 1997) which also vests in three equal annual increments. Mr. Darnall also received relocation expenses in connection with moving his residence from Pittsburgh, Pennsylvania to Phoenix, Arizona, and in connection therewith received a non-interest bearing bridge loan of $250,000 secured by a second mortgage on his new residence in Phoenix, Arizona. The bridge loan will mature as to $100,000 upon the sale of Mr. Darnall's home in Pittsburgh, and the balance upon termination of his employment with the Corporation. Mr. Darnall's employment is terminable by the Corporation with or without cause. In the event his employment is terminated by the Corporation without cause or by Mr. Darnall due to breach by the Corporation, then Mr. Darnall is entitled to a severance package of one year's base salary, the immediate vesting of all outstanding Paired Options and Paired Shares subject to Restricted Stock Awards and company-paid medical benefits for 12 months. In addition, Steven R. Goldman and Ronald C. Brown each entered into employment agreements with the Trust each dated as of February 4, 1997, at an annual salary of $200,000 each. Each such agreement is terminable at will, and if terminated by the Trust without cause or by the executive for breach by the Trust, entitles the executive to a severance package of one year's base salary and the immediate vesting of all outstanding Paired Options and Paired Shares subject to Restricted Stock Awards and medical benefits at the Trust's expense for 12 months. The Trust had an employment agreement with Mr. Lapin which provided that he would receive an annual salary in 1996 of $225,000. Mr. Lapin's employment agreement was terminated in connection with the Separation Agreement referenced below. Under the terms of his employment agreement Mr. Lapin was entitled to an annual bonus of not less than $75,000 and was granted Paired Options to purchase 62,500 Paired Shares at an exercise price equal to $11.00 per Paired Share (after giving effect to the three-for-two stock split in January 1997) (the fair market value of a Paired Share on the date of grant) which would vest at a rate no longer than the most rapid rate of vesting of Paired Options granted to any other executive during the term of his employment agreement. Mr. Lapin also was eligible to participate in all employee benefit plans and fringe benefits, if any, the Trust made available to its other executive officers. Mr. Lapin could terminate his employment for "Good Reason" as defined in his employment agreement including an assignment of duties inconsistent with his position, a substantial alteration of his responsibilities, a breach of the agreement by the Trust, removal from office without cause (as defined), relocation of the Trust's principal executive offices, a change in the composition of 51% of the Trustees, a decision by the Board of Trustees that the Trust shall merge, sell or dispose of all or substantially all of its assets, dissolve or liquidate, or the failure of Mr. Lapin to be a member of the Board of Trustees other than for cause (as defined). If Mr. Lapin so terminated his employment, he was entitled to receive a lump sum payment equal to the base salary and bonuses that would have been payable had he continued to be employed for the remainder of the term of the employment agreement, and all fringe benefits to which he would have been entitled through the remainder of the term of the employment agreement (other than Paired Options or stock loans not granted prior to the date of termination). Pursuant to Mr. Lapin's employment agreement, the Trust loaned $250,000 to Mr. Lapin in 1995. The loan has a term of 10 years, bears interest at the lowest applicable rate prescribed by section 1274(d) of the Code and is unsecured. Mr. Lapin will have the right at any time to repay up to 50% of the loan (plus 50% of accrued interest and any collection costs) by delivering Paired Shares for credit at the rate of $7.67 per Paired 42 47 Share (after giving effect to the three-for-two stock split in January 1997) (which is one-half of the price to the public per Paired Share in the June 1995 public offering of Paired Shares by the Trust and the Corporation). The Trust entered into a Separation Agreement dated as of June 18, 1996 (the "Separation Agreement") with Mr. Lapin in connection with his resignation as President and Chief Operating Officer of the Trust. The Trust agreed to conditionally forgive, after one year, $150,000 of the $250,000 loan from the Trust described above. The Trust also agreed to immediately vest, in part, the Paired Options held by Mr. Lapin and to grant him an additional Paired Option to purchase 7,500 Paired Shares exercisable at $25.25 (after giving effect to the three-for-two stock split in January 1997), which vested as to two-thirds of such amount on his termination date and as to the remaining amount on January 31, 1997, and upon exercise of the Paired Options, to pay to Mr. Lapin the difference between $11.00 (after giving effect to the three-for-two stock split in January, 1997) and the lower of the exercise price and the then market value of a Paired Share. All Paired Options held by Mr. Lapin were amended to the extent required to permit them to be exercised for their full maximum term. Mr. Lapin agreed to render consulting services for 18 months for which he will be paid $235,000, and the Trust also agreed to pay Mr. Lapin a fee of up to $250,000 in connection with the sale within 18 months of the King 8 owned by the Trust in Las Vegas, Nevada. The Trust paid a fee of $250,000 to Mr. Lapin in connection with the sale of that property. Mr. Lapin agreed that for 3 years he would not participate or be involved with others in any tender or exchange offer, proxy contest or solicitation or purchase or be part of a group which purchases in excess of 4.9% of the outstanding Paired Shares. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During 1996 and early 1997, the Compensation Committee of the Trust (the "Trust Compensation Committee") was comprised of Messrs. Sternlicht, Grose and Simms. Based on informal discussions, the Trust Compensation Committee made recommendations to the Trust's Board of Trustees regarding the compensation of the Trust's executive officers (other than with respect to Mr. Sternlicht, as to which Messrs. Sternlicht and Grose recused themselves). Based in part on the recommendations of the Trust Compensation Committee, the Board of Trustees of the Trust made decisions with respect to the compensation of the Trust's executive officers. Messrs. Sternlicht and Goldman, who are executive officers of the Trust and members of the Board of Trustees of the Trust, did not participate in the discussion or voting at the meetings related to their own compensation. Mr. Grose did not participate in the discussion or voting at the meeting relating to Mr. Sternlicht's compensation. During 1996 and early 1997, the Compensation Committee of the Board of Directors and Management Committee (the "Corporation Compensation Committee") was made up of Messrs. Sternlicht, Jones and Chapus. The Corporation Compensation Committee met informally during 1996 and early 1997 to discuss the compensation of the Corporation's executive officers. Based in part on the recommendations of the Corporation Compensation Committee, the Board of Directors and the Management Committee made decisions with respect to the compensation of the Corporation's executive officers. Mr. Danzinger did not participate in the discussion or voting at the meeting relating to his own compensation. In connection with the acquisition of the Institutional Portfolio in August 1996, the Trust granted Starwood Capital a one-time Restricted Stock Award of 250,870 Paired Shares (after giving effect to the three-for-two stock split in January 1997). 43 48 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. CERTAIN BENEFICIAL OWNERS To the knowledge of the Trust and the Corporation, no person owns beneficially 5% or more of the Paired Shares, except as follows:
NAME AND ADDRESS AMOUNT PERCENT OF OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS(1) ---------------------------------------------------------- ------------------ ---------- FMR Corp. ................................................ 4,796,483(2) 11.2(2)% 82 Devonshire Street Boston, MA 02109 Starwood Capital Group, L.L.C., its affiliated entities and Barry S. Sternlicht....................................... 3,736,998(3) 8.0%(3) Three Pickwick Plaza, Suite 250 Greenwich, CT 06830 Prudential Real Estate Investors.......................... 3,736,998(4) 8.0%(4) 8 Campus Drive, 4th Floor Parsippany, NJ 07054 Ziff Investment Management, L.L.C., Ziff Investors Partnership, L.P. II, their affiliated entities and Daniel Stern................ 2,302,819(5) 5.4% 153 East 53rd Street, 43rd Floor New York, NY 10022
- --------------- (1) Based on the number of Paired Shares outstanding on February 28, 1997. (2) Based on information contained in Schedule 13F-E dated February 11, 1997, and after giving effect to the three-for-two stock split in January 1997, FMR Corp. holds 4,796,483 Paired Shares on behalf of various distinct entities. Based on additional information provided to Starwood Lodging, no one of such entities, directly or by attribution, holds in excess of 8.0% of the outstanding Paired Shares. (3) Based on information in Amendment No. 2 to Schedule 13D dated December 31, 1996, filed by Starwood Capital, Starwood Capital Group, L.L.C., Barry S. Sternlicht and the following Starwood Partners; BSS Capital Partners, L.P., Sternlicht Holdings II, Inc., Harveywood Hotel Investors, L.P., Starwood Hotel Investors II-L.P., Firebird Consolidated Partners, L.P., and Starwood Opportunity Fund II, L.P., ("SOFI-II"). After giving effect to the three-for-two stock split in January 1997, Mr. Sternlicht has sole power to vote and dispose of 45,000 Paired Shares beneficially owned by him. After giving effect to the three-for-two stock split in January 1997 SOFI-II owns 74,899 Paired Shares beneficially; SOFI-II and Mr. Sternlicht have the power to vote and dispose of the Paired Shares owned by SOFI-II. After giving effect to the three-for-two stock split in January 1997, Starwood Capital Group, L.L.C., beneficially owns 225,783 Paired Shares subject to a Restricted Stock Award; Starwood Capital Group, L.L.C., and Mr. Sternlicht have the power to vote and dispose of the Paired Shares owned by Starwood Capital Group L.L.C., After giving effect to the three-for-two stock split in January 1997, Mr. Sternlicht holds, directly or through trusts created by him for the benefit of members of his family, units in the Realty Partnership and the Operating Partnership which are, subject to the 8.0% Paired Share ownership limit, exchangeable for an aggregate of 508,120 Paired Shares. After giving effect to the three-for-two stock split in January 1997, Starwood Partners hold units in the Realty Partnership and the Operating Partnership which are, subject to the 8.0% Paired Share ownership limit, exchangeable for an aggregate of 3,102,492 Paired Shares. After giving effect to the three-for-two stock split in January 1997, Mr. Sternlicht also beneficially owns 22,500 Paired Shares which are subject to the terms of a Restricted Stock Award in the form of a warrant that he exercised in February 1996, and which may not be transferred prior to February 1998, an additional 22,500 Paired Shares which are subject to the terms of Restricted Stock Award in the form of a warrant that became exercisable on January 1, 1997, and which may not be transferred prior to February 1998 and 263,499 Paired Shares subject to presently exercisable 44 49 Paired Options. Such Amendment No. 2 to Schedule 13D reports that because of the 8.0% ownership limit, the Starwood Partners cannot beneficially own more than 8.0% of the outstanding Paired Shares. The amount beneficially owned and the percent of class calculated assumes that Starwood Capital Group, L.L.C., its affiliated entities and Barry Sternlicht exchange units for Paired Shares to the maximum extent permitted within the ownership limit provisions; provided, however, that prior to receipt of any required Gaming Approval, Starwood Capital's ownership of Paired Shares may not exceed 4.9% of the outstanding Paired Shares. (4) Based on information in Schedule 13D dated February 14, 1997, filed by Prudential Insurance Company of America ("Prudential"), Prudential has sole voting and dispositive power over 2,775,000 Paired Shares beneficially owned by Prudential on behalf of Prudential Property Investment Separate Account II ("PRISA II") and sole voting and dispositive power over 4,500 Paired Shares beneficially owned by Prudential on behalf of Prudential Diversified Investment Strategies. Prudential also has sole voting and dispositive power over units in the Realty Partnership and the Operating Partnership beneficially owned by Prudential on behalf of PRISA II which are, subject to the 8.0% Paired Share ownership limit, exchangeable for an aggregate of 1,754,037 Paired Shares. (5) Based on information in Schedule 13D, dated January 10, 1997, filed by Ziff Investment Management, L.L.C. ("ZIM"), and Ziff Investors Partnership, L.P. II ("ZIPII"), and after giving effect to the three-for-two stock split in January 1997, 25,087 Paired Shares are held by SIV Holdings, L.L.C. ("SIV"), a Delaware limited liability company owned by ZIPII and ZIM. SIV has sole voting and dispositive power with respect to these Paired Shares. After giving effect to the three-for-two stock split in January 1997, ZIPII holds units in the Realty Partnership and the Operating Partnership which are exchangeable for an aggregate of 2,259,732 Paired Shares. Such Schedule 13D reports that DHS Holdings L.L.C. ("DHS"), investment general partner of ZIPII, may be deemed to control ZIPII, and that Daniel Stern, a trustee of Starwood Lodging Trust, is the majority owner of DHS. After giving effect to the three-for-two stock split in January 1997, Mr. Stern beneficially owns 18,000 Paired Shares subject to presently exercisable Paired Options. TRUSTEES AND OFFICERS OF THE TRUST The following table sets forth the beneficial ownership of the Paired Shares as of February 28, 1997, after giving effect to the three-for-two stock split in January 1997, by each Trustee and each executive officer of the Trust named in the Summary Cash Compensation Table included in Item 11 hereof who owns Paired Shares and by all Trustees and executive officers of the Trust as a group. Except as otherwise provided below, each beneficial owner has sole voting and investment power with respect to all Paired Shares beneficially owned.
AMOUNT BENEFICIALLY PERCENT OF NAME OF BENEFICIAL OWNER OWNED CLASS(1) --------------------------------------------------------- ----------- ---------- Ronald C. Brown.......................................... 67,499(2) (3) Bruce W. Duncan.......................................... 23,499(4) (3) Steven R. Goldman........................................ 109,615(5) (3) Madison F. Grose......................................... 97,104(6) (3) Jeffrey C. Lapin......................................... 52,290(7) (3) Gary M. Mendell.......................................... 635,612(8) 1.5% Roger S. Pratt........................................... 3,736,998(9) 8.0% Stephen R. Quazzo........................................ 19,447(10) (3) William E. Simms......................................... 9,000(11) (3) Daniel H. Stern.......................................... 2,302,819(12) 5.4% Barry S. Sternlicht...................................... 3,736,998(13) 8.0% All Trustees and officers as a group..................... 10,790,881(14) 21.4%
- --------------- (1) Based on the number of Paired Shares outstanding on February 28, 1997, including the exchange of units for Paired Shares as discussed in Notes (9) and (13) below. 45 50 (2) Includes 22,500 Paired Shares subject to a Restricted Stock Award and 43,499 Paired Shares subject to presently exercisable options. (3) Less than 1%. (4) Includes 18,000 Paired Shares subject to presently exercisable options. (5) Includes 37,500 Paired Shares subject to a Restricted Stock Award and 46,499 Paired Shares subject to presently exercisable options and units in the Realty Partnership and the Operating Partnership which are exchangeable for 22,616 Paired Shares. (6) Includes 50,500 Paired Shares subject to presently exercisable options and units in the Realty Partnership and the Operating Partnership which are exchangeable for 43,004 Paired Shares. Does not include units in the Realty Partnership and Operating Partnership exchangeable for 27,726 Paired Shares, which are owned by a irrevocable trust for the benefit of members of Mr. Grose's family. (7) Includes 49,041 Paired Shares subject to presently exercisable options and 3,249 Paired Shares owned in a pension plan of which Mr. Lapin is sole trustee and beneficiary. Mr. Lapin's business address is 8439 Sunset Boulevard, West Hollywood, California 90069. (8) Includes 36,078 units in the Realty Partnership and the Operating Partnership held by Mr. Mendell directly and 505,778 units in the Realty Partnership and the Operating Partnership held by a trust of which Mr. Mendell is settlor and over which he exercises some investment control, and 93,756 units of SLC Operating Limited Partnership, all of which are exchangeable for Paired Shares. (9) See Note (4) under "Certain Beneficial Owners" above. Includes 2,775,000 Paired Shares and units in the Realty Partnership and the Operating Partnership which are held by Prudential on behalf of PRISA II and which are, subject to the 8.0% Paired Shares ownership limit, exchangeable for 1,754,037 Paired Shares. By virtue of his investment control over PRISA II, Mr. Pratt has an indirect pecuniary interest in these units and Paired Shares. The amount beneficially owned and the percent of class calculated assumes Mr. Pratt exchanges units for Paired Shares to the maximum extent permitted within the ownership limit provision. (10) Includes 18,000 Paired Shares subject to presently exercisable options and 397 Paired Shares owned by Mr. Quazzo's wife. (11) Includes 9,000 Paired Shares subject to presently exercisable options. (12) See Note (5) under "Certain Beneficial Owners" above. Includes 18,000 Paired Shares subject to presently exercisable options and 25,087 Paired Shares indirectly beneficially owned by Ziff Investors Partnership L.P. II ("ZIPII"), one of whose general partners, DHS Holdings, L.L.C., is controlled by Mr. Stern. By virtue of his control of ZIPII, Mr. Stern also has an indirect pecuniary interest in units in the Realty Partnership and the Operating Partnership which are exchangeable for 2,259,732 Paired Shares. (13) See Note (3) under "Certain Beneficial Owners" above. Includes 263,499 Paired Shares subject to presently exercisable options and units in the Realty Partnership and the Operating Partnership which are, subject to the 8.0% Paired Share ownership limit, exchangeable for 3,610,612 Paired Shares. The amount beneficially owned and the percent of class calculated assumes that Mr. Sternlicht exchanges units for Paired Shares to the maximum extent permitted within the ownership limit provision. By virtue of his service as both a Trustee of the Trust and a Director of the Corporation, Mr. Sternlicht's Paired Options, Paired Shares and Realty and Operating Partnership Units are listed and totaled both here and below. (14) Includes 516,037 Paired Shares that may be acquired upon the exercise of presently exercisable options, and 8,325,613 Paired Shares issuable upon exchange of units of the Realty Partnership and the Operating Partnership, subject to the 8.0% Paired Share ownership limit (see Notes (9) and (13) above). DIRECTORS AND OFFICERS OF THE CORPORATION. The following table sets forth the beneficial ownership of Paired Shares as of February 28, 1997, after giving effect to the three-for-two stock split in January 1997, by each Director and each executive officer of 46 51 the Corporation named in the Summary Cash Compensation Table included in Item 11 hereof who owns Paired Shares and by all Directors and executive officers of the Corporation as a group. Except as otherwise provided below, each beneficial owner has sole voting and investment power with respect to all Paired Shares beneficially owned.
NAME OF NUMBER OF SHARES PERCENT OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS(1) ---------------------------------------------------------- ------------------ ---------- Jean-Marc Chapus.......................................... 19,500(2) (3) Eric A. Danziger.......................................... 100,222(4) (3) Theodore W. Darnall....................................... 71,782(5) (3) Jonathan D. Eilian........................................ 53,500(6) (3) Bruce M. Ford............................................. 19,832(7) (3) Graeme W. Henderson....................................... 20,232(8) (3) Earle F. Jones............................................ 26,998(9) (3) Michael A. Leven.......................................... 18,000(10) (3) Alan M. Schnaid........................................... 3,249(11) (3) Barry S. Sternlicht....................................... 3,736,998(12) 8.0% Daniel W. Yih............................................. 21,111(13) (3) All Directors and officers as a group..................... 4,091,424(14) 8.8%
- --------------- (1) Based on the number of Paired Shares outstanding on February 28, 1997, including the exchange of units as described in Note (12) below. (2) Includes 18,000 Paired Shares subject to presently exercisable options. (3) Less than 1%. (4) Includes 100,222 Paired Shares subject to a Restricted Stock Award. (5) Includes 45,283 Paired Shares subject to a Restricted Stock Award and 24,999 Paired Shares subject to presently exercisable options. (6) Includes 50,500 Paired Shares subject to presently exercisable options. (7) Includes 18,000 Paired Shares subject to presently exercisable options and 85 Paired Shares owned by Mr. Ford's wife. (8) Includes 18,000 Paired Shares subject to presently exercisable options. (9) Includes 18,000 Paired Shares subject to presently exercisable options. (10) Includes 18,000 Paired Shares subject to presently exercisable options. (11) Includes 3,249 Paired Shares subject to presently exercisable options. (12) See Note (3) under "Certain Beneficial Owners" above. Includes 263,499 Paired Shares subject to presently exercisable options and units in the Realty Partnership and the Operating Partnership which are, subject to the 8.0% Paired Share ownership limit, exchangeable for 3,610,612 Paired Shares. The amount beneficially owned and the percent of class calculated assumes that Mr. Sternlicht exchanges units for Paired Shares to the maximum extent permitted within the ownership limit provision. By virtue of his service as both a Trustee of the Trust and a Director of the Corporation, Mr. Sternlicht's Paired Options, Paired Shares and Realty and Operating Partnership Units are listed and totaled both here and above. (13) Includes 18,000 Paired Shares subject to presently exercisable options. (14) Includes 450,248 Paired Shares that may be acquired upon the exercise of presently exercisable options, and 3,610,612 Paired Shares issuable upon exchange of units of the Realty Partnership and the Operating Partnership, subject to the 8.0% Paired Share ownership limit (see Note (12) above). 47 52 COMPLIANCE WITH THE REPORTING REQUIREMENTS OF SECTION 16(A). Section 16(a) of the Exchange Act requires Starwood Lodging's Trustees, Directors and executive officers, and persons who own more than ten percent of a registered class of Starwood Lodging's equity securities, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of Paired Shares and other equity securities of Starwood Lodging. Trustees, Directors, officers and greater than ten percent shareholders are required to furnish Starwood Lodging with copies of all Section 16(a) forms they file. To Starwood Lodging's knowledge, based solely on a review of the copies of such reports furnished to Starwood Lodging and written representations that no other reports were required, during the fiscal year ended December 31, 1996, all Section 16(a) filing requirements applicable to its Trustees, Directors, officers and greater than ten percent beneficial owners were complied with; except that one report that should have been filed on Form 4, covering one transaction involving the transfer of Paired Shares to a trust, was filed instead on a timely Form 5 by Mr. Duncan, a Trustee of the Trust. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. 1995 REORGANIZATION Pursuant to the Reorganization, the Starwood Partners contributed certain assets to the Realty Partnership and the Operating Partnership effective as of January 1, 1995. The Reorganization was approved by the shareholders of the Trust and the stockholders of the Corporation at meetings held on December 15, 1994. The limited partnership interests of the Realty Partnership and the Operating Partnership held by Starwood Capital are exchangeable on a one-for-one basis for Paired Shares. See Item 1, "1995 Reorganization" and Item 12 "Security Ownership of Certain Beneficial Owners and Management" of this Joint Annual Report. Barry S. Sternlicht, the founder, President and Chief Executive Officer and General Manager of Starwood Capital is also the Chairman and Chief Executive Officer of the Trust and a Trustee of the Trust, is a member of the Management Committee of the Operating Partnership and has been elected as a Director of the Corporation to take office upon the receipt of any required Gaming Approval. In addition, Madison Grose, a Trustee of the Trust, is a Managing Director and the General Counsel of Starwood Capital and Jonathan Eilian, who is a member of the Management Committee of the Operating Partnership and has been elected as a Director of the Corporation to take office upon the receipt of any required Gaming Approval, is a founding member and Managing Director of Starwood Capital. CERTAIN ARRANGEMENTS WITH STARWOOD CAPITAL Starwood Capital and Starwood Lodging have agreed that, subject to approval by the independent Trustees or Directors, as appropriate, Starwood Capital will be reimbursed for out-of-pocket cost and expenses for any services provided to Starwood Lodging. Starwood Capital will also be reimbursed for its internal cost (including allocation of overhead) for services provided to Starwood Lodging, provided that, where such costs are currently expensed by Starwood Lodging, such reimbursement may not exceed $250,000 for the twelve months ending June 30, 1996. In connection with the acquisition of the Institutional Portfolio in August 1996, the Trust granted Starwood Capital a one-time Restricted Stock Award of 250,870 Paired Shares (after giving effect to the three-for-two stock split in January 1997) (an approximate value of $6 million). During 1996, in addition to the one-time Restricted Stock Award, Starwood Lodging reimbursed Starwood Capital for $414,000 of internal costs, of which $226,000 related to 1995. Effective August 12, 1996, Starwood Lodging's reimbursement arrangement with Starwood Capital was changed so as to eliminate reimbursements for internal costs of Starwood Capital for any services of senior management of Starwood Capital (subject to the same annual limitation of $250,000 as set forth above for services of employees of Starwood Capital other than such senior management) and after one year, for any services of any employee of Starwood Capital. In connection with the Reorganization, Starwood Capital agreed (the "Starwood Capital Noncompete") that it would not compete within the United States directly or indirectly with SLT Realty Limited Partnership or SLC Operating Limited Partnership and would present to the Partnerships all acquisitions of (i) fee or 48 53 ground interests or other equity interests in hotels in the United States and (ii) debt interests in hotels in the United States where it is anticipated that the equity will be acquired by the debt holder within one year from the acquisition of such debt. During the term of the Starwood Noncompete, Starwood Capital was not to acquire any such interest. The term of the Starwood Noncompete is until the later of July 1998 or the time at which no officer, director, general partner or employee of Starwood Capital is on either the Board of Trustees of the Trust or the Board of Directors of the Corporation (subject to exception for certain reorganizations, mergers or other combination transactions with unaffiliated parties). WESTIN AGREEMENT Starwood Capital owns an interest in the Westin Hotel Company and certain affiliates ("Westin"), which own equity interests in domestic and international hotels and which manage, franchise or represent hotels worldwide. The Trust and the Corporation have entered into an agreement with Westin pursuant to which Westin has agreed that during the period in which an officer, director, general partner or employee of Starwood Capital is on either the Board of Trustees or the Board of Directors, and Starwood Capital co-controls Westin, Westin will not acquire or seek to acquire United States hotel equity interests, other than certain specified acquisitions, including, without limitation, minority equity investments made in connection with Westin's acquisition of a management contract. The Trust and the Corporation have each recently waived the foregoing restriction to the extent applicable with respect to a hotel property in the U.S. Virgin Islands. The Trust and the Corporation have agreed that under certain circumstances if Westin is prohibited from consummating an opportunity which was not being independently pursued by the Trust and the Corporation prior to such prohibition, the Trust and the Corporation will not pursue such opportunity for 270 days after such prohibition. During 1996 Westin made an interest-free loan to the Company of $2.8 million to cover the costs associated with converting five hotels to Westins. MANAGEMENT OBLIGATIONS OF WESTERN HOST In connection with the settlement of shareholder litigation, Messrs. Ronald A. Young and John F. Rothman caused each of the Western Host Partnerships (other than Western Host Santa Maria Partners) to terminate management obligations with the Corporation's subsidiary, Western Host, Inc. ("Western Host"); with respect to that partnership's hotel, indemnified the Corporation and Western Host against all claims that might be made against Western Host in connection with its status as a general partner of Western Host Santa Maria Partners, Western Host Pasadena Partners and Western Host San Francisco Partners or in connection with any fact or circumstance occurring since January 1, 1993 with respect to any of the Western Host hotels, and delivered to the Corporation an irrevocable letter of credit in the amount of $800,000. Western Host agreed to accept the termination of its management obligations with respect to the Western Host hotels and has drawn on the letter of credit for the full $800,000. In addition, $120,000 of the management fees and all costs and amounts advanced to the partnerships which were payable to Western Host were paid in full settlement of such amounts due at December 31, 1993. Messrs. Young and Rothman also agreed to be responsible for a percentage of any retroactive adjustments in worker's compensation insurance premiums. Starwood Lodging paid $167,041 for retroactive worker's compensation insurance premiums and sought reimbursement from Messrs. Young and Rothman of their share of that amount (approximately an aggregate of $56,000). In October 1995, the Corporation commenced litigation against Messrs. Young and Rothman to collect such amounts (Starwood Lodging Corporation Corp. v. Ronald A. Young et al., San Diego Superior Court Case No. 693822). In April 1996, the Corporation settled such litigation and released Messrs. Young and Rothman and their respective affiliates with respect to premiums paid in 1995 in exchange for the payment of $40,655, including $5,000 in attorneys' fees. ROSS AGREEMENT In November, 1994, Starwood Capital entered into the Ross Agreement in settlement of the threatened litigation by Ross and provided for an assignment to Starwood Capital of Ross's claims. See Item 3 "Legal Proceedings" of this Joint Annual Report. 49 54 EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS For information with respect to the employment agreements of Messrs. Danziger, Darnall, Goldman and Brown, see Item 11 "Employment Agreements with Executive Officers" of this Joint Annual Report. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (A) DOCUMENTS FILED. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The financial statements and financial statements schedules listed in the Index to Financial Statements and Financial Statements Schedules following the signature pages hereof are filed as part of this Joint Annual Report.
EXHIBIT NO. DESCRIPTION OF EXHIBIT - ----------- ---------------------------------------------------------------------------------- 2.1 Formation Agreement dated as of November 11, 1994 among the Trust, the Corporation, Starwood Capital and the Starwood Partners (incorporated by reference to Exhibit 2 to the Trust's and the Corporation's Joint Current Report on Form 8-K dated November 16, 1994).(2) 2.2 Form of Amendment No. 1 to Formation Agreement among the Trust, the Corporation and the Starwood Partners (incorporated by reference to Exhibit 10.23 to the Trust's and the Corporation's Registration Statement on Form S-2 filed with the Securities and Exchange Commission (Registration Nos. 33-59155 and 33-59155-01) (the "S-2 Registration Statement")). 3.1 Amended and Restated Declaration of Trust of the Trust dated June 6, 1988, as amended (incorporated by reference to Exhibit 3A to the Trust's and the Corporation's Joint Current Report on Form 8-K dated January 31, 1995). 3.2 Amendment and Restatement of Articles of Incorporation of the Corporation (incorporated by reference to Exhibit 3B to the Trust's and the Corporation's Joint Current Report on Form 8-K dated January 31, 1995). 3.3 Trustees' Regulations of the Trust, as amended (incorporated by reference to Exhibit 3.3 to the Trust's and the Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1994 (the "1994 Form 10-K")). 3.4 By-laws of the Corporation, as amended (incorporated by reference to Exhibit 3.4 to the 1994 Form 10-K). 4.1 Pairing Agreement dated June 25, 1986, between the Trust and the Corporation, as amended (incorporated by reference to Exhibit 4.1 to the 1994 Form 10-K). 4.2 Amendment No. 1 to the Pairing Agreement dated as of February 1, 1995 between the Trust and the Corporation (incorporated by reference to Exhibit 4.2 to the Trust's and the Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1995 (the "1995 Form 10-K")). 4.3 Form of Warrant Agreement dated as of September 16, 1986, between the Trust and City National Bank ("CNB") (incorporated by reference to Exhibit 4.3 to the Trust's and the Corporation's Registration Statement on Form S4 (the "S-4 Registration Statement") filed with the Securities and Exchange Commission (the "SEC") on August 1, 1986 (Registration No. 33-7694)). 4.4 Form of Warrant Agreement dated as of September 16, 1986, between the Corporation and CNB (incorporated by reference to Exhibit 4.3A to the S-4 Registration Statement). 10.1 Incentive and Non-Qualified Share Option Plan (1986) of the Trust (incorporated by reference to Exhibit 10.8 to the Trust and the Corporation's Joint Annual Report on Form 10-K for the year ended August 31, 1986 (the "1986 Form 10-K")).(3) 10.2 Corporation Stock Non-Qualified Stock Option Plan (1986) of the Trust (incorporated by reference to Exhibit 10.9 to the 1986 Form 10-K).(3)
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EXHIBIT NO. DESCRIPTION OF EXHIBIT - ----------- ---------------------------------------------------------------------------------- 10.3 Stock Option Plan (1986) of the Corporation (incorporated by reference to Exhibit 10.10 to the 1986 Form 10-K).(3) 10.4 Trust Shares Option Plan (1986) of the Corporation (incorporated by reference to Exhibit 10.11 to the 1986 Form 10-K).(3) 10.5 1995 Share Option Plan of the Trust (incorporated by reference to Exhibit 10.5 to the 1995 Form 10-K).(3) 10.6 1995 Share Option Plan of the Corporation (incorporated by reference to Exhibit 10.6 to the 1995 Form 10-K).(3) 10.7 Starwood Lodging Trust 1995 Long-Term Incentive Plan (Amended and Restated as of August 12, 1996) (incorporated by reference to Exhibit A to the Trust's and the Corporation's Joint Proxy Statement dated November 25, 1996 (the "1996 Proxy")).(3) 10.8 Starwood Lodging Corporation 1995 Long-Term Incentive Plan (Amended and Restated as of August 12, 1996) (incorporated by reference to Exhibit B to the 1996 Proxy).(3) 10.9 Form of Indemnification Agreement and Amendment No. 1 to Indemnification Agreement between the Trust and each of Messrs. Barry S. Sternlicht, Jeffrey C. Lapin, Jonathan Eilian, Michael W. Mooney, Bruce M. Ford, Madison F. Grose, Bruce W. Duncan, Steven R. Quazzo, William E. Simms, Daniel H. Stern, Steven R. Goldman, Gary M. Mendell, Roger S. Pratt and Ronald C. Brown (incorporated by reference to Exhibit 10.7 to the 1995 Form 10-K).(3) 10.10 Form of Indemnification Agreement and Amendment No. 1 to Indemnification Agreement between the Corporation and each of Messrs. Earle F. Jones, Kevin E. Mallory, Bruce M. Ford, Steven R. Goldman, Graeme W. Henderson, Barry S. Sternlicht, Jean-Marc Chapus, Jonathan Eilian, Michael A. Leven, Daniel W. Yih, Eric A. Danziger and Alan M. Schnaid (incorporated by reference to Exhibit 10.8 to the 1995 Form 10-K).(3) 10.11 Form of Indemnification Agreement dated as of February 3, 1992, between the Corporation and each of Messrs. Ronald A. Young, Graeme W. Henderson, Bruce M. Ford, Earle M. Jones and William H. Ling (incorporated by reference to Exhibit 10.30 to the Trust's and the Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1991).(3) 10.12 Executive Employment Agreement dated as of January 31, 1995, between the Trust and Jeffrey C. Lapin (incorporated by reference to Exhibit 10.12 to the 1994 Form 10-K).(3) 10.13 Separation Agreement between the Trust and Jeffrey C. Lapin dated June 18, 1996 (incorporated by reference to Exhibit 10.5 to the Trust's and the Corporation's Joint Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996 (the "Second Quarter 10-Q")).(3) 10.14 Employment Agreement between the Corporation and Theodore W. Darnall dated April 19, 1996 (incorporated by reference to Exhibit 10.3 to the Second Quarter 10-Q).(3) 10.15 Employment Agreement between the Corporation and Eric A. Danziger dated June 27, 1996 (incorporated by reference to Exhibit 10.4 to the Second Quarter 10-Q).(3) 10.16 Form of Amended and Restated Lease Agreement entered into as of January 1, 1993, between the Trust as Lessor and the Corporation (or a subsidiary) as Lessee (incorporated by reference to Exhibit 10.19 to the Trust's and the Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1992). 10.17 Exchange Rights Agreement dated as of January 1, 1995 among the Trust, the Corporation, the Realty Partnership, the Operating Partnership and the Starwood Partners (incorporated by reference to Exhibit 2B to the Trust's and the Corporation's Joint Current Report on Form 8-K dated January 31, 1995). 10.18 Exchange Rights Agreement dated June 3, 1996 (incorporated by reference to Exhibit 10.1 to the Second Quarter 10-Q). 10.19 Registration Rights Agreement dated as of January 1, 1995 among the Trust, the Corporation and Starwood Capital (incorporated by reference to Exhibit 2C to the Trust's and the Corporation's Joint Current Report on Form 8-K dated January 31, 1995).
51 56
EXHIBIT NO. DESCRIPTION OF EXHIBIT - ----------- ---------------------------------------------------------------------------------- 10.20 Registration Rights Agreement dated June 3, 1996 (incorporated by reference to Exhibit 10.2 to the Second Quarter 10-Q). 10.21 Amended and Restated Limited Partnership Agreement for the Realty Partnership among the Trust and the Starwood Partners dated as of December 15, 1994 (incorporated by reference to Exhibit 10.21 to the S-2 Registration Statement. 10.22 Amendment to the Amended and Restated Limited Partnership Agreement for the Realty Partnership among the Trust and the Starwood Partners dated as of May 14, 1996. 10.23 Amended and Restated Limited Partnership Agreement for the Operating Partnership among the Corporation and the Starwood Partners dated as of December 15, 1994 (incorporated by reference to Exhibit 10.22 to the S-2 Registration Statement). 10.24 Amendment to the Amended and Restated Limited Partnership Agreement for the Operating Partnership among the Corporation and the Starwood Partners dated as of May 14, 1996. 10.25 Mortgage Loan Funding Facility Agreement, dated as of July 25, 1995, among the Realty Partnership and SLT Realty Company, LLC, as the borrower, and Lehman Commercial Paper, Inc., as lender, together with Amendment No. 1 thereto, dated as of October 30, 1995 (incorporated by reference to Exhibit 10.16 to the 1995 Form 10-K). 10.26 Collateral Substitution Agreement, dated as of January 4, 1996, between the Realty Partnership and SLT Realty Company, LLC, as borrower, and Lehman Commercial Paper, Inc., as lender (incorporated by reference to Exhibit 10.17 to the 1995 Form 10-K). 10.27 Amended and Restated Line of Credit Agreement, dated as of October 25, 1995, among the Trust and the Realty Partnership, as borrower, and Bankers Trust Company, as collateral agent, and Lehman Brothers Holdings, Inc., d/b/a Lehman Capital, a division of Lehman Brothers Holdings, Inc., individually and as agent, together with First Amendment thereto, dated as of January 3, 1996 and effective as of October 25, 1995 (incorporated by reference to Exhibit 10.18 to the 1995 Form 10-K). 10.28 Form of Westin/HOT Agreement among W&S Hotel L.L.C., W&S Hotel Holding Corp., Westin Hotel Company, the Realty Partnership, the Operating Partnership, WHWE L.L.C. and Woodstar Limited Partnership (incorporated by reference to Exhibit 10.24 to the S-2 Registration Statement). 10.29 Asset Purchase Agreement dated as of May 3, 1996 (effective May 14, 1996) (incorporated by reference to Exhibit 10.6 to the Second Quarter 10-Q). 10.30 Asset Purchase Agreement dated as of March 25, 1996 (effective July 3, 1996) (incorporated by reference to Exhibit 10.7 to the Second Quarter 10-Q). 10.31 Amended and Restated Loan Agreement dated as of April 26, 1996, among the Realty Partnership, CP Hotel Realty Limited Partnership, Midland Building Corporation, the Trust and Lehman Brothers Holdings, Inc., d/b/a Lehman Capital, a division of Lehman Brothers Holdings, Inc. 10.32 Letter dated July 16, 1996 from Lehman Brothers Holdings, Inc. agreeing to extension of the Mortgage Facility to July, 1997. 10.33 Loan agreement, dated as of August 16, 1996, between the SLT Realty Limited Partnership and Starwood Lodging Trust, as the borrower, and Goldman Sachs Mortgage Company, as the lender. 10.34 Mortgage and Security Agreement dated May 22, 1996 made by Saunstar Land Co., LLC, as Fee Mortgagor and Saunstar Operating Co., LLC, as Leasehold Mortgagor to Life Insurance Company of Georgia.
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EXHIBIT NO. DESCRIPTION OF EXHIBIT - ----------- ---------------------------------------------------------------------------------- 10.35 Loan agreement dated as of September 19, 1996 by and among the Sumitomo Trust and Banking Co., LTD, as lender and Emstar Realty LLC, as borrower and Starwood Lodging Trust, Starwood Lodging Corporation and SLT Realty Limited Partnership, as guarantors. 21. Subsidiaries of the Corporation.
STATE OF ENTITY INCORPORATION/ORGANIZATION --------------------------------------------------------- -------------------------- Alstar Operating LLC..................................... New York Columbus Operators, Inc.................................. Ohio Emstar Operating LLC..................................... New York Hotel Investors Corporation of Nevada.................... Nevada Hotel Investors of Arizona, Inc.......................... Arizona Hotel Investors of Michigan, Inc......................... Michigan Hotel Investors of Nebraska, Inc......................... Nebraska Hotel Investors of Virginia, Inc......................... Virginia Lyntex Properties, Inc................................... Delaware Midland Building Corporation............................. Illinois Midland Holding Corporation.............................. Illinois Midland Hotel Corporation................................ Illinois Milwaukee Brookfield LP.................................. Wisconsin Moorland Hotel LP........................................ Wisconsin Omaha Operators, Inc..................................... Maryland Operating Philadelphia LLC............................... Delaware Saunstar Operating Co. LLC............................... Delaware Scoops, Inc.............................................. Kansas SLC Allentown LLC........................................ Delaware SLC Arlington LLC........................................ Delaware SLC Atlanta II LLC....................................... Delaware SLC Atlanta LLC.......................................... Delaware SLC Bloomington LLC...................................... Delaware SLC Calverton LP......................................... Delaware SLC Dania LLC............................................ Delaware SLC Kansas City LLC...................................... Delaware SLC Los Angeles LLC...................................... Delaware SLC Minneapolis LLC...................................... Delaware SLC Needham LLC.......................................... Delaware SLC Operating LP......................................... Delaware SLC Palm Desert LLC...................................... Delaware SLC San Diego LLC........................................ Delaware SLC St. Louis LLC........................................ Delaware SLC Tucson LLC........................................... Delaware SLC Waltham LLC.......................................... Delaware SLC Westwood Operating LLC............................... Delaware SLC Winston-Salem LLC.................................... Delaware Western Host, Inc........................................ California
53 58 22. Subsidiaries of the Trust.
STATE OF ENTITY INCORPORATION/ORGANIZATION --------------------------------------------------------- -------------------------- Alstar Realty LLC........................................ New York CP Hotel Realty LP....................................... Maryland Emstar Realty LLC........................................ Delaware Omaha Hotel Venture LP................................... Maryland Saunstar Land Co. LLC.................................... Delaware SLT Allentown LLC........................................ Delaware SLT Arlington LLC........................................ Delaware SLT Bloomington LLC...................................... Delaware SLT Dania LLC............................................ Delaware SLT Financing Partnership LLC............................ Delaware SLT Kansas City LLC...................................... Delaware SLT Los Angeles LLC...................................... Delaware SLT Minneapolis LLC...................................... Delaware SLT Palm Desert LLC...................................... Delaware SLT Philadelphia LLC..................................... Delaware SLT Realty Co. LLC....................................... Delaware SLT Realty LP............................................ Delaware SLT San Diego LLC........................................ Delaware SLT St Louis LLC......................................... Delaware SLT Tucson LLC........................................... Delaware SLT Westwood Realty LLC.................................. Delaware SLT Winston-Salem LLC.................................... Delaware Starlex LLC.............................................. Delaware Starwood Atlanta II LLC.................................. Delaware Starwood Atlanta LLC..................................... Delaware Starwood Needham LLC..................................... Delaware Starwood Waltham LLC..................................... Delaware
23.1 Consent of Coopers & Lybrand L.L.P. 23.2 Consent of Deloitte & Touche LLP 27. Financial Data Schedule. - --------------- (2) The Securities and Exchange Commission file numbers of all filings made pursuant to the Securities Act of 1934, as amended, and referenced herein are: 1-6828 (Starwood Lodging Trust) and 1-7959 (Starwood Lodging Corporation). (3) Management contract or compensatory plan or arrangement required to be filed as an exhibit hereto pursuant to Item 14(c) of Form 10-K. (b) Reports on Form 8-K. During the fourth quarter of 1996, the Trust and the Corporation filed the following Joint Current Report on Form 8-K: The Trust and Corporation filed a Joint Current Report on Form 8-K on December 5, 1996, to report a three-for-two stock split in the form of a 50% stock dividend effective January 27, 1997. 54 59 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. STARWOOD LODGING TRUST (Registrant) By: /s/ RONALD C. BROWN ------------------------------------ Ronald C. Brown, Senior Vice President Date: March 11, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ---------------------------------------- ------------------------------------ --------------- /s/ BARRY S. STERNLICHT Chairman, Chief Executive Officer March 11, 1997 - ---------------------------------------- and Trustee (Principal Executive Barry S. Sternlicht Officer) /s/ GARY M. MENDELL President and Trustee March 11, 1997 - ---------------------------------------- Gary M. Mendell /s/ RONALD C. BROWN Senior Vice President and Chief March 11, 1997 - ---------------------------------------- Financial Officer (Principal Ronald C. Brown Financial and Accounting Officer) /s/ STEVEN R. GOLDMAN Senior Vice President and Trustee March 11, 1997 - ---------------------------------------- Steven R. Goldman /s/ BRUCE W. DUNCAN Trustee March 11, 1997 - ---------------------------------------- Bruce W. Duncan /s/ MADISON F. GROSE Trustee March 11, 1997 - ---------------------------------------- Madison F. Grose /s/ ROGER S. PRATT Trustee March 11, 1997 - ---------------------------------------- Roger S. Pratt /s/ STEPHEN R. QUAZZO Trustee March 11, 1997 - ---------------------------------------- Stephen R. Quazzo /s/ WILLIAM E. SIMMS Trustee March 11, 1997 - ---------------------------------------- William E. Simms /s/ DANIEL H. STERN Trustee March 11, 1997 - ---------------------------------------- Daniel H. Stern
55 60 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. STARWOOD LODGING CORPORATION (Registrant) Date: March 11, 1997 By: /s/ ALAN M. SCHNAID ------------------------------------ Alan M. Schnaid, Vice President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ---------------------------------------- ------------------------------------ --------------- /s/ EARLE F. JONES Chairman of the Board of Directors March 11, 1997 - ---------------------------------------- and Director Earle F. Jones /s/ ERIC A. DANZIGER President and Chief Executive March 11, 1997 - ---------------------------------------- Officer (Principal Executive Eric A. Danziger Officer and Director) /s/ THEODORE W. DARNALL Executive Vice President and Chief March 11, 1997 - ---------------------------------------- Operating Officer Theodore W. Darnall /s/ ALAN M. SCHNAID Vice President and Corporate March 11, 1997 - ---------------------------------------- Controller (Principal Accounting Alan M. Schnaid Officer) /s/ JEAN-MARC CHAPUS Director March 11, 1997 - ---------------------------------------- Jean-Marc Chapus /s/ JONATHAN D. EILIAN Director March 11, 1997 - ---------------------------------------- Jonathan D. Eilian /s/ GRAEME W. HENDERSON Director March 11, 1997 - ---------------------------------------- Graeme W. Henderson /s/ MICHAEL A. LEVEN Director March 11, 1997 - ---------------------------------------- Michael A. Leven /s/ BARRY S. STERNLICHT Director March 11, 1997 - ---------------------------------------- Barry S. Sternlicht /s/ DANIEL W. YIH Director March 11, 1997 - ---------------------------------------- Daniel W. Yih
56 61 STARWOOD LODGING TRUST STARWOOD LODGING CORPORATION INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES AS OF DECEMBER 31, 1996 AND 1995 AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996 INDEPENDENT AUDITORS' REPORTS..................................................... F-1, F-2 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION: Combined Consolidated Balance Sheets............................................ F-3 Combined Consolidated Statements of Operations.................................. F-4 Combined Consolidated Statements of Cash Flows.................................. F-5 Combined Consolidated Statements of Shareholders' Equity........................ F-6 STARWOOD LODGING TRUST: Consolidated Balance Sheets..................................................... F-7 Consolidated Statements of Operations........................................... F-8 Consolidated Statements of Cash Flows........................................... F-9 Consolidated Statements of Shareholders' Equity................................. F-10 STARWOOD LODGING CORPORATION: Consolidated Balance Sheets..................................................... F-11 Consolidated Statements of Operations........................................... F-12 Consolidated Statements of Cash Flows........................................... F-13 Consolidated Statements of Shareholders' Equity................................. F-14 NOTES TO FINANCIAL STATEMENTS..................................................... F-15 SCHEDULES: Schedule III -- Real Estate and Accumulated Depreciation........................ F-38 Schedule IV -- Mortgage Loans on Real Estate.................................... F-44
62 INDEPENDENT AUDITOR'S REPORT To the Boards of Trustees and Directors and Shareholders of Starwood Lodging Trust and Starwood Lodging Corporation: We have audited the accompanying separate and combined financial statements and financial statement schedules of Starwood Lodging Trust (a Maryland real estate investment trust) and its subsidiaries (the "Trust") and Starwood Lodging Corporation (a Maryland corporation) and its subsidiaries (the "Corporation"), collectively the "Company", as of December 31, 1996 and 1995, and for each of the two years in the period ended December 31, 1996, listed in the foregoing index to financial statements and financial statement schedules. These financial statements and financial statement schedules are the responsibility of the Trust's and the Corporation's managements. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such separate and combined financial statements present fairly, in all material respects, the financial position of the Company and the financial position of the Trust and the Corporation at December 31, 1996 and 1995, and the respective results of their operations and their cash flows for each of the two years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. COOPERS & LYBRAND L.L.P. Phoenix, Arizona February 21, 1997 F-1 63 INDEPENDENT AUDITORS' REPORT To the Board of Trustees and Directors and Shareholders of Starwood Lodging Trust and Starwood Lodging Corporation: We have audited the accompanying separate and combined financial statements of Starwood Lodging Trust (a Maryland real estate investment trust) (the "Trust") and Starwood Lodging Corporation (a Maryland corporation) and its subsidiaries (the "Corporation"), collectively the "Company", for the year ended December 31, 1994, listed in the foregoing index to financial statements and financial statement schedules. Our audit also included the financial statements schedules listed in the foregoing index to financial statements and financial statement schedules. These financial statements and financial statement schedules are the responsibility of the Trust's, the Corporation's and the Company's managements. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such separate and combined financial statements present fairly, in all material respects, the results of operations and cash flows of the Company, the Trust and the Corporation, respectively, for the year ended December 31, 1994 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Los Angeles, California March 24, 1995 F-2 64 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION COMBINED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, DECEMBER 31, 1996 1995 ------------ ------------ ASSETS Hotel assets held for sale -- net.................................. $ 21,644 $ 21,063 Hotel assets -- net................................................ 1,100,030 315,895 ---------- --------- 1,121,674 336,958 Mortgage notes receivable -- net................................... 90,741 79,261 Investments........................................................ 948 2,858 ---------- --------- Total real estate investments...................................... 1,213,363 419,077 Cash and cash equivalents.......................................... 25,426 9,332 Accounts, interest and rent receivable............................. 43,278 9,595 Notes receivable -- net............................................ 2,930 1,796 Inventories, prepaid expenses and other assets..................... 27,743 20,194 ---------- --------- $1,312,740 $ 459,994 ========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Collateralized notes payable and revolving lines of credit......... $ 422,334 $ 119,100 Mortgage and other notes payable................................... 57,232 4,385 Accounts payable and other liabilities............................. 57,296 19,022 Distributions payable.............................................. 19,258 9,284 ---------- --------- 556,120 151,791 ---------- --------- Commitments and contingencies MINORITY INTEREST.................................................. 163,959 92,735 ---------- --------- SHAREHOLDERS' EQUITY Trust shares of beneficial interest at December 31, 1996 and 1995; $.01 par value; authorized 100,000,000 shares; outstanding 40,078,000 and 13,798,000 at December 31, 1996 and 1995, respectively..................................................... 401 138 Corporation common stock at December 31, 1996 and 1995; $.01 par value; authorized 100,000,000 shares; outstanding 40,078,000 and 13,798,000 at December 31, 1996 and 1995, respectively........... 401 138 Additional paid-in capital......................................... 827,760 434,107 Distributions in excess of earnings................................ (235,901) (218,915) ---------- --------- 592,661 215,468 ---------- --------- $1,312,740 $ 459,994 ========== =========
See accompanying notes to financial statements. F-3 65 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, ---------------------------------- 1996 1995 1994 -------- -------- -------- REVENUE Rooms...................................................... $260,175 $ 87,270 $ 56,387 Food and beverage.......................................... 94,816 26,609 21,603 Other...................................................... 30,119 7,371 4,678 -------- -------- -------- Total hotel revenue.............................. 385,110 121,250 82,668 Gaming..................................................... 23,630 26,929 27,981 Interest from mortgage and other notes..................... 11,262 10,905 1,554 Rents from leased hotel properties and income from investments.............................................. 822 791 927 Management fees and other income........................... 3,424 1,966 411 Gain (loss) on sales of real estate investments............ 4,290 (125) 456 -------- -------- -------- 428,538 161,716 113,997 -------- -------- -------- EXPENSES Rooms...................................................... 67,017 37,121 25,177 Food and beverage.......................................... 72,696 19,520 16,364 Other...................................................... 135,302 28,376 19,288 -------- -------- -------- Total hotel expenses............................. 275,015 85,017 60,829 Gaming expenses............................................ 21,834 24,242 24,454 Interest................................................... 23,337 13,138 17,606 Depreciation and amortization.............................. 55,745 15,469 8,161 Administrative and general................................. 16,495 5,712 4,203 Shareholder litigation..................................... -- -- 2,648 Provision for losses....................................... -- -- 759 -------- -------- -------- 392,426 143,578 118,660 -------- -------- -------- Income (loss) before minority interest and extraordinary items.................................................... 36,112 18,138 (4,663) Minority interest.......................................... 10,238 7,013 -- -------- -------- -------- Income (loss) before extraordinary items................... 25,874 11,125 (4,663) Extraordinary items due to early extinguishment of debt (net of $413,000 and $163,000 minority interest in 1996 and 1995, respectively).................................. 1,077 (2,155) -- -------- -------- -------- NET INCOME (LOSS)................................ $ 26,951 $ 8,970 $ (4,663) ======== ======== ======== EARNINGS (LOSS) PER PAIRED SHARE Income (loss) before extraordinary items................... $ 0.86 $ 0.95 $ (1.53) Extraordinary items........................................ 0.04 (0.18) -- -------- -------- -------- NET INCOME (LOSS) PER PAIRED SHARE............... $ 0.90 $ 0.77 $ (1.53) ======== ======== ======== Weighted Average Number of Paired Shares......... 29,884 11,657 3,033 ======== ======== ========
See accompanying notes to financial statements. F-4 66 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------------ 1996 1995 1994 --------- --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)........................................ $ 26,951 $ 8,970 $ (4,663) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Minority interest...................................... 10,238 7,013 -- Extraordinary items due to early extinguishment of debt................................................ (1,077) 2,155 -- Depreciation and amortization.......................... 55,745 15,469 8,161 Accretion of discount.................................. (3,140) (3,285) -- Deferred interest...................................... -- 649 3,610 (Gain) loss on sales of real estate investments........ (4,290) 125 (456) Provision for doubtful accounts........................ 1,044 470 -- Provision for losses................................... -- -- 759 Changes in operating assets and liabilities: Increase in accounts receivable, inventories, prepaid expenses, and other assets.......................... (46,676) (21,805) (86) Increase in accounts payable and other liabilities..... 35,372 6,650 1,568 --------- --------- -------- Net cash provided by operating activities...... 74,167 16,411 8,893 --------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of hotel properties.......................... (720,969) (160,880) -- Improvements and additions to hotel assets............... (27,775) (5,331) (2,941) Purchase of investments.................................. (1,871) -- -- Sales of investments..................................... 3,764 -- -- Net proceeds from sales of hotel and gaming assets....... 21,991 -- 12,536 Purchase of mortgage and other notes receivable.......... (25,206) (19,795) (6,270) Principal received on mortgage and other notes receivable............................................. 3,266 6,825 2,451 Reorganization costs..................................... -- (2,814) (1,287) --------- --------- -------- Net cash provided by (used in) investing activities................................... (746,800) (181,995) 4,489 --------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings under collateralized notes payable and revolving lines of credit.............................. 367,561 119,100 -- Borrowings under mortgage and other notes payable........ 3,497 9,637 6,000 Payments on collateralized notes payable and revolving lines of credit........................................ (64,327) (102,899) (18,516) Principal payments on mortgage and other notes payable... (1,535) (104,722) (1,498) Net proceeds from equity offerings....................... 429,618 245,701 -- Contributed capital...................................... 131 13,599 -- Distributions paid....................................... (46,218) (9,265) -- Purchase of warrants..................................... -- (1,300) -- Principal received on share purchase notes............... -- -- 45 --------- --------- -------- Net cash provided by (used in) financing activities................................... 688,727 169,851 (13,969) --------- --------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......... 16,094 4,267 (587) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD................................................. 9,332 5,065 5,652 --------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF THE PERIOD........... $ 25,426 $ 9,332 $ 5,065 ========= ========= ========
See accompanying notes to financial statements. F-5 67 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION COMBINED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
TRUST SHARES OF CORPORATION ADDITIONAL SHARE DISTRIBUTIONS TOTAL BENEFICIAL COMMON PAID-IN PURCHASE IN EXCESS OF SHAREHOLDERS' INTEREST STOCK CAPITAL NOTES EARNINGS EQUITY --------- ----------- ---------- -------- ------------- ------------ Balance January 1, 1994................ $ 12,133 $ 1,213 $210,497 $ (291) $(210,226) $ 13,326 Principal payments and reductions of share purchase notes............... -- -- (246) 291 -- 45 Net loss............................. -- -- -- -- (4,663) (4,663) -------- ------- -------- ----- --------- -------- Balance December 31, 1994.............. 12,133 1,213 210,251 -- (214,889) 8,708 Decrease in par value to $0.01....... (12,012) (1,092) 13,104 -- -- -- One-for-six reverse stock split...... (101) (101) 202 -- -- -- Contributed capital.................. -- -- 59,120 -- -- 59,120 Equity offering...................... 118 118 245,465 -- -- 245,701 Minority interest.................... -- -- (92,735) -- -- (92,735) Net income........................... -- -- -- -- 8,970 8,970 Distributions........................ -- -- -- -- (12,996) (12,996) Warrant purchase..................... -- -- (1,300) -- -- (1,300) -------- ------- -------- ----- --------- -------- Balance December 31, 1995.............. 138 138 434,107 -- (218,915) 215,468 Contributed capital.................. -- -- 7,783 -- -- 7,783 Three-for-two stock split............ 135 135 (270) -- -- -- Equity offerings..................... 128 128 429,362 -- -- 429,618 Net income........................... -- -- -- -- 26,951 26,951 Distributions........................ -- -- -- -- (43,937) (43,937) Change in minority interest.......... -- -- (43,222) -- -- (43,222) -------- ------- -------- ----- --------- -------- Balance December 31, 1996.............. $ 401 $ 401 $827,760 $ -- $(235,901) $592,661 ======== ======= ======== ===== ========= ========
See accompanying notes to financial statements. F-6 68 STARWOOD LODGING TRUST CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
DECEMBER DECEMBER 31, 31, 1996 1995 ---------- --------- ASSETS Hotel assets held for sale -- net................................... $ 12,615 $ 20,547 Hotel assets -- net................................................. 988,309 221,063 ---------- --------- 1,000,924 241,610 Mortgage notes receivable -- net.................................... 90,741 79,261 Mortgage notes receivable -- Corporation............................ 88,077 68,486 Investments......................................................... 948 2,841 ---------- --------- Total real estate investments............................. 1,180,690 392,198 Cash and cash equivalents........................................... 3,810 710 Rent and interest receivable........................................ 12,617 1,841 Notes receivable -- net............................................. 2,237 1,232 Notes receivable -- Corporation..................................... 17,741 17,978 Prepaid expenses and other assets................................... 16,271 11,778 ---------- --------- $1,233,366 $ 425,737 ========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Collateralized notes payable and revolving lines of credit.......... $ 422,334 $ 119,100 Mortgage and other notes payable.................................... 55,269 100 Accounts payable and other liabilities.............................. 9,200 4,412 Distributions payable............................................... 19,258 9,284 ---------- --------- 506,061 132,896 ---------- --------- Commitments and contingencies MINORITY INTEREST................................................... 158,005 88,113 ---------- --------- SHAREHOLDERS' EQUITY Trust shares of beneficial interest at December 31, 1996 and 1995; $.01 par value; authorized 100,000,000 shares; outstanding 40,078,000 and 13,798,000 at December 31, 1996 and 1995, respectively...................................................... 401 138 Additional paid-in capital.......................................... 729,276 354,619 Distributions in excess of earnings................................. (160,377) (150,029) ---------- --------- 569,300 204,728 ---------- --------- $1,233,366 $ 425,737 ========== =========
See accompanying notes to financial statements. F-7 69 STARWOOD LODGING TRUST CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, -------------------------------- 1996 1995 1994 -------- ------- ------- REVENUE Rents from Corporation....................................... $ 87,593 $26,730 $16,906 Interest from Corporation.................................... 9,084 4,761 1,730 Interest from mortgage and other notes....................... 11,262 10,792 1,512 Rents from other leased hotel properties and income from joint ventures............................................. 822 791 927 Other income................................................. 2,008 1,074 164 Gain (loss) on sales of real estate investments.............. 4,290 (125) 432 -------- ------- ------- 115,059 44,023 21,671 -------- ------- ------- EXPENSES Interest..................................................... 23,088 12,429 16,265 Depreciation and amortization................................ 42,517 8,977 5,205 Administrative and general................................... 4,134 2,439 1,583 Shareholder litigation....................................... -- -- 1,324 Provision for losses......................................... -- -- 759 -------- ------- ------- 69,739 23,845 25,136 -------- ------- ------- Income (loss) before minority interest and extraordinary items...................................................... 45,320 20,178 (3,465) Minority interest............................................ 11,731 7,314 -- -------- ------- ------- Income (loss) before extraordinary items..................... 33,589 12,864 (3,465) Extraordinary items due to early extinguishment of debt (net of $163,000 minority interest)............................. -- (2,155) -- -------- ------- ------- NET INCOME (LOSS).................................. $ 33,589 $10,709 $(3,465) ======== ======= ======= EARNINGS (LOSS) PER SHARE Income (loss) before extraordinary items..................... $ 1.12 $ 1.10 $ (1.14) Extraordinary items.......................................... -- (0.18) -- -------- ------- ------- NET INCOME (LOSS) PER SHARE........................ $ 1.12 $ 0.92 $ (1.14) ======== ======= ======= Weighted Average Number of Shares.................. 29,884 11,657 3,033 ======== ======= =======
See accompanying notes to financial statements. F-8 70 STARWOOD LODGING TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------------- 1996 1995 1994 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)....................................... $ 33,589 $ 10,709 $ (3,465) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Minority interest..................................... 11,731 7,314 -- Extraordinary items due to early extinguishment of debt............................................... -- 2,155 -- Depreciation and amortization......................... 42,517 8,977 5,205 Accretion of discount................................. (3,140) (3,285) -- Deferred interest..................................... -- 649 3,610 Deferred interest -- Corporation...................... (2,055) -- -- (Gain) loss on sales of real estate investments....... (4,290) 125 (432) Provision for losses.................................. -- -- 759 Changes in operating assets and liabilities: Increase in rent and interest receivable, prepaid expenses and other assets.......................... (18,649) (17,056) (1,784) Increase in accounts payable and other liabilities.... 1,886 1,679 562 --------- --------- --------- Net cash provided by operating activities..... 61,589 11,267 4,455 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of hotel properties......................... (699,438) (118,896) -- Improvements and additions to hotel assets.............. (15,661) (4,660) (2,270) Purchase of investments................................. (1,871) -- -- Sales of investments.................................... 3,764 -- -- Net proceeds from sales of hotel and gaming assets...... 21,991 -- 11,719 Purchase of mortgage and other notes receivable......... (25,012) (19,795) (6,270) Purchase of mortgage notes receivable -- Corporation.... (18,216) -- -- Principal received on mortgage and other notes receivable............................................ 3,201 6,766 2,382 Reorganization costs.................................... -- (1,407) (1,287) Net change in notes receivable -- Corporation........... 4,815 (37,514) 3,965 --------- --------- --------- Net cash provided by (used in) investing activities.................................. (726,427) (175,506) 8,239 --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings under collateralized notes payable and revolving lines of credit............................. 367,561 119,100 -- Borrowings under mortgage and other notes payable....... 2,829 9,637 6,000 Payments on collateralized notes payable and revolving lines of credit....................................... (64,327) -- -- Principal payments on mortgage and other notes payable............................................... (35) (198,158) (19,402) Net proceeds from equity offerings...................... 408,000 233,418 -- Contributed capital..................................... 128 11,197 -- Distributions paid...................................... (46,218) (9,265) Purchase of warrants.................................... -- (1,235) -- Principal received on share purchase notes.............. -- -- 45 --------- --------- --------- Net cash provided by (used in) financing activities.................................. 667,938 164,694 (13,357) --------- --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 3,100 455 (663) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD................................................ 710 255 918 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF THE PERIOD.......... $ 3,810 $ 710 $ 255 ========= ========= =========
See accompanying notes to financial statements. F-9 71 STARWOOD LODGING TRUST CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
TRUST SHARES OF ADDITIONAL SHARE DISTRIBUTIONS TOTAL BENEFICIAL PAID-IN PURCHASE IN EXCESS OF SHAREHOLDERS' INTEREST CAPITAL NOTES EARNINGS EQUITY -------- ---------- -------- ------------ ----------------- Balance January 1, 1994................... $ 12,133 $ 204,640 $ (291) $ (144,277) $ 72,205 Forgiveness of intercompany debt.......... -- (58,335) -- -- (58,335) Principal payments and reductions of share purchase notes from............ -- (246) 291 -- 45 Net loss................................ -- -- -- (3,465) (3,465) -------- -------- ----- --------- -------- Balance December 31, 1994................. 12,133 146,059 -- (147,742) 10,450 Decrease in par value to $0.01.......... (12,012) 12,012 -- -- -- One-for-six reverse stock split......... (101) 101 -- -- -- Contributed capital..................... -- 52,495 -- -- 52,495 Equity offering......................... 118 233,300 -- -- 233,418 Minority interest....................... -- (88,113) -- -- (88,113) Net income.............................. -- -- -- 10,709 10,709 Distributions........................... -- -- -- (12,996) (12,996) Warrant purchase........................ -- (1,235) -- -- (1,235) -------- -------- ----- --------- -------- Balance December 31, 1995................. 138 354,619 -- (150,029) 204,728 Contributed capital..................... -- 7,780 -- 7,780 Three-for-two stock split............... 135 (135) -- -- -- Equity offerings........................ 128 407,872 -- -- 408,000 Net income.............................. -- -- -- 33,589 33,589 Distributions........................... -- -- -- (43,937) (43,937) Change in minority interest............. -- (40,860) -- -- (40,860) -------- -------- ----- --------- -------- Balance December 31, 1996................. $ 401 $ 729,276 $ -- $ (160,377) $ 569,300 ======== ======== ===== ========= ========
See accompanying notes to financial statements. F-10 72 STARWOOD LODGING CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, DECEMBER 31, 1996 1995 ------------ ------------ ASSETS Hotel assets held for sale -- net.................................. $ 9,029 $ 516 Hotel assets -- net................................................ 111,721 94,832 -------- -------- Total real estate investments................................. 120,750 95,348 Cash and cash equivalents.......................................... 21,616 8,622 Accounts receivable................................................ 30,661 7,754 Notes receivable................................................... 693 564 Inventories, prepaid expenses and other assets..................... 11,472 8,433 -------- -------- $ 185,192 $ 120,721 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Mortgage and other notes payable................................... $ 1,963 $ 4,285 Mortgage notes payable -- Trust.................................... 88,077 68,486 Notes payable -- Trust............................................. 17,741 17,978 Accounts payable and other liabilities............................. 48,096 14,610 -------- -------- 155,877 105,359 -------- -------- Commitments and contingencies MINORITY INTEREST.................................................. 5,954 4,622 -------- -------- SHAREHOLDERS' EQUITY Corporation common stock at December 31, 1996 and 1995; $.01 par value; authorized 100,000,000 shares; outstanding 40,078,000 and 13,798,000 at December 31, 1996 and 1995, respectively........... 401 138 Additional paid-in capital......................................... 98,484 79,488 Distributions in excess of earnings................................ (75,524) (68,886) -------- -------- 23,361 10,740 -------- -------- $ 185,192 $ 120,721 ======== ========
See accompanying notes to financial statements. F-11 73 STARWOOD LODGING CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, ---------------------------------- 1996 1995 1994 -------- -------- -------- REVENUE Rooms...................................................... $260,175 $ 87,270 $ 56,387 Food and beverage.......................................... 94,816 26,609 21,603 Other...................................................... 30,119 7,371 4,678 -------- -------- -------- Total hotel revenue.............................. 385,110 121,250 82,668 Gaming..................................................... 23,630 26,929 27,981 Interest from notes receivable............................. -- 113 42 Management fees and other income........................... 1,416 892 247 Gain on sales of hotel assets.............................. -- -- 24 -------- -------- -------- 410,156 149,184 110,962 -------- -------- -------- EXPENSES Rooms...................................................... 67,017 37,121 25,177 Food and beverage.......................................... 72,696 19,520 16,364 Other...................................................... 135,302 28,376 19,288 -------- -------- -------- Total hotel expenses............................. 275,015 85,017 60,829 Gaming operations.......................................... 21,834 24,242 24,454 Rent -- Trust.............................................. 87,593 26,730 16,906 Interest -- Trust.......................................... 9,084 4,761 1,730 Interest -- other.......................................... 249 709 1,341 Depreciation and amortization.............................. 13,228 6,492 2,956 Administrative and general................................. 12,361 3,273 2,620 Shareholder litigation..................................... -- -- 1,324 -------- -------- -------- 419,364 151,224 112,160 -------- -------- -------- Loss before minority interest and extraordinary item....... (9,208) (2,040) (1,198) Minority interest.......................................... (1,493) (301) -- -------- -------- -------- Loss before extraordinary item............................. (7,715) (1,739) (1,198) Extraordinary item due to early extinguishment of debt (net of $413,000 minority interest)........................... 1,077 -- -- -------- -------- -------- NET LOSS......................................... $ (6,638) $ (1,739) $ (1,198) ======== ======== ======== LOSS PER SHARE Loss before extraordinary item............................. $ (0.26) $ (0.15) $ (0.39) Extraordinary item......................................... 0.04 -- -- -------- -------- -------- NET LOSS PER SHARE............................... $ (0.22) $ (0.15) $ (0.39) ======== ======== ======== Weighted Average Number of Shares.......................... 29,884 11,657 3,033 ======== ======== ========
See accompanying notes to financial statements. F-12 74 STARWOOD LODGING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, --------------------------------- 1996 1995 1994 -------- -------- ------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss.................................................... $ (6,638) $ (1,739) $(1,198) Adjustments to reconcile net loss to net cash provided by operating activities: Minority interest......................................... (1,493) (301) -- Extraordinary item due to early extinguishment of debt.... (1,077) -- -- Depreciation and amortization............................. 13,228 6,492 2,956 Deferred interest -- Trust................................ 2,055 -- -- Gain on sale.............................................. -- -- (24) Provision for doubtful accounts........................... 1,044 470 -- Changes in operating assets and liabilities: (Increase) decrease in accounts receivable, inventories, prepaid expenses and other assets...................... (28,027) (4,749) 1,698 Increase in accounts payable and other liabilities........ 33,486 4,971 1,006 -------- -------- ------- Net cash provided by operating activities......... 12,578 5,144 4,438 -------- -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of hotel properties............................. (21,531) (21,551) -- Improvements and additions to hotel assets.................. (12,114) (21,104) (671) Net proceeds from sales of hotel and gaming assets.......... -- -- 817 Purchase of notes receivable................................ (194) -- -- Principal received on notes receivable...................... 65 59 69 Reorganization costs........................................ -- (1,407) -- -------- -------- ------- Net cash provided by (used in) investing activities...................................... (33,774) (44,003) 215 -------- -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings under mortgage and other notes payable........... 668 -- -- Borrowings under mortgage notes payable -- Trust............ 18,216 -- -- Principal payments on mortgage and other notes payable...... (1,500) (9,463) (612) Net proceeds from equity offerings.......................... 21,618 12,283 -- Contributed capital......................................... 3 2,402 -- Purchase of warrants........................................ -- (65) -- Net change in notes payable -- Trust........................ (4,815) 37,514 (3,965) -------- -------- ------- Net cash provided by (used in) financing activities.... 34,190 42,671 (4,577) -------- -------- ------- INCREASE IN CASH AND CASH EQUIVALENTS....................... 12,994 3,812 76 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD.... 8,622 4,810 4,734 -------- -------- ------- CASH AND CASH EQUIVALENTS AT END OF THE PERIOD.............. $ 21,616 $ 8,622 $ 4,810 ======== ======== =======
See accompanying notes to financial statements. F-13 75 STARWOOD LODGING CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
CORPORATION ADDITIONAL DISTRIBUTIONS TOTAL COMMON PAID-IN IN EXCESS OF SHAREHOLDERS' STOCK CAPITAL EARNINGS EQUITY ----------- ---------- ------------ ------------- Balance January 1, 1994.................... $ 1,213 $ 5,857 $(65,949) $ (58,879) Forgiveness of intercompany debt........... -- 58,335 -- 58,335 Net loss................................. -- -- (1,198) (1,198) ------- ------- -------- -------- Balance December 31, 1994.................. 1,213 64,192 (67,147) (1,742) Decrease in par value to $0.01........... (1,092) 1,092 -- -- One-for-six reverse stock split.......... (101) 101 -- -- Contributed capital...................... -- 6,625 -- 6,625 Equity offering.......................... 118 12,165 -- 12,283 Minority interest........................ -- (4,622) -- (4,622) Net loss................................. -- -- (1,739) (1,739) Warrant purchase......................... -- (65) -- (65) ------- ------- -------- -------- Balance December 31, 1995.................. 138 79,488 (68,886) 10,740 Contributed capital...................... -- 3 -- 3 Three-for-two stock split................ 135 (135) -- -- Equity offerings......................... 128 21,490 -- 21,618 Net loss................................. -- -- (6,638) (6,638) Change in minority interest.............. -- (2,362) -- (2,362) ------- ------- -------- -------- Balance December 31, 1996.................. $ 401 $ 98,484 $(75,524) $ 23,361 ======= ======= ======== ========
See accompanying notes to financial statements F-14 76 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. General The accompanying financial statements include the accounts of Starwood Lodging Trust and its subsidiaries (the "Trust") and Starwood Lodging Corporation and its subsidiaries (the "Corporation"). The Trust was formed as a real estate investment trust ("REIT") under the Internal Revenue Code in 1969. In 1980, the Trust formed the Corporation and made a distribution to the Trust's shareholders of one share of common stock of the Corporation (a "Corporation Share") for each share of beneficial interest of the Trust (a "Trust Share"). Trust Shares and Corporation Shares are paired on a one-for-one basis, and may only be held or transferred in units ("Paired Shares") consisting one Trust Share and one Corporation Share. The combined consolidated financial statements include the accounts of the Trust and the Corporation (together, the "Company"). All material intercompany balances and transactions have been eliminated in the combined consolidated financial statements. The intercompany balances and transactions which have been eliminated in arriving at the combined balance sheets and combined statements of operations include the elimination of notes receivable from the Corporation recorded on the Trust's balance sheets, and the related notes payable to the Trust recorded on the Corporation's balance sheets. Rent and interest income recorded on the Trust's statements of operations are eliminated against the related rent and interest expense on the Corporation's statements of operations. The Company owns and operates primarily upscale hotels located throughout the United States and as of December 31, 1996, leases and operates one hotel/casino in Las Vegas, Nevada. The hotels range in size from 90 to 960 rooms and offer services to both business and leisure travelers. Reorganization Effective January 1, 1995 (the "Reorganization Date"), the Trust and the Corporation consummated a reorganization (the "Reorganization") with a predecessor of Starwood Capital Group, L.L.C. ("Starwood Capital"), and certain affiliates of Starwood Capital (together with Starwood Capital, the "Starwood Partners"). The Reorganization involved a number of related transactions that occurred simultaneously on the Reorganization Date. Such transactions included (i) the contribution by the Trust to SLT Realty Limited Partnership (the "Realty Partnership") of substantially all of the properties and assets of the Trust, at book value, subject to substantially all of the liabilities of the Trust (including the senior debt of the Trust), in exchange for an approximate 28.3% interest as general partner in the Realty Partnership, (ii) the contribution by the Starwood Partners to the Realty Partnership of approximately $12,600,000 in cash in addition to certain hotel properties and first mortgage notes, at book value, in exchange for limited partnership units representing the remaining approximate 71.7% interest in the Realty Partnership, (iii) the contribution by the Corporation and its subsidiaries to SLC Operating Limited Partnership (the "Operating Partnership", and together with the Realty Partnership, the "Partnerships") of all of their properties and operating assets (except for their gaming assets, which are to be contributed upon approval by Nevada gaming authorities), subject to substantially all of their liabilities, in exchange for an approximate 28.3% interest as general partner in the Operating Partnership, and (iv) the contribution by the Starwood Partners to the Operating Partnership of approximately $1,400,000 in cash in addition to furniture, fixtures and equipment of the hotel properties, at book value, in exchange for limited partnership units representing the remaining approximate 71.7% interest in the Operating Partnership. In addition on March 24, 1995, a Starwood Partner exchanged $12 million of senior debt for additional limited partnership units of the Realty Partnership and the Operating Partnership. After giving effect to the Reorganization and this exchange of senior debt, the Trust had an approximate 25.4% general partnership interest in the Realty Partnership, the Corporation had an approximate 25.4% general partnership interest in F-15 77 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) the Operating Partnership, and the Starwood Partners held limited partnership interests representing the remaining approximate 74.6% interest in each of the Realty Partnership and the Operating Partnership. The Company presents the respective results of the Realty Partnership and the Operating Partnership on a consolidated basis. The Offerings On July 6, 1995, the Company completed a public offering (the "1995 Offering") of 17.7 million Paired Shares at a price of $15.33 per Paired Share (after giving effect to the three-for-two stock split in January 1997). Net proceeds of the 1995 Offering of approximately $245.7 million in aggregate were contributed by the Trust and the Corporation to the Realty Partnership and the Operating Partnership, respectively, thereby increasing the general partnership interest of the Trust and the Corporation to approximately 69.9% of the Realty Partnership and Operating Partnership, respectively, with the Starwood Partners' limited partnership interests representing the remaining approximate 30.1% interest in each of the Realty Partnership and Operating Partnership. On April 12, 1996, the Company completed a public offering of 3.0 million Paired Shares (after giving effect to the three-for-two stock split in January 1997) (the "April Offering"). Net proceeds of the April offering of approximately $62.4 million in aggregate were contributed by the Trust and the Corporation to the Realty Partnership and the Operating Partnership, respectively, thereby increasing the general partnership interest of the Trust and the Corporation to approximately 72.7% of the Realty and Operating Partnership, respectively, with the Starwood Partners' limited partnership interests representing the remaining approximate 27.3% interest in each of the Realty Partnership and Operating Partnership. On August 12, 1996, the Company completed a public offering (the "August Offering") of 16.2 million Paired Shares at a price of $23.92 per Paired Share (after giving effect to the three-for-two stock split in January 1997). Net proceeds of approximately $367.2 million were contributed by the Trust and the Corporation to the Realty Partnership and the Operating Partnership, respectively, thereby increasing the general partnership interest of the Trust and the Corporation to approximately 81.8% of the Realty and Operating Partnership, respectively, with the Starwood Partners' limited partnership interests representing predominantly the remaining approximate 18.2% interest in each of the Realty Partnership and the Operating Partnership. At December 31, 1996, minority interest includes the 18.2% limited partnership interests of the Realty Partnership and the Operating Partnership and the 41.8% limited partnership interest in the joint venture that owns the Boston Park Plaza. The minority interest is adjusted to its relative ownership interest at year end by reclassification from additional paid-in capital. The total number of units outstanding was 49,024,452 at December 31, 1996 (after giving effect to the three-for-two stock split in January 1997). Hotel assets Hotel assets are stated at the lower of cost or the amounts described below and are depreciated using straight-line and declining-balance methods over estimated useful lives of five to thirty-five years for buildings and improvements and three to twelve years for furniture, fixtures and equipment. Amounts allocated to leasehold interests are amortized using the straight-line method over the lease terms. The Trust and the Corporation evaluate the carrying values of each of their hotel assets on a quarterly basis for any possible impairment. For each hotel asset not held for sale, the expected undiscounted future cash flows of the asset (generally over a five-year period) is compared to the net book values of the asset. If the expected undiscounted future cash flows are less than the net book value of the asset, the excess of the net book value over the estimated fair value is charged to current earnings. When an asset is identified by management as held for sale, the Company discontinues depreciating the asset and estimates the fair value F-16 78 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) of such asset. If in management's opinion the fair value of a hotel asset which has been identified for sale is less than the net book value of the asset, a reserve for losses is established. Fair value is determined based upon discounted cash flows of the hotel assets at rates (approximately 10%) deemed reasonable for the type of property and prevailing market conditions, appraisals and, if appropriate, current estimated net sales proceeds from pending offers. A gain or loss is recorded to the extent the amounts ultimately received differ from the adjusted book values of the hotel assets. Gains on sales of hotel assets are recognized at the time the hotel assets are sold provided there is reasonable assurance of the collectibility of the sales price and any future activities to be performed by the Company relating to the hotel assets sold are insignificant. Mortgage notes receivable If a loan becomes delinquent or upon the occurrence of other events it becomes known that the collectibility of a specific loan is uncertain and the fair value of the underlying property collateralizing the loan is less than the outstanding principal and accrued interest, interest income is no longer accrued and an allowance for loss is established based upon an analysis of the net realizable value of the underlying property collateralizing the loan. Provision for losses Provision for losses for the year ended December 31, 1994, for the Trust is as follows:
1994 -------- Hotel assets...................................... $439,000 Mortgage notes receivable......................... 320,000 -------- $759,000 ========
There were no provisions for losses for the years ended December 31, 1995 and 1996. Cash and cash equivalents Cash and cash equivalents are defined as cash on hand and in banks plus all short-term investments with a maturity, at the date of purchase, of three months or less. Inventories Inventories, consisting primarily of food and beverage, are stated at the lower of cost or market with cost determined on a first-in, first-out basis. Organization Costs Net organization costs related to the formation of each of the Partnerships in the amount of $2,168,000 and $2,891,000 for the Trust and $2,168,000 and $2,891,000 for the Corporation are included in inventories, prepaid expenses and other assets at December 31, 1996 and 1995, respectively. The costs are amortized over a five-year period beginning in January 1995. The Trust and the Corporation each amortized $723,000 and $650,000 during the years ended December 31, 1996 and 1995, respectively. Hotel Revenue Revenue is recognized as earned. Earned is generally defined as the date upon which a guest occupies a room and/or utilizes the hotel's services. Ongoing credit evaluations are performed and potential credit losses are expensed at the time the account receivable is estimated to be uncollectible. Historically, credit losses have F-17 79 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) not been material to the hotels' results of operations. The Company has recorded an allowance for doubtful accounts totaling $1,514,000 and $470,000 at December 31, 1996 and 1995, respectively. Gaming revenue Gaming revenue relates to two hotel/casinos and includes the net win from gaming activities, as well as room, food and beverage and other revenues, net of promotional allowances. Fair value of financial instruments and concentration of credit risk The following disclosure of estimated fair value was determined by available market information and appropriate valuation methodologies. However, considerable judgment is necessary to interpret market data and develop the related estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized upon disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Investments of $945,000 for the Trust at December 31, 1996, had a fair value of $2,085,000. At December 31, 1996, the Trust held $30.5 million in adjustable rate mortgage notes receivable not subject to sale. The Company believes the carrying amount approximates their fair value due to the interest rates being of a variable nature. The Company believes that the fair value of fixed rate mortgage notes receivable of $45.5 million is at least $47.8 million. The Trust has a letter of intent to receive $8.5 million on its Atlantic City notes which have a carrying value of $4.6 million. The Trust acquired in the current year a $10.25 million note on the Stamford Sheraton which does not accrue interest. Due to the recent purchase, the Company believes the carrying amount approximates fair value. The carrying value of the fixed rate notes payable, and revolving credit facilities approximate fair value at December 31, 1996 and 1995, as the related interest rates are either variable or in line with market rates. At December 31, 1996 and 1995, the Company had significant amounts in banks that were in excess of federally insured amounts. Interest Rate Agreements The Company enters into interest rate forward contracts as a means of managing interest rate exposure on anticipated transactions. The agreements are with major financial institutions which are expected to fully perform under the terms of the agreements thereby mitigating the credit risk from the transactions. The differential to be paid or received under these agreements is accrued consistent with the terms of the agreements and market interest rates and is recognized, using the effective interest method, in interest expenses over the remaining term of the related debt. Net income (loss) per share Net income (loss) per share is based on the weighted average number of common and common equivalent shares outstanding during the year which is on a Paired Share basis for purposes of the combined financial statements. Outstanding options and warrants are included as common equivalent shares using the treasury stock method when the effect is dilutive. The weighted average number of shares and Paired Shares used in determining net income (loss) per share and per Paired Share was 29,884,000 for the year ended December 31, 1996, 11,657,000 for the year ended December 31, 1995, and 3,033,000 for the year ended December 31, 1994. The weighted average number of shares and Paired Shares were determined as if the six-for-one reverse stock split that occurred June 19, 1995, and the three-for-two stock split that occurred on January 27, 1997, were both effective January 1, 1994. Historical per share and per Paired Share information has been revised accordingly. On a fully diluted basis, for the year ended December 31, 1996, the weighted average number of shares and Paired Shares used in determining net income (loss) per share and per Paired Share was 30,246,000, F-18 80 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) resulting in fully diluted net income (loss) per share and per Paired Share of $1.11, ($0.22) and $0.89 for the Trust, Corporation and on a combined basis, respectively. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain reclassifications have been made to the 1995 and 1994 financial statements to conform with the 1996 financial statement presentation. Share option plans policy The Company has elected to apply APB Opinion 25 and related Interpretations in accounting for its share option plans. However, the Company discloses pro forma compensation cost consistent with FASB Statement 123 (see Note 13). Impact of recent issued accounting standards The Financial Accounting Standards Board issued Statement No. 128 "Earning Per Share" that will require a change in the calculation of earnings per share for financial statements issued for periods ending after December 15, 1997. Early adoption is not permitted. 2. INCOME TAXES. The Trust has elected to be treated as a REIT under the provisions of the Internal Revenue Code ("IRC") beginning with the 1995 year. As a result, the Trust will not be subject to Federal income tax on its taxable income at corporate rates to the extent it distributes annually 95% of its taxable income to its shareholders and complies with certain other requirements. The Trust is subject to state income and franchise taxes in certain states in which it operates. Therefore, a tax provision has been reflected for these income and franchise tax amounts. Components of deferred income taxes as of December 31, 1996 and 1995 are as follows:
1996 1995 ----------------------------- ---------------------------- TRUST CORPORATION TRUST CORPORATION ------------ ------------ ------------ ----------- Deferred income tax assets: Net operating loss carryforwards................. $ 31,995,000 $ 7,574,000 $ 28,084,000 $ 804,000 Investments in partnerships...... (7,000) 2,725,000 2,583,000 Property and equipment........... 4,261,000 745,000 850,000 512,000 Allowance for write downs........ 1,422,000 -- -- -- Other............................ 1,012,000 251,000 172,000 372,000 ------------ ------------ ------------ ----------- Total deferred income tax assets................. 38,683,000 11,295,000 29,106,000 4,271,000 Valuation allowance................ (38,683,000) (11,295,000) (29,106,000) (4,271,000) ------------ ------------ ------------ ----------- Net deferred income tax............ $ -- $ -- $ -- $ -- ============ ============ ============ ===========
As of December 31, 1996, the Trust and Corporation had net operating loss carry forwards ("NOL") for federal income tax purposes of approximately $83,000,000 and $22,275,000 respectively. The NOL's expire in various years beginning in 2006 through 2009 for the Trust, and 2006 through 2011 for the Corporation. F-19 81 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The utilization of each entity NOL will be limited by the provisions of IRC Section 382, and in the case of the Trust the use of approximately $50 million of the NOL will be predicated on the recognition of gain from the sale of certain of the assets of the Trust within 5 years of the ownership change date which occurred in July 1995. A valuation allowance is provided for the full amount of the NOL's as the realization of tax benefits from such NOL's is not assured. For Federal income tax purposes, 1996 and 1995 dividends amounted to $1.36 and $0.62 per share, respectively (after giving effect to the three-for-two stock split in January 1997), of which 11% for both years is considered return of capital. 3. EXTRAORDINARY ITEMS. Under the terms of a Credit Agreement dated January 28, 1993, (the "1993 Credit Agreement") the Trust restructured its debt existing at such time. Management concluded that restructuring represented a "troubled debt restructuring" as defined under generally accepted accounting principles, and accordingly, upon execution of the 1993 Credit Agreement, accrued all known current or future identifiable debt restructuring costs as of December 31, 1992. Upon execution of an Amended and Restated Credit Agreement dated March 24, 1995, (the "1995 Credit Agreement"), the Realty Partnership recognized extraordinary income of $1,284,000 relating to the extinguishment of debt under the terms of the 1993 Credit Agreement, representing the remaining amount of the accrual at March 24, 1995. Additionally, in July 1995 subsequent to the 1995 Offering, the Realty Partnership repaid existing indebtedness borrowed under the 1995 Credit Agreement and recorded an extraordinary charge to net income of $3,602,000 relating to the extinguishment of such debt. During 1996, the Corporation paid off a note secured by the Milwaukee Marriott at a discount of approximately $1.5 million. As a result, the Corporation recognized an extraordinary gain of $1.5 million before minority interest resulting from early extinguishment of debt. 4. LOAN RESTRUCTURING COSTS. All restructuring costs in relation to the "troubled debt restructuring" referred to in Note 3 have been expensed as incurred. In 1993, upon execution of the definitive debt restructuring agreement, $700,000 was paid by the Trust to certain institutional lenders and $4,032,000 was added to the loan balance under the terms of a credit agreement for restructuring costs due the institutional lenders for legal and other experts. Previously accrued restructuring costs of $611,000 and $778,000 were paid during the years ended December 31, 1995 and 1994, respectively. As noted above, an additional $1,284,000 of previously accrued restructuring costs was recognized as extraordinary income during 1995. At December 31, 1996, there are no accrued loan restructuring costs included in accounts payable and other liabilities. 5. SUPPLEMENTAL CASH FLOW DISCLOSURE. Interest paid in cash by the Trust in the years ended December 31, 1996, 1995, and 1994 was $21,451,000, $15,235,000 and $12,736,000, respectively. During 1996, the Corporation transferred approximately $3.9 million (net of $116,000 of accumulated depreciation) in furniture, fixtures and equipment to the Trust and increased the intercompany receivable by the same amount. During 1996, the Trust issued approximately $1.7 million in partnership units in conjunction with the acquisition of the Days Inn and Doubletree Guest Suites in Philadelphia, PA. During 1996, the Trust made a one-time grant of approximately $6.0 million in restricted stock in conjunction with the acquisition of the Institutional Portfolio. During 1996, the Trust assumed $25.0 million in mortgage debt in conjunction with the acquisition of the Boston Park Plaza. During 1996, the Trust assumed approximately $27.4 million in mortgage debt and $2.9 million in accounts payable and other liabilities in conjunction with the acquisition of the Doral Court and Tuscany. F-20 82 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) During 1996, the Trust reclassified approximately $19.8 million in mortgage notes receivable (net of discounts of $3.4 million and allowances of $224,000) in conjunction with the acquisition of the equity of the Westin, Washington, D.C. During 1996, the Trust issued approximately $7.3 million in collateralized notes receivable in conjunction with the sale of the King 8 Hotel & Casino. A reduction to acquisitions of hotel properties of approximately $29.5 million representing minority interest in the Boston Park Plaza has been recognized in the Trust and Combined December 31, 1996 cash flow statements. Interest paid in cash by the Corporation in the years ended December 31, 1996, 1995, and 1994 was $9,333,000, $1,345,000, and $1,342,000 respectively. The Corporation deferred interest of $3,012,000, and $1,730,000 on its intercompany debt with the Trust in the years ended December 31, 1995 and 1994, respectively. During 1994, a charge of $246,000 to additional paid-in capital was made relating to the cancellation of share purchase notes. Paired Shares which collateralized the portion of the principal canceled on the original notes were returned to the Companies. In December 1994, the Trust forgave $58,335,000 of notes payable to the Trust by the Corporation and its subsidiaries. Because of the common ownership of the Trust and the Corporation, the Trust charged, and the Corporation credited, the amount of debt forgiven to additional paid-in capital of the Trust and Corporation, respectively. In connection with the Reorganization in 1995, the Starwood Partners contributed $30.2 million (net of $474,000 of depreciation) in land and buildings, $49.2 million (net of discounts of $24.9 million and allowances of $2.9 million) in mortgage notes receivable, and $52.9 million (net of $6.0 million of debt forgiven by the Starwood Partners) in long term debt obligations for limited partnership units in the Realty Partnership. In addition, the Starwood Partners contributed $3.7 million (net of $757,000 of depreciation) of furniture, fixtures and equipment for limited partnership units of the Operating Partnership. During 1995, a Starwood Partner exchanged $12 million of senior debt for partnership units of the Realty Partnership and the Operating Partnership. During 1995, the Trust transferred approximately $7.2 million (net of accumulated depreciation) in furniture, fixtures and equipment to the Corporation and increased the intercompany receivable by the same amount. In December 1995, the Trust declared approximately $9.3 million in dividends and distributions paid in January 1996. In December 1996, the Trust declared approximately $19.3 million in dividends and distributions paid in January 1997. 6. COLLATERALIZED NOTES PAYABLE AND REVOLVING LINES OF CREDIT The Company currently has two loan facilities and a term loan with Lehman Brothers, Inc. and certain of its affiliates ("Lehman Brothers"). In October 1995, the Company amended its Mortgage Loan Funding Facility Agreement, dated July 25, 1995, (the "Mortgage Facility") with Lehman Brothers to increase the amount available under this 18-month facility to $70.6 million. The Mortgage Facility is recourse to the Realty Partnership, is collateralized by certain mortgage loans owned by the Realty Partnership, bore interest at a rate equal to 1.5% plus the one-month LIBOR for the first 12 months, and bears interest at a rate of 1.75% plus the one-month LIBOR thereafter. In August 1996, the maturity date for the Mortgage Facility was extended to July 1997. As of December 31, 1996, the Company had borrowed $70.6 million under the Mortgage Facility. In October 1995, the Company entered into a three-year, $135 million collateralized revolving credit facility (the "Acquisition Facility") with Lehman Brothers. In August 1996, a portion of the Acquisition Facility was syndicated amongst a number of banks, whereupon First National Bank of Boston became the F-21 83 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) lead agent bank. The Acquisition Facility is recourse to the Realty Partnership, is secured by certain properties of the Company and may be secured by other properties acquired by the Company, all on a cross-collateralized basis within various pools. Amounts drawn under the Acquisition Facility bear interest at a rate equal to 1.625% plus the one, two or three-month LIBOR at the Company's option. The Acquisition Facility matures in October 1998. As of December 31, 1996, the Company had borrowed $117.8 million under the Acquisition Facility. The Acquisition Facility provides for an annual fee of 0.25% of the average daily unfunded portion of the Acquisition Facility amount. In March 1996, the Company entered into a $24 million one year non-recourse collateralized term loan (the "Term Loan") with Lehman Brothers. In April 1996, the Company amended the Term Loan to increase the amount available under this facility to $94 million. The Term Loan is secured by certain properties of the Company and bears interest at a rate equal to the one, two or three-month LIBOR, at the Company's option, plus (a) 1.95% for the first $24 million drawn, and (b) 1.75% for the remaining balance drawn. The Term Loan matures in April 1997. As of December 31, 1996 the Company had borrowed $94 million under the Term Loan. In August 1996, the Company entered into a loan facility with an affiliate of Goldman Sachs for a one-year (extendible to 18 months) loan of up to $300 million to fund a portion of the acquisition cost of the Institutional Portfolio and the HOD Portfolio (the "Goldman Facility"). The Goldman Facility is recourse to the Realty Partnership, bears interest at one-month LIBOR plus 1.75% (extendible six month period bears interest at one-month LIBOR plus 2.75%) and is collateralized by interests in the Institutional Portfolio and the HOD Portfolio. As of December 31, 1996 the Company had borrowed $140 million under the Goldman Facility. In January 1996, the Company entered into two interest rate hedging agreements (the "January Treasury Lock"), which have the effect of fixing the base rate of interest at 5.7% for debt the Company intended to issue in October, 1996, with an aggregate notional principal amount of $100 million and a term to maturity of seven years. The actual interest rate will be determined by reference to this base rate. The Company has extended the settlement date to March 31, 1997 and the base rate increased to 5.86%. At settlement, the Trust will pay or receive an amount which will be capitalized and amortized over the term of the related debt of seven years. Such amount is not anticipated to have a material effect on the Trust's liquidity or operating results. If the Trust did not issue any such debt, such amount would still be payable or receivable and would be treated as a loss or gain, accordingly. Such a gain or loss could have a material effect on the Trust's results from operations; however, due to management's current intention to issue $100 million of debt in 1997, with a term to maturity of seven years, no such gain or loss is anticipated. In August 1996, the Company entered into another Treasury Lock (the "August Treasury Lock"), which has the effect of fixing the base rate of interest at 6.67% for debt the Company intended to issue in March, 1997, with an aggregate notional principal amount of $150 million and a term to maturity of ten years. The Company, due to other financing circumstances, has decided to postpone the issuance of the ten year, $150 million debt to June 30, 1997. The Company plans to extend the settlement date in respect of the August Treasury Lock. The actual interest rate of debt to be issued at that time will be determined by reference to the base rate determined at the time of the extension of the settlement date. At settlement, the Company will pay or receive an amount which will be capitalized and amortized over the term of the related debt of ten years. Such amount is not anticipated to have a material effect on the Company's liquidity or operating results. If the Company did not issue any such debt, such amount would still be payable or receivable and would be treated as a loss or gain, accordingly. Such a gain or loss could have a material effect on the Company's results from operations; however due to Management's current intention to issue $150 million of debt with a term to maturity of ten years, no such gain or loss is anticipated. F-22 84 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The following is a summary of the credit facilities (the "Facilities") as of December 31, 1996 and 1995:
AMOUNT AMOUNT INTEREST EXPIRATION AMOUNT OUTSTANDING OUTSTANDING RATE FACILITY/LENDER DATE OF FACILITY AT 12/31/96 AT 12/31/95 AT 12/31/96(1) - -------------------- ----------------- ---------------- --------------- -------------- -------------------- Mortgage Facility/ Lehman Brothers... July 25, 1997 $71.0 million $70.6 million $64.5 million One Month LIBOR+1.75% (7.125%) Acquisition Facility/ Lehman Brothers.......... October 1, 1998 $135 million $117.8 million $54.6 million One, Two, or Three Month LIBOR+1.625% (7.0%) Term Loan/ Lehman Brothers... April 26, 1997 $93.96 million $93.96 million -- One, Two, or Three Month LIBOR+1.95% for first $23.96 million and +1.75% for $70.0 million (7.51% and 7.06%) Goldman Facility/ Goldman Sachs..... August 16, 1997 Extendible to February 16, 1998 $300.0 million $140.0 million -- One month LIBOR+1.75% to 8/16/97 and +2.75% thereafter (7.125%) ---------------- --------------- -------------- Totals................................. $599.96 million $422.36 million $119.1 million =============== =============== ==============
- --------------- (1) The rates below represent the rates in effect for the month of December and are set by the lender at the beginning of the month. The Facilities require the Company to maintain a specified minimum adjusted net worth, a specified minimum ratio of actual consolidated EBITDA to debt service plus fixed charges and a restriction against total debt exceeding a specified maximum percent of net book value. In addition, the Facilities place restrictions on distributions and require the Trust to maintain its REIT status, maintain a minimum borrowing base (defined as Net Operating Income per Facility Agreement divided by stated interest rates) and maintain minimum replacement reserves. As of December 31, 1996 and 1995, the Company was in compliance with its convenants. 7. HOTEL SALES AND RESERVE FOR LOSSES. During the year ended December 31, 1994, the Company sold its interests in five hotel assets, the Best Western South located in Austin, Texas, the Sheraton Hotel located in New Port Richey, Florida, the Holiday Inn in Brunswick, Georgia, the Holiday Inn in Jacksonville, Florida and the Ramada Inn in Fayetteville, North Carolina. The Austin property was sold pursuant to eminent domain proceedings for an all cash price of $3,594,000. The New Port Richey and Brunswick properties were sold together for $4,306,000, consisting of approximately $1,236,000 in cash and a $3,070,000 promissory note collateralized by the hotels. The New Port Richey/Brunswick note bears interest at 8% per annum for the first twelve months and 9.25% thereafter, with accrued interest and principal due monthly based upon a 25-year amortization schedule, with all unpaid principal and interest due in August 2001. The Jacksonville property was sold for $3,200,000, consisting of approximately $900,000 in cash and a $2,300,000 promissory note collateralized by the hotel. The Jacksonville note bears interest at 9% per annum with accrued interest and principal due monthly based upon a 30-year amortization schedule, with all unpaid principal and interest due in December 2001. The Fayetteville property F-23 85 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) was sold for $1,000,000, consisting of approximately $200,000 in cash and a $800,000 promissory note collateralized by the hotel. The Fayetteville note bears interest at 9% per annum with accrued interest and principal due monthly based upon a 12-year amortization schedule, with all unpaid principal and interest due in December 2006. In connection with the Reorganization (see Note 1), the Holiday Inn located in Albany, Georgia was sold to the Starwood Partners for an all cash purchase price of $6,000,000. The transaction was accounted for as a financing activity and the Starwood Partners subsequently contributed the property to the Partnerships. No gain or loss was recorded on the sale. For the year ended December 31, 1994, the Trust recognized a gain of $224,000 and the Corporation recognized a gain of $24,000 on sales of hotel assets, including a $55,000 discount recorded by the Trust resulting from the early payoff in 1994 of the mortgage note receivable related to a property in Spartanburg, South Carolina sold in 1992. In 1994, the Trust recorded a provision for investment losses of $439,000 primarily as a result of the acceptance of offers for the sale of hotels at amounts lower than net book value. During the year ended December 31, 1995, the Company did not sell any of their hotel assets. During the year ended December 31, 1996, the Company sold its interests in three hotel assets, the Best Western Columbus North located in Columbus, Ohio; the Bourbon Street Hotel & Casino located in Las Vegas, Nevada; and the King 8 Hotel & Casino located in Las Vegas, Nevada. The Columbus property was sold for an all cash price of approximately $3.1 million. The Bourbon Street property was sold for an all cash price of $7.6 million. The King 8 Hotel & Casino real property was sold for $18.8 million, consisting of $11.6 million in cash and a $7.2 million promissory note collateralized by the hotel and the casino. The note bears interest at 13.5% per annum through November 5, 1997, 14.5% per annum through November 5, 1998, 15.5% per annum through November 5, 1999 and 16.5% per annum thereafter. Accrued interest on the note is due monthly with all unpaid principal and accrued interest due in May 2000. The personal property and casino equipment of the King 8 Hotel & Casino will be sold for $3 million following receipt by the purchaser of required gaming approvals. A subsidiary of the Corporation, Hotel Investors Corporation of Nevada, leases the real property from the purchaser and has agreed to continue to operate the hotel and casino while the purchaser or his designee obtains required gaming licenses and approvals. During the year ended December 31, 1996, the Company sold an office building adjacent to the Doubletree Guest Suites located in Lexington, Kentucky for an all cash price of $675,000. For the year ended December 31, 1996, the Trust recognized a gain of $4.3 million and the Corporation recognized no gain or loss on sales of hotel assets. 8. MORTGAGE NOTES RECEIVABLE. In 1992, the Trust sold a hotel asset in Merrimack, New Hampshire and received as partial consideration a promissory note in an original principal amount of $1,440,000, collateralized by a first mortgage on the property. In September 1994, the Trust initiated foreclosure proceedings and recorded a provision for investment losses of $320,000, resulting in a net book value of $983,000. The property was subsequently sold to a third party in December 1994 for net proceeds of $1,191,000 and the Trust recorded a gain on sale of $208,000. At December 31, 1996, in addition to the MHLP notes discussed in Note 9, the Trust held nineteen promissory notes collateralized by mortgages. Thirteen notes ($90,637,000 carrying amount at December 31, 1996), representing 14 hotels, are collateralized by first mortgages, and six notes ($134,000 carrying amount at December 31, 1996) are collateralized by second, third and fourth mortgages. Nine of the notes have fixed interest rates ranging from 7% to 10% per annum, and six of the notes have variable interest rates that range from 6.81% to 13.5% per annum at December 31, 1996. One of the notes provides for contingent interest based on a percentage of gross revenue of the property securing such note. Three of the notes are principal only F-24 86 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) ($337,000 face amount and fully discounted). The maturity dates of the notes range from 1997 to 2010. Aggregate principal payments under the mortgage notes receivable due within one year of December 31, 1996, are $3,200,000. As of December 31, 1996 and 1995, the reserve for investment losses for the mortgage notes receivable amounted to $100,000 in both years. 9. MILWAUKEE MARRIOTT HOTEL. In December 1985, the Trust sold its interest in the Milwaukee Marriott Hotel to Milwaukee Brookfield Limited Partnership ("Brookfield"). In connection with the sale, the Trust received a second mortgage note from Brookfield. In July 1991, ownership and operation of the Milwaukee Marriott was reorganized and ownership of the hotel was transferred from Brookfield to Moorland Hotel Limited Partnership, ("MHLP"), a limited partnership in which the Corporation at such time had a 51% interest and was the sole general partner and Brookfield was the sole limited partner. The operations of MHLP have been consolidated into the Corporation's financial statements from the date of reorganization and, accordingly, the Trust has recorded the notes receivable from MHLP as notes receivable from the Corporation (see accompanying Schedule IV).The Corporation and MHLP entered into an agreement for the Corporation to manage the property. During 1996, the Corporation purchased the remaining 49% interest in MHLP for $240,000 and assumed all outstanding debt. Also in 1996, the Corporation negotiated the payoff of all third party debt at a discount of $1.5 million. As a result the Corporation recorded an extraordinary gain from early extinguishment of debt (see Extraordinary Items in Note 3). 10. HOTEL PROPERTIES. A summary of hotel assets at December 31, 1996 and 1995, is as follows (in thousands):
TRUST CORPORATION ---------------------- -------------------- 1996 1995 1996 1995 ---------- -------- -------- -------- Land.................................... $ 164,472 $ 59,581 $ 3,111 $ 2,501 Buildings and improvements.............. 807,919 237,222 93,876 67,645 Furniture, fixtures and equipment....... 85,717 7,517 68,395 64,515 Construction in progress................ 16,939 1,317 3,525 61 Accumulated depreciation and amortization.......................... (70,654) (40,827) (47,769) (38,986) Reserve for losses...................... (3,469) (23,200) (388) (388) ---------- -------- -------- -------- Hotel assets -- net................... $1,000,924 $241,610 $120,750 $ 95,348 ========== ======== ======== ========
11. REAL ESTATE INVESTMENTS AND INTERCOMPANY TRANSACTIONS. At December 31, 1996, the Trust owned equity interests in 59 hotels. Of that number, fifty-five properties were owned in fee and four were held pursuant to long-term leases. Fifty-four of the Trust's hotels are leased to the Corporation or its subsidiaries. Three hotels have been leased to and are operated by Imperial Hotels Corporation, formerly Vagabond Inns, Inc. pursuant to ground leases. As of December 31, 1996, four of the hotels leased by the Corporation from the Trust are being managed by third-party operators. Two of the third-party management agreements are for three-year terms expiring in 1998, and one of the management agreements is a five-year term expiring in 1999. The management agreements are subject to certain cancellation provisions. Base management fees range from 2% to 3% of gross revenues with incentive management fees based upon hotel profitability. F-25 87 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The leases are generally long-term and generally provide for annual base, or minimum rents, plus contingent, or percentage rents based on the gross revenues of the properties and are accounted for as operating leases. The leases are "triple-net" in that the lessee is generally responsible for paying all operating expenses of the properties, including maintenance, insurance and real property taxes. Total rental expense paid by the Corporation to the Trust under such leases was $87,593,000, $26,730,000 and $16,906,000 for the years ended December 31, 1996, 1995 and 1994, respectively, of which $26,792,000, $5,443,000 and $2,456,000 was contingent. The lessee is also generally responsible for any payments required pursuant to underlying ground leases. Most leases provide for cancellation by the Trust in the event that the Trust does not earn a specified rent, or by the lessee (including the Corporation) in the event the lessee does not earn a specified net operating profit. As of December 31, 1996 and 1995, the Corporation was indebted to the Trust for an aggregate of $105,818,000 and $86,464,000, respectively, (including the MHLP mortgage notes of $29,611,000 and $28,236,000 as of December 31, 1996 and December 31, 1995, respectively -- see Note 9; the Midland Hotel mortgage note of $18,216,000 as of December 31, 1996, and the Doral lease obligation of $40,250,000-see discussion below). The Corporation borrowings were non-interest bearing for the year ended December 31, 1994. In December 1994, the Trust forgave $58,335,000 of notes receivable payable to the Trust by the Corporation and its subsidiaries. Effective January 1, 1995, the remaining notes bear interest at prime plus 2% with interest payable monthly and are due on January 1, 2000. On September 20, 1995, the Realty Partnership purchased land for $3.0 million and mortgage notes receivable collateralized by the Doral Inn for $40.3 million. The note bears interest at 9.5% and matures on October 1, 2006. The Realty Partnership also entered into a long-term lease agreement with SBK Delaware Realty Holdings, L.L.C. ("SBK"), the owners of the Doral Inn, to lease SBK the land for $240,000 per year. Simultaneously, the Operating Partnership entered into a long-term lease agreement with SBK to lease the land and the building for $240,000 per year, plus the debt service on the mortgage held by the Realty Partnership. The Operating Partnership lease agreement includes a clause under which SBK is paid a management fee of 0.5% of gross revenues. Under certain circumstances SBK may be entitled to a share of profits above certain thresholds. The Realty Partnership has the option of acquiring the building for the value of the mortgage note plus $400,000 after ten years. It is management's intention to exercise that option. The Operating Partnership has recorded the transaction as a capitalized lease with an intercompany obligation to the Realty Partnership. Rents accrued by the Trust from leased hotel properties are summarized as follows (in thousands):
YEARS ENDED DECEMBER 31, ----------------- 1996 1995 ---- ---- Corporation: Minimum......................................................... $ -- $ -- Contingent...................................................... 510 -- ----- ---- 510 -- ----- ---- Other: Minimum......................................................... -- -- Contingent...................................................... 373 362 ----- ---- 373 362 ----- ---- Total................................................... $883 $362 ====== ====
F-26 88 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The Trust's minimum future rents at December 31, 1996, due under non-cancelable operating leases for the years ending December 31 are as follows (in thousands):
1997 1998 1999 2000 2001 THEREAFTER ------- ------- ------- ------- ------- ---------- Corporation................ $93,264 $94,464 $79,614 $13,335 $12,832 $ 23,001 Other...................... 437 437 300 300 300 851 ------- ------- ------- ------- ------- -------- Total............ $93,701 $94,901 $79,914 $13,635 $13,132 $ 23,852 ======= ======= ======= ======= ======= ========
The Corporation's future rents at December 31, 1996, payable under non-cancelable operating leases for the years ended December 31 are as follows (in thousands):
1997 1998 1999 2000 2001 THEREAFTER ------- ------- ------- ------- ------- ---------- Trust..................... $93,264 $94,464 $79,614 $13,335 $12,832 $ 23,001 Other..................... 2,842 2,264 1,599 1,371 1,141 2,682 ------- ------- ------- ------- ------- -------- Total........... $96,106 $96,728 $81,213 $14,706 $13,973 $ 25,683 ======= ======= ======= ======= ======= ========
The Corporation is committed under its leases with the Trust to pay the rents payable with respect to four ground leases which expire in 1997 through 2029, including renewal options. The leases generally provide for a minimum rent plus a percentage of gross revenues of the properties in excess of the minimum rent. Future minimum lease payments under the leases are included in "Other" rents payable in the table above. The Trust is the primary obligor under the leases; however, the Corporation as lessee/operator of the hotels makes payments under these leases directly to the lessors. Rent expense incurred by the Corporation as a lessee/operator under these ground leases was $871,000, $739,000 and $879,000, in the years ended December 31, 1996, 1995 and 1994, respectively. 12. MORTGAGE AND OTHER NOTES PAYABLE. At December 31, 1996 and 1995, the Trust had the following outstanding debt obligations (exclusive of Collateralized amounts payable and Revolving Lines of Credit -- See Note 6):
DECEMBER 31, DECEMBER 31, 1996 1995 ----------- ------------ 7.64% first mortgage secured by the Doral Court and Doral Tuscany, due 2001....................................... $27,375,000 8.42% first mortgage secured by the Boston Park Plaza, due 2003.................................................... 25,000,000 Non-interest bearing term note, due 1999.................. 2,830,000 Other..................................................... 65,000 100,000 ----------- ---------- Total mortgage and other notes payable.......... $55,270,000 $ 100,000 =========== ==========
F-27 89 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) At December 31, 1996 and 1995, the Corporation had the following outstanding debt obligations (exclusive of amounts payable to Trust):
DECEMBER 31, DECEMBER 31, 1996 1995 ------------ ------------ Collateralized by Milwaukee Marriott Hotel: 10.5% fifth mortgage note, interest only, due 1996....... $ -- $ 946,000 12.0% sixth mortgage note, interest only (to the extent of available cash flow), due 1996...... -- 2,000,000 --------- --------- -- 2,946,000 Other: 9.75% first mortgage note, due 1997...................... 341,000 372,000 Other notes payable...................................... 449,000 Obligations under capital leases......................... 1,173,000 967,000 --------- --------- Total mortgage and other notes payable........... $1,963,000 $4,285,000 ========= =========
Minimum lease and principal payments on the Corporation's indebtedness for the years ending December 31 are due as follows:
MINIMUM FUTURE PRINCIPAL PAYMENTS YEAR LEASE PAYMENTS DUE UNDER NOTES -------------------------------------------- -------------- ------------------ 1997........................................ $ 244,000 $790,000 1998........................................ 244,000 1999........................................ 244,000 2000........................................ 244,000 2001........................................ 100,000 Thereafter.................................. 500,000 ---------- ------- Total............................. 1,576,000 $790,000 ======= Amount representing interest................ (403,000) ---------- Future minimum lease payments............... $1,173,000 ==========
At December 31, 1996 and 1995, the Corporation had $1,190,000 and $845,000, respectively, in assets (less $233,000 and $127,000, respectively, in accumulated amortization) recorded under capital leases. Such amounts are included in furniture, fixtures and equipment. 13. SHAREHOLDERS' EQUITY. Warrants to purchase Paired Shares At December 31, 1995, there were outstanding 414,993 warrants to purchase Paired Shares at an exercise price of $67.80 per Paired Share (as adjusted for the one-for-six reverse stock split in June 1995 and the three-for-two stock split in January 1997) through September 15, 1996. At the expiration date, each 100 warrants were convertible into one Paired Share of stock. Pursuant to the warrant agreement, the warrants were converted into 3,954 Paired Shares (as adjusted for the three-for-two stock split in January 1997) and 196 fractional warrants were paid in cash at the then current market value of a single Paired Share. In 1996 two Restricted Stock Awards were granted in the form of warrants to purchase 22,500 Paired Shares each at an exercise price of $.67 (as adjusted for the three for two stock split in January 1997). One warrant was exercisable at December 31, 1996 and one became exercisable after January 1, 1997. F-28 90 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Restricted Stock Award In 1996 the Company granted a one-time restricted stock award of 250,870 Paired Shares (as adjusted for the three for two stock split in January 1997) in connection with the acquisition of a portfolio of hotels from an institution in August 1996. Such restricted stock award vests as to two-thirds of such amount on August 12, 1997 and as to the remaining amount on August 12, 1998. The fair value of the restricted stock (approximately $6 million) at the date of grant was capitalized to hotel assets. Share option plans At December 31, 1996, the Company had two stock-based compensation plans, which are described below. The Company applies APB Opinion 25 and related Interpretations in accounting for its plans. In accordance with APB Opinion 25, during 1996 the Company recognized approximately $811,000 in compensation expense related to the grant of 218,714 restricted stock awards granted in 1996 with a weighted average fair value at the date of grant of $23.60 (as adjusted for the three for two stock split in January 1997) with a three year vesting period. No compensation cost under the provisions of FASB Statement 123 has been recognized for its stock option plans. However, had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of FASB Statement 123, the Company's net income and earnings per Paired Share would have been reduced to the pro forma amounts indicated below. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used (the statement is effective for grants starting in 1995): dividend yield of 3.9%, expected volatility of 57.21%, risk-free interest rate of US zero coupon bonds with time to maturity approximately equal to the options average time to exercise, and expected lives of the full vesting period for each option.
COMBINED COMBINED 1996 1995 ----------- ---------- Net Income Pro forma................... $16,908,000 $6,193,000 Primary earnings per Paired Share Pro forma................... $ 0.57 $ 0.53 Fully diluted Earnings per Paired Share Pro forma................... $ 0.56 $ 0.53
The Trust and the Corporation each adopted Incentive and Non-Qualified Share Option Plans in 1986 which provided for the purchase of up to an aggregate of 175,000 Paired Shares (as adjusted for the one-for-six reverse stock split in June 1995 and the three-for-two stock split in January 1997) by Trustees, Directors, officers and employees pursuant to option grants. During the year ended December 31, 1995, the Trust and the Corporation granted options to purchase 85,338 Paired Shares at exercise prices ranging from $11.00 to $14.50 per Paired Share. Such options, which are granted at fair market value on the date of grant, vest over three years. During 1995, the Trust and the Corporation each also adopted a 1995 Share Option Plan which provides for the purchase of Paired Shares by Trustees, Directors, officers, employees, consultants and advisors, pursuant to option grants. The aggregate number of Paired Shares subject to options which may be granted under the Plans is 2,359,500 (after giving effect to the three for two stock split in January, 1997) plus 8% of any additional partnership units or Paired Shares issued subsequent to August 17, 1995 (other than Paired Shares issued in exchange for partnership units, Paired Shares issued pursuant to employee benefit plans or Paired Shares that were previously issued and re-acquired by the Trust or the Corporation). During 1996, the Trust and the Corporation each adopted an amendment and restatement of their respective 1995 Share Option Plans (as amended, the "LTIPs"). The LTIPs increased the number of Paired Shares which may be granted under each LTIP to approximately 6.4 million (after giving effect to the three- F-29 91 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) for-two stock split in January 1997) and provide for the grant of Paired Shares that are subject to performance measures or restriction periods and performance awards in tandem with certain Paired Options to be paid in cash subject to performance measures. The LTIPs also reduced the automatic annual grant of Paired Options to Trustees and Directors from 9,000 to 4,500 Paired Shares (after giving effect to the three-for-two stock split in January 1997) and provides for the Annual Fee of Trustees and Directors to be paid in Paired Shares, subject to each Trustee's and Director's option to receive up to half in cash. During the years ended December 31, 1996 and 1995, the Trust and the Corporation granted options under the 1995 Plans to purchase 2,889,900 and 1,399,585 Paired Shares, respectively to Trustees, Directors, officers and employees, at exercise prices ranging from $15.33 to $26.50 per Paired Share. At December 31, 1996, outstanding options granted under all plans of the Trust and Corporation (including options granted to officers and directors of a company previously acquired by the Trust) aggregated 4,194,674 Paired Shares. At December 31, 1996, options for 680,953 Paired Shares are fully vested with exercise prices ranging from $9.50 to $61.50 per Paired Share. A summary of the Company's stock option activity, and related information for the years ended December 31 follows:
1996 1995 1994 --------------------------- --------------------------- --------------------------- OPTIONS WEIGHTED- AVERAGE OPTIONS WEIGHTED- AVERAGE OPTIONS WEIGHTED- AVERAGE (000) EXERCISE PRICE(1) (000) EXERCISE PRICE(1) (000) EXERCISE PRICE(1) ------- ----------------- ------- ----------------- ------- ----------------- Outstanding-beginning of year..................... 1,503 $ 15.70 38 $ 20.46 38 $ 20.46 Granted.................... 2,890 23.60 1,485 15.45 Exercised.................. (99) 11.96 (16) 4.66 Forfeited.................. (94) 19.57 (4) 15.33 Expired.................... (5) 84.50 -- --- ----- ------ ----- ------ ------ Outstanding-end of year.... 4,195 $ 21.06 1,503 $ 15.70 38 $ 20.46 ===== ====== ===== ====== ===== ====== Exercisable at end of year..................... 681 $ 17.39 195 $ 16.63 37 $ 20.89 ===== ====== ===== ====== ===== ======
(1) The weighted average exercise price equals weighted average fair value at date of grant as all options were granted at fair market value on the date of grant. A summary of the Company's outstanding and exercisable options and related information at December 31, 1996 follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------ -------------------- WEIGHTED WEIGHTED RANGES OF WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE OPTIONS REMAINING EXERCISE OPTIONS EXERCISE PRICES (000) CONTRACTUAL LIFE PRICE (000) PRICE - -------------- ----- ------------------- -------- ------- -------- $9.50-$11.00 38 3.03 $10.95 23 $10.92 $14.50-$19.33 1,326 8.49 $15.58 517 $15.54 $22.00-$26.50 2,827 7.95 $23.60 137 $24.21 $61.50 4 1.06 $61.50 4 $61.50 ------ ---- - ---- ---- -- --- ----- 4,195 8.07 $21.06 681 $17.39 =========== ===== ==== ====== ===
Preferred shares The Corporation has 10,000,000 authorized preferred shares, $0.01 par value, none of which are issued or outstanding. F-30 92 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 14. COMMITMENTS AND CONTINGENCIES. Litigation During the year ended December 31, 1995, the Trust and the Corporation completed settlements of two purported class action complaints and one complaint which was purportedly brought on behalf of the Trust and the Corporation (collectively, the "Shareholder Actions"). Holders of an aggregate of 299,750 Paired Shares (as adjusted for the one-for-six reverse stock split in June 1995 and the three-for-two stock split in January 1997) (approximately 0.7% of the outstanding Paired Shares as of December 31, 1996), all of which were owned by Mr. Leonard Ross and his affiliates (collectively, "Ross"), opted out of the Shareholder Actions and did not share in the settlement. Ross threatened to bring a separate action alleging similar causes of action as those alleged in the Shareholder Actions as well as other alleged causes of action. In November 1994, Ross assigned to Starwood Capital all of his claims against the Trust and Corporation. In connection with such assignment, Starwood Capital agreed to purchase all of Ross's Paired Shares at Ross's election during a 60-day period beginning in December 1995, at a price of $22.50 per Paired Share (as adjusted for the three-for-two stock split in January 1997) subject to certain adjustments. Starwood Capital, as the assignee of Ross's claims against the Trust and the Corporation, agreed that the maximum amount Starwood Capital may recover under such claims would not exceed an aggregate of $1.8 million and the Trust and the Corporation agreed to toll the statute of limitations respecting such claims until January 31, 1996. The Trust and Corporation also agreed that under certain circumstances they may be obligated severally to indemnify Starwood Capital with respect to Starwood Capital's obligations to Ross, up to a maximum of $1.8 million, upon receipt of a full release from Starwood Capital of all of the claims assigned by Ross. Ross elected to sell his Paired Shares, and in January 1996 those Paired Shares were sold to a third-party through Merrill Lynch. The Paired Shares were sold at a price of $19.75 per Paired Share (as adjusted for the three-for-two stock split in January 1997); the Trust and Corporation paid Starwood Capital approximately $1,376,000 in the aggregate pursuant to their indemnity obligations, and Starwood Capital released the Trust and the Corporation from all the claims assigned to it by Ross. Environmental matters In 1996, in conjunction with the purchase of thirty new hotels, preliminary or "Phase I" environmental site assessments were prepared. The results of those Phase I assessments revealed that the overall potential for environmental impairment was assessed as low. In the latter part of 1995, in connection with either the Acquisition Facility or the purchase of the relevant hotel, preliminary or "Phase I" environmental site assessments were prepared with respect to 35 of the Trust's fee interest and ground leasehold properties. The results of those Phase I assessments and subsequent Phase II assessments performed at six of the properties revealed that the overall potential for environmental impairment was assessed as low. Neither the Trust, the Corporation, the Realty Partnership nor the Operating Partnership has been identified by the U.S. Environmental Protection Agency as a responsible or potentially responsible party for, nor have they been the subject of any governmental proceeding with respect to, any hazardous waste contamination. If the Trust, the Corporation, the Realty Partnership or the Operating Partnership were to be identified as a responsible party, they would in most circumstances be strictly liable, jointly and severally with F-31 93 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) other responsible parties, for environmental investigation and clean-up costs incurred by the government and, to a more limited extent, by private persons. Based upon the environmental reports described above, the Trust believes that a substantial number of its hotels incorporate potentially asbestos-containing materials. Under applicable current Federal, state and local laws, asbestos need not be removed from or encapsulated in a hotel unless and until the hotel is renovated or remodeled. In that context, upon the performance of a material renovation, the appropriate measures will need to be taken. Meanwhile, the Trust has placed in effect an asbestos operation and maintenance plan for all those properties testing positive for asbestos. Based upon the above-described environmental reports and testing and facts known to the managements of the Trust and the Corporation, future remediation costs are not expected to have a material adverse effect on the results of operations, financial position or cash flows of the Trust or the Corporation and compliance with environmental laws has not had and is not expected to have a material effect on the capital expenditures, earnings or competitive position of the Trust or the Corporation. Franchise Agreements Forty-seven of the sixty-two hotel properties in which Starwood Lodging had an equity interest at December 31, 1996, are operated pursuant to franchise or license agreements ("Franchise Agreements"). The Franchise Agreements generally require the payment of a monthly royalty fee based on gross room revenue and various other fees associated with certain marketing or advertising and centralized reservation services, also generally based on gross room revenues. The Franchise Agreements have various durations but generally may be terminated upon prior notice no greater than three years or upon payment of certain specified fees. The Franchise Agreements generally contain specific standards for, and restrictions and limitations on, the operation and maintenance of the hotels which are established by the franchisors to maintain uniformity in the system created by each such franchisor. Such standards generally regulate the appearance of the hotel, quality and type of goods and services offered, signage, and protection of marks. Compliance with such standards may from time to time require significant expenditures for capital improvements. The Franchise Agreements also generally contain financial reporting requirements relating to calculation of royalty and other fees and insurance requirements with respect to specified liabilities, approved coverage limits and minimum insurance company rating. The Franchise Agreements generally require the consent of the franchisor to a transfer of an interest in the applicable franchise, and both the consent of the franchisor and the execution of a new franchise agreement in the event of a transfer of all or controlling portion of the franchisee under the relevant Franchise Agreement. In addition, some franchise agreements may require payment of an initial fee upon establishment of a franchise relationship. Performance bonds and restricted cash The Corporation is required to post performance bonds or cash collateral for certain obligations. At December 31, 1996 and 1995, the Corporation had posted performance bonds totaling approximately $780,000 and $756,000, respectively, to cover such obligations; however, no amounts had been drawn against such bonds. These amounts are included in inventories, prepaid expenses and other assets and are restricted as to use at December 31, 1996 and 1995. F-32 94 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 15. RELATED PARTY TRANSACTIONS. At December 31, 1996 and 1995, the Trust holds an $800,000 uncollateralized note receivable from John Rothman, the former President and Chief Executive Officer of the Trust. The principal amount of the note receivable is due in 1999 and bears interest due annually at 10%. The Company and Starwood Capital had agreed that, subject to approval by the Independent Trustees or Directors, as appropriate, Starwood Capital will be reimbursed for out-of-pocket costs and expenses for any services provided to the Company. In connection with the acquisition of a portfolio of eight upscale and luxury full-service hotels containing 3,141 total rooms from an institutional seller (the "Institutional Portfolio") in August 1996, the Trust made a one-time grant to Starwood Capital Group, L.L.C. of a Restricted Stock Award of 250,870 Paired Shares (after giving effect to the three-for-two stock split in January, 1997) (an approximate value of $6 million). In connection with the grant of such Restricted Stock Award effective August 12, 1996, Starwood Lodging's reimbursement arrangement with Starwood Capital was changed so as to eliminate reimbursement of internal costs of Starwood Capital for any services of senior management of Starwood Capital (subject to the existing annual limitation of $250,000 for services of employees of Starwood Capital other than such senior management) and after one year, for any services of any employee of Starwood Capital. During 1996, the Trust reimbursed Starwood Capital for $414,000 of internal cost, of which $226,000 related to 1995. Aside from Starwood Capital's internal cost, during 1996 and 1995, Starwood Capital incurred approximately $199,000 and $1,198,000, respectively, of costs paid directly by the Company to third party vendors for services provided to the Company, representing costs associated with the Reorganization, the Offering and hotel acquisitions. Starwood Capital owns an interest in the Westin Hotel Company and certain affiliates ("Westin"), which own equity interests in domestic and international hotels and which manage, franchise or represent hotels worldwide. During 1996, the Company converted five hotels to Westins. In connection with the conversions, during 1996, Westin made an interest-free loan of $2.8 million to cover certain conversion costs. During 1996, the Corporation made a $150,000 non-interest bearing bridge loan to an officer of the Corporation, Eric A. Danziger. The bridge loan is secured by a second mortgage on Mr. Danziger's residence in Phoenix, Arizona. The bridge loan matures in September, 1997. During 1996, the Corporation made a $266,667 non-interest bearing bridge loan to an officer of the Corporation, Theodore W. Darnall. The bridge loan is secured by a second mortgage on Mr. Darnall's residence in Phoenix, Arizona. The bridge loan will mature as to $100,000 upon the sale of Mr. Darnall's home in Pittsburgh, and the balance upon termination of his employment with the Corporation. During 1995, the Trust loaned $250,000 to a former officer of the Trust, Jeffrey C. Lapin. The loan has a term of 10 years, bears interest, to be paid quarterly, at the lowest applicable rate prescribed by section 1274(d) of the Internal Revenue Code. At December 31, 1996, the loan had an applicable rate of 6.6% and was current. During 1996 the Trust entered into a separation agreement with Mr. Lapin in which the Trust agreed to forgive $150,000 of the $250,000 in 1997. 16. INDUSTRY SEGMENT INFORMATION. The Corporation operates in two segments of the hospitality industry, hotel and gaming. The hotel segment consists of room, food and beverage and other revenues recognized in connection with the operation of hotels owned by the Corporation or under lease from the Trust, and income from management contracts. F-33 95 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The Company has disclosed these segments in the combined and separate statements of operations. The gaming segment consists of net win from casino operations, as well as room, food and beverage and other revenues recognized in connection with the operation of the two hotel/casinos under lease from the Trust. For the year ended December 31, 1996, the gaming segment is no longer a material component of the Corporation's operations. As a result, 1996 segment information relating to gaming is not disclosed. The following information summarizes revenue and operating results for the gaming segment for the years ended December 31, 1995 and 1994:
YEARS ENDED DECEMBER 31, --------------------------- 1995 1994 ----------- ----------- GAMING: Revenue: Casino.................................................. $14,009,000 $15,137,000 Room.................................................... 4,682,000 4,516,000 Food and beverage....................................... 5,155,000 5,166,000 Other................................................... 5,313,000 5,506,000 Less promotional allowances............................. (2,230,000) (2,344,000) ---------- ---------- Gaming revenues......................................... 26,929,000 27,981,000 ---------- ---------- Expenses: Casino.................................................. 6,156,000 6,308,000 Rooms................................................... 2,220,000 2,156,000 Food and beverage....................................... 4,896,000 4,514,000 Other (including undistributed operating expenses and fixed charges)....................................... 10,970,000 11,476,000 ---------- ---------- Expenses of gaming operations 24,242,000 24,454,000 Rent to Trust........................................... 2,400,000 2,400,000 Depreciation and amortization........................... 205,000 382,000 ---------- ---------- Total expenses.......................................... 26,847,000 27,236,000 ---------- ---------- Operating income.......................................... $ 82,000 $ 745,000 ========== ==========
A reconciliation of the combined segment operating income to the net loss of the Corporation is as follows:
YEARS ENDED DECEMBER 31, --------------------------- 1995 1994 ----------- ----------- Hotel operating income.................................... $ 5,419,000 $ 4,507,000 Gaming operating income................................... 82,000 745,000 ----------- ----------- Combined operating income................................. 5,501,000 5,252,000 Interest and other income................................. 632,000 66,000 Interest expense.......................................... (5,470,000) (3,071,000) Corporate expenses........................................ (2,703,000) (3,445,000) ----------- ----------- Loss before minority interest................... $(2,040,000) $(1,198,000) =========== ===========
F-34 96 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Additional financial data by industry segment for the Corporation is as follows:
DECEMBER 31, ---------------------------- 1995 1994 ------------ ----------- IDENTIFIABLE ASSETS: Hotel.................................................. $103,304,000 $40,357,000 Gaming................................................. 5,058,000 3,710,000 Corporate and other.................................... 12,359,000 4,559,000 ------------ ----------- Total.......................................... $120,721,000 $48,626,000 ============ =========== CAPITAL EXPENDITURES: Hotel.................................................. $ 42,392,000 $ 421,000 Gaming................................................. 191,000 221,000 Corporate and other.................................... 72,000 29,000 ------------ ----------- Total.......................................... $ 42,655,000 $ 671,000 DEPRECIATION AND AMORTIZATION: Hotel.................................................. $ 5,126,000 $ 2,072,000 Gaming................................................. 205,000 389,000 Corporate and other.................................... 1,161,000 495,000 ------------ ----------- Total.......................................... $ 6,492,000 $ 2,956,000 ============ ===========
The Trust is an owner/lessor of real property and does not "operate" in different segments, and is therefore not subject to disclosure by segment. The Trust's net investment (initial cost less accumulated depreciation and provision for loss) in the two Las Vegas hotel/casinos was $20,547,000 at December 31, 1995. The Trust sold its interest in the two properties during 1996. F-35 97 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 17. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
COMBINED TRUST CORPORATION ---------------------------- ------------------------- ---------------------------- 1996 1995 1996 1995 1996 1995 ------------ ----------- ----------- ----------- ------------ ----------- First Quarter Revenue........... $ 54,885,000 $32,138,000 $17,598,000 $ 8,576,000 $ 50,619,000 $29,492,000 Net income (loss).......... 4,090,000 348,000(2) 7,142,000 652,000(2) (3,052,000) (304,000) Net income (loss) per share/ Paired Share.... 0.20 0.11 0.35 0.21 (0.15) (0.10) Second Quarter Revenue........... $ 71,502,000 $37,630,000 $17,051,000 $ 9,448,000 $ 68,116,000 $34,789,000 Net income........ 9,598,000(1) 978,000 5,600,000 560,000 3,998,000(1) 418,000 Net income per share/ Paired Share.... 0.41 0.32 0.24 0.18 0.17 0.14 Third Quarter Revenue........... $108,354,000 $42,379,000 $27,789,000 $11,751,000 $106,187,000 $39,007,000 Net income (loss).......... 6,099,000 3,469,000(3) 7,608,000 3,479,000(3) (1,509,000) (10,000) Net income (loss) per share/ Paired Share.... 0.19 0.17 0.23 0.17 (0.05) 0.00 Fourth Quarter Revenue........... $193,797,000 $49,569,000 $52,621,000 $14,248,000 $185,234,000 $45,896,000 Net income (loss).......... 7,164,000 4,175,000 13,239,000 6,018,000 (6,075,000) (1,843,000) Net income (loss) per share/ Paired Share.... 0.17 0.20 0.32 0.29 (0.15) (0.09)
- --------------- (1) During the quarter ended June 30, 1996, the Corporation recorded an extraordinary gain of $1,077,000 (net of minority interest of $413,000) relating to extinguishment of debt (see Note 3). (2) During the quarter ended March 31, 1995, the Trust recorded an extraordinary gain of $363,000 (net of minority interest of $921,000) related to the extinguishment of debt (see Note 3). (3) During the quarter ended September 30, 1995, the Trust recorded an extraordinary loss of $2,518,000 (net of minority interest of $1,084,000) related to the extinguishment of debt under the 1995 Credit Agreement which was terminated during the year (see Note 3). 18. COMBINED PRO FORMA FINANCIAL INFORMATION (UNAUDITED) Due to the impact of the 30 hotels acquired by the Company in 1996, the April Offering, and the August Offering, the following combined pro forma statements of operations are presented to supplement the historical statements of operations. These combined pro forma statements reflect the 1996 Offerings and certain property acquisitions as if they occurred on January 1, 1995:
YEAR ENDED DECEMBER 31, ----------------------- 1996 1995 -------- -------- COMBINED (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ----------------------- Revenues..................................................... $602,186 $467,651 Net income (loss)............................................ 30,759 35,855 Net income (loss) per share.................................. $ 0.76 $ 1.39
F-36 98 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 19. SUBSEQUENT EVENTS (UNAUDITED) On January 8, 1997, the Company completed the purchase of the 220-room Deerfield Beach Hilton Hotel, located in Deerfield Beach, Florida, for $11.5 million. On January 17, 1997, the Company completed the purchase of the 263-room Radisson Hotel Denver South, located in Denver, Colorado, for $21.75 million. On January 27, 1997, the Company completed a three-for-two stock split in the form of a 50% paired share stock dividend. On February 14, 1997, the Company acquired HEI Hotels, LLC ("HEI"), a Westport, Connecticut-based hotel operating company, which currently manages 19 hotels, and ten hotel properties that HEI owned in a joint venture with PRISA II, an institutional real estate investment fund managed by Prudential Real Estate Investors. PRISA II and the owners of HEI received limited partnership interests in the Realty Partnership and the Operating Partnership exchangeable for approximately 6.548 million Paired Shares (after giving effect to the three-for-two stock split in January 1997) (valued for purposes of the transaction at approximately $215 million) of the Trust and Corporation, and $112 million in cash and notes. The HEI/PRISA II portfolio acquired by the Company contains ten hotel assets with 3,040 hotel rooms, located in Long Beach, California; Norfolk, Virginia; Baltimore, Maryland: Edison, New Jersey; Arlington, Virginia; Charleston, South Carolina; King of Prussia, Pennsylvania; Santa Rosa, California; Novi, Michigan; and Atlanta, Georgia. The nine additional HEI managed hotels, aggregating 2,297 rooms are located in Houston, Texas; Ontario, California; Grand Junction, Colorado; Danbury, Connecticut; Princeton, New Jersey; Smithtown, New York; Wilmington, Delaware; Bethesda, Maryland and Virginia Beach, Virginia. On February 20, 1997, the Realty Partnership guaranteed $39.5 million of tax exempt bonds issued by the Philadelphia authority. The Company received approximately $37.6 million in proceeds. On February 21, 1997, the Company completed the purchase of the 578-room Days Inn in Chicago, Illinois for approximately $48 million. F-37 99 SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION -- TRUST DECEMBER 31, 1996
GROSS AMOUNT BOOK VALUE COSTS SUBSEQUENT TO AT DECEMBER 31, 1996 ACQUISITION ----------------------------- STARWOOD LODGING TRUST INITIAL COST TO COMPANY ------------------------ (1) (1) --------------------------- BUILDING BUILDING AND AND BUILDING AND DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS - --------------------------------------- ------------ ------------ ---------- ----------- ------------ -------------- HOTEL ASSETS: Embassy Suites -- Phoenix, AZ.......... $ 2,889,000 $ 11,658,000 $ 675,000 $ 2,889,000 $ 12,333,000 Embassy Suites -- Tempe, AZ............ 1,000,000 14,458,000 (82,000) 1,000,000 14,376,000 Hotel Park Tucson -- Tucson, AZ........ 1,800,000 7,911,000 1,800,000 7,911,000 Plaza Hotel & Conference Center -- Tucson, AZ................. 350,000 4,357,000 229,000 350,000 4,586,000 Westin LAX Airport -- Los Angeles, CA................................... 8,800,000 22,397,000 8,800,000 22,397,000 Westwood Marquis -- Los Angeles, CA.... 3,300,800 29,707,200 3,300,800 29,707,200 Embassy Suites -- Palm Desert, CA...... 2,790,000 9,309,000 2,790,000 9,309,000 Doubletree Hotel -- Rancho Bernardo, CA................................... 1,256,000 6,275,000 1,256,000 6,275,000 Vagabond Inn -- Rosemead, CA........... 700,000 2,100,000 700,000 2,100,000 Vagabond Inn -- Sacramento, CA......... 700,000 3,200,000 700,000 3,200,000 Vagabond Inn -- Woodland Hills, CA..... 1,200,000 3,200,000 1,200,000 3,200,000 Westin Horton Plaza -- San Diego, CA... 6,500,000 35,732,000 6,500,000 35,732,000 Clarion Hotel SFO Airport -- Millbrae, CA................................... 7,210,000 19,537,000 7,210,000 19,537,000 Doubletree Cypress Creek -- Ft. Lauderdale, FL....................... 3,050,000 17,718,000 3,050,000 17,718,000 Wyndham Ft. Lauderdale Airport -- Ft. Lauderdale, FL....................... 2,910,000 17,017,000 2,910,000 17,017,000 Radisson Hotel -- Gainesville, FL...... 1,002,000 3,759,000 1,689,000 1,002,000 5,448,000 Westin Airport -- Tampa, FL............ 2,340,000 16,941,000 2,340,000 16,941,000 Holiday Inn -- Albany, GA.............. 796,000 4,980,000 187,000 796,000 5,167,000 Lenox Hill Inn -- Atlanta, GA.......... 4,383,000 4,197,000 33,000 4,383,000 4,230,000 Marque of Atlanta -- Atlanta, GA....... 3,780,000 15,777,000 3,780,000 15,777,000 Sheraton Colony Square Hotel -- Atlanta, GA................. 2,000,000 25,285,000 64,000 2,000,000 25,349,000 Terrace Garden Inn -- Atlanta, GA...... 5,875,000 19,944,000 59,000 5,875,000 20,003,000 Westin North at Perimeter -- Atlanta, GA................................... 5,370,000 41,977,000 5,370,000 41,977,000 Best Western Historic District -- Savannah, GA............. 431,000 3,745,000 255,000 431,000 4,000,000 Arlington Park Hilton -- Arlington Heights, IL.......................... 5,500,000 6,877,000 5,500,000 6,877,000 Harvey Hotel -- Wichita, KS............ 341,000 3,571,000 17,000 341,000 3,588,000 STARWOOD LODGING TRUST (3) ACCUMULATED DEPRECIATION & YEAR OF DATE DESCRIPTION AMORTIZATION CONSTRUCTION ACQUIRED LIFE - --------------------------------------- -------------- ------------ --------- ---- HOTEL ASSETS: Embassy Suites -- Phoenix, AZ.......... $ 4,484,000 1981 12/13/83 35 Embassy Suites -- Tempe, AZ............ 981,000 1984 07/25/95 35 Hotel Park Tucson -- Tucson, AZ........ 203,000 1986 08/16/96 35 Plaza Hotel & Conference Center -- Tucson, AZ................. 1,370,000 1971 09/16/86 35 Westin LAX Airport -- Los Angeles, CA................................... 548,000 1986 08/12/96 35 Westwood Marquis -- Los Angeles, CA.... 1969 12/31/96 35 Embassy Suites -- Palm Desert, CA...... 266,000 1985 08/16/96 35 Doubletree Hotel -- Rancho Bernardo, CA................................... 945,000 1988 01/01/95 35 Vagabond Inn -- Rosemead, CA........... 555,000 1974 09/16/86 35 Vagabond Inn -- Sacramento, CA......... 797,000 1975 09/16/86 35 Vagabond Inn -- Woodland Hills, CA..... 797,000 1973 09/16/86 35 Westin Horton Plaza -- San Diego, CA... 794,000 1987 08/12/96 35 Clarion Hotel SFO Airport -- Millbrae, CA................................... 560,000 1962 04/25/96 35 Doubletree Cypress Creek -- Ft. Lauderdale, FL....................... 817,000 1985 04/26/96 35 Wyndham Ft. Lauderdale Airport -- Ft. Lauderdale, FL....................... 176,000 1985 08/12/96 35 Radisson Hotel -- Gainesville, FL...... 1,491,000 1974 11/24/86 35 Westin Airport -- Tampa, FL............ 659,000 1987 04/26/96 35 Holiday Inn -- Albany, GA.............. 1,118,000 1989 06/08/89 35 Lenox Hill Inn -- Atlanta, GA.......... 305,000 1965 10/31/95 35 Marque of Atlanta -- Atlanta, GA....... 570,000 1980 08/16/96 35 Sheraton Colony Square Hotel -- Atlanta, GA................. 1,900,000 1973 07/18/95 35 Terrace Garden Inn -- Atlanta, GA...... 1,454,000 1975 10/31/95 35 Westin North at Perimeter -- Atlanta, GA................................... 951,000 1986 08/12/96 35 Best Western Historic District -- Savannah, GA............. 1,802,000 1971 12/11/86 35 Arlington Park Hilton -- Arlington Heights, IL.......................... 102,000 1968 08/16/96 35 Harvey Hotel -- Wichita, KS............ 233,000 1974 01/01/95 35
(continued) F-38 100 SCHEDULE III (CONTINUED) REAL ESTATE AND ACCUMULATED DEPRECIATION -- TRUST DECEMBER 31, 1996
GROSS AMOUNT BOOK VALUE COSTS SUBSEQUENT TO AT DECEMBER 31, 1996 ACQUISITION ----------------------------- STARWOOD LODGING TRUST INITIAL COST TO COMPANY ------------------------ (1) (1) --------------------------- BUILDING BUILDING AND AND BUILDING AND DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS - --------------------------------------- ------------ ------------ ---------- ----------- ------------ -------------- HOTEL ASSETS: Doubletree French Quarter Suites -- Lexington, KY........................ 1,237,000 9,573,000 8,000 1,237,000 9,581,000 Park Plaza -- Boston, MA............... 9,705,100 87,345,900 9,705,100 87,345,900 Sheraton Hotel -- Needham, MA.......... 3,040,000 14,167,000 3,040,000 14,167,000 Westin Hotel -- Waltham, MA............ 5,000,000 31,703,000 5,000,000 31,703,000 Holiday Inn Calverton -- Beltsville, MD................................... 1,636,000 8,489,000 9,000 51,000 1,645,000 8,540,000 Bay Valley Resort -- Bay City, MI...... 2,500,000 5,472,000 1,000 1,229,000 2,501,000 6,701,000 Doubletree Mall of America -- Bloomington, MN........... 2,890,000 30,491,000 2,890,000 30,491,000 Sheraton Hotel Metrodome -- Minneapolis, MN......... 4,537,000 13,759,000 4,537,000 13,759,000 Embassy Suites -- St. Louis, MO........ 2,330,000 14,895,000 2,330,000 14,895,000 Ritz Carlton -- Kansas, MO............. 9,420,000 29,990,000 9,420,000 29,990,000 Omni Europa -- Chapel Hill, NC......... 500,000 8,920,000 82,000 500,000 9,002,000 Marriott Forrestal Village -- Princeton, NJ............. 3,150,000 14,724,000 3,150,000 14,724,000 Best Western Airport Inn -- Albuquerque, NM................................... 5,165,000 52,000 5,217,000 Best Western -- Las Cruces, NM......... 1,150,000 3,295,000 (290,000) 53,000 860,000 3,348,000 Doral Court -- New York, NY............ 1,718,600 15,467,400 1,718,600 15,467,400 Doral Inn -- New York, NY.............. 3,112,000 3,112,000 Doral Tuscany -- New York, NY.......... 1,703,900 15,335,100 1,703,900 15,335,100 Days Inn City Center -- Portland, OR... 1,900,000 3,768,000 120,000 329,000 2,020,000 4,097,000 Riverside Inn -- Portland, OR.......... 1,300,000 3,375,000 120,000 273,000 1,420,000 3,648,000 Doubletree Guest Suites -- Philadelphia, PA........... 2,850,000 12,400,000 2,850,000 12,400,000 Hilton Hotel -- Allentown, PA.......... 1,200,000 5,343,000 1,200,000 5,343,000 Days Inn -- Philadelphia, PA........... 1,900,000 1,672,000 1,900,000 1,672,000 Ritz Carlton -- Philadelphia, PA....... 5,220,000 25,072,000 5,220,000 25,072,000 Park Central -- Dallas, TX............. 11,832,000 1,830,000 5,831,000 1,830,000 17,663,000 Best Western Airport Inn -- El Paso, TX................................... 1,400,000 3,409,000 113,000 1,400,000 3,522,000 Doubletree Guest Suites DFW -- Irving, TX................................... 3,080,000 21,707,000 3,080,000 21,707,000 STARWOOD LODGING TRUST (3) ACCUMULATED DEPRECIATION & YEAR OF DATE DESCRIPTION AMORTIZATION CONSTRUCTION ACQUIRED LIFE - --------------------------------------- -------------- ------------ --------- ---- HOTEL ASSETS: Doubletree French Quarter Suites -- Lexington, KY........................ 1,158,000 1989 01/01/95 35 Park Plaza -- Boston, MA............... 5,208,000 1927 01/24/96 35 Sheraton Hotel -- Needham, MA.......... 384,000 1986 08/16/96 35 Westin Hotel -- Waltham, MA............ 598,000 1990 08/12/96 35 Holiday Inn Calverton -- Beltsville, MD................................... 785,000 1987 11/30/95 35 Bay Valley Resort -- Bay City, MI...... 2,202,000 1973 05/10/84 35 Doubletree Mall of America -- Bloomington, MN........... 785,000 1975 08/12/96 35 Sheraton Hotel Metrodome -- Minneapolis, MN......... 406,000 1980 09/05/96 35 Embassy Suites -- St. Louis, MO........ 441,000 1985 08/16/96 35 Ritz Carlton -- Kansas, MO............. 898,000 1973 08/12/96 35 Omni Europa -- Chapel Hill, NC......... 1,183,000 1981 04/07/95 35 Marriott Forrestal Village -- Princeton, NJ............. 263,000 1987 08/29/96 35 Best Western Airport Inn -- Albuquerque, NM................................... 1,359,000 1980 09/16/86 35 Best Western -- Las Cruces, NM......... 927,000 1974 09/16/86 35 Doral Court -- New York, NY............ 158,000 1927 09/19/96 35 Doral Inn -- New York, NY.............. 1927 09/20/95 35 Doral Tuscany -- New York, NY.......... 97,000 1935 09/19/96 35 Days Inn City Center -- Portland, OR... 1,254,000 1962 09/16/86 35 Riverside Inn -- Portland, OR.......... 1,108,000 1964 09/16/86 35 Doubletree Guest Suites -- Philadelphia, PA........... 396,000 1985 06/03/96 35 Hilton Hotel -- Allentown, PA.......... 167,000 1981 08/16/96 35 Days Inn -- Philadelphia, PA........... 1984 07/01/96 35 Ritz Carlton -- Philadelphia, PA....... 461,000 1990 08/12/96 35 Park Central -- Dallas, TX............. 4,924,000 1972 09/09/88 35 Best Western Airport Inn -- El Paso, TX................................... 1,013,000 1974 09/16/86 35 Doubletree Guest Suites DFW -- Irving, TX................................... 1,050,000 1985 04/26/96 35
(continued) F-39 101 SCHEDULE III (CONTINUED) REAL ESTATE AND ACCUMULATED DEPRECIATION -- TRUST DECEMBER 31, 1996
COSTS SUBSEQUENT TO GROSS AMOUNT BOOK VALUE AT DECEMBER 31, 1996 ACQUISITION ----------------------------- STARWOOD LODGING TRUST INITIAL COST TO COMPANY ------------------------ (1) (1) --------------------------- BUILDING BUILDING AND AND BUILDING AND DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS ------------ ------------ ---------- ----------- ------------ -------------- HOTEL ASSETS: Residence Inn Tyson's Corner -- Vienna, VA................................... 1,418,000 4,119,000 468,000 1,418,000 4,587,000 Tyee Hotel -- Olympia, WA(2)........... 1,008,000 1,562,000 (63,000) 1,065,000 945,000 2,627,000 Days Inn Town Center -- Seattle, WA.... 1,733,000 43,000 1,776,000 Meany Tower Hotel -- Seattle, WA(2).... 1,700,000 6,270,000 120,000 282,000 1,820,000 6,552,000 Sixth Avenue Inn -- Seattle, WA........ 2,720,000 48,000 2,768,000 Capitol Hill Suites -- Washington, D.C.................................. 1,276,000 6,868,000 173,000 1,276,000 7,041,000 Westin Hotel -- Washington, D.C........ 8,470,000 22,422,000 8,470,000 22,422,000 ------------ ------------ ---------- ----------- ------------ -------------- $162,625,400 $794,692,600 $1,847,000 $13,226,000 $164,472,400 $ 807,918,600 ============ ============ ========== =========== ============ Land...................... 164,472,400 Furniture, fixtures & 85,717,000 equipment................. Construction in 16,939,000 progress.................. -------------- $1,075,047,000 ============== STARWOOD LODGING TRUST (3) ACCUMULATED DEPRECIATION & YEAR OF DATE DESCRIPTION AMORTIZATION CONSTRUCTION ACQUIRED LIFE -------------- ------------ --------- ---- HOTEL ASSETS: Residence Inn Tyson's Corner -- Vienna, VA................................... 1,621,000 1984 07/01/84 35 Tyee Hotel -- Olympia, WA(2)........... 680,000 1961 02/17/87 35 Days Inn Town Center -- Seattle, WA.... 1,561,000 1957 09/16/86 13 Meany Tower Hotel -- Seattle, WA(2).... 1,985,000 1932 09/16/86 35 Sixth Avenue Inn -- Seattle, WA........ 2,295,000 1959 09/16/86 13 Capitol Hill Suites -- Washington, D.C.................................. 828,000 1955 01/01/95 35 Westin Hotel -- Washington, D.C........ 1,631,000 1984 01/04/96 35 ----------- $ 61,704,000 12,419,000 ----------- $ 74,123,000 ===========
- --------------- (1) As of December 31, 1996, real estate and furniture, fixtures and equipment have a cost for federal income tax purposes which reasonably approximates their carrying value. (2) Land costs represent costs allocated to leasehold interest in land. (3) Includes reserve for losses discussed in Notes 1 and 3 of Notes to the Financial Statements. (Continued) F-40 102 REAL ESTATE AND ACCUMULATED DEPRECIATION -- TRUST A reconciliation of the Trust's investment in real estate, furniture and fixtures and related accumulated depreciation is as follows:
YEAR ENDED DECEMBER 31 ------------------------------------ 1996 1995 1994 ---------- -------- -------- (IN THOUSANDS) REAL ESTATE AND FURNITURE AND FIXTURES: Balance at beginning of period............................ $ 305,637 $188,608 $224,170 Additions during period: Acquisitions............................................ 803,895 100,749 Contributed properties.................................. 30,642 Improvements............................................ 15,661 4,660 2,270 Transfer of Properties.................................. 4,014 Deductions during period: Sale of properties...................................... (54,160) (37,832) Transfer of properties.................................. (19,022) ---------- -------- -------- Balance at end of period.................................. $1,075,047 $305,637 $188,608 ========== ======== ======== ACCUMULATED DEPRECIATION: Balance at beginning of period............................ $ 64,027 $ 71,899 $ 94,252 Additions during period: Depreciation expense.................................... 39,137 7,674 5,205 Contributed properties.................................. 890 Transfer of properties.................................. 116 Deductions during period: Sale of properties...................................... (29,157) (27,997) Transfer of properties.................................. (16,436) Provision for investment losses: Jacksonville, FL........................................ 389(1) Fayetteville, NC........................................ 50(1) ---------- -------- -------- Balance at end of period.................................. $ 74,123 $ 64,027 $ 71,899 ========== ======== ========
(continued) - --------------- (1) Provision for loss was recorded as a result of the difference between NBV of properties which had been identified for sale and their estimated fair value. F-41 103 SCHEDULE III (CONTINUED) REAL ESTATE AND ACCUMULATED DEPRECIATION -- CORPORATION DECEMBER 31, 1996
GROSS AMOUNT BOOK VALUE AT COSTS SUBSEQUENT TO DECEMBER INITIAL COST TO COMPANY ACQUISITION 31, 1996 ------------------------- --------------------- ---------- STARWOOD LODGING CORPORATION BUILDING AND BUILDING AND (1) DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS LAND - ------------------------------------------------------- ---------- ------------ ------ ------------ ---------- HOTEL ASSETS: Embassy Suites -- Phoenix, AZ.......................... $ 45,000 Plaza Hotel & Conference Center -- Tucson, AZ.......... 595,000 383,000 Westin Horton Plaza -- San Diego, CA................... 20,000 Radisson Hotel -- Gainesville, FL...................... 41,000 Holiday Inn -- Albany, GA.............................. 64,000 Best Western Historic District -- Savannah, GA......... 47,000 Midland Hotel -- Chicago, IL........................... 17,215,000 Doubletree French Quarter Suites -- Lexington, KY...... 207,000 Westin -- Waltham, MA.................................. 12,000 Bay Valley Resort -- Bay City, MI...................... 222,000 Omni Europa -- Chapel Hill, NC......................... 97,000 Radisson Marque -- Winston-Salem, NC................... 610,000 6,088,000 610,000 Best Western Airport Inn -- Albuquerque, NM............ 325,000 47,000 Best Western -- Las Cruces, NM......................... 252,000 Doral Inn -- New York, NY.............................. 33,948,000 50,000 Days Inn City Center -- Portland, OR................... 2,185,000 78,000 Riverside Inn -- Portland, OR.......................... 2,210,000 1,000 25,000 1,000 Doubletree Guest Suites -- Philadelphia, PA............ 177,000 Park Central -- Dallas, TX............................. 1,840,000 Best Western Airport Inn -- El Paso, TX................ 18,000 Residence Inn Tyson's Corner -- Vienna, VA............. 55,000 Tyee Hotel -- Olympia, WA.............................. 3,000 Days Inn Town Center -- Seattle, WA.................... 433,000 204,000 Meany Tower Hotel -- Seattle, WA....................... 3,739,000 96,000 Sixth Avenue Inn -- Seattle, WA........................ 1,539,000 124,000 Marriott Hotel -- Milwaukee, WI(3)..................... 2,500,000 17,422,000 3,661,000 2,500,000 Capitol Hill Suites -- Washington, D.C................. 64,000 Westin Hotel -- Washington, D.C........................ 345,000 ---------- ----------- ------ ---------- ---------- $3,110,000 $86,044,000 $1,000 $7,832,000 $3,111,000 ========== =========== ====== ========== ========== GROSS AMOUNT BOOK VALUE AT DECEMBER 31, 1996 ------------ (2) (1) ACCUMULATED STARWOOD LODGING CORPORATION BUILDING AND DEPRECIATION & YEAR OF DATE DESCRIPTION IMPROVEMENTS AMORTIZATION CONSTRUCTION ACQUIRED LIFE - ------------------------------------------------------- ------------ -------------- ------------ --------- ---- HOTEL ASSETS: Embassy Suites -- Phoenix, AZ.......................... $ 45,000 1981 12/13/83 35 Plaza Hotel & Conference Center -- Tucson, AZ.......... 978,000 752,000 1971 09/16/86 35 Westin Horton Plaza -- San Diego, CA................... 20,000 1987 08/12/96 35 Radisson Hotel -- Gainesville, FL...................... 41,000 1974 09/16/86 35 Holiday Inn -- Albany, GA.............................. 64,000 1989 06/08/89 35 Best Western Historic District -- Savannah, GA......... 47,000 1971 12/11/86 35 Midland Hotel -- Chicago, IL........................... 17,215,000 1,104,000 1934 03/22/96 35 Doubletree French Quarter Suites -- Lexington, KY...... 207,000 1989 01/01/95 35 Westin -- Waltham, MA.................................. 12,000 1990 08/12/96 35 Bay Valley Resort -- Bay City, MI...................... 222,000 1973 05/10/84 35 Omni Europa -- Chapel Hill, NC......................... 97,000 1981 04/07/95 35 Radisson Marque -- Winston-Salem, NC................... 6,088,000 1974 08/16/96 35 Best Western Airport Inn -- Albuquerque, NM............ 372,000 1980 09/16/86 35 Best Western -- Las Cruces, NM......................... 252,000 1974 09/16/86 35 Doral Inn -- New York, NY.............................. 33,998,000 1,000,000 1927 09/20/95 35 Days Inn City Center -- Portland, OR................... 2,263,000 608,000 1962 09/16/86 35 Riverside Inn -- Portland, OR.......................... 2,235,000 591,000 1964 09/16/86 35 Doubletree Guest Suites -- Philadelphia, PA............ 177,000 24,000 1985 06/03/96 35 Park Central -- Dallas, TX............................. 1,840,000 1972 09/09/88 35 Best Western Airport Inn -- El Paso, TX................ 18,000 1974 09/16/86 35 Residence Inn Tyson's Corner -- Vienna, VA............. 55,000 1984 07/01/84 35 Tyee Hotel -- Olympia, WA.............................. 3,000 1961 02/17/87 35 Days Inn Town Center -- Seattle, WA.................... 637,000 308,000 1957 09/16/86 13 Meany Tower Hotel -- Seattle, WA....................... 3,835,000 957,000 1932 09/16/86 35 Sixth Avenue Inn -- Seattle, WA........................ 1,663,000 1,087,000 1959 09/16/86 13 Marriott Hotel -- Milwaukee, WI(3)..................... 21,083,000 598,000 1972 07/01/91 35 Capitol Hill Suites -- Washington, D.C................. 64,000 1955 01/01/95 35 Westin Hotel -- Washington, D.C........................ 345,000 1984 01/04/96 35 ------------ ----------- $ 93,876,000 $ 7,029,000 Land.............................. 3,111,000 Furniture, fixtures & equipment... 68,395,000 41,128,000 Construction in progress.......... 3,525,000 ------------ ----------- $168,907,000 $ 48,157,000 ============ ===========
- --------------- (1) As of December 31, 1996, real estate and furniture, fixtures and equipment have a cost for federal income tax purposes which reasonably approximates their carrying value. (2) Includes reserve for losses discussed in Notes 1 and 3 of Notes to the Financial Statements (3) Land costs represent costs allocated to leasehold interest in land. (continued) F-42 104 SCHEDULE III (CONTINUED) REAL ESTATE AND ACCUMULATED DEPRECIATION -- CORPORATION A reconciliation of the Corporation's investment in real estate, furniture and fixtures and related accumulated depreciation is as follows:
YEAR ENDED DECEMBER 31, --------------------------------- 1996 1995 1994 -------- -------- ------- (IN THOUSANDS) REAL ESTATE AND FURNITURE AND FIXTURES: Balance at beginning of period.............................. $134,722 $ 51,741 $54,790 Additions during period: Acquisitions.............................................. 29,939 38,396 Contributed properties.................................... 4,459 Improvements.............................................. 12,114 21,104 671 Transfer of properties.................................... 19,022 Deductions during period: Transfer of properties.................................... (4,014) Sale of properties........................................ (3,854) (3,720) -------- -------- ------- Balance at end of period.................................... $168,907 $134,722 $51,741 ======== ======== ======= ACCUMULATED DEPRECIATION: Balance at beginning of year................................ $ 39,374 $ 17,266 17,459 Additions during period: Depreciation expense...................................... 12,191 5,269 2,956 Transfer of properties.................................... 16,436 Contributed properties.................................... 403 Deductions during period: Transfer of properties.................................... (116) Sale of properties........................................ (3,292) (3,149) -------- -------- ------- Balance at end of period.................................... $ 48,157 $ 39,374 $17,266 ======== ======== =======
F-43 105 SCHEDULE IV MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1996 STARWOOD LODGING TRUST
INTEREST FINAL PERIODIC PRIOR DESCRIPTION RATE MATURITY PAYMENT LIENS - ------------------------------------------------------ ------------- -------- -------------------------- ----- First Mortgages: Vagabond Inns -- Modesto, CA.......................... 10.00% 2006 (2) no Ramada Inn -- Tucker, GA.............................. 9.00% 1998 16,700 (3) no Quality Inn -- New Port Richey, FL and Quality Inn -- 9.25% 26,200 Brunswick, GA....................................... 2001 (4) no Ramada Inn -- Fayetteville, NC........................ 9.00% 2006 9,100 (5) no Ramada Inn -- Jacksonville, FL........................ 9.00% 2001 18,500 (6) no Ramada Suites -- Secaucus, NJ......................... (19) 1999 Adjustable (7) no Bristol Suites -- Dallas, TX.......................... 8.00% 2002 517,800 (8)(16) no Harvey DFW Airport Hotel -- Dallas, TX................ 8.00% 2002 805,500 (8)(17) no Harvey Hotel, Addison -- Dallas, TX................... 8.00% 2002 431,500 (8)(18)(20) no Quality Inn -- Atlantic City, NJ...................... 80% of prime 2010 Adjustable (9) no Holiday Inn -- Milpitas, CA........................... (24) 1997 Adjustable (25) no King 8 -- Las Vegas, NV............................... (26) 2000 Adjustable (27) no Sheraton -- Stamford, CT.............................. (28) (28) (28) (28) (28) Second Mortgages: Bristol Suites -- Dallas, TX.......................... Prin. Only 2002 4,800 (10)(21) yes Harvey DFW Airport Hotel -- Dallas, TX................ Prin. Only 2002 1,800 (11)(21) yes Harvey Hotel, Addison -- Dallas, TX................... Prin. Only 2002 1,900 (12)(21) yes Quality Inn -- Atlantic City, NJ (SCA Loan)........... 7.00% 1996 6,700 (13) yes Third Mortgages: Quality Inn -- Atlantic City, NJ (Guerra Loan)........ 1% + Prime 1996 Adjustable (14) yes Fourth Mortgages: Quality Inn -- Atlantic City, NJ (Marshall Loan)...... 1% + Prime 1997 Adjustable (15) yes Allowance for loan losses............................. Intercompany Mortgage Loans First Mortgages: Milwaukee Marriott -- Milwaukee, WI (Aetna)........... 10.5% 1997 (22) no Milwaukee Marriott -- Milwaukee, WI (Aetna Addition)........................................... 1997 (22) yes Doral Inn -- New York, NY............................. 9.5% 2006 (23) no Midland Hotel -- Chicago, IL.......................... 10.0% 1999 (27) no Third Mortgages: Milwaukee Marriott -- Milwaukee, WI................... 10.5% 1997 (22) yes Fourth Mortgages: Milwaukee Marriott -- Milwaukee, WI................... 10.5% 1997 (22) yes PRINCIPAL AMOUNT ORIGINAL OF LOANS SUBJECT FACE CARRYING TO DELINQUENT AMOUNT OF AMOUNT OF PRINCIPAL OR DESCRIPTION MORTGAGES MORTGAGES(1) INTEREST - ------------------------------------------------------ ------------ ------------ ------------------- < First Mortgages: Vagabond Inns -- Modesto, CA.......................... $ 1,995,000 $ 1,144,000 Ramada Inn -- Tucker, GA.............................. 1,985,000 1,907,000 Quality Inn -- New Port Richey, FL and Quality Inn -- Brunswick, GA....................................... 3,070,000 2,985,000 Ramada Inn -- Fayetteville, NC........................ 800,000 719,000 Ramada Inn -- Jacksonville, FL........................ 2,300,000 2,270,000 Ramada Suites -- Secaucus, NJ......................... 13,813,000 9,564,000 Bristol Suites -- Dallas, TX.......................... 18,000,000 11,476,000 Harvey DFW Airport Hotel -- Dallas, TX................ 28,000,000 17,832,000 Harvey Hotel, Addison -- Dallas, TX................... 11,250,000 7,146,000 Quality Inn -- Atlantic City, NJ...................... 10,000,000 4,442,000 Holiday Inn -- Milpitas, CA........................... 16,250,000 13,741,000 King 8 -- Las Vegas, NV............................... 7,235,000 7,235,000 Sheraton -- Stamford, CT.............................. (28) 10,246,000 Second Mortgages: Bristol Suites -- Dallas, TX.......................... 190,000 Harvey DFW Airport Hotel -- Dallas, TX................ 72,000 Harvey Hotel, Addison -- Dallas, TX................... 75,000 Quality Inn -- Atlantic City, NJ (SCA Loan)........... 1,350,000 134,000 Third Mortgages: Quality Inn -- Atlantic City, NJ (Guerra Loan)........ 1,335,000 Fourth Mortgages: Quality Inn -- Atlantic City, NJ (Marshall Loan)...... 225,000 Allowance for loan losses............................. (100,000) ----------- $117,945,000 $90,741,000 =========== Intercompany Mortgage Loans First Mortgages: Milwaukee Marriott -- Milwaukee, WI (Aetna)........... $ 10,000,000 $ 8,824,000 Milwaukee Marriott -- Milwaukee, WI (Aetna Addition)........................................... 421,000 Doral Inn -- New York, NY............................. 40,250,000 40,250,000 Midland Hotel -- Chicago, IL.......................... 17,000,000 18,216,000 Third Mortgages: Milwaukee Marriott -- Milwaukee, WI................... 1,000,000 991,000 Fourth Mortgages: Milwaukee Marriott -- Milwaukee, WI................... 12,667,000 19,375,000 ----------- $ 80,917,000 $88,077,000 ===========
(continued) F-44 106 - --------------- (1) As of December 31, 1996 the aggregate cost (before allowance for loan losses) for federal income tax purposes is not significantly different from that used for book purposes. (2) The note provides for monthly payments of interest plus additional annual payments based on a percentage of the hotel's sales, a portion of which is applied to principal. On April 29, 1996, the borrower exercised its right under the terms of the note to extend the maturity of the note to June, 2006. (3) Principal and interest due monthly based on a 25-year amortization schedule with unpaid principal of $1,857,000 due in June 1998. (4) Principal and interest due monthly based on a 25-year amortization schedule with unpaid principal of $2,761,000 due in August 2001. (5) Principal and interest due monthly based on a 12-year amortization schedule with unpaid principal of $9,000 due in December 2006. (6) Principal and interest due monthly based on a 30-year amortization schedule with unpaid principal of $2,156,000 due in December 2001. (7) Principal and interest due monthly. Principal amount adjusts annually based on note schedule. Note carry amount net of $2,689,000 discount. (8) Principal and interest due quarterly based on note schedule. (9) Principal and interest due monthly based on note schedule. Note carrying amount net of $3,965,000 discount. (10) Forty equal principal payments of $237,500 each of which the Realty Partnership has a 2% interest. Note carrying amount net of $152,000 allowance. (11) Forty equal principal payments of $90,000 each of which the Realty Partnership has a 2% interest. Note carrying amount net of $58,000 allowance. (12) Forty equal principal payments of $125,125 each of which the Realty Partnership has a 2% interest. Note carrying amount net of $70,000 allowance. (13) Interest only, payable monthly. Note carrying amount net of $975,000 allowance. (14) Interest only, payable monthly. Note carrying amount net of $1,444,000 allowance. (15) Principal and interest payable monthly based on note schedule. Note carrying amount net of $213,000 allowance. (16) Note carrying amount net of $3,758,000 discount. (17) Note carrying amount net of $5,902,000 discount. (18) Note carrying amount net of $2,339,000 discount. (19) 90-Day Libor plus 1.25% or prime at borrower's option. At December 31, 1996, the rate was 6.81% (20) A 25% participation on both the first and second mortgages was sold to a third party in 1995. (21) The face amount represents the Realty Partnership's 2% interest in the mortgage loan. The remaining payment amounts are passed through to participants. (22) On June 15, 1996 SLT extended the maturity of the notes to June 30, 1997. (23) One hundred thirty-two equal installments of interest only. Principal and all accrued and unpaid interest due October 1, 2006. (24) Lower of Bank of Boston prime plus 1.50% or 9.00%. At December 31, 1996, the rate was 9.00% (25) Interest only, payable monthly. Note carrying amount net of $2,509,000 allowance. (26) Step rate note, rate increases based on note schedule. At December 31, 1996 the rate was 13.50%. (27) Interest only, payable monthly. (28) First lien mortgage secured by the property. Note purchased at a significant discount. Borrower is in bankruptcy, with no payments being made under the note. The Company has not accrued any interest as of December 31, 1996. (Continued) F-45 107 SCHEDULE IV (CONTINUED) RECONCILIATION OF MORTGAGE LOANS
YEAR ENDED DECEMBER 31, ---------------------------------------- 1996 1995 1994 ------------ ----------- ----------- Balance at beginning of period......................... $ 79,261,000 $14,049,000 $11,642,000 Additions -- New mortgage loans................................... 31,289,000 71,779,000 6,270,000 Amortization of discount............................. 3,140,000 3,285,000 Deductions -- Principal repayments................................. (22,949,000) (6,940,000) (2,382,000) Allowance for loan loss.............................. (2,912,000) (320,000) Discount for pre-payment............................. (55,000)(1) Proceeds from foreclosure sale....................... (1,106,000)(2) ------------ ----------- ----------- Balance at end of period............................... $ 90,741,000 $79,261,000 $14,049,000 ============ =========== =========== INTERCOMPANY MORTGAGE LOANS
YEAR ENDED DECEMBER 31, ---------------------------------------- 1996 1995 1994 ------------ ----------- ----------- Balance at beginning of period......................... $ 68,486,000 $16,916,000 $15,185,000 Additions -- New mortgage loans................................... 18,216,000 50,073,000 Amortization of discount............................. Other -- accrued interest(3)......................... 2,055,000 2,010,000 1,731,000 Deductions -- Principal repayments................................. (680,000) (513,000) Allowance for loan loss.............................. Discount for pre-payment............................. Proceeds from foreclosure sale....................... ------------ ----------- ----------- Balance at end of period............................... $ 88,077,000 $68,486,000 $16,916,000 ============ =========== ===========
- --------------- (1) In 1994, the Trust discounted the note on the Spartanburg, South Carolina property as consideration for the early payoff of the note. (2) In 1994, the Trust foreclosed on the Merrimack, New Hampshire property. (3) Per mortgage loan agreement, the borrower is not required to pay monthly interest if the cash flows are insufficient. Thus, the Trust has accrued interest on the notes. F-46 EX-10.22 2 AMENDMENT TO THE PARTNERSHIP AGREEMENT 1 Exhibit 10.22 AMENDMENT THIS AMENDMENT ("Amendment") to the Amended and Restated Limited Partnership Agreement of SLT Realty Limited Partnership is made and entered into this 14th day of May, 1996, by and among Starwood Lodging Trust, a Maryland real estate investment trust, as the general partner, and the Limited Partners of SLT Realty Limited Partnership, a Delaware limited partnership ("Realty Partnership"), which was formed pursuant to the provisions of that certain Limited Partnership Agreement of the Realty Partnership dated as of December 15, 1994, and amended and restated as of June 29, 1995 ("Realty Partnership Agreement"). All capitalized terms not defined herein shall have the same meaning as in the Realty Partnership Agreement. R E C I T A L S WHEREAS, the General Partner desires to amend the Realty Partnership Agreement as set forth in this Amendment; and WHEREAS, the Limited Partners have been informed and do hereby unconditionally consent to such amendments; NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: SECTION 1. Effective as of the date first above written, Section 6.1 (c)(iii) is hereby amended and restated in its entirety as follows: (iii) Allocations Respecting Section 704(c) of the Code and Revaluations. Property contributed to the Partnership shall be subject to Section 704(c) of the Code and the Regulations thereunder so that, notwithstanding paragraph (b) hereof, taxable gain from disposition, taxable loss from disposition and tax depreciation with respect to Partnership property that is subject to Section 704(c) of the Code and/or Section 1.704-1(b)(2)(iv)(f) of the Regulations (collectively "Section 704(c) Tax Items") shall be allocated on a property by property basis in accordance with said Code Section and/or the Regulations thereunder, as the case may be. The allocation of Section 704(c) Tax Items shall be made pursuant to any reasonable method selected by the General Partner in its discretion authorized under Section 1.704-3 of the Regulations. Allocations pursuant to this Section 6.l(c)(iii) are solely for purposes of federal, state, and local taxes and shall not affect, or in any way be taken into account in computing, the Capital Account or share of Net Income, Net Loss, other items, or distributions of any holder of Units pursuant to any provision of this Agreement. -1- 2 SECTION 2. Effective as of the date above written, Section 11.1 is hereby amended and restated in its entirety as follows: 11.1 Amendments (a) This Agreement may not be amended unless such amendment is approved by the General Partner with the Consent of the Limited Partners, except as provided below in this Section 11.1. (b) Notwithstanding Section 11.1(a), the General Partner shall have the power, without the Consent of the Limited Partners but after five (5) Business Days notice to the Limited Partners, to amend this Agreement as may be required to facilitate or implement any of the following purposes: (1) to add to the obligations of the General Partner for the benefit of the Limited Partners; (2) to reflect the admission, substitution, termination or withdrawal of Partners after the date hereof in accordance with Section 4.1(d) or Article 9 of this Agreement, provided that the General Partner shall not be required to give the notice referred to in the first paragraph of this subsection (b) in respect of a transfer of Partnership Interests or Units upon the exercise of Rights; (3) to set forth the rights, powers, duties and preferences of the holders of any additional Partnership Interests issued pursuant to Article 4 hereof; (4) to reflect a change that is of an inconsequential nature and does not adversely affect the Limited Partners, or to cure any ambiguity, correct or supplement any provision in this Agreement not inconsistent with law or with other provisions, or make other changes with respect to matters arising under this Agreement that will not be inconsistent with law or with the provisions of this Agreement; (5) to satisfy any requirements, conditions, or guidelines contained in any order, directive, opinion, ruling or regulation of a federal or state agency or contained in federal or state law; (6) to prevent all or any portion of the assets of the Partnership from being deemed pursuant to United States Department of Labor Regulation 2510.3-101 or otherwise pursuant to ERISA or the Code to be, for any purpose of ERISA or Section 4975 of the Code, assets of any Restricted Entity; - 2 - 3 (7) to prevent the Partnership from being characterized as a "publicly traded partnership" pursuant to Section 7704 of the Code and Regulations; (8) to enable the General Partner to satisfy the REIT Requirements; and (9) to maintain the Partnership's characterization as a partnership for tax purposes. (c) Notwithstanding Sections 11.1(a) and (b) hereof, except in furtherance of Sections 11.1(b)(7), (8) or (9) hereof, this Agreement shall not be amended without the prior written consent of each Partner materially adversely affected if such amendment would (i) convert a Limited Partner's interest in the Partnership into a general partner's interest, (ii) modify the limited liability of a Limited Partner, (iii) alter rights of the Partners to receive allocations and distributions pursuant to Article 6 or Section 8.2 hereof (except as permitted pursuant to Article 4 and Sections 11.1(b)(3) and 11.1(d) hereof), (iv) alter or modify the Rights set forth in the Exchange Rights Agreement or the Registration Rights Agreement except in compliance therewith, (v) alter such Partner's rights to transfer its Partnership Interest; (vi) amend Section 7.8, 7.9 or 10.8 hereof or (vii) amend Section 11.1(c) or 11.1(d) hereof. (d) Notwithstanding Section 11.1(c) hereof and subject to (but not in limitation of) the rights granted to the General Partner pursuant to Article 4 and this Article 11, this Agreement may be amended to (i) alter the rights of any or all of the Partners to receive allocations and distributions pursuant to Article 6 or Section 8.2 hereof or (ii) alter the rights of any or all of the Partners to transfer their Partnership Interests if such amendment is approved by the prior written consent of a majority of each class of Partnership Interest that is treated in a uniform or pro rata basis by such amendment. SECTION 3. The location of the principal place of business of the Partnership is hereby changed to 11835 West Olympic Boulevard, Suite 695, Los Angeles, California 90064. The notice address of the General Partner is hereby changed to: 11835 West Olympic Boulevard, Suite 695 Los Angeles, California 90064 Attention: Jeffrey C. Lapin, President Fax: 310/575-9512 SECTION 4. Except as otherwise provided in this Amendment, each and every provision of the Realty Partnership Agreement remains in full force and effect. - 3 - 4 SECTION 5. Each of the parties hereto acknowledge and agree that the name "Starwood Lodging Trust" is a designation of the General Partner and its Trustees (as Trustees but not personally) under a Declaration of Trust dated August 25, 1969, as amended and restated as of June 6, 1988, and as further amended as of February 1, 1995, and all persons dealing with the General Partner shall look solely to the General Partner's assets for the enforcement of any claims against the General Partner, and the Trustees, officers, agents and security holders of the General Partner assume no personal liability for obligations entered into on behalf of the General Partner, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. IN WITNESS WHEREOF, the parties hereto have executed this Amendment or caused this Amendment to be executed on their behalf as of the date first above written. GENERAL PARTNER: STARWOOD LODGING TRUST, a Maryland real estate investment trust By: _____________________________________ Name: Title: LIMITED PARTNERS: BERL HOLDINGS, L.P. By BERL HOLDINGS I, INC., General Partner By: _____________________________________ Name: Title: - 4 - 5 STARWOOD-APOLLO HOTEL PARTNERS VIII, L.P. By SAHI, INC., General Partner By:____________________________________ Name: Title: STARWOOD-APOLLO HOTEL PARTNERS IX, L.P. By SAHI, INC., General Partner By: ____________________________________ Name: Title: STARWOOD-NOMURA HOTEL INVESTORS, L.P. By SNHI, INC., General Partner By: ____________________________________ Name: Title: - 5 - 6 STARWOOD/WICHITA INVESTORS, L.P. By STARWOOD OPPORTUNITY FUND II, L.P. By STARWOOD CAPITAL GROUP I, L.P., General Partner By BSS CAPITAL PARTNERS, L.P., General Partner By STERNLICHT HOLDINGS, II, INC., General Partner By: ____________________________ Name: Title: STARWOOD-HUNTINGTON PARTNERS, L.P. By SRL HOLDINGS, INC., General Partner By: _______________________________________ Name: Title: WOODSTAR PARTNERS I, L.P. By STARWOOD CAPITAL GROUP I, L.P., General Partner By BSS CAPITAL PARTNERS, L.P., General Partner By STERNLICHT HOLDINGS, II, INC., General Partner By: ______________________________ Name: Title: - 6 - 7 FIREBIRD CONSOLIDATED PARTNERS, L.P. By STARWOOD OPPORTUNITY FUND II, L.P., General Partner By STARWOOD CAPITAL GROUP I, L.P., General Counsel By STERNLICHT HOLDINGS, II, INC., General Partner By: ______________________________ Name: Title: - 7 - EX-10.24 3 AMENDMENT TO THE PARTNERSHIP AGREEMENT 1 Exhibit 10.24 AMENDMENT THIS AMENDMENT ("Amendment") to the Amended and Restated Limited Partnership Agreement of SLC Operating Limited Partnership is made and entered into this 14th day of May, 1996, by and among Starwood Lodging Corporation, a Maryland corporation, as the managing general partner, and the General and Limited Partners of SLC Operating Limited Partnership, a Delaware limited partnership ("Operating Partnership"), which was formed pursuant to the provisions of that certain Limited Partnership Agreement of the Operating Partnership dated as of December 15, 1994, and amended and restated as of June 29, 1995 ("Operating Partnership Agreement"). All capitalized terms not defined herein shall have the same meaning as in the Operating Partnership Agreement. R E C I T A L S WHEREAS, the Managing General Partner desires to amend the Operating Partnership Agreement as set forth in this Amendment; and WHEREAS, the General and the Limited Partners have been informed and do hereby unconditionally consent to such amendment; NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: SECTION 1. Effective as of the date first above written, Section 6.1(c)(iii) is hereby amended and restated in its entirety as follows: (iii) Allocations Respecting Section 704(c) of the Code and Revaluations. Property contributed to the Partnership shall be subject to Section 704(c) of the Code and the Regulations thereunder so that, notwithstanding paragraph (b) hereof, taxable gain from disposition, taxable loss from disposition and tax depreciation with respect to Partnership property that is subject to Section 704(c) of the Code and/or Section 1.704-1(b)(2)(iv)(f) of the Regulations (collectively "Section 704(c) Tax Items") shall be allocated on a property by property basis in accordance with said Code Section and/or the Regulations thereunder, as the case may be. The allocation of Section 704(c) Tax Items shall be made pursuant to any reasonable method selected by the General Partner in its discretion authorized under Section 1.704-3 of the Regulations. Allocations pursuant to this Section 6.1(c)(iii) are solely for purposes of federal, state, and local taxes and shall not affect, or in any way be taken into account -1- 2 in computing, the Capital Account or share of Net Income, Net Loss, other items, or distributions of any holder of Units pursuant to any provision of this Agreement. SECTION 2. Effective as of the date first above written, Sections 4.1(f) and 7.4 are hereby amended by replacing "1996" with "1997." SECTION 3. Effective as of the date first above written, Section 11.1 is hereby amended and restated in its entirety as follows: 11.1 Amendments (a) This Agreement may not be amended unless such amendment is approved by the Managing General Partner with the Consent of the Limited Partners, except as provided below in this Section 11.1. (b) Notwithstanding Section 11.1(a), the Managing General Partner shall have the power, without the Consent of the Limited Partners but after five (5) Business Days notice to the Partners, to amend this Agreement as may be required to facilitate or implement any of the following purposes: (1) to add to the obligations of the Managing General Partner for the benefit of the Limited Partners; (2) to reflect the admission, substitution, termination or withdrawal of Partners after the date hereof in accordance with Section 4.1(d) or Article 9 of this Agreement, provided that the Managing General Partner shall not be required to give the notice referred to in the first paragraph of this subsection (b) in respect of a transfer of Partnership Interests or Units upon the exercise of Rights, or in respect of the transactions described in Section 4.1(f); (3) to set forth the rights, powers, duties, and preferences of the holders of any additional Partnership Interests issued pursuant to Article 4 hereof; (4) to reflect a change that is of an inconsequential nature and does not adversely affect the Limited Partners, or to cure any ambiguity, correct or supplement any provision in this Agreement not inconsistent with law or with other provisions, or make other changes with respect to matters arising under this Agreement that will not be inconsistent with law or with the provisions of this Agreement; - 2 - 3 (5) to satisfy any requirements, conditions, or guidelines contained in any order, directive, opinion, ruling or regulation of a federal or state agency or contained in federal or state law; (6) to prevent all or any portion of the assets of the Partnership from being deemed pursuant to United States Department of Labor Regulation Section 2510.3-101 or otherwise pursuant to ERISA or the Code to be, for any purpose of ERISA or Section 4975 of the Code, assets of any Restricted Entity; (7) to prevent the Partnership from being characterized as a "publicly traded partnership" pursuant to Section 7704 of the Code and the Regulations thereunder; (8) to enable SLT to satisfy the REIT Requirements; and (9) to maintain the Partnership's characterization as a partnership for tax purposes. (c) Notwithstanding Sections 11.1(a) and (b) hereof, except in furtherance of Sections 11.1(b)(7), (8) or (9) hereof, this Agreement shall not be amended without the prior written consent of each Partner materially adversely affected if such amendment would (i) convert a Limited Partner's interest in the Partnership into a general partner's interest, (ii) modify the limited liability of a Limited Partner, (iii) alter rights of the Partners to receive allocations and distributions pursuant to Article 6 or Section 8.2 hereof (except as permitted pursuant to Article 4 and Sections 11.1(b)(3) and 11.1(d) hereof), (iv) alter or modify the Rights set forth in the Exchange Rights Agreement or the Registration Rights Agreement except in compliance therewith, (v) alter such Partner's right to transfer its Partnership Interest, (vi) amend Section 7.8, 7.9 or 10.8 hereof or (vii) amend Section 11.1(c) or 11.1(d) hereof. SECTION 4. The location of the principal place of business of the Partnership is hereby changed to 11835 West Olympic Boulevard, Suite 675, Los Angeles, California 90064. The notice address of each of the General Partners is hereby changed to 11835 West Olympic Boulevard, Suite 675 Los Angeles, California 90064 Attention: Kevin E. Mallory, Executive Vice President Fax: 310/575-9143 SECTION 5. Except as otherwise provided in this Amendment, each and every provision of the Operating Partnership Agreement remains in full force and effect. - 3 - 4 IN WITNESS WHEREOF, the parties hereto have executed this Amendment or caused this Amendment to be executed on their behalf as of the date first above written. MANAGING GENERAL PARTNER: STARWOOD LODGING CORPORATION, a Maryland corporation By: ____________________________________ Name: Title: GENERAL PARTNERS: COLUMBUS OPERATORS, INC. By: ____________________________________ Name: Title: HOTEL INVESTORS OF ARIZONA, INC. By: ____________________________________ Name: Title: HOTEL INVESTORS OF MICHIGAN, INC. By: ____________________________________ Name: Title: HOTEL INVESTORS OF VIRGINIA, INC. By: ____________________________________ Name: Title: - 4 - 5 WESTERN HOST, INC. By: ____________________________________ Name: Title: HOTEL INVESTORS CORPORATION OF NEVADA By: ____________________________________ Name: Title: HOTEL INVESTORS OF NEBRASKA, INC. By: ____________________________________ Name: Title: LIMITED PARTNERS: ----------------- BERL HOLDINGS, L.P. By BERL HOLDINGS I, INC., General Partner By: ____________________________________ Name: Title: STARWOOD-APOLLO HOTEL PARTNERS VIII, L.P. By SAHI, INC., General Partner By: ____________________________________ Name: Title: - 5 - 6 STARWOOD-APOLLO HOTEL PARTNERS IX, L.P. By SAHI, INC., General Partner By: ____________________________________ Name: Title: STARWOOD-NOMURA HOTEL INVESTORS, L.P. By SNHI, INC., General Partner By: ____________________________________ Name: Title: STARWOOD/WICHITA INVESTORS, L.P. By STARWOOD OPPORTUNITY FUND II, L.P. By STARWOOD CAPITAL GROUP, L.P., General Partner By BSS CAPITAL PARTNERS, L.P., General Partner By STERNLICHT HOLDINGS, II, INC., General Partner By: ________________________________ Name: Title: STARWOOD-HUNTINGTON PARTNERS, L.P. By SRL HOLDINGS, INC., General Partner By: ____________________________________ Name: Title: - 6 - 7 WOODSTAR PARTNERS I, L.P. By STARWOOD CAPITAL GROUP, L.P., General Partner By BSS CAPITAL PARTNERS, L.P., General Partner By STERNLICHT HOLDINGS, II, INC., General Partner By: ____________________________________ Name: Title: FIREBIRD CONSOLIDATED PARTNERS, L.P., By STARWOOD OPPORTUNITY FUND II, L.P., General Partner By STARWOOD CAPITAL GROUP, L.P., General Partner By BSS CAPITAL PARTNERS, L.P., General Partner By STERNLICHT HOLDINGS, II, INC., General Partner By: ________________________________ Name: Title: - 7 - EX-10.31 4 AMENDED AND RESTATED LOAN AGREEMENT 1 Exhibit 10.31 AMENDED AND RESTATED LOAN AGREEMENT between SLT REALTY LIMITED PARTNERSHIP and CP HOTEL REALTY LIMITED PARTNERSHIP and MIDLAND BUILDING CORPORATION and STARWOOD LODGING TRUST and LEHMAN BROTHERS HOLDINGS INC. D/B/A LEHMAN CAPITAL, A DIVISION OF LEHMAN BROTHERS HOLDINGS INC. Dated as of April 26, 1996 Loan Amount of $93,960,000 2 TABLE OF CONTENTS
SECTION 1. DEFINITIONS.................................................................-1- Section 1.1 Definitions.................................................................-1- SECTION 2. THE LOAN...................................................................-19- Section 2.1 Intentionally Deleted......................................................-19- Section 2.2 Intentionally Deleted......................................................-20- Section 2.3 Intentionally Deleted......................................................-20- Section 2.4 The Note...................................................................-20- Section 2.5 Interest...................................................................-20- Section 2.6 Interest Periods...........................................................-21- Section 2.7 Minimum Amount of Eurodollar Portions......................................-22- Section 2.8 Conversion or Continuation.................................................-22- Section 2.9 Intentionally Deleted......................................................-23- Section 2.10 Intentionally Deleted......................................................-23- Section 2.11 Voluntary Prepayments......................................................-23- Section 2.12 Mandatory Prepayments......................................................-23- Section 2.13 Application of Payments and Prepayments....................................-23- Section 2.14 Method and Place of Payment................................................-23- Section 2.15 Intentionally Deleted......................................................-24- Section 2.16 Interest Rate Unascertainable, Increased Costs, Illegality.................-24- Section 2.17 Funding Losses.............................................................-26- Section 2.18 Increased Capital..........................................................-26- Section 2.19 Taxes......................................................................-26- Section 2.20 Use of Proceeds............................................................-27- Section 2.21 Intentionally Deleted......................................................-27- Section 2.22 Intentionally Deleted......................................................-27- Section 2.23 Intentionally Deleted......................................................-27- Section 2.24 Intentionally Deleted......................................................-27- Section 2.25 Intentionally Deleted......................................................-28- Section 2.26 Intentionally Deleted......................................................-28- SECTION 3. CONDITIONS PRECEDENT.......................................................-28- Section 3.1 Conditions Precedent to the Initial Advance................................-28- Section 3.2 Conditions Precedent to the Final Advance..................................-34- Section 3.3 Acceptance of the Loan.....................................................-36- Section 3.4 Sufficient Counterparts....................................................-36- SECTION 4. REPRESENTATIONS AND WARRANTIES.............................................-36- Section 4.1 Corporate/Partnership Status...............................................-36- Section 4.2 Corporate/Partnership Power and Authority..................................-36- Section 4.3 No Violation...............................................................-37- Section 4.4 Litigation.................................................................-37- Section 4.5 Financial Statements: Financial Condition; etc.............................-37- Section 4.6 Solvency...................................................................-38-
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Section 4.7 Material Adverse Change....................................................-38- Section 4.8 Use of Proceeds; Margin Regulations........................................-38- Section 4.9 Governmental Approvals.....................................................-38- Section 4.10 Security Interests and Liens...............................................-38- Section 4.11 Tax Returns and Payments...................................................-38- Section 4.12 ERISA......................................................................-38- Section 4.13 Intentionally Omitted......................................................-40- Section 4.14 Representations and Warranties in Loan Documents...........................-40- Section 4.15 True and Complete Disclosure...............................................-40- Section 4.16 Ownership of Real Property; Existing Security Instruments..................-40- Section 4.17 No Default.................................................................-40- Section 4.18 Licenses, etc..............................................................-40- Section 4.19 Compliance With Law........................................................-41- Section 4.20 Brokers....................................................................-41- Section 4.21 Judgments..................................................................-41- Section 4.22 Property Manager...........................................................-41- Section 4.23 Assets of the REIT.........................................................-41- Section 4.24 REIT Status................................................................-42- Section 4.25 The Partnership............................................................-42- Section 4.26 Maryland Guarantor and the Maryland Partnership............................-42- Section 4.27 Intercompany Debt..........................................................-42- Section 4.28 Personal Property..........................................................-42- Section 4.29 Operations.................................................................-42- Section 4.30 Stock......................................................................-42- Section 4.31 Intentionally Deleted......................................................-42- Section 4.32 Status of Maryland Guarantor and Maryland Partnership......................-42- Section 4.33 Survival...................................................................-43- Section 4.34 Illinois Guarantor and Midland Hotel.......................................-43- Section 4.35 Status of Illinois Guarantor and Midland Hotel.............................-43- SECTION 5. AFFIRMATIVE COVENANTS......................................................-43- Section 5.1 Financial Reports..........................................................-43- Section 5.2 Books, Records and Inspections.............................................-46- Section 5.3 Maintenance of Insurance...................................................-46- Section 5.4 Taxes......................................................................-46- Section 5.5 Corporate Franchises; Conduct of Business..................................-46- Section 5.6 Compliance with Law........................................................-47- Section 5.7 Performance of Obligations.................................................-47- Section 5.8 Stock......................................................................-47- Section 5.9 Maintenance of Personal Property...........................................-47- Section 5.10 Maintenance of Properties..................................................-47- Section 5.11 Compliance with ERISA......................................................-47- Section 5.12 Settlement/Judgment Notice.................................................-49- Section 5.13 Acceleration Notice........................................................-49- Section 5.14 Intentionally Deleted......................................................-49- Section 5.15 Intentionally Deleted......................................................-49- Section 5.16 Intentionally Deleted......................................................-49-
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Section 5.17 Intentionally Deleted......................................................-49- Section 5.18 Intentionally Deleted......................................................-49- Section 5.19 Minimum Spending Requirement and Deferred Maintenance Spending Requirement................................................................-49- Section 5.20 Intentionally Deleted......................................................-50- Section 5.21 Manager....................................................................-50- Section 5.22 Further Assurances.........................................................-50- Section 5.23 REIT Status................................................................-50- Section 5.24 Mortgage Covenants.........................................................-50- Section 5.25 Intentionally Deleted......................................................-51- Section 5.26 Maintenance of Control.....................................................-51- Section 5.27 Maintenance of Intercompany Debt...........................................-51- Section 5.28 Transfer of Licenses.......................................................-51- Section 5.29 Environmental Monitoring...................................................-51- Section 5.30 Keep Well Covenants........................................................-51- SECTION 6. NEGATIVE COVENANTS.........................................................-52- Section 6.1 Intentionally Deleted......................................................-52- Section 6.2 Intentionally Deleted......................................................-52- Section 6.3 Liens......................................................................-52- Section 6.4 Restriction on Fundamental Changes.........................................-53- Section 6.5 Transactions with Affiliates...............................................-53- Section 6.6 Plans......................................................................-53- Section 6.7 Intentionally Deleted......................................................-54- Section 6.8 Operating Leases...........................................................-54- Section 6.9 Borrower's Partnership Agreement...........................................-54- SECTION 7. EVENTS OF DEFAULT..........................................................-54- Section 7.1 Events of Default..........................................................-54- Section 7.2 Rights and Remedies........................................................-57- SECTION 8. Intentionally Deleted......................................................-58- SECTION 9. MISCELLANEOUS..............................................................-58- Section 9.1 Payment of Lender's Expenses, Indemnity, etc...............................-58- Section 9.2 Notices....................................................................-59- Section 9.3 Successors and Assigns; Participations; Assignments........................-61- Section 9.4 Amendments and Waivers.....................................................-61- Section 9.5 No Waiver; Remedies Cumulative.............................................-61- Section 9.6 Governing Law; Submission to Jurisdiction..................................-62- Section 9.7 Confidentiality; Disclosure of Information.................................-62- Section 9.8 Non-Recourse...............................................................-62- Section 9.9 Intentionally Deleted......................................................-64- Section 9.10 Borrower's, Guarantor's and REIT's Assignment..............................-64- Section 9.11 Counterparts...............................................................-65- Section 9.12 Effectiveness..............................................................-65- Section 9.13 Headings Descriptive.......................................................-65-
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Section 9.14 Marshaling; Recapture......................................................-65- Section 9.15 Severability...............................................................-65- Section 9.16 Survival...................................................................-65- Section 9.17 Domicile of Loan Portions..................................................-65- Section 9.18 Intentionally Omitted......................................................-65- Section 9.19 Calculations; Computations.................................................-65- Section 9.20 WAIVER OF TRIAL BY JURY....................................................-66- Section 9.21 No Joint Venture...........................................................-66- Section 9.22 Estoppel Certificates......................................................-66- Section 9.23 No Other Agreements........................................................-66- Section 9.24 Controlling Document.......................................................-66- Section 9.25 No Benefit to Third Parties................................................-67- Section 9.26 Joint and Several..........................................................-67-
iv 6 EXHIBITS Exhibit A Notice of Continuation [Borrower] Exhibit B Notice of Voluntary Prepayment [Borrower] Exhibit C Form of Tenant Estoppel Exhibit D Form of Franchisor Estoppel v 7 SCHEDULES Schedule 1 Allocated Loan Amounts Schedule 2 Real Property Assets Schedule 3 Franchise Agreements Schedule 4 Required Estoppel Certificates Schedule 5 Litigation Schedule 6 Employee Benefit Plans Schedule 7 Liens Schedule 8 INTENTIONALLY DELETED Schedule 9 Intercompany Debt Schedule 10 Operating Leases Schedule 11 Permitted Financing per Real Property Asset Schedule 12 INTENTIONALLY DELETED Schedule 13 REIT Business Operations Schedule 13A Corporation Business Operations Schedule 14 Management Fees and Franchise Fees Schedule 15 INTENTIONALLY DELETED Schedule 16 Minimum Spending Requirement Schedule 17 Deferred Maintenance Spending Requirement Schedule 18 Liquor Licenses Schedule 19 Holiday Inn Property Improvement Plan EXHIBITS Exhibit A Notice of Conversion or Continuation Exhibit B Notice of Voluntary Prepayment Exhibit C Form of Tenant Estoppel Certificate Exhibit D Form of Franchisor Estoppel and Recognition Letter vi 8 THIS AMENDED AND RESTATED LOAN AGREEMENT, dated as of April 26, 1996, is made among SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership ("Borrower"), CP HOTEL REALTY LIMITED PARTNERSHIP, a Maryland limited partnership ("Maryland Guarantor"), MIDLAND BUILDING CORPORATION, an Illinois corporation ("Illinois Guarantor"; Maryland Guarantor and Illinois Guarantor being hereinafter collectively referred to as "Guarantor"), STARWOOD LODGING TRUST, a Maryland real estate investment trust (the "REIT"), and LEHMAN BROTHERS HOLDINGS INC., D/B/A LEHMAN CAPITAL, A DIVISION OF LEHMAN BROTHERS HOLDINGS INC., a Delaware corporation, ("Lender"). PRELIMINARY STATEMENT Borrower, Maryland Guarantor, the REIT and Lender entered into a certain Loan Agreement dated as of March 22, 1996 (the "Prior Loan Agreement"). Borrower, Guarantor, the REIT and Lender desire to amend and restate the Prior Loan Agreement in its entirety. NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, and in and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows: A. Neither this Agreement nor anything contained herein shall be construed as a substitution or novation of the indebtedness evidenced hereby or of the Prior Loan Agreement, which shall remain in full force and effect, as supplemented, increased, amended and restated, as provided herein. B. All of the terms, provisions and obligations contained in the Prior Loan Agreement are hereby supplemented, amended and restated in their entirety to read as follows: SECTION 1. DEFINITIONS. Section 1.1 Definitions. As used herein, the following terms shall have the meanings herein specified unless the context otherwise requires. Defined terms in this Agreement shall include in the singular number the plural and in the plural number the singular. "Accounts Receivable" shall mean all income and revenues or rights to receive all income and revenues arising from the operation of the Real Property Assets and all payments for goods or property sold or leased or for services rendered, whether or not yet earned by performance, and not evidenced by an instrument or chattel paper, including, without limiting the generality of the foregoing, (i) all accounts, contract rights, book debts, and notes arising from the operation of a hotel on the Real Property Assets or arising from the sale, lease or exchange of goods or other property and/or the performance of services, (ii) Borrower's and Guarantor's rights to payment from any consumer credit/charge card organization or entity (such as, or similar to, the organizations or entities which sponsor and administer the American 9 Express Card, the Visa Card, the Bankamericard, the Carte Blanche Card, or the Mastercard) arising with respect to the Real Property Assets, (iii) Borrower's and Guarantor's rights in, to and under all purchase orders for goods, services or other property arising with respect to the Real Property Assets, (iv) Borrower's and Guarantor's rights to any goods, services or other property represented by any of the foregoing, (v) monies due to or to become due to Borrower or Guarantor under all contracts for the sale, lease or exchange of goods or other property and/or the performance of services including the right to payment of any interest or finance charges in respect thereto (whether or not yet earned by performance on the part of Borrower or Guarantor) arising with respect to the Real Property Assets and (vi) all collateral security and guaranties of any kind given by any person or entity with respect to any of the foregoing. Accounts Receivable shall include those now existing or hereafter created, substitutions therefor, proceeds (whether cash or non-cash, movable or immovable, tangible or intangible) received upon the sale, exchange, transfer, collection or other disposition or substitution thereof and any and all of the foregoing and proceeds therefrom. "Adjusted Operating Lease Payments" shall mean, with respect to all Operating Leases, the sum of Base Rent (as defined in the related Operating Lease) and Percentage Rent (as defined in the related Operating Lease) that would be due and payable under the Operating Leases if Gross Receipts and Gross Sales (as each term is defined in the Operating Leases) were each reduced by 50% and calculated in accordance with the provisions of this Agreement relating to Property Net Cash Flow. "Affiliate" shall mean, with reference to a specified Person, any Person that directly or indirectly through one or more intermediaries Controls or is Controlled by or is under common Control with the specified Person and any Subsidiaries of such specified Person. "Agreement" shall mean this Amended and Restated Loan Agreement as the same may from time to time hereafter be modified, supplemented or amended. "Allocated Loan Amount" shall mean (a) with respect to the Real Property Assets other than the California Property the portions of the Loan evidenced by the Note allocated to each Real Property Asset as set forth on Schedule 1, as the same may be adjusted in accordance with this Agreement, and (b) with respect to the California Property, the amount evidenced by the California Note, as set forth on Schedule 1A. "Annual Operating Budget" shall have the meaning provided in Section 5.1. "Applicable Laws" shall mean all existing and future federal, state and local laws, statutes, orders, ordinances, rules, and regulations or orders, writs, injunctions or decrees of any court affecting Borrower or any Real Property Asset, or the use thereof including, but not limited to, all zoning, fire safety and building codes, the Americans with Disabilities Act, and all Environmental Laws (as defined in the Environmental Indemnity). "Appraisal" shall mean an appraisal prepared in accordance with the requirements of FIRREA, prepared by an independent third party appraiser holding an MAI designation, who is state licensed or state certified if required under the laws of the state where the applicable Real Property Asset is located, who meets the requirements of FIRREA and who has at least ten -2- 10 (10) years real estate experience appraising properties of a similar nature and type as the applicable Real Property Asset and who is otherwise satisfactory to Lender. "Assignments of Contracts" shall mean those certain assignments of franchise agreement, agreements, permits and contracts given by Borrower or Guarantor, as the case may be, to Lender with respect to each Real Property Asset, as the same may have been or may be amended, restated, modified, increased or supplemented. "Assignments of Leases and Rents" shall mean those certain assignments of leases and rents given by Borrower or Guarantor, as the case may be, to Lender with respect to each Real Property Asset, as the same may have been or may be amended, restated, modified, increased or supplemented. "Bankruptcy Code" shall mean Title 11 of the United States Code entitled "Bankruptcy", as amended from time to time, and any successor statute or statutes and all rules and regulations from time to time promulgated thereunder, and any comparable foreign laws relating to bankruptcy, insolvency or creditors' rights. "Base Rate" shall mean, at any particular date, a rate per annum equal to the rate of interest published in The Wall Street Journal as the "prime rate", as in effect on such day, with any change in the prime rate resulting from a change in said prime rate to be effective as of the date of the relevant change in said prime rate; provided, however, that if more than one prime rate is published in The Wall Street Journal for a day, the average of the Prime Rates shall be used; provided, further, however, that the Prime Rate (or the average of the prime rates) will be rounded to the nearest 1/16 of 1% or, if there is no nearest 1/16 of 1%, to the next higher 1/16 of 1%. In the event that The Wall Street Journal should cease or temporarily interrupt publication, then the Prime Rate shall mean the daily average prime rate published in another business newspaper, or business section of a newspaper, of national standing chosen by Lender. If The Wall Street Journal resumes publication, the substitute index will immediately be replaced by the prime rate published in The Wall Street Journal. In the event that a prime rate is no longer generally published or is limited, regulated or administered by a governmental or quasi-governmental body, then Lender shall select a comparable interest rate index which is readily available to Borrower and verifiable by Borrower but is beyond the control of Lender. Lender shall give Borrower prompt written notice of its choice of a substitute index and when the change became effective. Such substitute index will also be rounded to the nearest 1/16 of 1% or, if there is no nearest 1/16 of 1%, to the next higher 1/16 of 1%. The determination of the Base Rate by Lender shall be conclusive absent manifest error. "Base Rate Margin" shall mean 0.625% per annum. -3- 11 "Base Rate Portions" shall mean each portion of the Note or the California Note, as applicable, made and/or being maintained at a rate of interest based upon the Base Rate. "Borrower" shall have the meaning provided in the first paragraph of this Agreement and any successor Borrower expressly permitted hereunder. "Borrower's Partnership Agreement" means that certain Amended and Restated Limited Partnership Agreement of SLT Realty Limited Partnership dated _________(sic), 1995, and an Amended and Restated Certificate of Limited Partnership of SLT Realty Limited Partnership dated July 5, 1995. "Business Day" shall mean (i) for all purposes other than as covered by clause (ii) below, any day excluding Saturday, Sunday and any day which shall be in New York City a legal holiday or a day on which Lender or banking institutions are authorized or required by law or other government actions to close, and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Portions, any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks for U.S. dollar deposits in the relevant interbank Eurodollar market. "California Guaranty" shall mean that certain guaranty dated the date hereof given by the Partnership to Lender with respect to the California Property, as the same may be amended, restated, modified, increased or supplemented. "California Note" shall have the meaning provided in Section 2.4 as the same may be amended, restated, modified, increased or supplemented. "California Property" shall mean the Real Property Asset identified on Schedule 2 as Clarion Hotel, Millbrae, California. "Capitalized Lease" as to any Person shall mean (i) any lease of property, real or personal, the obligations under which are capitalized on the consolidated balance sheet of such Person and its Subsidiaries, and (ii) any other such lease to the extent that the then present value of the minimum rental commitment thereunder should, in accordance with GAAP, be capitalized on a balance sheet of the lessee. "Capitalized Lease Obligations" as to any Person shall mean all obligations of such Person and its Subsidiaries under or in respect of Capitalized Leases. "Change in Law" shall have the meaning provided in Section 2.19(c). "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and any successor statute, together with all rules and regulations from time to time promulgated thereunder. "Collateral" shall mean all property and interests in property now owned or hereafter acquired in or upon which a Lien has been or is purported or intended to have been -4- 12 granted under any of the Security Instruments or any of the other Loan Documents, including, without limitation, all Operating Leases and all Personal Property. "Consents to Assignment, Subordination, Estoppel and Attornment Agreement" shall mean those certain consents to assignment, subordination and attornment agreements, between the Partnership or Midland Hotel, as the case may be, and Lender with respect to each Real Property Asset, as the same may have been or may be amended, restated, modified, increased or supplemented. "Contingent Obligation" as to any Person shall mean any obligation of such Person guaranteeing or intended to guarantee any Indebtedness, leases (including Capitalized Leases), dividends or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor,(ii) to advance or supply funds (x) for the purchase or payment of any such primary obligation or (y) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth, solvency or other financial condition of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of such primary obligation against loss in respect thereof: provided, however, that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any accrued or accruable Contingent Obligation shall be determined in accordance with GAAP. "Contract Rate" shall mean the rate or rates of interest (which rate shall include the applicable margin added thereto pursuant to the terms of this Agreement) per annum provided for in this Agreement which are applicable to the Loan from time to time so long as no Event of Default has occurred and in continuing. If more than one rate of interest is applicable to the Loan, then, unless the context indicates that the Contract Rate is to be determined for each Loan Portion, the Contract Rate shall be the average of such rates (rounded upwards, if necessary, to the nearest 1/100 of 1%) with such average to be weighted according to the relative size of the Loan Portions to which such different rates are applicable. The determination of the Contract Rate by Lender, if made in good faith, shall be conclusive absent manifest error. "Control" shall mean in (a) in the case of a corporation, ownership, directly or through ownership of other entities, of at least ten percent (10%) of all the voting stock (exclusive of stock which is voting only as required by applicable law or in the event of nonpayment of dividends and pays dividends only on a nonparticipating basis at a fixed or floating rate), and (b) in the case of any other entity, ownership, directly or through ownership of other entities, of at least ten percent (10%) of all of the beneficial equity interests therein (calculated by a method that excludes from equity interests, ownership interests that are nonvoting (except as required by applicable law or in the event of nonpayment of dividends or distributions) and pay dividends or distributions only on a non-participating basis at a fixed or floating rate) or, in any case, (c) the power directly or indirectly, to direct or control, or cause the direction of, the management policies of another Person, whether through the ownership of voting securities, -5- 13 general partnership interests, common directors, trustees, officers by contract or otherwise. The terms "controlled" and "controlling" shall have meanings correlative to the foregoing definition of "Control." "Corporation" shall mean Starwood Lodging Corporation, a Maryland corporation. "Debt Service Coverage Ratio" shall mean for any Real Property Asset, the ratio of (a) the Net Operating Income for such Real Property Asset for the immediately preceding twelve (12) month period, to (b) the projected monthly payments of principal and interest that would be due with respect to the Allocated Loan Amount applicable to such Real Property Asset for the twelve (12) calendar month period immediately following the calculation, calculated at the average Contract Rate for such period, provided that if the average Contract Rate is less than the Treasury Rate at the time of such calculation, the average Contract Rate shall be deemed to be the Treasury Rate at the time of such calculation, for the purposes of this definition only. "Default" shall mean any event, act or condition which, with the giving of notice or lapse of time, or both, would constitute an Event of Default. "Default Rate" shall mean for each Loan Portion the lesser of (a) the Maximum Legal Rate or (b) with respect to all then outstanding Eurodollar Portions, (i) the rate per annum determined by adding 2% to the Contract Rate applicable to the Loan immediately prior to an Event of Default until the expiration of the applicable Interest Periods and thereafter the rate per annum determined by adding 2% to the Base Rate, as from time to time is in effect; or (c) with respect to all then outstanding Base Rate Portions, the rate per annum determined by adding 2% to the Base Rate as from time to time in effect. "Deferred Maintenance Spending Requirement" shall have the meaning provided in Section 5.19(b). "Distribution" shall mean any dividends (other than dividends payable solely in common stock),distributions, return of capital to any stockholders, general or limited partners or members, other payments, distributions or delivery of property or cash to stockholders, general or limited partners or members, or any redemption, retirement, purchase or other acquisition, directly or indirectly, of any shares of any class of capital stock now or hereafter outstanding (or any options or warrants issued with respect to capital stock), any general or limited partnership interest, or the setting aside of any funds for the foregoing. "Dollars" and the symbol "$" each mean the lawful money of the United States of America. "Domestic Lending Office" shall mean the office set forth in Section 9.2 for Lender, or such other office as may be designated from time to time by written notice to Borrower. "Employee Benefit Plan" shall mean an employee benefit plan within the meaning of Section 3(3) of ERISA (i) that is maintained by Borrower or any other Loan Party or (ii) with -6- 14 respect to which any such person has any obligation or liability, whether direct or indirect; provided, however, that "Employee Benefit Plan" shall not include any "multiemployer plan" as defined in section 4001(a)(3) of ERISA. "Engineering Reports" shall have the meaning provided in Section 3.1(o). "Environmental Indemnity" shall mean that certain environmental indemnity agreement dated March 22, 1996 given by the REIT, Guarantor and Borrower to Lender, as the same has been amended and restated as of the date hereof, and as the same may be further amended, restated, modified, increased or supplemented. "Environmental Reports" shall mean the written environmental site assessments, prepared by independent qualified environmental professionals acceptable to Lender in its reasonable discretion, prepared in accordance with Lender's then current guidelines, of each of the Real Property Assets, each of which assessments shall be in form and substance reasonably satisfactory to Lender and contain the information set forth in Section 3.1(k). "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time and any successor statute, together with all rules and regulations promulgated thereunder. Section references to ERISA are to ERISA, as in effect at the date of this Agreement and any provisions of ERISA substituted therefor. "ERISA Controlled Group" means any corporation or entity or trade or business or person that is a member of any group described in Section 414(b), (c), (m) or (o) of the Code of which Borrower, the REIT, the Partnership, the Corporation or any other Loan Party is a member. "ERISA Indemnitee" shall have the meaning provided in Section 9.9(l). "Eurocurrency Reserve Requirements" shall mean, with respect to each day during an Interest Period for Eurodollar Portions, that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Federal Reserve Board or other governmental authority or agency having jurisdiction with respect thereto for determining the maximum reserves (including, without limitation, basic, supplemental, marginal and emergency reserves) for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D) maintained by a member bank of the Federal Reserve System. The parties acknowledge that the Eurocurrency Reserve Requirements as of the date hereof are -0%-. "Eurodollar Base Rate" shall mean for any Interest Period the rate per annum (rounded upwards, if necessary, to the next higher one hundred-thousandth of a percentage point) which appears on the Telerate Page 3750 as of 11:00 a.m. (London, England time) two (2) Business Days prior to the first day of such Interest Period for deposits in U.S. Dollars for a period equal to such Interest Period. The determination of the Eurodollar Base Rate by Lender shall be conclusive absent manifest error. "Eurodollar Lending Office" shall mean the office of Lender designated as such by Lender from time to time by written notice to Borrower. -7- 15 "Eurodollar Portions" shall mean each portion of the Note or the California Note, as applicable, made and/or being maintained at a rate of interest calculated by reference to the Eurodollar Rate. "Eurodollar Rate" shall mean with respect to each day during an Interest Period for Eurodollar Portions, a rate per annum equal to the Eurodollar Base Rate, or if Lender is subject to Eurocurrency Reserve Requirements, whether or not such reserves are actually incurred or maintained, the average of the Eurodollar Base Rate and the Adjusted Eurodollar Base Rate. The Adjusted Eurodollar Base Rate shall mean a rate per annum, determined for each day during an Interest Period in accordance with the following formula (rounded upwards to the nearest whole multiple of l/16th of one percent): Eurodollar Base Rate ------------------------------------------ 1.00 - Eurocurrency Reserve Requirements "Eurodollar Rate Margin" shall mean with respect to all Eurodollar Portions outstanding at any given time up to an aggregate maximum principal amount of $23,960,000.00 under the Note the Eurodollar Rate Margin shall equal 1.95% per annum (the "First Eurodollar Portion"); and with respect to all Eurodollar Portions in the aggregate outstanding principal amount in excess of $23,960,000.00, the Eurodollar Rate Margin shall equal 1.75% per annum (the "Second Eurodollar Portion"). With respect to all Eurodollar Portions outstanding under the California Note, the Eurodollar Rate Margin shall equal 1.75% per annum. "Event of Default" shall have the meaning provided in Section 7. Fee Letter" shall mean that certain letter dated March 22, 1996 from Lender to Borrower and the REIT, as the same may have been or may be amended, restated, modified or supplemented. "FIRREA" means the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended from time to time. "Federal Reserve Board" shall mean the Board of Governors of the Federal Reserve System as constituted from time to time, or any successor thereto in function. "Fees" shall mean all amounts payable pursuant to Sections 2.17 and 9.1. "Financing Statement" shall have the meaning provided in Section 3.1(h). "Fixed Charges" means the amount of scheduled lease payments with respect to leasehold interests or obligations of the respective Person. "Florida Properties" shall mean the Real Property Assets identified on Schedule 2 as Doubletree Guest Suites in Fort Lauderdale, Florida and Tampa, Florida. "Franchise Agreements" shall mean the franchise agreements described in Schedule 3 (as such Schedule may be amended, from time to time) between the Partnership or -8- 16 Midland Hotel, as the case may be, and the respective Franchisors pursuant to which the Partnership or Midland Hotel, as the case may be, has the right to operate the hotel located on the related Real Property Asset under a name and/or hotel system controlled by such Franchisor. "Franchisor" shall mean each of the franchisors under the Franchise Agreements described in Schedule 3, as such Schedule may be amended from time to time. "Franchisor Estoppels and Recognition Letters" shall have the meaning provided in Section 3.1(a)(ix). "Funding Costs" shall have the meaning provided in Section 2.17. "Furnished Information" shall have the meaning provided in Section 4.15. "GAAP" shall mean United States generally accepted accounting principles on the date hereof and as in effect from time to time during the term of this Agreement, and consistent with those utilized in the preparation of the financial statements referred to in Section 4.5. "Georgia Properties" shall mean the Real Property Assets identified on Schedule 2 as Lenox Inn, Atlanta, Georgia and Terrace Garden Inn, Atlanta, Georgia. "Gross Revenues" shall mean, with respect to any Real Property Asset for any period, all income, rents, room rates, additional rents, revenues, issues and profits (including all oil and gas or other mineral royalties and bonuses) and other items including without limitation, all revenues and credit card receipts collected from guest rooms, restaurants, meeting rooms, bars, mini-bars, banquet rooms, recreation facilities, vending machines and concessions derived from the customary operation of such Real Property Asset. "Group" shall mean Starwood Capital Group L.P., a Delaware limited partnership. "Guarantor" shall collectively mean CP Hotel Realty Limited Partnership, a Maryland limited partnership and Midland Building Corporation, an Illinois corporation. "Illinois Guarantor" shall mean Midland Building Corporation, an Illinois corporation. "Illinois Guaranty" shall mean that certain guaranty dated the date hereof given by Illinois Guarantor and Midland Hotel to Lender with respect to the Illinois Property, as the same may be amended, restated, modified increased or supplemented. "Illinois Property" shall mean the Real Property Asset identified on Schedule 2 as Midland Hotel, Chicago, Illinois. "Increased Capital Costs" shall have the meaning provided in Section 2.18. -9- 17 "Indebtedness" of any Person shall mean, without duplication, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services, (ii) all indebtedness of such Person evidenced by a note, bond, debenture or similar instrument, (iii) the outstanding amount drawn and unpaid under all letters of credit issued for the account of such Person and, without duplication, all unreimbursed amounts drawn thereunder, (iv) all indebtedness of any other Person secured by any Lien on any property owned by such Person, whether or not such indebtedness has been assumed, (v) all Contingent Obligations of such Person, (vi) all Unfunded Benefit Liabilities of such Person, (vii) all actual payment obligations of such Person under any interest rate protection agreement (including, without limitation, any interest rate swaps, caps, floors, collars and similar agreements) and currency swaps and similar agreements, (viii) all indebtedness and liabilities secured by any Lien or mortgage on any property of such Person, whether or not the same would be classified as a liability on a balance sheet, (ix) the liability of such Person in respect of banker's acceptances and the estimated liability under any participating mortgage, convertible mortgage or similar arrangement, (x) the aggregate amount of rentals or other consideration payable by such Person in accordance with GAAP over the remaining unexpired term of all Capitalized Leases, (xi) all final, non-appealable judgments or decrees by a court or courts of competent jurisdiction entered against such Person, (xii) all indebtedness, payment obligations, contingent obligations, etc. of any partnership in which such Person holds a general partnership interest, and (xiii) all obligations, liabilities, reserves and any other items which are listed as a liability on a balance sheet of such Person determined on a consolidated basis in accordance with GAAP, but excluding all general contingency reserves and reserves for deferred income taxes and investment credit. "Indemnitee" shall have the meaning provided in Section 9.1(c). "Intercompany Debt" shall mean the indebtedness owed by the Partnership, the Maryland Partnership, Midland Hotel, the Guarantor or any other Person listed on Schedule 9, to Borrower or the REIT, all as more particularly described in Schedule 9. "Intercompany Debt Subordination Agreement" shall mean that certain Intercompany Debt Subordination Agreement dated March 22, 1996 between Borrower, the Partnership and Lender as the same may have been or may be amended, restated, modified, increased or supplemented. "Intercompany Loan Documents" shall mean the notes, leasehold mortgages and other security documents evidencing and/or securing the Intercompany Debt. "Interest Period" shall have the meaning provided in Section 2.6. "Licenses" shall have the meaning provided in Section 4.18. "Lien" shall mean any mortgage, deed of trust, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority or other security agreement of any kind or nature whatsoever, including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same effect as any of the foregoing and the filing of any financing statement or similar -10- 18 instrument under the Uniform Commercial Code or comparable law of any jurisdiction, domestic or foreign. "Loan" shall collectively mean (a) the principal balance outstanding at any time under the Note and all other sums due under this Agreement and the Loan Documents related to the Real Estate Assets other than the California Property, and (b) the principal balance outstanding at any time under the California Note and all other sums due under this Agreement and the Loan Documents related to the California Property. "Loan Amount" shall mean $93,960,000.00. "Loan Documents" shall mean this Agreement, the Note, the California Note, the Security Instruments, the Environmental Indemnity, the California Environmental Indemnity, the Assignments of Leases and Rents, the Assignments of Contracts, each Financing Statement filed in connection herewith, the Security Agreements, the Maryland Guaranty Security Agreement, the Franchisor Estoppels and Recognition Letters, the Maryland Guaranty, the California Guaranty, the Illinois Guaranty, the Intercompany Debt Subordination Agreement, the Partnership Guaranty, the Partnership Guaranty Security Agreements, the Partnership Mortgages, the Partnership Guaranty Assignments of Leases and Rents, the Partnership Assignments of Contracts, the Consents to Assignment, Subordination, Estoppel and Attornment Agreements, the Fee Letter, and any other documents or instruments evidencing, securing or guaranteeing the Loan or perfecting Lender's Lien in the Collateral. "Loan Party" shall mean, individually and collectively, as the context requires, the REIT, Guarantor, the Partnership, Midland Hotel, the Corporation, the Maryland Partnership; provided, however, that in the event that Lender has released its Liens against all of the Collateral pledged by one or more of such parties, then such party or parties, as of the effective date of such release, shall no longer be included in the definition of Loan Party. "Loan Portion" shall mean each Base Rate Portion and each Eurodollar Portion of the Note or the California Note, as applicable. "Major Lease" shall have the meaning provided in Section 3.7 of the Security Instrument. "Margin Stock" shall have the meaning provided such term in Regulation U and Regulation G of the Federal Reserve Board. "Maryland FF&E Lease" shall mean that certain Lease Agreement dated January 5, 1996 between the Maryland Partnership as lessor and the Partnership as lessee. "Maryland Guarantor" shall mean CP Hotel Realty Limited Partnership, a Maryland limited partnership. "Maryland Guaranty" shall mean that certain guaranty dated March 22, 1996 given by Maryland Guarantor to Lender with respect to the Maryland Property, as the same may have been or may be amended, restated, modified, increased or supplemented. -11- 19 "Maryland Guaranty Security Agreement" shall mean that certain security agreement dated March 22, 1996 given by Maryland Guarantor to Lender with respect to the Maryland Guaranty, as the same may have been or may be amended, restated, modified, increased or supplemented. "Maryland Partnership" shall mean SLC-Calverton Limited Partnership, a Delaware limited partnership. "Maryland Property" shall mean the Real Property Asset identified as the Holiday Inn - Calverton, Beltsville, Maryland, on Schedule 2. "Material Adverse Effect" shall mean any condition which has a material adverse effect upon (i) the business, operations, properties, assets, corporate structure or financial condition of Borrower, Guarantor, the REIT, the Partnership, the Maryland Partnership, Midland Hotel or the Corporation, individually or taken as a whole, (ii) the ability of Borrower, Guarantor, the REIT, the Partnership, the Maryland Partnership, Midland Hotel or the Corporation to perform any of the Obligations, or (iii) the validity or enforceability of any of the Loan Documents. "Maturity Date" shall mean April 26, 1997 or such earlier date on which the principal balance of the Loan and all other sums due in connection with the Loan shall be due as a result of the acceleration of the Loan. "Maximum Legal Rate" shall mean the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the indebtedness evidenced by the Note or the California Note and as provided for herein or the Security Instruments or other Loan Documents, under the laws of such state or states whose laws are held by any court of competent jurisdiction to govern the interest rate provisions of the Loan. "Midland Hotel" shall mean Midland Hotel Corporation, an Illinois corporation. "Minimum Spending Requirement" shall have the meaning provided in Section 5.19(a). "Multiemployer Plan" shall mean a "pension plan" as defined in Section 3(2) of ERISA which is a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA. "Net Operating Income" shall mean for any period (i) with respect to each Real Property Asset, the lesser of (a) Property Net Cash Flow or (b) 200% of Operating Lease Payments; notwithstanding the foregoing, in the event that the Franchise Agreement with respect to any Real Property Asset has been terminated or has expired after the date hereof, and Borrower has not entered into a replacement Franchise Agreement with a comparable Franchisor reasonably satisfactory to Lender, the Net Operating Income from such Real Property Asset shall be deemed equal to the lesser of (1) 50% of Property Net Cash Flow and (2) 200% of Adjusted Operating Lease Payments for such Real Property Asset. -12- 20 "New Jersey Environmental Indemnity" shall mean that certain environmental indemnity agreement with respect to the New Jersey Property to be given by the REIT and Borrower to Lender, as the same may be amended, restated, modified, increased or supplemented. "New Jersey Property" shall mean the Real Property Asset identified as the Marriott Hotel, Princeton, New Jersey, on Schedule 2. "Non-Competition Agreement" means Section 6.6 of that certain Formation Agreement, dated as of November 11, 1994, by and among the REIT (formerly Hotel Investors Trust), the Corporation (formerly Hotel Investors Corporation), the Group and Berl Holdings, L.P., Starwood-Apollo Hotel Partners VIII, L.P., Starwood-Apollo Hotel Partners IX, L.P., Starwood-Nomura Hotel Investors, L.P., Starwood/Wichita Investors, L.P., Starwood- Huntington Partners, L.P. and Woodstar Partners I, L.P. (collectively, the "Starwood Partners") as amended by that certain Amendment No. 1 to Formation Agreement, dated as of July 6, 1995, by and among the REIT, the Corporation, the Group and the Starwood Partners. "Note" shall have the meaning provided in Section 2.4 as the same may be amended, restated, modified, increased or supplemented. "Notice of Conversion or Continuation" shall have the meaning provided in Section 2.8(b). "Obligations" shall mean all payment, performance and other obligations, liabilities and indebtedness of every nature of (i) Borrower, Guarantor and the REIT, without duplication, from time to time owing to Lender under or in connection with this Agreement or any other Loan Document, or (ii) the other Loan Parties under or in connection with the Security Instruments or any other Loan Document. "Operating Expenses" shall mean, with respect to any Real Property Asset, for any given period (and shall include the pro rata portion for such period of all such expenses attributable to, but not paid during, such period), all expenses paid, accrued, or payable, as determined in accordance with GAAP and the Uniform System of Accounts by Borrower and Guarantor, and the Partnership, the Maryland Partnership and Midland Hotel, as the case may be, during that period in connection with the operation of such Real Property Asset for which it is to be determined, including without limitation: (i) expenses for cleaning, repair, maintenance, decoration and painting of the such Real Property Asset (including, without limitation, parking lots and roadways), net of any insurance proceeds in respect of any of the foregoing; (ii) wages (including overtime payments), benefits, payroll taxes and all other related expenses for Borrower's, Guarantor's, the Partnership's, the Maryland Partnership's and Midland Hotel's, as the case may be, on-site personnel, up to and including (but not above) the level of the on-site manager, engaged in the repair, operation and maintenance of such Real Property Asset and service to tenants and on-site -13- 21 personnel engaged in audit and accounting functions performed by Borrower, Guarantor, the Partnership, the Maryland Partnership and Midland Hotel; (iii) management fees pursuant to a management agreement, if any, providing for fees not exceeding market and approved by Lender in its reasonable discretion, but in no event less than the percentage of Gross Revenues set forth on Schedule 14 with respect to the applicable Real Property Asset. Such fees shall include all fees for management services whether such services are performed at such Real Property Asset or off-site, and the minimum management fees shall be deemed paid even if there is no management agreement for purposes of calculating Operating Expenses; (iv) Franchise fees, reservation fees and other royalties or similar payments due under the Franchise Agreements, not exceeding market and approved by Lender in its reasonable discretion, but in no event less than the percentage of gross room revenues set forth on Schedule 14 with respect to the applicable Real Property Asset; if no percentage is set forth, the calculation of Operating Expenses shall be based on the actual franchise fees, if any; (v) the cost of all electricity, oil, gas, water, steam, heat, ventilation, air conditioning and any other energy, utility or similar item and the cost of building and cleaning supplies; (vi) the cost of any leasing commissions and tenant concessions or improvements payable by Borrower, Guarantor, the Partnership, the Maryland Partnership, Midland Hotel or any other Loan Party pursuant to any leases which are in effect for such Real Property Asset at the commencement of that period as such costs are recognized in accordance with GAAP, but on no less than a straight line basis over the remaining term of the respective Lease, exclusive of any renewal or extension or similar options; (vii) rent, liability, casualty, fidelity, errors and omissions, dram shop liability, workmen's compensation and other required insurance premiums; (viii) legal, accounting and other professional fees and expenses; (ix) the cost (including leasing and financing) of all equipment to be used in the ordinary course of business, which is not capitalized in accordance with GAAP; (x) real estate, personal property and other taxes; (xi) advertising and other marketing costs and expenses; (xii) casualty losses to the extent not reimbursed by an independent third party; and -14- 22 (xiii) all amounts that should be reserved, as reasonably determined by Borrower, Guarantor, the Partnership, the Maryland Partnership or Midland Hotel, as the case may be, with approval by Lender in its reasonable discretion, for repair or maintenance of the Real Property Asset and to maintain the value of the Real Property Asset including replacement reserves of no less than 4% of Gross Revenues. Notwithstanding the foregoing, Operating Expenses shall not include (i) depreciation or amortization or any other non-cash item of expense unless approved by Lender; (ii) interest, principal, fees, costs and expense reimbursements of Lender in administering the Loan but not in exercising any of its rights under this Agreement or the Loan Documents; (iii) any expenditure (other than leasing and financing costs, leasing commissions, tenant concessions and improvements, and replacement reserves) which is properly treatable as a capital item under GAAP; or (iv) Operating Lease Payments. "Operating Lease Payments" shall mean the rent due and payable to Borrower and Guarantor under the Operating Leases, including, without limitation, all Base Rent, Basic Rent and all Percentage Rent but excluding Additional Rent (as each term is defined in the Operating Leases). "Operating Leases" shall mean those operating leases between Borrower or Guarantor as lessor and the Partnership or Midland Hotel as lessee with respect to each Real Property Asset as set forth on Schedule 10, (as such Schedule may be amended from time to time). "Partnership" means SLC Operating Limited Partnership, a Delaware limited partnership. "Partnership Assignments of Contracts" shall mean those certain assignments of franchise agreement, agreements, permits and contracts given by the Partnership, the Maryland Partnership and/or Midland Hotel, as the case may be, with respect to each Real Property Asset, to Lender, as the same may have been or may be amended, restated, modified, increased or supplemented. "Partnership Assignments of Leases and Rents" shall mean those certain assignments of leases and rents given by the Partnership, the Maryland Partnership and/or Midland Hotel, as the case may be, with respect to each Real Property Asset, to Lender, as the same may have been or may be amended, restated, modified, increased or supplemented. "Partnership Guaranty" shall mean that certain Guaranty of Payment given by the Partnership and the Maryland Partnership to Lender as the same may have been or may be amended, restated, modified, increased or supplemented. "Partnership Guaranty Security Agreements" shall mean those certain security agreements given by the Partnership and/or the Maryland Partnership or Midland Hotel, as the case may be, with respect to each Real Property Asset to Lender as the same may have been or may be amended, restated, modified, increased or supplemented. -15- 23 "Partnership Loan Documents" shall mean the Partnership Assignments of Contracts, the Partnership Assignments of Leases and Rents, the Partnership Guaranty, the Illinois Guaranty, the California Guaranty, the Partnership Guaranty Security Agreements, the Partnership Mortgages and any other documents or instruments, executed and delivered by the Partnership, the Maryland Partnership or Midland Hotel in connection with the Loan. "Partnership Mortgages" shall mean those certain leasehold mortgages, deeds of trust, indemnity deeds of trust, deeds to secure debt or similar real estate security instruments with respect to a Real Property Asset granted by the Partnership or Midland Hotel, as the case may be, as the same may have been or may be amended, restated, modified, increased or supplemented. "PBGC" shall mean the Pension Benefit Guaranty Corporation established under ERISA, or any successor thereto. "Permitted Financing" shall mean leases, licenses or financing arrangements with respect to signage, televisions, audio-visual equipment, office supplies, computers, reservation systems, telephone systems, or vans for which aggregate annual lease payments, license fees and debt service is less than the amount per annum set forth for each Real Property Asset on Schedule 11. For each Real Property Asset, such amount is an aggregate limit for that Real Property Asset on all leasing, licensing or financing by the Partnership, Guarantor, the Maryland Partnership, Midland Hotel and Borrower. "Permitted Liens" shall have the meaning provided in Section 6.3. "Person" shall mean and include any individual, partnership, joint venture, firm, corporation, limited liability company, association, company, trust or other enterprise or any government or political subdivision or agency, department or instrumentality thereof. "Personal Property" shall mean all Equipment, Inventory and Fixtures, each as defined in the related Security Agreement. "Plan" means any employee benefit plan covered by Title IV of ERISA or subject to Section 412 of the Code or Section 302 of ERISA (i) that is maintained by Borrower or any other Loan Party or (ii) with respect to which any such person has or may have any obligation or liability, whether direct or indirect; provided, however, that "Plan" shall not include any "multiemployer plan" as defined in Section 4001(a)(3) of ERISA. "Plan Asset Entity" shall mean any "employee benefit plan" as defined in ERISA, any "plan" as defined in Section 4975 of the Code, and any entity any portion or all of the assets of which are deemed pursuant to United States Department of Labor Regulation Section 2510.3- 101 or otherwise pursuant to ERISA or the Code to be, for any purpose of ERISA or Section 4975 of the Code, assets of any such "employee benefit plan" or "plan" which invests in such entity. "Property Net Cash Flow" shall mean, with respect to any Real Property Asset, the Gross Revenues derived from the customary operation of such Real Property Asset during -16- 24 the period in question, less Operating Expenses attributable to such Real Property Asset for such period, and shall include only the Gross Revenues and other such income actually received and earned, in accordance with GAAP, including any rent loss or business interruption insurance proceeds, and laundry, parking or other vending or concession income, which are actually received or accrued in accordance with GAAP attributable to such Real Property Asset during the twelve (12) month period ending at the end of the calendar month for which the Property Net Cash Flow is being calculated, as set forth on operating statements satisfactory to Lender. Property Net Cash Flow shall be calculated in accordance with customary accounting principles applicable to real estate and in accordance with the Uniform System of Accounts. Notwithstanding the foregoing, Property Net Cash Flow shall not include (i) any condemnation or insurance proceeds (excluding rent or business interruption insurance proceeds), (ii) any proceeds resulting from the sale, exchange, transfer, financing or refinancing of all or any portion of the Real Property Asset for which it is to be determined, (iii) amounts received from tenants as security deposits, (iv) amounts received as advance reservation deposits unless earned in accordance with GAAP, and (v) any type of income otherwise included in Property Net Cash Flow but paid directly by any tenant to a Person other than Borrower, Guarantor, the Partnership, the Maryland Partnership or Midland Hotel or their respective agents or representatives. "Quality Assurance Reports" shall have the meaning provided in Section 5.1(d). "REIT" shall have the meaning set forth in the opening paragraph of this Agreement. "Real Property Assets" shall mean the real property described on Schedule 2, including all of the Collateral relating to such Real Property Assets; provided, however, that the New Jersey Property shall not be deemed to be a Real Property Asset until such time as the date of the final advance pursuant to Section 3.2, and from and after the date of such final advance, the New Jersey Property shall be deemed to be a Real Property Asset for all purposes hereof. "Recording Taxes" shall have the meaning provided in Section 3.2(h). "Regulation D" shall mean Regulation D of the Federal Reserve Board as from time to time in effect and any successor to all or any portion thereof. "Reportable Event" has the meaning set forth in Section 4043(c)(3), (5), (6) or (13) of ERISA (other than a Reportable Event as to which the provision of 30 days' notice to the PBGC is waived under applicable regulations). "Security Agreements" shall mean those certain security agreements given by Borrower or Guarantor, as the case may be, to Lender with respect to the Real Property Assets, as the same may have been or may be amended, restated, modified, increased or supplemented. "Security Instruments" shall mean those certain mortgages, deeds of trust, indemnity deeds of trust, deeds to secure debt or similar real estate security instruments granted by Borrower or Guarantor, as the case may be, to Lender with respect to a Real Property Asset, as the same may have been or may be amended, restated, modified, increased or supplemented. -17- 25 "SLT Realty Company, L.L.C." shall mean SLT Realty Company, L.L.C., a Delaware limited liability company. "Solvent" as to any Person shall mean that (i) the sum of the assets of such Person, at a fair valuation based upon appraisals or comparable valuation, will exceed its liabilities, including contingent liabilities, (ii) such Person will have sufficient capital with which to conduct its business as presently conducted and as proposed to be conducted and (iii) such Person has not incurred debts, and does not intend to incur debts, beyond its ability to pay such debts as they mature. For purposes of this definition, "debt" means any liability on a claim, and "claim" means (x) a right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured, or (y) a right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured. With respect to any such contingent liabilities, such liabilities shall be computed in accordance with GAAP at the amount which, in light of all the facts and circumstances existing at the time, represents the amount which can reasonably be expected to become an actual or matured liability. "Subsidiary" of any Person shall mean and include (i) any corporation Controlled by such Person, directly or indirectly through one or more intermediaries, and (ii) any partnership, association, joint venture or other entity Controlled by such Person, directly or indirectly through one or more intermediaries and (iii) all of the parties listed as Subsidiaries on Schedule 3. "Taxes" shall have the meaning provided in Section 2.19. "Telerate Page 3750" means the display designated as "Page 3750" on the Telerate Service (or such other page as may replace Page 3750 on that service or such other service as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying British Bankers' Association Interest Settlement Rates for U.S. Dollar deposits). "Termination Event" shall mean (i) a Reportable Event, or (ii) the initiation of any action by Borrower, the REIT, any member of Borrower's, the REIT's or any other Loan Party's ERISA Controlled Group or any other person to terminate a Plan or the treatment of an amendment to Plan as a termination under ERISA, in either case, which could result in liability to Borrower, the REIT or any Loan Party, (iii) the institution of proceedings by the PBGC under Section 4042 of ERISA to terminate a Plan or to appoint a trustee to administer any Plan, (iv) any partial or total withdrawal from a Multiemployer Plan which in either case, could result in liability to Borrower, the REIT or any Loan Party or (v) the taking of any action that would require Security to the Plan under Section 401(a)(29) of the Code. "Texas Property" shall mean the Real Property Asset identified on Schedule 2 as Doubletree Guest Suites, Irving, Texas. "Title Policy" shall have the meaning provided in Section 3.1(i). -18- 26 "Tenant Estoppel Certificate" shall have the meaning provided in Section 3.1(a)(vii). "Transaction Costs" shall mean all costs and expenses paid or payable by Borrower or any other Loan Party relating to the Transactions including, without limitation, the costs and expenses of Lender in conducting its due diligence with respect to the Transactions, financing fees, commitment fees, advisory fees, appraisal fees, legal fees, accounting fees, title insurance premiums, recording charges and taxes, mortgage recording taxes, intangibles taxes, documentary taxes, stamp taxes or similar taxes, whether directly or as reimbursement to Lender. "Transactions" shall mean each of the transactions contemplated by the Loan Documents. "Transferee" shall have the meaning provided in Section 9.7. "Treasury Rate" shall mean the semi-annual yield (without de-compounding), as reported in The Wall Street Journal (of if such rate is not published therein, in the Federal Reserve Statistical Release H.15 - Selected Interest Rates under the heading "U.S. Government Securities/Treasury constant maturities") on the date of the Debt Service Coverage Ratio calculation (provided, however, if such date is not a Business Day, then on the next succeeding Business Day) for the current U.S. Treasury security with a maturity date most closely approximating the date which is 10 years from such date of calculation, plus 3.25%. In the event such rate is not published in either The Wall Street Journal or Release H.15, Lender shall select a comparable publication to determine the Treasury Rate. "Type" shall mean the type of any portion of the Loan determined with respect to the interest option applicable thereto, i.e., a Base Rate Portion or a Eurodollar Portion. "UCC Searches" shall have the meaning provided in Section 3.1(g). "Unfunded Benefit Liabilities" means with respect to any Plan at a particular time, the amount (if any) by which (i) the present value of all benefit liabilities under such Plan as defined in Section 4001(a)(16) of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plan (on the basis of assumptions prescribed by the PBGC for the purpose of Section 4044 of ERISA). "Uniform System of Accounts" mean the Uniform System of Accounts for Hotels as approved by the American Hotel and Motel Association (as in effect from time to time) applied on a consistent basis. SECTION 2. THE LOAN. Section 2.1 Intentionally Deleted. -19- 27 Section 2.2 Intentionally Deleted. Section 2.3 Intentionally Deleted. Section 2.4 The Note. Borrower's and the REIT's obligation to pay the principal of, and interest on, the Loan shall be evidenced by (a) that certain promissory note dated March 22, 1996 and made by Borrower and the REIT to Lender in the original principal amount of $23,960,000.00 as amended, restated and increased to the principal amount of $81,460,000.00 as of the date hereof (as the same may further be amended, modified, supplemented, restated, increased, extended or consolidated, the "Note"); and (b) that certain promissory note dated the date hereof and made by Borrower and the REIT to Lender in the principal amount of $12,500,000.00 (as the same may be amended, modified, supplemented, restated, increased, extended or consolidated, the "California Note"). Section 2.5 Interest. (a) Borrower and the REIT shall pay interest in respect of the unpaid principal amount of each Base Rate Portion from the date of the making of such Base Rate Portion until such Base Rate Portion shall be paid in full, or converted to a Eurodollar Portion, at a rate per annum which shall be equal to the sum of the Base Rate Margin plus the Base Rate in effect from time to time, such rate to change automatically and without notice as and when the Base Rate changes. (b) Borrower and the REIT shall pay interest in respect of the unpaid principal amount of each Eurodollar Portion from the date of the making of such Eurodollar Portion until such Eurodollar Portion shall be paid in full, continued as a Eurodollar Portion or converted to a Base Rate Portion, at a rate per annum which shall be equal to the sum of the Eurodollar Rate Margin plus the relevant Eurodollar Rate. (c) Intentionally Omitted. (d) In the event that, and for so long as, any Event of Default shall have occurred and be continuing, the outstanding principal amount of the Loan and, to the extent permitted by law, overdue interest in respect of the Loan, shall bear interest at the Default Rate, calculated from the date such payment was due without regard to any grace or cure periods contained herein. (e) Interest on the Loan shall accrue from and including the date hereof to but excluding the date of any repayment thereof and Borrower and the REIT shall pay such interest (i) in respect of each Base Rate Portion, (A) monthly in arrears on the first day of each month, (B) on the date of any prepayment or conversion, (C) on the Maturity Date (whether by acceleration or otherwise) and (D) after the Maturity Date, on demand, and (ii) in respect of each Eurodollar Portion, in arrears (A) on the last day of the applicable Interest Period, (B) on the date of any prepayment or conversion (on the amount prepaid or converted), (C) on the Maturity Date (whether by acceleration or otherwise), and (D) after the Maturity Date, on demand. (f) Interest on the outstanding principal balance of Base Rate Portions shall be calculated on the basis of a three hundred sixty (360) day year based on twelve (12) thirty -20- 28 (30) day months, except that interest due and payable for a period of less than a full month shall be calculated by multiplying the actual number of days elapsed in such period by a daily rate based on said 360-day year. Interest on the outstanding principal balance of Eurodollar Portions shall be calculated on the basis of a three hundred sixty (360) day year based on the actual number of days elapsed. (g) This Agreement, the Note and the California Note are subject to the express condition that at no time shall Borrower or the REIT be obligated or required to pay interest on the principal balance of the Loan at a rate which could subject Lender to either civil or criminal liability as a result of being in excess of the Maximum Legal Rate. If by the terms of this Agreement or the Loan Documents, Borrower or the REIT is at any time required or obligated to pay interest on the principal balance due hereunder at a rate in excess of the Maximum Legal Rate, the interest rate or the Default Rate, as the case may be, shall be deemed to be immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal Rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder. All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of the sums due under the Loan, shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Loan until payment in full so that the rate or amount of interest on account of the Loan does not exceed the Maximum Legal Rate of interest from time to time in effect and applicable to the Loan for so long as the Loan is outstanding. Section 2.6 Interest Periods. (a) Borrower shall, in each Notice of Conversion or Continuation in respect of the making of, conversion into or continuation of a Eurodollar Portion, select the interest period (each an "Interest Period") applicable to such Eurodollar Portion, which Interest Period shall, at the option of Borrower, be either a one month, two-month or three-month period, provided that: (i) the initial Interest Period for any new Eurodollar Portion shall commence on the date hereof and each Interest Period occurring thereafter in respect of such Portion shall commence on the date on which the next preceding Interest Period expires; (ii) if any Interest Period would otherwise expire on a day which is not an Business Day, such Interest Period shall expire on the next succeeding Business Day; (iii) if any Interest Period begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month; and (iv) no Interest Period in respect of any Eurodollar Portion shall extend beyond the Maturity Date. (b) If upon the expiration of any Interest Period, Borrower has failed to elect or confirm a new Interest Period or Eurodollar Base Rate to be applicable to any Eurodollar Portion as provided above in Sections 2.6(a) and 2.6(b) or failed to convert such Eurodollar Portion to a Base Rate Portion, all in accordance with Section 2.8, Borrower shall be deemed -21- 29 to have elected to continue such Eurodollar Portions as Eurodollar Portions with an Interest Period of one month (or, if at such time Eurodollar Portions are not available pursuant to Section 2.17, Borrower shall be deemed to have elected to convert such Eurodollar Portion into a Base Rate Portion), effective as of the expiration date of such current Interest Period. Section 2.7 Minimum Amount of Eurodollar Portions. All conversions, continuations, payments, prepayments and selection of Interest Periods hereunder shall be made or selected so that, after giving effect thereto, each Eurodollar Portion of the Note and each Eurodollar Portion of the California Note shall (i) have a principal amount equal to or greater than One Million Dollars (U.S. $1,000,000.00) and (ii) be in an integral multiple of Five Hundred Thousand and 00/100 Dollars (U.S. $500,000.00) in excess of such minimum amount except for the balance of the First Eurodollar Portion, the Second Eurodollar Portion, the Note or the California Note, as the case may be, necessary to have the entire principal sum of the First Eurodollar Portion, the Second Eurodollar Portion, the Note or the California Note, as the case may be, constitute Eurodollar Portions. There shall be no more than three Eurodollar Portions outstanding at any time. Section 2.8 Conversion or Continuation. (a) Subject to the other provisions hereof, Borrower shall have the option (i) to convert at any time all or any part of the outstanding Base Rate Portions to Eurodollar Portions, (ii) to convert, at the expiration of the applicable Interest Period, any outstanding Eurodollar Portions to Base Rate Portions, or (iii) to continue all or any part of the outstanding Eurodollar Portions as Eurodollar Portions for one or more additional Interest Periods, subject to Section 2.7, on the expiration of the Interest Period applicable thereto (or prior to such expiration date, provided Borrower pays Funding Costs in connection therewith pursuant to Section 2.17); provided that Borrower shall not have the right to continue any Eurodollar Portion, or convert any Base Rate Portion into, a Eurodollar Portion when any Default with respect to the payment of interest or principal hereunder or any Event of Default has occurred and is continuing and in such case all outstanding Eurodollar Portions shall automatically convert into a Base Rate Portion effective as of the expiration date of the related Interest Period. In the event Eurodollar Portions are not available pursuant to Section 2.16, Borrower shall be deemed to have elected to convert such Eurodollar Portions into Base Rate Portions, and if such conversion occurs prior to the expiration date of the applicable Interest Period, Borrower shall also pay all Funding Costs and other costs, expenses and losses in connection therewith pursuant to Sections 2.16 and 2.17. (b) In order to elect to convert or continue a Loan Portion under this Section 2.8, Borrower shall deliver an irrevocable notice thereof in the form annexed hereto as Exhibit "A" (a "Notice of Conversion or Continuation") to Lender no later than 11:00 A.M., New York City time, (which notice may be by facsimile transmission provided that an original is delivered prior to the close of business on the immediately succeeding Business Day) three (3) Business Days prior to the proposed conversion or continuation date in the case of a conversion to, or a continuation of, a Eurodollar Portion. A Notice of Conversion or Continuation shall specify (u) the requested conversion or continuation date (which shall be a Business Day), (v) the amount and Type of the Loan Portion to be converted or continued, (w) whether the Loan portion to be converted or continued is evidenced by the Note or the California Note, (x) whether a conversion or continuation is requested, (y) in the case of a conversion to, or a continuation of, -22- 30 a Eurodollar Portion, the requested Interest Period and (z) the existing Contract Rate applicable to the Loan Portion to be converted or continued. Section 2.9 Intentionally Deleted. Section 2.10 Intentionally Deleted. Section 2.11 Voluntary Prepayments. Subject to the terms and provisions of the Fee Letter, Borrower and the REIT shall have the right to prepay the Loan, in whole but not in part, by giving Lender written notice (or telephonic notice promptly confirmed in writing), in the form attached hereto as Exhibit "B", which notice shall be irrevocable, of its intent to prepay the entire outstanding principal balance of the Loan, at least three (3) Business Days prior to the date of prepayment. Prepayments of Eurodollar Portions made pursuant to this Section on a date other than the last day of the Interest Period applicable thereto shall be accompanied by payment of any Funding Costs which Lender shall incur as a result of such early payment. If any such notice is given, the entire principal balance of the Loan shall be due and payable on the date specified therein. Section 2.12 Mandatory Prepayments. Subject to the terms and provisions of the Fee Letter, on each date on which Borrower, Guarantor or the REIT actually receives a distribution of the proceeds of any insurance payment or condemnation award in respect of any of the Real Property Assets, and if Lender is not obligated to make such proceeds available to Borrower or Guarantor for the restoration of any Real Property Asset or to release such proceeds to Borrower or Guarantor under the terms of the Security Instruments, Borrower shall prepay the outstanding principal balance of the related Note secured by such Real property Asset in an amount equal to the lesser of (i) one hundred percent (100%) of such proceeds and (ii) the Allocated Loan Amount with respect to such Real Property Asset and, in either case, the applicable Funding Costs as a result of such payment. All prepayments made pursuant to this subsection shall be applied in accordance with the provisions of Section 2.13. The Allocated Loan Amount with respect to such Real Property Asset will be reduced in an amount equal to such prepayment. Section 2.13 Application of Payments and Prepayments. Unless specifically provided otherwise herein or in the Fee Letter, all payments and prepayments of the Loan, whether voluntary or otherwise, shall be applied first, to unpaid Fees and any Funding Costs, second, to pay any accrued and unpaid interest then payable with respect to the Loan, and third, to pay the outstanding principal amount of the Loan. Section 2.14 Method and Place of Payment. (a) Except as otherwise specifically provided herein, all payments and prepayments under this Agreement, the Note and the California Note shall be made to Lender not later than 12:00 noon, New York City time, on the date when due and shall be made in lawful money of the United States of America in immediately available funds at Lender's Office, and any funds received by Lender after such time shall, for all purposes hereof, be deemed to have been paid on the next succeeding Business Day. -23- 31 (b) Except as expressly provided to the contrary in Section 2.6 hereof, whenever any payment to be made hereunder, under the Note, the California Note or other Loan Documents shall be stated to be due on a day which is not an Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable at the applicable rate during such extension. (c) All payments made by Borrower hereunder, under the Note, the California Note and the other Loan Documents, shall be made irrespective of, and without any deduction for, any setoff or counterclaims. Section 2.15 Intentionally Deleted. Section 2.16 Interest Rate Unascertainable, Increased Costs, Illegality. (a) In the event that Lender has determined (which determination shall, if made in good faith and absent manifest error, be final and conclusive and binding upon all parties hereto): (i) on any date for determining the Eurodollar Rate for any Interest Period, that by reason of any changes arising after the date of this Agreement affecting the interbank Eurodollar market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of the Eurodollar Rate; or (ii) at any time, that the relevant Eurodollar Rate applicable to any of its Eurodollar Portions shall not represent the effective pricing to Lender for funding or maintaining its Eurodollar Portions, or Lender shall incur increased costs or reduction in the amounts received or receivable hereunder in respect of any Eurodollar Portion, in any such case because of (x) any change since the date of this Agreement in any applicable law or governmental rule, regulation, guideline, order, request or directive or any interpretation thereof and including the introduction of any new law or governmental rule, regulation, guideline, order, request or directive (such as, for example, but not limited to, a change in official reserve requirements, but, in all events, excluding reserves required under Regulation D of the Federal Reserve Board to the extent included in the computation of the Eurodollar Rate), whether or not having the force of law and whether or not failure to comply therewith would be unlawful, and/or (y) other circumstances affecting Lender or the interbank Eurodollar market or the position of Lender in such market; or (iii) at any time, that the making or continuance by it of any Eurodollar Portion has become unlawful in order for Lender, in good faith, to comply with any law or governmental rule, regulation, guideline, order, request or directive (whether or not having the force of law and whether or not failure to comply therewith would be unlawful), or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or has become impracticable as a result of a contingency occurring after the date of this Agreement which materially and adversely affects the interbank Eurodollar market; -24- 32 then, and in any such event, Lender shall, promptly after making such determination, give notice by telephone promptly confirmed in writing to Borrower. Thereafter (x) in the case of clause (i) above, Borrower's right to request conversions or continuations of Eurodollar Portions shall be suspended, and any Notice of Conversion or Continuation given by Borrower with respect to any Eurodollar Portions which has not yet been made shall be deemed cancelled and rescinded by Borrower, (y) in the case of clause (ii) above, Borrower shall pay to Lender, within ten (10) Business Days after receipt of Lender's written demand therefor, such additional amounts (in the form of an increased rate of interest, or a different method of calculating interest, or otherwise, as Lender shall determine) as shall be required to compensate Lender for such increased costs or reduction in amounts received or receivable hereunder (it being understood and agreed by the parties hereto that in the event that Lender shall fail to notify Borrower within ten (10) Business Days after such determination, then Borrower shall not be liable to pay to Lender any additional amounts relating to the period prior to Lender's notifying Borrower, and (z) in the case of clause (iii) above, Borrower shall take one of the actions specified in clause (b) below as promptly as possible and, in any event, within the time period required by law. The written demand provided for in clause (y) shall demonstrate in reasonable detail the circumstances giving rise to such demand and the calculation of the amounts demanded; provided that Borrower and the REIT shall not be obligated to pay an amount in excess of the amount directly attributable to the Loan hereunder. (b) In the case of any Eurodollar Portion or requested Eurodollar Portion affected by the circumstances described in clause (a)(ii) above, Borrower may, and in the case of any Eurodollar Portion affected by the circumstances described in clause (a)(iii) above, Borrower shall, either (i) if any such Eurodollar Portion has not yet been made but is then the subject of a Notice of Conversion or Continuation, be deemed to have cancelled and rescinded such notice, or (ii) if any such Eurodollar Portion is then outstanding, require Lender to convert each such Eurodollar Portion into a Base Rate Portion at the end of the applicable Interest Period or such earlier time as may be required by law, in each case by giving Lender notice (by telephone promptly confirmed in writing) thereof within two (2) Business Days after Borrower was notified by Lender pursuant to clause (a) above. (c) In the event that Lender determines at any time following the giving of notice based on the conditions described in clause (a)(i) and (a)(iii) above that such conditions no longer exist, Lender shall promptly give notice thereof to Borrower, whereupon Borrower's right to request Eurodollar Portions from Lender and Lender's obligation to make Eurodollar Portions shall be automatically restored. (d) The amount of any increased costs or reductions in amounts referred to in Section 2.16(a)(ii) with respect to Lender shall be based on the assumption that Lender had funded all of the Eurodollar Portions in the interbank Eurodollar market, although the parties hereto agree that Lender may fund all or any portion of a Eurodollar Portion, in any manner it independently determines. For purposes of any demand for payment made by a Lender under Sections 2.16(a)(ii) or 2.18, in attributing Lender's general costs relating to eurocurrency operations or its commitments or customers, or in averaging any costs over a period of time, Lender may use any reasonable attribution and/or averaging method which it deems appropriate, reasonable and practical. The agreements in this Section 2.16 shall survive the termination of this Agreement and the payment of the Note, the California Note and all other Obligations. -25- 33 Section 2.17 Funding Losses. Borrower and the REIT, shall compensate Lender, upon Lender's delivery of a written demand therefor to Borrower and the REIT, (which demand shall set forth in detail the basis for requesting such amounts and shall, absent manifest error, be final and conclusive and binding upon all of the parties hereto), for all reasonable losses, expenses and liabilities, to the extent actually incurred (including, without limitation, any loss, expense or liability incurred by Lender in connection with the liquidation or reemployment of deposits or funds required by it to make or carry its Eurodollar Portions), excluding loss of anticipated profits ("Funding Costs"), that Lender sustains: (a) if for any reason (other than a default by Lender) a conversion from or into, or a continuation of, Eurodollar Portions does not occur on a date specified therefor in a Notice of Conversion or Continuation (whether or not rescinded, cancelled or withdrawn or deemed rescinded, cancelled or withdrawn, pursuant to Sections 2.16(a) or 2.16(b) or otherwise), (b) if any prepayment (whether voluntary or mandatory), repayment (including, without limitation, payment after acceleration) or conversion of any of its Eurodollar Portions occurs on a date which is not the last day of the Interest Period applicable thereto, (c) if any prepayment of any of its Eurodollar Portions is not made on any date specified in a notice of prepayment given by Borrower, or (d) as a consequence of any default by Borrower or the REIT in repaying its Eurodollar Portions or any other amounts owing hereunder in respect of its Eurodollar Portions when required by the terms of this Agreement. Calculation of all amounts payable to Lender under this Section 2.17 shall be made on the assumption that Lender has funded the applicable Eurodollar Portion through (i) the purchase of a Eurodollar deposit bearing interest at the Eurodollar Rate in an amount equal to the amount of such Eurodollar Portion with a maturity equivalent to the Interest Period applicable to such Eurodollar Portion, and (ii) the transfer of such Eurodollar deposit from an offshore office of Lender to a domestic office of Lender in the United States of America, provided that Lender may fund the Eurodollar Portions in any manner that it in its sole discretion chooses and the foregoing assumption shall only be made in order to calculate amounts payable under this Section 2.17. The agreements in this Section 2.17 shall survive the termination of this Agreement and the payment of the Note, the California Note and all other Obligations. Section 2.18 Increased Capital. With respect to each Eurodollar Portion, if Lender shall have determined, in good faith, that compliance with any applicable law, rule, regulation, guideline, request or directive (whether or not having the force of law) which shall be imposed, issued or amended from and after the date of this Agreement by any governmental authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the capital or assets of Lender as a consequence of its commitments or obligations hereunder, then from time to time, upon Lender's delivering a written demand therefor to Borrower, setting forth its reasonable calculations, Borrower and the REIT, shall pay to Lender on demand such additional amount or amounts ("Increased Capital Costs") as will compensate Lender for such reduction. Such calculations may use any reasonable averaging and attribution methods selected by Lender. The agreements in this Section 2.18 shall survive the termination of this Agreement and the payment of the Note, the California Note and all other Obligations. Section 2.19 Taxes. (a) All payments made by Borrower or the REIT under this Agreement shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any governmental authority excluding, in the case of Lender, net income and -26- 34 franchise taxes imposed on Lender by the jurisdiction under the laws of which Lender is organized or any political subdivision or taxing authority thereof or therein, or by any jurisdiction in which Lender's Domestic Lending Office or Eurodollar Lending Office, as the case may be, is located or any political subdivision or taxing authority thereof or therein (all such non-excluded taxes, levies, imposts, deductions, charges or withholdings being hereinafter called "Taxes"). (b) Notwithstanding anything to the contrary herein, if at any time or from time to time Taxes are required to be deducted or withheld from the payments required to be made to Lender hereunder solely by reason of a Change in Law after the date hereof (other than as a result of any transfer or assignment of any of the obligations of Borrower and the REIT hereunder), all payments required to be made by Borrower and the REIT, hereunder (including any additional amounts that may be payable pursuant to this clause (b)) shall be increased to the extent required so that the net amount received by Lender after the deduction or withholding of Taxes imposed solely by reason of a Change in Law after the date hereof will be not less than the full amount that would otherwise have been receivable had no such deduction or withholding been imposed by reason of such Change in Law. In the event that this clause (b) shall be operative, Borrower and the REIT shall promptly provide to Lender evidence of payment of such Taxes to the appropriate taxing authority and shall promptly forward to Lender any official tax receipts or other documentation with respect to the payment of the Taxes as may be issued by the taxing authority. If Borrower or the REIT fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to Lender the required receipts or other required documentary evidence, Borrower and the REIT shall indemnify Lender for any incremental taxes, interest or penalties that may become payable by Lender as a result of any such failure. The agreements in this Section 2.19 shall survive the termination of this Agreement and the payment of the Note, the California Note and all other Obligations. (c) For purposes of this Section 2.19 the term "Change in Law" shall mean the following events: (i) the enactment of any legislation by the United States, including the enactment, amendment or modification of a treaty; (ii) the lapse, by its terms, of any law of the United States or any treaty to which the United States is a party; or (iii) the promulgation of any temporary or final regulation under the Code. Section 2.20 Use of Proceeds. Borrower shall use the proceeds of the Loan to acquire interests in additional hotel or hospitality properties, for costs associated with the operation, maintenance, renovation and development of the Real Property Assets, for working capital, for the initial funding of capital expenditures, replacement reserves or other escrows required hereunder, to pay various Transaction Costs and other general corporate purposes, including the payment of Distributions (subject to the conditions of this Agreement). Section 2.21 Intentionally Deleted. Section 2.22 Intentionally Deleted. Section 2.23 Intentionally Deleted. Section 2.24 Intentionally Deleted. -27- 35 Section 2.25 Intentionally Deleted. Section 2.26 Intentionally Deleted. SECTION 3. CONDITIONS PRECEDENT. Section 3.1 Conditions Precedent to the Initial Advance. The obligation of Lender to make the initial advance of the Loan (inclusive of the principal sum of $23,960,000.00 previously advanced under the Prior Loan Agreement) in the amount of $73,960,000.00, $61,460,000.00 of which is evidenced by the Note and $12,500,000.00 of which is evidenced by the California Note on the date hereof is subject to the satisfaction by Borrower on or before the date hereof the following conditions precedent: (a) Loan Documents. (i) Loan Agreement. Borrower, Guarantor and the REIT shall have executed and delivered this Agreement to Lender. (ii) The Notes. Borrower and the REIT shall have executed and delivered to Lender the Note and the California Note. (iii) Security Instruments. Borrower and Guarantor shall have executed and delivered to Lender the Security Instruments with respect to each of the Real Property Assets other than the New Jersey Property. (iv) Assignments of Leases and Rents. Borrower and Guarantor shall have executed and delivered to Lender the Assignments of Leases and Rents with respect to each Real Property Asset other than the New Jersey Property. (v) Environmental Indemnity. Borrower, the REIT and Guarantor shall have executed and delivered to Lender the Environmental Indemnity. (vi) Maryland Guaranty. Maryland Guarantor shall have executed and delivered the Maryland Guaranty and the Maryland Guaranty Security Agreement to Lender. (vii) Tenant Estoppel Certificates. Borrower, Guarantor, the Partnership or Midland Hotel, as the case may be, shall have delivered to Lender with respect to each tenant identified on Schedule 4, a tenant estoppel certificate substantially in the form of Exhibit "C" hereto or in a form otherwise satisfactory to Lender in its reasonable discretion, executed by such tenant (as amended, restated, modified or supplemented, the "Tenant Estoppel Certificate"). (viii) Assignments of Contracts. Borrower and Guarantor shall have executed and delivered to Lender the Assignments of Contracts with respect to each Real Property Asset other than the New Jersey Property. -28- 36 (ix) Franchisor Estoppels and Recognition Letters. Borrower, Guarantor, the Partnership or Midland Hotel, as applicable, shall have delivered to Lender with respect to each Real Property Asset subject to a Franchise Agreement, a franchisor estoppel and recognition letter substantially in the form set forth as Exhibit "D" hereto or in a form otherwise satisfactory to Lender in its reasonable discretion, executed by Franchisor, (as amended, restated, modified or supplemented from time to time, the "Franchisor Estoppels and Recognition Letters"). Notwithstanding the foregoing, (a) the Franchisor Estoppels and Recognition Letters with respect to the Florida Property located in Fort Lauderdale and the Texas Property shall be delivered to Lender within ninety (90) days of the date hereof, and (b) the Franchisor Estoppel and Recognition Letter with respect to the New Jersey Property (if the New Jersey Property is subject to a Franchise Agreement) shall be delivered on or before the date of the final advance of the Loan. (x) Security Agreements. Borrower and Guarantor shall have executed and delivered to Lender the Security Agreements with respect to each Real Property Asset other than the New Jersey Property. (xi) Intentionally Deleted. (xii) Intentionally Deleted. (xiii) Intercompany Debt Subordination Agreement. Borrower and the Partnership shall have executed and delivered to Lender the Intercompany Debt Subordination Agreement. (xiv) Intentionally Deleted. (xv) Partnership Guaranty. The Partnership and the Maryland Partnership shall have executed and delivered to Lender the Partnership Guaranty. (xvi) Partnership Mortgages. The Partnership or Midland Hotel, as applicable, shall have executed and delivered to Lender the Partnership Mortgages with respect to each Operating Lease under which the Partnership or Midland Hotel is the lessee other than the Operating Lease affecting the New Jersey Property. With respect to the Maryland Property and the Florida Properties, the related Partnership Mortgage shall not be recorded unless an Event of Default shall have occurred. (xvii) Partnership Guaranty Security Agreements. The Partnership and/or the Maryland Partnership or Midland Hotel, as applicable, shall have executed and delivered to Lender the Partnership Guaranty Security Agreements with respect to the Partnership Guaranty or the Illinois Guaranty, as the case may be, for each Real Property Asset other than the New Jersey Property. (xviii) Partnership Assignments of Leases and Rents. The Partnership and/or Midland Hotel, as applicable, shall have executed and delivered to Lender the Partnership Assignments of Leases and Rents with respect to each Operating Lease under -29- 37 which the Partnership and/or Midland Hotel is the lessee other than the Operating Lease affecting the New Jersey Property. With respect to the Maryland Property and the Florida Properties, the related Partnership Assignment of Leases and Rents shall not be recorded unless an Event of Default shall have occurred. (xix) Partnership Assignments of Contracts. The Partnership, the Maryland Partnership and Midland Hotel shall have executed and delivered the Partnership Assignments of Contract to Lender with respect to the Partnership Guaranty and the Illinois Guaranty, for each Real Property Asset other than the New Jersey Property. (xx) Consents To Assignment, Subordination, Estoppel and Attornment Agreements. Borrower, Guarantor, the Partnership and Midland Hotel, as applicable, shall have executed and delivered to Lender the Consents to Assignment, Subordination, Estoppel and Attornment Agreements with respect to each Real Property Asset other than the New Jersey Property. (xxi) California Environmental Indemnity. Borrower and the REIT shall have executed and delivered to Lender the California Environmental Indemnity. (xxii) California Guaranty. The Partnership shall have executed and delivered to Lender the California Guaranty. (xxiii) Illinois Guaranty. Illinois Guarantor and Midland Hotel shall have executed and delivered to Lender the Illinois Guaranty. (b) Opinions of Counsel. Lender shall have received legal opinions from counsel to Borrower, the REIT, Guarantor, the Partnership, the Maryland Partnership, Midland Hotel or the Corporation in form and substance reasonably satisfactory to Lender and its counsel, that, among other things: (i) this Agreement and the Loan Documents have been duly authorized, executed and delivered by Borrower and the respective Loan Parties, and are valid and enforceable in accordance with their terms, subject to bankruptcy and equitable principles; (ii) that Borrower, Guarantor, the Partnership, the Maryland Partnership and Midland Hotel are qualified to do business and in good standing under the laws of the jurisdiction in which it is organized and where the Real Property Assets are located, or that they are not required by Applicable Law to qualify to do business in such jurisdiction; (iii) based upon a certificate of Borrower and the other Loan Parties, the encumbrance of the Real Property Assets with the liens of the Loan Documents shall not cause a breach of, or a default under, any material agreement, document or instrument to which Borrower, Guarantor, the REIT, the Partnership, the Maryland Partnership, Midland Hotel or the Corporation is a party or to which they or any of their properties are bound or affected; (iv) Lender has a valid and perfected Lien in the Collateral; and (v) the Loan does not violate any usury laws. (c) Organizational Documents. Lender shall have received (i) with respect to the Corporation, Illinois Guarantor and Midland Hotel the certificate of incorporation of each -30- 38 such Person, as amended, modified or supplemented to the date hereof, certified to be true, correct and complete by the Borrower and the Corporation, Illinois Guarantor or Midland Hotel, as the case may be, together with a good standing certificate from the appropriate Secretary of State and a good standing certificate from the Secretaries of State (or the equivalent thereof) of each other State in which each Real Property Asset is located and in which each of them is required to be qualified to transact business, each to be dated a date not more than ten (10) days prior to the date hereof, (ii) with respect to Borrower, Maryland Guarantor, the Partnership and the Maryland Partnership, the agreement of limited partnership of such Person, as amended, modified or supplemented to the date hereof, together with a copy of the certificate of limited partnership of such entity, as amended, modified or supplemented to the date hereof, certified to be true, correct and complete by a general partner of such Person, together with a good standing certificate from the appropriate Secretary of State and a good standing certificate from the Secretaries of State (or the equivalent thereof) of each other State in which each Real Property Asset is located and in which each of them is required to be qualified to transact business, each to be dated not more than ten (10) days prior to the date hereof and (iii) with respect to the REIT, its declaration of trust, as amended, modified or supplemented to the date hereof, certified to be true, complete and correct by a senior executive officer of the REIT, together with a copy of a good standing certificate (or the equivalent thereof), from the appropriate Secretary of State as of a date not more than ten (10) days prior to the date hereof and a good standing certificate (or its equivalent) from the Secretaries of State (or the equivalent thereof) or each state in which the REIT is required to be qualified in order to transact business. (d) Certified Resolutions, etc. Lender shall have received a certificate of the secretary or assistant secretary of Borrower and each of the Loan Parties which is a corporation and dated the date hereof, certifying (i) the names and true signatures of the incumbent officers of such Person authorized to sign the applicable Loan Documents, (ii) the by-laws of such Person as in effect on the date hereof, (iii) the resolutions of such Person's board of directors approving and authorizing the execution, delivery and performance of all Loan Documents executed by such Person, and (iv) that there have been no changes in the certificate of incorporation of such Person since the date of the most recent certification thereof by the appropriate Secretary of State. (e) Intentionally Deleted. (f) Insurance. Lender shall have received certificates of insurance demonstrating insurance coverage in respect of each of the Real Property Assets other than the New Jersey Property of types, in amounts, and with insurers satisfactory to Lender and otherwise in compliance with the terms, provisions and conditions of the Mortgage. (g) UCC Searches. Lender shall have received satisfactory (i.e., showing no Liens other than Permitted Liens) UCC searches, together with tax lien, judgment and litigation searches conducted in the appropriate jurisdictions and as requested by Lender, performed by a search firm acceptable to Lender with respect to the Real Property Assets other than the New Jersey Property, Accounts Receivable, Borrower and each of the other Loan Parties (collectively, the "UCC Searches"). -31- 39 (h) Financing Statements. Lender shall have received UCC-l financing statements signed by Borrower or other applicable Loan Party, as debtor, naming the Lender as secured party, in form suitable for filing in the appropriate offices of each jurisdiction where the Real Property Assets other than the New Jersey Property and Borrower and the applicable Loan Parties are located (each, a "Financing Statement"). (i) Title Insurance Policies; Surveys. Lender shall have received (i) title insurance policies issued by a title insurance company satisfactory to Lender insuring the lien of the Security Instruments on the Real Property Assets other than the New Jersey Property, in form and substance reasonably satisfactory to Lender insuring that the Security Instruments are a first lien on the good and marketable fee simple title of Borrower or Guarantor, as applicable, to such Real Property Asset (or, with respect to the New Jersey Property only a ground- leasehold estate), in an amount equal to the amount of the Allocated Loan Amount for such Real Property Asset, subject only to such exceptions that Lender has approved together with such affirmative insurance and other endorsements reasonably required by Lender, together with, for such Real Property Asset other than the California Property, a "tie-in" and first loss endorsement satisfactory to Lender, or, if such endorsement is not available in the state in which such Real Property Asset is located, in an amount equal to the Allocated Loan Amount for such Real Property Asset together with a "last dollar endorsement" (the "Title Policy"); such title insurance policy shall not contain any exception for any state of facts that an accurate survey might show or that a survey made after the date of the survey referred to in clause (ii) below might show; and (ii) a recent survey with respect to each of the Real Property Assets other than the New Jersey Property prepared by a land surveyor licensed in each of the states where the Real Property Assets are located pursuant to standards for title surveys reasonably satisfactory to Lender and otherwise reasonably satisfactory to Lender, provided that no structural additions to the improvements shown on such survey or new structures have been made or built since the date of such survey and that there has been no change in the legal description of the Real Property Asset since the date of such survey, whether due to sale, transfer, condemnation or otherwise. (j) Financial Statements. Lender shall have received the (i) financial reports described in Section 5.1(a) for the most recently ended fiscal year of Borrower and the relevant Loan Parties and the unaudited consolidated financial statements of Borrower and the relevant Loan Parties for each fiscal quarter of Borrower and such Loan Parties ending since the end of such entity's most recent fiscal year and (ii) for each Real Property Asset other than the New Jersey Property, annual operating statements and occupancy statements for Borrower's, Guarantor's, the Partnership's, the Maryland Partnership's and Midland Hotel's most recent fiscal year together with current year to date operating statements, current occupancy statements and the approved operating and capital budget for the current fiscal year. Such financial statements shall be acceptable to Lender in its sole discretion. (k) Environmental Matters. Lender shall have received the Environmental Reports for each of the Real Property Assets other than the New Jersey Property, each of which shall be in form and substance satisfactory to Lender and shall include, without limitation, the following: (i) a Phase I environmental site assessment analyzing the presence of environmental contaminants, polychlorinated biphenyls or storage tanks and other Hazardous Substances at each of the Real Property Assets, the risk of contamination from off-site Hazardous Substances and -32- 40 compliance with Environmental Laws, such assessments shall be conducted in accordance with ASTM Standard E 1527-93, or any successor thereto published by ASTM, (ii) an asbestos survey of each of the Real Property Assets, which shall include random sampling of materials and air quality testing, and (iii) such further site assessments Lender may require due to the results obtained in (i) or (ii) hereof or in its reasonable discretion. (l) Fees and Expenses. Lender shall have received, for its account, all fees and expenses due and payable pursuant to the Fee Letter on or before the date hereof. (m) Consents, Licenses, Approvals, etc. Lender shall have received certified copies of all material consents, licenses and approvals, if any, required in connection with the execution, delivery and performance by Borrower and the other Loan Parties, and the validity and enforceability, of the Loan Documents, or in connection with any of the Transactions, and such consents, licenses (including without limitation, liquor licenses) and approvals shall be in full force and effect. (n) Appraisals. Prior to the date hereof, Lender shall have completed its internal valuation of the Real Property Assets other than the New Jersey Property or have received Appraisals reasonably acceptable to Lender and the value of the Real Property Assets as determined pursuant to Lender's internal valuations, or the Appraisals, as the case may be, shall be reasonably satisfactory to Lender. (o) Engineering Reports. Lender shall have received engineering reports in form and substance reasonably satisfactory to Lender with respect to each of the Real Property Assets other than the New Jersey Property; such engineering reports shall be prepared in accordance with Lender's then current guidelines for property inspection reports by licensed engineers acceptable to Lender, and such report should state, among other things, that each Real Property Asset is in good condition and repair, free from damage and waste and, to the best of such engineer's knowledge, complies in all material respects with the Americans with Disabilities Act (the "Engineering Reports"). (p) Zoning Compliance. Lender shall have received evidence reasonably satisfactory to Lender to the effect that each of the Real Property Assets other than the New Jersey Property and the use thereof are in substantial compliance with the applicable zoning, subdivision, and all other applicable federal, state or local laws and ordinances affecting each of the Real Property Assets, and that all building and operating licenses and permits necessary for the use and occupancy of each of the Real Property Assets as hospitality properties or hotels including, but not limited to, current certificates of occupancy, have been obtained and are in full force and effect. (q) Leases. Lender shall have received certified copies of all Operating Leases and the Maryland FF&E Lease with respect to each Real Property Asset other than the New Jersey Property which shall be reasonably satisfactory to Lender. (r) Contracts and Agreements. Lender shall have received certified copies of all Franchise Agreements and all material contracts and agreements relating to the management, -33- 41 leasing and operation of each of the Real Property Assets other than the New Jersey Property, each of which shall be reasonably satisfactory to Lender. (s) Plans and Specifications. Lender shall have had access to copies of plans and specifications for each of the Real Property Assets other than the New Jersey Property. (t) Certification as to Applicable Laws. Lender shall have received such evidence as Lender shall deem reasonably necessary to establish that each Real Property Asset other than the New Jersey Property complies in all material respects with Applicable Laws. (u) Quality Assurance Reports. Lender shall have received certified copies of the most recent Quality Assurance Reports for each Real Property Asset other than the New Jersey Property, each of which shall be reasonably satisfactory to Lender. (v) Intercompany Debt. Lender shall have received certified copies of all Intercompany Loan Documents. (w) Flood Plain. Lender shall have received reasonably satisfactory evidence indicating which of the Real Property Assets are in a flood plain. (x) No Injunction. No law or regulation shall have been adopted, no order, judgment or decree of any governmental authority shall have been issued, and no litigation shall be pending or threatened, which in the good faith judgment of Lender would enjoin, prohibit or restrain, or impose or result in the imposition of any material adverse condition upon, the making of the Loan or Borrower's obligation to pay (or Lender's right to receive payment) of the Loan and the other Obligations or the consummation of the Transactions. (y) Payment of Recording Taxes. Lender shall have received proof of payment of any required recording fees, mortgage recording taxes, documentary stamp taxes, intangibles taxes or other similar costs ("Recording Taxes") in connection with the making of the Loan. (z) Additional Matters. Lender shall have received such other certificates, opinions, documents and instruments relating to the Transactions as may have been reasonably requested by Lender, and all corporate and other proceedings and all other documents (including, without limitation, all documents referred to herein and not appearing as exhibits hereto) and all legal matters in connection with the Transactions shall be satisfactory in form and substance to Lender. Section 3.2 Conditions Precedent to the Final Advance. The obligation of Lender to make the final advance under the Note in the amount of $20,000,000.00 is subject to the satisfaction by Borrower on or before the date of said final advance of the following conditions precedent: (a) Loan Documents. Borrower, Guarantor, the REIT and/or the other Loan Parties, as applicable, shall have executed and delivered to Lender the New Jersey Environmental Indemnity and the Loan Documents described in subsections 3.1(a)(iii), (iv), -34- 42 (vii), (viii), (ix), (x), (xvi), (xvii), (xviii), (xix) and (xx) hereof with respect to the New Jersey Property. (b) Additional Documents. Lender shall have received all of the legal opinions, organizational documents, resolutions, certificates, evidence of insurance, title insurance, survey, environmental reports, payments, appraisals, engineering reports, evidence of zoning compliance and other matters as described in subsections 3.1(b), (c), (d), (f), (g), (h), (i), (j), (k), (l), (m), (n), (o), (p), (q), (r), (s), (t), (u), (v), (w), (x), (y) and (z) hereof with respect to the New Jersey Property. (c) Title Insurance. Lender shall have received (i) a Title Policy and survey for the New Jersey Property that meets the requirements of subsection 3.1(i) hereof, (ii) a continuation of the Title Policies for each of the Real Estate Assets other than the California Property showing title to such Real Estate Asset to be vested in Borrower or Guarantor, as the case may be, and no exceptions to the Title Policies other than those exceptions previously approved by Lender in writing, (iii) endorsements to each Title Policy other than the one for the California Property insuring the priority of the liens of the Security Instruments, subject only to exceptions previously approved by Lender in writing, and (iv) such other endorsements to each Title Policy as may be necessary to "tie-in" the Title Policy for the New Jersey Property with the Title Policies for the other Real Estate Assets (other than the California Property). (d) Lender shall have received not less than thirty (30) days prior written notice of Borrower's request for the final advance pursuant to this Section 3.2. (e) The final advance shall have been made on or prior to June 15, 1996. (f) If the Borrower shall own a ground-leasehold estate in the New Jersey Property, Borrower shall have delivered to Lender (A) a certified copy of the ground lease for the New Jersey Property, together with all amendments and modifications thereto and a recorded memorandum thereof, which ground lease shall be satisfactory in all respects to Lender in its sole discretion, and which shall provide, among other things, (i) for a remaining term of no less than 10 years from the Maturity Date, (ii) that the ground lease shall not be terminated until Lender has received notice of a default thereunder and has had a reasonable opportunity to cure or complete foreclosure, and fails to do so in a diligent manner, (iii) for a new lease on the same terms to the Lender as tenant if the ground lease is terminated for any reason, (iv) the non-merger of fee and leasehold interests, and (v) that insurance proceeds and condemnation awards (from the fee interest as well as the leasehold interest) will be applied pursuant to the terms of the Security Instrument covering the New Jersey Property, and (B) a ground lease estoppel executed by the fee owner and ground lessor of the New Jersey Property, which estoppel shall be satisfactory to Lender in its sole discretion. (g) Upon the final advance, Lender shall revise Schedules 3 through 18, inclusive, to reflect the addition of the New Jersey Property. (h) Representations and Warranties. The representations and warranties contained herein and in the other Loan Documents (other than representations and warranties which expressly speak only as of a different date) shall be true and correct in all material re- -35- 43 spects on such date both before and after giving effect to the making of such final advance or, if such representations and warranties are not true and correct in all material respects, the facts giving rise to the breach have been disclosed to Lender in writing and Lender, has approved, in its sole discretion, such facts. (i) No Event of Default. No Event of Default shall have occurred and be continuing on such date either before or after giving effect to the making of such final advance. (j) No Material Adverse Change. No event, act or condition shall have occurred after the closing date of this Agreement which, in the judgment of Lender, has had or could have a Material Adverse Effect. Section 3.3 Acceptance of the Loan. The acceptance by Borrower of the proceeds of the initial advance of the Loan shall constitute a representation and warranty by Borrower, Guarantor and the REIT to Lender that all of the conditions required to be satisfied under this Section 3 in connection with the making of the Loan and all of the terms and provisions of this Agreement have been satisfied. Section 3.4 Sufficient Counterparts. All certificates, agreements, legal opinions and other documents and papers referred to in this Section 3, unless otherwise specified, shall be delivered to Lender and shall be reasonably satisfactory in form and substance to Lender (unless the form thereof is prescribed herein). SECTION 4. REPRESENTATIONS AND WARRANTIES. In order to induce Lender to enter into this Agreement and to make the Loan, Borrower, Guarantor and the REIT make the following representations and warranties as of the date hereof, which shall survive the execution and delivery of this Agreement, the Note and the California Note and the making of the Loan: Section 4.1 Corporate/Partnership Status. Each of Borrower and the other Loan Parties (a) is a duly organized and validly existing corporation or partnership, as the case may be, in good standing under the laws of the jurisdiction of its incorporation or formation, (b) has all requisite corporate or partnership power and authority, as the case may be, to own its property and assets (including the Real Property Assets) and to transact the business in which it is engaged or presently proposes to engage (including this Transaction) and (c) has duly qualified and is authorized to do business and is in good standing as a foreign corporation or foreign partnership, as the case may be, in every jurisdiction in which the Real Property Assets are located, unless it is not required to so qualify by Applicable Law, or in which the nature of its business requires it to be so qualified. Section 4.2 Corporate/Partnership Power and Authority. Each of Borrower and the other Loan Parties has the corporate or partnership power and authority, as the case may be, to execute, deliver and carry out the terms and provisions of each of the Loan Documents to which it is a party and has taken all necessary corporate or partnership action, as the case may be, to authorize the execution, delivery and performance by it of such Loan Documents. Each -36- 44 of Borrower and the other Loan Parties has duly executed and delivered each such Loan Document, and each such Loan Document constitutes its legal, valid and binding obligation, enforceable in accordance with its terms, except as enforcement may be limited by applicable insolvency, bankruptcy or other laws affecting creditors' rights generally, or general principles of equity whether enforcement is sought in a proceeding in equity or at law. Section 4.3 No Violation. Neither the execution, delivery or performance by Borrower or any other Loan Party of the Loan Documents to which it is a party, nor the compliance by such Person with the terms and provisions thereof nor the consummation of the Transactions, (a) will, to the best of Borrower's, Guarantor's or the REIT's knowledge, contravene any applicable provision of any law, statute, rule, regulation, order, writ, injunction or decree of any court or governmental instrumentality, which contravention would have a Material Adverse Effect on the value of the Collateral as a whole, or (b) will conflict in any material respect with or result in any breach of, any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien (except pursuant to the Security Instruments and the Loan Documents) upon any of the property or assets (including the Real Property Assets) of Borrower or any of the other Loan Parties pursuant to the terms of any indenture, mortgage, deed of trust, or other material agreement or instrument to which Borrower or any of the other Loan Parties is a party or by which it or any of its property or assets (including the Real Property Assets) is bound or to which it may be subject, which contravention would have a Material Adverse Effect on the value of the Collateral as a whole, or (c) will, with respect to Borrower or any Loan Party which is a partnership, violate in any material respect any provisions of the partnership agreement of such Person, or (d) will, with respect to the Borrower or any of the Loan Parties which is a corporation, violate in any material respect any provision of the Certificate of Incorporation or By-Laws of such Person. Section 4.4 Litigation. Except as set forth on Schedule 5, there are no actions, suits or proceedings, judicial, administrative or otherwise (including any condemnation or similar proceeding) pending or, to the best of Borrower's, Guarantor's or the REIT's knowledge, threatened with respect to any of the Transactions or Loan Documents, Borrower, Guarantor, their respective Subsidiaries, or any of the other Loan Parties or their respective Subsidiaries, or with respect to the Real Property Assets, that could, individually or in the aggregate, result in a Material Adverse Effect. All matters set forth on Schedule 5 do not, individually or in the aggregate, result in a Material Adverse Effect. Section 4.5 Financial Statements: Financial Condition; etc. The financial statements delivered pursuant to Section 3.1(j) were prepared in accordance with GAAP consistently applied and fairly present the financial condition and the results of operations of Borrower, the Loan Parties and the Real Property Assets covered thereby on the dates and for the periods covered thereby, except as disclosed in the notes thereto and, with respect to interim financial statements, subject to normally recurring year-end adjustments. There is no material liability (contingent or otherwise) not reflected in such financial statements or in the notes thereto. There has been no material adverse change in any condition, fact, circumstance or event that would make any such information inaccurate, incomplete or otherwise misleading or would affect Borrower's, Guarantor's or the REIT's ability to perform its obligations under this Agreement or Borrower's, Guarantor's the REIT's, the Partnership's, the Maryland -37- 45 Partnership's, Midland Hotel's or the Corporation's ability to perform its obligations under the Loan Documents. Section 4.6 Solvency. On the date hereof and after and giving effect to the Transactions, Borrower and the Loan Parties will be Solvent. Section 4.7 Material Adverse Change. Since the date of the most recent audited financial statements delivered pursuant to Section 3.1(j), there has occurred no event, act or condition, and to the best of Borrower's, Guarantor's or the REIT's knowledge, there is no prospective event or condition which has had, or could have, a Material Adverse Effect. Section 4.8 Use of Proceeds; Margin Regulations. All proceeds of the Loan will be used by Borrower and the Loan Parties only in accordance with the provisions of Section 2.20. No part of the proceeds of the Loan will be used by Borrower or any other Loan Party to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock. Neither the making of the Loan nor the use of the proceeds thereof will violate or be inconsistent with the provisions of Regulations G, T, U or X of the Federal Reserve Board. Section 4.9 Governmental Approvals. To the best of Borrower's, Guarantor's or the REIT's knowledge, no order, consent, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, any governmental or public body or authority, or any subdivision thereof, is required (or, if required, has been obtained) to authorize, or in connection with (i) the execution, delivery and performance of any Loan Document or the consummation of any of the Transactions or (ii) the legality, validity, binding effect or enforceability of any Loan Document, except for such orders, consents, approvals, licenses, authorizations, filings, recording, registration or exemption that would not have a Material Adverse Effect. Section 4.10 Security Interests and Liens. The Security Instruments and the related Loan Documents create, as security for the Obligations, valid and enforceable Liens on all of the Collateral, in favor of Lender and subject to no other liens (except for Permitted Liens), except as enforceability may be limited by applicable insolvency, bankruptcy or other laws affecting creditors rights generally, or general principles of equity, whether such enforceability is considered in a proceeding in equity or at law. Section 4.11 Tax Returns and Payments. Borrower, the REIT and the other Loan Parties filed all tax returns required to be filed by it for which the filing date has passed and not been extended and has paid all taxes and assessments payable by such Persons which have become due, other than (a) those not yet delinquent or (b) those that are reserved against in accordance with GAAP which are being diligently contested in good faith by appropriate proceedings. Section 4.12 ERISA. As of the date hereof, neither Borrower or any of the other Loan Parties has any Plans other than those listed on Schedule 6. No accumulated funding deficiency (as defined in Section 412 of the Code or Section 302 of ERISA) still outstanding, or Reportable Event, which exceeds $5,000,000.00 or which has or could reasonably be -38- 46 expected to have a Material Adverse Effect has occurred with respect to any Plan and there is no lien outstanding under Section 412 of the Code or Section 302 of ERISA with respect to any Loan Party's assets. As of the date hereof, the Unfunded Benefit Liabilities do not in the aggregate exceed $1,000,000.00. Borrower and the other Loan Parties have not failed to comply in all material respects with the requirements of ERISA and the Code and plan documents for any Employee Benefit Plan which has or could reasonably be expected to have a Material Adverse Effect and are not in default (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan which has or could reasonably be expected to have a Material Adverse Effect. Neither Borrower nor any of the other Loan Parties, nor any member of their respective ERISA Controlled Groups (determined without reference to Section 414(m) or (o) of the Code, if liabilities of entities in Borrower or the other Loan Parties' ERISA Controlled Group solely by reason of Section 414(m) or (o) could not result in liability to Borrower or any Loan Parties) is subject to any present or potential withdrawal liability pursuant to Section 4201 or 4204 of ERISA which, individually or in the aggregate is in excess of $5,000,000.00 or has or could reasonably be expected to have a Material Adverse Effect. To the best knowledge of Borrower and the other Loan Parties, no Multiemployer Plan is or is likely to be disqualified for tax purposes, in reorganization (within the meaning of Section 4241 of ERISA or Section 418 of the Code) or is insolvent (as defined in Section 4245 of ERISA), which event would have a Material Adverse Effect. No liability to the PBGC (other than required premium payments), the Internal Revenue Service (with respect to an Employee Benefit Plan), any Plan or any trust established under Section 4049 of ERISA has been, or is expected by Borrower or the other Loan Parties to be, incurred by Borrower or the other Loan Parties (other than annual contributions) which is in excess of $5,000,000.00 or would have a Material Adverse Effect. Except as otherwise disclosed on Schedule 6 hereto or disclosed prior to an Advance, none of Borrower or the other Loan Parties has any contingent liability with respect to any post-retirement benefits under any "welfare plan" (as defined in Section 3(1) of ERISA) or withdrawal liability or exit fee or charge with respect to any "welfare plan" (as defined in Section 3(1) of ERISA), other than liability for continuation coverage under Part 6 of Title I of ERISA or state laws which require similar continuation coverage for which the employee pays approximately the full cost of coverage, and other than such liability that is both not more than $5,000,000.00 and that would not have a Material Adverse Effect. No lien under Section 412(n) of the Code or 302(f) of ERISA or requirement to provide security under Section 401(a)(29) of the Code or Section 307 of ERISA has been or is reasonably expected by Borrower or the other Loan Parties to be imposed on the assets of Borrower or the other Loan Parties. Except as disclosed on Schedule 6 or disclosed prior to an Advance neither Borrower nor any other Loan Party is a party to any collective bargaining agreement. Neither Borrower nor any Loan Party has engaged in any transaction prohibited by Section 408 of ERISA or Section 4975 of the Code which has a Material Adverse Effect. As of the date hereof and throughout the term of the Loan, neither Borrower nor any other Loan Party is or will be an "employee benefit plan" as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, and none of the assets of Borrower or any other Loan Party will constitute "plan assets" of one or more such plans for purposes of Title I of ERISA. As of the date hereof and throughout the term of the Loan, neither Borrower nor any other Loan Party is or will be a "governmental plan" within the meaning of Section 3(3) of ERISA and neither Borrower nor any other Loan Party will be subject to state statutes applicable to Borrower or such Loan Party regulating investments and fiduciary obligations, of Borrower or any Loan Party with respect to governmental plans. -39- 47 Section 4.13 Intentionally Omitted. Section 4.14 Representations and Warranties in Loan Documents. All representations and warranties made by Borrower or any other Loan Party in this Agreement and in the other Loan Documents are true and correct in all material respects. Section 4.15 True and Complete Disclosure. All factual information (taken as a whole) furnished by or on behalf of Borrower or any other Loan Party in writing to Lender on or prior to the date hereof, for purposes of or in connection with this Agreement or any of the Transactions (the "Furnished Information") is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of Borrower or any other Loan Party in writing to Lender will be, true, accurate and complete in all material respects and will not omit any material fact necessary to make such information (taken as a whole) not misleading on the date as of which such information is dated or furnished. As of the date hereof, there are no facts, events or conditions directly and specifically affecting Borrower, or any other Loan Party known to Borrower and not disclosed to Lender, in the Furnished Information, in the Schedules attached hereto or in the other Loan Documents, which, individually or in the aggregate, have or could be expected to have a Material Adverse Effect. Section 4.16 Ownership of Real Property; Existing Security Instruments. With respect to the California Property, Florida Properties, Georgia Properties, Texas Property, and from and after the date of the final advance under Section 3.2, the New Jersey Property, Borrower, with respect to the Maryland Property, Maryland Guarantor, and with respect to the Illinois Property, Illinois Guarantor, has good and marketable fee simple title (or with respect to the New Jersey Property, a ground-leasehold estate, as the case may be, subject to any Permitted Liens, and Borrower, Guarantor, Partnership), with respect to the Maryland Property, the Maryland Partnership, and with respect to the Illinois Property, Midland Hotel, each have good title to all of their Personal Property subject to no Lien of any kind except for Permitted Liens. As of the date of this Agreement, there are no options or other rights to acquire any of the Real Property Assets that run in favor of any Person and there are no mortgages, deeds of trust, indentures, debt instruments or other agreements creating a Lien against any of the Real Property Assets, other than Permitted Liens. Section 4.17 No Default. To the best of the Borrower's, Guarantor's or the REIT's knowledge, no Default or Event of Default exists under or with respect to any Loan Document. No Default or Event of Default exists under or with respect to the Operating Leases, the Intercompany Debt, or the Franchise Agreements. To the best of Borrower's, Guarantor's or the REIT's knowledge, neither Borrower, any Loan Party nor any of their respective Subsidiaries is in default in any material respect beyond any applicable grace period under or with respect to any other material agreement, instrument or undertaking to which it is a party or by which it or any of its properties or assets is bound in any respect, the existence of which default could result in a Material Adverse Effect. Section 4.18 Licenses, etc. To the best of the Borrower's, Guarantor's or the REIT's knowledge, Borrower, Guarantor, the Partnership, the Maryland Partnership and Midland Hotel have, for each Real Property Asset, obtained and hold in full force and effect, all material franchises, trademarks, tradenames, copyrights, licenses, permits, certificates, -40- 48 authorizations, qualifications, accreditations, easements, rights of way and other rights, consents and approvals which are necessary for the operation of the Real Property Assets and their respective businesses as presently conducted, including without limitation, liquor licenses, as applicable ("Licenses"). Other than as indicated on Schedule 18, all liquor licenses are issued in either the name of (i) the Corporation, (ii) an entity wholly owned and controlled by the Corporation which has entered into a management agreement or lease agreement with respect to such liquor license with the Partnership, Midland Hotel or the Corporation, on terms and conditions reasonably satisfactory to Lender, or (iii) an individual who is both a resident of the state in which the related Real Property Asset is located and is an employee of either Borrower, the Partnership, the Maryland Partnership, the Corporation, Midland Hotel or the REIT at the level of general manager for the Real Property Assets in such state or higher. Section 4.19 Compliance With Law. To the best of the Borrower's, Guarantor's or the REIT's knowledge, Borrower and each Loan Party is in compliance in all material respects with all Applicable Laws and other laws, rules, regulations, orders, judgments, writs and decrees, noncompliance with which could result in a Material Adverse Effect. Section 4.20 Brokers. Borrower, each Loan Party and Lender hereby represent and warrant that no brokers or finders were used in connection with procuring the financing contemplated hereby and Borrower hereby agrees to indemnify and save Lender harmless from and against any and all liabilities, losses, costs and expenses (including attorneys' fees or court costs) suffered or incurred by Lender as a result of any claim or assertion by any party claiming by, through or under Borrower or any other Loan Party, that it is entitled to compensation in connection with the financing contemplated hereby, and Lender hereby agrees to indemnify and save Borrower harmless from and against any and all liabilities, losses, costs and expenses (including attorneys' fees or court costs) suffered or incurred by Borrower as a result of any claim or assertion by any party claiming by, through or under Lender that it is entitled to compensation in connection with the financing contemplated hereby. Section 4.21 Judgments. To the best of the Borrower's, Guarantor's or the REIT's knowledge, (i) there are no judgments, decrees, or orders of any kind against Borrower or any Loan Party unpaid of record which would materially or adversely affect the ability of Borrower or any Loan Party to comply with its obligations under the Loan or this Agreement in a timely manner, (ii) there are no federal tax claims or liens assessed or filed against Borrower or any Loan Party, (iii) there are no material judgments against Borrower or any Loan Party unsatisfied of record or docketed in any court of the States in which the Real Property Assets are located or in any other court located in the United States, (iv) no petition in bankruptcy or similar insolvency proceeding has ever been filed by or against Borrower or any Loan Party, and (v) neither Borrower nor any Loan Party has ever made any assignment for the benefit of creditors or taken advantage of any insolvency act or any act for the benefit of debtors. Section 4.22 Property Manager. As of the date hereof, all of the Real Property Assets are managed by the Partnership or Midland Hotel pursuant to the Operating Leases. Section 4.23 Assets of the REIT. The sole asset of the general partner of Borrower is its general partnership interest in Borrower and such other assets that may be -41- 49 incidental to or required in connection with the ownership of such general partnership interest, or as set forth in Schedule 13. Section 4.24 REIT Status. The REIT intends to qualify for its taxable year ending December 31, 1995, and intends thereafter to remain qualified as a "real estate investment trust" as defined in Section 856 of the Code and is grandfathered from the application of Section 269B of the Code pursuant to Section 132(c)(3) of the Deficit Reduction Act of 1984. Section 4.25 The Partnership. The Corporation and entities wholly owned and Controlled by the Corporation are the sole general partners of the Partnership. Section 4.26 Maryland Guarantor and the Maryland Partnership. Borrower, Maryland Guarantor and the REIT represent and warrant that (a) Borrower is the sole general partner of Maryland Guarantor and owns a 1% general partnership interest and a 98% limited partnership interest in Maryland Guarantor and SLT Realty Company LLC owns a 1% limited partnership interest in Maryland Guarantor, and (b) the Partnership is the sole general partner of the Maryland Partnership and owns a 1% general partnership interest and a 98% limited partnership in the Maryland Partnership and the Corporation owns a 1% limited partnership in the Maryland Partnership. Section 4.27 Intercompany Debt. No Intercompany Debt is secured by any Collateral. Section 4.28 Personal Property. For all Real Property Assets, Borrower, Guarantor, the Partnership and (a) with respect to the Maryland Property, the Maryland Partnership, and (b) with respect to the Illinois Property, Midland Hotel, own, lease or license adequate Personal Property to maintain and operate each Real Property Asset as a hotel in accordance with the standards of this Agreement, the Loan Documents, the related Operating Leases and the related Franchise Agreements. With respect to the Maryland Property, the Partnership leases the Personal Property from the Maryland Partnership pursuant to the Maryland FF&E Lease. Borrower, Guarantor and the REIT represent and warrant that the Maryland FF&E Lease is in full force and effect and that there is no default thereunder. The Personal Property is not subject to any liens, leases or financing arrangements other than Permitted Liens. Section 4.29 Operations. The REIT conducts its business only through Borrower, except as described on Schedule 13 and the Corporation conducts its business only through the Partnership, except as described on Schedule 13A. Section 4.30 Stock. The REIT and the Corporation list all of their outstanding shares of stock on the New York Stock Exchange and such shares trade as "paired shares" subject to a pairing agreement between the REIT and the Corporation. Section 4.31 Intentionally Deleted. Section 4.32 Status of Maryland Guarantor and Maryland Partnership. As of the date hereof, before and after giving effect to the Transactions, Maryland Guarantor and the -42- 50 Maryland Partnership are each Solvent. The sole asset of Maryland Guarantor is the Maryland Property, and the sole liabilities of Maryland Guarantor are the Maryland Guaranty, the Loan Documents related to the Maryland Property and the ordinary Operating Expenses in connection with the Maryland Property. The sole asset of the Maryland Partnership is the Personal Property described in the Maryland FF&E Lease, and the sole liabilities of the Maryland Partnership are the Partnership Guaranty with respect to the Maryland Property and the Partnership Loan Documents and the ordinary Operating Expenses with respect to the Maryland Property. Section 4.33 Survival. The foregoing representations and warranties shall survive the execution and delivery of this Agreement and shall continue in full force and effect until the indebtedness evidenced by the Note and the California Note has been fully paid and satisfied. Section 4.34 Illinois Guarantor and Midland Hotel. Borrower, Illinois Guarantor and the REIT represent and warrant that (a) Partnership is the sole shareholder of Midland Holding Corp., an Illinois corporation ("Midland Holding") and (b) Midland Holding is the sole shareholder of Illinois Guarantor and of Midland Hotel. Section 4.35 Status of Illinois Guarantor and Midland Hotel. As of the date hereof, before and after giving effect to the Transactions, Illinois Guarantor, Midland Holding and Midland Hotel are each Solvent. The sole asset of Illinois Guarantor is the Illinois Property, and the sole liabilities of Illinois Guarantor are the Illinois Guaranty, the Loan Documents related to the Illinois Property and the ordinary Operating Expenses in connection with the Illinois Property. The sole asset of Midland Hotel is the lessee's interest in the Operating Lease and the Personal Property relating to the Illinois Property, and the sole liabilities of Midland Hotel are the Illinois Guaranty, the Partnership Loan Documents and the ordinary Operating Expenses with respect to the Illinois Property. The sole assets of Midland Holding are the shares of stock of Midland Hotel and of Illinois Guarantor and the sole liabilities of Midland Holding are the ordinary and customary administrative expenses in conducting its business of acting as sole shareholder of Midland Hotel and Illinois Guarantor. SECTION 5. AFFIRMATIVE COVENANTS. Borrower, Guarantor and the REIT covenant and agree that on and after the date hereof and until the Obligations are paid in full: Section 5.1 Financial Reports. (a) Borrower, Guarantor and the REIT will furnish to Lender: (i) annual audited consolidated or combined, as the case may be, financial statements of (A) Borrower, Guarantor and REIT, (B) the Partnership, the Maryland Partnership, Midland Hotel and the Corporation and (C) Borrower, the REIT, Guarantor, the Partnership, the Maryland Partnership, Midland Hotel and the Corporation, each prepared in accordance with GAAP within 90 days of the end of Borrower's fiscal year prepared by nationally recognized independent public accountants (which accountant's opinion shall be unqualified), reasonably satisfactory to Lender; (ii) within 45 days after the close of each quarterly accounting period in each fiscal year, the consolidated or combined, as the case may -43- 51 be, balance sheet of (A) Borrower, Guarantor and REIT, (B) the Partnership, the Maryland Partnership, Midland Hotel and the Corporation and (C) Borrower, the REIT, the Partnership, Guarantor, the Maryland Partnership, Midland Hotel and the Corporation, each as of the end of such quarterly period and the related consolidated statements of income, cash flow and shareholders' equity for such quarterly period and for the elapsed portion of the fiscal year ended with the last day of such quarterly period, each prepared in accordance with GAAP certified by Borrower, the Partnership, the Maryland Partnership, Midland Hotel and Guarantor, as applicable; (iii) quarterly and annual operating statements (prepared on a basis consistent with that used in the preparation of the GAAP consolidated or combined, as the case may be, financial statements of Borrower, the REIT, the Partnership, the Maryland Partnership, Midland Hotel, the Corporation and Guarantor, and in compliance with the Uniform System of Accounts) for each Real Property Asset, separately disclosing the amounts paid under the related Operating Lease and including a comparison and reconciliation with the most recent Annual Operating Budget, within 45 days of the end of each calendar quarter, certified by the Borrower, the Partnership, the Maryland Partnership, Midland Hotel and Guarantor; (iv) copies of all of Borrower's, REIT's, the Partnership's, the Maryland Partnership's, the Corporation's, Midland Hotel's and Guarantor's quarterly and annual filings with the Securities and Exchange Commission and all shareholder reports and letters to the REIT's and the Corporation's shareholders and all other publicly released information promptly after their filing or mailing, and (v) an annual operating and capital budget for each of the Real Property Assets (the "Annual Operating Budget"), including cash flow projections for the upcoming year, presented on a monthly basis consistent with the quarterly and annual operating statements referred to in clause (iii) above at least 15 days prior to the start of each calendar year. Borrower will furnish or cause to be furnished such additional reports or data, but no more often than on a quarterly basis, as Lender may reasonably request including, without limitation management and marketing reports for each Real Property Asset. Borrower and each Loan Party shall maintain a system of accounting capable of furnishing all such information and data, and shall maintain its respective books and records respecting financial and accounting matters in a proper manner and on a basis consistent with that used in the preparation of the GAAP consolidated financial statements of Borrower. Unless otherwise specified above financial reports requested by Lender of Borrower or any other Loan Party shall be provided to Lender no later than 15 days after such request. (b) Officer's Certificates. (i) At the time of the delivery of the financial statements under clause (a) above, Borrower shall provide a certificate of the general partner of Borrower or a senior executive officer of Borrower and the REIT that such financial statements have been prepared in accordance with GAAP (unless such financial statements are not required to be prepared in accordance with GAAP pursuant to this Agreement) and fairly present the financial condition and the results of operations of Borrower, REIT, the Partnership, Guarantor, the Maryland Partnership, the Corporation, Midland Hotel and the Real Property Assets on the dates and for the periods indicated, subject, in the case of interim financial statements, to normally recurring year end adjustments, (y) to the best knowledge of such general partner or senior executive officer of Borrower and the REIT that no Default or Event of Default has occurred on the date of such certificate or, if any Default or Event of Default has occurred and is continuing on such date, specifying the nature and extent thereof and the action Borrower proposes to take in respect thereof and (z) that since the date of the prior financial statements delivered pursuant to such clause no change has occurred in the financial position of Borrower, -44- 52 REIT, the Partnership, the Maryland Partnership, Guarantor, Midland Hotel or the Corporation which change could result in a Material Adverse Effect, and (ii) at the time of delivery of the Annual Operating Budget pursuant to Section 5.1(a)(v), a written statement of the assumptions used in connection with respect to the Annual Operating Budget, together with a certificate of the general partner of Borrower or a senior executive officer of Borrower and the REIT to the effect that such budget and assumptions are reasonable and represent Borrower's, the Partnership's, the Maryland Partnership's, Midland Hotel's and Guarantor's good faith estimate of such Property Net Cash Flow and anticipated capital expenditures, it being understood and agreed that there may often be a difference between financial projections and actual results. (ii) Within 45 days of the end of each calendar quarter, Borrower shall provide a certificate of the general partner of Borrower or of a senior executive officer of Borrower and the REIT certifying that no Default or Event of Default has occurred, that there has been no change in the REIT's tax status as a real estate investment trust as defined under Section 856 of the Code, confirming compliance with the covenant in Section 5.19 and the provisions of Sections 5.12, 5.13, 5.27 and 5.29 and such other Sections as reasonably requested by Lender and containing calculations verifying such compliance commencing with the calendar quarter ending on June 30, 1996. (c) Notice of Default or Litigation. Promptly after Borrower or any other Loan Party obtains actual knowledge thereof, Borrower shall give Lender notice of (i) the occurrence of a Default or any Event of Default, (ii) the occurrence of (x) any default that is not cured, or any event of default, under any partnership agreement or other organizational documents of Borrower or Guarantor, any mortgage, deed of trust, indenture or other debt or security instrument, covering any of the assets of Borrower or Guarantor or (y) any event of default under any Franchise Agreement, Operating Lease, the Maryland FF&E Lease, Intercompany Debt or any other material agreement relating to the Real Property Assets, to which Borrower, the Partnership, the Maryland Partnership, Midland Hotel or Guarantor is a party, which, if not cured could result in a Material Adverse Effect, (iii) any litigation or governmental proceeding pending or threatened (in writing) against Borrower or any other Loan Party which could result in a Material Adverse Effect and (iv) any other event, act or condition which could result in a Material Adverse Effect. Each notice delivered pursuant to this Section 5.1(c) shall be accompanied by a certificate of a general partner or senior executive officer of Borrower setting forth the details of the occurrence referred to therein and describing the actions Borrower proposes to take with respect thereto. (d) Quality Assurance. Promptly after Borrower, Guarantor, the Partnership, Midland Hotel or any other Loan Party receives any quality assurance reports or similar reports of inspection or compliance from the Franchisor under any Franchise Agreement ("Quality Assurance Reports"), Borrower shall deliver copies thereof to Lender, but in no event later than thirty days after receipt. (e) Other Information. From time to time, Borrower, Guarantor and the REIT shall provide such other information and financial documents relating to Borrower, the REIT or the other Loan Parties as Lender may reasonably request. -45- 53 Section 5.2 Books, Records and Inspections. Borrower, the Partnership, the Maryland Partnership, Midland Hotel and Guarantor shall, at their respective principal places of business or at each Real Property Asset, keep proper books of record and account in which full, true and correct entries shall be made. Borrower, the Partnership, the Maryland Partnership, Midland Hotel and Guarantor shall permit or cause to be permitted officers and designated representatives of Lender to visit and inspect any of the Real Property Assets, and to examine and copy the books of record and account of Borrower, the Partnership, the Maryland Partnership, Midland Hotel or Guarantor and the Real Property Assets (including, without limitation, leases, statements, bills and invoices), discuss the affairs, finances and accounts of Borrower, the Partnership, the Maryland Partnership, Midland Hotel and Guarantor and be advised as to the same by, its and their officers and independent accountants, all upon reasonable notice and at such reasonable times as Lender may desire. Section 5.3 Maintenance of Insurance. Borrower and the other Loan Parties shall (a) maintain with financially sound and reputable insurance companies insurance on itself and its properties in commercially reasonable amounts and with respect to the Real Property Assets in at least such amounts and against at least such risks as are required, under the Security Instruments, (b) maintain Lender as named additional insured in respect of any such liability insurance required to be maintained under the Security Instruments, and (c) furnish to Lender from time to time, upon written request, certificates of insurance or certified copies or abstracts of all insurance policies required under this Agreement and the other Loan Documents and such other information relating to such insurance as Lender may reasonably request. Section 5.4 Taxes. Borrower and the other Loan Parties shall pay or cause to be paid, when due (i.e., before any penalty or fine could be levied or charged), all taxes, charges and assessments and all other lawful claims required to be paid by Borrower, the other Loan Parties, except as contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves have been established with respect thereto in accordance with GAAP. Upon request from Lender, Borrower shall provide evidence to Lender of payment of such taxes, charges, assessments and other lawful claims. Section 5.5 Corporate Franchises; Conduct of Business. (a) Borrower and each Loan Party shall do or cause to be done, all things necessary to preserve and keep in full force and effect its existence and good standing (i) in the State of its organization and (ii) in each state in which a Real Property Asset is located, unless such Person is not required to qualify in such State by Applicable Law, and its respective franchises, tradenames licenses, permits, certificates, authorizations, qualifications, accreditations, easements, rights of way and other rights, consents and approvals, except where the failure to so preserve any of the foregoing (other than existence and good standing) could not, individually or in the aggregate, result in a Material Adverse Effect. (b) Borrower, the Partnership, the Maryland Partnership, Midland Hotel and Guarantor shall carry on and conduct their businesses in substantially the same manner and substantially the same field of enterprise as they are presently conducted. -46- 54 (c) The REIT shall carry on and conduct its business in substantially the same manner and substantially the same field of enterprise as it is presently conducted and only through Borrower, except as described in Schedule 13. (d) The Corporation shall carry on and conduct its business in substantially the same manner and substantially the same field of enterprise as it is presently conducted and only through the Partnership, except as described in Schedule 13A. Section 5.6 Compliance with Law. Borrower and the other Loan Parties shall comply in all material respects with all Applicable Laws, in respect of the conduct of their business and the ownership of their property (including the Real Property Assets), except for such Applicable Laws, (a) which Borrower or such other Loan Party are contesting in good faith and in compliance with and pursuant to appropriate proceedings diligently prosecuted (provided that such contest does not and cannot (i) expose any of Lender, Borrower, the other Loan Parties to any criminal liability or penalty, (ii) give rise to a Lien against any of the Collateral or any Real Property Asset, or (iii) otherwise materially adversely affect any of the Collateral or the value thereof), or (b) the failure to observe which, taken individually or in the aggregate, could not result in a Material Adverse Effect. Section 5.7 Performance of Obligations. Borrower, Guarantor and the REIT shall perform all of their respective material obligations under the terms of each mortgage, indenture, security agreement, debt instrument, lease, undertaking and contract relating to any Real Property Assets, or by which it or any of the Real Property Assets is bound. Section 5.8 Stock. REIT and the Corporation shall maintain in good standing their listing of all outstanding shares of stock on the New York Stock Exchange and such shares shall continue to trade as "paired shares". Section 5.9 Maintenance of Personal Property. Borrower, Guarantor, the Partnership, Midland Hotel and the Maryland Partnership shall own, lease or license Personal Property adequate to maintain and operate each Real Property Asset as a hotel in accordance with the standards of this Agreement, the Loan Documents, the related Operating Leases, the Maryland FF&E Lease, and the related Franchise Agreements. Neither Borrower, the Partnership, Midland Hotel and the Maryland Partnership nor Guarantor shall lease, license, encumber or enter into any other financing arrangements with respect to any of the Personal Property in excess of the Permitted Financing. Notwithstanding anything to the contrary contained herein, Lender shall not unreasonably withhold its consent to a replacement of the existing Franchise Agreements for the Florida Property located in Fort Lauderdale and the Texas Property with Franchise Agreements with Embassy Suites. Section 5.10 Maintenance of Properties. Borrower, Guarantor and the other Loan Parties shall ensure that the Real Property Assets are maintained in a manner consistent with their current condition and repair, normal wear and tear and casualty damage in the process of being repaired or restored excepted. Section 5.11 Compliance with ERISA. (a) Borrower and the other Loan Parties shall maintain each Employee Benefit Plan in compliance with all material applicable -47- 55 requirements of ERISA and the Code and with all material applicable regulations promulgated thereunder so that no failure to so comply will cause liability to Borrower or any Loan Party in excess of $5,000,000.00 or have a Material Adverse Effect. Borrower and the other Loan Parties shall provide to Lender, within ten (10) days of Lender's request, any document, filing or correspondence relating to an Employee Benefit Plan which the Lender reasonably requests. Borrower and the other Loan Parties shall also provide to Lender, with ten (10) days of filing or receipt, (i) any notice from the Department of Labor or Internal Revenue Service of assessment or investigation regarding a prohibited transaction under Section 4975 of the Code or Section 406 of ERISA, (ii) any notice from a Multiemployer Plan of withdrawal with respect to a Multiemployer Plan, (iii) notice from the Internal Revenue Service of imposition of excise tax with respect to an Employee Benefit Plan, (iv) any Form 5500 filed by any Borrower or Loan Party with respect to an Employee Benefit Plan which includes a qualified accountant's opinion, or (v) notice regarding a proposed termination from the PBGC; provided, however, that items in (i)-(iii) need only be provided if the events could result in Material Adverse Effect. (b) Neither Borrower nor any other Loan Party shall engage in any transaction which would cause any obligation, or action taken or to be taken, hereunder (or the exercise by Lender of any of its rights under this Agreement or the other Loan Documents) to be a non-exempt (under a statutory or administrative class exemption) prohibited transaction under ERISA or result in a violation of a state statute regulating governmental plans that would subject Lender to liability for a violation of ERISA or such a state statute. (c) Borrower and the REIT further covenant and agree to deliver to Lender such certifications or other evidence from time to time throughout the term of the Loan, as reasonably requested by Lender in its sole discretion, that (i) neither Borrower or any other Loan Party is an "employee benefit plan" as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, or a "governmental plan" within the meaning of Section 3(3) of ERISA; (ii) neither Borrower or any other Loan Party is subject to state statutes applicable to Borrower or any Loan Party regulating investments and fiduciary obligations of Borrower or any Loan Party with respect to governmental plans; and (iii) with respect to each Loan Party and Borrower, at least one of the following circumstances is true: (1) Equity interests in Borrower or such Loan Party are publicly offered securities, within the meaning of 29 C.F.R. Section 2510.3-101(b)(2); (2) Less than 25 percent of each outstanding class of equity interests in Borrower or such Loan Party are held by "benefit plan investors" within the meaning of 29 C.F.R. Section 2510.3-101(f)(2); or (3) Borrower or such Loan Party qualifies as an "operating company" or a "real estate operating company" within the meaning of 29 C.F.R. Section 2510.3- 101(c) or (e) or an investment company registered under The Investment Company Act of 1940. -48- 56 Section 5.12 Settlement/Judgment Notice. Borrower, Guarantor and the REIT agree that they shall, within ten (10) days after a settlement of any obligation in excess of $1,000,000.00 or after entry of any judgment in excess of $1,000,000.00, in ether case, individually or in the aggregate, provide written notice to Lender of such settlement or judgment. Section 5.13 Acceleration Notice. Borrower, Guarantor and the REIT agree that they shall, within ten (10) days after receipt of written notice that any Indebtedness of Borrower, Guarantor or the REIT hereof has been accelerated, provide written notice to Lender of such acceleration. Section 5.14 Intentionally Deleted. Section 5.15 Intentionally Deleted. Section 5.16 Intentionally Deleted. Section 5.17 Intentionally Deleted. Section 5.18 Intentionally Deleted Section 5.19 Minimum Spending Requirement and Deferred Maintenance Spending Requirement. (a) After the date hereof, Borrower and/or Guarantor shall spend at least the amounts set forth on Schedule 16 for each Real Property Asset for repairs, replacement, or maintenance of such Real Property Asset, on or before the Maturity Date (the "Minimum Spending Requirement"). Borrower and/or Guarantor shall deliver evidence reasonably satisfactory to Lender no more frequently than monthly, but at least quarterly, of the portion of the Minimum Spending Requirement for each Real Property Asset that has been spent; such evidence shall include copies of paid invoices or other receipts for work done or materials provided and such other information as reasonably requested by Lender. (b) Borrower and/or Guarantor shall spend the amounts shown on Schedule 17 (as the same may be amended from time to time) for each Real Property Asset listed on such Schedule prior to the Maturity Date to perform the specified maintenance set forth on such Schedule (the "Deferred Maintenance Spending Requirement"). Borrower shall deliver evidence reasonably satisfactory to Lender no more frequently than monthly, but at least quarterly, of the portion of the Deferred Maintenance Spending Requirement that has been spent; such evidence shall include copies of paid invoices or other receipts for work done or materials provided, and may include an updated Engineering Report. (c) With respect to the Maryland Property, Borrower and Guarantor shall deliver evidence reasonably satisfactory to Lender, which shall include an estoppel or similar acknowledgement from Holiday Inn, that all of the work required under the "Change of Ownership of the Holiday Inn, Calverton, Maryland, Location #1494 Property Improvement Plan", dated July 26, 1995, and prepared by Holiday Inn (a copy of which is attached hereto as Schedule 19) has been completed to Holiday Inn's satisfaction prior to January 1, 1997. -49- 57 (d) Borrower, Guarantor and the REIT jointly and severally, and unconditionally and irrespective of the lack of enforceability or validity of the Note or the California Note, the other Loan Documents or any other provision of this Agreement, and irrespective of any other circumstances which may constitute a defense to the agreements contained in this clause (d), hereby guarantee that Borrower and Guarantor shall perform and pay for each of the obligations and agreements contained in subsections (a), (b) and (c) of this Section 5.19, in strict accordance with the provisions thereof. The obligations and liabilities of Borrower, Guarantor and the REIT contained in this Section 5.19 shall be fully recourse and shall not be subject to the limitations contained in Section 9.8 or any similar provision contained in any other Loan Document other than subsection 9.8(f). Section 5.20 Intentionally Deleted. Section 5.21 Manager. The Partnership or Midland Hotel, as the case may be, shall manage such Real Property Asset thereafter pursuant to the Operating Lease; however, the Partnership or Midland Hotel, as the case may be, may enter into a new management agreement for any Real Property Asset with Lender's consent, which consent shall not be unreasonably withheld, and provided that such management agreement shall be on market terms and at market rates with a bona fide independent third party manager that is in the business of managing hotels and otherwise reasonably satisfactory to Lender. Section 5.22 Further Assurances. Borrower, Guarantor and the REIT will, at Borrower's, Guarantor's and the REIT's sole cost and expense, at any time and from time to time upon request of Lender take or cause to be taken any action and execute, acknowledge, deliver or record any further documents, opinions, deeds of trust, deeds to secure debt, mortgages, security agreements or other instruments which Lender in its reasonable discretion deems necessary or appropriate to carry out the purposes of this Agreement and the other Loan Documents including (i) to consummate the transfer or sale of the Loan or any portion thereof, provided that Borrower's, Guarantor's, the REIT's and each other Loan Party's obligations hereunder and under the Loan Documents shall not be increased or their rights diminished or abridged without their consent, (ii) to preserve, protect and perfect the security intended to be created and preserved in the Real Property Assets and (iii) to establish, preserve and protect the security interest of Lender in and to the Accounts Receivable and any personal property owned by Borrower, Guarantor, the Partnership, Midland Hotel or the Maryland Partnership installed in, furnished to or used or intended to be used in connection with any construction in connection with the Real Property Assets or the operation thereof. Section 5.23 REIT Status. The REIT shall elect to be treated as a "real estate investment trust" for the taxable year ending on December 31, 1995 and thereafter shall at all times maintain its status as and continue to elect to be treated as, a "real estate investment trust" under Section 856 of the Code and shall at all times maintain its status as grandfathered from the application of Section 269B of the Code pursuant to Section 132(c)(3) of the Deficit Reduction Act of 1984. Section 5.24 Mortgage Covenants. Borrower and Guarantor shall comply with all of the terms and conditions and covenants in the Security Instruments, the Environmental Indemnity and the other Loan Documents. -50- 58 Section 5.25 Intentionally Deleted. Section 5.26 Maintenance of Control. An officer, director, employee or general partner of the Group shall at all times remain a Trustee of the REIT and a Director of the Corporation (it being acknowledged by Lender that changes in composition of REIT's Trustees or Corporation's Directors shall not constitute a change in control). Section 5.27 Maintenance of Intercompany Debt. No Intercompany Debt shall be secured by any of the Collateral. Section 5.28 Transfer of Licenses. With respect to all of the Real Property Assets, to the extent that any Licenses are not in the name of the applicable Loan Party, Borrower and the REIT shall promptly commence or cause the applicable Loan Party to commence, and diligently proceed to have all such Licenses issued in the name of the applicable Loan Party or deliver evidence reasonably satisfactory to Lender that the failure to have such License in the name of the applicable Loan Party does not materially adversely affect the operation and use of the related Real Property Asset. Borrower shall notify Lender within 10 Business Days of the end of each calendar quarter of the status of the various Licenses that have not been transferred to the applicable Loan Party. Notwithstanding the foregoing, Borrower shall have all liquor licenses issued and maintained in either the name of (i) the Corporation, (ii) an entity wholly owned and controlled by the Corporation which has entered into a management agreement or lease agreement with respect to such liquor licenses with the Partnership, Midland Hotel or the Corporation on terms and conditions reasonably satisfactory to Lender or (iii) an individual who is both a resident of the state in which the related Real Property Asset is located and is an employee of either Borrower, the Partnership, the Corporation, Midland Hotel or the REIT at the level of general manager for the Real Property Assets in such state or higher within ninety (90) days of the date hereof. Borrower shall not be required to have the liquor license held by the American Cafe issued in the name of one of the entities described in clauses (i), (ii) and (iii) above for so long as the American Cafe is a tenant under a restaurant lease on the Maryland Property; however, if such lease is terminated, expires or rejected by the tenant in a bankruptcy proceeding, Borrower shall, or cause Guarantor to, have the tenant thereunder execute a transfer application for the liquor license to Borrower or Guarantor or one of the entities described in clauses (i), (ii) and (iii) above pursuant to the terms of the lease. Section 5.29 Environmental Monitoring. With respect to the Maryland Property, Borrower or Maryland Guarantor shall deliver to Lender a copy of the results of the annual pressure testing required by Applicable Law of the underground storage tanks within thirty (30) days after such testing has been done, but in no event later than January 31, 1997. Section 5.30 Keep Well Covenants. (a) Borrower and the REIT shall (i) cause Maryland Guarantor to be operated and managed in such a manner that it will fulfill its obligations under the Loan Documents to which it is a party; (ii) not file any petition for relief under the Bankruptcy Code or under any similar federal or state law against Maryland Guarantor; and (iii) provide funding to Maryland Guarantor to the -51- 59 extent necessary to enable Maryland Guarantor to fulfill its obligations under the Loan Documents and to remain Solvent. (b) Borrower and the REIT shall: (i) cause the Maryland Partnership to be operated and managed in such a manner that it will fulfill its obligations under the Loan Documents to which it is a party; (ii) not file any petition for relief under the Bankruptcy Code or under any similar federal or state law against the Maryland Partnership; and (iii) provide funding to the Maryland Partnership to the extent necessary to enable the Maryland Partnership to fulfill its obligations under the Loan Documents and to remain Solvent. SECTION 6. NEGATIVE COVENANTS. Borrower, the REIT and Guarantor covenants and agrees for itself and on behalf of the other Loan Parties that on and after the date hereof until the Obligations are paid in full: - Section 6.1 Intentionally Deleted. Section 6.2 Intentionally Deleted. Section 6.3 Liens. Borrower, the Partnership, the Maryland Partnership, Midland Hotel and Guarantor shall not, create, incur, assume or suffer to exist, directly or indirectly, any Lien on any of the Collateral, or any of the Real Property Assets, other than the following (collectively, the "Permitted Liens"): (a) Liens existing on the date hereof and set forth on Schedule 7 hereto or listed in the Title Policies issued on March 22, 1996 or the date hereof, as the case may be, for each Real Property Asset; (b) Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves are being maintained in accordance with GAAP; (c) Statutory Liens of landlords and Liens of mechanics, materialmen and other Liens imposed by Law (other than any Lien imposed by ERISA) created in the ordinary course of business for amounts not yet due or (i) which are being contested in good faith by appropriate proceedings diligently conducted, and with respect to which adequate bonds have been posted if required to do so by Applicable Law or the terms of the Security Instruments; (d) Easements, rights-of-way, zoning and similar restrictions and other similar charges or encumbrances not interfering with the ordinary conduct of the business of Borrower or Guarantor, as applicable, and which do not detract materially from the value of any of the Real Property Assets to which they attach or impair materially the use thereof by Borrower or Guarantor, as applicable, or materially adversely affect the security interests of Lender in the Collateral; -52- 60 (e) Permitted Financing; and (f) Liens granted to Lender pursuant to the Security Instruments securing the Obligations. Section 6.4 Restriction on Fundamental Changes. (a) Without the prior written consent of Lender, which consent may be withheld in the sole and absolute discretion of Lender, (i) Borrower and the other Loan Parties shall not enter into any merger or consolidation following which the REIT or an entity wholly owned by the REIT is no longer the sole general partner of the Borrower; or a merger or consolidation following which the Corporation or entities wholly owned by the Corporation are no longer the sole general partners of the Partnership; if such events occur without the prior written consent of Lender, all Advances shall be due and payable in full, including all principal, interest and Fees, on the earliest to occur of the expiration of each related Interest Period with respect to Eurodollar Portions or the next payment date with respect to Base Rate Portions, or the Maturity Date; and (ii) the REIT shall not sell, transfer, pledge, assign or encumber its general partnership interest in Borrower and the Corporation shall not sell, transfer, pledge, assign or encumber its general partnership interest in the Partnership, except to an entity wholly owned by the Corporation. (b) Without the prior written consent of Lender, which consent may be withheld in the sole and absolute discretion of Lender, (i) Borrower shall not sell, transfer, pledge, assign or encumber its general partnership or limited partnership interest in Maryland Guarantor, (ii) SLT Realty Company L.L.C. shall not sell, transfer, pledge, assign or encumber its limited partnership or other ownership interest in Guarantor, (iii) the Corporation shall not sell, transfer, pledge, assign or encumber its general partnership or limited partnership interest in the Maryland Partnership, (iv) the Partnership shall not sell, transfer, assign or encumber its limited partnership interest in the Maryland Property, (v) the Partnership shall not sell, transfer, pledge, assign or encumber any of its shares of stock in Midland Holding, (vi) Midland Holding shall not sell, transfer, pledge assign or encumber any of its shares of stock in Illinois Guarantor or Midland Hotel, and (vii) none of the Loan Parties shall enter into or permit any merger or consolidation following which (A) Midland Holding shall not be wholly owned by the Partnership, (B) Illinois Guarantor shall not be wholly owned by Midland Holding, or (C) Midland Hotel shall not be wholly owned by Midland Holding. Section 6.5 Transactions with Affiliates. Borrower and the other Loan Parties shall not enter into any material transaction or series of related transactions, whether or not in the ordinary course of business, with any Affiliate of Borrower, other than on terms and conditions substantially as favorable as would be obtainable at the time in a comparable arm's-length transaction with a Person other than an Affiliate of Borrower. Section 6.6 Plans. Borrower and the other Loan Parties shall not, and shall make reasonable efforts under the circumstances not to permit any member of their respective ERISA Controlled Group to, (i) take any action which would (A) increase the aggregate present value of the Unfunded Benefit Liabilities under all Plans, or withdrawal liability under a Multiemployer Plan for which Borrower or any Loan Party or any member of their respective ERISA Controlled Groups (determined without reference to Section 414(m) or (o) of the Code, if liabilities of entities in Borrower or the Loan Parties' ERISA Controlled Group solely by -53- 61 reason of Section 414(m) or (o) of the Code could not result in liability to Borrower or any Loan Party) could reasonably be expected to be liable, to an amount in excess of $5,000,000.00 or which has or could be reasonably expected to have a Material Adverse Effect or (B) result in liability to Borrower or any Loan Party for any post-retirement benefit under any "welfare plan" (as defined in Section 3(1) of ERISA) or any withdrawal liability or exit fee or charge with respect to any "welfare plan" (as defined in Section 3(1) of ERISA), other than liability for continuation coverage under Part 6 of Title I of ERISA or state laws which require similar continuation coverage for which the employee pays approximately the full cost of coverage, and other than such liability would not be in excess of $5,000,000.00 or have a Material Adverse Effect or (ii) engage in any transaction prohibited by Section 408 of ERISA or Section 4975 of the Code which has a Material Adverse Effect. Section 6.7 Intentionally Deleted. Section 6.8 Operating Leases. Neither Borrower, the Partnership, the Maryland Partnership, Midland Hotel nor Guarantor shall terminate any Operating Lease or the Maryland FF&E Lease, and shall not, without the prior written consent of Lender, modify or amend any Operating Lease or the Maryland FF&E Lease (other than modifications of a ministerial nature which do not amend or modify any economic terms or terms that would have an adverse effect on the value of the Collateral or Lender's security interest therein). Section 6.9 Borrower's Partnership Agreement. Neither Borrower nor the REIT shall amend or modify Section 7.4 of Borrower's Partnership Agreement or default under any of its obligations under Borrower's Partnership Agreement. SECTION 7. EVENTS OF DEFAULT Section 7.1 Events of Default. Each of the following events, acts, occurrences or conditions shall constitute an Event of Default under this Agreement, regardless of whether such event, act, occurrence or condition is voluntary or involuntary or results from the operation of law or pursuant to or as a result of compliance by any Person with any judgment, decree, order, rule or regulation of any court or administrative or governmental body: (a) Failure to Make Payments. Borrower or the REIT shall (i) default in the payment when due of any principal of the Loan, or (ii) default in the payment within five (5) days after the due date of (x) any interest on the Loan or (y) any Fees, Transaction Costs or any other amounts owing hereunder; provided, however, that any interest payable with respect to any delinquent payment shall be calculated at the Default Rate from the date such payment was actually due as if there were no grace period. (b) Breach of Representation or Warranty. Any representation or warranty made by Borrower, Guarantor, the REIT or any other Loan Party herein or in any other Loan Document or in any certificate or statement delivered pursuant hereto or thereto shall prove to be false or misleading in any material respect on the date as of which made or deemed made: provided, however, that if such breach is capable of being cured, then Borrower, Guarantor and the REIT shall have a period of thirty (30) days after the -54- 62 earlier of (i) the actual knowledge of such breach by Borrower, Guarantor or the REIT or (ii) delivery of notice from Lender of such breach, to cure any such breach. (c) Breach of Covenants. (i) Borrower, Guarantor, the REIT or any other Loan Party shall fail to perform or observe any agreement, covenant or obligation arising under Sections 5.1, 5.8, 5.23, 6.4(a)(i) and (b), 6.6, 6.8 and 6.9, the Fee Letter, or fail to pay all sums when due pursuant to Section 6.4(a)(i). (ii) Borrower or any of the Loan Parties shall fail to perform or observe any agreement, covenant or obligation arising under Sections 5.9, 5.28 and 6.3 and such failure shall continue uncured for thirty (30) days after the earlier of (A) the actual knowledge of such failure by Borrower or such Loan Party or (B) delivery of notice from Lender thereof. (iii) Borrower or any of the Loan Parties shall fail to perform or observe any agreement, covenant or obligation arising under this Agreement (except those described in subsections (a), (b) and (c)(i) and (c)(ii) above and (d), (e), (f), (g), (h), (i) and (j) below), other than Section 5.26, the breach of which shall not be deemed an Event of Default, and such failure shall continue uncured for thirty (30) days after delivery of notice thereof, or such longer period of time as is reasonably necessary to cure such Default, provided that Borrower or such Loan Party has commenced and is diligently prosecuting the cure of such Default and cures it within ninety (90) days. (iv) An Event of Default shall occur under any of the Loan Documents other than this Agreement. (d) Default Under Other Agreements. (i) Borrower, Guarantor, the Maryland Partnership, Midland Hotel, the REIT or the Partnership is in default under (A) any Indebtedness of such Person that is equal to or in excess of $1,000,000.00, which default results in accelerated Indebtedness or (B) any other Indebtedness that could have a Material Adverse Effect on such Person's ability to perform its obligations in connection with the Loan. (ii) Borrower, Guarantor, the Maryland Partnership, Midland Hotel or the Partnership, as the case may be, is in default under any material term of the applicable Operating Lease or the Maryland FF&E Lease beyond any applicable grace periods provided therein. (e) Bankruptcy, etc. (i) Borrower or any other Loan Party shall commence a voluntary case concerning itself under the Bankruptcy Code; or (ii) an involuntary case is commenced against Borrower or any other Loan Party and the petition is not dismissed within ninety (90) days, after commencement of the case or (iii) a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of Borrower, any other Loan Party or Borrower or any other Loan Party commences any other proceedings under any reorganization, arrangement, adjustment of debt, relief of debtors, -55- 63 dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to Borrower, any other Loan Party or there is commenced against Borrower or any other Loan Party any such proceeding which remains undismissed for a period of ninety (90) days; or (iv) any order of relief or other order approving any such case or proceeding is entered; or (v) Borrower or any other Loan Party is adjudicated insolvent or bankrupt; or (vi) Borrower or any other Loan Party suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of ninety (90) days; or (vii) Borrower or any other Loan Party makes a general assignment for the benefit of creditors; or (viii) Borrower, any other Loan Party shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or (ix) Borrower or any other Loan Party shall call a meeting of its creditors with a view to arranging a composition or adjustment of its debt; or (x) Borrower or any other Loan Party shall by any act or failure to act consent to, approve of or acquiesce in any of the foregoing; or (xi) any corporate or partnership action is taken by Borrower or any other Loan Party for the purpose of effecting any of the foregoing. (f) ERISA. (i) Any Termination Event shall occur, or (ii) any Plan shall incur an accumulated funding deficiency (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived, or fail to make a required installment payment on or before the due date under Section 412 of the Code or Section 302 of ERISA, or (iii) Borrower or any of the Loan Parties or a member of their respective ERISA Controlled Group shall have engaged in a transaction which is prohibited under Section 4975 of the Code or Section 406 of ERISA and an exemption shall not be applicable or have been obtained under Section 408 of ERISA or Section 4975 of the Code, or (iv) Borrower or any of the other Loan Parties or any member of their respective ERISA Controlled Group shall fail to pay when due an amount which it shall have become liable to pay to the PBGC, any Plan, any Multiemployer Plan, or a trust established under Section 4049 of ERISA, or (v) Borrower shall have received a notice from the PBGC of its intention to terminate a Plan or to appoint a trustee to administer such Plan, or Multiemployer Plan which notice shall not have been withdrawn within fourteen (14) days after the date thereof, or (vi) a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that a Plan must be terminated or have a trustee appointed to administer any Plan, or (vii) Borrower or any of the other Loan Parties or a member of their respective ERISA Controlled Group suffers a partial or complete withdrawal from a Multiemployer Plan or is in default (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan, or (viii) a proceeding shall be instituted against any of Borrower or any of the other Loan Parties, which proceeding is reasonably likely to succeed, to enforce Section 515 of ERISA, or (ix) any other event or condition shall occur or exist with respect to any Employee Benefit Plan or Plan, any Multiemployer Plan, which could reasonably be expected to subject Borrower or any of the other Loan Parties or any member of their respective ERISA Controlled Group to any tax, penalty or other liability (other than annual contributions or which is not an Event of Default otherwise under this Section 7.1) or the imposition of any lien or security interest on Borrower or any of the other Loan Parties or any member of their respective ERISA Controlled Group, or (x) with respect to any Multiemployer Plan, the institution of a proceeding to enforce Section 515 of ERISA, which proceeding is reasonably likely to succeed, to terminate such Plan, the receipt of a notice of reorganization or insolvency under Sections 4241 or 4245 of ERISA, in any event; provided, however, that events or circumstances in Sections 7.1(f)(i) through (x) shall only be an Event of Default if it results -56- 64 in or is reasonably expected to result in liability to Borrower or any Loan Party in excess of $5,000,000.00 or if it has or is likely to have a Material Adverse Effect; or (xi) the assets of Borrower or any other Loan Party become or are deemed to be assets of an Employee Benefit Plan. No Event of Default under this Section 7.1(f) shall be deemed to have been or be waived or corrected because of any disclosure by Borrower or any Loan Party. (g) Judgments. One or more judgments or decrees (i) in an aggregate amount of $1,000,000 or more are entered against Borrower or the REIT or any Loan Party since March 22, 1996 or (ii) which, with respect to Borrower, the REIT and the other Loan Parties, could result in a Material Adverse Effect, shall be entered by a court or courts of competent jurisdiction against any of such Persons (other than any judgment as to which, and only to the extent, a reputable insurance company has acknowledged coverage of such claim in writing) and (x) any such judgments or decrees shall not be stayed (by appeal or otherwise), discharged, paid, satisfied, bonded or vacated within thirty (30) days. (h) REIT. (i) The REIT fails to remain a publicly-traded real estate investment trust or the REIT and the Corporation fail to remain in good standing with the New York Stock Exchange and with the Securities and Exchange Commission or (ii) their shares fail to continue to trade as "paired shares" and such failure is not cured within thirty (30) days, if a cure is permitted under Applicable Law. (i) First Priority Lien. The Loan Documents after delivery thereof shall for any reason (other than pursuant to the terms thereof) cease to create a valid and perfected first priority lien on the Collateral (subject to the Permitted Liens) purported to be covered, hereby or thereby. (j) Failure to Deliver Franchisor Estoppels and Recognition Letters. Lender shall not have received the Franchisor Estoppels and Recognition Letters for the Florida Property located in Fort Lauderdale or the Texas Property within ninety (90) days of the date hereof. Section 7.2 Rights and Remedies. (a) Upon the occurrence of any Event of Default described in Section 7.1(e), the unpaid principal amount of and any and all accrued interest on the Loan and any and all accrued Fees and other Obligations shall automatically become immediately due and payable, with all additional interest thereon calculated at the Default Rate from the occurrence of the Default until the Loan is paid in full and without presentation, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and notice of acceleration), all of which are hereby expressly waived by Borrower, the REIT and the other Loan Parties; and upon the occurrence and during the continuance of any other Event of Default, Lender may, by written notice to Borrower declare the unpaid principal amount of and any and all accrued and unpaid interest on the Loan and any and all accrued Fees and other Obligations to be, and the same shall thereupon be, immediately due and payable with all additional interest thereon calculated at the Default Rate from the occurrence of the Default until the Loan is paid in full and without presentation, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and notice of acceleration), all of which are hereby expressly waived by Borrower, the REIT and the other Loan Parties. -57- 65 (b) Lender may offset any indebtedness, obligations or liabilities owed to Borrower against any indebtedness, obligations or liabilities of Borrower to it. (c) Lender may avail itself of any remedies available to it under the Loan Documents or at law or equity. SECTION 8. Intentionally Deleted. SECTION 9. MISCELLANEOUS. Section 9.1 Payment of Lender's Expenses, Indemnity, etc. Borrower and the REIT shall: (a) whether or not the Transactions hereby contemplated are consummated, pay (i) all reasonable out-of-pocket costs and expenses of Lender in connection with Lender's due diligence review of the Collateral, the negotiation, preparation, execution and delivery of the Loan Documents, the creation, perfection or protection of Lender's, Liens in the Collateral (including, without limitation, fees and expenses for title insurance, property inspections, consultants, surveys, lien searches, filing and recording fees, and escrow fees and expenses), all internal valuations and Appraisals of the Real Property Assets made by Lender in connection with the administration of the Loan and any amendment, waiver or consent relating to any of the Loan Documents (including, without limitation, as to each of the foregoing, the reasonable fees and disbursements of any outside or special counsel to Lender) and of Lender in connection with the preservation of rights under, any amendment, waiver or consent relating to, and enforcement of, the Loan Documents and the documents and instruments referred to therein or in connection with any restructuring or rescheduling of the Obligations (including, without limitation, the reasonable fees and disbursements of counsel for Lender). (b) pay, and hold Lender harmless from and against, any and all present and future stamp, excise and other similar taxes with respect to the foregoing matters and hold Lender harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to Lender) to pay such taxes; and (c) indemnify Lender, its officers, directors, employees, representatives and agents (each an "Indemnitee") from, and hold each of them harmless against, any and all losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for such Indemnitee in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not such Indemnitee shall be designated a party thereto) that may at any time (including, without limitation, at any time following the payment of the Obligations) be imposed on, asserted against or incurred by any Indemnitee as a result of, or arising in any manner out of, or in any way related to or by reason of, (i) any of the Transactions or the execution, delivery or performance of any Loan Document, (ii) the breach of any of Borrower's, the REIT's or other Loan Party's representations and warranties or of any of Borrower's, the REIT's or other Loan Party's -58- 66 Obligations, (iii) a default under Sections 4.12 or 5.11, including, without limitation, attorneys' fees and costs incurred in the investigation, defense, and settlement of losses incurred in correcting any prohibited transaction or in the sale of a prohibited loan, and in obtaining any individual prohibited transaction exemption under ERISA that may be required, and (iv) the exercise by Lender of its rights and remedies (including, without limitation, foreclosure) under any agreements creating any such Lien (but excluding, as to any Indemnitee, any such losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements to the extent incurred by reason of the gross negligence or willful misconduct of such Indemnitee as finally determined by a court of competent jurisdiction) (collectively, "Indemnified Liabilities"). Borrower and the REIT further agree that, without Lender's prior written consent, which shall not be unreasonably withheld, they will not enter into any settlement of a lawsuit, claim or other proceeding arising or relating to any Indemnified Liability unless such settlement includes an explicit and unconditional release from the party bringing such lawsuit, claim or other proceeding of each Indemnitee. Notwithstanding anything contained herein to the contrary, neither Borrower nor the REIT shall be liable to pay to Lender any amounts with respect to a Real Property Asset for claims, other than Environmental Claims (as defined in the Environmental Indemnity), based upon an event occurring after the consummation of a transfer by or in lieu of foreclosure of all of the Collateral relating to such Real Property Asset to the extent such amounts relate solely to the period after the date of the consummation of such transfer of Collateral. Borrower's and the REIT's obligations under this Section shall survive the termination of this Agreement and the payment of the Obligations. Section 9.2 Notices. Except as otherwise expressly provided herein, all notices, requests and demands to or upon the respective parties hereto shall be in writing (including by facsimile, or cable communication), and shall be deemed to have been duly given or made when delivered by hand, or five (5) days after being deposited in the United States mail, certified or registered, postage prepaid, or, in the case of facsimile notice, when sent, answerback received, or, in the case of a nationally recognized overnight courier service, one (1) Business Day after delivery to such courier service, addressed, in the case of Borrower, Guarantor and Lender, at the addresses specified below, or to such other addresses as may be designated by any party in a written notice to the other parties hereto. If to Lender, as follows: For all notices given in accordance with Sections 2.8(b) and 2.11 of this Agreement to: Lehman Brothers Holdings Inc. d/b/a Lehman Capital, a division of Lehman Brothers Holdings Inc. Three World Financial Center, 9th Floor New York, New York 10285 Telephone Number: (212) 526-6970 Telecopier Number: (212) 528-8986 Attention: Frank Gilhool -59- 67 with copies thereof to: Lehman Brothers Holdings Inc. d/b/a Lehman Capital, a division of Lehman Brothers Holdings Inc. Three World Financial Center, 29th Floor New York, New York 10285 Telephone Number: (212) 526-5849 Telecopier Number: (212) 528-6659/6521 Attention: Allyson Bailey Lehman Brothers Holdings Inc. d/b/a Lehman Capital, a division of Lehman Brothers Holdings Inc. Three World Financial Center, 7th Floor New York, New York 10285 Telecopier Number: (212) 526-3721 Attention: Scott Kimmel and Annette Nazareth For all other notices to: Lehman Brothers Holdings Inc. d/b/a Lehman Capital, a division of Lehman Brothers Holdings Inc. Three World Financial Center, 29th Floor New York, New York 10285 Telephone Number: (212) 526-5849 Telecopier Number: (212) 528-6659/6521 Attention: Allyson Bailey with a copy thereof to: Lehman Brothers Holdings Inc. d/b/a Lehman Capital, a division of Lehman Brothers Holdings Inc. Three World Financial Center, 7th Floor New York, New York 10285 Telecopier Number: (212) 526-3721 Attention: Scott Kimmel and Annette Nazareth -60- 68 If to Borrower or Guarantor, as follows: SLT Realty Limited Partnership, c/o Starwood Lodging Trust 11835 Olympic Boulevard, Suite 675 Los Angeles, California 90064 Telephone Number: (310) 575-3900 Telecopier Number: (310) 575-3764 Attention: Mr. Ronald C. Brown with copies thereof to: Sidley & Austin 555 West Fifth Street Los Angeles, California 90013-1010 Telephone Number: (213) 896-6031 Telecopier Number: (213) 896-6600 Attention: Sherwin L. Samuels, Esq. Section 9.3 Successors and Assigns; Participations; Assignments. This Agreement shall be binding upon and inure to the benefit of Borrower, Guarantor, the REIT, Lender, all future holders of the Note and the California Note and their respective successors and assigns. Section 9.4 Amendments and Waivers. (a) Neither this Agreement, the Note, the California Note, any other Loan Document to which Borrower, the REIT or any Loan Party is a party nor any terms hereof or thereof may be amended, supplemented, modified or waived other than in a writing executed by Borrower, the REIT, such Loan Party and Lender. (b) In the case of any waiver, Borrower, Guarantor, the REIT and Lender shall be restored to their former position and rights hereunder, under the outstanding Note, the California Note and any other Loan Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. Section 9.5 No Waiver; Remedies Cumulative. No failure or delay on the part of Lender in exercising any right, power or privilege hereunder or under any other Loan Document and no course of dealing between Borrower, the REIT or any other Loan Party and Lender shall operate as a waiver thereof nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Loan Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which Lender would otherwise have. No notice to or demand on Borrower, the REIT or any other Loan Party in any case shall entitle Borrower, the REIT or any other Loan Party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of Lender, to any other or further action in any circumstances without notice or demand. -61- 69 Section 9.6 Governing Law; Submission to Jurisdiction. (a) This Agreement shall be deemed to be a contract entered into pursuant to the laws of the State of New York and shall in all respects be governed, construed, applied and enforced in accordance with the laws of the State of New York, provided however, that with respect to the creation, perfection, priority and enforcement of the lien of the Security Instruments, and the determination of deficiency judgments, the laws of the State where the Real Property Asset is located shall apply. (b) Any legal action or proceeding with respect to this Agreement or any other Loan Document and any action for enforcement of any judgment in respect thereof may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York, and Lender, and, by execution and delivery of this Agreement, Borrower, Guarantor and the REIT hereby accept for themselves and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts and appellate courts from any thereof. Borrower, Guarantor and the REIT irrevocably consent to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to Borrower, Guarantor and the REIT at its address set forth in Section 9.2. Borrower, Guarantor and the REIT and Lender hereby irrevocably waive any objection which they may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement or any other Loan Document brought in the courts referred to above and hereby further irrevocably waive and agree not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing herein shall affect the right of Lender, to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against Borrower, Guarantor or the REIT in any other jurisdiction. Section 9.7 Confidentiality; Disclosure of Information. Each party hereto shall treat the transactions contemplated hereby and all financial and other information furnished to it about Borrower, the other Loan Parties and the Real Property Assets, as confidential; provided, however, that such confidential information may be disclosed (a) as required by law or pursuant to generally accepted accounting procedures, (b) to officers, directors, employees, agents, partners, attorneys, accountants, engineers and other consultants of the parties hereto who need to know such information, provided such Persons are instructed to treat such information confidentially, (c) by Lender to any servicer, or assignee ("Transferee"), which disclosure to Transferees and prospective Transferees may include any and all information which has been delivered to Lender by Borrower or any other Loan Party pursuant to this Agreement or the other Loan Documents or which has been delivered to Lender in connection with Lender's credit evaluation of Borrower or any other Loan Party prior to entering into this Agreement, provided that such Transferee agrees to be bound by the provisions of this Section 9.7, or (d) upon the written consent of the party whose otherwise confidential information would be disclosed. Section 9.8 Non-Recourse. (a) Except as otherwise provided, Lender shall not enforce the Loan, the Security Instruments or any other Loan Document by any action or proceeding wherein a money judgment, deficiency judgment or other judgment for personal liability shall be sought against Borrower, Guarantor or the REIT, or any officer, director, shareholder, partner, trustee, member, successor or assign of Borrower, Guarantor or the REIT, -62- 70 or any person or entity holding a direct or indirect interest in Borrower, Guarantor or the REIT (each of the foregoing, an "Exculpated Party") and Lender for itself, its successors and assigns irrevocably waives any and all right to sue for, seek or demand any such damages, money judgment, deficiency judgment or personal judgment against any of the Exculpated Parties under or in connection with the Loan, the Security Instruments or any other Loan Document and agrees to look solely to the Collateral for the enforcement of any liability or obligation of any Exculpated Party, provided that nothing contained herein shall be construed to prevent Lender from bringing a foreclosure action, action for specific performance or other appropriate action or proceeding to enable Lender to enforce and realize upon this Agreement, the Security Instruments or any other Loan Document, and the interest in the Real Property Assets, the Rents, the Accounts Receivable and any other Collateral given to Lender created by this Agreement, the Security Instruments or any other Loan Document; provided, further, however, that any judgment in any action or proceeding shall be enforceable against any Exculpated Party only to the extent of such Person's interest in the Real Property Assets, in the Rents, in the Accounts Receivable and in any other Collateral given to Lender. Lender, by accepting this Agreement, the Security Instruments or any other Loan Documents, agrees that it shall not, except as otherwise provided in this Section 9.8, sue for, seek or demand any deficiency judgment against any Exculpated Party in any action or proceeding, under or by reason of or in connection with this Agreement, the Security Instruments or any other Loan Document. (b) The provisions of Section 9.8 shall not (i) constitute a waiver, release or impairment of any obligation evidenced or secured by this Agreement, the Security Instruments or any other Loan Document; (ii) impair the right of Lender to obtain a deficiency judgment in any action or proceeding in order to preserve its rights and remedies, including, without limitation, an action against any Exculpated Party under the Note or the California Note, foreclosure, non-judicial foreclosure, or the exercise of a power of sale under the Additional Security Instruments (as defined in the Security Instruments); however, Lender agrees that it shall not enforce such deficiency judgment against any assets of any Exculpated Party other than the Additional Properties (as defined in the Security Instruments) or in the exercise of its rights and remedies under the Additional Security Instruments; (iii) impair the right of Lender to name any Exculpated Party as a party defendant in any action or suit for judicial foreclosure and sale under the Security Instruments; (iv) affect the validity or enforceability of, or impair the right of lender to enforce, the Environmental Indemnity or any indemnity, guaranty, master lease or similar instrument made in connection with this Agreement, the Security Instruments or any other Loan Document; (v) impair the right of Lender to obtain the appointment of a receiver; (vi) impair the enforcement of any of the Assignments of Leases and Rents executed in connection herewith, however Lender shall not enforce any judgment thereunder against any assets of any Exculpated Party other than the Rents and Accounts Receivable or such Person's interest in the Rents and Accounts Receivable; (vii) affect the validity or enforceability of, or impair the right of Lender to enforce the Partnership Loan Documents in accordance with their terms; or (viii) impair the right of Lender to enforce the provisions of Section 9.1(c)(iii) hereof or Section 13.2 of the Security Instruments. (c) Notwithstanding the provisions of Section 9.8(a) to the contrary, Borrower, Guarantor and the REIT shall be personally liable to Lender for any loss or damage it incurs due to: (i) fraud or intentional misrepresentation by Borrower, Guarantor and the REIT or any Loan Party in connection with the execution and the delivery of this Agreement, the Security -63- 71 Instruments or any other Loan Document; (ii) Borrower's, Guarantor's, the REIT's or any other Loan Party's misapplication or misappropriation of Rents or Accounts Receivable received by such parties after the occurrence of an Event of Default; (iii) Borrower's, Guarantor's, the REIT's or any other Loan Party's misappropriation of tenant security deposits or Rents collected in advance; (iv) the misapplication or the misappropriation of insurance proceeds or condemnation awards; (v) any act of actual waste or arson by Borrower, Guarantor, the REIT or any other Loan Party; (vi) Borrower's, Guarantor's, the REIT's or any other Loan Party's failure to comply with the provisions of Sections 4.12 and 5.11 of this Agreement. (d) Notwithstanding the foregoing, the agreement of Lender not to pursue recourse liability as set forth in Section 9.8 above SHALL BECOME NULL AND VOID and shall be of no further force and effect in the event of a Default under Section 6.4 of this Agreement or Article 8 of the Security Instruments or if the Real Property Assets or any Personal Property or any part thereof shall become an asset in (a) a voluntary bankruptcy or insolvency proceeding, or (b) an involuntary bankruptcy or insolvency proceeding which is not dismissed within ninety (90) days of filing. (e) Nothing herein shall be deemed to be a waiver of any right which Lender may have under Sections 506(a), 506(b), 1111(b) or any other provisions of the U.S. Bankruptcy Code to file a claim for the full amount of the Debt (as defined in the Security Instruments) secured by the Security Instruments or to require that all Collateral shall continue to secure all of the Debt owing to Lender in accordance with this Agreement, the Security Instruments or any other Loan Document. (f) Except for subsection (g) of this Section 9.8, the provisions of this Section 9.8 shall not apply to the obligations and liabilities of Borrower, Guarantor or the REIT under Section 5.19 and such obligations and liabilities shall be fully recourse to Borrower, Guarantor and the REIT, jointly and severally. (g) Lender acknowledges and agrees that the name "Starwood Lodging Trust" is a designation of the REIT and its Trustees (as Trustees but not personally) under a Declaration of Trust dated August 25, 1969, as amended and restated as of June 6, 1988, as further amended on February 1, 1995 and as further amended on June 19, 1995 and as the same may be further amended from time to time, and all persons dealing with the REIT shall look solely to the REIT's assets for the enforcement of any claims against the REIT, as the Trustees, officers, agents and security holders of the REIT assume no personal liability for obligations entered into on behalf of the REIT, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. The foregoing shall govern all direct and indirect obligations of the REIT under this Agreement and the Loan Documents. Section 9.9 Intentionally Deleted. Section 9.10 Borrower's, Guarantor's and REIT's Assignment. Neither Borrower, Guarantor nor the REIT may assign its rights or obligations hereunder without the prior written consent of Lender. -64- 72 Section 9.11 Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. Section 9.12 Effectiveness. This Agreement shall become effective on the date on which all of the parties hereto shall have signed a counterpart hereof and shall have delivered the same to Lender. Section 9.13 Headings Descriptive. The heading of the several Sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. Section 9.14 Marshaling; Recapture. Lender shall be under no obligation to marshal any assets in favor of Borrower, the REIT, any other Loan Party or any other party or against or in payment of any or all of the Obligations. To the extent Lender receives any payment by or on behalf of Borrower, the REIT or any other Loan Party, which payment or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to Borrower, the REIT or such other Loan Party or its estate, trustee, receiver, custodian or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such payment or repayment, the obligation or part thereof which has been paid, reduced or satisfied by the amount so repaid shall be reinstated by the amount so repaid and shall be included within the liabilities of Borrower, the REIT or such other Loan Party to Lender as of the date such initial payment, reduction or satisfaction occurred. Section 9.15 Severability. In case any provision in or obligation under this Agreement, the Note, the California Note or the other Loan Documents shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. Section 9.16 Survival. Except as expressly provided to the contrary herein, all indemnities set forth herein including, without limitation, in Sections 2.16, 2.17, 2.18, 2.19 and 9.1 shall survive the execution and delivery of this Agreement, the Note, the California Note and the Loan Documents and the making and repayment of the Loan hereunder. Section 9.17 Domicile of Loan Portions. Lender may transfer and carry any Loan Portion at, to or for the account of any domestic or foreign branch office, subsidiary or affiliate, subject to Section 2.19, and provided that such transfer does not result in any increase in the costs to be paid by Borrower and the REIT under Sections 2.16, 2.18 or 2.19. Section 9.18 Intentionally Omitted. Section 9.19 Calculations; Computations. Except as otherwise expressly provided herein, the financial statements to be furnished to Lender pursuant hereto shall be made and prepared in accordance with GAAP consistently applied throughout the periods involved and -65- 73 consistent with GAAP as used in the preparation of the financial statements referred to in Section 4.5. SECTION 9.20 WAIVER OF TRIAL BY JURY. TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER, THE REIT, GUARANTOR AND LENDER EACH HEREBY IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY MATTER ARISING HEREUNDER OR THEREUNDER. Section 9.21 No Joint Venture. Notwithstanding anything to the contrary herein contained, Lender by entering into this Agreement or by taking any action pursuant hereto, will not be deemed a partner or joint venturer with Borrower, Guarantor or the REIT and Borrower, Guarantor and the REIT agree to hold Lender harmless from any damages and expenses resulting from such a construction of the relationship of the parties hereto or any assertion thereof. Section 9.22 Estoppel Certificates. (a) Borrower, Guarantor, the REIT and Lender each hereby agree at any time and from time to time upon not less than ten (10) Business Days prior written notice by Borrower or Lender to execute, acknowledge and deliver to the party specified in such notice, a statement, in writing, certifying whether this Agreement is unmodified and in full force and effect (or if there have been modifications, whether the same, as modified, is in full force and effect and stating the modifications hereto), and stating whether or not, to the best knowledge of such certifying party, any Default or Event of Default has occurred and is then continuing, and, if so, specifying each such Default or Event of Default; provided, however, that it shall be a condition precedent to Lender's obligation to deliver the statement pursuant to this Section , that Lender shall receive, together with Borrower's request for such statement, a certificate of a general partner or senior executive officer of Borrower and the REIT stating that no Default or Event of Default exists as of the date of such certificate (or specifying such Default or Event of Default). (b) Within ten (10) Business Days of Lender's request, Borrower shall execute and deliver a certificate of the general partner of Borrower or senior executive officer of Borrower and the REIT confirming the then aggregate outstanding principal balance of the Loan, the outstanding principal balance with respect to each Eurodollar Portion and each Base Rate Portion, the Contract Rate for each Loan Portion, the dates to which all interest has been paid, and the Interest Period for each Eurodollar Portion. Such statement shall be binding and conclusive on Borrower absent manifest error. Section 9.23 No Other Agreements. This Agreement, the Loan Documents and the Fee Letter constitute the entire understanding of the parties with respect to the transactions contemplated hereby, and all prior understandings with respect thereto, whether written or oral, shall be of no force and effect. Section 9.24 Controlling Document. In the event of a conflict between the provisions of this Agreement and the other Loan Documents the provisions of this Agreement shall control and govern the conflicting provisions of the other Loan Documents. -66- 74 Section 9.25 No Benefit to Third Parties. This Agreement is for the sole and exclusive benefit of Borrower, Guarantor, the REIT and Lender. Without limiting the generality of the foregoing, Lender shall not have any duty or obligation to anyone to ascertain that funds advanced hereunder are used as required by the terms hereof or to pay the cost of constructing the improvements on any of the Real Property Assets or to acquire materials and supplies to be used in connection therewith or to pay costs of owning, operating and maintaining same. Section 9.26 Joint and Several. Subject to the terms and conditions of Section 9.8, Borrower, Guarantor and the REIT are each jointly and severally liable for the payment in full of the Loan and all other sums owing under this Agreement, the Note, the California Note, the Security Instruments and any other Loan Documents and the performance of all of the Obligations. [NO FURTHER TEXT ON THIS PAGE] -67- 75 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. SLT REALTY LIMITED PARTNERSHIP By: Starwood Lodging Trust, its general partner By: /s/ Ronald C. Brown --------------------------------- Name: Ronald C. Brown Title: Vice President and Chief Financial Officer STARWOOD LODGING TRUST By: /s/ Ronald C. Brown --------------------------------- Name: Ronald C. Brown Title: Vice President and Chief Financial Officer CP HOTEL REALTY LIMITED PARTNERSHIP By: SLT Realty Limited Partnership, its general partner By: Starwood Lodging Trust, its general partner By: /s/ Ronald C. Brown -------------------------------- Name: Ronald C. Brown Title: Vice President and Chief Financial Officer MIDLAND BUILDING CORPORATION By: /s/ Steven R. Goldman ---------------------------------- Name: Steven R. Goldman Title: Vice President 76 LEHMAN BROTHERS HOLDINGS INC. D/B/A LEHMAN CAPITAL, A DIVISION OF LEHMAN BROTHERS HOLDINGS INC. By: /s/ Joseph J. Flannery __________________________________ Name: Joseph J. Flannery Title: Authorized Signatory EX-10.32 5 LETTER DATED JULY 16, 1996 FROM LEHMAN 1 EXHIBIT 10.32 LEHMAN BROTHERS HOLDINGS, INC. 200 Vesey Street New York, NY 10285 July 16, 1996 Mr. Barry Sternlicht Chairman and Chief Executive Officer Starwood Lodging Trust 11845 West Olympic Boulevard Suite 550 Los Angeles, CA 90064 RE: SLT REALTY LIMITED PARTNERSHIP Dear Barry: We hereby agree to extend the maturity of the Mortgage Loan Funding Facility in the amount of approximately $71 million, dated July 25, 1995 and as amended October 1995, due January 1997 for a six month period, to July 1997, upon terms and conditions to be documented at a later date. Sincerely, LEHMAN BROTHERS HOLDINGS, INC. By /s/ Michael Mazz --------------------------- Its Managing Director -------------------------- EX-10.33 6 LOAN AGREEMENT BETWEEN SLT AND STARWOOD 1 EXHIBIT 10.33 LOAN AGREEMENT between SLT REALTY LIMITED PARTNERSHIP and STARWOOD LODGING TRUST and GOLDMAN SACHS MORTGAGE COMPANY, INDIVIDUALLY AND AS AGENT FOR ONE OR MORE CO-LENDERS Dated as of August 16, 1996 Facility Amount of $300,000,000.00 2 TABLE OF CONTENTS SECTION 1. DEFINITIONS...........................................................................- 1 - Section 1.1 Definitions.......................................................- 1 - SECTION 2. AMOUNT AND TERMS OF LOAN.............................................................- 20 - Section 2.1 Advances.........................................................- 20 - Section 2.2 Notice of Borrowing..............................................- 20 - Section 2.3 Disbursement of Funds............................................- 20 - Section 2.4 The Note.........................................................- 21 - Section 2.5 Interest.........................................................- 21 - Section 2.6 Interest Periods.................................................- 22 - Section 2.7 Minimum Amount of Eurodollar Portions............................- 23 - Section 2.8 Intentionally Deleted............................................- 23 - Section 2.9 Reduction of Facility Amount.....................................- 23 - Section 2.10 Extension of Maturity Date.......................................- 23 - Section 2.11 Voluntary Prepayments............................................- 23 - Section 2.12 Intentionally Deleted............................................- 24 - Section 2.13 Application of Payments and Prepayments..........................- 24 - Section 2.14 Method and Place of Payment......................................- 24 - Section 2.15 Fees.............................................................- 24 - Section 2.16 Interest Rate Unascertainable, Increased Costs, Illegality.......- 25 - Section 2.17 Funding Losses...................................................- 27 - Section 2.18 Increased Capital................................................- 27 - Section 2.19 Taxes............................................................- 28 - Section 2.20 Use of Proceeds..................................................- 29 - Section 2.21 Release of Collateral............................................- 29 - Section 2.22 Intentionally Deleted............................................- 30 - Section 2.23 Intentionally Deleted............................................- 31 - Section 2.24 Decision Making by Agent.........................................- 31 - SECTION 3. CONDITIONS PRECEDENT.................................................................- 31 - Section 3.1 Conditions Precedent to the Initial Advance......................- 31 - Section 3.2 Conditions Precedent to All Advances of the Loan.................- 37 - Section 3.3 Acceptance of Borrowings.........................................- 38 - Section 3.4 Sufficient Counterparts..........................................- 38 - SECTION 4. REPRESENTATIONS AND WARRANTIES.......................................................- 38 - Section 4.1 Corporate/Partnership Status.....................................- 38 - Section 4.2 Corporate/Partnership Power and Authority........................- 39 - Section 4.3 No Violation.....................................................- 39 - Section 4.4 Litigation.......................................................- 39 - Section 4.5 Financial Statements: Financial Condition; etc...................- 39 - Section 4.6 Solvency.........................................................- 40 - Section 4.7 Material Adverse Change..........................................- 40 - Section 4.8 Use of Proceeds; Margin Regulations..............................- 40 -
- i - 3 Section 4.9 Governmental Approvals...........................................- 40 - Section 4.10 Security Interests and Liens.....................................- 40 - Section 4.11 Tax Returns and Payments.........................................- 41 - Section 4.12 ERISA............................................................- 41 - Section 4.13 Intentionally Omitted............................................- 42 - Section 4.14 Representations and Warranties in Loan Documents.................- 42 - Section 4.15 True and Complete Disclosure.....................................- 42 - Section 4.16 Ownership of Real Property.......................................- 42 - Section 4.17 No Default.......................................................- 42 - Section 4.18 Licenses, etc....................................................- 43 - Section 4.19 Compliance With Law..............................................- 43 - Section 4.20 Brokers..........................................................- 43 - Section 4.21 Judgments........................................................- 43 - Section 4.22 Intentionally Omitted............................................- 44 - Section 4.23 Assets of the REIT...............................................- 44 - Section 4.24 REIT Status......................................................- 44 - Section 4.25 SLC..............................................................- 44 - Section 4.26 Owners...........................................................- 44 - Section 4.27 Operating Entities...............................................- 44 - Section 4.28 Personal Property................................................- 44 - Section 4.29 Intentionally Deleted............................................- 44 - Section 4.30 Stock............................................................- 44 - Section 4.31 Ground Leases....................................................- 44 - Section 4.32 Status of Property...............................................- 45 - Section 4.33 Affiliate Debt and Intercompany Debt.............................- 46 - Section 4.34 Survival.........................................................- 46 - SECTION 5. AFFIRMATIVE COVENANTS................................................................- 47 - Section 5.1 Financial Reports................................................- 47 - Section 5.2 Books, Records and Inspections...................................- 49 - Section 5.3 Maintenance of Insurance.........................................- 50 - Section 5.4 Taxes............................................................- 54 - Section 5.5 Corporate Franchises; Conduct of Business........................- 54 - Section 5.6 Compliance with Law..............................................- 54 - Section 5.7 Performance of Obligations.......................................- 54 - Section 5.8 Stock............................................................- 54 - Section 5.9 Maintenance of Personal Property.................................- 55 - Section 5.10 Maintenance and Operation of Real Property Assets................- 55 - Section 5.11 Compliance with ERISA............................................- 55 - Section 5.12 Settlement/Judgment Notice.......................................- 56 - Section 5.13 Acceleration Notice..............................................- 56 - Section 5.14 Lien Searches; Title Searches....................................- 56 - Section 5.15 Intentionally Deleted............................................- 56 - Section 5.16 Minimum Net Worth................................................- 57 - Section 5.17 Total Indebtedness...............................................- 57 - Section 5.18 Coverage Ratios..................................................- 57 - Section 5.19 Replacement Reserve..............................................- 58 -
- ii - 4 Section 5.20 Management.......................................................- 58 - Section 5.21 Further Assurances...............................................- 58 - Section 5.22 REIT Status......................................................- 58 - Section 5.23 Loan Documents...................................................- 58 - Section 5.24 Appraisals.......................................................- 58 - Section 5.25 Maintenance of Control...........................................- 59 - Section 5.26 Intentionally Deleted............................................- 59 - Section 5.27 Transfer of Licenses.............................................- 59 - Section 5.28 Franchises.......................................................- 59 - Section 5.29 Compliance with Terms of Ground Leases...........................- 59 - Section 5.30 Maintenance of Affiliate Debt and Intercompany Debt..............- 59 - Section 5.31 Keep Well Covenants..............................................- 60 - Section 5.32 Single Purpose Entity............................................- 60 - Section 5.33 Environmental Monitoring and Remediation.........................- 61 - SECTION 6. NEGATIVE COVENANTS...................................................................- 62 - Section 6.1 Intentionally Deleted............................................- 62 - Section 6.2 Intentionally Deleted............................................- 62 - Section 6.3 Liens............................................................- 62 - Section 6.4 Restriction on Fundamental Changes...............................- 63 - Section 6.5 Transactions with Affiliates.....................................- 63 - Section 6.6 Plans............................................................- 63 - Section 6.7 Payout Ratios....................................................- 63 - Section 6.8 Operating Leases.................................................- 64 - Section 6.9 Borrower's Partnership Agreement.................................- 64 - Section 6.10 Restriction on Prepayment of Indebtedness........................- 64 - Section 6.11 Negative Pledge Covenant.........................................- 64 - Section 6.12 Organizational Documents.........................................- 64 - Section 6.13 Intentionally Deleted............................................- 64 - Section 6.14 No Transfer......................................................- 64 - Section 6.15 Change of Name, Identity or Structure............................- 65 - SECTION 7. EVENTS OF DEFAULT....................................................................- 65 - Section 7.1 Events of Default................................................- 65 - Section 7.2 Rights and Remedies..............................................- 68 - SECTION 8. INTENTIONALLY DELETED................................................................- 69 - SECTION 9. MISCELLANEOUS........................................................................- 69 - Section 9.1 Payment of Lender's and Co-Lender's Expenses, Indemnity, etc.....- 69 - Section 9.2 Notices..........................................................- 70 - Section 9.3 Successors and Assigns; Participations; Assignments..............- 72 - Section 9.4 Amendments and Waivers...........................................- 72 - Section 9.5 No Waiver; Remedies Cumulative...................................- 72 - Section 9.6 Governing Law; Submission to Jurisdiction........................- 72 - Section 9.7 Confidentiality; Disclosure of Information.......................- 73 - Section 9.8 Recourse.........................................................- 73 -
- iii - 5 Section 9.9 Sale of Loan, Co-Lenders, Participations and Servicing...........- 74 - Section 9.10 Borrower's and REIT's Assignment.................................- 77 - Section 9.11 Counterparts.....................................................- 77 - Section 9.12 Effectiveness....................................................- 77 - Section 9.13 Headings Descriptive.............................................- 78 - Section 9.14 Marshaling; Recapture............................................- 78 - Section 9.15 Severability.....................................................- 78 - Section 9.16 Survival.........................................................- 78 - Section 9.17 Domicile of Loan Portions........................................- 78 - Section 9.18 Intentionally Omitted............................................- 78 - Section 9.19 Calculations; Computations.......................................- 78 - Section 9.20 WAIVER OF TRIAL BY JURY..........................................- 78 - Section 9.21 No Joint Venture.................................................- 79 - Section 9.22 Estoppel Certificates............................................- 79 - Section 9.23 No Other Agreements..............................................- 79 - Section 9.24 Controlling Document.............................................- 79 - Section 9.25 No Benefit to Third Parties......................................- 79 - Section 9.26 Joint and Several................................................- 80 -
- iv - 6 SCHEDULES Schedule 1-A Owners Schedule 1-B Allocated Loan Amounts Schedule 1-C Allocated Guaranty Amounts Schedule 2 Real Property Assets Schedule 3 Franchises Schedule 4 Intentionally Deleted Schedule 5 Litigation Schedule 6 Employee Benefit Plans Schedule 7 Liens Schedule 8 Ground Leases Schedule 9 Intercompany Debt Schedule 10 Operating Leases Schedule 11 Intentionally Deleted Schedule 12 Environmental Monitoring and Remediation Schedule 13 REIT Business Operations Schedule 13A Intentionally Deleted Schedule 14 Pledged Mortgages Schedule 15 Intentionally Deleted Schedule 16 Liquor Licenses EXHIBITS Exhibit A Notice of Borrowing Exhibit B Form of Note Exhibit C Intentionally Deleted Exhibit D Intentionally Deleted Exhibit E Notice of Voluntary Prepayment Exhibit F Form of Environmental Indemnity Exhibit G Form of Affiliate Debt Subordination Agreement Exhibit H Form of Security Agreement (Pledge of Membership Interests) Exhibit I Form of SLC Security Agreement (Pledge of Membership Interests) Exhibit J Intentionally Deleted Exhibit K Intentionally Deleted Exhibit L Form of Owner/Operating Entity Guaranty Exhibit M Form of SLC/Corporation Guaranty Exhibit N Form of Assignment and Assumption - v - 7 THIS LOAN AGREEMENT, dated as of August 16, 1996, is made among SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership ("Borrower"), STARWOOD LODGING TRUST, a Maryland real estate investment trust (the "REIT"), and GOLDMAN SACHS MORTGAGE COMPANY, a New York limited partnership, individually ("Goldman") and as Agent for one or more Co-Lenders ("Lender"). SECTION 1. DEFINITIONS. Section 1.1 Definitions. As used herein, the following terms shall have the meanings herein specified unless the context otherwise requires. Defined terms in this Agreement shall include in the singular number the plural and in the plural number the singular. "Accounts Receivable" shall mean all income and revenues or rights to receive all income and revenues arising from the operation of the Real Property Assets and all payments for goods or property sold or leased or for services rendered, whether or not yet earned by performance, and not evidenced by an instrument or chattel paper, including, without limiting the generality of the foregoing, (i) all accounts, contract rights, book debts, and notes arising from the operation of a hotel on the Real Property Assets or arising from the sale, lease or exchange of goods or other property and/or the performance of services, (ii) Borrower's, each Owner's and each Operating Entity's rights to payment from any consumer credit/charge card organization or entity (such as, or similar to, the organizations or entities which sponsor and administer the American Express Card, the Visa Card, the Bankamericard, the Carte Blanche Card, or the Mastercard) arising with respect to the Real Property Assets, (iii) Borrower's, each Owner's and each Operating Entity's rights in, to and under all purchase orders for goods, services or other property arising with respect to the Real Property Assets, (iv) Borrower's, each Owner's and each Operating Entity's rights to any goods, services or other property represented by any of the foregoing, (v) monies due to or to become due to Borrower, any Owner or any Operating Entity under all contracts for the sale, lease or exchange of goods or other property and/or the performance of services including the right to payment of any interest or finance charges in respect thereto (whether or not yet earned by performance on the part of Borrower, any Owner or any Operating Entity) arising with respect to the Real Property Assets and (vi) all collateral security and guaranties of any kind given by any person or entity with respect to any of the foregoing. Accounts Receivable shall include those now existing or hereafter created, substitutions therefor, proceeds (whether cash or non-cash, movable or immovable, tangible or intangible) received upon the sale, exchange, transfer, collection or other disposition or substitution thereof and any and all of the foregoing and proceeds therefrom. "Advance" shall mean each advance of the principal balance of the Loan in accordance with the terms of Sections 3.1 and 3.2. "Affiliate" shall mean, with reference to a specified Person, any Person that directly or indirectly through one or more intermediaries Controls or is Controlled by or is under common Control with the specified Person and any Subsidiaries (including Consolidated Subsidiaries) of such specified Person. 8 "Affiliate Debt" shall mean any and all Indebtedness of Borrower or the REIT to any Affiliate of Borrower, the REIT, or any Loan Party. "Agent" shall have the meaning provided in Section 9.9(e). "Agreement" shall mean this Loan Agreement, as the same may from time to time hereafter be modified, supplemented or amended. "Allocated Guaranty Amounts" shall mean the portions of the Loan guaranteed by each Guarantor pursuant to the related Guaranty as set forth on Schedule 1-C. "Allocated Loan Amount" shall mean the portions of the Facility Amount allocated to each Real Property Asset as set forth on Schedule 1-B, as the same may be adjusted in accordance with this Agreement. "Annual Operating Budget" shall have the meaning provided in Section 5.1. "Applicable Laws" shall mean all existing and future federal, state and local laws, statutes, orders, ordinances, rules, and regulations or orders, writs, injunctions or decrees of any court affecting Borrower or any Real Property Asset, or the use thereof including, but not limited to, all zoning, fire safety and building codes, the Americans with Disabilities Act, and all Environmental Laws (as defined in the Environmental Indemnity). "Appraisal" shall mean an appraisal prepared in accordance with the requirements of FIRREA, prepared by an independent third party appraiser holding an MAI designation, who is state licensed or state certified if required under the laws of the state where the applicable Real Property Asset is located, who meets the requirements of FIRREA and who has at least ten (10) years real estate experience appraising properties of a similar nature and type as the applicable Real Property Asset and who is otherwise satisfactory to Lender. "Assets" of any Person means all assets of such Person that would, in accordance with GAAP, be classified as assets of a company conducting a business the same as or similar to that of such Person, including, without limitation, all Real Property Assets. "Assignment and Assumption" shall have the meaning provided in Section 9.9(a). "Bankruptcy Code" shall mean Title 11 of the United States Code entitled "Bankruptcy", as amended from time to time, and any successor statute or statutes and all rules and regulations from time to time promulgated thereunder, and any comparable foreign laws relating to bankruptcy, insolvency or creditors' rights. "Base Period" shall have the meaning provided in Section 5.18(a). "Base Rate" shall mean, at any particular date, a rate per annum equal to the rate of interest published in The Wall Street Journal as the "prime rate", as in effect on such day, with any change in the prime rate resulting from a change in said prime rate to be effective as of the date of the relevant change in said prime rate; provided, however, that if more than one - 2 - 9 prime rate is published in The Wall Street Journal for a day, the average of the Prime Rates shall be used; provided, further, however, that the Prime Rate (or the average of the prime rates) will be rounded to the nearest 1/16 of 1% or, if there is no nearest 1/16 of 1%, to the next higher 1/16 of 1%. In the event that The Wall Street Journal should cease or temporarily interrupt publication, then the Prime Rate shall mean the daily average prime rate published in another business newspaper, or business section of a newspaper, of national standing chosen by Lender. If The Wall Street Journal resumes publication, the substitute index will immediately be replaced by the prime rate published in The Wall Street Journal. In the event that a prime rate is no longer generally published or is limited, regulated or administered by a governmental or quasi-governmental body, then Lender shall select a comparable interest rate index which is readily available to Borrower and verifiable by Borrower but is beyond the control of Lender. Lender shall give Borrower prompt written notice of its choice of a substitute index and when the change became effective. Such substitute index will also be rounded to the nearest 1/16 of 1% or, if there is no nearest 1/16 of 1%, to the next higher 1/16 of 1%. The determination of the Base Rate by Lender shall be conclusive absent manifest error. "Base Rate Margin" shall mean 0.75% per annum from the date hereof through and including the Initial Maturity Date and 1.75% per annum thereafter. "Base Rate Portions" shall mean each portion of the Loan made and/or being maintained at a rate of interest based upon the Base Rate. "Borrower" shall have the meaning provided in the first paragraph of this Agreement and any successor Borrower expressly permitted hereunder. "Borrower's Partnership Agreement" means that certain Amended and Restated Limited Partnership Agreement of SLT Realty Limited Partnership dated as of June 29, 1995, and an Amended and Restated Certificate of Limited Partnership of SLT Realty Limited Partnership dated July 5, 1995 as amended by those certain agreements dated May 14, 1996, June 3, 1996, June 4, 1996 and July 1, 1996 as the same may be further amended, modified or supplemented from time to time. "Borrowing" shall mean a borrowing of one Type of Advance from Lender and any Co-Lender on a given date (or resulting from conversions or continuations on a given date), having in the case of Eurodollar Portions the same Interest Period. "Business Day" shall mean (i) for all purposes other than as covered by clause (ii) below, any day excluding Saturday, Sunday and any day which shall be in New York City a legal holiday or a day on which Lender, any Co-Lender or banking institutions are authorized or required by law or other government actions to close, and (ii) with respect to all notices and - 3 - 10 determinations in connection with, and payments of principal and interest on, Eurodollar Portions, any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks for U.S. dollar deposits in the relevant interbank Eurodollar market. "Capitalized Lease" as to any Person shall mean (i) any lease of property, real or personal, the obligations under which are capitalized on the consolidated balance sheet of such Person and its Subsidiaries, and (ii) any other such lease to the extent that the then present value of the minimum rental commitment thereunder should, in accordance with GAAP, be capitalized on a balance sheet of the lessee. "Capitalized Lease Obligations" as to any Person shall mean all obligations of such Person and its Subsidiaries under or in respect of Capitalized Leases. "Change in Law" shall have the meaning provided in Section 2.19(c). "Closing Date" shall mean the date of this Agreement. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and any successor statute, together with all rules and regulations from time to time promulgated thereunder. "Co-Lender" shall have the meaning provided in Section 9.9. "Collateral" shall mean the membership interests of Borrower, SLC, the Corporation, and SLT Financing Partnership, in each Owner and each Operating Entity that have been pledged to Lender pursuant to the Security Agreement and the SLC Security Agreement, together with the Pledged Mortgages. "Collateral Assignments of Mortgage" shall mean those two Collateral Assignments of Mortgage each dated the date hereof from Borrower to Lender with respect to the Pledged Mortgages, which Mortgages have been collaterally assigned as additional security for the Loan. "Commitment Fee" shall have the meaning provided in Section 2.15. "Consolidated Interest Expense" means with respect to any Person for any period, interest accrued or payable by such Person and its Subsidiaries during such period in respect of Total Debt determined on a consolidated basis in accordance with GAAP. "Contingent Obligation" as to any Person shall mean any obligation of such Person guaranteeing or intended to guarantee any Indebtedness, leases (including Capitalized Leases), dividends or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor,(ii) to advance or supply funds (x) for the purchase or payment of any such primary obligation or (y) to maintain working - 4 - 11 capital or equity capital of the primary obligor or otherwise to maintain the net worth, solvency or other financial condition of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of such primary obligation against loss in respect thereof: provided, however, that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any accrued or accruable Contingent Obligation shall be determined in accordance with GAAP. "Contract Rate" shall mean the rate or rates of interest (which rate shall include the applicable margin added thereto pursuant to the terms of this Agreement) per annum provided for in this Agreement which are applicable to the Loan from time to time so long as no Event of Default has occurred and is continuing. If more than one rate of interest is applicable to the Loan, then, unless the context indicates that the Contract Rate is to be determined for each Loan Portion, the Contract Rate shall be the average of such rates (rounded upwards, if necessary, to the nearest 1/100 of 1%) with such average to be weighted according to the relative size of the Loan Portions to which such different rates are applicable. The determination of the Contract Rate by Lender, if made in good faith, shall be conclusive absent manifest error. "Control" shall mean in (a) in the case of a corporation, ownership, directly or through ownership of other entities, of at least ten percent (10%) of all the voting stock (exclusive of stock which is voting only as required by applicable law or in the event of nonpayment of dividends and pays dividends only on a nonparticipating basis at a fixed or floating rate), and (b) in the case of any other entity, ownership, directly or through ownership of other entities, of at least ten percent (10%) of all of the beneficial equity interests therein (calculated by a method that excludes from equity interests, ownership interests that are nonvoting (except as required by applicable law or in the event of nonpayment of dividends or distributions) and pay dividends or distributions only on a non-participating basis at a fixed or floating rate) or, in any case, (c) the power directly or indirectly, to direct or control, or cause the direction of, the management policies of another Person, whether through the ownership of voting securities, general partnership interests, common directors, trustees, officers by contract or otherwise. The terms "controlled" and "controlling" shall have meanings correlative to the foregoing definition of "Control." "Corporation" shall mean Starwood Lodging Corporation, a Maryland corporation. "Debt Service" means with respect to any Person for any period, the sum (without duplication) of (a) Consolidated Interest Expense of such Person for such period plus (b) scheduled principal amortization of Total Debt and any unscheduled principal amortization payments (other than payments of principal under this Loan) actually made or required to be made during such period pursuant to a settlement of debt (giving effect to any principal payments actually made or required to be made other than scheduled balloon payments due on the applicable maturity date that are not then due or past due) of such Person for such period (whether or not such payments are made). - 5 - 12 "Default" shall mean any event, act or condition which, with the giving of notice or lapse of time, or both, would constitute an Event of Default. "Default Rate" shall mean for each Loan Portion the lesser of (a) the Maximum Legal Rate or (b) the rate per annum determined by adding 5% to the Contract Rate applicable to the Loan immediately prior to an Event of Default until the expiration of the applicable Interest Periods and thereafter the rate per annum determined by adding 2% to the Base Rate, as from time to time is in effect; or (c) with respect to all then outstanding Base Rate Portions, the rate per annum determined by adding 2% to the Base Rate as from time to time in effect. "Determination Date" shall have the meaning provided in Section 2.9. "Distribution" shall mean any dividends (other than dividends payable solely in common stock), distributions, return of capital to any stockholders, general or limited partners or members, other payments, distributions or delivery of property or cash to stockholders, general or limited partners or members, or any redemption, retirement, purchase or other acquisition, directly or indirectly, of any shares of any class of capital stock now or hereafter outstanding (or any options or warrants issued with respect to capital stock), any general or limited partnership or membership interest, or the setting aside of any funds for the foregoing. "Dollars" and the symbol "$" each mean the lawful money of the United States of America. "Domestic Lending Office" shall mean the office set forth in Section 9.2 for Lender, or such other office as may be designated from time to time by written notice to Borrower. "Draw Period" shall mean the period commencing on the date hereof and expiring on the Termination Date. "EBITDA" shall mean with respect to any Person for any period, earnings (or losses) before interest and taxes of such Person and its Subsidiaries for such period plus, to the extent deducted in computing such earnings (or losses) before interest and taxes, depreciation and amortization expense, all as determined on a consolidated basis with respect to such Person and its Subsidiaries in accordance with GAAP; provided, however, EBITDA shall exclude earnings or losses resulting from (i) cumulative changes in accounting practices, (ii) discontinued operations, (iii) extraordinary items, (iv) net income of any entity acquired in a pooling of interest transaction for the period prior to the acquisition, (v) net income of a Subsidiary that is unavailable to the Borrower, (vi) net income not readily convertible into Dollars or remittable to the United States, (vii) net income from corporations, partnerships, associations, joint ventures or other entities in which the Borrower or a Subsidiary has a minority interest and in which Borrower does not have Control, except to the extent actually received. "Employee Benefit Plan" shall mean an employee benefit plan within the meaning of Section 3(3) of ERISA (i) that is maintained by Borrower or any other Loan Party or (ii) with respect to which any such person has any obligation or liability, whether direct or indirect; - 6 - 13 provided, however, that "Employee Benefit Plan" shall not include any "multiemployer plan" as defined in section 4001(a)(3) of ERISA. "Engineering Reports" shall have the meaning provided in Section 3.1(o). "Environmental Indemnity" shall have the meaning provided in Section 3.1(a)(vi). "Environmental Reports" shall mean the written environmental site assessments, prepared by independent qualified environmental professionals acceptable to Lender in its reasonable discretion, prepared in accordance with Lender's then current guidelines, of each of the Real Property Assets, each of which assessments shall be in form and substance reasonably satisfactory to Lender and contain the information set forth in Section 3.1(k). "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time and any successor statute, together with all rules and regulations promulgated thereunder. Section references to ERISA are to ERISA, as in effect at the date of this Agreement and any provisions of ERISA substituted therefor. "ERISA Controlled Group" means any corporation or entity or trade or business or person that is a member of any group described in Section 414(b), (c), (m) or (o) of the Code of which Borrower, the REIT, SLC, the Corporation, SLT Financing Partnership, any Owner, any Operating Entity or any other Loan Party is a member. "ERISA Indemnitee" shall have the meaning provided in Section 9.9(l). "Eurocurrency Reserve Requirements" shall mean, with respect to each day during an Interest Period for Eurodollar Portions, that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Federal Reserve Board or other governmental authority or agency having jurisdiction with respect thereto for determining the maximum reserves (including, without limitation, basic, supplemental, marginal and emergency reserves) for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D) maintained by a member bank of the Federal Reserve System. The parties acknowledge that the Eurocurrency Reserve Requirements as of the Closing Date are -0-%. "Eurodollar Base Rate" shall mean, (a) for any Interest Period other than a Short Interest Period, the rate per annum (rounded upwards, if necessary, to the next higher one hundred-thousandth of a percentage point) which appears on the Telerate Page 3750 as of 11:00 a.m. (London, England time) two (2) Business Days prior to the first day of such Interest Period for deposits in U.S. Dollars for a period equal to thirty days, and (b) for any Short Interest Period an interpolated rate per annum based on the closest thirty day Interest Period, which appear on the Telerate Page 314 as of 11:00 a.m. (London, England time) two (2) Business Days prior to the first day of such Short Interest Period. The determination of the Eurodollar Base Rate by Lender shall be conclusive absent manifest error. "Eurodollar Lending Office" shall mean the office of Lender (or any Participant or Co-Lender) designated as such by Lender from time to time by written notice to Borrower. - 7 - 14 "Eurodollar Portions" shall mean each portion of the Loan made and/or being maintained at a rate of interest calculated by reference to the Eurodollar Rate. "Eurodollar Rate" shall mean with respect to each day during an Interest Period for Eurodollar Portions, a rate per annum equal to the Eurodollar Base Rate, or, if any Co-Lender is subject to Eurocurrency Reserve Requirements, whether or not such reserves are actually incurred or maintained, the average of the Eurodollar Base Rate and the Adjusted Eurodollar Base Rate, with such average to be weighted according to the percentage of the Eurodollar Portion subject to such Co-Lender's interest in the Loan and the balance of such Eurodollar Portion. The Adjusted Eurodollar Base Rate shall mean a rate per annum, determined for each day during an Interest Period in accordance with the following formula (rounded upwards to the nearest whole multiple of l/16th of one percent): Eurodollar Base Rate 1.00 - Eurocurrency Reserve Requirements "Eurodollar Rate Margin" shall mean (i) from the date hereof through and including the Initial Maturity Date, 1.75% per annum, and (ii) if Borrower elects to extend the Initial Maturity Date pursuant to Section 2.10, from the Initial Maturity Date through and including the Extended Maturity Date, 2.75% per annum. "Event of Default" shall have the meaning provided in Section 7. "Extended Maturity Date" shall mean February 1, 1998, or such earlier date on which the principal balance of the Loan and all other sums due in connection with the Loan shall be due as a result of the acceleration of the Loan. "FIRREA" means the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended from time to time. "Facility Amount" shall mean $300,000,000.00 as such amount may be permanently reduced pursuant to Sections 2.9, 2.11 or 2.21, or otherwise pursuant to the terms of this Agreement. "Federal Reserve Board" shall mean the Board of Governors of the Federal Reserve System as constituted from time to time, or any successor thereto in function. "Fees" shall mean all amounts payable pursuant to Sections 2.15, 2.17 and 9.1. "Financing Statement" shall have the meaning provided in Section 3.1(h). "Fixed Charges" means the amount of scheduled lease payments with respect to leasehold interests or obligations of the respective Person. "Food and Beverage Inventory" shall mean food and beverages (including liquor) stored at the hotel on each Real Property Asset for service to hotel guests. - 8 - 15 "Franchise" shall mean a management agreement, franchise agreement or similar agreement pursuant to which the Operating Entities have the right to operate the hotel located on each Real Property Asset under a name and/or hotel system controlled by a nationally recognized full service hotel chain or franchise. "Funding Costs" shall have the meaning provided in Section 2.17. "Funds from Operations" shall mean consolidated net income (loss) before extraordinary items, computed in accordance with GAAP, plus, to the extent deducted in determining net income (loss) and without duplication, (i) gains (or losses) from debt restructuring and sales of property, (ii) non-recurring charges, (iii) provisions for losses, (iv) real estate related depreciation and amortization (excluding amortization of financing costs), and (v) amortization of organizational expenses less, to the extent included in net income (loss), (a) non-recurring income and (b) equity income (loss) from unconsolidated partnerships and joint ventures less the proportionate share of funds from operations of such partnerships and joint ventures, which adjustments shall be calculated on a consistent basis. "Furnished Information" shall have the meaning provided in Section 4.15. "GAAP" shall mean United States generally accepted accounting principles on the date hereof and as in effect from time to time during the term of this Agreement, and consistent with those utilized in the preparation of the financial statements referred to in Section 4.5. "Gross Revenues" shall mean, with respect to any Real Property Asset for any period, all income, rents, room rates, additional rents, revenues, issues and profits (including all oil and gas or other mineral royalties and bonuses) and other items including without limitation, all revenues and credit card receipts collected from guest rooms, restaurants, meeting rooms, bars, mini-bars, banquet rooms, recreation facilities, vending machines and concessions derived from the customary operation of such Real Property Asset. "Group" shall mean Starwood Capital Group, L.P., a Delaware limited partnership. "Ground Lease" shall mean those ground leases, together with all amendments and modifications thereto, all as more particularly set forth on Schedule 8 with respect to the Real Property Assets identified on such Schedule, as such Schedule may be amended from time to time. "Ground Lease Estoppel" shall have the meaning provided in Section 3.1(a)(xxv). "Guarantor" shall mean each Owner, each Operating Entity, SLC, SLT Financing Partnership, and the Corporation. "Guaranty" shall have the meaning provided in Section 3.1(a)(iii). - 9 - 16 "Improvements" shall mean any building, structure, fixture, addition, enlargement, extension, modification, repair, replacement or improvement now or hereafter located or erected on any Real Property Asset. "Increased Capital Costs" shall have the meaning provided in Section 2.18. "Indebtedness" of any Person shall mean, without duplication, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services, (ii) all indebtedness of such Person evidenced by a note, bond, debenture or similar instrument, (iii) the outstanding amount drawn and unpaid under all letters of credit issued for the account of such Person and, without duplication, all unreimbursed amounts drawn thereunder, (iv) all indebtedness of any other Person secured by any Lien on any property owned by such Person, whether or not such indebtedness has been assumed, (v) all Contingent Obligations of such Person, (vi) all Unfunded Benefit Liabilities of such Person, (vii) all actual payment obligations of such Person under any interest rate protection agreement (including, without limitation, any interest rate swaps, caps, floors, collars and similar agreements) and currency swaps and similar agreements, (viii) all indebtedness and liabilities secured by any Lien or mortgage on any property of such Person, whether or not the same would be classified as a liability on a balance sheet, (ix) the liability of such Person in respect of banker's acceptances and the estimated liability under any participating mortgage, convertible mortgage or similar arrangement, (x) the aggregate amount of rentals or other consideration payable by such Person in accordance with GAAP over the remaining unexpired term of all Capitalized Leases, (xi) all final, non-appealable judgments or decrees by a court or courts of competent jurisdiction entered against such Person, (xii) all indebtedness, payment obligations, contingent obligations, etc. of any partnership in which such Person holds a general partnership interest, and (xiii) all obligations, liabilities, reserves and any other items which are listed as a liability on a balance sheet of such Person determined on a consolidated basis in accordance with GAAP, but excluding all general contingency reserves and reserves for deferred income taxes and investment credit. "Indemnified Liabilities" shall have the meaning provided in Section 9.1(c). "Indemnitee" shall have the meaning provided in Section 9.1(c). "Initial Maturity Date" shall mean August 16, 1997, or such earlier date on which the principal balance of the Loan and all other sums due in connection with the Loan shall be due as a result of the acceleration of the Loan. "Insurance Premiums" shall have the meaning provided in Section 5.3(c). "Intangibles" shall mean Licenses (other than liquor licenses and licenses related to liquor licenses). "Intercompany Debt" shall mean the debt described in Schedule 9. "Intercreditor Agreement" shall have the meaning provided in Section 9.4. - 10 - 17 "Interest Period" shall mean a period of thirty (30) days as provided in Section 2.6. "Leases" shall mean all written leases and subleases and rental agreements, registration cards and agreements and other agreements, whether or not in writing, affecting the use, enjoyment or occupancy of any Real Property Asset heretofore or hereafter entered into. "Licenses" shall have the meaning provided in Section 4.18. "Lien" shall mean any mortgage, deed of trust, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority or other security agreement of any kind or nature whatsoever, including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same effect as any of the foregoing and the filing of any financing statement or similar instrument under the Uniform Commercial Code or comparable law of any jurisdiction, domestic or foreign. "Loan" shall mean, in the aggregate, the Advances made to Borrower under this Agreement and the Note, pursuant to the terms hereof, the aggregate principal amount of which shall not exceed the Facility Amount. "Loan Documents" shall mean this Agreement, the Note, the Environmental Indemnity, each Financing Statement filed in connection with the Security Agreement, the SLC Security Agreement, the Guarantees, the SLC/Corporation Guaranty, the Collateral Assignments of Mortgage, and any other documents or instruments evidencing, securing or guaranteeing the Loan or perfecting Lender's Lien in the Collateral other than that certain letter agreement dated the date hereof between Borrower, the REIT and Goldman. "Loan Party" shall mean, individually and collectively, as the context requires, the REIT, the Borrower, SLC, the Corporation, SLT Financing Partnership, SLT Realty Company LLC, each Owner and each Operating Entity; provided, however, that in the event that Lender has released its Liens against all of the Collateral pledged by one or more of such parties, then such party or parties, as of the effective date of such release, shall no longer be included in the definition of Loan Party. "Loan Portion" shall mean each Base Rate Portion and each Eurodollar Portion of the Loan. "Majority Co-Lenders" shall mean (i) the Lender and (ii) Co-Lenders which in the aggregate own a direct pro rata ownership interest in the Loan of 66-2/3% or more. "Margin Stock" shall have the meaning provided such term in Regulation U and Regulation G of the Federal Reserve Board. "Material Adverse Effect" shall mean any condition which has a material adverse effect upon (i) the business, operations, properties, assets, corporate structure or financial condition of Borrower, the REIT, SLC, the Corporation, SLT Financing Partnership, the - 11 - 18 Owners or the Operating Entities, taken as a whole, (ii) the ability of Borrower, the REIT, SLC, the Corporation, SLT Financing Partnership, the Owners or the Operating Entities to perform any of the Obligations, (iii) the validity or enforceability of any of the Loan Documents, or (iv) the ability of Borrower or the REIT to meet any of the obligations under any Recourse Indebtedness. "Maturity Date" shall mean (i) August 16, 1997 or (ii) if Borrower has elected to extend the Initial Maturity Date pursuant to Section 2.10, February 16, 1998, or (iii) such earlier date on which the principal balance of the Loan and all other sums due in connection with the Loan shall be due as a result of the acceleration of the Loan. "Maximum Combined Payout Ratio" shall have the meaning provided in Section 6.7(a). "Maximum Legal Rate" shall mean the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the indebtedness evidenced by the Note and as provided for herein or other Loan Documents, under the laws of such state or states whose laws are held by any court of competent jurisdiction to govern the interest rate provisions of the Loan. "Maximum REIT Payout Ratio" shall have the meaning provided in Section 6.7(b). "Minimum Net Worth" shall have the meaning provided in Section 5.16. "Multiemployer Plan" shall mean a "pension plan" as defined in Section 3(2) of ERISA which is a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA. "Negative Pledge Agreement" shall have the meaning provided in Section 3.1(a)(iv). "Net Book Value" shall mean the book value of all of a Person's assets that is reflected on such Person's consolidated financial statements, including adjustment or allowance for depreciation and amortization and calculated in accordance with GAAP. "Non-Competition Agreement" means Section 6.6 of that certain Formation Agreement, dated as of November 11, 1994, by and among the REIT (formerly Hotel Investors Trust), the Corporation (formerly Hotel Investors Corporation), the Group and Berl Holdings, L.P., Starwood-Apollo Hotel Partners VIII, L.P., Starwood-Apollo Hotel Partners IX, L.P., Starwood-Nomura Hotel Investors, L.P., Starwood/Wichita Investors, L.P., Starwood-Huntington Partners, L.P. and Woodstar Partners I, L.P. (collectively, the "Starwood Partners") as amended by that certain Amendment No. 1 to Formation Agreement, dated as of July 6, 1995, by and among the REIT, the Corporation, the Group and the Starwood Partners. "Note" shall have the meaning provided in Section 2.4(a). "Notice of Borrowing" shall have the meaning provided in Section 2.2(a). - 12 - 19 "Obligations" shall mean all payment, performance and other obligations, liabilities and indebtedness of every nature of (i) Borrower and the REIT, without duplication, from time to time owing to Lender or any Co-Lender under or in connection with this Agreement or any other Loan Document, or (ii) the other Loan Parties under or in connection with the Security Agreements or any other Loan Document. "Operating Entity" shall mean each limited liability company listed on Schedule 10, each of which is the lessee under an Operating Lease for the related Real Property Asset. "Operating Expenses" shall mean, with respect to any Real Property Asset, for any given period (and shall include the pro rata portion for such period of all such expenses attributable to, but not paid during, such period), all expenses paid, accrued, or payable, as determined in accordance with GAAP and the Uniform System of Accounts by Borrower and the Owners or the Operating Entities, as the case may be, during that period in connection with the operation of such Real Property Asset for which it is to be determined, including without limitation: (i) expenses for cleaning, repair, maintenance, decoration and painting of the such Real Property Asset (including, without limitation, parking lots and roadways), net of any insurance proceeds in respect of any of the foregoing; (ii) wages (including overtime payments), benefits, payroll taxes and all other related expenses for Borrower's, Owner's or the Operating Entity's, as the case may be, on-site personnel, up to and including (but not above) the level of the on-site manager, engaged in the repair, operation and maintenance of such Real Property Asset and service to tenants and on-site personnel engaged in audit and accounting functions performed by Borrower, Owner or Operating Entity; (iii) management fees pursuant to any management agreement not exceeding market and approved by Lender in its reasonable discretion, but in no event less than three and one-half percent (3.5%) of Gross Revenues with respect to the applicable Real Property Asset. Such fees shall include all fees for management services whether such services are performed at such Real Property Asset or off-site; (iv) franchise fees, reservation fees and other royalties or similar payments due under any Franchises, not exceeding market and approved by Lender in its reasonable discretion, with respect to the applicable Real Property Asset; (v) the cost of all electricity, oil, gas, water, steam, heat, ventilation, air conditioning and any other energy, utility or similar item and the cost of building and cleaning supplies; (vi) the cost of any leasing commissions and tenant concessions or improvements payable by Borrower, Owner or Operating Entity or any other Loan Party pursuant to any leases which are in effect for such Real Property Asset at the commencement of that period as such costs are recognized in accordance with GAAP, - 13 - 20 but on no less than a straight line basis over the remaining term of the respective Lease, exclusive of any renewal or extension or similar options; (vii) rent, liability, casualty, fidelity, errors and omissions, dram shop liability, workmen's compensation and other required insurance premiums; (viii) legal, accounting and other professional fees and expenses; (ix) the cost (including leasing and financing) of all equipment to be used in the ordinary course of business, which is not capitalized in accordance with GAAP; (x) real estate, personal property and other taxes; (xi) advertising and other marketing costs and expenses; (xii) casualty losses to the extent not reimbursed by an independent third party; and (xiii) all amounts that should be reserved, as reasonably determined by Borrower, Owner or Operating Entity, as the case may be, with approval by Lender in its reasonable discretion, for repair or maintenance of the Real Property Asset and to maintain the value of the Real Property Asset including replacement reserves of no less than 4% of Gross Revenues. Notwithstanding the foregoing, Operating Expenses shall not include (i) depreciation or amortization or any other non-cash item of expense unless approved by Lender; (ii) interest, principal, fees, costs and expense reimbursements of Lender in administering the Loan but not in exercising any of its rights under this Agreement or the Loan Documents; (iii) any expenditure (other than leasing and financing costs, leasing commissions, tenant concessions and improvements, and replacement reserves) which is properly treatable as a capital item under GAAP; or (iv) Operating Lease Payments. "Operating Lease Payments" shall mean the rent due and payable to the Owners under the related Operating Leases, including, without limitation, all Base Rent, Basic Rent and all Percentage Rent but excluding Additional Rent (as each term is defined in the Operating Leases). "Operating Leases" shall mean those operating leases between each Owner as lessor and each Operating Entity as lessee with respect to each Real Property Asset as set forth on Schedule 10, (as such Schedule may be amended from time to time). "Owner" shall mean the limited liability companies listed on Schedule 1-A, each of which is the fee or leasehold owner of the related Real Property Asset. "Participant" shall have the meaning provided in Section 9.9(i). - 14 - 21 "PBGC" shall mean the Pension Benefit Guaranty Corporation established under ERISA, or any successor thereto. "Permitted Financing" shall mean leases, licenses or financing arrangements with respect to signage, televisions, audio-visual equipment, office supplies and equipment, computers, reservation systems, telephone systems, or vans for which aggregate annual lease payments, license fees and debt service is less than $100,000.00 per annum for each Real Property Asset. For each Real Property Asset, such amount is an aggregate limit for that Real Property Asset on all leasing, licensing or financing by the Borrower, the related Owner and the related Operating Entities. "Permitted Liens" shall have the meaning provided in Section 6.3. "Person" shall mean and include any individual, partnership, joint venture, firm, corporation, limited liability company, association, company, trust or other enterprise or any government or political subdivision or agency, department or instrumentality thereof. "Personal Property" shall mean, to the extent owned by any Loan Party, all machinery, equipment, fixtures (including but not limited to all heating, air conditioning, plumbing, lighting, communications, elevator fixtures, inventory and goods), inventory and articles of personal property and accessions thereof and renewals, replacements thereof and substitutions therefor (including, but not limited to, beds, bureaus, chiffonniers, chests, chairs, desks, lamps, mirrors, bookcases, tables, rugs, carpeting, drapes, draperies, curtains, shades, venetian blinds, screens, paintings, hangings, pictures, divans, couches, luggage carts, luggage racks, stools, sofas, chinaware, linens, pillows, blankets, glassware, silverware, foodcarts, cookware, dry cleaning facilities, dining room wagons, keys or other entry systems, bars, bar fixtures, liquor and other drink dispensers, icemakers, radios, television sets, intercom and paging equipment, electric and electronic equipment, dictating equipment, private telephone systems, medical equipment, potted plants, heating, lighting and plumbing fixtures, fire prevention and extinguishing apparatus, cooling and air-conditioning systems, elevators, escalators, fittings, plants, apparatus, stoves, ranges, refrigerators, laundry machines, tools, machinery, engines, dynamos, motors, boilers, incinerators, switchboards, conduits, compressors, vacuum cleaning systems, floor cleaning, waxing and polishing equipment, call systems, brackets, electrical signs, bulbs, bells, ash and fuel, conveyors, cabinets, lockers, shelving, spotlighting equipment, dishwashers, garbage disposals, washers and dryers), other customary hotel equipment and other tangible property of every kind and nature whatsoever, now or hereafter located upon the Real Property Assets, or appurtenances thereto, or usable in connection with the present or future operation and occupancy of the Real Property Assets and all building equipment, materials and supplies of any nature whatsoever, now or hereafter located upon the Real Property Assets, including, without limitation, Intangibles and Food and Beverage Inventory. "Plan" means any employee benefit plan covered by Title IV of ERISA or subject to Section 412 of the Code or Section 302 of ERISA (i) that is maintained by Borrower or any other Loan Party or (ii) with respect to which any such person has or may have any obligation or liability, whether direct or indirect; provided, however, that "Plan" shall not include any "multiemployer plan" as defined in Section 4001(a)(3) of ERISA. - 15 - 22 "Plan Asset Entity" shall mean any "employee benefit plan" as defined in ERISA, any "plan" as defined in Section 4975 of the Code, and any entity any portion or all of the assets of which are deemed pursuant to United States Department of Labor Regulation Section 2510.3-101 or otherwise pursuant to ERISA or the Code to be, for any purpose of ERISA or Section 4975 of the Code, assets of any such "employee benefit plan" or "plan" which invests in such entity. "Pledged Mortgages" shall mean the mortgages described on Schedule 4 and collaterally assigned to Lender pursuant to the Collateral Assignments of Mortgage. "Policies" shall have the meaning provided in Section 5.03(c). "Property Net Cash Flow" shall mean, with respect to any Real Property Asset, the Gross Revenues derived from the customary operation of such Real Property Asset during the period in question, less Operating Expenses attributable to such Real Property Asset for such period, and shall include only the Gross Revenues and other such income actually received and earned, in accordance with GAAP, including any rent loss or business interruption insurance proceeds, and laundry, parking or other vending or concession income, which are actually received or accrued in accordance with GAAP attributable to such Real Property Asset during the twelve (12) month period ending at the end of the calendar month for which the Property Net Cash Flow is being calculated, as set forth on operating statements satisfactory to Lender. Property Net Cash Flow shall be calculated in accordance with customary accounting principles applicable to real estate and in accordance with the Uniform System of Accounts. Notwithstanding the foregoing, Property Net Cash Flow shall not include (i) any condemnation or insurance proceeds (excluding rent or business interruption insurance proceeds), (ii) any proceeds resulting from the sale, exchange, transfer, financing or refinancing of all or any portion of the Real Property Asset for which it is to be determined, (iii) amounts received from tenants as security deposits, (iv) amounts received as advance reservation deposits unless earned in accordance with GAAP, and (v) any type of income otherwise included in Property Net Cash Flow but paid directly by any tenant to a Person other than Borrower, any Owner or Operating Entity or their respective agents or representatives. "Qualified Insurer" shall have the meaning provided in Section 5.03(c). "Quality Assurance Reports" shall have the meaning provided in Section 5.1(d). "Rating Agency" shall have the meaning provided in Section 5.3(c). "REIT" shall have the meaning set forth in the opening paragraph of this Agreement. "Real Property Assets" shall mean the real property described on Schedule 2. "Recourse Indebtedness" shall mean, with respect to any Person, Indebtedness for which such Person is personally liable. "Register" shall have the meaning provided in Section 9.9(h). - 16 - 23 "Regulation D" shall mean Regulation D of the Federal Reserve Board as from time to time in effect and any successor to all or any portion thereof. "Related Schedules" shall have the meaning provided in Section 2.21. "Release Collateral" shall have the meaning provided in Section 2.21. "Release Price" shall have the meaning provided in Section 2.21. "Replacement Reserve" shall have the meaning provided in Section 5.19. "Reportable Event" has the meaning set forth in Section 4043(c)(3), (5), (6) or (13) of ERISA (other than a Reportable Event as to which the provision of 30 days' notice to the PBGC is waived under applicable regulations). "Restoration" shall have the meaning provided in Section 5.3(h). "Revolving Credit Facility" shall mean that certain $135,000,000.00 Revolving Line of Credit pursuant to that certain Amended and Restated Line of Credit Agreement dated as of October 25, 1995, and that certain First Amendment to Amended and Restated Line of Credit Agreement dated as of October 25, 1995, both between Borrower, the REIT, Bankers Trust Company ("Bankers") and Lehman Brothers Holding Inc., D/B/A Lehman Capital, a division of Lehman Brothers Holdings Inc. ("Lehman"), as further amended by that certain Second Amendment to Amended and Restated Line of Credit Agreement between Borrower, the REIT, Bankers, Lehman, Bank of Montreal, The First National Bank of Boston and Sanwa Bank, California, dated as of August 8, 1996, as the same may be further amended, modified or supplemented. "Security Agreement" shall have the meaning provided in Section 3.1(a)(x). "Short Interest Period" shall mean any Interest Period that begins on a day other than the first Business Day of any calendar month and which shall end on the day that immediately precedes the first Business Day of the next succeeding calendar month following the commencement of such Short Interest Period. "SLC" means SLC Operating Limited Partnership, a Delaware limited partnership. "SLC Security Agreement" shall have the meaning provided in Section 3.1(a)(xviii). "SLT Financing Partnership" shall mean SLT Financing Partnership, a Delaware general partnership, in which Borrower owns a 99% general partnership interest and SLT Realty Company, LLC, owns a 1% general partnership interest. "Solvent" as to any Person shall mean that (i) the sum of the assets of such Person, at a fair valuation based upon appraisals or comparable valuation, will exceed its - 17 - 24 liabilities, including contingent liabilities, (ii) such Person will have sufficient capital with which to conduct its business as presently conducted and as proposed to be conducted and (iii) such Person has not incurred debts, and does not intend to incur debts, beyond its ability to pay such debts as they mature. For purposes of this definition, "debt" means any liability on a claim, and "claim" means (x) a right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured, or (y) a right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured. With respect to any such contingent liabilities, such liabilities shall be computed in accordance with GAAP at the amount which, in light of all the facts and circumstances existing at the time, represents the amount which can reasonably be expected to become an actual or matured liability. "Subsidiary" of any Person shall mean and include (i) any corporation Controlled by such Person, directly or indirectly through one or more intermediaries and (ii) any partnership, association, joint venture or other entity Controlled by such Person, directly or indirectly through one or more intermediaries. "Taxes" shall have the meaning provided in Section 2.19. "Telerate Page 314" means the display designated as "Page 314" on the Telerate Service (or such other page as may replace Page 314 on that service or such other service as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying British Bankers' Association Interest Settlement Rates for U.S. Dollar deposits). "Telerate Page 3750" means the display designated as "Page 3750" on the Telerate Service (or such other page as may replace Page 3750 on that service or such other service as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying British Bankers' Association Interest Settlement Rates for U.S. Dollar deposits). "Termination Date" shall mean the date on which the earliest of the following occurs: (i) the Non-Competition Agreement expires or otherwise terminates and the Majority Co-Lenders elect to terminate the Draw Period and make no further advances; (ii) Borrower is in breach of the covenants contained in Section 5.25, and the Majority Co-Lenders elect to terminate the Draw Period and make no further Advances or (iii) August 1, 1997. "Termination Event" shall mean (i) a Reportable Event, or (ii) the initiation of any action by Borrower, the REIT, any member of Borrower's, the REIT's or any other Loan Party's ERISA Controlled Group or any other person to terminate a Plan or the treatment of an amendment to Plan as a termination under ERISA, in either case, which could result in liability to Borrower, the REIT or any Loan Party, (iii) the institution of proceedings by the PBGC under Section 4042 of ERISA to terminate a Plan or to appoint a trustee to administer any Plan, (iv) any partial or total withdrawal from a Multiemployer Plan which in either case, could result in liability to Borrower, the REIT or any Loan Party or (v) the taking of any action that would require Security to the Plan under Section 401(a)(29) of the Code. - 18 - 25 "Title Policy" shall have the meaning provided in Section 3.1(i). "Title Searches" shall have the meaning provided in Section 5.14. "Total Debt" means with respect to any Person at any time, all Indebtedness of such Person and its Subsidiaries as determined on a consolidated basis in accordance with GAAP. "Transaction Costs" shall mean all costs and expenses paid or payable by Borrower or any other Loan Party relating to the Transactions including, without limitation, the costs and expenses of Lender in conducting its due diligence with respect to the Transactions, financing fees, commitment fees, advisory fees, appraisal fees, legal fees, accounting fees, title insurance premiums, recording charges and taxes, or similar taxes, whether directly or as reimbursement to Lender. "Transactions" shall mean each of the transactions contemplated by the Loan Documents. "Transferee" shall have the meaning provided in Section 9.7. "Type" shall mean the type of any portion of the Loan determined with respect to the interest option applicable thereto, i.e., a Base Rate Portion or a Eurodollar Portion. "UCC Searches" shall have the meaning provided in Section 3.1(g). "Unfunded Benefit Liabilities" means with respect to any Plan at a particular time, the amount (if any) by which (i) the present value of all benefit liabilities under such Plan as defined in Section 4001(a)(16) of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plan (on the basis of assumptions prescribed by the PBGC for the purpose of Section 4044 of ERISA). "Uniform System of Accounts" mean the Uniform System of Accounts for Hotels as approved by the American Hotel and Motel Association (as in effect from time to time) applied on a consistent basis. "Unsecured Indebtedness" shall mean, with respect to a Person, the outstanding principal balance of all Indebtedness which is not secured by any collateral or Assets of such Person and is evidenced by a promissory note or other instrument or written agreement. For purposes of this definition, all Advances under the Loan shall be deemed to be Unsecured Indebtedness. "Waiver" shall mean a written waiver of certain limitations on Unsecured and Recourse Indebtedness of Borrower, the REIT and SLC contained in the Revolving Credit Facility executed by the holders of the Revolving Credit Facility, which waiver is satisfactory to Lender in its sole discretion. - 19 - 26 "Winston Salem" shall have the meaning provided in Section 4.16. SECTION 2. AMOUNT AND TERMS OF LOAN. Section 2.1 Advances. (a) Subject to and upon the terms and conditions herein set forth, Lender (and each Co-Lender) agrees, on the Closing Date, and from time to time thereafter and prior to the Termination Date, to make its pro rata share of Advances to Borrower. Lender shall not be required to make more than nine (9) Advances (inclusive of the initial Advance). (b) Advances may be voluntarily prepaid pursuant to Section 2.11. Amounts prepaid shall not be reborrowed or readvanced. All outstanding Advances shall mature on the Maturity Date, without further action on the part of Lender or any Co-Lender. (c) Each Advance of the Loan shall be in the minimum amount of Twenty Million Dollars (U.S. $20,000,000.00) or any integral multiple of Five Hundred Thousand Dollars (U.S. $500,000.00) in excess thereof, except for the final Advance of the Loan which brings the outstanding principal balance up to the Facility Amount, which final Advance may be in an amount equal to the difference between the then outstanding principal balance of the Loan and the Facility Amount. No Advance shall be made after the Termination Date. (d) The aggregate principal amount at any time outstanding under the Loan shall not exceed the Facility Amount at such time. (e) The obligation of Lender and each Co-Lender to make their pro rata share of each Advance of the Loan is several and not joint. Neither Lender nor any Co-Lender shall be liable for the failure of any other Co-Lender to fund its pro rata share of any Advance hereunder provided that such Co-Lender has executed and delivered an Assignment and Assumption Agreement. Section 2.2 Notice of Borrowing. Whenever Borrower desires an Advance hereunder, it shall give Lender at Lender's Office prior to 11:00 A.M., New York City time, at least three (3) Business Days' prior facsimile, or telephonic notice (promptly confirmed in writing) of each Advance to be made hereunder. Each such notice (a "Notice of Borrowing") (i) shall be irrevocable, (ii) shall be executed by the general partner of Borrower or a senior executive officer of Borrower, (iii) shall specify (x) the aggregate principal amount of the requested Advance, and (y) the date of the Advance, (which shall be a Business Day), (iv) shall certify that, taking into account the amount of the requested Advance, no Default or Event of Default has occurred and is continuing, and all provisions of the Loan Documents will be complied with after giving effect to such Advance, (v) shall describe, in reasonable detail, the intended use of the proceeds of the requested Advance, and (vi) shall be in the form annexed hereto as Exhibit "A". Lender shall, upon determining the Eurodollar Rate for any Interest Period, promptly notify Borrower thereof. Section 2.3 Disbursement of Funds. No later than 2:00 P.M., New York City time on the date specified in each Notice of Borrowing, provided all conditions precedent to the - 20 - 27 making of such Advance have been complied with, and further provided that Lender has received, in immediately available federal funds, each Co-Lender's pro rata share of such Advance from each Co-Lender, Lender will make available to Borrower by disbursing to or at the direction of Borrower, the amount of the requested Advance. If Lender has not received from any Co-Lender such Co-Lender's pro rata share of such Advance, Lender shall nonetheless disburse the portion of the Advance received by Lender, together with Lender's pro rata share of such Advance, pursuant to this Section 2.3. Section 2.4 The Note. Borrower's and the REIT's obligation to pay the principal of, and interest on, the Loan shall be evidenced by the promissory note (as amended, modified, supplemented, extended, consolidated, the "Note") duly executed and delivered by Borrower and the REIT substantially in the form of Exhibit "B" hereto in a principal amount equal to $300,000,000.00, with blanks appropriately completed in conformity herewith. The Note shall (i) be payable to the order of Lender, (ii) be dated the Closing Date, and (iii) mature on the Maturity Date. If required by a Co-Lender, Borrower and the REIT hereby agree to execute a supplemental Note in the principal amount of such Co-Lender's pro rata share of the Note substantially in the form of Exhibit "B" hereto, with blanks appropriately completed, and each such supplemental Note shall (i) be payable to order of Lender, as Agent, on account of such Co-Lender, (ii) be dated as of the Closing Date, and (iii) mature on the Maturity Date. Each such supplemental Note shall evidence a portion of the existing indebtedness hereunder and not any new or additional indebtedness of Borrower. Section 2.5 Interest. (a) Borrower and the REIT shall pay interest in respect of the unpaid principal amount of each Base Rate Portion from the date of the making of such Base Rate Portion until such Base Rate Portion shall be paid in full, or converted to a Eurodollar Portion, at a rate per annum which shall be equal to the sum of the Base Rate Margin plus the Base Rate in effect from time to time, such rate to change automatically and without notice as and when the Base Rate changes. (b) Borrower and the REIT shall pay interest in respect of the unpaid principal amount of each Eurodollar Portion from the date of the making of such Eurodollar Portion until such Eurodollar Portion shall be paid in full, continued as a Eurodollar Portion or converted to a Base Rate Portion, at a rate per annum which shall be equal to the sum of the Eurodollar Rate Margin plus the relevant Eurodollar Rate. (c) Intentionally Omitted. (d) In the event that, and for so long as, any Event of Default shall have occurred and be continuing, the outstanding principal amount of the Loan and, to the extent permitted by law, overdue interest in respect of the Loan, shall bear interest at the Default Rate, calculated from the date such payment was due without regard to any grace or cure periods contained herein. (e) Interest on the Loan shall accrue from and including the date of each Borrowing thereof to but excluding the date of any repayment thereof (provided that any Advance borrowed and repaid on the same day shall accrue one day's interest) and Borrower and the REIT shall pay such interest, (i) monthly in arrears on the first day of each month, (ii) - 21 - 28 on the date of any prepayment, (iii) on the Maturity Date (whether by acceleration or otherwise) and (iv) after the Maturity Date, on demand. (f) Interest on the outstanding principal balance of Base Rate Portions shall be calculated on the basis of a three hundred sixty (360) day year based on twelve (12) thirty (30) day months, except that interest due and payable for a period of less than a full month shall be calculated by multiplying the actual number of days elapsed in such period by a daily rate based on said 360-day year. Interest on the outstanding principal balance of Eurodollar Portions shall be calculated on the basis of a three hundred sixty (360) day year based on the actual number of days elapsed in the related Interest Period. (g) This Agreement and the Note are subject to the express condition that at no time shall Borrower or the REIT be obligated or required to pay interest on the principal balance of the Loan at a rate which could subject Lender or any Co-Lender to either civil or criminal liability as a result of being in excess of the Maximum Legal Rate. If by the terms of this Agreement or the Loan Documents, Borrower or the REIT is at any time required or obligated to pay interest on the principal balance due hereunder at a rate in excess of the Maximum Legal Rate, the interest rate or the Default Rate, as the case may be, shall be deemed to be immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal Rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder. All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of the sums due under the Loan, shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Loan until payment in full so that the rate or amount of interest on account of the Loan does not exceed the Maximum Legal Rate of interest from time to time in effect and applicable to the Loan for so long as the Loan is outstanding. Section 2.6 Interest Periods. Each interest period with respect to a Eurodollar Portion, other than a Short Interest Period, (each, an "Interest Period") shall be a one month period of thirty (30) days, provided that: (i) the Interest Period (other than a Short Interest Period) for any Eurodollar Portion shall commence on the first Business Day of a calendar month and shall expire on the day immediately preceding the day that the next Interest Period (other than a Short Interest Period) commences; (ii) if the date of an Advance is not the first Business Day of a calendar month, the Interest Period for such Eurodollar Portion shall be a Short Interest Period and shall commence on the date of the making of such Advance and expire on the day immediately preceding the first Business Day of the next succeeding calendar month; and (iii) no Interest Period in respect of any Eurodollar Portion shall extend beyond the Maturity Date. - 22 - 29 (c) If upon the expiration of any Interest Period, Eurodollar Portions are not available pursuant to Section 2.17, all outstanding Eurodollar Portions shall convert into Base Rate Portions, effective as of the expiration date of such current Interest Period. Section 2.7 Minimum Amount of Eurodollar Portions. All Advances, payments, and prepayments hereunder shall be made or selected so that, after giving effect thereto, each Eurodollar Portion shall (i) have a principal amount equal to or greater than Twenty Million Dollars (U.S. $20,000,000.00) and (ii) be in an integral multiple of Five Hundred Thousand and 00/100 Dollars (U.S. $500,000.00) in excess of such minimum amount. Section 2.8 Intentionally Deleted. Section 2.9 Reduction of Facility Amount. On or after the Closing Date and prior to February 1, 1997, Borrower shall have the right to permanently reduce the Facility Amount in accordance with this Section 2.9. Borrower shall notify Lender, in writing, of its election to reduce the Facility Amount, and the amount of the reduction. The reduction shall be in an amount equal to at least $20,000,000.00 or an integral multiple thereof and shall not be more than $150,000,000.00. In no event shall the Facility Amount, after giving effect to such reduction, be less than the then outstanding principal balance of the Loan. Borrower shall pay to Lender, within five (5) Business Days after Lender's receipt of the written request, by wire transfer of immediately available federal funds, the portion of the Commitment Fee due pursuant to Section 2.15(a), and the reduced Facility Amount shall be effective as of Lender's receipt of the applicable Commitment Fee (the "Determination Date"). Section 2.10 Extension of Maturity Date. Borrower may extend the initial Maturity Date for an additional six (6) month period by giving Lender written notice to extend on or prior to the date that is one (1) month prior to the Initial Maturity Date. Such request shall be accompanied by a certificate of Borrower as required pursuant to Section 5.01(b)(ii) and a Waiver from the holders of the Revolving Line of Credit Facility permitting such extension. Upon Lender's receipt of such notice and the Waiver, and provided that no Default or Event of Default has occurred and is continuing, the Initial Maturity Date shall be extended to February 16, 1998. Section 2.11 Voluntary Prepayments. Borrower and the REIT shall have the right to prepay the Loan, in whole but not in part, other than in connection with a release of Collateral pursuant to Section 2.21 or in connection with a Condemnation pursuant to Section 5.3(h), from time to time on the following terms and conditions: (a) Borrower shall give Lender written notice (or telephonic notice promptly confirmed in writing), in the form attached hereto as Exhibit E, which notice shall be irrevocable, of its intent to prepay all or a portion of the Loan, at least five (5) Business Days prior to a prepayment of Eurodollar Portions and Base Rate Portions, which notice shall specify the amount of such prepayment and what Loan Portions are to be prepaid, and, in the case of Eurodollar Portions, the specific Borrowing(s) pursuant to which made, (b) each prepayment shall be in an aggregate principal amount of One Million Dollars (U.S. $1,000,000.00) or any integral multiple of Five Hundred Thousand U.S. Dollars (U.S. $500,000.00) in excess thereof, and (c) prepayments of Eurodollar Portions made pursuant to this Section on a date other than the last day of the Interest Period applicable thereto shall be accompanied by payment of any Funding Costs which Lender and the Co-Lenders shall incur - 23 - 30 as a result of such early payment. If any such notice is given, the amount specified in such notice together with the applicable Funding Costs shall be due and payable on the date specified therein. The Facility Amount shall be permanently reduced by the amount of any such prepayment. Section 2.12 Intentionally Deleted. Section 2.13 Application of Payments and Prepayments. Unless specifically provided otherwise, all payments and prepayments of the Loan, whether voluntary or otherwise, shall be applied first, to unpaid Fees and any Funding Costs, second, to pay any accrued and unpaid interest then payable with respect to the Loan, and third, to pay the outstanding principal amount of the Loan. Payments applied to the outstanding principal amount of the Loan shall if voluntary be applied to the Note and Loan Portions specified by Borrower and if not specified by Borrower, shall be first applied to the Base Rate Portions of the Loan and then to pay the Eurodollar Portions of the Loan being repaid in the order of such Eurodollar Portion's maturity. Section 2.14 Method and Place of Payment. (a) Except as otherwise specifically provided herein, all payments and prepayments under this Agreement and the Note shall be made to Lender not later than 12:00 noon, New York City time, on the date when due and shall be made in lawful money of the United States of America in immediately available funds at Lender's Office, and any funds received by Lender after such time shall, for all purposes hereof, be deemed to have been paid on the next succeeding Business Day. Each payment (including all prepayments on account of principal and interest on the Loan), to the extent received, shall constitute payment by Borrower to each Co-Lender in the amount of such Co-Lender's pro rata share of such payment. (b) Except as expressly provided to the contrary in Section 2.6 hereof, whenever any payment to be made hereunder or under the Note or other Loan Documents shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable at the applicable rate during such extension. (c) All payments made by Borrower hereunder, under the Note and the other Loan Documents, shall be made irrespective of, and without any deduction for, any setoff or counterclaims. Section 2.15 Fees. (a) Borrower and the REIT shall pay to Lender a commitment fee (the "Commitment Fee") equal to 0.50% of the Facility Amount, payable as follows: (i) on the Closing Date, a payment of $750,000.00; and (ii) on the date of each Advance made after Advances in the aggregate amount of $150,000,000.00 have been made, a payment equal to 0.50% of the amount of such Advance or the portion thereof which, together with all other Advances previously made hereunder (without taking into account any principal repayments that may have been made prior to such date), exceeds $150,000,000.00; - 24 - 31 (iii) on the earlier to occur of (A) February 1, 1997 or (B) the Determination Date, a payment equal to 0.50% of the difference between the Facility Amount (as such amount may have been reduced in accordance with Sections 2.9, 2.11 and 2.21) and the greater of (1) the outstanding principal balance of the Loan (without taking into account any principal repayments that may have been made prior to such date) or (2) $150,000,000.00. Section 2.16 Interest Rate Unascertainable, Increased Costs, Illegality. (a) In the event that Lender has determined or, with respect to any Co-Lender or Participants, has been notified that (which determination or notice shall, if made in good faith and absent manifest error, be final and conclusive and binding upon all parties hereto): (i) on any date for determining the Eurodollar Rate for any Interest Period, that by reason of any changes arising after the date of this Agreement affecting the interbank Eurodollar market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of the Eurodollar Rate; or (ii) at any time, that the relevant Eurodollar Rate applicable to any of its Eurodollar Portions shall not represent the effective pricing to Lender or any Co-Lender for funding or maintaining its Eurodollar Portions, or Lender or any Co-Lender shall incur increased costs or reduction in the amounts received or receivable hereunder in respect of any Eurodollar Portion, in any such case because of (x) any change since the date of this Agreement in any applicable law or governmental rule, regulation, guideline, order, request or directive or any interpretation thereof and including the introduction of any new law or governmental rule, regulation, guideline, order, request or directive (such as, for example, but not limited to, a change in official reserve requirements, but, in all events, excluding reserves required under Regulation D of the Federal Reserve Board to the extent included in the computation of the Eurodollar Rate), whether or not having the force of law and whether or not failure to comply therewith would be unlawful, and/or (y) other circumstances affecting Lender, any Co-Lender or the interbank Eurodollar market or the position of Lender or any Co-Lender in such market; or (iii) at any time, that the making or continuance by it of any Eurodollar Portion has become unlawful in order for Lender or any Co-Lender, in good faith, to comply with any law or governmental rule, regulation, guideline, order, request or directive (whether or not having the force of law and whether or not failure to comply therewith would be unlawful), or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or has become impracticable as a result of a contingency occurring after the date of this Agreement which materially and adversely affects the interbank Eurodollar market; then, and in any such event, Lender shall, promptly after making such determination or receiving notice thereof from any Co-Lender, give notice by telephone promptly confirmed in writing to Borrower. Thereafter (x) in the case of clause (i) above, Borrower's right to request - 25 - 32 advances, and any Notice of Borrowing given by Borrower with respect to any Borrowing of Eurodollar Portions which has not yet been made shall be deemed cancelled and rescinded by Borrower, (y) in the case of clause (ii) above, Borrower shall pay to Lender, within ten (10) Business Days after receipt of Lender's written demand therefor, such additional amounts (in the form of an increased rate of interest, or a different method of calculating interest, or otherwise, as Lender shall determine) as shall be required to compensate Lender or any Co-Lender for such increased costs or reduction in amounts received or receivable hereunder (it being understood and agreed by the parties hereto that in the event that Lender shall fail to notify Borrower within ten (10) Business Days after such determination, then Borrower shall not be liable to pay to Lender any additional amounts relating to the period prior to Lender's notifying Borrower, and (z) in the case of clause (iii) above, Borrower shall take one of the actions specified in clause (b) below as promptly as possible and, in any event, within the time period required by law. The written demand provided for in clause (y) shall demonstrate in reasonable detail the circumstances giving rise to such demand and the calculation of the amounts demanded; provided that Borrower and the REIT shall not be obligated to pay an amount in excess of the amount directly attributable to the Loan hereunder. (b) In the case of any Eurodollar Portion or requested Eurodollar Portion affected by the circumstances described in clause (a)(ii) above, Borrower may, and in the case of any Eurodollar Portion affected by the circumstances described in clause (a)(iii) above, Borrower shall, either (i) if any such Eurodollar Portion has not yet been made but is then the subject of a Notice of Borrowing, be deemed to have cancelled and rescinded such notice, or (ii) if any such Eurodollar Portion is then outstanding, require Lender to convert each such Eurodollar Portion into a Base Rate Portion at the end of the applicable Interest Period or such earlier time as may be required by law, in each case by giving Lender notice (by telephone promptly confirmed in writing) thereof within two (2) Business Days after Borrower was notified by Lender pursuant to clause (a) above. (c) In the event that Lender determines at any time following the giving of notice based on the conditions described in clause (a)(i) and (a)(iii) above that such conditions no longer exist, Lender shall promptly give notice thereof to Borrower, whereupon Borrower's right to request Eurodollar Portions from Lender and Lender's and any Co-Lender's obligation to make Eurodollar Portions shall be automatically restored. (d) The amount of any increased costs or reductions in amounts referred to in Section 2.16(a)(ii) with respect to Lender and each Co-Lender shall be based on the assumption that Lender and any Co-Lender funded all of its Eurodollar Portions in the interbank Eurodollar market, although the parties hereto agree that Lender or Co-Lender may fund all or any portion of a Eurodollar Portion, in any manner it independently determines. For purposes of any demand for payment made by a Lender under Sections 2.16(a)(ii) or 2.18, in attributing Lender's or any Co-Lender's general costs relating to eurocurrency operations or its commitments or customers, or in averaging any costs over a period of time, Lender may use any reasonable attribution and/or averaging method which it deems appropriate, reasonable and practical. The agreements in this Section 2.16 shall survive the termination of this Agreement and the payment of the Note and all other Obligations. - 26 - 33 Section 2.17 Funding Losses. Borrower and the REIT shall compensate Lender, upon Lender's delivery of a written demand therefor to Borrower and the REIT, (which demand shall set forth in detail the basis for requesting such amounts and shall, absent manifest error, be final and conclusive and binding upon all of the parties hereto), for all reasonable losses, expenses and liabilities, to the extent actually incurred (including, without limitation, any loss, expense or liability incurred by Lender or any Co-Lender in connection with the liquidation or reemployment of deposits or funds required by it to make or carry its Eurodollar Portions), excluding loss of anticipated profits ("Funding Costs"), that Lender or any Co-Lender sustains: (a) if for any reason (other than a default by Lender or any Co-Lender) a Borrowing of Eurodollar Portions does not occur on a date specified therefor in a Notice of Borrowing (whether or not rescinded, cancelled or withdrawn or deemed rescinded, cancelled or withdrawn, pursuant to Sections 2.16(a) or 2.16(b) or otherwise), (b) if any prepayment (whether voluntary or mandatory), repayment (including, without limitation, payment after acceleration) or conversion of any of its Eurodollar Portions occurs on a date which is not the last day of the Interest Period applicable thereto, (c) if any prepayment of any of its Eurodollar Portions is not made on any date specified in a notice of prepayment given by Borrower, or (d) as a consequence of any default by Borrower or the REIT in repaying its Eurodollar Portions or any other amounts owing hereunder in respect of its Eurodollar Portions when required by the terms of this Agreement. Calculation of all amounts payable to Lender under this Section 2.17 shall be made on the assumption that Lender and each Co-Lender has funded its relevant Eurodollar Portion through (i) the purchase of a Eurodollar deposit bearing interest at the Eurodollar Rate in an amount equal to the amount of such Eurodollar Portion with a maturity equivalent to the Interest Period applicable to such Eurodollar Portion, and (ii) the transfer of such Eurodollar deposit from an offshore office of Lender or any Co-Lender to a domestic office of Lender or any Co-Lender in the United States of America, provided that Lender or any Co-Lender may fund its Eurodollar Portions in any manner that it in its sole discretion chooses and the foregoing assumption shall only be made in order to calculate amounts payable under this Section 2.17. The agreements in this Section 2.17 shall survive the termination of this Agreement and the payment of the Note and all other Obligations. Section 2.18 Increased Capital. With respect to each Eurodollar Portion, if Lender shall have determined (or received notice from any Co-Lender of its determination), in good faith, that compliance with any applicable law, rule, regulation, guideline, request or directive (whether or not having the force of law) which shall be imposed, issued or amended from and after the date of this Agreement by any governmental authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the capital or assets of Lender or any Co-Lender as a consequence of its commitments or obligations hereunder, then from time to time, upon Lender's delivering a written demand therefor to Borrower, setting forth its reasonable calculations, Borrower and the REIT, shall pay to Lender on demand such additional amount or amounts ("Increased Capital Costs") as will compensate Lender or any Co-Lender for such reduction. Such calculations may use any reasonable averaging and attribution methods selected by Lender. The agreements in this Section 2.18 shall survive the termination of this Agreement and the payment of the Note and all other Obligations. - 27 - 34 Section 2.19 Taxes. (a) All payments made by Borrower or the REIT under this Agreement shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any governmental authority excluding, in the case of Lender or any Co-Lender, net income and franchise taxes imposed on Lender or any Co-Lender by the jurisdiction under the laws of which Lender is organized or any political subdivision or taxing authority thereof or therein, or by any jurisdiction in which Lender's or Co-Lender's Domestic Lending Office or Eurodollar Lending Office, as the case may be, is located or any political subdivision or taxing authority thereof or therein (all such non-excluded taxes, levies, imposts, deductions, charges or withholdings being hereinafter called "Taxes"). (b) Notwithstanding anything to the contrary herein, if at any time or from time to time Taxes are required to be deducted or withheld from the payments required to be made to Lender or any Co-Lender hereunder solely by reason of a Change in Law after the date hereof (other than as a result of any transfer or assignment of any of the obligations of Borrower and the REIT hereunder), all payments required to be made by Borrower and the REIT hereunder (including any additional amounts that may be payable pursuant to this clause (b)) shall be increased to the extent required so that the net amount received by Lender or any Co-Lender after the deduction or withholding of Taxes imposed solely by reason of a Change in Law after the date hereof will be not less than the full amount that would otherwise have been receivable had no such deduction or withholding been imposed by reason of such Change in Law. In the event that this clause (b) shall be operative, Borrower and the REIT shall promptly provide to Lender evidence of payment of such Taxes to the appropriate taxing authority and shall promptly forward to Lender any official tax receipts or other documentation with respect to the payment of the Taxes as may be issued by the taxing authority. If Borrower or the REIT fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to Lender the required receipts or other required documentary evidence, Borrower and the REIT shall indemnify Lender and any Co-Lender for any incremental taxes, interest or penalties that may become payable by Lender or Co-Lender as a result of any such failure. The agreements in this Section 2.19 shall survive the termination of this Agreement and the payment of the Note and all other Obligations. (c) For purposes of this Section 2.19 the term "Change in Law" shall mean the following events: (i) the enactment of any legislation by the United States, including the enactment, amendment or modification of a treaty; (ii) the lapse, by its terms, of any law of the United States or any treaty to which the United States is a party; or (iii) the promulgation of any temporary or final regulation under the Code. (d) Each Co-Lender that is not incorporated under the laws of the United States of America or a state thereof agrees that, prior to the first date on which any payment is due to it hereunder, it will deliver to Borrower and Lender (i) two duly completed copies of United States Internal Revenue Service Form 1001 or 4224 or successor applicable form, as the case may be, certifying in each case that such Co-Lender is entitled to receive payments under this Agreement and the Note payable to it, without deduction or withholding of any United States federal income taxes, and (ii) an Internal Revenue Service Form W-8 or W-9 or successor applicable form, as the case may be, to establish an exemption from United States backup - 28 - 35 withholding tax. Each Co-Lender required to deliver to Borrower and Lender a Form 1001 or 4224 and Form W-8 or W-9 pursuant to the preceding sentence further undertakes to deliver to Borrower and Lender two further copies of the said letter and Form 1001 or 4224 and Form W-8 or W-9, or successor applicable forms, or other manner of certification, as the case may be, on or before the date that any such letter or form expires (which, in the case of the Form 4224, is the last day of each U.S. taxable year of the non-U.S. Co-Lender) or becomes obsolete or after the occurrence of any event requiring a change in the most recent letter and form previously delivered by it to Borrower and Lender, and such other extensions or renewals thereof as may reasonably be requested by Borrower or Lender, certifying in the case of a Form 1001 or 4224 that such Co-Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, unless in any such case an event (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Co-Lender from duly completing and delivering any such letter or form with respect to it and such Co-Lender advises Borrower and Lender that it is not capable of receiving payments without any deduction or withholding of United States federal income tax, and in the case of a Form W-8 or W-9, establishing an exemption from United States backup withholding tax. Notwithstanding clause (a), if a Co-Lender fails to provide a duly completed Form 1001 or 4224 or other applicable form and, under applicable law, in order to avoid liability for Taxes, Borrower is required to withhold on payments made to such a Co-Lender that has failed to provide the applicable form, Borrower shall be entitled to withhold the appropriate amount of Taxes. In such event, Borrower shall promptly provide to such Co-Lender or Lender evidence of payment of such Taxes to the appropriate taxing authority and shall promptly forward to such Co-Lender or Lender any official tax receipts or other documentation with respect to the payment of the Taxes as may be issued by the taxing authority. Section 2.20 Use of Proceeds. Borrower shall distribute the proceeds of the Loan to each of the Owners to enable each Owner to acquire the fee or leasehold ownership interest in the related Real Property Asset or other Personal Property, to each Operating Entity to enable each Operating Entity to acquire the related Intangibles and Food and Beverage Inventory, for costs associated with the construction, renovation and development of such Real Property Asset, for working capital, for the initial funding of capital expenditures, replacement reserves required hereunder, and to pay various Transaction Costs or for reimbursement of such costs, for termination fees or other costs associated with management agreements or franchise agreements affecting the Real Property Assets and for the acquisition of additional first class full service hotel properties by Borrower or the REIT. Section 2.21 Release of Collateral. Provided that no Event of Default has occurred and is continuing, Borrower shall have the right, from time to time, to obtain a release of Collateral with respect to a particular a Real Property Asset from the Lien of the Security Agreement, the SLC Security Agreement, the Negative Pledge Agreement and the other Loan Documents (the "Release Collateral") upon delivery to Lender of a written request for such release at least five (5) Business Days prior to the requested release date. In the event Borrower seeks to release Collateral with respect to a particular Real Property Asset from the Lien of the related Security Agreement and SLC Security Agreement, Lender shall release such Collateral - 29 - 36 from the Lien of the Security Agreement, the SLC Security Agreement, the Negative Pledge Agreement and the Other Loan Documents, but only upon the following terms and conditions: (i) (A) if at the time of such request the aggregate amount of Advances under the Loan equals the Facility Amount (whether or not any of such Advances may have been prepaid), upon payment, by wire transfer of immediately available federal funds, of an amount equal to 115% of the Allocated Loan Amount for the Release Collateral, together with all accrued interest on the amount being prepaid, and any reasonable costs and expenses incurred by Lender to effect the Transaction contemplated by this Section , including, without limitation, if the payment occurs on a date that is other than the last day of an Interest Period, any Funding Costs, or (B) if at the time of such request, the aggregate amount of Advances under the Loan does not equal the Facility Amount (whether or not any of such Advances may have been prepaid), no payment shall be due in connection with the release of the Release Collateral provided that (1) the Facility Amount is permanently reduced by an amount equal to 115% of the Allocated Loan Amount for the Release Collateral, (2) the then outstanding principal balance of the Loan is less than the Facility Amount as reduced pursuant to the preceding clause (1), and (3) after giving effect to the reduced Facility Amount and the release of the Release Collateral, the financial covenants contained in Sections 5.18 will continue to be complied with and no other Default or an Event of Default will occur as a result of such release and reduction; notwithstanding the foregoing, if either of the foregoing conditions (2) and (3) are not complied with as a condition to the release of the Release Collateral, Borrower shall pay to Lender, by wire transfer of immediately available federal funds, an amount of principal sufficient to cause compliance with the foregoing conditions (2) and (3) together with all accrued and unpaid interest thereon, and any reasonable costs and expenses incurred by Lender in connection with the Transaction contemplated by this Section , including without limitation, if the payment occurs on a date that is other than the last day of an Interest Period, any Funding Costs. The amount of any payment required under this clause (i) is herein referred to as the "Release Price". All determinations of compliance with the conditions of this Section 2.21(i) shall be made by Lender. (ii) a certificate of the general partner of Borrower or senior executive officer of Borrower certifying that (A) no Default or Event of Default has occurred and is continuing and (B) no Default or Event of Default shall occur as a result of such release and, (C) if no Release Price is being paid, that the conditions in Section 2.21(i)(B) have been complied with. Simultaneously with compliance with the conditions set forth in this Section 2.21, (w) Lender and any Co-Lender shall release the Lien with respect to the applicable Release Collateral and the Negative Pledge Agreement with respect to the related Real Property Asset, (x) Lender shall revise Schedules 1-A, 1-B, 2, 3, 8, 10, 11, 11A, 12 and 16 (the "Related Schedules") and (y) the Facility Amount shall be permanently reduced as provided in Section 2.21(i)(B) or to the extent of the applicable amounts prepaid hereunder. Section 2.22 Intentionally Deleted. - 30 - 37 Section 2.23 Intentionally Deleted. Section 2.24 Decision Making by Agent. Borrower and the REIT acknowledge and agree that all approvals, consents, requirements, calculations, determinations, decisions, waivers, amendments and modifications that Lender is entitled to make under this Agreement are subject to the approval or consent of some or all of the Co-Lenders pursuant to the terms and conditions of the Intercreditor Agreement, whether or not such approval or consent is expressly stated herein or otherwise. SECTION 3. CONDITIONS PRECEDENT. Section 3.1 Conditions Precedent to the Initial Advance. The obligation of Lender and each Co-Lender to make the initial Advance of the Loan (or its pro rata share thereof) on the Closing Date is subject to the satisfaction by Borrower on the Closing Date of the following conditions precedent: (a) Loan Documents. (i) Loan Agreement. Borrower and the REIT shall have executed and delivered this Agreement to Lender. (ii) The Note. Borrower and the REIT shall have executed and delivered to Lender the Note in the amount, maturity and as otherwise provided herein. (iii) The Guarantees. Each Owner, each Operating Entity, SLC, the Corporation and SLT Financing Partnership shall have executed and delivered to Lender the Guaranty substantially in the form set forth as Exhibit "L" or "M" hereto, as applicable (as amended, restated, modified or supplemented from time to time, each a "Guaranty" and collectively, the "Guarantees"). (iv) Negative Pledge Agreements. Each Owner shall have executed and delivered to Lender negative pledge agreements substantially in the form set forth as Exhibit "G" hereto (collectively, the "Negative Pledge Agreements"), with respect to each of the Real Property Assets and such Negative Pledge Agreements shall be recorded in the appropriate recording office where the Real Property Asset is located; Notwithstanding anything to the contrary in this Agreement or in any other Loan Document, neither Borrower nor the related Owner shall be required to pay any intangibles tax or mortgage recording tax in connection with the recording of any such Negative Pledge Agreement. (v) Intentionally Deleted. (vi) Environmental Indemnity. Borrower and the REIT shall have executed and delivered to Lender the Environmental Indemnity substantially in the form set forth as Exhibit "F" hereto, (as amended, restated, modified or supplemented from time to time, the "Environmental Indemnity"). - 31 - 38 (vii) Intentionally Deleted. (viii) Intentionally Deleted. (ix) Intentionally Deleted. (x) Intentionally Deleted. (xi) Security Agreement. Borrower and SLT Financing Partnership shall have executed and delivered to Lender a Security Agreement with respect to their ownership interests in each Owner substantially in the form of Exhibit "H" hereto, (as amended, restated, modified or supplemented from time to time, the "Security Agreement"). (xii) Collateral Assignments of Mortgage. Borrower (a) shall have executed and delivered to Lender the Collateral Assignments of Mortgage, and such Collateral Assignments of Mortgage shall be recorded in the appropriate recording office where the related Real Property Asset is located, and (b) shall have delivered the original notes secured by the Pledged Mortgages, together with executed endorsements (or allonges) thereto, in blank, without recourse. (xiii) Intentionally Deleted. (xiv) Intentionally Deleted. (xv) Ground Leases. If any Owner owns a leasehold estate in a Real Property Asset, (A) a certified copy of the Ground Lease for such Real Property Asset, together with all amendments and modifications thereto, which Ground Lease shall be satisfactory in all respects to Lender in its sole discretion and (B) a ground lease estoppel executed by the fee owner and ground lessor of such Real Property Asset, which estoppel shall be satisfactory to Lender in its reasonable discretion. (xvi) Intentionally Deleted. (xvii) Intentionally Deleted. (xviii) SLC Security Agreement. SLC, SLT Financing Partnership and the Corporation shall have executed and delivered to Lender a security agreement substantially in the form of Exhibit "I" hereto with respect to their ownership interests in each Operating Entity (as amended, restated, modified or supplemented, the "SLC Security Agreement"; the SLC Security Agreement, together with the Security Agreement the "Security Agreements"). (xix) Intentionally Deleted. (xx) Intentionally Deleted. - 32 - 39 (xxi) Intentionally Deleted. (b) Opinions of Counsel. Lender shall have received legal opinions, dated the Closing Date, from counsel to Borrower, the REIT, SLC, SLT Financing Partnership, the Corporation, each Owner and each Operating Entity in form and substance reasonably satisfactory to Lender and its counsel, that, among other things: (i) this Agreement and the Loan Documents have been duly authorized, executed and delivered by Borrower, the REIT, SLC, SLT Financing Partnership, the Corporation, each Owner and each Operating Entity and are valid and (other than the Negative Pledge Agreements) enforceable in accordance with their terms, subject to bankruptcy and equitable principles; (ii) that Borrower, SLC, SLT Financing Partnership, the Corporation, each Owner and each Operating Entity are qualified to do business and in good standing under the laws of the jurisdiction in which it is organized; (iii) based upon a certificate of Borrower and the other Loan Parties, the encumbrance of the Collateral with the Liens of the Loan Documents shall not cause a breach of, or a default under, any material agreement, document or instrument to which Borrower, the REIT, SLC, SLT Financing Partnership, the Corporation, the Owners or the Operating Entities is a party or to which they or any of their properties or Assets are bound or affected; (iv) Lender has a valid and perfected Lien in the Collateral; and (v) the Loan does not violate the usury laws of the State of Arizona. (c) Organizational Documents. Lender shall have received (i) with respect to the Corporation, the certificate of incorporation of the Corporation, as amended, modified or supplemented to the Closing Date, certified to be true, correct and complete by the Borrower and the Corporation together with a good standing certificate from the appropriate Secretary of State and a good standing certificate from the Secretaries of State (or the equivalent thereof) of each other State in which each Real Property Asset is located and in which each of them is required to be qualified to transact business, each to be dated a date not more than ten (10) days prior to the Closing Date, (ii) with respect to Borrower, SLC and SLT Financing Partnership, the agreement of limited or general partnership, as applicable, of such Person, as amended, modified or supplemented to the Closing Date, together with a copy of the certificate of limited partnership of such entity, as amended, modified or supplemented to the Closing Date, certified to be true, correct and complete by a general partner of such Person, together with a good standing certificate from the appropriate Secretary of State and a good standing certificate from the Secretaries of State (or the equivalent thereof) of each other State in which each Real Property Asset is located and in which each of them is required to be qualified to transact business, each to be dated not more than ten (10) days prior to the Closing Date, (iii) with respect to the REIT, its declaration of trust, as amended, modified or supplemented to the Closing Date, certified to be true, complete and correct by a senior executive officer of the REIT, together with a copy of a good standing certificate (or the equivalent thereof), from the appropriate Secretary of State as of a date not more than ten (10) days prior to the Closing Date and a good standing certificate (or its equivalent) from the Secretaries of State (or the equivalent thereof) or each state in which the REIT is required to be qualified in order to transact business and (iv) with respect to each Owner, each Operating Entity and SLT Realty Company LLC, its certificate of formation or articles of organization, as applicable, and operating agreement, each as amended, modified or supplemented to the Closing Date, and each certified to be true, correct and complete by its managing member, together with a good standing certificate from the - 33 - 40 appropriate Secretary of State and a good standing certificate from the Secretary of State of each State in which the related Real Property Asset is located, each to be dated not more than ten (10) days prior to the Closing Date. (d) Certified Resolutions, etc. Lender shall have received a certificate of the secretary or assistant secretary of Borrower and each of the Loan Parties which is a corporation and dated the Closing Date, certifying (i) the names and true signatures of the incumbent officers of such Person authorized to sign the applicable Loan Documents, (ii) the by-laws of such Person as in effect on the Closing Date, (iii) the resolutions of such Person's board of directors approving and authorizing the execution, delivery and performance of all Loan Documents executed by such Person, and (iv) that there have been no changes in the certificate of incorporation of such Person since the date of the most recent certification thereof by the appropriate Secretary of State. (e) Intentionally Deleted. (f) Insurance. Lender shall have received certificates of insurance demonstrating insurance coverage in respect of each of the Real Property Assets of types, in amounts, and with insurers satisfactory to Lender and otherwise in compliance with the terms, provisions and conditions of Section 5.3. (g) UCC Searches. Lender shall have received satisfactory (i.e., showing no Liens other than Permitted Liens) UCC searches, together with tax lien, judgment and litigation searches conducted in the appropriate jurisdictions and as requested by Lender, performed by a search firm acceptable to Lender with respect to the Collateral, the Real Property Assets, Accounts Receivable, Borrower, SLT Financing Limited Partnership, SLC and the Corporation (collectively, the "UCC Searches"). (h) Financing Statements. Lender shall have received UCC-l financing statements signed by Borrower, SLT Financing Partnership, SLC, the Corporation or other applicable Loan Party, as debtor, naming Lender as secured party, in form suitable for filing in the appropriate offices of each jurisdiction where the Borrower, SLT Financing Partnership, SLC, the Corporation and the applicable Loan Parties are located and/or organized (each, a "Financing Statement"). (i) Title Insurance Policies; Surveys. Lender shall have received title insurance policies issued by a title insurance company satisfactory to Lender, in form and substance reasonably satisfactory to Lender, insuring the applicable Owner's good and marketable fee simple or leasehold, as the case may be, title to the related Real Property Asset, which shall contain among other things, a "Fairway" endorsement or its equivalent, (the "Title Policy"), and (ii) a recent survey with respect to each of the Real Property Assets in form and substance reasonably satisfactory to Lender (each, a "Survey"). (j) Financial Statements. Lender shall have received the (i) financial reports described in Section 5.1(a) for the most recently ended fiscal year of Borrower and the relevant Loan Parties and the unaudited consolidated financial statements of Borrower and the relevant Loan Parties for each fiscal quarter of Borrower and such Loan Parties ending since the end of - 34 - 41 such entity's most recent fiscal year and (ii) for each Real Property Asset, annual operating statements and occupancy statements for Borrower's, SLC's, each Owner's and each Operating Entity's most recent fiscal year together with current year to date operating statements, current occupancy statements and the approved operating and capital budget for the current fiscal year. Such financial statements shall be acceptable to Lender in its sole discretion. (k) Environmental Matters. Lender shall have received the Environmental Reports with respect to each Initial Real Property Asset dated within six (6) months prior to the Closing Date each of which shall be in form and substance satisfactory to Lender and shall include, without limitation, the following: (i) a Phase I environmental site assessment analyzing the presence of environmental contaminants, polychlorinated biphenyls or storage tanks and other Hazardous Substances at each of the Initial Real Property Assets, the risk of contamination from off-site Hazardous Substances and compliance with Environmental Laws, such assessments shall be conducted in accordance with ASTM Standard E 1527-93, or any successor thereto published by ASTM, (ii) an asbestos survey of each of the Initial Real Property Assets, which shall include random sampling of materials and air quality testing, and (iii) such further site assessments Lender may require due to the results obtained in (i) or (ii) hereof or in its reasonable discretion. (l) Fees and Operating Expenses. Lender shall have received, for its account, all Fees and expenses then due and payable pursuant to this Agreement. (m) Consents, Licenses, Approvals, etc. Lender shall have received certified copies of all material consents, licenses and approvals, if any, required in connection with the execution, delivery and performance by Borrower and the other Loan Parties, and the validity and enforceability, of the Loan Documents, or in connection with any of the Transactions, and such consents, licenses (including without limitation, liquor and gaming licenses, as applicable) and approvals shall be in full force and effect. (n) Intentionally Deleted. (o) Engineering Reports. Lender shall have received engineering reports dated within six (6) months prior to the Closing Date and in form and substance reasonably satisfactory to Lender with respect to each of the Real Property Assets; such engineering reports shall be prepared in accordance with Lender's then current guidelines for property inspection reports by licensed engineers acceptable to Lender, and such report should state, among other things, that each Real Property Asset is in good condition and repair, free from damage and waste and, to the best of such engineer's knowledge, complies in all material respects with the Americans with Disabilities Act (the "Engineering Reports"). (p) Zoning Compliance. Lender shall have received evidence reasonably satisfactory to Lender to the effect that each of the Real Property Assets and the use thereof are in substantial compliance with the applicable zoning, subdivision, and all other applicable federal, state or local laws and ordinances affecting each of the Real Property Assets, and that all building and operating licenses and permits necessary for the use and occupancy of each of the Real Property Assets as hospitality properties or hotels including, but not limited to, current certificates of occupancy, have been obtained and are in full force and effect. - 35 - 42 (q) Operating Leases. Lender shall have received certified copies of all Operating Leases and the Leases identified on Schedule 15 with respect to each Real Property Asset which shall be reasonably satisfactory to Lender. (r) Contracts and Agreements. Lender shall have received copies of all Franchise Agreements and all material contracts and agreements relating to the management, leasing and operation of each of the Real Property Assets, each of which shall be reasonably satisfactory to Lender. (s) Intentionally Deleted. (t) Representations and Warranties. Lender shall have received a certification by the general partner of Borrower or senior executive officer of Borrower and the REIT certifying that all of the representations and warranties contained in this Agreement, the Security Agreements and the other Loan Documents are true and correct with respect to each of the Real Property Assets, Borrower and each Loan Party, and that there is no Default or Event of Default hereunder. (u) Certification as to Covenants. Lender shall have received a certificate of the general partner of Borrower or senior executive officer of Borrower and the REIT together with other evidence reasonably satisfactory to Lender (which shall include the comfort letter or audit described in Section 5.1(b)(iii) with respect to the Property Net Cash Flow of each Real Property Asset and the calculation of financial covenants) that, as of the Closing Date, and after giving effect to the Transaction to be consummated thereon, the financial covenants will be met, and there is no Default or Event of Default hereunder. (v) Certification as to Applicable Laws. Lender shall have received such evidence as Lender shall deem reasonably necessary to establish that each Real Property Asset complies in all material respects with Applicable Laws as of the Closing Date. (w) Quality Assurance Reports. Lender shall have received certified copies of the most recent Quality Assurance Reports with respect to each Real Property Asset which is subject to a franchise agreement, each of which shall be reasonably satisfactory to Lender. (x) Flood Plain. Lender shall have received reasonably satisfactory evidence indicating which of the Real Property Assets are in a flood plain. (y) No Injunction. No law or regulation shall have been adopted, no order, judgment or decree of any governmental authority shall have been issued, and no litigation shall be pending or threatened, which in the good faith judgment of Lender would enjoin, prohibit or restrain, or impose or result in the imposition of any material adverse condition upon, the making of the Advances or Borrower's, the REIT's, any Owner's, any Operating Entity's, SLC's, the Corporation's or SLT Financing Partnership's obligation to pay (or Lender or any Co-Lender's rights to receive payment) of the Loan and the other Obligations or the consummation of the Transactions. - 36 - 43 (z) No Litigation. Except for matters identified on Schedule 5 (as the same may be amended or supplemented), no actions, suits or proceedings shall be pending or threatened with respect to the Transactions or the Loan Documents, Borrower or any of the other Loan Parties, or with respect to the Initial Real Property Assets, that could, individually or in the aggregate, likely be expected to result in a Material Adverse Effect and matters identified on Schedule 5, individually or in the aggregate, do not result in a Material Adverse Effect. (aa) Waiver. Lender shall have received a copy of a Waiver from the holders of the Revolving Credit Facility, together with a copy of the certification required to be delivered by Borrower to the holders of the Revolving Credit Facility pursuant thereto. (bb) Additional Matters. Lender shall have received such other certificates, opinions, documents and instruments relating to the Transactions as may have been reasonably requested by Lender, and all corporate and other proceedings and all other documents (including, without limitation, all documents referred to herein and not appearing as exhibits hereto) and all legal matters in connection with the Transactions shall be satisfactory in form and substance to Lender. Section 3.2 Conditions Precedent to All Advances of the Loan. The obligation of Lender and each Co-Lender to make each Advance under the Loan (including without limitation, the initial Advance made on or after the Closing Date) (or its pro rata share thereof) is subject to the satisfaction on the date such Advance is made of the following conditions precedent: (a) Representations and Warranties. The representations and warranties contained herein and in the other Loan Documents (other than representations and warranties which expressly speak only as of a different date) with respect to all of the Real Property Assets and Collateral shall be true and correct in all material respects on such date both before and after giving effect to the making of such Advance or, if such representations and warranties are not true and correct in all material respects, the facts giving rise to the breach have been disclosed to Lender in writing and Lender, has approved, in its sole discretion, such facts. (b) No Event of Default. No Event of Default shall have occurred and be continuing on such date either before or after giving effect to the making of such Advance. (c) No Material Adverse Change. No event, act or condition shall have occurred after the Closing Date which, in the judgment of Lender has had or could have a Material Adverse Effect. (d) Notice of Borrowing. Lender shall have received a fully executed Notice of Borrowing in respect of the Advance to be made on such date. (e) Title Searches. In connection with a syndication or other sale of all or any portion of the Loan pursuant to Section 9.9, Lender or any Co-Lender may elect, in its sole discretion, to perform or have performed Title Searches with respect to the Real Property Assets - 37 - 44 at Borrower's sole cost and expense. The results of all such Title Searches shall be satisfactory to Lender in its sole discretion. (f) Waiver. In the event that after giving effect to any requested Advance, the outstanding balance of the Loan would exceed $180,000,000.00, Lender shall have received a copy of a Waiver from the holders of the Revolving Credit Facility permitting such Advance to be made. (g) Additional Matters. Lender shall have received such other certificates, opinions, documents and instruments relating to the Transactions as may have been reasonably requested by Lender, and all corporate and other proceedings and all other documents (including, without limitation, all documents referred to herein and not appearing as exhibits hereto) and all legal matters in connection with the Transactions shall be reasonably satisfactory in form and substance to Lender. Section 3.3 Acceptance of Borrowings. The acceptance by Borrower of the proceeds of each Advance shall constitute a representation and warranty by Borrower to Lender that all of the conditions required to be satisfied under this Section 3 in connection with the making of such Advance and all of the terms and provisions of this Agreement have been satisfied. Section 3.4 Sufficient Counterparts. All certificates, agreements, legal opinions and other documents and papers referred to in this Section 3, unless otherwise specified, shall be delivered to Lender and shall be reasonably satisfactory in form and substance to Lender (unless the form thereof is prescribed herein) and Borrower shall deliver sufficient counterparts of all such materials for distribution to Lender and each Co-Lender. SECTION 4. REPRESENTATIONS AND WARRANTIES. In order to induce Lender to enter into this Agreement and to make the Loan, Borrower and the REIT make the following representations and warranties as of the Closing Date and as of the date of each Advance, which shall survive the execution and delivery of this Agreement and the Note and the making of the Loan and each Advance: Section 4.1 Corporate/Partnership Status. Each of Borrower and the other Loan Parties (a) is a duly organized and validly existing corporation, partnership or limited liability company, as the case may be, in good standing under the laws of the jurisdiction of its incorporation or formation, (b) has all requisite power and authority, as the case may be, to own its property and Assets and to transact the business in which it is engaged or presently proposes to engage (including this Transaction) and (c) other than SLC Arlington L.L.C. has duly qualified and is authorized to do business and is in good standing as a foreign corporation, foreign partnership, or foreign limited liability company as the case may be, in every jurisdiction in which the Real Property Assets are located, unless it is not required to so qualify by Applicable Law, or in which the nature of its business requires it to be so qualified. - 38 - 45 Section 4.2 Corporate/Partnership Power and Authority. Each of Borrower and the other Loan Parties has the power and authority, as the case may be, to execute, deliver and carry out the terms and provisions of each of the Loan Documents to which it is a party and has taken all necessary action to authorize the execution, delivery and performance by it of such Loan Documents. Each of Borrower and the other Loan Parties has duly executed and delivered each such Loan Document, and each such Loan Document constitutes its legal, valid and binding obligation, enforceable in accordance with its terms, except as enforcement may be limited by applicable insolvency, bankruptcy or other laws affecting creditors' rights generally, or general principles of equity whether enforcement is sought in a proceeding in equity or at law. Section 4.3 No Violation. Neither the execution, delivery or performance by Borrower or any other Loan Party of the Loan Documents to which it is a party, nor the compliance by such Person with the terms and provisions thereof nor the consummation of the Transactions, (a) will, to the best of Borrower's or the REIT's knowledge, contravene any applicable provision of any law, statute, rule, regulation, order, writ, injunction or decree of any court or governmental instrumentality, which contravention would have a Material Adverse Effect on the value of the Real Property Assets or the Collateral as a whole, or (b) will conflict in any material respect with or result in any breach of, any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or Assets (including the Collateral) of Borrower or any of the other Loan Parties pursuant to the terms of any indenture, mortgage, deed of trust, or other material agreement or instrument to which Borrower or any of the other Loan Parties is a party or by which it or any of its property or Assets (including the Collateral) is bound or to which it may be subject, which contravention would have a Material Adverse Effect on the value of the Real Property Assets or the Collateral as a whole, or (c) will, with respect to Borrower or any Loan Party which is a partnership, violate in any material respect any provisions of the partnership agreement of such Person, or (d) will, with respect to the Borrower or any of the Loan Parties which is a corporation, violate in any material respect any provision of the Certificate of Incorporation or By-Laws of such Person or (e) will, with respect to any Loan Party that is a limited liability company, violate in any material respect the operating agreement of such Person, or (f) will, with respect to Borrower, the REIT or any other Loan Party, result in a default or event of default under any Indebtedness (including without limitation, the Revolving Credit Facility) of such entity or any other agreement or instrument to which such entity is a party. Section 4.4 Litigation. Except as set forth on Schedule 5, there are no actions, suits or proceedings, judicial, administrative or otherwise (including any condemnation or similar proceeding) pending or, to the best of Borrower's or the REIT's knowledge, threatened with respect to any of the Transactions or Loan Documents, Borrower, its Subsidiaries, or any of the other Loan Parties or their respective Subsidiaries, or with respect to the Real Property Assets or the Collateral, that could, individually or in the aggregate, result in a Material Adverse Effect. All matters set forth on Schedule 5 do not, individually or in the aggregate, result in a Material Adverse Effect. Section 4.5 Financial Statements: Financial Condition; etc. The financial statements delivered pursuant to Section 3.1(j) were prepared in accordance with GAAP consistently applied and fairly present the financial condition and the results of operations of - 39 - 46 Borrower, the Loan Parties and the Real Property Assets covered thereby on the dates and for the periods covered thereby, except as disclosed in the notes thereto and, with respect to interim financial statements, subject to normally recurring year-end adjustments. There is no material liability (contingent or otherwise) not reflected in such financial statements or in the notes thereto. There has been no material adverse change in any condition, fact, circumstance or event that would make any such information inaccurate, incomplete or otherwise misleading or would affect Borrower's or the REIT's ability to perform its obligations under this Agreement or Borrower's, the REIT's, SLC's, the Corporation's, any Owner's, any Operating Entity's or SLT Financing Partnership's ability to perform its obligations under the Loan Documents. Section 4.6 Solvency. On the Closing Date and after and giving effect to the Transactions, Borrower and the Loan Parties will be Solvent. Section 4.7 Material Adverse Change. Since the date of the most recent audited financial statements delivered pursuant to Section 3.1(j), there has occurred no event, act or condition, and to the best of Borrower's or the REIT's knowledge, there is no prospective event or condition which has had, or could have, a Material Adverse Effect. Section 4.8 Use of Proceeds; Margin Regulations. All proceeds of each Advance will be used by Borrower only in accordance with the provisions of Section 2.20. No part of the proceeds of any Advance will be used by Borrower or any Loan Party to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock. Neither the making of any Advance nor the use of the proceeds thereof will violate or be inconsistent with the provisions of Regulations G, T, U or X of the Federal Reserve Board. Section 4.9 Governmental Approvals. To the best of Borrower's or the REIT's knowledge, no order, consent, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, any governmental or public body or authority, or any subdivision thereof, is required (or, if required, has been obtained) to authorize, or in connection with (i) the execution, delivery and performance of any Loan Document or the consummation of any of the Transactions or (ii) the legality, validity, binding effect or enforceability of any Loan Document, except for such orders, consents, approvals, licenses, authorizations, filings, recording, registration or exemption that would not have a Material Adverse Effect. Section 4.10 Security Interests and Liens. (a) The Security Agreements and the related Loan Documents create, as security for the Obligations, valid and enforceable Liens on all of the Collateral, in favor of Lender and subject to no other liens (other than Permitted Liens), except as enforceability may be limited by applicable insolvency, bankruptcy or other laws affecting creditors rights generally, or general principles of equity, whether such en- forceability is considered in a proceeding in equity or at law. (b) None of the Real Property Assets are subject to any Liens other than Permitted Liens. - 40 - 47 Section 4.11 Tax Returns and Payments. Borrower, the REIT and the other Loan Parties filed all tax returns required to be filed by it for which the filing date has passed and not been extended and has paid all taxes and assessments payable by such Persons which have become due, other than (a) those not yet delinquent or (b) those that are reserved against in accordance with GAAP which are being diligently contested in good faith by appropriate proceedings. Section 4.12 ERISA. As of the Closing Date or disclosed prior to an Advance, neither Borrower or any of the other Loan Parties has any Plans other than those listed on Schedule 6. No accumulated funding deficiency (as defined in Section 412 of the Code or Section 302 of ERISA) still outstanding, or Reportable Event, which exceeds $5,000,000.00 or which has or could reasonably be expected to have a Material Adverse Effect has occurred with respect to any Plan and there is no lien outstanding under Section 412 of the Code or Section 302 of ERISA with respect to any Loan Party's assets. As of the Closing Date, the Unfunded Benefit Liabilities do not in the aggregate exceed $1,000,000.00. Borrower and the other Loan Parties have not failed to comply in all material respects with the requirements of ERISA and the Code and plan documents for any Employee Benefit Plan which has or could reasonably be expected to have a Material Adverse Effect and are not in default (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan which has or could reasonably be expected to have a Material Adverse Effect. Neither Borrower nor any of the other Loan Parties, nor any member of their respective ERISA Controlled Groups (determined without reference to Section 414(m) or (o) of the Code, if liabilities of entities in Borrower or the other Loan Parties' ERISA Controlled Group solely by reason of Section 414(m) or (o) could not result in liability to Borrower or any Loan Parties) is subject to any present or potential withdrawal liability pursuant to Section 4201 or 4204 of ERISA which, individually or in the aggregate is in excess of $5,000,000.00 or has or could reasonably be expected to have a Material Adverse Effect. To the best knowledge of Borrower and the other Loan Parties, no Multiemployer Plan is or is likely to be disqualified for tax purposes, in reorganization (within the meaning of Section 4241 of ERISA or Section 418 of the Code) or is insolvent (as defined in Section 4245 of ERISA), which event would have a Material Adverse Effect. No liability to the PBGC (other than required premium payments), the Internal Revenue Service (with respect to an Employee Benefit Plan) or any Plan has been, or is expected by Borrower or the other Loan Parties to be, incurred by Borrower or the other Loan Parties (other than annual contributions) which is in excess of $5,000,000.00 or would have a Material Adverse Effect. Except as otherwise disclosed on Schedule 6 hereto or disclosed prior to an Advance, none of Borrower or the other Loan Parties has any contingent liability with respect to any post-retirement benefits under any "welfare plan" (as defined in Section 3(1) of ERISA) or withdrawal liability or exit fee or charge with respect to any "welfare plan" (as defined in Section 3(1) of ERISA), other than liability for continuation coverage under Part 6 of Title I of ERISA or state laws which require similar continuation coverage for which the employee pays approximately the full cost of coverage, and other than such liability that is both not more than $5,000,000.00 and that would not have a Material Adverse Effect. No lien under Section 412(n) of the Code or 302(f) of ERISA or requirement to provide security under Section 401(a)(29) of the Code or Section 307 of ERISA has been or is reasonably expected by Borrower or the other Loan Parties to be imposed on the assets of Borrower or the other Loan Parties. Except as disclosed on Schedule 6 or disclosed prior to an Advance neither Borrower nor any other Loan Party is a party to any collective bargaining agreement. Neither Borrower nor any Loan Party - 41 - 48 has engaged in any non-exempt transaction prohibited by Section 406 of ERISA or Section 4975 of the Code which has a Material Adverse Effect. As of the Closing Date and throughout the term of the Loan, neither Borrower nor any other Loan Party is or will be an "employee benefit plan" as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, and none of the assets of Borrower or any other Loan Party will constitute "plan assets" of one or more such plans for purposes of Title I of ERISA. As of the Closing Date and throughout the term of the Loan, neither Borrower nor any other Loan Party is or will be a "governmental plan" within the meaning of Section 3(3) of ERISA and neither Borrower nor any other Loan Party will be subject to state statutes applicable to Borrower or such Loan Party regulating investments and fiduciary obligations, of Borrower or any Loan Party with respect to governmental plans. Section 4.13 Intentionally Omitted. Section 4.14 Representations and Warranties in Loan Documents. All representations and warranties made by Borrower or any other Loan Party in the Loan Documents are true and correct in all material respects. Section 4.15 True and Complete Disclosure. All factual information (taken as a whole) furnished by or on behalf of Borrower or any other Loan Party in writing to Lender on or prior to the Closing Date, and the date of any Advance for purposes of or in connection with this Agreement or any of the Transactions (the "Furnished Information") is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of Borrower or any other Loan Party in writing to Lender will be, true, accurate and complete in all material respects and will not omit any material fact necessary to make such information (taken as a whole) not misleading on the date as of which such information is dated or furnished. As of the Closing Date, and as of the date of each Advance, there are no facts, events or conditions directly and specifically affecting Borrower, or any other Loan Party known to Borrower and not disclosed to Lender, in the Furnished Information, in the Schedules attached hereto or in the other Loan Documents, which, individually or in the aggregate, have or could be expected to have a Material Adverse Effect. Section 4.16 Ownership of Real Property. Each Owner has good and marketable fee simple title or a leasehold estate, as the case may be, subject to any Permitted Liens, in the related Real Property Asset and each has good title to all of the Personal Property with respect to the related Real Property Asset subject to no Lien of any kind except for Permitted Liens. Each Operating Entity, and with respect to the Real Property Asset identified as the Radisson Marque of Winston Salem on Schedule 2 ("Winston Salem"), the related Owner, has good title to all Intangibles and Food and Beverage Inventory subject to no lien of any kind except for Permitted Liens. As of the date of this Agreement, there are no options or other rights to acquire any of the Real Property Assets, the Personal Property, Intangibles or Food and Beverage Inventory that run in favor of any Person and there are no mortgages, deeds of trust, indentures, debt instruments or other agreements creating a Lien against any of the Real Property Assets, Personal Property, Intangibles or Food and Beverage Inventory other than Permitted Liens. Section 4.17 No Default. To the best of the Borrower's or the REIT's knowledge, (i) no Default or Event of Default exists under or with respect to any Loan - 42 - 49 Document; (ii) no Default or Event of Default exists under or with respect to the Operating Leases, or (iii) any Indebtedness of Borrower or other Loan Party (including, without limitation, the Revolving Credit Facility). To the best of Borrower's or the REIT's knowledge, neither Borrower, any Loan Party nor any of their respective Subsidiaries is in default in any material respect beyond any applicable grace period under or with respect to any other material agreement, instrument or undertaking to which it is a party or by which it or any of its properties or assets is bound in any respect, the existence of which default could result in a Material Adverse Effect. Section 4.18 Licenses, etc. To the best of the Borrower's or the REIT's knowledge, Borrower, SLC, the Corporation, the Owners and the Operating Entities for each Real Property Asset have, except as set forth below, obtained and hold in full force and effect, all material franchises, trademarks, tradenames, copyrights, licenses, permits, certificates, authorizations, qualifications, accreditations, easements, rights of way and other rights, consents and approvals, service contracts, maintenance agreements and similar contracts and agreements which are necessary for the operation of the Real Property Assets and their respective businesses as presently conducted, including without limitation, liquor licenses, as applicable ("Licenses"). All liquor licenses are issued and held by the various entities and pursuant to the various agreements described on Schedule 16, subject to compliance with Section 5.27. Section 4.19 Compliance With Law. To the best of the Borrower's or the REIT's knowledge, Borrower and each Loan Party and each Real Property Asset is in compliance in all material respects with all Applicable Laws and other laws, rules, regulations, orders, judgments, writs and decrees, noncompliance with which could result in a Material Adverse Effect. Section 4.20 Brokers. Borrower, each Loan Party, Lender and each Co-Lender hereby represent and warrant that no brokers or finders were used in connection with procuring the financing contemplated hereby and Borrower hereby agrees to indemnify and save Lender and each Co-Lender harmless from and against any and all liabilities, losses, costs and expenses (including attorneys' fees or court costs) suffered or incurred by Lender or any Co-Lender as a result of any claim or assertion by any party claiming by, through or under Borrower, that it is entitled to compensation in connection with the financing contemplated hereby, and Lender and each Co-Lender hereby agrees to indemnify and save Borrower harmless from and against any and all liabilities, losses, costs and expenses (including attorneys' fees or court costs) suffered or incurred by Borrower as a result of any claim or assertion by any party claiming by, through or under Lender or any Co-Lender that it is entitled to compensation in connection with the financing contemplated hereby. Section 4.21 Judgments. To the best of the Borrower's or the REIT's knowledge, (i) there are no judgments, decrees, or orders of any kind against Borrower or any Loan Party unpaid of record which would materially or adversely affect the ability of Borrower or any Loan Party to comply with its obligations under the Loan or this Agreement in a timely manner, (ii) there are no federal tax claims or liens assessed or filed against Borrower or any Loan Party, (iii) there are no material judgments against Borrower or any Loan Party unsatisfied of record or docketed in any court of the States in which the Real Property Assets are located or in any other court located in the United States, (iv) no petition in bankruptcy or similar - 43 - 50 insolvency proceeding has ever been filed by or against Borrower or any Loan Party, and (v) neither Borrower nor any Loan Party has ever made any assignment for the benefit of creditors or taken advantage of any insolvency act or any act for the benefit of debtors. Section 4.22 Intentionally Omitted. Section 4.23 Assets of the REIT. The sole asset of the general partner of Borrower is its general partnership interest in Borrower and such other assets that may be incidental to or required in connection with the ownership of such general partnership interest, or as set forth in Schedule 13. Section 4.24 REIT Status. The REIT intends to qualify for its taxable year ending December 31, 1996, and intends thereafter to remain qualified as a "real estate investment trust" as defined in Section 856 of the Code and is grandfathered from the application of Section 269B of the Code pursuant to Section 132(c)(3) of the Deficit Reduction Act of 1984. Section 4.25 SLC. The Corporation and entities wholly owned and Controlled by the Corporation are the sole general partners of SLC. Section 4.26 Owners. Borrower owns a 99% membership interest in each Owner and SLT Financing Partnership owns a 1% membership interest in each Owner. Section 4.27 Operating Entities. SLC owns a 99% membership interest in each Operating Entity and the Corporation owns a 1% membership interest in each Operating Entity. Section 4.28 Personal Property. For all Real Property Assets, each Owner, owns, leases or licenses adequate Personal Property (other than Intangibles and Food and Beverage Inventory) and each Operating Entity, and with respect to Winston Salem, the related Owner, owns adequate Intangibles and Food and Beverage Inventory, to maintain and operate each Real Property Asset as a hotel in accordance with the standards of this Agreement, the Loan Documents, the related Operating Leases and the related Franchises. The Personal Property is not subject to any liens, leases or financing arrangements other than Permitted Liens. The Personal Property (other than Intangibles and Food and Beverage Inventory) (other than with respect to Winston Salem) is leased to each Operating Entity pursuant to the related Operating Lease. Section 4.29 Intentionally Deleted. Section 4.30 Stock. The REIT and the Corporation list all of their outstanding shares of stock on the New York Stock Exchange and such shares trade as "paired shares" subject to a pairing agreement between the REIT and the Corporation. Section 4.31 Ground Leases. With respect to those Real Property Assets in which the related Owner holds a leasehold estate under a Ground Lease, with respect to each such Ground Lease (except as may be set forth on Schedule 8) (i) the Guarantor the owner of a valid and subsisting interest as tenant under the Ground Lease; (ii) the Ground Lease is in full - 44 - 51 force and effect, unmodified and not supplemented by any writing or otherwise; (iii) all rent, additional rent and other charges reserved therein have been paid to the extent they are payable to the date hereof; (iv) the Owner enjoys the quiet and peaceful possession of the estate demised thereby, subject to any sublease; (v) the Owner is not in default under any of the terms thereof and there are no circumstances which, with the passage of time or the giving of notice or both, would constitute an event of default thereunder; (vi) the lessor under the Ground Lease is not in default under any of the terms or provisions thereof on the part of the lessor to be observed or performed; (vii) the lessor under the Ground Lease has satisfied all of its repair or construction obligations, if any, to date pursuant to the terms of the Ground Lease; (viii) the execution, delivery and performance of the Security Agreement does not require the consent (other than those consents which have been obtained and are in full force and effect) under, and will not contravene any provision of or cause a default under, the Ground Lease; (ix) Schedule 8 lists all the Ground Leases to which any of the Real Property Assets are subject and all amendments and modifications thereto; and (x) the lessor indicated on Schedule 8 for each Ground Lease is the current lessor under the related Ground Lease. Section 4.32 Status of Property. With respect to each Real Property Asset: (a) No portion of the Improvements is located in an area identified by the Secretary of Housing and Urban Development or any successor thereto as an area having special flood hazards pursuant to the National Flood Insurance Act of 1968 or the Flood Disaster Protection Act of 1973, as amended, or any successor law, or, if located within any such area, Borrower or the related Owner has obtained and will maintain the insurance prescribed in Section 5.3(b)(i) hereof. (b) Borrower or the related Owner or Operating Entity has obtained all material zoning, building code, land use, environmental and other similar permits or approvals, all of which are in full force and effect as of the date hereof and not subject to revocation, suspension, forfeiture or modification. (c) The Real Property Asset is served by all utilities required for the current or contemplated use thereof. All utility service is provided by public utilities and the Real Property Asset has accepted or is equipped to accept such utility service. (d) All public roads and streets necessary for service of and access to the Real Property Asset for the current or contemplated use thereof have been completed, are serviceable and all-weather and are physically and legally open for use by the public. (e) The Real Property Asset is served by public water and sewer systems. (f) Borrower is not aware of any latent or patent structural or other significant deficiency of the Real Property Asset except as may be disclosed in the Engineering Reports delivered to Lender prior to Closing. The Real Property Asset is free of damage and waste that would have a Material Adverse Effect on the value of the Real Property Asset. The Real Property Asset is free from damage caused by fire or other casualty. There is no pending or, to the actual knowledge of Borrower, threatened condemnation proceedings affecting the Real Property Asset, or any part thereof, except as shown on Schedule 5. - 45 - 52 (g) To the best knowledge of Borrower or the REIT, there are no delinquent taxes, ground rents, water charges, sewer rents, assessments (including assessments payable in future installments), insurance premiums, or leasehold payments affecting the Real Property Asset. (h) The Real Property Asset is assessed for real estate tax purposes as one or more wholly independent tax lot or lots, separate from any adjoining land or improvements not constituting a part of such lot or lots, and no other land or improvements is assessed and taxed together with the Real Property Asset or any portion thereof. (i) (a) The related Operating Entity or, with respect to Winston Salem, the related Owner, is the sole owner of the entire lessor's interest in the Leases; (b) the Leases are valid and enforceable; (c) none of the rents reserved in the Leases have been assigned or otherwise pledged or hypothecated; (d) no Lease contains an option to purchase, right of first refusal to purchase, or any other similar provision; (e) no person or entity has any possessory interest in, or right to occupy, the Real Property Asset (excluding transient hotel guests) except under and pursuant to a Lease; and (f) there are no assignments, pledges, hypothecations or other encumbrances of any Leases or any portion of rents due and payable or to become due and payable thereunder which are presently outstanding. (j) No portion of the Real Property Asset has been or will be purchased with proceeds of any illegal activity. (k) All material contracts, agreements, consents, waivers, documents and writings of every kind or character at any time to which the related Owner or Operating Entity is a party are valid and enforceable against the related Owner or Operating Entity, as the case may be, and, to the best knowledge of Borrower, are enforceable against all other parties thereto, and in all respects are what they purport to be and, to the best knowledge of Borrower, to the extent that any such writing shall impose any obligation or duty on the party thereto or constitute a waiver of any rights which any such party might otherwise have, said writing shall be valid and enforceable against said party in accordance with the terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors generally. Section 4.33 Affiliate Debt and Intercompany Debt. There is no Affiliate Debt. No Intercompany Debt is secured by a Lien on any Collateral, any Real Property Assets, any Personal Property, any Intangibles or Food and Beverage Inventory. Section 4.34 Survival. The foregoing representations and warranties shall survive the execution and delivery of this Agreement and shall continue in full force and effect until the indebtedness evidenced by the Note has been fully paid and satisfied and Lender and the Co-Lenders have no further commitment to advance funds hereunder. The request for any Advance under this Agreement by Borrower or on its behalf shall constitute a certification that the aforesaid representations and warranties are true and correct as of the date of such request, except to the extent any such representation or warranty shall relate solely to an earlier date. - 46 - 53 SECTION 5. AFFIRMATIVE COVENANTS. Borrower and the REIT covenant and agree that on and after the Closing Date and until the Obligations are paid in full: Section 5.1 Financial Reports. (a) Borrower and the REIT will furnish to Lender: (i) annual audited consolidated or combined, as the case may be, financial statements of (A) Borrower and REIT, (B) SLC, the Corporation and each Guarantor and (C) Borrower, the REIT, SLC, the Corporation and each Guarantor, each prepared in accordance with GAAP within 90 days of the end of Borrower's fiscal year prepared by nationally recognized independent public accountants (which accountant's opinion shall be unqualified), reasonably satisfactory to Lender; (ii) within 45 days after the close of each quarterly accounting period in each fiscal year, the consolidated or combined, as the case may be, balance sheet of (A) Borrower, the REIT and each Guarantor, (B) SLC and the Corporation and (C) Borrower, the REIT, SLC, the Corporation and each Guarantor, each as of the end of such quarterly period and the related consolidated statements of income, cash flow and shareholders' equity for such quarterly period and for the elapsed portion of the fiscal year ended with the last day of such quarterly period, each prepared in accordance with GAAP certified by Borrower and SLC, as applicable; (iii) quarterly and annual operating statements (prepared on a basis consistent with that used in the preparation of the GAAP consolidated or combined, as the case may be, financial statements of Borrower, the REIT, SLC, the Corporation and the Guarantors, and in compliance with the Uniform System of Accounts) for each Real Property Asset, separately disclosing the amounts paid under the related Operating Lease and including a comparison and reconciliation with the most recent Annual Operating Budget, within 45 days of the end of each calendar quarter, certified by the Borrower and SLC, (iv) copies of all of Borrower's, REIT's, SLC's and the Corporation's quarterly and annual filings with the Securities and Exchange Commission and all shareholder reports and letters to the REIT's and the Corporation's shareholders and all other publicly released information promptly after their filing or mailing, (v) an annual operating and capital budget for each of the Real Property Assets (the "Annual Operating Budget"), including cash flow projections for the upcoming year, presented on a monthly basis consistent with the quarterly and annual operating statements referred to in clause (iii) above at least 15 days prior to the start of each calendar year and (vi) monthly operating statements for each Real Property Asset prior to the twenty-fifth (25th) day of each month. Borrower will furnish or cause to be furnished such additional reports or data, but no more often than on a quarterly basis, as Lender may reasonably request including, without limitation management and marketing reports for each Real Property Asset. Borrower and each Loan Party shall maintain a system of accounting capable of furnishing all such information and data, and shall maintain its respective books and records respecting financial and accounting matters in a proper manner and on a basis consistent with that used in the preparation of the GAAP consolidated financial statements of Borrower. Unless otherwise specified above financial reports requested by Lender of Borrower shall be provided to Lender no later than 15 days after such request. - 47 - 54 (b) Officer's Certificates; Comfort Letters. (i) At the time of the delivery of the financial statements under clause (a) above, Borrower shall provide a certificate of the general partner of Borrower or a senior executive officer of Borrower and the REIT that such financial statements have been prepared in accordance with GAAP (unless such financial statements are not required to be prepared in accordance with GAAP pursuant to this Agreement) and fairly present the financial condition and the results of operations of Borrower, REIT, SLC, the Corporation, the Guarantors and the Real Property Assets on the dates and for the periods indicated, subject, in the case of interim financial statements, to normally recurring year end adjustments, (y) to the best knowledge of such general partner or senior executive officer of Borrower and the REIT that no Default or Event of Default has occurred on the date of such certificate or, if any Default or Event of Default has occurred and is continuing on such date, specifying the nature and extent thereof and the action Borrower proposes to take in respect thereof and (z) that since the date of the prior financial statements delivered pursuant to such clause no change has occurred in the financial position of Borrower, REIT, SLC, the Corporation or any Guarantors which change could result in a Material Adverse Effect, and (ii) at the time of delivery of the Annual Operating Budget pursuant to Section 5.1(a)(v), a written statement of the assumptions used in connection with respect to the Annual Operating Budget, together with a certificate of the general partner of Borrower or a senior executive officer of Borrower and the REIT to the effect that such budget and assumptions are reasonable and represent Borrower's, SLC's and Guarantor's good faith estimate of such Property Net Cash Flow and anticipated capital expenditures, it being understood and agreed that there may often be a difference between financial projections and actual results. (ii) Within 45 days of the end of each calendar quarter, Borrower shall provide a certificate of the general partner of Borrower or of a senior executive officer of Borrower and the REIT certifying that no Default or Event of Default has occurred, that there has been no change in the REIT's tax status as a real estate investment trust as defined under Section 856 of the Code, confirming compliance with the covenant in Sections 5.3, 5.4, 5.5, 5.8, 5.9, and 5.19 and demonstrating compliance with the financial covenants set forth in Sections 5.16, 5.17, 5.18, 6.3, 6.4, 6.7 and 6.10 hereof (including providing copies of the most recently available unaudited operating statements of the Real Property Assets) and the provisions of Sections 5.12, 5.13, 5.19 and 5.27 and such other Sections as reasonably requested by Lender and containing calculations verifying such compliance commencing with the calendar quarter ending on December 31, 1995; provided that the certificate for the last calendar quarter with respect to Sections 5.16, 5.17, 5.18 and 6.7 may be delivered within 90 days after the end of such fiscal year with the audited financial statements for the year then ended. A similar certificate with respect to covenants set forth in Sections 6.3, 6.4 and 6.10, shall be provided by the SLC at the same times that the Borrower's and the REIT's certificate is required hereunder. (iii) Within 90 days of the end of Borrower's fiscal year through the Maturity Date, and prior to the Determination Date, and prior to the Release of any Collateral pursuant to Section 2.21, Borrower and the REIT, at Borrower and the REIT's sole cost and expense, shall provide a comfort letter or audit prepared by a nationally recognized independent certified public accounting firm satisfactory to Lender verifying that the covenants contained in Sections 5.16, 5.17, 5.18, 5.19 and 6.7 are complied with at the end of such period and will be in compliance with such covenants after giving effect to such increase or release, as the case may be. - 48 - 55 (c) Notice of Default or Litigation. Promptly after Borrower or any other Loan Party obtains actual knowledge thereof, Borrower shall give Lender notice of (i) the occurrence of a Default or any Event of Default, (ii) the occurrence of (x) any default that is not cured, or any event of default, under any partnership agreement of Borrower, any mortgage, deed of trust, indenture or other debt or security instrument, covering any of the Assets of Borrower or any Loan Party or (y) any event of default under any Franchise Agreement, Operating Lease, or any other material agreement relating to the Real Property Assets, to which Borrower, or any Loan Party is a party, which, if not cured could result in a Material Adverse Effect, (iii) any litigation or governmental proceeding pending or threatened (in writing) against Borrower, any other Loan Party which could result in a Material Adverse Effect and (iv) any other event, act or condition which could result in a Material Adverse Effect. Each notice delivered pursuant to this Section 5.1(c) shall be accompanied by a certificate of a general partner or senior executive officer of Borrower setting forth the details of the occurrence referred to therein and describing the actions Borrower proposes to take with respect thereto. (d) Quality Assurance. Promptly after Borrower, any Owner, any Operating Entity or any other Loan Party receives any quality assurance reports or similar reports of inspection or compliance from the Franchisor under any Franchise Agreement ("Quality Assurance Reports"), Borrower shall deliver copies thereof to Lender, but in no event later than thirty days after receipt. (e) Tax Returns. Promptly after they are filed with the Internal Revenue Service, copies of all annual federal income tax returns and amendments thereto of the Borrower, the REIT and the Loan Parties shall be delivered to Lender. (f) Condemnation and Casualty. Borrower shall immediately notify Agent of any fire or other casualty or any pending or threatened condemnation or eminent domain proceeding with respect to all or any portion of any Real Property Asset. (g) Other Information. From time to time, Borrower and the REIT shall provide such other information and financial documents relating to Borrower, the REIT or the other Loan Parties as Lender may reasonably request. Section 5.2 Books, Records and Inspections. (a) Borrower, SLC, each Owner and each Operating Entity shall, at their respective principal places of business or at each Real Property Asset, keep proper books of record and account in which full, true and correct entries shall be made. Borrower, SLC, each Owner and each Operating Entity shall permit or cause to be permitted officers and designated representatives of Lender and any Co-Lender to visit and inspect any of the Real Property Assets, and to examine and copy the books of record and account of Borrower, SLC, each Owner and each Operating Entity and the Real Property Assets (including, without limitation, leases, statements, bills and invoices), discuss the affairs, finances and accounts of Borrower, each Owner and each Operating Entity and be advised as to the same by, its and their officers and independent accountants, all upon reasonable notice and at such reasonable times as Lender or any Co-Lender may desire. - 49 - 56 Section 5.3 Maintenance of Insurance. (a) Borrower and the other Loan Parties shall (i) maintain with financially sound and reputable insurance companies insurance on itself and its properties in commercially reasonable amounts, (ii) maintain Lender as named additional insured in respect of any such liability insurance required to be maintained hereunder, and (iii) furnish to Lender from time to time, upon written request, certificates of insurance or certified copies or abstracts of all insurance policies required under this Agreement and the other Loan Documents and such other information relating to such insurance as Lender may reasonably request. (b) With respect to each Real Property Asset, Borrower or each Owner shall obtain and maintain, or cause to be maintained, insurance providing at least the following coverages: (i) comprehensive all risk insurance on the Improvements and the Personal Property, including contingent liability from Operation of Building Laws, Demolition Costs and Increased Cost of Construction Endorsements, in each case (A) in an amount equal to 100% of the "Full Replacement Cost," which for purposes of this Agreement shall mean actual replacement value (exclusive of costs of excavations, foundations, underground utilities and footings) with a waiver of depreciation; (B) containing an agreed amount endorsement with respect to the Improvements owned or leased by Borrower or the related Owner and Personal Property or a waiver of all co-insurance provisions; (C) providing for no deductible in excess of $50,000; and (D) containing an "Ordinance or Law Coverage" or "Enforcement" endorsement if any of the Improvements or the use of the Real Property Asset shall at any time constitute legal non-conforming structures or uses. The Full Replacement Cost shall be redetermined from time to time (but not more frequently than once in any twelve (12) calendar months) at the request of Lender by an appraiser or contractor designated and paid by Borrower or the related Owner and approved by Lender, or by an engineer or appraiser in the regular employ of the insurer. Notwithstanding the foregoing, if such redetermination is based on an Appraisal, the cost thereof shall be paid by the Borrower or the related Owner. After the first appraisal, additional appraisals may be based on construction cost indices customarily employed in the trade and shall be at Borrower's or the related Owner's expense. No omission on the part of Lender to request any such ascertainment shall relieve Borrower or the related Owner of any of its obligations under this Section 5.3(b)(i). In addition, Borrower or the related Owner shall obtain (y) flood hazard insurance if any portion of the Improvements is currently or at any time in the future located in a federally designated "special flood hazard area" and (z) earthquake insurance in amounts and in form and substance reasonably satisfactory to Lender in the event the Real Property Asset is located in an area with a high degree of seismic activity, or otherwise as required by Lender, provided that the insurance pursuant to clauses (y) and (z) hereof shall be on terms consistent with the comprehensive all risk insurance policy required under this Section 5.3(b)(i), except that the deductible on such insurance and on wind insurance if the Real Property Asset is located in a coast line area, shall not be in excess of five percent (5%) of the appraised value of the Real Property Asset; (ii) commercial general liability insurance against claims for personal injury, bodily injury, death or property damage occurring upon, in or about the Real Property - 50 - 57 Asset, including "Dram Shop" or other liquor liability coverage if alcoholic beverages are sold from or may be consumed at the Real Property Asset, such insurance (A) to be on the so-called "occurrence" form with a combined single limit of not less than $1,000,000 or such greater amount or may be generally required by institutional lenders for hotels comparable to the Real Property Asset; (B) to continue at not less than the aforesaid limit until required to be changed by Lender in writing by reason of changed economic conditions making such protection inadequate; and (C) to cover at least the following hazards: (1) premises and operations; (2) products and completed operations on an "if any" basis; (3) independent contractors; and (4) blanket contractual liability for all written and oral contracts; (iii) business income and rent loss insurance (A) covering all risks required to be covered by the insurance provided for in Section 5.3(b)(i); (B) containing an extended period of indemnity endorsement which provides that after the physical loss to the Improvements and Personal Property has been repaired, the continued loss of income will be insured until such income either returns to the same level it was at prior to the loss, or the expiration of twelve (12) months from the date of the loss, whichever first occurs, and notwithstanding that the policy may expire prior to the end of such period; and (C) in an amount equal to 100% of the projected gross income from the Real Property Asset for a period of twelve (12) months. The amount of such business income insurance shall be determined prior to the date hereof and at least once each year thereafter based on the greatest of: (x) Borrower's reasonable estimate of the gross income from the Real Property Asset and (y) the estimate of gross income set forth in the Annual Operating Budget delivered pursuant to Section 5.1(a)(v). (iv) at all times during which structural construction, repairs or alterations are being made with respect to the Improvements (A) owner's contingent or protective liability insurance covering claims not covered by or under the terms or provisions of the above mentioned commercial general liability insurance policy; and (B) the insurance provided for in Section 5.3(b)(i) written in a so-called builder's risk completed value form (1) on a non-reporting basis, (2) against all risks insured against pursuant to Section 5.3(b)(i), (3) including permission to occupy the Real Property Asset, and (4) with an agreed amount endorsement or a waiver of coinsurance provisions; (v) workers' compensation, subject to the statutory limits of the state in which the Real Property Asset is located, and employer's liability insurance (A) with a limit per accident and per disease per employee, and (B) in an amount for disease aggregate in respect of any work or operations on or about the Real Property Asset, or in connection with the Real Property Asset or its operation (if applicable), in each case reasonably required by Lender; (vi) comprehensive boiler and machinery insurance, if applicable, in amounts as shall be reasonably required by Lender on terms consistent with the commercial general liability insurance policy required under Section 5.3(b)(ii); (vii) umbrella liability insurance in an amount not less than $20,000,000 per occurrence or such greater amount as may be generally required by institutional lenders - 51 - 58 for hotels comparable to the Real Property Asset on terms consistent with the commercial general liability insurance policy required under Section 5.03(b)(ii); (viii) motor vehicle liability coverage for all owned and non-owned vehicles, including rented and leased vehicles containing minimum limits per occurrence of $5,000,000; (ix) a blanket fidelity bond and errors and omissions insurance coverage insuring against losses resulting from dishonest or fraudulent acts committed by (A) Borrower's or the related Owner's or Operating Entity's personnel; (B) any employees of outside firms that provide appraisal, legal, data processing or other services for Borrower or the related Owner or (C) temporary contract employees or student interns; and (x) such other insurance and in such amounts as are required pursuant to the Franchise Agreement or as Lender from time to time may reasonably request against such other insurable hazards which are generally required by institutional lenders for hotels comparable to the Real Property Asset or which are commonly insured against for property similar to the Real Property Asset located in or around the region in which the Real Property Asset is located. (c) All insurance provided for in this Section 5.3(b) hereof shall be obtained under valid and enforceable policies (the "Policies" or in the singular, the "Policy"), and shall be subject to the approval of Lender as to insurance companies, amounts, forms, deductibles, loss payees and insurers. The Policies shall be issued by financially sound and responsible insurance companies authorized to do business in the state in which the Real Property Asset is located and approved by Lender. Each insurance company must have a rating of "A" or better for claims paying ability assigned by Standard & Poor's Rating Group (the "Rating Agency") or, if the Rating Agency does not assign a rating for such insurance company, such insurance company must have a general policy rating of A or better and a financial class of VIII or better by A.M. Best Company, Inc. (each such insurer shall be referred to below as a "Qualified Insurer"). Not less than thirty (30) days prior to the expiration dates of the Policies theretofore furnished to Lender pursuant to Section 5.3(b), certified copies of the Policies marked "premium paid" or accompanied by evidence reasonably satisfactory to Lender of payment of the premiums due thereunder (the "Insurance Premiums"), shall be delivered by Borrower or the related Owner to Lender; provided, however, that in the case of renewal Policies, Borrower or the related Owner may furnish Lender with binders therefor to be followed by the original Policies when issued. (d) Borrower or the related Owner shall not obtain (i) any umbrella or blanket liability or casualty Policy unless, in each case, such Policy is approved in advance in writing by Lender, which approval shall not be unreasonably withheld, and such Policy is issued by a Qualified Insurer, or (ii) separate insurance concurrent in form or contributing in the event of loss with that required in Section 5.3(b) to be furnished by, or which may be reasonably required to be furnished by, Borrower or the related Owner. In the event Borrower or the related Owner obtains separate insurance or an umbrella or a blanket Policy, Borrower or the related Owner shall notify Lender of the same and shall cause certified copies of each Policy to - 52 - 59 be delivered as required in Section 5.3(b). Any blanket insurance Policy shall (a) specifically allocate to the Real Property Asset the amount of coverage from time to time required hereunder or (b) be written on an occurrence basis for the coverages required hereunder with a limit per occurrence in an amount equal to the amount of coverage required hereunder and shall otherwise provide the same protection as would a separate Policy insuring only the Real Property Asset in compliance with the provisions of Section 5.3(b). (e) All Policies of insurance provided for in Section 5.3(b) shall contain clauses or endorsements to the effect that: (i) the Policy shall not be materially changed (other than to increase the coverage provided thereby) or cancelled without at least 30 days' written notice to Lender and any other party named therein as an insured; and (ii) each Policy shall provide that the issuers thereof shall give written notice to Lender if the Policy has not been renewed thirty (30) days prior to its expiration. (f) Borrower or the related Owner shall furnish to Lender, on or before thirty (30) days after the close of each of Borrower's and the related Owner's fiscal years, a statement certified by Borrower or a duly authorized officer of Borrower of the amounts of insurance maintained in compliance herewith, of the risks covered by such insurance and of the insurance company or companies which carry such insurance and, if requested by Lender, verification of the adequacy of such insurance by an independent insurance broker or appraiser acceptable to Lender. (g) If at any time Lender is not in receipt of written evidence that all insurance required hereunder is in full force and effect, Lender shall have the right, without notice to Borrower or the related Owner to take such action as Lender deems necessary to protect its interest in the Real Property Asset, including, without limitation, the obtaining of such insurance coverage as Lender in its sole discretion deems appropriate, and all expenses incurred by Lender in connection with such action or in obtaining such insurance and keeping it in effect shall be paid by Borrower or the related Owner to Lender upon demand and until paid shall be secured by the Security Agreement and shall bear interest in accordance at the Default Rate. (h) If the Real Property Assets shall be damaged or destroyed, in whole or in part, by fire or other casualty, or condemned or taken by eminent domain, Borrower or the related Owner shall give prompt notice of such damage or taking to Lender and shall promptly commence and diligently prosecute the completion of the repair and restoration of the Real Property Asset as nearly as possible to the condition the Real Property Asset was in immediately prior to such fire or other casualty or taking (the "Restoration"). Borrower or the related Owner shall pay all costs of such Restoration whether or not such costs are covered by insurance or any condemnation award. In the event that the related Real Property Asset cannot be restored to the same condition it was in immediately prior to a condemnation, or all or substantially all of such Real Property Asset is condemned or taken by eminent domain, Borrower shall immediately pay the Release Price and the applicable Funding Costs for such Real Property Asset in accordance with Section 2.21. - 53 - 60 Section 5.4 Taxes. Borrower and the other Loan Parties shall pay or cause to be paid, when due (i.e., before any penalty or fine could be levied or charged), all taxes, charges and assessments and all other lawful claims required to be paid by Borrower, the other Loan Parties, except as contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves have been established with respect thereto in accordance with GAAP. Upon request from Lender, Borrower shall provide evidence to Lender of payment of such taxes, charges, assessments and other lawful claims. Section 5.5 Corporate Franchises; Conduct of Business. (a) Borrower and each Loan Party shall do or cause to be done, all things necessary to preserve and keep in full force and effect its existence and good standing (i) in the State of its organization and (ii) in each state in which a Real Property Asset is located, unless such Person is not required to qualify in such State by Applicable Law, and its respective Licenses, except where the failure to so preserve any of the foregoing (other than existence and good standing) could not, individually or in the aggregate, result in a Material Adverse Effect. Borrower shall cause SLC Arlington L.L.C. to be qualified in Illinois and deliver evidence of such qualification reasonably satisfactory to Lender within 30 days of the date hereof. (b) Borrower and SLC shall carry on and conduct their businesses in substantially the same manner and substantially the same field of enterprise as they are presently conducted. (c) The REIT shall carry on and conduct its business in substantially the same manner and substantially the same field of enterprise as it is presently conducted. (d) The Corporation shall carry on and conduct its business in substantially the same manner and substantially the same field of enterprise as it is presently conducted. Section 5.6 Compliance with Law. Borrower and the other Loan Parties shall comply in all material respects with all Applicable Laws, in respect of the conduct of their business and the ownership of their property (including the Real Property Assets), except for such Applicable Laws, (a) which Borrower or such other Loan Party are contesting in good faith and in compliance with and pursuant to appropriate proceedings diligently prosecuted (provided that such contest does not and cannot (i) expose any of Lender, any Co-Lender, Borrower, the other Loan Parties to any criminal liability or penalty, (ii) give rise to a Lien against any of the Collateral or any Real Property Asset, or (iii) otherwise materially adversely affect any of the Collateral or the value thereof), or (b) the failure to observe which, taken individually or in the aggregate, could not result in a Material Adverse Effect. Section 5.7 Performance of Obligations. Borrower, the REIT, each Owner and each Operating Entity shall perform all of their respective material obligations under the terms of each mortgage, indenture, security agreement, debt instrument, lease, undertaking and contract relating to any Real Property Assets, or by which it or any of the Real Property Assets is bound. - 54 - 61 Section 5.8 Stock. REIT and the Corporation shall maintain in good standing their listing of all outstanding shares of stock on the New York Stock Exchange and such shares shall continue to trade as "paired shares". Section 5.9 Maintenance of Personal Property. Each Owner shall own, lease or license Personal Property, and each Operating Entity, and with respect to Winston Salem, the related Owner, shall own Intangibles and Food and Beverage Inventory, adequate to maintain and operate each Real Property Asset as a hotel in accordance with the standards of this Agreement, the Loan Documents, the related Operating Leases and the related Franchise Agreements. No Owner or Operating Entity shall lease, license, encumber or enter into any other financing arrangements with respect to any of the Personal Property or Intangibles or Food and Beverage Inventory, as the case may be, in excess of the Permitted Financing. Section 5.10 Maintenance and Operation of Real Property Assets. Borrower and the other Loan Parties shall ensure that the Real Property Assets are maintained and operated in a manner consistent with the standards of a full-service hotel subject to a nationally recognized full service hotel franchise normal wear and tear and casualty damage in the process of being repaired or restored excepted. Section 5.11 Compliance with ERISA. (a) Borrower and the other Loan Parties shall maintain each Employee Benefit Plan in compliance with all material applicable requirements of ERISA and the Code and with all material applicable regulations promulgated thereunder so that no failure to so comply will cause liability to Borrower or any Loan Party in excess of $5,000,000.00 or have a Material Adverse Effect. Borrower and the other Loan Parties shall provide to Lender, within ten (10) days of Lender's request, any document, filing or correspondence relating to an Employee Benefit Plan which the Lender reasonably requests. Borrower and the other Loan Parties shall also provide to Lender, with ten (10) days of filing or receipt, (i) any notice from the Department of Labor or Internal Revenue Service of assessment or investigation regarding a prohibited transaction under Section 4975 of the Code or Section 406 of ERISA, (ii) any notice from a Multiemployer Plan of withdrawal with respect to a Multiemployer Plan, (iii) notice from the Internal Revenue Service of imposition of excise tax with respect to an Employee Benefit Plan, (iv) any Form 5500 filed by any Borrower or Loan Party with respect to an Employee Benefit Plan which includes a qualified accountant's opinion, or (v) notice regarding a proposed termination from the PBGC; provided, however, that items in (i)-(iii) need only be provided if the events could result in Material Adverse Effect. (b) Neither Borrower nor any other Loan Party shall engage in any transaction which would cause any obligation, or action taken or to be taken, hereunder (or the exercise by Lender of any of its rights under this Agreement or the other Loan Documents) to be a non-exempt (under a statutory or administrative class exemption) prohibited transaction under ERISA or result in a violation of a state statute regulating governmental plans that would subject Lender to liability for a violation of ERISA or such a state statute. (c) Borrower and the REIT further covenant and agree to deliver to Lender such certifications or other evidence from time to time throughout the term of the Loan, as reasonably requested by Lender in its sole discretion, that (i) neither Borrower or any other Loan Party is an "employee benefit plan" as defined in Section 3(3) of ERISA, which is subject to - 55 - 62 Title I of ERISA, or a "governmental plan" within the meaning of Section 3(3) of ERISA; (ii) neither Borrower or any other Loan Party is subject to state statutes applicable to Borrower or any Loan Party regulating investments and fiduciary obligations of Borrower or any Loan Party with respect to governmental plans; and (iii) with respect to each Loan Party and Borrower, at least one of the following circumstances is true: (1) Equity interests in Borrower or such Loan Party are publicly offered securities, within the meaning of 29 C.F.R. Section 2510.3-101(b)(2); (2) Less than 25 percent of each outstanding class of equity interests in Borrower or such Loan Party are held by "benefit plan investors" within the meaning of 29 C.F.R. Section 2510.3-101(f)(2); or (3) Borrower or such Loan Party qualifies as an "operating company" or a "real estate operating company" within the meaning of 29 C.F.R. Section 2510.3-101(c) or (e) or an investment company registered under The Investment Company Act of 1940. Section 5.12 Settlement/Judgment Notice. Borrower and the REIT agree that they shall, within ten (10) days after a settlement of any obligation of any Loan Party in excess of $1,000,000.00, provide written notice to Lender of such settlement together with a certification signed by a senior executive officer of Borrower and the REIT certifying based upon the most recent quarterly consolidated financial statements of Borrower and the REIT, such settlement will not cause Borrower or the REIT to violate the financial covenants set forth in Sections 5.16, 5.17 and 5.18 hereof. Borrower and the REIT further agree that they shall, within ten (10) days after entry of a final judgment against any Loan Party in excess of $1,000,000.00 or final judgments in excess of $1,000,000.00 in the aggregate during the immediately preceding twelve (12) month period, provide written notice to Lender of such judgment together with a certification signed by a senior executive officer of Borrower and the REIT certifying, based upon the most recent quarterly consolidated financial statements of Borrower and the REIT, that such judgment will not cause Borrower or the REIT to violate the financial covenants set forth in Sections 5.16 and 5.17 hereof. Borrower and the REIT further agree that they will provide written notice to Lender after entry of any judgment against any Loan Party in excess of $1,000,000.00. Section 5.13 Acceleration Notice. Borrower and the REIT agree that they shall, within ten (10) days after receipt of written notice that any Indebtedness of Borrower, the REIT or any other Loan Party hereof has been accelerated, provide written notice to Lender of such acceleration. Section 5.14 Lien Searches; Title Searches. In addition to searches and endorsements required in connection with an Advance, Borrower shall, upon Lender's request therefor given from time to time, and at Lender's expense, deliver (a) reports of UCC, tax lien, judgment and litigation searches with respect to Borrower, each of the other Loan Parties, and (b) searches of title to each of the Real Property Assets (each, a "Title Search"). Such Title Searches and lien searches required under this Agreement shall be conducted by search firms designated by Lender in each of the locations designated by Lender. - 56 - 63 Section 5.15 Intentionally Deleted. Section 5.16 Minimum Net Worth. The minimum net worth of Borrower shall not, at any time, be less than $215,000,000.00 plus 75% of the net proceeds (after payment of underwriter and placement fees and other expenses directly related to such equity offering) received from subsequent equity offerings by the REIT, calculated in accordance with GAAP; however, the conversion or exchange of existing operating partnership units in Borrower for shares in the REIT for which the REIT does not receive cash compensation shall not be deemed an equity offering for purposes of this Section 5.16. Section 5.17 Total Indebtedness. (a) The maximum combined Total Debt of Borrower and the REIT shall not exceed at any time 55% of the combined Net Book Value of Borrower and the REIT, calculated without duplication. (b) The maximum combined Total Debt of Borrower and SLC shall not exceed at any time 55% of the combined Net Book Value of Borrower and SLC calculated without duplication, provided that Total Debt and Net Book Value shall exclude amounts related to the Intercompany Debt between (i) the Corporation and SLC and their consolidated Subsidiaries and (ii) the REIT and Borrower and their consolidated Subsidiaries. (c) The maximum combined total Unsecured Indebtedness and/or Recourse Indebtedness of Borrower and the REIT (exclusive of this Loan and any subordinated debt) shall not exceed, at any time, $255,000,000.00. (d) The maximum combined total Unsecured Indebtedness and/or Recourse Indebtedness of Borrower and SLC (exclusive of this Loan and any subordinated debt) shall not exceed, at any time, $255,000,000.00. Section 5.18 Coverage Ratios. (a) The ratio of (x) actual consolidated EBITDA of Borrower and the REIT (without duplication) for any period of twelve consecutive months ("Base Period"), to (y) the sum of Debt Service plus Fixed Charges of the Borrower and the REIT for such Base Period shall not at any time be less than 2.25 to 1. (b) The ratio of (x) actual EBITDA (adjusted to include replacement reserves of 4% of gross hotel revenues) of Borrower and SLC for the applicable Base Period, to (y) the sum of Debt Service plus Fixed Charges of Borrower and SLC for the same Base Period shall not at any time be less than 2.50 to 1. For purposes of this Section 5.18(b), EBITDA and Debt Service shall exclude amounts related to the Operating Leases with SLC as tenant and Intercompany Debt between (A) the Corporation and SLC and their consolidated Subsidiaries and (B) the REIT and the Borrower and their consolidated Subsidiaries. (c) The ratio of (x) Property Net Cash Flow from the Real Property Assets (adjusted to include Replacement Reserves) for the applicable Base Period to (y) actual Debt Service with respect to this Loan for the applicable Base Period shall not at any time be less than 1.24 to 1; for purposes of determining compliance with this Section 5.18(c) only, the Contract Rate for calculating Debt Service shall equal the greater of the actual Contract Rate or 9% per annum. - 57 - 64 Section 5.19 Replacement Reserve. Borrower shall maintain or cause to be maintained, at all times a minimum reserve of 4% of Gross Revenues for the preceding twelve months for all Real Property Assets (the "Replacement Reserve") in the form of either (a) readily available and unrestricted cash, (b) borrowing capacity under this Agreement, as measured by the amount of the unfunded Facility Amount or (c) borrowing capacity under the Revolving Credit Facility or another closed and committed credit facility or line of credit from a financial institution reasonably satisfactory to Lender, in each case as measured by the amount of the unfunded committed loan amount, provided that Borrower is not then in default thereunder. Section 5.20 Management. Each Operating Entity shall manage the related Real Property Asset pursuant to the Operating Lease and the related Owner shall manage Winston Salem, subject to (i) certain management agreements to be entered into with the Corporation with respect to each Real Property Asset other than the Real Property Asset identified as Palm Desert Embassy Suites, Palm Desert, California on Schedule 2 ("Palm Desert"); and with respect to Palm Desert, that certain management agreement to be entered into with Western Host, Inc., in all cases, such management agreements shall be reasonably satisfactory to Lender, and (ii) the management agreements described in Sections 4.18 and 5.27 and the Franchises described in Section 5.28. Section 5.21 Further Assurances. Borrower and the REIT will, at Borrower's and the REIT's sole cost and expense, at any time and from time to time upon request of Lender take or cause to be taken any action and execute, acknowledge, deliver or record any further documents, opinions, security agreements or other instruments which Lender in its reasonable discretion deems necessary or appropriate to carry out the purposes of this Agreement and the other Loan Documents including (i) to consummate the transfer or sale of the Loan or any portion thereof, provided that Borrower's, the REIT's and each other Loan Party's obligations hereunder and under the Loan Documents shall not be increased or their rights diminished or abridged without their consent, (ii) to preserve, protect and perfect the security intended to be created and preserved in the Collateral and (iii) to establish, preserve and protect the security interest of Lender in and to the Collateral. Section 5.22 REIT Status. The REIT shall elect to be treated as a "real estate investment trust" for the taxable year ending on December 31, 1996 and thereafter shall at all times maintain its status as and continue to elect to be treated as, a "real estate investment trust" under Section 856 of the Code and shall at all times maintain its status as grandfathered from the application of Section 269B of the Code pursuant to Section 132(c)(3) of the Deficit Reduction Act of 1984. Section 5.23 Loan Documents. Borrower shall comply with all of the terms and conditions and covenants in the Security Agreements, the Environmental Indemnity and the other Loan Documents. Section 5.24 Appraisals. Lender shall have the right during the term of the Loan to commission new Appraisals or updates to existing Appraisals for one or more Real Property Assets. Borrower shall reasonably cooperate with the appraisers performing the Appraisals of the Real Property Assets and, with respect to those Appraisals requested by Lender, any Co- - 58 - 65 Lender or any Participant, shall deliver copies of such Appraisals to Lender promptly after receipt but in no event later than five days after written notice from Lender (provided Borrower has theretofore received such Appraisal). Borrower shall pay within five (5) Business Days of Lender's request therefor, Lender's out-of-pocket costs and expenses for each Appraisal or update thereof for each Real Property Asset. Section 5.25 Maintenance of Control. An officer, director, employee or general partner of the Group shall at all times remain a Trustee of the REIT and a Director of the Corporation (it being acknowledged by Lender that changes in composition of REIT's Trustees or Corporation's Directors shall not constitute a change in control). Section 5.26 Intentionally Deleted. Section 5.27 Transfer of Licenses. With respect to all of the Real Property Assets, to the extent that any Licenses are not in the name of the applicable Loan Party, Borrower and the REIT shall promptly commence or cause the applicable Loan Party to commence, and diligently proceed to have all such Licenses issued in the name of the applicable Loan Party or deliver evidence reasonably satisfactory to Lender that the failure to have such License in the name of the applicable Loan Party does not materially adversely affect the operation and use of the related Real Property Asset. Borrower shall notify Lender within ten (10) Business Days of the end of each calendar quarter of the status of the various Licenses that have not been transferred to the applicable Loan Party. Notwithstanding the foregoing, Borrower shall have all liquor licenses issued and maintained in either the name of the Corporation or of Western Host, Inc., an entity which is wholly owned and controlled by the Corporation and which has entered into a management agreement or lease agreement with respect to such liquor licenses with the applicable Owner or Operating Entity on terms and conditions reasonably satisfactory to Lender, within ninety (90) days of the date hereof or within a reasonable time thereafter if necessary for reasons beyond the control of Borrower, Western Host, Inc., the Corporation or any other Loan Party. Section 5.28 Franchises. Except for the Real Property Assets identified as the Marque, Atlanta, Georgia, Hotel Park, Tucson, Tucson, Arizona and the Ritz-Carlton, Kansas City, Missouri, on Schedule 2, each Real Property Asset shall be operated under a Franchise from one of the entities listed on Schedule 3 attached hereto or a nationally recognized full service hotel chain or franchise reasonably satisfactory to Lender. Section 5.29 Compliance with Terms of Ground Leases. Borrower, the REIT and the applicable Loan Party shall make all payments and otherwise perform all obligations in respect of any Ground Leases, keep such Ground Leases in full force and effect and not allow such Ground Leases to lapse or be terminated or any rights to renew such Ground Leases to be forfeited or cancelled, notify the Agent of any default by any party with respect to such Ground Leases and cause each Loan Party to cure any such default. Section 5.30 Maintenance of Affiliate Debt and Intercompany Debt. - 59 - 66 (a) Neither any Affiliate Debt nor any Intercompany Debt shall be secured by a Lien on any Collateral or on any Real Property Asset, Personal Property, Intangibles or Food and Beverage Inventory. (b) Neither Borrower nor the REIT shall amend or modify the terms of the subordination of any Affiliate Debt to the Loan and the Obligations. (c) All Affiliate Debt shall be subordinated to the Loan and the Obligations pursuant to a subordination agreement in the form attached hereto as Exhibit G. Section 5.31 Keep Well Covenants. (a) Borrower and the REIT shall (i) cause each Owner to be operated and managed in such a manner that it will fulfill its obligations under the Loan Documents to which it is a party; (ii) not file any petition for relief under the Bankruptcy Code or under any similar federal or state law against any Owner; and (iii) provide funding to each Owner to the extent necessary to enable each Owner to fulfill its obligations under the related Guaranty and to remain Solvent; (b) SLC and the Corporation shall: (i) cause each Operating Entity to be operated and managed in such a manner that it will fulfill its obligations under the Operating Lease to which it is a party; (ii) not file any petition for relief under the Bankruptcy Code or under any similar federal or state law against any Operating Entity; and (iii) provide funding to each Operating Entity to fulfill its obligations under the related Guaranty and to remain Solvent. Section 5.32 Single Purpose Entity. Each Owner and each Operating Entity has not and shall not: (a) engage in any business or activity other than the ownership, operation and maintenance of the related Real Property Asset and the related Personal Property, and activities incidental thereto; (b) acquire or own any material assets other than (i) with respect to each Owner, the related Real Property Asset and with respect to each Operating Entity, the leasehold interest in the related Operating Lease, and (ii) such Personal Property as may be necessary for the operation of the related Real Property Asset; (c) merge into or consolidate with any person or entity or dissolve, terminate or liquidate in whole or in part, transfer or otherwise dispose of all or substantially all of its assets or change its legal structure, without in each case Lender's consent; (d) fail to preserve its existence as an entity duly organized, validly existing and in good standing (if applicable) under the laws of the jurisdiction of its organization or formation, or without the prior written consent of Lender, amend, modify, terminate or fail to comply with the provisions of its organizational documents; (e) own any subsidiary or make any investment in, any Person without the consent of Lender; - 60 - 67 (f) commingle its assets with the assets of any of its members, any other Loan Party, Affiliates of its members or of any other Loan Party or of any other Person; (g) incur any debt, secured or unsecured, direct or contingent (including guaranteeing any obligation), other than its obligations under the Loan Documents, except in the ordinary course of its business of owning or operating the related Real Property Asset, provided that such debt is paid when due; (h) become insolvent and fail to pay its debts and liabilities from its assets as the same shall become due; (i) fail to maintain its records, books of account and bank accounts separate and apart from those of its members, any other Loan Party, Affiliates of its members or any other Loan Party, and any other Person; (j) enter into any contract or agreement with any of its members, Affiliates of any member, or any other Loan Party or Affiliate thereof, except upon terms and conditions that are substantially similar to those that would be available on an arms-length basis with third parties other than any of its members, Affiliates of any member or any other Loan Party or Affiliate thereof; (k) seek its dissolution or winding up in whole, or in part; (l) hold itself out to be responsible for the debts of another Person; (m) make any loans or advances to any third party, including any of its member or any other Loan Party or an Affiliate thereof; (n) fail to file its own tax returns; (o) fail either to hold itself out to the public as a legal entity separate and distinct from any other entity or person or to conduct its business solely in its own name in order not (i) to mislead others as to the identity with which such other party is transacting business, or (ii) to suggest that it is responsible for the debts of any third party (including any member, or any other Loan Party or Affiliate thereof; (p) fail to maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations; or (q) file or consent to the filing of any petition, either voluntary or involuntary, to take advantage of any applicable insolvency, bankruptcy, liquidation or reorganization statute, or make an assignment for the benefit of creditors. Section 5.33 Environmental Monitoring and Remediation. Borrower and the REIT shall, or shall cause the related Owner or Operating Entity, as the case may be, to promptly and diligently comply with the requirements set forth on Schedule 12 attached hereto - 61 - 68 with respect to certain environmental monitoring and remediation requirements for the listed Real Property Assets. SECTION 6. NEGATIVE COVENANTS. Borrower covenants and agrees for itself and on behalf of the other Loan Parties that on and after the Closing Date until the Obligations are paid in full: Section 6.1 Intentionally Deleted. Section 6.2 Intentionally Deleted. Section 6.3 Liens. Borrower, the REIT, SLC, SLT Financing Partnership, the Owners and the Operating Entities shall not, create, incur, assume or suffer to exist, directly or indirectly, any Lien on any of the Collateral, or any of the Real Property Assets, other than the following (collectively, the "Permitted Liens"): (a) Liens existing on the Closing Date and set forth on Schedule 7 hereto or listed in the Title Policies issued on the Closing Date; (b) Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves are being maintained in accordance with GAAP; (c) Statutory Liens of landlords and Liens of mechanics, materialmen and other Liens imposed by Law (other than any Lien imposed by ERISA) created in the ordinary course of business for amounts not yet due or which are being contested in good faith by appropriate proceedings diligently conducted, and with respect to which adequate bonds have been posted if required to do so by Applicable Law; (d) Easements, rights-of-way, zoning and similar restrictions and other similar charges or encumbrances not interfering with the ordinary conduct of the business of Borrower or the Owners or the Operating Entities and which do not detract materially from the value of any of the Real Property Assets to which they attach or impair materially the use thereof by Borrower, the Owner or the Operating Entities or materially adversely affect the security interests of Lender in the Collateral; (e) Permitted Financing; (f) The Pledged Mortgages; and (g) Liens granted to Lender pursuant to the Security Agreements securing the Obligations. - 62 - 69 Section 6.4 Restriction on Fundamental Changes. Without the prior written consent of Lender, which consent may be withheld in the sole and absolute discretion of Lender, Borrower and the other Loan Parties shall not enter into any merger or consolidation following which the REIT or an entity wholly owned by the REIT is no longer the sole general partner of the Borrower; or a merger or consolidation following which the Corporation or entities wholly owned by the Corporation are no longer the sole general partners of SLC; if such events occur without the prior written consent of Lender, all Advances shall be due and payable in full, including all principal, interest and Fees, on the earliest to occur of the expiration of each related Interest Period with respect to Eurodollar Portions or the next payment date with respect to Base Rate Portions, or the Maturity Date. The REIT shall not sell, transfer, pledge, assign or encumber its general partnership interest in Borrower and the Corporation shall not sell, transfer, pledge, assign or encumber its (i) general partnership interest in SLC or (ii) its membership interest in the Operating Entities. Borrower shall not sell, transfer pledge, assign or encumber (i) its membership interest in the Owners or (ii) its general partnership interest in SLT Financing Partnership. SLC shall not sell, transfer, pledge, assign or encumber its membership interest in the Operating Entities. SLT Financing Partnership shall not sell, transfer, pledge, assign or encumber its membership interest in the Owners. SLT Realty Company LLC shall not sell, transfer, pledge, assign or encumber its general partnership interest in SLT Financing Partnership. Section 6.5 Transactions with Affiliates. Borrower and the other Loan Parties shall not enter into any material transaction or series of related transactions, whether or not in the ordinary course of business, with any Affiliate of Borrower, other than on terms and conditions substantially as favorable as would be obtainable at the time in a comparable arm's-length transaction with a Person other than an Affiliate of Borrower. Section 6.6 Plans. Borrower and the other Loan Parties shall not, and shall make reasonable efforts under the circumstances not to permit any member of their respective ERISA Controlled Group to, (i) take any action which would (A) increase the aggregate present value of the Unfunded Benefit Liabilities under all Plans, or withdrawal liability under a Multiemployer Plan for which Borrower or any Loan Party or any member of their respective ERISA Controlled Groups (determined without reference to Section 414(m) or (o) of the Code, if liabilities of entities in Borrower or the Loan Parties' ERISA Controlled Group solely by reason of Section 414(m) or (o) of the Code could not result in liability to Borrower or any Loan Party) could reasonably be expected to be liable, to an amount in excess of $5,000,000.00 or which has or could be reasonably expected to have a Material Adverse Effect or (B) result in liability to Borrower or any Loan Party for any post-retirement benefit under any "welfare plan" (as defined in Section 3(1) of ERISA) or any withdrawal liability or exit fee or charge with respect to any "welfare plan" (as defined in Section 3(1) of ERISA), other than liability for continuation coverage under Part 6 of Title I of ERISA or state laws which require similar continuation coverage for which the employee pays approximately the full cost of coverage, and other than such liability would not be in excess of $5,000,000.00 or have a Material Adverse Effect or (ii) engage in any non-exempt transaction prohibited by Section 406 of ERISA or Section 4975 of the Code which has a Material Adverse Effect. Section 6.7 Payout Ratios. (a) The REIT and the Corporation (without duplication) shall not pay or declare Distributions that exceed the greatest of (i) 95% of the - 63 - 70 Funds From Operations of the REIT and the Corporation (without duplication) in any four consecutive calendar quarters, (ii) the amount necessary to maintain the REIT's status as a real estate investment trust under Section 856 of the Code, or (iii) the amount necessary for the REIT to avoid the payment of any federal income or excise tax (the "Maximum Combined Payout Ratio"). (b) The REIT shall not pay or declare Distributions that exceed the greatest of (i) 95% for any period thereafter of the combined Funds From Operations of the REIT in any four consecutive calendar quarters, (ii) the amount necessary to maintain the REIT's status as a real estate investment trust under Section 856 of the Code or (iii) the amount necessary for the REIT to avoid the payment of any federal income or excise tax (the "Maximum REIT Payment Ratio"). Section 6.8 Operating Leases. No Owner or Operating Entity shall terminate any Operating Lease, and shall not, without the prior written consent of Lender, modify or amend any Operating Lease (other than modifications of a ministerial nature which do not amend or modify any economic terms or terms that would have an adverse effect on the value of the Collateral or Lender's security interest therein). Section 6.9 Borrower's Partnership Agreement. Neither Borrower nor the REIT shall amend or modify Section 7.4 of Borrower's Partnership Agreement or default under any of its obligations under Borrower's Partnership Agreement. Section 6.10 Restriction on Prepayment of Indebtedness. Neither Borrower nor the REIT shall prepay the principal amount, in whole or in part, of any Unsecured Indebtedness other than the Obligations after the occurrence of any Event of Default. Section 6.11 Negative Pledge Covenant. Neither Borrower, the REIT or any other Loan Party shall enter into or suffer to exist, or permit any of its Subsidiaries to enter into or suffer to exist, any mortgage, deed of trust, deed to secure debt or other security instrument or any other Lien, or any agreement permitting or conditioning the creation or assumption of any Lien upon any Real Property Asset, Operating Lease or Collateral other than (i) in favor of Lender and the Co-Lenders, (ii) Permitted Liens, or (iii) mechanic's, materialman's or other similar liens which remain undischarged of record (by payment, bonding or otherwise) for more than thirty (30) days. Section 6.12 Organizational Documents. No Owner or Operating Entity shall modify or amend any of their respective organizational documents without the prior written consent of Lender, which consent shall not be unreasonably withheld. Section 6.13 Intentionally Deleted. Section 6.14 No Transfer. No Owner shall sell, Transfer, convey, assign or lease all or substantially all of the related Real Property Asset and no Operating Entity shall sell, transfer, convey or assign or sublease all or substantially all of its leasehold interest in the related Operating Lease, in either instance other than in connection with a release pursuant to Section 2.21. - 64 - 71 Section 6.15 Change of Name, Identity or Structure. Neither Borrower, SLC, the Corporation, SLT Financing Partnership, any Owner or any Operating Entity will change their name, identity (including its trade name or names) chief executive office, principal place of business without notifying the Lender of such change in writing at least thirty (30) days prior to the effective date of such change. Such Loan Party will execute and deliver to the Lender, prior to or contemporaneously with the effective date of any such change, any financing statement or financing statement change required by the Lender to establish or maintain the validity, perfection and priority of Lender's security interest in the Collateral. At the request of the Lender, Borrower shall execute a certificate in form satisfactory to the Lender listing the trade names under which Borrower or the applicable Loan Party intends to operate the Real Property Asset, and representing and warranting that Borrower and the applicable Loan Party does business under no other trade name with respect to such Real Property Asset. SECTION 7. EVENTS OF DEFAULT. Section 7.1 Events of Default. Each of the following events, acts, occurrences or conditions shall constitute an Event of Default under this Agreement, regardless of whether such event, act, occurrence or condition is voluntary or involuntary or results from the operation of law or pursuant to or as a result of compliance by any Person with any judgment, decree, order, rule or regulation of any court or administrative or governmental body: (a) Failure to Make Payments. Borrower or the REIT shall (i) default in the payment when due of any principal of the Loan, or (ii) default in the payment within two (2) days after the due date of (x) any interest on the Loan or (y) any Fees, Transaction Costs or any other amounts owing hereunder; provided, however, that any interest payable with respect to any delinquent payment shall be calculated at the Default Rate from the date such payment was actually due as if there were no grace period. (b) Breach of Representation or Warranty. Any representation or warranty made by Borrower, the REIT or any other Loan Party herein or in any other Loan Document or in any certificate or statement delivered pursuant hereto or thereto shall prove to be false or misleading in any material respect on the date as of which made or deemed made: provided, however, that if such breach is capable of being cured, then Borrower and the REIT shall have a period of thirty (30) days after the earlier of (i) the actual knowledge of such breach by Borrower or the REIT or (ii) delivery of notice from Lender of such breach, to cure any such breach. (c) Breach of Covenants. (i) Borrower or the REIT or any other Loan Party shall fail to perform or observe any agreement, covenant or obligation arising under Sections 5.1, 5.8, 6.4, 6.6, 6.11 and 6.14. (ii) Borrower or any of the Loan Parties shall fail to perform or observe any agreement, covenant or obligation arising under Sections 5.9, 5.16, 5.17, 5.18, 5.23, 5.28, 5.31, 6.3, 6.7, 6.8, 6.9 and 6.12 and such failure shall continue uncured for thirty - 65 - 72 (30) days after the earlier of (A) the actual knowledge of such failure by Borrower or such Loan Party or (B) delivery of notice from Lender thereof. (iii) Borrower or any of the Loan Parties shall fail to perform or observe any agreement, covenant or obligation arising under this Agreement (except those described in subsections (a), (b) and (c)(i) and (c)(ii) above and (d), (e), (f), (g), (h), (i) and (j) below), other than Section 5.25, the breach of which shall not be deemed an Event of Default, and such failure shall continue uncured for thirty (30) days after delivery of notice thereof, or such longer period of time as is reasonably necessary to cure such Default, provided that Borrower or such Loan Party has commenced and is diligently prosecuting the cure of such Default and cures it within ninety (90) days. (iv) An Event of Default shall occur under any of the Loan Documents other than this Agreement. (d) Default Under Other Agreements. (i) Borrower, the REIT or any other Loan Party shall default beyond any applicable grace period in the payment, performance or observance of any obligation or condition with respect to any Recourse Indebtedness (including, without limitation, the Revolving Credit Facility) or any other event shall occur or condition exist, if the effect of such default, event or condition is to accelerate the maturity of any such Recourse Indebtedness (including, without limitation, the Revolving Credit Facility) or to permit (without regard to any required notice or lapse of time) the holder or holders thereof, or any trustee or agent for such holders, to accelerate the maturity of any such Recourse Indebtedness, or any such Recourse Indebtedness (including, without limitation, the Revolving Credit Facility) shall become or be declared to be due and payable prior to its stated maturity. (ii) Borrower or the REIT is in default under (A) any non-recourse Indebtedness of Borrower or the REIT that is equal to or in excess of $10,000,000, which default results in accelerated Indebtedness or (B) any other non-recourse Indebtedness that could have a Material Adverse Effect on Borrower's or the Guarantors' ability to perform their obligations in connection with the Loan. (iii) Any Owner or Operating Entity, as the case may be, is in default under any material term of the applicable Operating Lease beyond any applicable grace periods provided therein. (e) Bankruptcy, etc. (i) Borrower or any other Loan Party shall commence a voluntary case concerning itself under the Bankruptcy Code; or (ii) an involuntary case is commenced against Borrower or any other Loan Party and the petition is not dismissed within ninety (90) days, after commencement of the case or (iii) a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of Borrower, any other Loan Party or Borrower or any other Loan Party commences any other proceedings under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter - 66 - 73 in effect relating to Borrower, any other Loan Party or there is commenced against Borrower or any other Loan Party any such proceeding which remains undismissed for a period of ninety (90) days; or (iv) any order of relief or other order approving any such case or proceeding is entered; or (v) Borrower or any other Loan Party is adjudicated insolvent or bankrupt; or (vi) Borrower or any other Loan Party suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of ninety (90) days; or (vii) Borrower or any other Loan Party makes a general assignment for the benefit of creditors; or (viii) Borrower, any other Loan Party shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or (ix) Borrower or any other Loan Party shall call a meeting of its creditors with a view to arranging a composition or adjustment of its debt; or (x) Borrower or any other Loan Party shall by any act or failure to act consent to, approve of or acquiesce in any of the foregoing; or (xi) any corporate or partnership action is taken by Borrower or any other Loan Party for the purpose of effecting any of the foregoing. (f) ERISA. (i) Any Termination Event shall occur, or (ii) any Plan shall incur an accumulated funding deficiency (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived, or fail to make a required installment payment on or before the due date under Section 412 of the Code or Section 302 of ERISA, or (iii) Borrower or any of the Loan Parties or a member of their respective ERISA Controlled Group shall have engaged in a transaction which is prohibited under Section 4975 of the Code or Section 406 of ERISA and an exemption shall not be applicable or have been obtained under Section 408 of ERISA or Section 4975 of the Code, or (iv) Borrower or any of the other Loan Parties or any member of their respective ERISA Controlled Group shall fail to pay when due an amount which it shall have become liable to pay to the PBGC, any Plan or any Multiemployer Plan, or (v) Borrower shall have received a notice from the PBGC of its intention to terminate a Plan or to appoint a trustee to administer such Plan, or Multiemployer Plan which notice shall not have been withdrawn within fourteen (14) days after the date thereof, or (vi) a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that a Plan must be terminated or have a trustee appointed to administer any Plan, or (vii) Borrower or any of the other Loan Parties or a member of their respective ERISA Controlled Group suffers a partial or complete withdrawal from a Multiemployer Plan or is in default (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan, or (viii) a proceeding shall be instituted against any of Borrower or any of the other Loan Parties, which proceeding is reasonably likely to succeed, to enforce Section 515 of ERISA, or (ix) any other event or condition shall occur or exist with respect to any Employee Benefit Plan or Plan, any Multiemployer Plan, which could reasonably be expected to subject Borrower or any of the other Loan Parties or any member of their respective ERISA Controlled Group to any tax, penalty or other liability (other than annual contributions or which is not an Event of Default otherwise under this Section 7.1) or the imposition of any lien or security interest on Borrower or any of the other Loan Parties or any member of their respective ERISA Controlled Group, or (x) with respect to any Multiemployer Plan, the institution of a proceeding to enforce Section 515 of ERISA, which proceeding is reasonably likely to succeed, to terminate such Plan or the receipt of a notice of reorganization or insolvency under Sections 4241 or 4245 of ERISA, provided, however, that events or circumstances in Sections 7.1(f)(i) through (x) shall only be an Event of Default if it results in or is reasonably expected to result in liability to Borrower or any Loan Party in excess of $5,000,000.00 or if it has or is likely to have a Material Adverse Effect; or - 67 - 74 (xi) the assets of Borrower or any other Loan Party become or are deemed to be assets of an Employee Benefit Plan. No Event of Default under this Section 7.1(f) shall be deemed to have been or be waived or corrected because of any disclosure by Borrower or any Loan Party. (g) Judgments. One or more judgments or decrees (i) in an aggregate amount of $5,000,000 or more are entered against any Owner or any Operating Entity since the Closing Date or (ii) which, with respect to Borrower, the REIT and the other Loan Parties, could result in a Material Adverse Effect, shall be entered by a court or courts of competent jurisdiction against any of such Persons (other than any judgment as to which, and only to the extent, a reputable insurance company has acknowledged coverage of such claim in writing) and (x) any such judgments or decrees shall not be stayed (by appeal or otherwise), discharged, paid, satisfied, bonded or vacated within thirty (30) days. (v) REIT. (i) The REIT fails to remain a publicly-traded real estate investment trust or the REIT and the Corporation fail to remain in good standing with the New York Stock Exchange and with the Securities and Exchange Commission or (ii) their shares fail to continue to trade as "paired shares" and such failure is not cured within thirty (30) days, if a cure is permitted under Applicable Law. (i) First Priority Lien. The Loan Documents after delivery thereof shall for any reason (other than pursuant to the terms thereof) cease to create a valid and perfected first priority lien on the Collateral (subject to the Permitted Liens) purported to be covered, hereby or thereby. (j) Material Adverse Effect. If any Material Adverse Effect shall occur. Section 7.2 Rights and Remedies. (a) Upon the occurrence of any Event of Default described in Section 7.1(e), the Facility Amount, and the Facility Amount shall automatically and immediately terminate and the unpaid principal amount of and any and all accrued interest on the Loan and any and all accrued Fees and other Obligations shall automatically become immediately due and payable, with all additional interest thereon calculated at the Default Rate from the occurrence of the Default until the Loan is paid in full and without presentation, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and notice of acceleration), all of which are hereby expressly waived by Borrower, the REIT and the other Loan Parties, and the obligation of Lender and all Co-Lenders to make any Advances hereunder shall thereupon terminate; and upon the occurrence and during the continuance of any other Event of Default, Lender may, by written notice to Borrower, (i) declare that the Facility Amount and the Facility Amount is terminated, whereupon the Facility Amount and the Facility Amount and the obligation of Lender and all Co-Lenders to make any Advances (or their pro rata share thereof) hereunder shall immediately terminate, and (ii) declare the unpaid principal amount of and any and all accrued and unpaid interest on the Loan and any and all accrued Fees and other Obligations to be, and the same shall thereupon be, immediately due and payable with all additional interest thereon calculated at the Default Rate from the occurrence of the Default until the Loan is paid in full and without presentation, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, - 68 - 75 notice of intent to demand or accelerate and notice of acceleration), all of which are hereby expressly waived by Borrower, the REIT and the other Loan Parties. (b) Lender and any Co-Lender may offset any indebtedness, obligations or liabilities owed to Borrower against any indebtedness, obligations or liabilities of Borrower to it. (c) Lender and any Co-Lender may avail itself of any remedies available to it under the Loan Documents or at law or equity. SECTION 8. INTENTIONALLY DELETED. SECTION 9. MISCELLANEOUS. Section 9.1 Payment of Lender's and Co-Lender's Expenses, Indemnity, etc. Borrower and the REIT shall: (a) whether or not the Transactions hereby contemplated are consummated, pay (i) all reasonable out-of-pocket costs and expenses of Lender in connection with Lender's due diligence review of the Collateral, the Real Property Assets, the negotiation, preparation, execution and delivery of the Loan Documents, the creation, perfection or protection of Lender's and Co-Lender's Liens in the Collateral (including, without limitation, fees and expenses for property inspections, consultants, lien and title searches, filing and recording fees), all Appraisals of the Real Property Assets made by Lender in accordance with Section 5.24 and any amendment, waiver or consent relating to any of the Loan Documents including releases or Collateral, (including, without limitation, as to each of the foregoing, the reasonable fees and disbursements of any outside or special counsel to Agent or Lender) and of Agent, Lender, the Co-Lenders in connection with the preservation of rights under, any amendment, waiver or consent relating to, and enforcement of, the Loan Documents and the documents and instruments referred to therein or in connection with any restructuring or rescheduling of the Obligations (including, without limitation, the reasonable fees and disbursements of counsel for Agent and Lender). (b) pay, and hold Agent, Lender and each Co-Lender harmless from and against, any and all present and future stamp, excise and other similar taxes with respect to the foregoing matters and hold Agent, Lender and each Co-Lender harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to Lender or such Co-Lender) to pay such taxes; and (c) indemnify Agent, Lender (in its capacity as Lender and as Agent) and each Co-Lender, its officers, directors, employees, representatives and agents (each an "Indemnitee") from, and hold each of them harmless against, any and all losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for such Indemnitee in connection with any investigative, administrative or judicial - 69 - 76 proceeding commenced or threatened, whether or not such Indemnitee shall be designated a party thereto) that may at any time (including, without limitation, at any time following the payment of the Obligations) be imposed on, asserted against or incurred by any Indemnitee as a result of, or arising in any manner out of, or in any way related to or by reason of, (i) any of the Transactions or the execution, delivery or performance of any Loan Document, (ii) the breach of any of Borrower's, the REIT's or other Loan Party's representations and warranties or of any of Borrower's, the REIT's or other Loan Party's Obligations, (iii) a default under Sections 4.12 or 5.11, including, without limitation, attorneys' fees and costs incurred in the investigation, defense, and settlement of losses incurred in correcting any prohibited transaction or in the sale of a prohibited loan, and in obtaining any individual prohibited transaction exemption under ERISA that may be required, and (iv) the exercise by Agent, Lender and the Co-Lenders of their rights and remedies (including, without limitation, foreclosure) under any agreements creating any such Lien (but excluding, as to any Indemnitee, any such losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements to the extent incurred by reason of the gross negligence or willful misconduct of such Indemnitee as finally determined by a court of competent jurisdiction) (collectively, "Indemnified Liabilities"). Borrower and the REIT further agree that, without Lender's prior written consent, which shall not be unreasonably withheld, neither they nor any other Loan Party will enter into any settlement of a lawsuit, claim or other proceeding arising or relating to any Indemnified Liability unless such settlement includes an explicit and unconditional release from the party bringing such lawsuit, claim or other proceeding of each Indemnitee. Notwithstanding anything contained herein to the contrary, neither Borrower nor the REIT shall be liable to pay to Agent, Lender or any Co-Lender any amounts with respect to a Real Property Asset for claims, other than Environmental Claims (as defined in the Environmental Indemnity), based upon an event occurring after the consummation of a transfer by or in lieu of foreclosure of all of the Collateral relating to such Real Property Asset to the extent such amounts relate solely to the period after the date of the consummation of such transfer of Collateral. Borrower's and the REIT's obligations under this Section shall survive the termination of this Agreement and the payment of the Obligations. Section 9.2 Notices. Except as otherwise by expressly provided herein, all notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by facsimile, or cable communication), and shall be deemed to have been duly given or made when delivered by hand, or five (5) days after being deposited in the United States mail, certified or registered, postage prepaid, or, in the case of facsimile notice, when sent, answerback received, or, in the case of a nationally recognized overnight courier service, one (1) Business Day after delivery to such courier service, addressed, in the case of Borrower and Lender, at the addresses specified below, or to such other addresses as may be designated by any party in a written notice to the other parties hereto. - 70 - 77 If to Lender, as follows: Goldman Sachs Mortgage Company 85 Broad Street New York, New York 10004 Telephone Number: (212) 902-9073 Telecopier Number: (212) 902-3684 Attention: Mr. Marc Furstein, Vice President and Goldman Sachs Mortgage Company 85 Broad Street New York, New York 10004 Telephone Number: (212) 902-4579 Telecopier Number: (212) 902-3876 Attention: Ms. R. May Lee, Vice President With a copy to: Main Street Mortgage Co., L.P. 100 2nd Avenue South, Suite 400-S St. Petersburg, Florida 33701 Telephone Number: (813) 825-3811 Telecopier Number: (813) 825-3821 Attention: Ms. Debbie Brown Senior Vice President and Controller If to Borrower or the REIT, as follows: SLT Realty Limited Partnership, c/o Starwood Lodging Trust 2231 East Camelback Road, Suite 410 Phoenix, Arizona 85016 Telephone Number: (602) 852-3900 Telecopier Number: (602) 852-0687 Attention: Mr. Ronald C. Brown with copies thereof to: Sidley & Austin 555 West Fifth Street Los Angeles, California 90013-1010 Telephone Number: (213) 896-6031 Telecopier Number: (213) 896-6600 Attention: Sherwin L. Samuels, Esq. - 71 - 78 Section 9.3 Successors and Assigns; Participations; Assignments. This Agreement shall be binding upon and inure to the benefit of Borrower, the REIT, Lender, the Co-Lenders, all future holders of the Note and their respective successors and assigns. Section 9.4 Amendments and Waivers. (a) Neither this Agreement, the Note, any other Loan Document to which Borrower, the REIT or any Loan Party is a party nor any terms hereof or thereof may be amended, supplemented, modified or waived other than in a writing executed by Borrower, the REIT, such Loan Party and Lender. If all or a portion of the Loan and the Facility Amount is sold to a Co-Lender pursuant to Section 9.9(k), the Borrower and the REIT acknowledge and agree that any amendment, modification approval, waiver or request to be granted regarding the terms of this Agreement shall be given in accordance with the terms, provisions and conditions of the intercreditor agreement (the "Intercreditor Agreement") to be entered into between Lender, as agent, and each Co-Lender (the "Intercreditor Agreement"), provided that such terms, provisions and conditions shall have been disclosed to Borrower and the REIT; Lender agrees that the terms of such Intercreditor Agreement shall not be inconsistent with this Agreement, the other Loan Documents or the Assignment and Assumption. (b) In the case of any waiver, Borrower, the REIT, Lender and all Co-Lenders shall be restored to their former position and rights hereunder and under the Note and any other Loan Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. Section 9.5 No Waiver; Remedies Cumulative. No failure or delay on the part of Lender or any Co-Lender in exercising any right, power or privilege hereunder or under any other Loan Document and no course of dealing between Borrower, the REIT or any other Loan Party and Lender or any Co-Lender shall operate as a waiver thereof nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Loan Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which Lender or any Co-Lender would otherwise have. No notice to or demand on Borrower, the REIT or any other Loan Party in any case shall entitle Borrower, the REIT or any other Loan Party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of Lender or any Co-Lender, to any other or further action in any circumstances without notice or demand. Section 9.6 Governing Law; Submission to Jurisdiction. (a) This Agreement shall be deemed to be a contract entered into pursuant to the laws of the State of New York and shall in all respects be governed, construed, applied and enforced in accordance with the laws of the State of New York, provided however, that with respect to the creation, perfection, priority and enforcement of the lien of the Security Agreements, and the determination of deficiency judgments, the laws of the State where Borrower's, SLC's, the Corporation's and SLT Financing Partnership's respective principal place of business is located shall apply. - 72 - 79 (b) Any legal action or proceeding with respect to this Agreement or any other Loan Document and any action for enforcement of any judgment in respect thereof may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York, and Lender, and each Co-Lender, and, by execution and delivery of this Agreement, Borrower and the REIT hereby accept for themselves and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts and appellate courts from any thereof. Borrower and the REIT irrevocably consent to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to Borrower and the REIT at its address set forth in Section 9.2. Borrower and the REIT and Lender and each Co-Lender hereby irrevocably waive any objection which they may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement or any other Loan Document brought in the courts referred to above and hereby further irrevocably waive and agree not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing herein shall affect the right of Lender or any Co-Lender, to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against Borrower or the REIT in any other jurisdiction. Section 9.7 Confidentiality; Disclosure of Information. Each party hereto shall treat the transactions contemplated hereby and all financial and other information furnished to it about Borrower, the other Loan Parties and the Real Property Assets, as confidential; provided, however, that such confidential information may be disclosed (a) as required by law or pursuant to generally accepted accounting procedures, (b) to officers, directors, employees, agents, partners, attorneys, accountants, engineers and other consultants of the parties hereto who need to know such information, provided such Persons are instructed to treat such information confidentially, (c) by Lender to any Participant, Co-Lender, servicer, or assignee ("Transferee"), which disclosure to Transferees and prospective Transferees may include any and all information which has been delivered to Lender by Borrower pursuant to this Agreement or the other Loan Documents or which has been delivered to Lender in connection with Lender's credit evaluation of Borrower prior to entering into this Agreement, provided that such Transferee agrees to be bound by the provisions of this Section 9.7, or (d) upon the written consent of the party whose otherwise confidential information would be disclosed. Borrower and the REIT acknowledge and agree that Lender may provide to the Co-Lenders, and that Lender and each of the Co-Lenders may provide to any Participant, originals or copies of this Agreement, all Loan Documents and all other documents, instruments, certificates, opinions, insurance policies, letters of credit, reports, requisitions and other materials and information of every nature or description, and may communicate all oral information, at any time submitted by or on behalf of Borrower or the REIT or received by Lender in connection with the Loan or Borrower or the REIT. Section 9.8 Recourse. The Loan and the Obligations shall be fully recourse to Borrower and the REIT. Lender and each Co-Lender acknowledges and agrees that the name "Starwood Lodging Trust" is a designation of the REIT and its Trustees (as Trustees but not personally) under a Declaration of Trust dated August 25, 1969, as amended and restated as of June 6, 1988, as further amended on February 1, 1995 and as further amended on June 19, 1995 - 73 - 80 and as the same may be further amended from time to time, and all persons dealing with the REIT shall look solely to the REIT's assets for the enforcement of any claims against the REIT, as the Trustees, officers, agents and security holders of the REIT assume no personal liability for obligations entered into on behalf of the REIT, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. The foregoing shall govern all direct and indirect obligations of the REIT under this Agreement and the Loan Documents. Section 9.9 Sale of Loan, Co-Lenders, Participations and Servicing. (a) Lender and any Co-Lender may, at their option, sell with novation all or any part of its right, title and interest in, and to, and under the Loan, including, without limitation, all or a portion of its obligation to make Advances, and its interest in the outstanding principal balance of the Loan, to one or more entities (any entity that purchases an interest in the Loan with novation, a "Co-Lender"); notwithstanding the foregoing, provided that no Event of Default has occurred and is continuing, any such sale with novation during the Draw Period to any Co-Lender that is not an Affiliate of Lender shall be subject to Borrower's prior written approval, which approval shall not be unreasonably withheld or delayed; provided, further, however, that Borrower shall be deemed to have approved, and no written approval shall be required for, any financial institution or other entity purchasing the Loan or part thereof or interest therein that has more than $5,000,000,000.00 in assets and is engaged in the business of originating, purchasing and participating in unsecured loans. Each Co-Lender shall purchase an interest in the Loan of at least $5,000,000.00. Lender and each Co-Lender shall enter into an assignment and assumption agreement substantially in the form attached hereto as Exhibit "N" (the "Assignment and Assumption") assigning a portion of Lender's rights and obligations under the Loan, and pursuant to which the Co-Lender accepts such assignment and assumes the assigned obligations. From and after the effective date specified in the Assignment and Assumption (A) each Co-Lender shall be a party hereto and to each Loan Document to the extent of the applicable percentage or percentages set forth in the Assignment and Assumption and, except as specified otherwise herein, shall succeed to the rights and obligations of Lender hereunder and thereunder in respect of the Loan (including, without limitation, its pro rata share of Lender's obligations to make Advances hereunder), and (B) Lender, as lender shall, to the extent such rights and obligations have been assigned pursuant to such Assignment and Assumption, relinquish its rights and be released from its obligations hereunder and under the Loan Documents. The liabilities of Lender and each of the Co-Lenders shall be several and not joint, and Lender's obligations to Borrower under this Agreement shall be reduced by the amount of each such Assignment and Assumption. Neither Lender nor any Co-Lender shall be responsible for the obligations of any other Co-Lender. Lender and each Co-Lender shall be liable to Borrower only for their respective proportionate shares of the Loan. If for any reason any of the Co-Lenders shall fail or refuse to abide by their obligations under this Agreement, Lender and the other Co-Lenders shall not be relieved of their obligations, if any, hereunder, including their obligations to make their pro rata share of any Advance on the date set forth for such Advance in the Notice of Borrowing. - 74 - 81 (b) Intentionally Deleted. (c) Borrower and the REIT agree that they shall, in connection with any sale of all or any portion of the Loan, whether in whole, subject to Section 9.9(d), or to a Co-Lender or Participant, within ten (10) business days after requested by Lender, furnish Lender with the certificates required under Section 9.22(a) and (b) and such other information as reasonably requested by any Co-Lender or Participant in performing its due diligence in connection with its purchase of an interest in the Loan. Borrower and the REIT shall also enter any modifications of the Loan Documents reasonably requested by any prospective Co-Lenders provided that such modifications do not result in any increased cost or obligation to Borrower, the REIT or any other Loan Party. Borrower and the REIT shall also pay all reasonable costs and expenses of Lender and any Co-Lender or prospective Co-Lender, and all reasonable Transaction Costs, including, without limitation Title Searches pursuant to Section 3.2(e) and Appraisals pursuant to Section 5.24, up to a maximum of $150,000.00 (except to the extent that such costs are specifically set forth in this Agreement as being at Borrower's cost and expense) in connection with any sale of all or a portion of the Loan to a Co-Lender. (d) Intentionally Deleted. (e) Unless the entire Loan has been sold to a single entity other than an Affiliate of Lender, Lender (or an Affiliate of Lender) shall act as administrative agent for itself and the Co-Lenders (together with any successor administrative agent, the "Agent") pursuant to this Section 9.9(e). Lender shall have the right to appoint a successor administrative agent for the Loan or delegate any portion of the administrative agent's duties. Borrower acknowledges that Lender, as Lender shall have the sole and exclusive authority to execute and perform this Agreement and each Loan Document on behalf of itself, as Lender and as agent for itself and the Co-Lenders. Borrower may rely conclusively on the actions of Lender as Agent to bind Lender and the Co-Lenders, notwithstanding that the particular action in question may, pursuant to this Agreement or any Intercreditor Agreement among Lender and the Co-Lenders, be subject to the consent or direction of the Co-Lenders. Lender may resign as Agent of the Co-Lenders, in its sole discretion, without the consent of Borrower. Upon any such resignation, a successor Agent shall be determined pursuant to the terms of the Intercreditor Agreement. The term Agent shall include any successor Agent. (f) Except to the extent its obligations hereunder and its interest in the Loan have been assigned pursuant to one or more Assignments and Assumption, Goldman as Lender, shall have the same rights and powers under this Agreement as any other Co-Lender and may exercise the same as though it were not the Agent. The term "Co-Lender" or "Co-Lenders" shall, unless otherwise expressly indicated, include Goldman in its individual capacity. Goldman and the other Co-Lenders and their respective affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, Borrower, Loan Party or any Affiliate of Borrower or Loan Party and any Person or entity who may do business with or own securities of Borrower or Loan Party or any Affiliate of Borrower or Loan Party or any Subsidiary thereof, all as if they were not serving in such capacities hereunder and without any duty to account therefor to each other. - 75 - 82 (g) This Agreement is being entered into by Lender individually and as agent for one or more Co-Lenders, and upon the execution and delivery of each Assignment and Assumption, privity of contract shall be created as between (i) Lender and each Co-Lender and (ii) Borrower and each Co-Lender. (h) Lender, as Agent shall maintain at its domestic lending office or at such other location as Lender, as Agent shall designate in writing to each Co-Lender and Borrower, a copy of each Assignment and Assumption delivered to and accepted by it and a register for the recordation of the names and addresses of the Co-Lenders, the amount of each Co-Lender's proportionate share of the Facility Amount and the Loan and the name and address of each Co- Lender's agent for service of process (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and Borrower, Lender, as Agent and the Co-Lenders may treat each person or entity whose name is recorded in the Register as a Co-Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection and copying by Borrower or any Co-Lender during normal business hours upon reasonable prior notice to the Agent. A Co-Lender may change its address and its agent for service of process upon written notice to Lender, as Agent and Borrower, which notice shall only be effective upon actual receipt by Lender and Borrower, which receipt will be acknowledged by Lender as Agent, and Borrower upon request. (i) Notwithstanding anything herein to the contrary, any financial institution or other entity may be sold a participation interest in the Loan by Lender or any Co-Lender without Borrower's consent (such financial institution or entity, a "Participant") (x) if such sale is without novation and (y) if the other conditions set forth in this paragraph are met. No Participant shall be considered a Lender or Co-Lender hereunder or under the Note or the Loan Documents. No Participant shall have any rights under this Agreement, the Note or any of the Loan Documents and the Participant's rights in respect of such participation shall be solely against Lender or Co-Lender, as the case may be, as set forth in the participation agreement executed by and between Lender or Co-Lender, as the case may be, and such Participant. No participation shall relieve Lender or Co-Lender, as the case may be, from its obligations hereunder or under the Note or the Loan Documents and Lender or Co-Lender, as the case may be,shall remain solely responsible for the performance of its obligations hereunder. (j) Notwithstanding any other provision set forth in this Agreement, the Lender or any Co-Lender may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, amounts owing to it in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System), provided that no such security interest or the exercise by the secured party of any of its rights thereunder shall release Lender or Co-Lender from its funding obligations hereunder. (k) Each Lender, Co-Lender and Participant represents, warrants and covenants, and each person to whom a Lender or Co-Lender or Participant directly or indirectly sells or assigns or otherwise transfers all or any part of its right, title or interest in, or to, or under the Loan (i.e., a Transferee), shall be deemed to represent, warrant and covenant, to Borrower and each of the Loan Parties that they and each other Person to whom all or any part of any Lender, Co-Lender, Participant or Transferee's right, title or interest in, or to, or under - 76 - 83 the Loan is directly or indirectly sold or assigned or otherwise transferred are not, and shall not be, a Plan Asset Entity at any time any Lender, Co-Lender, Participant, Transferee or other Person has any right, title or interest in, or to, or under the Loan, unless such person being a Plan Asset Entity would not result in a non-exempt prohibited transaction under section 406 of ERISA or Section 4975 of the Code because of an exemption or otherwise. Notwithstanding any provision of this Agreement or any Loan Document, if this representation, warranty and covenant is breached and a prohibited transaction under Section 406 of ERISA in Section 4975 of the Code results, (i) neither Borrower nor any Loan Party shall be considered to be in breach of any representation, warranty or covenant of this Agreement or of any Loan Document that is breached or becomes untrue as a result of a prohibited transaction caused by a sale or assignment or other transfer in violation of the preceding sentence, (ii) no Event of Default or Default shall be considered to occur pursuant to this Agreement as a result of a prohibited transaction caused by a sale or assignment or other transfer in violation of the preceding sentence, and similarly no default to the detriment of Borrower or any Loan Party shall be deemed to occur pursuant to any other Loan Document as a result of a prohibited transaction caused by a sale or assignment or other transfer in violation of the preceding sentence and (iii) the Person breaching the representation, warranty and covenant shall indemnify and hold harmless Borrower and each Loan Party from any and all actual, but in no event consequential, losses, expenses, and liabilities resulting to Borrower and any Loan Party resulting therefrom or in connection therewith. In the event that liability is sought to be imposed on any Person pursuant to the indemnification in the subsection (iii) of the preceding sentence ("ERISA Indemnitee"), then such ERISA Indemnitee shall have the right, if it so chooses, to control any litigation or arbitration involving potential liability, loss or expenses under such subsection (iii) and if such ERISA Indemnitee is not timely informed of a claim for liability and given the right to exercise such control, then indemnification under subsection (iii) in the preceding sentence shall be null and void. Borrower and the Loan Parties agree that, without the prior written consent of the ERISA Indemnitee, which shall not unreasonably be withheld, they shall not enter into any settlement of a lawsuit, claim or other proceeding arising or relating to such a liability unless such settlement includes an explicit and unconditional release from the party bringing such lawsuit, claim or other proceeding of each Lender, Co-Lender, Participant and any Transferee, including each ERISA Indemnitee. Section 9.10 Borrower's and REIT's Assignment. Neither Borrower nor the REIT may assign its rights or obligations hereunder without the prior written consent of Lender. Section 9.11 Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. Section 9.12 Effectiveness. This Agreement shall become effective on the date on which all of the parties hereto shall have signed a counterpart hereof and shall have delivered the same to Lender. - 77 - 84 Section 9.13 Headings Descriptive. The heading of the several Sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. Section 9.14 Marshaling; Recapture. Lender shall be under no obligation to marshal any assets in favor of Borrower, the REIT, any other Loan Party or any other party or against or in payment of any or all of the Obligations. To the extent Lender receives any payment by or on behalf of Borrower, the REIT or any other Loan Party, which payment or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to Borrower, the REIT or such other Loan Party or its estate, trustee, receiver, custodian or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such payment or repayment, the obligation or part thereof which has been paid, reduced or satisfied by the amount so repaid shall be reinstated by the amount so repaid and shall be included within the liabilities of Borrower, the REIT or such other Loan Party to Lender as of the date such initial payment, reduction or satisfaction occurred. Section 9.15 Severability. In case any provision in or obligation under this Agreement or the Note or the other Loan Documents shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. Section 9.16 Survival. Except as expressly provided to the contrary herein, all indemnities set forth herein including, without limitation, in Sections 2.16, 2.17, 2.18, 2.19 and 9.1 shall survive the execution and delivery of this Agreement, the Note and the Loan Documents and the making and repayment of the Loan hereunder. Section 9.17 Domicile of Loan Portions. Lender may transfer and carry any Loan Portion at, to or for the account of any domestic or foreign branch office, subsidiary or affiliate, subject to Sections 2.19 and 9.9, and provided that such transfer does not result in any increase in the costs to be paid by Borrower and the REIT under Sections 2.16, 2.18 or 2.19. Section 9.18 Intentionally Omitted. Section 9.19 Calculations; Computations. Except as otherwise expressly provided herein, the financial statements to be furnished to Lender pursuant hereto shall be made and prepared in accordance with GAAP consistently applied throughout the periods involved and consistent with GAAP as used in the preparation of the financial statements referred to in Section 4.5. Section 9.20 WAIVER OF TRIAL BY JURY. TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER, THE REIT, LENDER AND ALL CO-LENDERS EACH HEREBY IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY MATTER ARISING HEREUNDER OR THEREUNDER. - 78 - 85 Section 9.21 No Joint Venture. Notwithstanding anything to the contrary herein contained, Lender by entering into this Agreement or by taking any action pursuant hereto, will not be deemed a partner or joint venturer with Borrower or the REIT and Borrower and the REIT agree to hold Lender harmless from any damages and expenses resulting from such a construction of the relationship of the parties hereto or any assertion thereof. Section 9.22 Estoppel Certificates. (a) Borrower, the REIT and Lender each hereby agree at any time and from time to time upon not less than ten (10) Business Days prior written notice by Borrower or Lender to execute, acknowledge and deliver to the party specified in such notice, a statement, in writing, certifying whether this Agreement is unmodified and in full force and effect (or if there have been modifications, whether the same, as modified, is in full force and effect and stating the modifications hereto), and stating whether or not, to the best knowledge of such certifying party, any Default or Event of Default has occurred and is then continuing, and, if so, specifying each such Default or Event of Default; provided, however, that it shall be a condition precedent to Lender's obligation to deliver the statement pursuant to this Section , that Lender shall receive, together with Borrower's request for such statement, a certificate of a general partner or senior executive officer of Borrower and the REIT stating that no Default or Event of Default exists as of the date of such certificate (or specifying such Default or Event of Default). (b) Within ten (10) Business Days of Lender's request, Borrower shall execute and deliver a certificate of the general partner of Borrower or senior executive officer of Borrower and the REIT confirming the then aggregate outstanding principal balance of the Loan, the outstanding principal balance with respect to the Note of each Eurodollar Portion and each Base Rate Portion, the Contract Rate for each Loan Portion, the dates to which all interest has been paid, and the Interest Period for each Eurodollar Portion. Such statement shall be binding and conclusive on Borrower absent manifest error. Section 9.23 No Other Agreements. This Agreement and the other Loan Documents, together with that certain letter agreement dated the date hereof between Goldman and Borrower, constitute the entire understanding of the parties with respect to the transactions contemplated hereby, and all prior understandings with respect thereto, whether written or oral, shall be of no force and effect. Section 9.24 Controlling Document. In the event of a conflict between the provisions of this Agreement and the other Loan Documents the provisions of this Agreement shall control and govern the conflicting provisions of the other Loan Documents. Section 9.25 No Benefit to Third Parties. This Agreement is for the sole and exclusive benefit of Borrower, the REIT and Lender and the Co-Lenders and all conditions of the obligation of Lender and the Co-Lenders to make Advances hereunder are imposed solely and exclusively for the benefit of Lender and the Co-Lenders and their respective assigns and no other person shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that Lender and any Co-Lender will refuse to make Advances in the absence of strict compliance with any and all thereof and no other person shall under any circumstances be deemed to be a beneficiary of such conditions, any or all of which may be freely waived in whole or in part by Lender at any time if it in its sole discretion deems - 79 - 86 it advisable to do so. Without limiting the generality of the foregoing, Lender shall not have any duty or obligation to anyone to ascertain that funds advanced hereunder are used as required by the terms hereof or to pay the cost of constructing the improvements on any of the Real Property Assets or to acquire materials and supplies to be used in connection therewith or to pay costs of owning, operating and maintaining same. Section 9.26 Joint and Several. Subject to the terms and conditions of Section 9.8, Borrower and the REIT are each jointly and severally liable for the payment in full of the Loan and all other sums owing under this Agreement, the Note, the Security Agreements and any other Loan Documents and the performance of all of the Obligations. - 80 - 87 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. SLT REALTY LIMITED PARTNERSHIP By: Starwood Lodging Trust, its general partner By: /s/ RONALD C. BROWN _______________________________________ Ronald C. Brown Vice President STARWOOD LODGING TRUST By: /s/ RONALD C. BROWN _________________________________________________ Ronald C. Brown Vice President GOLDMAN SACHS MORTGAGE COMPANY, individually and as Agent for One or More Co- Lenders By: Goldman Sachs Real Estate Funding Corp., its general partner By: /s/ PETER L. BRIGER, JR. ________________________________________ Name: PETER L. BRIGER, JR. Title: VICE PRESIDENT EX-10.34 7 MORTGAGE AND SECURITY AGREEMENT 1 EXECUTION ================================================================================ Exhibit 10.34 MORTGAGE AND SECURITY AGREEMENT MADE BY SAUNSTAR LAND CO., LLC ("Fee Mortgagor") and SAUNSTAR OPERATING CO., LLC ("Leasehold Mortgagor") (Fee Mortgagor and Leasehold Mortgagor, together, the "Mortgagor") TO LIFE INSURANCE COMPANY OF GEORGIA ("Mortgagee") ================================================================================ 2 TABLE OF CONTENTS ARTICLE I REPRESENTATIONS AND WARRANTIES 1.01. Organization and Qualification...................................... 8 1.02 Authority and Authorization of Mortgagor............................ 8 1.03 Authority and Authorization of Members.............................. 8 1.04. Execution and Binding Effect........................................ 9 1.05. Authorizations and Filings.......................................... 9 1.06. Absence of Conflicts................................................ 9 1.07. Financial Condition................................................. 9 1.08. Defaults............................................................ 10 1.09. Litigation.......................................................... 10 1.10. Subdivision; Separate Assessment; Zoning; Parking................... 10 1.11. Streets; Access..................................................... 10 1.12. Utility Services.................................................... 11 1.13. Flood Area; Filled Land............................................. 11 1.14. Title............................................................... 11 1.15. Hazardous Substances................................................ 11 1.16. Present Compliance with Laws........................................ 11 1.17 Affirmation of Borrower's Affidavit................................. 11 ARTICLE II COVENANTS AND AGREEMENTS OF MORTGAGOR 2.01. Payment of Secured Obligations...................................... 12 2.02. Maintenance; Repair; Alterations.................................... 12 2.03. Insurance........................................................... 12 2.04. Delivery of Policies; Payment of Premiums........................... 13 2.05. Insurance Proceeds.................................................. 16 2.05.1 Conditions to Use of Proceeds for Greater Than 25% of Outstanding Principal................................... 16 2.05.2 Conditions to Use of Proceeds for All Work, Regardless of Cost...... 17 2.06. Assignment of Policies Upon Foreclosure............................. 19 2.07. Indemnification; Subrogation;Waiver of Offset....................... 19 2.08. Taxes and Impositions............................................... 20 2.09. Utilities........................................................... 23 2.10. Actions Affecting Mortgaged Property................................ 23 2.11. Actions by Mortgagee to Preserve Mortgaged Property................. 23 2.12. Performance; Survival............................................... 24 2.13. Eminent Domain...................................................... 24 2.14. Inspections......................................................... 25 2.15. Liens ........................................................... 26 2.16. Mortgagee's Powers.................................................. 26 2.17. Financial Statements; Annual Rent Roll.............................. 26 2.18. Mortgagor's Existence and Authorizations............................ 27 2.19. Other Liens......................................................... 27
i 3 2.20. Change of Title................................................. 27 2.21. Compliance with Laws; Etc....................................... 30 2.22. Environmental Indemnification................................... 31 ARTICLE III ASSIGNMENT OF LEASES 3.01. Assignment of Leases and Rents.................................. 31 3.02. Covenants as to Leases.......................................... 32 3.03 Master Lease.................................................... 32 ARTICLE IV SECURITY AGREEMENT 4.01. Creation of Security Interest................................... 35 4.02. Covenants Regarding Personal Property........................... 35 ARTICLE V EVENTS OF DEFAULTS; REMEDIES 5.01. Events of Default............................................... 37 5.02. Remedies ....................................................... 39 5.03. Application of Proceeds......................................... 42 5.04. Right to Sue Without Prejudice.................................. 42 5.05. Power to Modify Documents....................................... 43 5.06. Remedies Cumulative............................................. 43 5.07 Grant and Exercise of Power of Sale............................. 44 5.08 Waiver of Stay, Execution, Moratorium Laws Equity of Redemption............................................ 44 ARTICLE VI MISCELLANEOUS 6.01. Giving of Notice................................................ 44 6.02. Governing Law................................................... 46 6.03. Statements by Mortgagor......................................... 46 6.04. Captions ....................................................... 46 6.05. Changes in Tax Law.............................................. 46 6.06. Further Assurances.............................................. 46 6.07. Amendments, Waivers, Etc........................................ 47 6.08. No Implied Waiver............................................... 47 6.09. Expenses; Taxes; Attorneys' Fees................................ 47 6.10. Jurisdiction; Etc............................................... 47 6.11. Interpretation.................................................. 48 6.12. Invalidity of Certain Provisions................................ 48 6.13. Severability.................................................... 48 6.14. Time of Essence; Duration; Survival............................. 49 6.15. Successors and Assigns.......................................... 49 6.16. Subrogation..................................................... 49 6.17. Repayment after Acceleration; Prepayment........................ 49 6.18. Future Advances................................................. 49 6.19. Assignment of Mortgagee's Interest 49 6.20. Limitation of Liability......................................... 50 EXHIBIT "A" - Legal Description
ii 4 MORTGAGE AND SECURITY AGREEMENT THIS MORTGAGE AND SECURITY AGREEMENT (this "Mortgage"), dated as of the 22nd day of May 1996, by SAUNSTAR LAND CO., LLC, a Delaware limited liability company, ("the Fee Mortgagor") and SAUNSTAR OPERATING CO., LLC, a Delaware limited liability company, (the "Leasehold Mortgagor"), both having an address c/o Saunders Real Estate Corporation, 20 Park Plaza, Boston, Massachusetts 02116-4399 in favor of LIFE INSURANCE COMPANY OF GEORGIA, a Georgia corporation having an address c/o ING Investment Management, Inc., 300 Galleria Parkway, N.W., Suite 1200, Atlanta, Georgia 30339-3149 (the "Mortgagee"). The term "Mortgagor" as used herein shall mean each of Fee Mortgagor and Leasehold Mortgagor, both of them, or any combination of them as the context permits or requires. To the extent of any ambiguity, the context shall be interpreted as being inclusive (i.e., both of them and each combination of them) and the obligations of each of the Mortgagors hereunder shall be joint and several. W I T N E S S E T H: WHEREAS, Fee Mortgagor has executed and delivered to Mortgagee its Mortgage Note (the "Note") of even date herewith wherein Fee Mortgagor promises to pay to Mortgagee the principal sum of Thirty Million and 00/100 Dollars ($30,000,000.00) (the "Loan") in lawful money of the United States of America (or so much thereof as shall have been disbursed by Mortgagee), with interest thereon at the rate and times, in the manner and according to the terms and conditions specified in the Note, all of which are incorporated herein by reference. WHEREAS, Fee Mortgagor is the owner in fee simple of the real property located at and known as: Boston Park Plaza Hotel and Tower, 64 Arlington Street; the Statler Office Building, 20 Park Plaza; and The First Corps of Cadets Armory, 130 Columbus Avenue, each located in Boston, Suffolk County, Massachusetts, consisting of approximately a collective 2.24 acres of land and improved with hotel, conference center, office and retail facilities, being more particularly described in Exhibit A attached hereto and made a part hereof (collectively, the "Premises"). WHEREAS, Leasehold Mortgagor is the owner of the leasehold interest in the Premises by virtue of that certain Lease Agreement (as may be amended, modified or restated, the "Master Lease") dated January 24, 1996 by and between Fee Mortgagor as lessor and Leasehold Mortgagor as lessee. WHEREAS, Fee Mortgagor and Leasehold Mortgagor each acknowledge that the Mortgagor will derive substantial and material economic benefits from the approved uses of the Loan proceeds. 1 5 WHEREAS, as a condition to disbursing the Loan evidenced by the Note and secured, inter alia, hereby, Mortgagee requires Fee Mortgagor and Leasehold Mortgagor to execute and deliver this Mortgage for the purpose of securing the payment of the Note and the performance and observance of all of the obligations, arising under the Loan Documents (as hereinafter defined) and secured hereby. NOW, THEREFORE, in consideration of the indebtedness described above together with interest on such indebtedness, as well as the payment of all other sums of money secured hereby, as hereinafter provided, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound, and in order to secure: (a) Payment of the indebtedness evidenced by the Note, and any and all modifications, extensions and renewals thereof, including indebtedness arising as a result of advances made in the future, and all interest provided for in the Note; (b) Payment and performance of all obligations of Mortgagor under any agreement made by Mortgagor or between Mortgagor and Mortgagee related to the use of the loan proceeds evidenced by the Note, and of each agreement of Mortgagor incorporated by reference therein or herein, or contained therein or herein; (c) Payment and performance of all obligations of Mortgagor under the Loan Documents (as hereinafter defined); (d) Payment of all sums advanced by Mortgagee in accordance herewith to protect the Mortgaged Property or Mortgagee's interests therein, with interest thereon as specified in the Note; (e) Payment of all other sums, with interest thereon, which may be now or hereafter loaned to Mortgagor, or its successors or assigns on behalf of the Mortgaged Property, by Mortgagee, and also any additional sums not related to the loan which is evidenced by the Note (the "Loan"), when evidenced by a promissory note or notes executed by Mortgagor reciting that such sums are or are to be secured by this Mortgage; and (f) Payment and performance of all obligations and agreements of Mortgagor contained herein or incorporated herein by reference or evidencing or securing the indebtedness secured hereby; (all of the foregoing being hereinafter collectively referred to as the "Secured Obligations"), Mortgagor does hereby irrevocably grant, bargain, sell, convey, warrant, assign, transfer, mortgage and pledge to Mortgagee, its successors and assigns, with MORTGAGE 2 6 COVENANTS all of Mortgagor's estate, right, title, interest, property, claim and demand, now owned or held or hereafter acquired or arising, in and to the following property and rights: 1. ALL the Fee Mortgagor's right, title, interest, claim and demand, either at law or equity, now or hereafter, in the Premises. 2. ALL the Fee Mortgagor and Leasehold Mortgagor's right, title, interest, claim and demand, either at law or equity, now or hereafter, in and to the leasehold estate in the Premises created pursuant to the Master Lease. 3. TOGETHER WITH all leasehold estates of Mortgagor as lessor, if any, and all right, title and interest of Mortgagor in and to all leases, including but not limited to the Master Lease, covering the Premises or any portion thereof now or hereafter existing or entered into (each, a "Lease," collectively, the "Leases"), all guarantees of the obligations of the tenants under any of the Leases, and all right, title and interest of Mortgagor thereunder, including, without limitation, all cash or security deposits, rentals, additional rentals, percentage rentals, advance rentals, and deposits, maintenance payments or common area payments, income, or profits due or to become due under the Leases (including all proceeds under any options contained in the Leases) and all covenants contained in the Leases relating to the collection and enforcement of collection of such rents, income or profits, or payments of similar nature (collectively, "Lease Rents"); 4. TOGETHER WITH all interests, estate or other claims, both in law and in equity, which Mortgagor now has or may hereafter acquire in the Premises; 5. TOGETHER WITH Mortgagor's interest in any and all tenements, hereditaments and appurtenances belonging to the Premises or any part thereof or in any way appertaining thereto, and all streets, alleys, passage ways, areas and sidewalks, water courses, water rights and all leasehold estates, rights of way and public places, and all strips and gores of land adjacent thereto or used in connection therewith, rights of access or similar benefit now existing or hereafter created for the benefit of the Premises or the Mortgagor or any subsequent owner or tenant of the Premises over ground adjoining or adjacent to the Premises and all rights to enforce the maintenance thereof, and all air rights, all easements for foundation and support and any other appurtenant easement rights necessary to allow for the continued use of the Premises for hotel, conference center, office and retail purposes as permitted by the appropriate governing authorities and sufficient to satisfy all tenant requirements under any and all Lease documents, and all other rights, liberties and privileges of whatsoever kind or character, and all the estate, right, title, interest, property, possession, claim and demand whatsoever, at law or in equity, of Mortgagor in and to the Premises or any part thereof; 6. TOGETHER WITH all right, title and interest of Mortgagor in and to any and all buildings, structures and improvements now or hereafter erected on the Premises, and all chattels, fixtures, building materials, machinery, inventory, apparatus, equipment, articles and/or all personal property of every kind and description, all parts therefor, and all 3 7 improvements, accessions or appurtenances thereto, whether tangible or otherwise, now or hereafter located on or used or usable in connection with the Premises or any business conducted thereon, whether or not the same have or would become a part of the Premises by attachment thereto, including, without limiting the generality of the foregoing, all lighting, heating, cooling, ventilating, air conditioning, power, incinerating, sprinkling, gas, plumbing, waste removal and refrigeration systems, engines, furnaces, boilers, pumps, tanks, heaters, generators, motors, maintenance equipment, fire prevention apparatus, dryers and laundry equipment, office equipment, and all pipes, wires, fixtures and apparatus forming a part of or used in connection therewith, tools, supplies, elevators and motors, refrigeration plants or units, kitchen equipment, cooking appliances, cabinets, partitions, doors, windows, furniture, furnishings, living and artificial plants and planters, televisions, television systems, antenna and/or satellite dish systems, beds, dressers, radios, lamps, switchboards, telephones, telephone systems and equipment, computers, computer equipment and software, cabinets, signage, storm windows and doors, window and door screens, awnings and window and door shades, all drapes and curtains and related hardware and mounting devices, wall-to-wall carpeting, tables, chairs, pots, pans, plates, dishes, silver and flatware, linens, plants, planters, carpets, wall and floor coverings, draperies, art work, motor vehicles, vending machines, all equipment, machinery, furnishings, fixtures and inventory situated upon or in the Premises and used or usable in the operation thereof, as well as all additions, improvements, substitutions and replacements thereto, and proceeds thereof; with respect to any personal property which is subject to a conditional bill of sale, lease, security agreement, mortgage or other lien covering such Premises; all the right, title and interests of Mortgagor in and to any and all such personal property and any and all such conditional bills of sale and/or leases, together with the benefits of any deposits or payments now or hereafter made by Mortgagor, or the predecessors or successors in title to Mortgagor, all of the records and books of account now or hereafter maintained by Mortgagor in connection with the Premises and/or the construction, development, operation and/or management thereof and/or in connection with the operation of Mortgagor's business, all names as may be used in connection with the Premises and the goodwill associated therewith, all rents, issues, profits and other incomes whether now existing or hereafter acquired, all contract rights relating to the purchase, installation and/or maintenance of any equipment and/or construction of any improvements (including without limitation, any contracts with architects, engineers and/or contractors), all accounts and general intangibles now owned or existing or hereafter created or acquired related to the Premises and/or the operation of any business with respect thereto, all agreements for the provision of Premises or services to or in connection with, or otherwise benefitting, the Premises; including, without limitation, all management agreements, franchise agreements, license agreements and cable television agreements, to the extent permitted by applicable law all rights in and to any and all building, zoning, environmental and other permits, licenses including without limitation all liquor licenses, approvals, variances and consents which have been issued or are hereafter issued by any governmental entity and/or utility company or provided in connection with or related to the Premises, and all bonds securing to Mortgagor the payment or performance of any obligation concerning the construction, maintenance, repair and/or use of the Premises; 4 8 7. TOGETHER WITH all right, title and interest of Mortgagor in and to all drawings, plans, specifications, shop drawings, renderings, data, studies, reports, appraisals, analysis, and other similar work product related to the Premises now existing or hereafter prepared by Mortgagor, its agents, contractors, architects, engineers and/or employees in connection with or related to the Premises and all rights in, to and under, all monies due and to become due pursuant to and all claims, demands and causes of action that Mortgagor now has or which may hereafter arise against all parties under all contracts and subcontracts related to or providing for the design and construction of improvements to the Premises or the provision of labor, services or materials therefor, whether now existing or hereafter executed, and any supplements thereto; 8. TOGETHER WITH all right, title and interest of Mortgagor in and to all guarantees, and reserve accounts or escrows now or hereafter created and the funds established thereby pursuant to this Mortgage and the Note; 9. TOGETHER WITH all the remainder or remainders, reversion or reversions, rents, revenues, issues, profits, royalties, income, accounts receivable and proceeds therefrom and other benefits derived from any of the foregoing, including the Lease Rents (collectively, the "Rents"), all of which are hereby unconditionally assigned to Mortgagee, who is hereby authorized to collect and receive the same, to give proper receipts and acquittances therefor and to apply the same to the payment of the Secured Obligations, notwithstanding the fact that the same may not then be due and payable, subject, however, to a revocable license of Mortgagor to receive and use the same which license shall be deemed automatically revoked by Mortgagee without requirement of additional notice to Mortgagor or of any further action on the part of Mortgagee, upon an Event of Default (as hereinafter defined); 10. TOGETHER WITH all proceeds or payments in lieu of or as compensation for the loss of or damage or of the conversion, voluntary or involuntary, of any of the Mortgaged Premises into cash or liquidated claims, including without limitation, all proceeds of the insurance required to be maintained by this Mortgage, or otherwise maintained by the Mortgagor in connection with the Mortgaged Premises, all awards or other compensation heretofore or hereafter made to Mortgagor as the result of any Condemnation (as defined in Section 2.13), all awards for changes of the grades of streets and all awards for severance damages, all of which are hereby assigned to Mortgagee, who is hereby authorized to collect and receive the proceeds thereof, to give proper receipts and acquittances therefor and, subject to Sections 2.05 and 2.13, to apply the same to the payment of the Secured Obligations, notwithstanding the fact that the same may not then be due and payable; 11. TOGETHER WITH any monies deposited with Mortgagee pursuant to the terms hereof or of any other Loan Document and all proceeds thereof; 12. TOGETHER WITH all of Mortgagor's interest in accounts, accounts receivable, receivables and other receivables (including without limitation, receivables, revenues, rentals and receipts from guest rooms, meeting rooms, food and beverage facilities, 5 9 vending machines, telephone systems, guest laundry and all other items of revenue, receipts or income as identified in the Uniform System of Accounts for Hotels, 8th revised edition, International Association of Hospitality Accountants and Hotel Association of New York City, Inc. (1986), as from time to time amended), contract rights, chattel paper, instruments and documents, promissory notes, any other obligations or indebtedness owed to Mortgagor from whatever source arising, deposits, credits, balances, money and rights to money, all rights of Mortgagor to receive any performance or any payments in money or kind, all guarantees of the foregoing and security therefor, all of the right, title and interest of Mortgagor in and with respect to the goods, services, or other property that gave rise to or that secure any of the foregoing and insurance policies and proceeds relating thereto, all rights of Mortgagor as an unpaid seller of goods and services, including but not limited to, the rights to stoppage in transit, replevin, reclamation, and resale, all books and records relating to or evidencing any of the foregoing, and all of the foregoing whether now owned or existing or hereafter created or acquired; 13. TOGETHER WITH all choices in action and causes of action, all contracts and contract rights (including, without limitation, interests as lessor in leases, including without limitation the Master Lease and the Leases, and interests as seller in the sale, transfer or disposition of all or any part of the property or items described herein), and all other intangible personal property or general intangibles of Mortgagor of every kind and nature (other than accounts), corporate or other business records, mailing lists, trademarks, trade names, trade secrets, goodwill, blueprints, plans, programs, processes, registrations, licenses, permits, franchises, judgments, tax refund claims, insurance proceeds including, without limitation, insurance covering the lives of key employees on which Mortgagor is beneficiary, and any letter of credit, guarantee, claim, security interest or other security held by or granted to Mortgagor to secure payment by an account debtor of any of the accounts, all books and records relating to or evidencing any of the foregoing, and all of the foregoing, whether now owned or exiting or hereafter created or acquired (the "Intangibles"); 14. TOGETHER WITH any goods, merchandise, or other personal property, raw materials, parts, supplies, work-in-process and finished products intended for sale, lease or provision under or in connection with a contract for services of every kind and description in the custody or possession, actual or constructive, of Mortgagor, including such inventory as is temporarily out of the custody or possession of Mortgagor, including insurance proceeds from insurance on any of the above, any returns upon any accounts and other proceeds, resulting from the sale or disposition of any of the foregoing, including without limitation, raw materials, work-in-process, and finished goods, and all of the foregoing, whether now owned or existing or hereafter created or acquired (the "Inventory"); 15. TOGETHER WITH all proceeds, products, rents and profits and profits (in whatever form whether cash or non-cash) of any and all of the foregoing, including, without limitation, in the accounts, equipment, intangibles, inventory and/or any of the property or items described herein, and all additions and accessions to, replacements of, insurance or condemnation proceeds of, and documents covering, the accounts, equipment, intangibles, 6 10 inventory and/or any of the property or items described herein, all property received wholly or partly in trade or exchange from the accounts, equipment, intangibles, inventory, and/or any of the property or items described herein, and all rents, advances, deposits, revenues, issues, profits and proceeds arising from the sale, lease license, encumbrance, collection, or any other temporary or permanent disposition of, the accounts, equipment, intangibles, inventory, and/or any of the property or items described herein, or any interest therein. 16. TOGETHER WITH the foregoing items and all books, papers and records relating to or evidencing the foregoing are and/or shall be located on the Premises described in Exhibit A, provided that the security interest of Mortgagee shall attach and be effective wherever such items may be located. 17. It is the intent hereof and of Mortgagor and Mortgagee that Mortgagee shall have a first and best pre- and post-bankruptcy petition lien in and to all of the foregoing and a first and best lien as to all items which may be deemed "cash collateral" under Title 11 of the United States Code entitled "Bankruptcy," as amended from time to time. It is also the intent hereof and the intent and agreement of Mortgagor and Mortgagee that all revenue derived from the leasing of the Premises shall be and be deemed rent derived from the underlying real estate and, accordingly, subject to this Mortgage. Further, it is the intent hereof and the intent and agreement of Mortgagor and Mortgagee that any revenues generated by and/or attributable to the portion of the Premises which is a hotel and conference center facility or the use or the operation thereof shall be and be deemed rent derived from the underlying real estate which is subject to the assignment of Leases and Lease Rent provisions hereof. Any person or entity extending credit to Mortgagor after the recording hereof shall be deemed to have assented to the terms of this paragraph. All of the foregoing as set forth in paragraphs 1 - 16 above, and the balance of the entire estate, property and interest hereby conveyed to Mortgagee, is sometimes hereafter collectively referred to as the "Mortgaged Property." This Mortgage, the Note, the Loan Agreement (the "Loan Agreement") of even date herewith by and between Mortgagor and Mortgagee, the Assignment of Leases and Rents (as defined in Section 3.01), the Environmental Indemnification Agreement (as defined in Section 2.22), the Assignment of Agreements, Permits and Rights of even date herewith, the Limited Guaranty and Suretyship Agreement of even date herewith (the "Limited Guaranty") given to Mortgagee by Saunders Real Estate Corporation, a Massachusetts corporation ("Saunders"), SLT Realty Limited Partnership, a Delaware limited partnership ("SLT"), and Starwood Lodging Trust, a Maryland real estate investment trust ("Starwood"), (each, a "Guarantor," collectively, the "Guarantors"), the Payment Guaranty and Suretyship Agreement of even date herewith (the "Payment Guaranty") given to Mortgagee by SLT and Starwood (the Limited Guaranty and the Payment Guaranty, collectively, the "Guaranty"), and the Borrower and Guarantors' Affidavit of even date herewith given by Mortgagor and Guarantors to Mortgagee (the "Borrower's Affidavit") and any other instrument given to evidence or further 7 11 secure the payment and performance of any obligation secured hereby and any guaranty thereof are sometimes hereinafter collectively referred to as the "Loan Documents." TO HAVE AND TO HOLD the Mortgaged Property hereby conveyed or mentioned and intended so to be, unto Mortgagee, to its own use forever. PROVIDED ALWAYS, NEVERTHELESS, and this Mortgage is upon the express condition that, if Mortgagor pays to Mortgagee the principal sum advanced pursuant to the Loan Documents, the interest thereon and all other sums payable by Mortgagor to Mortgagee which constitute the Secured Obligations, in accordance with the provisions of the Loan Documents, at the times and in the manner specified, without deduction, defalcation, fraud or delay, and Mortgagor performs and complies with all the agreements, conditions, covenants, provisions and stipulations contained herein and in the other Loan Documents, then this Mortgage and the estate hereby granted shall cease and become void, but otherwise shall remain in full force and effect. Mortgagor agrees to pay all costs, expenses and fees associated with the preparation, execution, delivery and recording of a satisfaction or release of this Mortgage. ARTICLE I REPRESENTATIONS AND WARRANTIES Mortgagor represents and warrants to Mortgagee, its successors and assigns, as follows: 1.01. Organization and Qualification. Fee Mortgagor and Leasehold Mortgagor are duly organized and validly existing as limited liability companies under the Laws (as defined in Section 1.06) of the State of Delaware, are duly qualified to do business and are in good standing under the Laws of the Commonwealth of Massachusetts, and have full power to conduct their businesses as presently conducted. The Donald Saunders Family LLC, (the "Family LLC"), a member of Fee Mortgagor and Leasehold Mortgagor, is duly formed and validity existing as a limited liability company under the Laws of the Commonwealth of Massachusetts, is duly qualified to do business has and is in good standing under the Commonwealth of Massachusetts, is qualified and has full power to conduct its business as presently conducted. SLC Operating Limited Partnership ("SLC"), a member of Leasehold Mortgagor is duly organized and validly existing as a limited partnership under the laws of the State of Delaware, is duly qualified to do business and is in good standing under the Laws of the State of Delaware and Commonwealth of Massachusetts, and is qualified and has full power to conduct its business as presently conducted. 8 12 SLT, a member of Fee Mortgagor, is duly organized and validly existing as a limited partnership under the laws of the State of Delaware, is duly qualified to do business under the Laws of Delaware, and is in good standing under the Laws of the State of Delaware, and is qualified and has full power to conduct its business as presently conducted. (The members of Fee Mortgagor and Leasehold Mortgagor are collectively referred to as the "Members"). Starwood Lodging Trust, the general partner of SLT, is duly formed and validly existing as a real estate investment trust under the Laws of the State of Maryland, is duly qualified to do business under the Laws of Maryland, and is in good standing under the Laws of Maryland, and has full power to conduct its businesses as presently conducted. 1.02. Authority and Authorization of Mortgagor. Mortgagor has full power and authority to own the Mortgaged Property, to execute and deliver the Note, this Mortgage and the other Loan Documents and to perform its obligations hereunder under the Note and the other Loan Documents, and all such action has been duly and validly authorized by all necessary partnership action on its part. 1.03. Authority and Authorization of Members. The Members have full power and authority to execute and deliver the Loan Documents to which Mortgagor is a party on behalf of Mortgagor and to perform as Members in connection with the obligations of the Mortgagor hereunder, under the Note, and under the other Loan Documents, and all such action has been duly and validly authorized by all necessary corporate action on its part. The Members have the full power and authority to bind Mortgagor in any or all matters relating to Mortgagor's business activities, including, without limitation, the power to enter into the Loan, the Mortgage, the Note and the other Loan Documents. 1.04. Execution and Binding Effect. This Mortgage, the Note and the other Loan Documents to which Mortgagor and the Guarantors are a party have been duly and validly executed and delivered by Mortgagor and the Guarantors and to the best of Mortgagor's knowledge constitute legal, valid and binding obligations of Mortgagor and the Guarantors, respectively, enforceable in accordance with the terms hereof and thereto. 1.05. Authorizations and Filings. To the best of Mortgagor's knowledge, no authorization, consent, approval, license, exemption or other action by, and no registration, qualification, designation, declaration or filing with, any Governmental Authority is or will be necessary or advisable in connection with the execution and delivery of this Mortgage, the Note or the other Loan Documents, consummation of the transactions herein or therein contemplated or performance of or compliance with the terms and conditions hereof or thereof. As used herein the term "Governmental Authority" means any government or political subdivision or any agency, authority, bureau, central bank, commission, department or instrumentality of either, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic. 9 13 1.06. Absence of Conflicts. Neither the execution and delivery of this Mortgage, the Note or the other Loan Documents nor consummation of the transactions herein or therein contemplated nor performance of or compliance with the terms and conditions hereof or thereof will (a) to the best of Mortgagor's knowledge, violate any Law, (b) conflict with or result in a breach of or a default under the operating agreement, articles of organization, by-laws, or partnership agreement, as applicable, of Mortgagor, the Members, or any Guarantor, or any agreement or instrument, including without limitation the Master Lease, to which Mortgagor, the Members, or any Guarantor is a party or by which any of them or any of their respective properties (now owned or hereafter acquired) may be subject or bound or (c) to the best of Mortgagor's knowledge, result in the creation or imposition of any lien, charge, security interest or encumbrance upon any property (now owned or hereafter acquired) of Mortgagor, the Members, or any Guarantor, other than those liens, charges, security interests and encumbrances created by the Loan Documents themselves. As used herein, the term "Law" means any law (including common law), constitution, statute, treaty, regulation, rule, ordinance, order, injunction, writ, decree or award of, or permit, approval or license granted by, any Governmental Authority, including without limitation those relating to zoning, subdivision, building, safety, fire protection, accessibility to, usability by or discrimination against disabled individuals, or environmental matters. 1.07. Financial Condition. The financial statements of Mortgagor and the Guarantors heretofore furnished to Mortgagee present fairly the financial condition at the respective dates indicated therein and the results of operations and cash flows, as applicable, for the respective periods indicated therein of Mortgagor, the Members and the Guarantors, and to the best of Mortgagor's knowledge, were prepared in accordance with Generally Accepted Accounting Principles in the United States. Since the dates of the most recent of such financial statements for Mortgagor, the Members and the Guarantors, there has been no material adverse change in the business, operations or condition (financial or otherwise) of any of Mortgagor, the Members or the Guarantors from that reflected in such financial statements. 1.08. Defaults. No Event of Default, nor, to the best of Mortgagor's knowledge, any circumstance, event or occurrence which, except for the passage of time or the giving of notice or both would constitute an Event of Default (a "Potential Default"), has occurred and is continuing or exists. 1.09. Litigation. There is no pending or (to Mortgagor's knowledge) threatened proceeding by or before any Governmental Authority against or affecting Mortgagor, the Members, the Guarantors, or the Mortgaged Property which if adversely decided would have a material adverse effect on the business, operations, condition (financial or otherwise) or prospects of Mortgagor, the Members or the Guarantors or on the ability of Mortgagor or the Guarantors to perform their respective obligations under the Loan Documents or on the ownership or operation of the Improvements. 1.10. Subdivision; Separate Assessment; Zoning; Parking. To the best of Mortgagor's knowledge, (i) the Premises are comprised of two parcels under applicable Laws 10 14 regulating subdivision and land development and may be leased, transferred or mortgaged without the approval of any Governmental Authority having jurisdiction to regulate or control subdivision or land development, (ii) the Premises are assessed separately from all other lands for purposes of ad valorem taxation, (iii) all requirements of every Governmental Authority pertaining to the Premises and the Improvements, including without limitation zoning, have been complied with, (iv) no variances, reliance on adjacent property or special exception is required for the Improvements; and (v) the Premises contains such parking spaces as are required by applicable Law and by all Leases of the Premises. 1.11. Streets; Access. To the best of Mortgagor's knowledge, all streets necessary for the full utilization of the Premises for its present use have been completed or the necessary rights-of-way therefor acquired by or dedicated to the appropriate Governmental Authority. The Premises abut upon physically open, publicly dedicated rights of way known as Park Plaza, Arlington Street and Columbus Avenue and Mortgagor, its tenants and business visitors have direct, lawful, unobstructed, adequate and unimpaired vehicular and pedestrian access to and from said rights of way. 1.12. Utility Services. All utility services necessary for the ownership of the Improvements and the operation thereof for their present use are available at the boundaries of the Premises, including water supply and sanitary and storm sewer facilities and gas, electric and telephone facilities. 1.13. Flood Area; Filled Land. To the best of Mortgagor's knowledge, the Premises are not in an "area of special flood hazard", as that term is defined in the National Flood Insurance Act of 1968 (as amended and supplemented by the Flood Disaster Protection Act of 1973). 1.14. Title. Mortgagor (a) has good and marketable title to the Premises and the Improvements and has good title to all Personal Property and other property and rights comprising the Mortgaged Property, except as set forth on Exhibit B attached hereto and incorporated herein, subject to no mortgage, lien, pledge, charge, security interest or other encumbrance or adverse claim of any nature except Permitted Encumbrances (as defined in this Section 1.14), and (b) has full power and lawful authority to grant, bargain, sell, convey, warrant, assign, transfer, mortgage, pledge, grant a security interest in, set over and confirm unto Mortgagee, and its successors and assigns, the Mortgaged Property as herein provided. Fee Mortgagor and Leasehold Mortgagor, each hereby consent to the other's mortgage conveyance herein of the fee interest and leasehold interest, respectively, and acknowledge that such respective grants do not constitute an Event of Default under the Master Lease. Mortgagor will forever warrant and defend the title to the Mortgaged Property and the validity and first priority of the lien or estate, and the security interest, created hereby against the claims and demands of all persons whomsoever. As used herein the term "Permitted Encumbrances" means (i) the Master Lease and all other easements, rights of way and other exceptions set forth in Schedule B-I of the title policy insuring the lien of this Mortgage, and 11 15 (ii) the other exceptions set forth in Schedule B-II of such policy provided such exceptions remain subordinate to the lien of the Mortgage granted herein. 1.15. Hazardous Substances. The warranties and representations set forth on Exhibit B of the Environmental Indemnification Agreement are incorporated herein by reference and are true, complete and accurate. 1.16. Present Compliance with Laws. To the best of Mortgagor's knowledge, the Mortgaged Property and Mortgagor's operations at the Mortgaged Property are in substantial compliance with all applicable Laws and private covenants, except as otherwise set forth in the Agreement of Environmental Undertakings executed by Mortgagor of even date herewith. Neither Mortgagor nor Guarantor has received any notification from any Governmental Authority claiming that there has been any violation of any Law applicable to the Mortgaged Property or Mortgagor's operations at the Mortgaged Property or requiring compliance with any such Law not disclosed to Mortgagee in writing. 1.17. Affirmation of Borrower's Affidavit. The Representations and Warranties as set forth in the Borrower's Affidavit are true, accurate and complete. ARTICLE II COVENANTS AND AGREEMENTS OF MORTGAGOR Mortgagor hereby covenants and agrees, for itself and its successors and assigns: 2.01. Payment of Secured Obligations. To pay when due the principal of, and the interest on, the indebtedness evidenced by the Note, and the charges, fees and all other sums as provided in the Loan Documents, and all principal of and interest on any future advance secured hereby, and all other amounts constituting the Secured Obligations. 2.02. Maintenance; Repair; Alterations. To keep or, cause to be kept the Mortgaged Property in good condition and in a rentable and tenantable state of repair; to make or cause to be made, as and when necessary, all repairs, renewals and replacements, structural and non-structural, exterior and interior, ordinary and extraordinary, foreseen and unforeseen; to not remove, demolish or substantially alter (other than the periodic upgrade or refurbishment of the Improvements which maintain or increase the value thereof and except such alterations as may be required by Laws, expressly permitted hereby or otherwise required to be performed in connection with tenant improvements required or permitted pursuant to any Lease in the ordinary course of business expressly permitted hereby) any of the Improvements; to promptly restore or complete, in good and workmanlike manner and in compliance with all Laws, private covenants and insurance requirements, any Improvements and or Personal Property which may be damaged or destroyed by casualty (whether or not insured against or insurable) or by any Condemnation, with Improvements or Personal Property of equivalent value and utility, whether or not the proceeds of insurance required hereunder or the award payable in respect 12 16 of such Condemnation are sufficient for the purpose or are available to Mortgagor pursuant to Sections 2.05 or 2.13 for such purpose, and to promptly pay when due all claims for labor performed and materials furnished therefor; to comply with all Laws, covenants, conditions and restrictions now or hereafter affecting the Mortgaged Property or any part thereof or requiring any alterations or improvements, whether foreseen or unforeseen, including but not limited to those relating to environmental Laws and Laws relating to accessibility to, usability by and discrimination against disabled individuals; not to commit or permit any waste or deterioration of the Mortgaged Property; to keep and maintain grounds, sidewalks, roads, parking and landscape areas in good and neat order and repair; to comply with the provisions of any Lease; not to commit, suffer or permit any act to be done in or upon the Mortgaged Property in violation of any Law; and not to permit the Mortgaged Property to become abandoned or unguarded. 2.03. Insurance. To at all times provide, maintain and keep in force the following insurance coverage with respect to the Mortgaged Property: (a) Insurance against loss or damage to the Improvements and the Personal Property by fire, flood, earthquakes, lightning, windstorm, explosion, riot, riot attending a strike, civil commotion, aircraft and vehicles, smoke and such other hazards as are covered by insurance of the type now known as "fire and extended coverage", vandalism, malicious mischief and such other hazards as are covered by so-called "all risk to physical loss" insurance, and such other insurable hazards as, under good insurance practices, from time to time are insured against for improvements and personal property having similar functions and uses in the area where the Improvements and Personal Property are located, in an amount not less than the greater of (i) 100% of the replacement cost of the Improvements and Personal Property without deduction for physical depreciation, including the cost of debris removal (exclusive of the cost of excavations, foundations and footings below the lowest basement floor), or (ii) the amount necessary to avoid Mortgagor being or becoming a co-insurer with Mortgagee under the terms of the applicable policies or by applicable Law; but in any event not less than $30,000,000.00 and with not more than a $50,000.00 deductible from the loss payable for any earthquake or flood casualty and a $10,000.00 deductible from the loss payable for all other casualties, which amounts shall increase each year by an amount allowed pursuant to subparagraph (i) of this Section 2.03. The policies of insurance carried in accordance with this subparagraph (a) shall provide for an annual review to ascertain, among other things, the then pertaining "Replacement Cost Endorsement"; (b) Comprehensive general liability insurance (including coverage for elevators and escalators, if any, on the Mortgaged Property and, if any completion or construction of new Improvements occurs after execution of this Mortgage, completed operations coverage for two years after construction of all Improvements has been completed) on an "occurrence basis" against claims for "personal injury," including without limitation bodily injury, death or property damage occurring on, in or about the Premises and the adjoining streets, sidewalks and passageways, such insurance to be in a minimum amount of $1,000,000.00 per person and $2,000,000.00 per occurrence, together with excess or umbrella 13 17 liability in the minimum amount of $25,000,000.00 naming Mortgagee as additional insured and in an amount to satisfy all Lease requirements and with not more than $5,000.00 deductible from the loss payable for any such occurrence which amount shall increase each year by an amount allowed pursuant to subparagraph (i) of this Section 2.03. (c) Worker's compensation insurance (including employer's liability insurance, if requested by Mortgagee) for all employees of Mortgagor engaged on or with respect to the Mortgaged Property in such amount as is reasonably satisfactory to Mortgagee, or, if such limits are established by law, in such amounts; (d) During the course of any construction or repair of improvements on the Premises at a cost in excess of $100,000.00 builder's completed value risk insurance against "all risks of physical loss", including work in place, collapse and transit coverage, during construction of such Improvements, with deductibles not to exceed $10,000.00 which amount shall increase each year by an amount allowed pursuant to subparagraph (i) of this Section 2.03, in non-reporting form, covering the total value of work performed and equipment, supplies and materials furnished. Said policy of insurance shall contain the "permission to occupy upon completion of work or occupancy" endorsement; (e) To the extent applicable, as determined by Mortgagee, boiler and machinery insurance covering pressure vessels, air tanks, boilers, machinery, pressure piping, heating, air conditioning and other major components of HVAC systems, and elevator equipment and escalator equipment, provided the Improvements contain equipment of such nature, and insurance against loss of occupancy or use arising from any such breakdown, in such amounts as are from time to time satisfactory to Mortgagee; (f) If the Premises are in an area designated as a special flood hazard area by the Federal Emergency Management Agency, such flood insurance as is available and reasonably acceptable to Mortgagee; (g) Business interruption insurance and insurance against loss of "rental value" for a period of not less than twelve (12) months in such amounts as are satisfactory to Mortgagee; and (h) Such other insurance, and in such amounts, as may from time to time be reasonably required by Mortgagee against the same or other hazards which may now or hereafter arise. (i) From the date hereof until the Maturity Date (as defined in the Note), the maximum deductible amounts allowed in Sections 2.3(a), (b) and (d) may increase annually as follows: Each respective deductible shall be multiplied times a fraction, the denominator of which shall be the Consumer Price Index published most recently prior to the date hereof. The numerator of the fraction shall be the Consumer Price Index published most recently prior to 14 18 the commencement of each respective Loan Year (as defined in the Note) for which the calculation is being made. The term "Consumer Price Index" or "CPI" shall mean the Consumer Price Index for urban wage earners and clerical workers, Boston, Massachusetts, all items (1982-1984 =100) published by the United States Department of Labor. In the event the CPI ceases to use the 1982-84 average of 100 as the basis of calculation or if substantial changes are made in the terms or items contained therein then the price index shall be adjusted to the figure that would have been arrived at had the manner of completing the CPI not been changed. In the event that the CPI is discontinued, then an equivalent index or method of calculation shall be determined by Mortgagee. 2.04. Delivery of Policies; Payment of Premiums. That all policies of insurance required hereby shall be issued by companies and in amounts in each company satisfactory to Mortgagee: (a) All policies of insurance required by the terms of this Mortgage shall contain an endorsement or agreement by the insurer that any loss shall be payable in accordance with the terms of such policy notwithstanding any act or negligence of Mortgagor which might otherwise result in forfeiture of said insurance and the further agreement of the insurer waiving all rights of set off, counterclaim or deductions against Mortgagor. All policies of insurance shall be subject to the approval of Mortgagee as to insurance companies, amounts, expiration dates, form and content and shall name Mortgagee as an additional insured. In furtherance and not in limitation of the foregoing, all such policies must have a Best's Class A "XIII" category designation, and are to be obtained by Mortgagor and held by Mortgagee's correspondent, New England Realty Resources, Inc., or such other person as may be from time to time designated by Mortgagee. All policies of insurance maintained by Mortgagor pursuant to clauses (a) and (d) of Section 2.03 shall contain the "Replacement Cost Endorsement," "Increased Cost of Construction Endorsement," and an "Agreed Amount Endorsement." All policies of insurance covering risks of physical loss shall provide the losses thereunder shall be payable to Mortgagee pursuant to a standard first mortgagee endorsement, without contribution, substantially equivalent to the New York Standard Mortgage Endorsement. At least thirty (30) days prior to the expiration of any policy of insurance, Mortgagor shall furnish Mortgagee with evidence satisfactory to Mortgagee of the payment of the premium for, and the reissuance of a policy continuing, such insurance is required by this Mortgage. All policies of insurance shall contain a waiver by the insurer of all rights of subrogation to any rights of Mortgagee and all rights of set-off, counterclaim or deduction against the insureds. All policies of insurance shall also contain a provision to the effect that any modification, termination, cancellation of or amendment to, or non-renewal of such insurance, including any reduction in the scope or limits of coverage, shall not be effective as to Mortgagee without at least thirty (30) days prior written notice to Mortgagee. Mortgagor shall not take out separate insurance with respect to the Mortgaged Property concurrent in form or contributing in the event of loss with that required by this Mortgage unless the same shall contain a standard non-contributory lender's loss payable endorsement in favor of and in scope and form satisfactory to Mortgagee. 15 19 If the policy carries a co-insurance clause or other clause limiting the amount of coverage under certain conditions, the insurance must be in such an amount as to give full coverage under all conditions. (b) In the event Mortgagor fails to provide, maintain, keep in force or deliver and furnish to Mortgagee the policies of insurance required by Section 2.03 and by this Section 2.04, Mortgagee may procure such insurance or single-interest insurance for such risks covering Mortgagee's interest, and Mortgagor will pay all premiums thereon promptly within ten (10) days of demand by Mortgagee, and until such payment is made by Mortgagor the amount of all such premiums together with interest thereon at the Default Rate set forth in the Note and shall be evidenced by the Note and shall be secured by this Mortgage. (c) Mortgagor shall pay to Mortgagee on the day monthly installments of principal and interest are due under the Note, until the Note is paid in full, an amount equal to one-twelfth (1/12th) of the estimated aggregate annual insurance premiums on all policies of insurance required by this Mortgage. Such sums shall be held in escrow by New England Realty Resources, Inc., or such other person as may be from time to time designated by Mortgagee. Mortgagor further agrees, upon Mortgagee's request, to cause all bills, statements or other documents relating to the foregoing insurance premiums to be sent or mailed directly to Mortgagee at least thirty (30) days prior to the expiration or termination date thereof. Upon receipt of such bills, statements or other documents, and provided Mortgagor has deposited sufficient funds with Mortgagee pursuant to this Section 2.04, Mortgagee shall pay such amounts as may be due thereunder out of the funds so deposited with Mortgagee. If at any time and for any reason the funds deposited with Mortgagee are or will be insufficient to pay such amounts as may then or subsequently be due, Mortgagee shall notify Mortgagor and Mortgagor shall immediately deposit an amount equal to such deficiency with Mortgagee. Funds deposited with Mortgagee pursuant to this Section 2.04 in an account or accounts designated for such deposits may be commingled by Mortgagee with similar deposits by other mortgagors and, to the extent permitted by applicable Law, shall not bear interest. 2.05 Insurance Proceeds. That upon the occurrence of any casualty to the Mortgaged Property or any part thereof, Mortgagor shall give prompt written notice thereof to Mortgagee. A. In the event of fire or other casualty during the term of the Note, subject to the provisions of subclause B. below, then the proceeds of any insurance policies carried by Mortgagor (the "Proceeds") shall be paid over to Mortgagee, and may be used at the sole, absolute and exclusive option of Mortgagee toward repayment of the Loan or to restore, repair or replace the damaged Mortgaged Property (the "Work"). B. Notwithstanding the foregoing, provided that no Event of Default has occurred and is continuing and in the event: (1) Proceeds available as a result of such fire or other casualty are equal to or less than Five Hundred Thousand and 00/100 Dollars ($500,000.00), Mortgagee shall deliver 16 20 such Proceeds to Mortgagor, and Mortgagor covenants to use such Proceeds to fund the cost of the Work, and further covenants that upon completion of the Work, Mortgagor will fulfill the terms and conditions as set forth in Section 2.05.2(B), (C), (E), (F), (G), to the extent any tenant under any Lease is affected by such casualty, and (H). (2) The cost of completing the Work estimated by Mortgagee is equal to or less than Fifty percent (50%) of the then outstanding principal balance under the Loan at the time of the casualty occurrence, Mortgagee shall make such Proceeds available for reimbursement of the costs to Mortgagor of the Work subject to the fulfillment of the terms and conditions as set forth in Section 2.05 (including Subsections 2.05.1 and 2.05.2) to Mortgagee's full and complete satisfaction, in its reasonable judgment. (3) The cost of completing the Work estimated by Mortgagee is greater than Fifty percent (50%) of the then outstanding principal balance under the Loan at the time of the casualty occurrence, and if Mortgagee shall, in its sole discretion, elect to apply the Proceeds toward repayment of the Loan, then Mortgagor shall have the right to prepay the Loan in full without any Prepayment Premium (as defined in the Note) within ninety days (90) after Mortgagee or Correspondents notifies Mortgagor of such election, provided that Mortgagor notifies Mortgagee of its intention to prepay the Loan in full within thirty (30) days of the receipt of notice of such election. C. In the event Mortgagee makes the Proceeds available for repair, restoration or replacement of the Mortgaged Property, and each and every term and condition set forth in this Section 2.05 (including Subsections 2.05.1 and 2.05.2) is not fulfilled to Mortgagee's full and complete satisfaction, in its reasonable judgment, then Mortgagee shall continue to have the right as set forth in paragraph A of this Section 2.05 to use the Proceeds towards repayment of the Loan, or to restore, repair or replace the damaged Mortgaged Property, at the sole, absolute and exclusive option of Mortgagee. D. Regardless of whether there are Proceeds available, or whether Mortgagee makes Proceeds available to Mortgagor or any such Proceeds are sufficient in amount: (1) Nothing herein contained shall be deemed to excuse Mortgagor from repairing or maintaining the Mortgaged Property as provided in Section 2.02 hereof or restoring or replacing all damage or destruction of the Mortgaged Property; (2) The application or release by Mortgagee of any Proceeds shall not cure or waive any default or notice of default under this Mortgage or invalidate any act done pursuant to such notice; and (3) Mortgagor may obtain construction financing ("Construction Financing") to fund the cost of the Work provided (i) such financing and the lien securing such financing on the Mortgaged Property is fully and completely subordinate to the lien of this Mortgage, (ii) Mortgagee has approved the terms and conditions of the Construction Financing, including 17 21 the loan documents evidencing and securing such Construction Financing, which consent shall not be unreasonably withheld or delayed, and (iii) Mortgagor shall pay Mortgagee's costs associated with Mortgagee's review and approval of the Construction Financing, including, without limitation reasonable attorneys' fees. E. Any monies released to Mortgagor (or paid or applied on the cost of the Work, as hereinafter defined) shall in no event be deemed a repayment of the Loan. Mortgagee shall not be responsible for any failure to collect the Proceeds under the terms of any insurance policy required pursuant to this Mortgage. F. To the extent that Proceeds are to be made available by Mortgagee for the reimbursement of the costs to Mortgagor for completing the Work pursuant to this Section 2.05, such Proceeds shall be paid out by Mortgagee to Fee Mortgagor or Leasehold Mortgagor, as the case may be depending on which party is entitled to receive the Proceeds under the Master Lease, only upon the fulfillment of the terms and conditions set forth in Section 2.05.1 and Section 2.05.2 to Mortgagee's full and complete satisfaction, in its reasonable judgment: 2.05.1 Conditions To Use Of Proceeds for Work Greater Than 25% of Outstanding Principal. If the cost of completing the Work estimated by Mortgagee shall exceed twenty-five percent (25%) of the then outstanding principal balance under the Loan at the time of the casualty occurrence and the Mortgagee makes the Proceeds available to Mortgagee, then, prior to the commencement thereof (other than Work to be performed on an emergency basis to protect the Mortgaged Property or prevent interference therewith): A. Mortgagor shall retain (at Mortgagor's expense) an architect or engineer, approved by Mortgagee in its reasonable judgment in advance of the performance of the Work, and charged with the supervision of the Work; and B. Mortgagor shall have submitted to Mortgagee: 1. The plans and specifications for such Work (the "Plans"), along with a cost projection schedule including a trade payment breakdown, project budget, construction schedule and anticipated payments schedule showing the costs and timing for completing the Work (the "Cost Projection Schedule"), each with such detail as Mortgagee may reasonably require. At Mortgagee's request, Mortgagor's interest in the Plans will be assigned to Mortgagee conditioned upon the occurrence of an Event of Default; 2. Such other documentation as Mortgagee may reasonably require evidencing that the Work will be in compliance with all federal, state and local, rules, regulations ordinances and codes, including without limitation, all building codes and zoning ordinances, governing or otherwise applicable to the Mortgaged Property or the Work (the "Legal Requirements"); 18 22 3. Executed copies all general construction contracts relating to the Work; 4. To the extent that the cost to complete the Work, based upon the Cost Projection Schedule, will be more than the Proceeds, Mortgagor shall have deposited with Mortgagee funds (the "Additional Deposit") at least equal to the difference between (a) the costs to complete the Work as set forth on the Cost Projection Schedule and (b) the Proceeds received and being held by Mortgagee. The Additional Deposit shall be held by Mortgagee under the same terms and conditions, and with the same rights and privileges granted to Mortgagee, as the Proceeds are to be held by Mortgagee under this Mortgage. To the extent that any funds are advanced to Mortgagor pursuant to this Section 2.05, the Additional Deposit shall be deemed to have been the funds first advanced. In the alternative, to the extent that the cost to complete the Work will be more than the Proceeds, Mortgagee shall allow the Guarantors to provide a completion guaranty (the "Completion Guaranty") for all such costs which exceed the Proceeds, which guaranty shall be acceptable to Mortgagee in its sole discretion. Mortgagor shall pay to Mortgagee all costs and expenses incurred by Mortgagee, including, without limitation, legal fees, in connection with the Completion Guaranty. 2.05.2 Conditions To Use Of Proceeds For All Work, Regardless Of Cost. In the event Mortgagee has made the Proceeds available, the proceeds shall be made available upon the full and complete performance of the Work, regardless of the cost thereof: A. Neither an Event of Default nor a Potential Default shall have occurred and be continuing; B. Mortgagor shall provide lien waivers satisfactory in form and substance to Mortgagee covering the Work and an endorsement to the title policy evidencing that there has not been filed, and insuring against the filing of, any mechanic's lien or other lien, affidavit or instrument asserting any lien or any lien rights with respect to the Mortgaged Property; C. Mortgagor shall provide a copy of a Certificate of Occupancy if required by Law and all other licenses, certificates and permits as may be required by any Legal Requirements to render occupancy of the damaged portion of the Mortgaged Property lawful for its intended purposes; D. Mortgagor shall provide no less than ten (10) business days prior written notice to Mortgagee of its request for the release of Proceeds; E. The architect or engineer reasonably approved by the Mortgagee (if any be required hereinabove, and if not so required or otherwise retained, then Mortgagor or an executive officer, general partner or member of the Members) shall deliver to 19 23 Mortgagee a certification stating, among such other matters as may be reasonably required by Mortgagee that: a. All of the Work has been fully and completely performed in compliance with the approved plans and specifications (if any be required hereinabove), in a good and workmanlike manner. b. The amount of the Proceeds requested to be disbursed is justly required to reimburse Mortgagor for payments by Mortgagor to, or is justly due to, the contractor, subcontractors, materialmen, laborers, engineers, architects or other persons rendering services or materials for the Work (giving a brief description of such services and materials); c. The amount of the disbursement requested does not exceed the value of the Work performed; F. Mortgagor shall deliver to Mortgagee such other documentation as Mortgagee may reasonably require evidencing that the Mortgaged Property and the Work as completed is in compliance with all Legal Requirements, and that all conditions to any such licenses, certificates and permits issued in connection with the Mortgaged Property and the Work have been fulfilled; G. Mortgagor shall deliver to Mortgagee estoppel certificates from Leasehold Mortgagor as lessee under the Master Lease and from each tenant, affected by the casualty including without limitation any Tenant which would have a right of termination or offset as a result of such casualty, under any Major Lease, as defined in the Assignment of Leases and Rents, which acknowledge that all Work was fully and completely performed in compliance with the Master Lease and the Major Leases and that the Master Lease and all such Major Leases remain in full force and effect, and that no default or Event of Default has occurred and is continuing under the Master Lease or such Major Leases; H. Mortgagor shall have completed the Work on or before eighteen (18) months after the date of such casualty, as such period may be extended by up to three (3) additional months in the event of a force majeure. Nothing herein shall be interpreted to require Mortgagee to make proceeds available to Mortgagor unless the conditions as set forth in Section 2.05(B)(1) or (2) have been fulfilled. Further, nothing herein shall be interpreted to prohibit Mortgagee from (y) withholding five percent (5%) (or a greater amount, if required by any Legal Requirement) of the amount otherwise herein provided to be disbursed from disbursement, and from continuing to withhold such sum until the time permitted for perfecting liens, by each respective trade providing the Work, against the Mortgaged Property has expired, at which time the amount withheld shall be disbursed to Mortgagor (or to Mortgagor and any person or persons furnishing labor and/or 20 24 material of the Work or directly to such persons) upon completion of the respective work or service by the respective trade and receipt of Mortgagee of the respective mechanics lien waivers, or (z) applying at any time the whole or any part of the Proceeds to the curing of any Event of Default. If, upon completion of the Work and disbursement as contemplated herein, any portion of the Proceeds has not been disbursed to Mortgagor (or one or more of the other aforesaid persons), Mortgagee may, at Mortgagee's option, disburse such balance to Mortgagor or apply such balance toward the repayment of the Loan. 2.06. Assignment of Policies Upon Foreclosure. That in the event of foreclosure of this Mortgage or other transfer of title or assignment of the Mortgaged Property in extinguishment, in whole or in part, of the debt secured hereby, all right, title and interest of Mortgagor in and to all policies of insurance (except for the liability insurance) required by this Mortgage shall and must inure to the benefit of and pass to the successor in interest to Mortgagor or the purchaser or grantee of the Mortgaged Property. 2.07. Indemnification; Subrogation; Waiver of Offset. (a) That in the event Mortgagee is made a party defendant to any litigation concerning this Mortgage or the Mortgaged Property or any part thereof or therein, or in the occupancy thereof by Mortgagor or persons claiming through the Mortgagor, then Mortgagor shall indemnify, defend and hold Mortgagee harmless from all liability by reason of said litigation, including attorneys' fees and expenses incurred by Mortgagee in any such litigation, whether or not any such litigation is prosecuted to judgment. If Mortgagee commences an action against Mortgagor to enforce any of the terms hereof or because of the breach by Mortgagor of any of the terms hereof, or for the recovery of any sum secured hereby, Mortgagor shall pay to Mortgagee attorneys' fees and expenses, and the right to such attorneys' fees and expenses shall be deemed to have accrued on the commencement of such action, and shall be enforceable whether or not such action is prosecuted to judgment. If an Event of Default occurs under this Mortgage, Mortgagee may employ an attorney or attorneys to protect its rights hereunder, and in the event of such employment following any Event of Default, Mortgagor shall pay Mortgagee attorneys' fees and all other expenses incurred by Mortgagee, whether or not an action is actually commenced against Mortgagor by reason of breach. (b) To waive any and all right to claim or recover against Mortgagee, its officers, employees, agents and representatives, for loss of or damage to Mortgagor, the Members, any Guarantor, the Mortgaged Property, Mortgagor's property or the property of others under Mortgagor's control from any cause whatsoever. (c) That all sums payable by Mortgagor hereunder shall be paid without notice, demand, counterclaim, setoff, deduction or defense and without abatement, 21 25 suspension, deferment, diminution or reduction, and the obligations and liabilities of Mortgagor hereunder shall in no way be released, discharged or otherwise affected by reason of: (i) any damage to or destruction of or any condemnation or similar taking of the Mortgaged Property or any part thereof; (ii) any restriction or prevention of or interference with any use of the Mortgaged Property or any part thereof; (iii) any title defect or encumbrance or any eviction from the Premises or the Improvements or any part thereof by title paramount or otherwise; (iv) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to Mortgagor, the Members or any Guarantor, or any action taken with respect to this Mortgage by any trustee or receiver of Mortgagor or any Member, or by any court, in any such proceeding; (v) any claim which Mortgagor or any Member has or might have against Mortgagee; (vi) any default or failure on the part of Mortgagee to perform or comply with any of the terms hereof or of any other agreement with Mortgagor; or (vii) any other occurrence whatsoever, whether similar or dissimilar to the foregoing; whether or not Mortgagor or any Member shall have notice or knowledge of any of the foregoing. Mortgagor waives all rights now or hereafter conferred by statute or otherwise to any abatement, suspension, deferment, diminution or reduction of any sum secured hereby and payable by Mortgagor. 2.08. Taxes and Impositions. (a) To pay all real property taxes and assessments, general and special, and all other taxes and assessments or payments in lieu of taxes of any kind or nature whatsoever, including without limitation non-governmental levies or assessments such as maintenance charges, owner association dues or charges or fees, levies or charges resulting from covenants, together with any other charge or similar payment which create, may create or appear to create or could create a lien upon the Mortgaged Property or the Improvements, or any part thereof, or upon any of Mortgagor's Personal Property, equipment or other facilities used in the operation or maintenance thereof (all of which taxes, assessments and other governmental and non-governmental charges of like nature are hereinafter referred to as "Impositions"); provided, however, that so long as no Event of Default has occurred if, by law, any such Imposition is payable, or at the option of the taxpayer may be legally paid, in installments without delinquency, interest or penalty, Mortgagor may pay the same together with any accrued interest on the unpaid balance of such Imposition in installments as the same become due and before any fine, penalty, interest or cost may be added thereto for the nonpayment of any such installment and interest. (b) That if at any time after the date hereof there shall be assessed or imposed by any Law now or hereafter enacted (i) a tax or assessment on the Mortgaged Property in lieu of or in addition to the Impositions payable by Mortgagor pursuant to clause (a) of this Section 2.08, or (ii) a license fee, mercantile, business privilege or any other tax or assessment on Mortgagee and measured by or based in whole or in part upon the amount of the outstanding obligations secured hereby, (all such taxes, assessments or fees shall be deemed to be included within the term "Impositions" as defined in clause (a) of this Section 2.08), and Mortgagor shall fail to pay and discharge the same as herein provided with respect to the 22 26 payment of Impositions then, at the option of Mortgagee, and with or without notice to Mortgagor, Mortgagee may pay same, and all such obligations shall be secured hereby and, together with all accrued interest thereon, shall immediately become due and payable. Anything to the contrary herein notwithstanding, Mortgagor shall have no obligation to pay any income, excess profits or similar tax based on and measured by net profits or gross profits levied on Mortgagee or on the obligations secured hereby. (c) Leasehold Mortgagor agrees to pay all rent, and other payments required to be made by Leasehold Mortgagor pursuant to the Master Lease (the "Master Lease Obligations"). (d) Subject to the provisions of this Section 2.08, to furnish Mortgagee at least 15 days prior to the date upon which any penalty or interest may be payable by Mortgagor, official receipts of the appropriate taxing authority, or other proof satisfactory to Mortgagee, evidencing the payments thereof. (e) That, so long as no Event of Default has occurred, Mortgagor shall have the right before any delinquency occurs to contest or object to the amount or validity of any such Imposition by appropriate legal proceedings, but this shall not be deemed or construed in any way as relieving, modifying or extending Mortgagor's covenant to pay any such Imposition at the time and in the manner provided in this Section 2.08, unless, at Mortgagee's sole option, Mortgagor: (i) shall immediately demonstrate to Mortgagee's reasonable satisfaction that the legal proceedings shall operate conclusively to prevent the sale of the Mortgaged Property, or any part thereof, and to satisfy such Imposition prior to final determination of such proceedings; and (ii) shall furnish a good and sufficient bond or surety as requested by and satisfactory to Mortgagee, or another good and sufficient undertaking acceptable to Mortgagee as may be required or permitted by law to accomplish a stay of such proceedings. Mortgagee shall, in its sole discretion, determine whether Mortgagor has satisfied the conditions of this section. (f) Mortgagor shall pay to Mortgagee on the day that monthly installments of principal and interest are payable under the Note, until the Secured Obligations are paid in full, an amount equal to one-twelfth (1/12th) of the annual Impositions reasonably estimated by Mortgagee to pay the installment of taxes and assessments next due on the Mortgaged Property as provided for in the Note. Such sums shall be held in escrow by New England Realty Resources, Inc., or such other person as may be from time to time designated by Mortgagee, without interest being payable to Mortgagor. Mortgagor further agrees to promptly upon receipt thereof forward directly to Mortgagee true and complete copies of all bills, statements or other documents relating to the Impositions. Upon receipt of such bills, statements or other documents, and providing Mortgagor has deposited sufficient funds with Mortgagee pursuant to this Section 2.08, Mortgagee shall pay such amounts as may be due thereunder out of the funds so deposited with Mortgagee. If at any time and for any reason the funds deposited with Mortgagee are or will be insufficient to pay such amounts as may then or subsequently be due, Mortgagee shall notify Mortgagor and Mortgagor shall within ten 23 27 (10) days of demand by Mortgagee deposit an amount equal to such deficiency with Mortgagee. Should Mortgagor at any time fail to deposit with Mortgagee (exclusive of that portion of said payments which has been applied by Mortgagee on account of the principal of or interest on the indebtedness secured by the Loan Documents) sums which together with sums to be deposited herewith monthly will be sufficient to fully pay such Impositions at least thirty (30) days before delinquency thereof, Mortgagee may, at Mortgagee's election, but without any obligation so to do, advance any amounts required to make up the deficiency, which advances, if any, shall be secured hereby and shall be repayable to Mortgagee as herein elsewhere provided. Should any Event of Default occur or exist on the part of Mortgagor in the payment or performance of any of Mortgagor's obligations under the terms of the Loan Documents, Mortgagee may, at any time and at Mortgagee's option, apply any sums or amounts held by Mortgagee, including any interest earned thereon, to the payment of any indebtedness or obligation of the Mortgagor secured hereby in such manner and order as Mortgagee may elect. The receipt, use or application of any such sums paid by Mortgagor to Mortgagee hereunder shall not be construed to affect the maturity of any of the Secured Obligations or any of the rights or powers of Mortgagee under the terms of the Loan Documents or any of the obligations of Mortgagor under any Loan Document. Funds deposited with Mortgagee pursuant to this Section 2.08 in an account or accounts designated for such deposits may be commingled by Mortgagee with similar deposits by other mortgagors, and, to the extent permitted by applicable law, shall not bear interest. The provisions of this Section 2.08(f) are subject to the terms of a separate letter agreement between Mortgagor and Mortgagee. (g) Mortgagor covenants and agrees, to the extent permitted by law, not to suffer, permit or initiate the joint assessment of the real and personal property, or any other procedure whereby the lien of real property taxes and the lien of personal property taxes shall be assessed, levied or charged to the Mortgaged Property as a single lien, nor shall the real property be assessed with any other real property which is not subject to the lien of this Mortgage. (h) That if Mortgagor or any of the Members, assignees, successors or grantees of Mortgagor is or shall be or become a corporation, a limited or general partnership, a limited liability company or limited liability partnership, it shall keep in effect its existence and rights as such corporation or partnership under the Laws of the state of its incorporation or formation and its right to own property and transact business in the state in which the Mortgaged Property is situated during the entire time that it has any ownership or other interest in the Mortgaged Property. For all periods during which the title to the Mortgaged Property or any part thereof shall be held by a corporation or other entity subject to corporate taxes or taxes similar to corporate taxes, Mortgagor shall file or cause to be filed returns for such taxes with the proper authorities, bureaus or department and shall cause to be paid, when due and before interest or penalties are due thereon, all taxes payable by such corporation or other entity to the United States, to such state of incorporation or formation and to the state in which the Mortgaged Property is situated and any political subdivision thereof, and shall produce to Mortgagee receipts showing payment of any and all such taxes, charges or assessments prior to the last dates upon which such taxes, charges 24 28 or assessments are payable without interest or penalty charges; provided, however, that Mortgagor shall have the right before any delinquency occurs to contest or object to the amount or validity of any such taxes, charges or assessment in good faith and by appropriate legal proceedings, but this shall not be deemed or construed in any way as relieving, modifying or extending Mortgagor's obligation to pay any such taxes, charges or assessments at the time such contest, objection and legal proceedings have been terminated or discontinued adversely to Mortgagor. Within ten (10) days of receipt thereof, Mortgagor shall produce to Mortgagee all settlements, notices of deficiency or overassessment and any other notices pertaining to Mortgagor's tax liability, which may be issued by the United States, the state in which the Mortgaged Property is situated and any political subdivision thereof. If at any time the United States or any department or bureau thereof shall require Internal Revenue stamps on the Note secured hereby, Mortgagor on demand shall pay for them with any interest or penalties payable thereon. 2.09. Utilities. To pay when due all utility charges which are incurred by Mortgagor for the benefit of the Mortgaged Property or which may become a charge or lien against the Mortgaged Property for gas, telephone, electricity, electronic equipment, water or sewer services furnished to the Mortgaged Property and all other assessments or charges of a similar nature, whether public or private, the Mortgaged Property or any portion thereof, whether or not such taxes, assessments or charges are liens thereon. 2.10. Actions Affecting Mortgaged Property. To appear in and contest any action or proceeding purporting to affect the security hereof or the rights or powers of Mortgagee and to pay all costs and expenses, including cost of evidence of title and attorneys' fees, in any such action or proceeding in which Mortgagee may appear. 2.11. Actions by Mortgagee to Preserve Mortgaged Property. That should Mortgagor fail to make any payment or to do any act as and in the manner provided in any of the Loan Documents after the expiration of any applicable notice or grace periods, Mortgagee in its own discretion, without obligation so to do and immediately upon giving notice to Mortgagor but without demand upon Mortgagor and without releasing Mortgagor from any obligation, may make or do the same in such manner and to such extent as Mortgagee may deem necessary to protect the security hereof. In connection therewith (without limiting its general powers), Mortgagee shall have and is hereby given the right, but not the obligation upon an Event of Default: (i) to enter upon and take possession of the Mortgaged Property; (ii) to make additions, alterations, repairs and improvements to the Mortgaged Property which it may reasonably consider necessary or proper to keep the Mortgaged Property in good condition and repair; (iii) to appear and participate in any action or proceeding affecting or which may affect the security hereof or the rights or powers of Mortgagee; (iv) to pay, purchase, contest or compromise any encumbrance, claim, charge, lien, Imposition or debt which in the sound judgment of Mortgagee may adversely affect or appears to affect the security of this Mortgage or be prior or superior hereto in lien, payment or priority; and (v) in exercising such powers, to pay necessary expenses, including fees and charges of counsel or other necessary or desirable consultants. Within ten (10) days of demand therefor by Mortgagee, Mortgagor shall 25 29 pay all costs and expenses incurred by Mortgagee in connection with the exercise by Mortgagee of the foregoing rights, with interest at the Default Rate including without limitation costs of evidence of title, court costs, appraisals, surveys and attorneys' fees. 2.12. Performance; Survival. To fully and faithfully satisfy and perform the obligations of Mortgagor contained in the Loan Documents, and each agreement of Mortgagor incorporated by reference therein or herein, and any modification or amendment thereof. All representations, warranties and covenants of Mortgagor contained therein or incorporated by reference shall survive the closing and funding of the Loan and shall remain continuing obligations, warranties and representations of Mortgagor during any time when any portion of the Secured Obligations remain outstanding. 2.13. Eminent Domain. Should the entire Mortgaged Property, or any part thereof or interest therein, be taken or damaged by reason of any public improvement or other eminent domain proceeding, or in any other manner ("Condemnation") and the Mortgaged Property cannot be used thereafter for its intended purposes, or should Mortgagor receive any notice or other information regarding such proceeding, Mortgagor shall give prompt written notice thereof to Mortgagee and the following provisions shall apply: (a) Mortgagee shall be entitled to all compensation for property taken or for damage to property not taken, awards and other payments or relief therefor whether as a result of such proceedings or in lieu thereof made to Mortgagor, to the extent of the outstanding principal sum under the Note, together with interest due to the date of payment and all other amounts constituting the Secured Obligations, and shall be entitled at its option to commence, appear in and prosecute in its own name any action or proceedings jointly with Mortgagor. Mortgagee also shall be entitled to appear in any compromise or settlement in connection with such condemnation or damage. Regardless of whether or not Mortgagee exercises its right to so appear, any such compromise or settlement shall be subject to the consent of Mortgagee, which consent shall not be unreasonably withheld. All such compensation, awards, damages, rights of action and proceeds awarded to Mortgagor (the "Eminent Domain Proceeds") are hereby assigned by Mortgagor to Mortgagee and the same shall be received and collected by Mortgagee, and Mortgagor agrees to execute such further assignments of the Eminent Domain Proceeds and other instruments as Mortgagee may require. Such assignment shall not relieve Mortgagor of its obligations to continue to pay and perform the Secured Obligations or such portion thereof as remains unpaid after any application by Mortgagee pursuant to this Section 2.13 of the Eminent Domain Proceeds to the Secured Obligations. (b) In the event any lesser portion other than the entire Mortgaged Property is so taken or damaged and there shall be no existing Event of Default, after deducting therefrom all costs and expenses (regardless of the particular nature thereof and whether incurred with or without suit), including attorneys' fees, incurred by it in connection with such Eminent Domain Proceeds, Mortgagee may elect, in its sole discretion, to apply such Eminent Domain Proceeds, after such deductions, to either the restoration of the Mortgaged 26 30 Property not taken or condemned or to the Secured Obligations in such order as Mortgagee shall in its sole discretion determine. (i) Provided the Eminent Domain Proceeds are made available for restoration, the Mortgaged Property must then be restored by Mortgagor to the use existing immediately prior to such taking or condemnation, and the utility, value, condition and character of the Mortgaged Property, as restored, must be at least equal to the value and utility and substantially similar to the condition and character as existed immediately prior to such taking or condemnation. (ii) In the event Mortgagee elects to make the Eminent Domain Proceeds available to Mortgagor for such restoration, and the application of such Eminent Domain Proceeds shall be subject to the same conditions as set forth in Section 2.05. To the extent such Eminent Domain Proceeds are insufficient for such restoration, any deficiency must be deposited by Mortgagor with Mortgagee and expended prior to the Eminent Domain Proceeds. Such application or release shall not cure or waive any default or notice of default hereunder or invalidate any act done pursuant to such notice. (c) In the event Mortgagee elects to rebuild as permitted by this Section 2.13, Mortgagor shall promptly obtain all approvals necessary to comply with all Legal Requirements. If Mortgagor fails to obtain such approvals within twelve (12) months following receipt of the Proceeds or the Eminent Domain Proceeds, as the case may be, such failure shall constitute an Event of Default hereunder. Notwithstanding the foregoing, provided that Mortgagor has diligently and continuously attempted to obtain such approvals during such twelve (12) month period, and despite such efforts been unable to obtain such approvals, then no Event of Default shall have occurred hereunder unless Mortgagor fails to obtain such approvals within eighteen (18) months following receipt of the Proceeds or the Eminent Domain Proceeds, as the case may be, provided that during such additional six (6) month period, the Mortgagor diligently and continuously attempts to obtain such approvals. 2.14. Inspections. That, subject to the rights of tenants under the Leases, Mortgagee, or its agents, representatives or workers, are authorized to enter at any reasonable time upon reasonable notice or at any time in the event of an emergency upon or in any part of the Mortgaged Property for the purpose of inspecting the same and for the purpose of performing any of the acts it is authorized to perform under the terms of the Loan Documents. 2.15. Liens. That upon substantial completion of any construction or other improvements or similar work on the Mortgaged Property, to file or cause to be filed waivers of mechanics' liens in form and substance reasonably satisfactory to Mortgagee and to pay and promptly discharge, at Mortgagor's cost and expense, all liens, encumbrances and charges upon the Mortgaged Property, or any part thereof or interest therein. So long as there exists no Event of Default, and so long as neither Mortgagor, Mortgagee, nor any officer, director, employee or agent of either thereof could thereby be subject to any civil or criminal liability, Mortgagor shall have the right to contest in good faith the validity of any such lien, 27 31 encumbrance or charge, provided Mortgagor shall first either (a) deposit with Mortgagee or with a court in which such contest is being pursued a bond or other security reasonably satisfactory to Mortgagee or (b) record in the Suffolk Registry of Deeds a lien bond, which in the case of either (a) or (b) shall be in such amounts as Mortgagee shall reasonably require, plus costs, expenses, including attorneys' fees and interest, and provided further that Mortgagor shall thereafter diligently proceed to cause such lien, encumbrance or charge to be removed and discharged. If Mortgagor shall fail to discharge any such lien, encumbrance or charge, or provide such security, then, in addition to any other right or remedy of Mortgagee, Mortgagee may, but shall not be obligated to, discharge the same, either by paying the amount claimed to be due, or by procuring the discharge of such lien by depositing in court a bond for the amount claimed or otherwise giving security for such claim, or in such manner as is or may be prescribed by law and all funds advanced by Mortgagee to pay such obligations, liabilities, costs and expenses shall be reimbursed by Mortgagor within ten (10) days of demand by Mortgagee together with interest thereon until reimbursement at the Default Rate set forth in the Note; and all such advances with interest thereon as aforesaid shall be secured by this Mortgage and the other Loan Documents. 2.16. Mortgagee's Powers. That without affecting the liability of any other person liable for the payment or performance of any obligation herein mentioned, and without affecting the lien or charge of this Mortgage upon any portion of the Mortgaged Property not then or theretofore released as security for the full amount of all unpaid Secured Obligations, Mortgagee may, from time to time and without notice (i) release any person so liable, (ii) extend the maturity or alter any of the terms of the Secured Obligations, (iii) grant other indulgences, (iv) release or reconvey, or cause to be released or reconveyed at any time at Mortgagee's option, any parcel, portion or all of the Mortgaged Property, (v) accept or release any other or additional security for the Secured Obligations, (vi) make compositions or other arrangements with debtors in relation thereto, or (vii) advance additional funds to protect the security hereof and pay or discharge the obligations of Mortgagor hereunder or under the Loan Documents, and all amounts so advanced, with interest thereon at the Default Rate set forth in the Note, shall be secured hereby. 2.17. Financial Statements; Annual Rent Roll. That Mortgagor will cause to be delivered to Mortgagee as soon as practicable, but in any event not later than ninety (90) days after the end of each calendar year, unaudited annual financial statements including an itemized operating statement of Mortgagor's annual (effective) income and expenses for the operation of the Mortgaged Property, and cash flow statement pertaining to the operation of the Mortgaged Property for the previous calendar year, together with a balance sheet regarding the Premises and Improvements as at the end of each calendar year, all prepared by a certified public accountant reasonably acceptable to Mortgagee or by such other preparer as Mortgagee may approve in writing covering only the Premises which is the subject of this Mortgage. A certified, current rent roll shall be delivered to Mortgagee by Mortgagor at such time. Such rent roll, and such financial statements, shall be certified as being true, correct and complete by Mortgagor. Mortgagor agrees to make its books and accounts relating to the Mortgaged Property available for inspection by Mortgagee or its representatives upon request at any 28 32 reasonable time. Guarantors will cause to be delivered to Mortgagee as soon as practicable, but in any event not later than ninety (90) days after the end of each calendar year, annual financial statements relating to Guarantors interest in the operation of the Mortgaged Property, prepared by a certified public accountant reasonably acceptable to Mortgagee. 2.18. Mortgagor's Existence and Authorizations. That Mortgagor and the Members and any subsequent owner of any of the Premises shall do all things necessary to preserve and keep in full force and effect its and their existence, franchises, rights and privileges as a limited liability company, corporation, partnership or trust, as the case may be, under the Laws of the state of its formation and its right to own property and transact business in the state in which the Premises are located, and shall not materially amend, modify, transfer, assign or cancel the Operating Agreements of Mortgagor, or the operating agreement, articles of organization, partnership agreement, or trust agreement, as the case may be, of any subsequent owner as may be permitted by Mortgagee, which amendment, modification, transfer, assignment or cancellation is adverse to the interests of Mortgagee without the prior written consent of Mortgagee. 2.19. Other Liens. That without the prior written consent of Mortgagee, which may be granted in Mortgagee's sole discretion, Mortgagor shall not now or hereafter cause or permit to exist any other lien on the Premises whether junior or senior to the lien of this Mortgage, excepting only the Permitted Exceptions. 2.20. Change of Title. That Mortgagee, at its option, may declare the Note secured hereby and all other obligations hereunder to be forthwith due and payable and shall have all other rights and remedies set forth herein if, without the prior written consent of Mortgagee: (i) title to the Mortgaged Property or any part thereof or interest therein is terminated, dissolved, sold, assigned, transferred, conveyed, mortgaged, encumbered or otherwise changed (including any such changes as security for additional financing), whether voluntarily or involuntarily or by operation of law, (ii) title to the Mortgaged Property or any interest therein is divested, (iii) any lease which gives the lessee thereunder any option to purchase the Mortgaged Property or any part thereof is entered into, or (iv) any change in any membership interests in the Mortgagor or its Members other than limited partnership interests, as applicable, or any general partnership interests or any beneficial interests in the Members; subject in each case, to the following provisions regarding Permitted Transfers. Mortgagor acknowledges that the present ownership of the Mortgaged Property is a material inducement to Mortgagee to fund the Loan. For purposes hereof and particularly Sections 4.02(b) and 5.01(k), the terms "sell, assign, transfer or convey" shall include, in addition to the common and ordinary meanings of those terms and without limiting their generality, transfers made to a subsidiary or affiliated entity(ies), transfers to a reconstituted limited partnership, transfers made by any partnership to the individual partners or vice-versa, transfers made by a partner to third parties, transfers by any corporation to its stockholders or vice-versa, any corporate merger or consolidation and transfers made by any individuals to any other individuals or any entity, or vice-versa. Any 29 33 consent by Mortgagee to a change in ownership of the Mortgaged Property or to a change in the composition of Mortgagor may be conditioned, in Mortgagee's sole discretion, upon (a) payment of a transfer fee equal to one percent (1%) of the outstanding indebtedness at the time of such sale, assignment, transfer or conveyance, (b) an increase in the interest rate on the then outstanding indebtedness to a current market rate and (c) any other terms and conditions as Mortgagee may require in its sole discretion. Notwithstanding the foregoing, Mortgagee will permit the following transfers (collectively, the "Permitted Transfers") provided no Event of Default has occurred and continues to exist: (1) Any member's interest in the Family LLC may be transferred upon the death of that member, but only by will or intestacy; (2) Any member's interest or the beneficial interest in any member, as the case may be, in the Family LLC may be voluntarily sold, transferred, conveyed or assigned to immediate family members for estate planning purposes ("immediate family members" shall mean the spouse, children, grandchildren, siblings, and the children of siblings of each existing party, as of the date hereof, or trust for the benefit of one or more of any such persons), provided that at all times there exists a minimum of fifty percent (50%) control of the Family LLC by the members existing as of the date hereof; (3) Any member's interest in the Family LLC may be voluntarily sold, transferred, conveyed or assigned to another member or members of the Family LLC or one or more members of the group consisting of Donald Saunders, Lisa Saunders-Hartstein and Pamela Saunders Albin and their immediate family members (as defined in subsection (2) hereof) and/or trusts created exclusively for the benefit of one or more of the foregoing, provided that at all times a minimum of fifty percent (50%) control of the Family LLC is maintained by a member or members of the Family LLC existing as of the date hereof; (4) Any transfer of shares or interests in Starwood, Starwood Lodging Corporation, or limited partnership interests of either SLT Realty Limited Partnership or SLC Operating Limited Partnership are permitted; and (5) Any transfers: (A) among the Fee Mortgagor, Leasehold Mortgagor or their Members (or entities owned and/or controlled by either of them to one another, or (B) to third parties provided, however, that the Members existing as of the date hereof (or entities owned and/or controlled by either of them) in the aggregate own and control not less than fifty percent (50%) interest in the resulting entity after such transfer. The Permitted Transfers are subject to the conditions that notice of such transfer is given to Mortgagee and such transfer shall not reduce, release or otherwise affect the liability of Mortgagor or the Guarantors and such transfer shall not reduce, release or otherwise affect the liability of Mortgagor or the Guarantors under the Loan Documents. No transfer fee or 30 34 change in Loan terms shall be imposed by Mortgagee with respect to any such Permitted Transfers, however Mortgagee reserves the right to charge Mortgagor for any attorneys' fees or other costs incurred by Mortgagee in connection with such transfer. Notwithstanding the foregoing, upon written request of the Mortgagor, Mortgagee will consent to a one-time sale, assignment, transfer or conveyance of the Mortgaged Property or of the ownership interest therein which is not otherwise a Permitted Transfer, provided that the following conditions are fully and completely satisfied in advance of any such sale, assignment, transfer or conveyance: (1) no Event of Default has occurred and continues to exist; (2) the Mortgagee has determined, in its sole discretion, that proposed transferee has a financial and credit standing and management expertise equal to or greater than that of the Mortgagor at the time of the original Loan approval; (3) assignment and assumption documents satisfactory to Mortgagee and its counsel in connection with such sale, assignment, transfer or conveyance are executed and delivered to the Mortgagee. Such assumption documents will provide, however, that the Mortgagor continues to be liable for all liabilities and obligations to the Mortgagee under the Loan Documents, unless otherwise agreed to by the Mortgagee in writing, such agreement to be withheld or granted by the Mortgagee in its sole and absolute discretion; (4) the Mortgagee is paid a transfer fee equal to one percent (1%) of the outstanding indebtedness at the time of such sale, assignment, transfer or conveyance; (5) all costs and expenses incurred by Mortgagee, including without limitation, legal fees, shall have been paid in full to the Mortgagee by the Mortgagor; (6) the Mortgagor delivers to the Mortgagee an endorsement to the Ticor Title Insurance Policy issued in connection with the First Disbursement, as defined in the Note, reflecting the change in the ownership interest to Mortgagee's satisfaction; (7) the Mortgagee may require, in its sole discretion, authority documentation of the proposed transferee and opinions of Mortgagor's counsel and the proposed transferee's counsel regarding the due authority of the respective parties to enter into the transfer and the enforceability of the transfer documentation in each case in form and substance reasonably satisfactory to Mortgagee; (8) the Mortgagee may require, in its sole discretion, the proposed transferee or any other party, in Mortgagee's sole judgment, to deliver an environmental indemnification, satisfactory to Mortgagee in its sole discretion, which shall contain an acknowledgement by Mortgagor that Mortgagor shall continue to remain liable for its obligations arising prior to the 31 35 transfer under the Environmental Indemnification Agreement and an assumption by the proposed transferee of such obligations arising after the date of the transfer. The rights granted to Mortgagor in the immediately preceding paragraph are personal to Mortgagor, shall be extinguished after the exercise thereof, and shall not inure to the benefit of any subsequent transferee. Such transfer and assumption will not, however, release the Mortgagor or any Guarantor from any liability to the Mortgagee without the prior written consent of Mortgagee, which consent may be given or withheld in Mortgagee's sole discretion, but if given, may be conditioned upon, without limitation, the execution of new guaranties from principals of the transferee as Mortgagee deems necessary, execution by the principals of the transferee and such other requirements as Mortgagee may appropriate in its discretion. 2.21. Compliance with Laws; Etc. That Mortgagor shall comply with all Laws and all private covenants which at any time are applicable to the Mortgaged Property or Mortgagor, and shall comply with the requirements of all policies of insurance required by this Mortgage and of the insurers under such policies. Mortgagor shall make any replacements, alterations or improvements to the Mortgaged Property as may be required by such Laws or such requirements even if unforeseen and/or extraordinary. So long as no Event of Default has occurred, Mortgagor shall have the right, after prior written notice to Mortgagee, to contest by appropriate legal proceedings diligently conducted in good faith, without cost or expense to Mortgagee, the validity or application of any Law which does not subject Mortgagee to any criminal or civil liability, and Mortgagor may delay compliance with such Law until final determination of such proceeding if compliance with such Law may legally be delayed until, and such proceedings shall conclusively operate to prevent the enforcement of such Law prior to, such final determination; provided, however, that, if in the judgment of Mortgagee any lien or charge against the Mortgaged Property would or might be incurred by reason of such delay, Mortgagor shall furnish to and maintain with Mortgagee security, at all times satisfactory to Mortgagee, to assure the discharge of such lien or charge. Mortgagor shall keep, (or cause to be kept, in the case of those portions of the Mortgaged Property which are subject to any of the Leases), in full force and effect all licenses, permits and governmental authorizations and agreements necessary or desirable for the ownership, construction, occupancy, operation, management or use of the Mortgaged Property. Mortgagor shall preserve and maintain unimpaired any and all easements, rights of way, appurtenances and other interests and rights constituting any portion of the Mortgaged Property. At all times prior to the repayment in full of the Secured Obligations, there shall be sufficient parking spaces on the Premises, so as to comply with all applicable Laws and all Leases of all or any portion of the Premises. 2.22. Environmental Indemnification. (a) If at any time it is determined that there are any Hazardous Materials (as defined in the Environmental Indemnification Agreement) located in, on, under, around or above the Mortgaged Property which are subject to any federal, state or local environmental Law or private agreement ("Environmental Requirements"), including Environmental Requirements requiring special handling of Hazardous Materials in their use, 32 36 handling, collection, storage, treatment or disposal, Mortgagor shall (i) immediately notify Mortgagee of such determination; (ii) commence with diligence within thirty (30) days after receipt of notice of the presence of the Hazardous Materials, and (iii) continue to diligently take all appropriate action, at Mortgagor's sole expense, to comply with all such Environmental Requirements. (b) This Section 2.22 is in addition to and not in limitation of that certain Environmental Indemnification and Hold Harmless Agreement of even date herewith (the "Environmental Indemnification Agreement") given by Mortgagor and by the Guarantors to Mortgagee. Any conflict that may exist between the two documents shall be interpreted as set forth in Section 6.11 of this Mortgage. The terms of the Environmental Indemnification Agreement are incorporated herein by reference and made a part hereof. The failure of Mortgagor to comply with all Environmental Requirements or any of the terms of the Environmental Indemnification Agreement after the lapse of any applicable notice or grace periods shall constitute an Event of Default hereunder. ARTICLE III ASSIGNMENT OF LEASES 3.01 Assignment of Leases and Rents. Mortgagor hereby and also by a certain Assignment of Leases and Rents of even date herewith given by Mortgagor to Mortgagee ("Assignment of Leases and Rents"), which Assignment of Leases and Rents is incorporated herein by reference as fully and with the same effect as if set forth herein at length, assigns and transfers to Mortgagee all existing and future Leases, and the Rents of the Mortgaged Property, and hereby gives to and confers upon Mortgagee the right, power and authority to collect such Rents of the Mortgaged Property. This Assignment is and is intended to be an absolute assignment from Mortgagor to Mortgagee and not merely the passing of a security interest or a conditional assignment, contingent only upon the privilege, which may be revoked by Mortgagee, of the Mortgagor to collect Rents in accordance with the Assignment of Leases and Rents. 3.02. Covenants as to Leases. Mortgagor shall not execute, amend or terminate as landlord, Leases of the Improvements or Mortgaged Property or any part thereof, except in compliance with the Assignment of Leases and Rents, and the following provisions: (a) Copies of Leases. Mortgagor shall promptly deliver to Mortgagee a copy of any executed Lease for any part of the Mortgaged Property and upon request shall supply to Mortgagee such reasonable information and documentation regarding the tenant thereunder; 33 37 (b) Subordination. Mortgagor hereby expressly agrees and affirms that all Leases, including but not limited to the Master Lease, for any of the Mortgaged Property or Improvements now or hereafter executed shall, at Mortgagee's option, be subordinate to this Mortgage; provided, however, that Mortgagee shall have the right at any time to require that any Lease now or hereafter executed be made superior to the lien of this Mortgage, at Mortgagor's expense. Mortgagee shall have the right at any time and from time to time to demand and require that any tenant under any existing Lease (provided the Lease so requires the tenant to do so) and any future Lease execute a subordination, attornment and non-disturbance agreement in form and substance satisfactory to Mortgagee; and (c) Bona Fide Transactions. All Leases of any part of the Mortgaged Property shall be an arm's length transaction, shall be subject to all other applicable provisions of the Loan Documents, and except for the Master Lease, shall be for bona fide actual occupancy. 3.03. Master Lease. Notwithstanding the foregoing with respect to the Master Lease, the Fee Mortgagor and Leasehold Mortgagor warrant, represent, covenant and agree, respectively, as is applicable to each party, as follows: (a) The Master Lease is a complete statement of the agreement between the parties thereto with respect to the letting of the Mortgaged Property and except as set forth therein, has not been terminated, amended, modified, extended, shortened in term, or restated in any respect. The Master Lease is currently in full force and effect according to its terms and is a binding obligation of the Leasehold Mortgagor and Fee Mortgagor as of the date hereof; and there exits no default (nor any events which, with the passage of time, the giving of notice, or both, would cause a default or an Event of Default under any term or terms of the Master Lease, or any other circumstance which would cause either party to terminate the interest of the other party in the Master Lease. (b) Leasehold Mortgagor will pay all rent and other charges required under the Master Lease as and when the same are due and Fee Mortgagor and Leasehold Mortgagor will keep, observe and perform, or cause to be kept, observed and performed, all of the other material terms, covenants, provisions and agreements of the Master Lease for which it is responsible, and will not in any manner, cancel, terminate, shorten the term or surrender, or permit any cancellation, termination, surrender or shortening of the term of the Master Lease, in whole or in part, or, without the written consent of Mortgagee (which consent shall not be unreasonably withheld), either orally or in writing, modify, amend or permit any modification or amendment of any of the terms thereof in any manner which adversely affects this Mortgage or Mortgagee, or consent to the subordination of the Master Lease to any mortgage of the fee interest of Fee Mortgagor, and any attempt on the part of the Fee Mortgagor or Leasehold Mortgagor to exercise any of the foregoing without such written consent of Mortgagee 34 38 shall not be binding on Mortgagee if Mortgagee succeeds to the interest of Fee Mortgagor or Leasehold Mortgagor under the Master Lease. (c) Each of the Mortgagors, respectively, will do, or cause to be done, all things necessary to prevent any default under the Master Lease, or any termination, surrender, cancellation, forfeiture or impairment thereof. (d) Each Mortgagor will use reasonable efforts to enforce the obligations of each Mortgagor under the Master Lease, and will promptly notify Mortgagee in writing of any default by the Fee Mortgagor or by Leasehold Mortgagor in the performance or observance of any of the terms, covenants and conditions on the part of Fee Mortgagor or Leasehold Mortgagor, as the case may be, to be performed or observed under the Master Lease and Fee Mortgagor or Leasehold Mortgagor will promptly advise Mortgagee in writing of the occurrences of any default under the Master Lease and of the giving of any notice by Leasehold Mortgagor to Fee Mortgagor or Fee Mortgagor to Leasehold Mortgagor, as the case may be, of any default by Fee Mortgagor or Leasehold Mortgagor, as the case may be, in performance or observance of any of the terms, covenants or conditions of the Master Lease on the part of Fee Mortgagor or Leasehold Mortgagor to be performed or observed and will promptly deliver to Mortgagee a true copy of each such notice. (e) Fee Mortgagor shall not institute any action or proceeding to evict Leasehold Mortgagor or to recover possession of the Mortgaged Property or any part thereof or for any other purpose affecting the Master Lease or this Mortgage without Mortgagee's prior written consent and in such event, Fee Mortgagor will, immediately upon service thereof on or to Leasehold Mortgagor, deliver to Mortgagee a true copy of each petition, summons, complaint, notice or motion, order to show cause and of all other provisions, pleadings, and papers, however designated, served in any such action or proceeding. (f) Fee Mortgagor and Leasehold Mortgagor covenant and agree that unless Mortgagee shall otherwise expressly consent in writing, the fee title to the property, if any, demised by the Master Lease and the Mortgaged Property shall not merge but shall always remain separate and distinct, notwithstanding the union of said estates either in Fee Mortgagor, Leasehold Mortgagor, or a third party by purchase or otherwise; (g) No release or forbearance of any of the Fee Mortgagor or Leasehold Mortgagor's obligations under the Master Lease, pursuant to the Master Lease, or otherwise, shall release Fee Mortgagor or Leasehold Mortgagor from any of its obligations under this Mortgage, including Leasehold Mortgagor's obligation with respect to the payment of rent as provided for in the Master Lease and the performance of all of the terms, provisions, covenants, conditions and agreements contained in the 35 39 Master Lease, to be kept, performed and complied with by Fee Mortgagor or Leasehold Mortgagor as landlord and tenant, respectively, therein. (h) The lien of this mortgage shall attach to all of Leasehold Mortgagor's rights and remedies at any time arising under or pursuant to Subsection 365(h) of the Bankruptcy Code, 11 U.S.C. Section 365(h), including, without limitation, all of Leasehold Mortgagor's rights to remain in possession of the Mortgaged Property. (i) Fee Mortgagor or Leasehold Mortgagor shall not, without Mortgagee's prior written consent, elect to treat the Master Lease as terminated under Subsection 365(h) (1) of the Bankruptcy Code, 11 U.S.C. Section 365(h)(1). Any such election made without Mortgagee's consent shall be void. (j) Leasehold Mortgagor hereby unconditionally assigns, transfers and sets over to the Mortgagee all of Leasehold Mortgagor's claims and rights to the payment of damages arising from any rejection of the Master Lease by Fee Mortgagor or any other fee owner of the Mortgaged Property under the Bankruptcy Code. Mortgagee shall have the right to proceed in its own name or in the name of Leasehold Mortgagor in respect of any claim suit, action or proceeding relating to the rejection of the Master Lease, including, without limitation, the right to file and prosecute any proofs of claim, complaints, motions, applications, notices and other documents and any and all rights to vote with respect to such matters, in any case in respect to the Fee Mortgagor or any fee owner under the Bankruptcy Code. This assignment constitutes a present, irrevocable and unconditional assignment of the foregoing claims, rights and remedies, and shall continue in effect until all of the obligations secured by this Mortgage shall have been satisfied and discharged in full. Any amounts received by Mortgagee as damages arising out of the rejection of the Master Lease as aforesaid shall be applied first to all costs and expenses of Mortgagee (including, without limitation, reasonable attorneys' fees) incurred in connection with the exercise of any of its rights or remedies under this section. (k) If pursuant to Subsection 365(h)(2) of the Bankruptcy Code, 11 U.S.C. Section 365(h)(2), Mortgagor shall seek to offset against the rent reserved in the Master Lease the amount of any damages caused by the nonperformance by the Landlord or any fee owner of any of their obligations under the Master Lease after the rejection by the Landlord or any fee owner of the Master Lease under the Bankruptcy Code, Mortgagor shall, prior to effecting such offset, notify Mortgagee of its intent to do so, setting forth the amounts proposed to be so offset and the basis therefor. Mortgagee shall have the right to object to all or any part of such offset that, in the reasonable judgment of Mortgagee, would constitute a breach of the Master Lease, and in the event of such objection, Mortgagor shall not effect any offset of the amounts so objected to by Mortgagee. Neither Mortgagee's failure to object as aforesaid nor any objection relating to such offset shall constitute an approval of any such offset by Mortgagee. Mortgagor shall pay and protect Mortgagee, and indemnify and save 36 40 Mortgagee harmless from and against, any and all claims, demands, actions, suits, proceedings, damages, losses, costs and expenses of every nature whatsoever (including, without limitation, reasonable attorneys' fees) arising from or relating to any offset by Mortgagor against the rent reserved in the Master Lease. (l) If any action, proceedings, motion or notice shall be commenced or filed in respect of the Landlord or any fee owner, the Mortgaged Property or the Master Lease in connection with any case under the Bankruptcy Code, Mortgagee shall have the option, exercisable by notice from Mortgagee to Mortgagor, to join any such litigation with counsel of Mortgagee's choice. Mortgagee may proceed in its own name in connection with any such litigation, and Fee Mortgagor agrees to execute any and all powers, authorizations, consents or other documents required by Mortgagee in connection therewith. Fee Mortgagor shall, upon demand, pay to Mortgagee all costs and expenses (including reasonable attorneys' fees) paid or incurred by Mortgagee in connection with the prosecution or conduct of any such proceedings. Any such costs or expenses not paid by Fee Mortgagor as aforesaid shall be secured by the lien of this Mortgage and shall be added to the indebtedness secured hereby. (m) Fee Mortgagor or Leasehold Mortgagor shall, after obtaining knowledge thereof, promptly notify Mortgagee of any filing by or against the Fee Mortgagor, Leasehold Mortgagor or another such owner of a petition under the Bankruptcy Code. Fee Mortgagor or Leasehold Mortgagor shall promptly deliver to Mortgagee, following receipt, copies of any and all notices, summonses, pleadings, applications and other documents received by Fee Mortgagor or Leasehold Mortgagor in connection with any such Petition and any proceedings relating thereto. ARTICLE IV SECURITY AGREEMENT 4.01. Creation of Security Interest. As security for the Secured Obligations, Mortgagor hereby grants to Mortgagee a security interest in all of Mortgagor's right, title and interest in the Personal Property now or hereafter located on or at the Premises together with any and all replacements thereof or substitutions therefor located on or at the Mortgaged Property. 4.02. Covenants Regarding Personal Property. Mortgagor does hereby covenant as follows: (a) No Other Liens,. Except for the security interest granted hereby and except as set forth on Exhibit B attached hereto and incorporated herein the Personal Property shall remain free from any lien, security interest, encumbrance or claims thereon of any kind whatsoever. Mortgagor will notify Mortgagee of, and will defend the Personal 37 41 Property against, all claims and demands of all persons at any time claiming the same or any interest therein; (b) Encumbrances. Except as set forth on Exhibit B attached hereto and incorporated herein, Mortgagor will not assign, pledge, encumber, hypothecate, lease, sell, convey or in any manner transfer the Personal Property without the prior written consent of Mortgagee, except in the ordinary course of business for the purpose of replacement; (c) Business Purposes. The Personal Property is not and shall not be used, and was not and shall not be purchased, for personal, family or household purposes; (d) Location. The Personal Property will be kept on or at the Mortgaged Property and Mortgagor will not remove the Personal Property or any part thereof from the Mortgaged Property without the prior written consent of Mortgagee, except such portions or items of Personal Property which are consumed or worn out in ordinary usage, all of which shall be promptly replaced by Mortgagor with new items of equal or greater quality, utility and value; (e) Financing Statements. At the request of Mortgagee, Mortgagor will, with or without joinder of Mortgagee, execute one or more financing statements and renewals and amendments thereof pursuant to the Massachusetts Uniform Commercial Code (the "UCC") in form satisfactory to Mortgagee, and will pay the cost of filing the same in all public offices wherever filing is deemed by Mortgagee to be necessary or desirable. Without limiting the foregoing, Mortgagor hereby irrevocably appoints Mortgagee attorney-in-fact for Mortgagor to execute, deliver and file such instruments for and on behalf of Mortgagor, and Mortgagor will pay the costs of any such filing; (f) Covenants and Obligations. All covenants and obligations of Mortgagor contained herein relating to the Mortgaged Property shall be deemed to apply to the Personal Property whether or not expressly referred to herein; and (g) Security Agreement. This Mortgage constitutes both a "mortgage" and a "security agreement" as those terms are used in the UCC and Mortgagee shall be entitled to the rights and benefits of a "secured party", as that term is defined in the UCC or any successor legislation thereto. The Mortgaged Property includes both real and personal property and all other rights and interests, whether tangible or intangible in nature, of Mortgagor in the Mortgaged Property. Mortgagor by granting and delivering this Mortgage has granted to Mortgagee, as security for the Secured Obligations, a security interest in and to those portions of the Mortgaged Property in which a security interest can be granted under the UCC. Portions of the Mortgaged Property are or are to become fixtures as defined in the UCC. This Mortgage constitutes and is effective as a fixture filing as provided in Section 9-402 of the UCC. 38 42 ARTICLE V EVENTS OF DEFAULT; REMEDIES 5.01. Events of Default. The occurrence of any one or more of the following events shall constitute a default (an "Event of Default") by Mortgagor hereunder: (a) Mortgagor shall fail or refuse to pay when due to the Mortgagee any installment of interest, principal, principal and interest, or any other amount due hereunder or under the Note or any other Loan Document or to make any payment of Impositions, or utility charges within ten (10) days after notice that the same is past due; or (b) Any representation or warranty made by Mortgagor or the Guarantors under this Mortgage or any other Loan Document or any statement made by Mortgagor or any Guarantor in any financial statement, certificate, report, exhibit or document furnished by Mortgagor or any Guarantor to Mortgagee pursuant to or in connection with this Mortgage or any other Loan Document shall prove to have been false or misleading in any material respect as of the time when made (including by omission of material information known to Mortgagor necessary to make such representation, warranty or statement not misleading); or (c) Mortgagor shall default in the performance or observance of any covenant contained in Section 2.03 and 2.04 to the extent each section pertains to the payment for and maintenance of insurance coverage of the Mortgaged Property, 2.05.2(H), 2.07, 2.18, 2.20 or 2.22; or (d) Mortgagor shall default in the performance or observance of any other representation, warranty, covenant, agreement or duty under this Mortgage and such default shall have continued for a period of thirty (30) days after written notice thereof to Mortgagor or, if such default is not reasonably capable of being cured within such thirty (30) day period, if Mortgagor shall have commenced cure within thirty (30) days of notice and thereafter diligently and continuously prosecute to completion, if such default shall have continued for a period of ninety (90) days after said notice; or (e) Mortgagor or any Guarantor shall default in the performance or observance of any covenant, agreement or duty under the Note or any other Loan Document beyond any period of grace with respect thereto; or (f) (intentionally deleted) (g) (intentionally deleted) (h) One or more judgments for the payment of money shall have been entered against Mortgagor or Guarantor, except that to the extent the judgment or judgments do not exceed $5,000,000 in the aggregate and are fully covered by insurance held by the 39 43 Borrower, no Event of Default shall have occurred unless such judgment or judgments shall have remained undischarged and unstayed for a period of thirty (30) consecutive days; or (i) A writ or warrant of attachment, garnishment, execution, distraint or similar process shall have been issued against Mortgagor or any of its respective properties which shall have remained undischarged and unstayed for a period of sixty (60) consecutive days; or (j) (intentionally deleted) (k) Mortgagor or the Members shall sell or otherwise convey or transfer the Mortgaged Property or any part thereof, or, except as permitted by Section 2.20, any interest in Mortgagor or the Members (including any interest in the profits and/or losses of Mortgagor) shall have been transferred, pledged, levied upon or encumbered in violation of the terms of this Mortgage; or (1) A proceeding shall have been instituted in respect of Mortgagor, the Members, or any Guarantors: (i) seeking to have an order for relief entered in respect of Mortgagor, the Members or the Guarantors, or seeking a declaration or entailing a finding that Mortgagor, the Members or the Guarantors is or are insolvent or a similar declaration or finding, or seeking dissolution, winding-up, charter revocation or forfeiture, liquidation, reorganization, arrangement, adjustment, composition or other similar relief with respect to Mortgagor, the Members or the Guarantors, its assets or its debts under any Law relating to bankruptcy, insolvency, relief of debtors or protection of creditors, termination of legal entities or any other similar Law now or hereafter in effect; or (ii) seeking appointment of a receiver, trustee, custodian, liquidator, assignee, sequestrator or other similar official for Mortgagor, the Members or the Guarantors or for all or any substantial part of its or their property; and such proceeding shall result in the entry, making or grant of any such order for relief, declaration, finding, relief or appointment, or such proceeding shall remain undismissed and unstayed for a period of sixty (60) consecutive days; or (m) Mortgagor, the Members, or the Guarantors shall become insolvent, shall become generally unable to pay its debts as they become due, shall voluntarily suspend transaction of its business, shall make a general assignment for the benefit of creditors, shall institute a proceeding described in Section 5.01(l)(i) or shall consent to any such order for relief, declaration, finding or relief described therein, shall institute a proceeding described in Section 5.01(l)(ii) or shall consent to any such appointment or to the taking of possession by any such official of all or any substantial part of its property whether or not any such 40 44 proceeding is instituted, shall dissolve, wind-up or liquidate itself or any substantial part of its property, or shall take any action in furtherance of any of the foregoing. 5.02. Remedies. (a) Primary Remedies. If an Event of Default shall occur, Mortgagee may (x) declare the Secured Obligations immediately due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived; and/or (y) exercise any other right, power or remedy available to it at law or in equity, hereunder or under any other Loan Document without demand, protest or notice of any kind, all of which are hereby expressly waived, except such as is expressly required hereby or by such other Loan Document. Without limiting the generality of the foregoing, Mortgagee may: (i) enter and take possession of the Mortgaged Property or any part thereof, exclude Mortgagor and all persons claiming under Mortgagor wholly or partly therefrom, and operate, use, manage and control the same, or cause the same to be operated by a person selected by Mortgagee, either in the name of Mortgagor or otherwise, and upon such entry, from time to time, at the expense of Mortgagor and of the Mortgaged Property, make all such repairs, replacements, alterations, additions or improvements thereto as Mortgagee may deem proper, and collect and receive the rents, revenues (including without limitation, receivables, revenues, rentals and receipts from guest rooms, meeting rooms, food and beverage facilities, vending machines, telephone systems, guest laundry and all other items of revenue, receipts or income as identified in the Uniform System of Accounts for Hotels, 8th revised edition, International Association of Hospitality Accountants and Hotel Association of New York City, Inc. (1986) as from time to time amended), issues, profits, royalties, income and benefits thereof and apply the same to the payment of all expenses which Mortgagee may be authorized to incur under the provisions of this Mortgage and applicable Laws, the remainder to be applied to the payment, performance and discharge of the Secured Obligations in such order as Mortgagee may determine until the same have been paid in full; (ii) institute an action for the foreclosure of this Mortgage and the sale of the Mortgaged Property pursuant to the judgment or decree of a court of competent jurisdiction; (iii) sell the Mortgaged Property to the highest bidder or bidders at public auction at a sale or sales held at such place or places and time or times and upon such notice and otherwise in such manner as may be required by law, or in the absence of any such requirement, as Mortgagee may deem appropriate, and from time to time adjourn such sale by announcement at the time and place specified for such sale or for such adjourned sale or sales without further notice except such as may be required by law; 41 45 (iv) take all steps to protect and enforce the rights of Mortgagee under this Mortgage by suit for specific performance of any covenant herein contained, or in aid of the execution of any power herein granted or for the enforcement of any other rights; (v) exercise any or all of the rights and remedies available to a secured party under the UCC, including the right to (A) enter the Mortgaged Property and take possession of the Personal Property without demand or notice and without prior judicial hearing or legal proceedings, which Mortgagor hereby expressly waives, (B) require Mortgagor to assemble the Personal Property, or any portion thereof, and make it available to Mortgagee at a place or places designated by Mortgagee and reasonably convenient to both parties and (C) sell all or any portion of the Personal Property at public or private sale, without prior notice to Mortgagor except as otherwise required by law (and if notice is required by law, after ten days' prior written notice), at such place or places and at such time or times and in such manner and upon such terms, whether for cash or on credit, as Mortgagee in its sole discretion may determine. As to any property subject to Article 9 of the UCC included in the Mortgaged Property, Mortgagee may proceed under the UCC or proceed as to both real and personal property in accordance with the provisions of this Mortgage and the rights and remedies that Mortgagee may have at law or in equity, in respect of real property, and treat both the real and personal property included in the Mortgaged Property as one parcel or package of security. Mortgagor shall have the burden of proving that any sale pursuant to this Section 5.02(a) or pursuant to the UCC was conducted in a commercially unreasonable manner; and/or (vi) terminate any management agreements, contracts or agents/managers responsible for the property management of the Mortgaged Property, if in the sole discretion of Mortgagee, such property management is unsatisfactory in any respect. (b) Receiver. If an Event of Default shall occur, Mortgagee shall be entitled as a matter of right to the appointment of a receiver of the Mortgaged Property and the rents, revenues, issues, profits, royalties, income and benefits thereof, without notice or demand, and without regard to the adequacy of the security for the Secured Obligations or the solvency of Mortgagor. (c) Environmental Site Assessments. If an Event of Default shall occur, Mortgagor shall permit such persons as Mortgagee may designate ("Site Reviewers") to visit the Mortgaged Property and perform environmental site investigations and assessments ("Site Assessments") on the Mortgaged Property for the purpose of determining whether there exists on the Mortgaged Property any environmental condition which could result in any liability, cost or expense to the owner or occupier of the Mortgaged Property. Such Site Assessments may include both above and below the ground testing for environmental damage or the presence of Hazardous Materials on the Mortgaged Property and such other tests on the 42 46 Mortgaged Property as may be necessary to conduct the Site Assessments in the opinion of the Site Reviewers. Mortgagor will supply to the Site Reviewers such historical and operational information regarding the Mortgaged Property as may be reasonably requested by the Site Reviewers to facilitate the Site Assessments and will make available for meetings with the Site Reviewers appropriate Personnel having knowledge of such matters. The cost of performing all Site Assessments shall be paid by Mortgagor within five days after demand by Mortgagee with interest at the Default Rate until paid. (d) Right of Set-Off. If an Event of Default shall occur, Mortgagee and the holder of any participation in the Note shall have the right, in addition to all other rights and remedies available to it, to set-off against and to appropriate and apply to the unpaid balance of the Note and all other obligations of Mortgagor hereunder or under any other Loan Document any debt owing to, and any other funds held in any manner for the account of, Mortgagor by Mortgagee or such holder, including without limitation, the Proceeds and all funds in all deposit accounts (general or special) now or hereafter maintained by Mortgagor with Mortgagee or such holder. Such right shall exist whether or not Mortgagee or any such holder shall have made any demand under the Note or any such participation or any other Loan Document and whether or not the Note or such participation or such other obligations are matured or unmatured. Mortgagor hereby confirms the foregoing arrangements and each such holder's and the Mortgagee's right of lien and set-off and nothing in this Mortgage or any other Loan Document shall be deemed any waiver or prohibition of any such holder's or of the Mortgagee's right of lien or set-off. Mortgagee shall endeavor to advise Mortgagor of all holders of any participation in the Note upon the receipt of written request therefor by Mortgagor. However, Mortgagee's failure to so advise Mortgagor shall not constitute a default by Mortgagee, in any respect entitle Mortgagor to any rights or remedies as a result thereof or impair any of the rights and remedies of the Mortgagee under this Mortgage or the Loan Documents. (e) Sales by Parcels. In any sale made under or by virtue of this Mortgage or pursuant to any judgment or decree of court, the Mortgaged Property may be sold in one or more parts or parcels or as an entirety and in such order as Mortgagee may elect, without regard to the right of Mortgagor, or any person claiming under it, to the marshalling of assets. (f) Effect of Sale. The purchaser at any sale made under or by virtue of this Mortgage or pursuant to any judgment or decree of court shall take title to the Mortgaged Property or the part thereof so sold free and discharged of the estate of Mortgagor therein, the purchaser being hereby discharged from all liability to see to the application of the purchase money. Any person, including Mortgagee, may purchase at any such sale. Mortgagee is hereby irrevocably appointed the attorney-in-fact of Mortgagor in its name and stead to make all appropriate transfers and deliveries of the Mortgaged Property or any portions thereof so sold and, for this purpose, Mortgagee may execute all appropriate instruments of transfer, and may substitute one or more persons with like power, Mortgagor hereby ratifying and confirming all that its said attorneys or such substitute or substitutes shall lawfully do by 43 47 virtue hereof. Nevertheless, Mortgagor shall ratify and confirm, or cause to be ratified and confirmed, any such sale or sales by executing and delivering, or by causing to be executed and delivered, to Mortgagee or to such purchaser or purchasers all such instruments as may be advisable, in the judgment of Mortgagee, for the purpose, and as may be designated, in such request. Any sale or sales made under or by virtue of this Mortgage, to the extent not prohibited by law, shall operate to divest all the estate, right, title, interest, property, claim and demand whatsoever, whether at law or in equity, of Mortgagor in, to and under the Mortgaged Property, or any portions thereof so sold, and shall be a perpetual bar both at law and in equity against Mortgagor, its successors and assigns, and against any and all persons claiming or who may claim the same, or any part thereof, by, through or under Mortgagor, or its successors or assigns. The powers and agency herein granted are coupled with an interest and are irrevocable. (g) Eviction of Mortgagor After Sale. If Mortgagor fails or refuses to surrender possession to the Mortgaged Property after any sale thereof, Mortgagor shall be deemed a subtenant at sufferance, subject to eviction by means of forcible entry and detainer proceedings, provided that this remedy is not exclusive or in derogation of any other right or remedy available to Mortgagee or any purchaser of the Mortgaged Property under any provision of this Mortgage or pursuant to any judgment or decree of court. (h) Insurance Policies. In the event of a foreclosure sale pursuant to this Mortgage or other transfer of title or assignment of the Mortgaged Property in extinguishment, in whole or in part, of the Secured Obligations, all right, title and interest of Mortgagor in and to all policies of insurance (except for the liability insurance) required under the provisions of Section 2.03 shall inure to the benefit of and pass to the successor in interest of Mortgagor or the purchaser or grantee of the Mortgaged Property or any part thereof so transferred. 5.03. Application of Proceeds. The proceeds of any sale made either under the power of sale hereby given or under a judgment, order or decree made in any action to foreclose or to enforce this Mortgage, shall be applied: (a) first to the payment of (i) all costs and expenses of such sale, including attorneys' fees, appraisers' fees and costs of procuring title searches, title insurance policies and similar items and (ii) all charges, expenses and advances incurred or made by Mortgagee in order to protect the lien or estate created by this Mortgage or the security afforded hereby including any expenses of entering, taking possession of and operating the Mortgaged Property; (b) then to the payment of any other Secured Obligations in such order as Mortgagee may determine until the same have been paid in full; and (c) any balance thereof shall be paid to Mortgagor, or to whosoever shall be legally entitled thereto, or as a court of competent jurisdiction may direct. 44 48 5.04. Right to Sue Without Prejudice. If an Event of Default shall occur, Mortgagee shall have the right from time to time to cause a sale of the Mortgaged Property under the provisions of this Mortgage or, subject to the limitations of Section 6.20 hereof, sue for any sums required to be paid by Mortgagor under the terms of this Mortgage as the same respectively become due, without regard to whether or not the Secured Obligations shall be due and without prejudice to the right of Mortgagee thereafter to cause any such sale or to bring any action or proceeding of foreclosure or otherwise, or to take other action, in respect of any Event of Default existing at the time such earlier action or proceeding was commenced. 5.05. Power to Modify Documents. Mortgagee may at any time or from time to time (a) renew or extend this Mortgage or any other Loan Document, including but not limited to UCC Financing Statements, or (b) waive any of the terms, covenants or conditions hereof or thereof in whole or in part, or (c) with the consent of the Mortgagor, amend or modify the same in any way, and may release any portion of the Mortgaged Property or any other security, and grant such extensions and indulgences in relation to the Secured Obligations as Mortgagee may determine, without the consent of any junior lienor or encumbrancer and without any obligation to give notice of any kind to any person and without in any manner affecting the priority of the lien or security interest of this Mortgage on or in any part of the Mortgaged Property. Mortgagee may at any time or from time to time subordinate the lien or security interest of this Mortgage to any Lease or any other agreement with respect to the occupancy or use of any part of the Mortgaged Property, or to any easement, restrictive covenant or other encumbrance on any part of the Mortgaged Property, or to any other lien on or security interest in any part of the Mortgaged Property, or to any other interest of any person in or to any part of the Mortgaged Property, in each case without the agreement or consent of Mortgagor or of the tenant or other party holding the interest to which the lien or security interest hereof is being subordinated or of any other person having a right or interest in any of the Mortgaged Property, without any obligation to give notice of any kind to any person, and without in any manner affecting (except to the extent specifically provided in the instrument effecting such subordination) the priority of the lien or security interest of this Mortgage on or in any part of the Mortgaged Property. 5.06. Remedies Cumulative. (a) Generally. No right or remedy herein conferred upon or reserved to Mortgagee is intended to be exclusive of any other right or remedy, and each and every such right and remedy shall be cumulative and in addition to any other right or remedy of Mortgagee under the Loan Documents or this Mortgage, or at law or in equity. The failure of Mortgagee to insist at any time upon the strict observance or performance of any of the provisions of this Mortgage, or to exercise any right or remedy provided for herein or in the Loan Documents, shall not impair any such right or remedy nor be construed as a waiver or relinquishment thereof. Every right and remedy given by this Mortgage or the Loan Documents to Mortgagee, or to which Mortgagee may otherwise be entitled, may be exercised from time to time and as often as may be deemed expedient by Mortgagee, and no warrant shall be exhausted by the exercise thereof. Mortgagee may pursue inconsistent remedies. 45 49 (b) Other Security. Mortgagee shall be entitled to enforce payment and performance of any Secured Obligations and to exercise all rights and powers under the Loan Documents or this Mortgage, or at law or in equity, notwithstanding that such Secured Obligations may now or hereafter be otherwise secured. Neither the acceptance of this Mortgage nor its enforcement, whether by court action or pursuant to the power of sale or other powers herein contained, shall prejudice or in any manner affect Mortgagee's right to realize upon or enforce any other security now or hereafter held by Mortgagee in such order and manner as Mortgagee in its sole discretion may determine. 5.07. Grant and Exercise of Power of Sale. To the maximum extent permissible, this Mortgage is upon the STATUTORY CONDITION and upon the further condition that all agreements and covenants of the Mortgagor and all other parties contained in the Loan Documents shall be fully kept and performed and all of the other conditions thereof shall be fully met, all as therein provided, for any breach of which the Lender shall have the STATUTORY POWER OF SALE. 5.08. Waiver of Stay, Extension, Moratorium Laws; Equity of Redemption. Mortgagor shall not at any time (a) insist upon, plead or in any manner whatever claim or take any benefit or advantage of any applicable present or future stay, extension or moratorium Law or (b) claim, take or insist upon any benefit or advantage of any present or future Law providing for the valuation or appraisal of the Mortgaged Property prior to any sale or sales thereof which may be made under or by virtue of the provisions of Section 5.02; and Mortgagor hereby waives all benefit or advantage of any such Law or Laws. Mortgagor, for itself and all who may claim under it, hereby waives any and all rights and equities of redemption from sale under the power of sale created hereunder or from sale under any order or decree of foreclosure of this Mortgage and all notice or notices of seizure, and all right to have the Mortgaged Property marshalled upon any foreclosure hereof. Mortgagee shall not be obligated to pursue or exhaust its rights or remedies as against any part of the Mortgaged Property before proceeding against any other part thereof and Mortgagor hereby waives any right or claim of right to have Mortgagee proceed in any particular order. Mortgagor hereby waives and releases all errors, defects and imperfections in any proceedings instituted by Mortgagee under this Mortgage. ARTICLE VI MISCELLANEOUS 6.01. Giving of Notice. (a) Delivery. Whenever notice is given or required to be given pursuant to this Mortgage, it shall be sent postage prepaid by registered or certified mail, return receipt requested, or by telegram, or by prepaid nationally recognized overnight delivery service or by hand delivery addressed and delivered to the parties at their respective addresses set forth below, or at such other address as a party, by similar written notice to the other parties hereto, may designate from time to time: 46 50 Mortgagor: SaunStar Land Co., L.L.C. c/o Saunders Real Estate Corp. 20 Park Plaza Boston, MA 02116-4399 and to: SaunStar Operating Co., L.L.C. c/o Saunders Real Estate Corp. 20 Park Plaza Boston, MA 02116-4399 and to: SLT Realty Limited Partnership c/o Starwood Lodging Trust 1135 W. Olympic Boulevard Suite 675 Los Angeles, CA 90064 Attn: Ronald Brown with a copy, mailed Alan S. Weil, Esquire regular mail, to: Sidley & Austin 875 Third Avenue New York, NY 10022 and to: Joel A. Kozol, Esquire Friedman & Atherton Exchange Place Boston, MA 02109 Mortgagee: Life Insurance Company of Georgia c/o ING Investment Management, Inc. 300 Galleria Parkway, N.W. Atlanta, Georgia 30339-3149 Attention: Maurice Moore and to: New England Realty Resources, Inc. 65 Franklin Street, Suite 400 Boston, MA 02110 Attention: James M. Murphy with a copy, mailed Paul J. Ayoub, Esquire regular mail, to: Peabody & Arnold 50 Rowes Wharf Boston, MA 02110 47 51 (b) Receipt. Unless otherwise specified, notice shall be deemed to have been received (i) when deposited in the United States mail, registered or certified, return receipt requested or (ii) one (1) business day after the notice is sent by telegram or by a nationally recognized overnight delivery service or (iii) the date of delivery if notice is delivered by hand. 6.02. Governing Law. This Mortgage and the other Loan Documents shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. 6.03 Statements by Mortgagor. Mortgagor, within ten (10) days after being given notice by mail, will furnish to Mortgagee a written statement stating the unpaid principal of and interest on the Note and any other amounts secured by this Mortgage and stating whether any offset or defense exists against such principal and interest. 6.04. Captions. The captions or headings at the beginning of each section hereof are solely for the convenience of the parties and are not a part of this Mortgage, nor do such captions affect the scope or meaning of any provisions hereof. 6.05. Changes in Tax Law. In the event of the passage after the date of this Mortgage of any Law deducting from the value of the Mortgaged Property, for the purpose of taxation, any lien thereon, or changing in any way the Laws now in force for the taxation of mortgages, or debts secured thereby, for state or local purposes, or the manner of the operation of any such taxes so as to affect the interest of Mortgagee, then and in such event, Mortgagor shall bear and pay the full amount of such taxes, provided that if for any reason payment by Mortgagor of any such new or additional taxes would be unlawful (including under Laws governing usury) Mortgagee may either declare the Secured Obligations, with interest thereon, to be immediately due and payable, or pay that amount or portion of such taxes as would be unlawful to require Mortgagor to pay, in which event Mortgagor shall concurrently therewith pay the balance of said taxes. 6.06. Further Assurances. (a) Generally. From time to time upon the request of Mortgagee, Mortgagor shall promptly and duly execute, acknowledge and deliver any and all such further instruments and documents as Mortgagee may deem reasonably necessary or desirable to confirm this Mortgage, to carry out the purpose and intent hereof, or to enable Mortgagee to enforce any of its rights hereunder. 48 52 (b) Filings. Mortgagor immediately upon the execution and delivery of this Mortgage, and thereafter from time to time, shall cause this Mortgage, any supplements hereto, any financing statements and each instrument of further assurance to be filed, registered or recorded and refiled, re-registered or rerecorded in such manner and in such places as may be required by any present or future Law in order to publish notice of and perfect the lien and security interest or estate created by this Mortgage on or in the Mortgaged Property, and shall pay all fees and costs in connection therewith. 6.07. Amendments, Waivers, Etc. This Mortgage cannot be amended, modified, waived, changed, discharged or terminated except by an instrument in writing signed by the party against whom enforcement of such amendment, modification, waiver, change, discharge or termination is sought. 6.08. No Implied Waiver. No course of dealing and no delay or failure of Mortgagee in exercising any right, power or privilege under this Mortgage, the Note or any other Loan Document shall affect any other or future exercise thereof or exercise of any other right, power or privilege; nor shall any single or partial exercise of any such right, power or privilege or any abandonment or discontinuance of steps to enforce such a right, power or privilege preclude any further exercise thereof or of any other right, power or privilege. 6.09. Expenses; Taxes; Attorneys' Fees. Mortgagor agrees to pay or cause to be paid and to save Mortgagee harmless against liability for the payment of all out-of-pocket expenses, including fees and expenses of counsel for Mortgagee, incurred by Mortgagee from time to time (a) arising in connection with the preparation, execution, delivery and performance of this Mortgage, the Note and the other Loan Documents, (b) relating to any requested amendments, waivers or consents to this Mortgage, the Note or any other Loan Document and (c) arising in connection with Mortgagee's enforcement or preservation of rights under this Mortgage, the Note or any other Loan Document, including such expenses as may be incurred by Mortgagee in the collection of the Note or the realization of security given for the Note. Mortgagor agrees to pay all stamp, document, transfer, recording or filing taxes or fees and similar impositions now or hereafter determined by Mortgagee to be payable in connection with this Mortgage, the Note or any other Loan Documents, and Mortgagor agrees to save Mortgagee harmless from and against any and all present or future claims, liabilities or losses with respect to or resulting from any omission to pay or delay in paying any such taxes, fees or impositions. Mortgagor agrees to pay and to save Mortgagee harmless against liability for the payment of all out-of-pocket expenses incurred by Mortgagee in connection with its review of any repair, replacement, alteration, improvement or restoration to the Mortgaged Property in connection with the requirements of Sections 2.02, 2.05 and 2.13, including the fees and expenses of counsel for Mortgagee and of any architect engaged by Mortgagee to review plans and specifications, inspect work or provide advice with respect to determinations to be made by Mortgagee in connection therewith. In the event of termination adversely to Mortgagor of any action at law or suit in equity in relation to this Mortgage, the Note or any other Loan Document, Mortgagor will pay, in addition to all other sums which Mortgagor may be required to pay, all attorneys' fees incurred by Mortgagee in connection with such action or suit. All 49 53 references to "attorneys' fees" in this Mortgage and in the other Loan Documents shall mean reasonable attorneys' fees. All amounts payable by Mortgagor under this Section 6.09 shall be paid within ten (10) days after demand by Mortgagee with interest at the Default Rate specified in the Note until paid. 6.10. Jurisdiction; Etc. Mortgagor, for itself and the Guarantors, irrevocably (a) agrees that Mortgagee, may bring suit, action or other legal proceedings arising out of this Mortgage (other than those brought for the foreclosure or other realization on the real property security granted hereby), the Note or any other Loan Document, or the transactions contemplated hereby or thereby, in the courts of the Commonwealth of Massachusetts or the courts of the United States for the District of Massachusetts; (b) consents to the jurisdiction of each such court in any such suit, action or proceeding; (c) waives any objection which Mortgagor or the Guarantors, may have to the laying of the venue of any such suit, action or proceeding in any of such courts; and (d) waives any right it or the Guarantors may have to a jury trial in connection with any suit, action or proceeding arising out of this Mortgage, the Note or any other Loan Document or the transactions contemplated hereby or thereby. 6.11. Interpretation. Unless the context otherwise requires: (a) the term "person" means an individual, corporation, partnership, trust, unincorporated association, joint venture, joint-stock company, government (including political subdivisions), governmental authority or agency, or any other entity; (b) any reference to an Article or Section shall refer to the specified Article or Section of this Mortgage; (c) words importing the singular number include the plural number, and vice versa; (d) the terms "hereof", "hereby", "hereto", "hereunder" and similar terms refer to this entire Mortgage; (e) the term "including" shall mean "including without limitation"; (f) any reference to the Mortgaged Property shall refer to the Mortgaged Property or any part thereof or any estate or interest therein; (g) any "consent", "approval" or "option" by Mortgagee shall be in its sole and absolute discretion, unless expressly stated herein to the contrary; (h) the word "Mortgagor" shall mean the person or persons named in this Mortgage and who execute the same and their successors and assigns, and any subsequent owner of the Mortgaged Property; (i) the word "Mortgagee" shall mean the person who is the owner and holder of the Note, whether or not specifically named herein as "Mortgagee", or any subsequent owner and holder of the Note and this Mortgage; (j) the use of any gender shall include all genders; and (k) in the event Mortgagor hereafter consists of more than one person, all agreements, conditions, covenants, provisions, stipulations, warrants of attorney, authorizations, waivers, releases, options, undertakings, rights and benefits made or given by Mortgagor shall be joint and several, and shall bind and affect all persons who are defined as "Mortgagor" as fully as though all of them were specifically named herein wherever the word "Mortgagor" is used. In the event provisions hereof conflict or otherwise are inconsistent with any provision of the other Loan Documents, then the Mortgagor shall be bound by the provision more restrictive to the Mortgagor and more beneficial to the Mortgagee. To the extent possible, however, provisions of this Mortgage and the Note and the other Loan Documents shall be interpreted to compliment and supplement each other. The absence of any provision or portion thereof in one such document shall be not be deemed to be inconsistent with the any other such document containing such provision or portion thereof. 50 54 Notwithstanding the foregoing, in no event shall any rights of the Mortgagor under the several Loan Documents to cure an Event of Default, or redeem or otherwise reinstate the Loan be deemed cumulative. 6.12. Invalidity of Certain Provisions. If the security interest, lien or estate created by this Mortgage is invalid or unenforceable as to any part of the Secured Obligations, or as to any part of the Mortgaged Property, the unsecured or partially secured portion of the Secured Obligations shall be completely paid prior to the payment of the remaining and secured or partially secured portion of the Secured Obligations, and all payments made thereon, whether voluntary or pursuant to foreclosure sale or other enforcement action or procedure, shall be considered to have been first paid on and applied to the full payment of that portion of the Secured Obligations which is not secured or fully secured by this Mortgage. 6.13. Severability. If any term or provision of this Mortgage or the application thereof to any person or circumstance shall to any extent be invalid or unenforceable, the remainder of this Mortgage, or the application of such term or provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each term and provision of this Mortgage shall be valid and enforceable to the fullest extent permitted by law. 6.14. Time of Essence; Duration; Survival. Time is of the essence with respect to all of Mortgagor's obligations under this Mortgage and the other Loan Documents. All representations and warranties of Mortgagor contained herein or in any other Loan Document or made in connection herewith or therewith shall survive the making of and shall not be waived by the execution and delivery of this Mortgage or the other Loan Documents, or any investigation by Mortgagee. All covenants and agreements of Mortgagor contained herein or in any other Loan Document shall continue in full force and effect from and after the date hereof and until payment in full of the Secured Obligations. Without limitation, it is understood that all obligations of Mortgagor to make payments to or indemnify Mortgagee shall survive the payment in full of the principal of and interest on the Note, and all other amounts constituting Secured Obligations. 6.15. Successors and Assigns. This Mortgage applies to, inures to the benefit of and binds all parties hereto, their successors and assigns. 6.16. Subrogation. To the extent that proceeds of the Note or advances under this Mortgage are used to pay any outstanding lien, charge or prior encumbrance against the Mortgaged Property, such proceeds have been or will be advanced by Mortgagee at Mortgagor's request and Mortgagee shall be subrogated to any and all rights and liens held by any owner or holder of such outstanding liens, charges and prior encumbrances, irrespective of whether said liens, charges or encumbrances are released. 6.17. Repayment after Acceleration; Prepayment,. If after the acceleration of the maturity of the Secured Obligations as herein provided, a tender of payment of the amount 51 55 necessary to satisfy the entire Secured Obligations is made at any time prior to foreclosure sale by Mortgagor, its successors or assigns, or by anyone on behalf of Mortgagor, its successors or assigns, such tender shall, to the full extent permitted by law, constitute an evasion of the prepayment terms of the Note and be deemed to be a voluntary prepayment thereunder, and Mortgagee shall not be obligated to accept any such tender of payment unless such tender of payment also includes the Prepayment Premium set forth in the Note. 6.18. Future Advances. This Mortgage secures, and the Secured Obligations include, (i) all advances made by Mortgagee with respect to any of the Mortgaged Property for the payment of Impositions, maintenance charges, insurance premiums or costs incurred for the protection of any of the Mortgaged Property or the lien of this Mortgage and (ii) all expenses incurred by Mortgagee by reason of an Event of Default hereunder. 6.19. Assignment of Mortgagee's Interest. Mortgagor hereby specifically grants unto Mortgagee the right and privilege, at Mortgagee's option, to transfer and assign to any third person all or any portion of Mortgagee's interest and obligations hereunder, under the Loan, and under the Loan Documents. Upon any such transfer, Mortgagor, at Mortgagee's request, shall provide an estoppel certificate to such third person in form and content reasonably satisfactory to Mortgagee, in its reasonable discretion. 6.20. Limitation of Liability. The liability of the Mortgagor for the Secured Obligations hereunder or under any of the Loan Documents is limited in recourse as set forth in Section 19 of the Note. The name "Starwood Lodging Trust" is a designation of Starwood Lodging Trust and its trustees (as trustees but not personally) under a Declaration of Trust dated August 15, 1969, as amended and restated as of June 6, 1988, as further amended on February 1, 1995, as further amended on June 19, 1995 and as the same may be further amended from time to time, and all persons dealing with Starwood Lodging Trust shall look solely to Starwood Lodging Trust's assets for the enforcement of any claims against Starwood Lodging Trust, as the trustees, officers, agents and security holders of Starwood Lodging Trust assume no personal liability for obligations entered into on behalf of Starwood Lodging Trust, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. The foregoing shall govern all direct and indirect obligations of Starwood Lodging Trust under this Mortgage and the other Loan Documents. 52 56 IN WITNESS WHEREOF, this Mortgage has been duly executed as a sealed instrument as of the day and year first above written. FEE MORTGAGOR: SAUNSTAR LAND CO., LLC By: DONALD SAUNDERS FAMILY LLC, its member By: /s/ Donald L. Saunders --------------------------------------- Name: Donald L. Saunders, its manager hereunto duly authorized By: SLT REALTY LIMITED PARTNERSHIP, its member By: STARWOOD LODGING TRUST, its general partner By: /s/ Ronald C. Brown ---------------------------------- Name: Ronald C. Brown Title: Vice President and Chief Financial Officer hereunto duly authorized LEASEHOLD MORTGAGOR: SAUNSTAR OPERATING CO., LLC By: DONALD SAUNDERS FAMILY LLC, its member By: /s/ Donald L. Saunders --------------------------------------- Name: Donald L. Saunders, its manager hereunto duly authorized 53 57 LEASEHOLD MORTGAGOR: (CONTINUED) By: SLC OPERATING LIMITED PARTNERSHIP, its member By: STARWOOD LODGING CORPORATION, its managing general partner By: /s/ Charles McCain ______________________________ Name: Charles McCain Title: Treasurer hereunto duly authorized COMMONWEALTH OF MASSACHUSETTS Suffolk, ss. May 7, 1996 Then personally appeared the above-named Donald L. Saunders, manager of Donald Saunders Family LLC, which is a member of SaunStar Land Co., LLC and SaunStar Operating Co., LLC, and acknowledged the foregoing instrument to be the free act and deed of said company on behalf of SaunStar Land Co., LLC and SaunStar Operating Co., LLC, before me /s/ Barbara F. Duby ______________________________ Notary Public My commission expires: [Seal] COMMONWEALTH OF MASSACHUSETTS Suffolk, ss. May 7, 1996 Then personally appeared the above-named Ronald C. Brown, Vice President and Chief Financial Officer of Starwood Lodging Trust, General Partner of SLT Realty Limited Partnership, which is a member of SaunStar Land Co., LLC and acknowledged the foregoing instrument to be the free act and deed of said trust on behalf of said limited partnership as a member of said company, before me /s/ Andrea S. Cameron ______________________________ Notary Public My commission expires: [Seal] 54 58 COMMONWEALTH OF MASSACHUSETTS Suffolk, ss. May 7, 1996 Then personally appeared the above-named Charles McCain, Treasurer of Starwood Lodging Corporation, General Partner of SLC Operating Limited Partnership which is a member of SaunStar Operating Co., LLC, and acknowledged the foregoing instrument to be the free act and deed of said corporation on behalf of said limited partnership as a member of said company, before me. /s/ Andrea S. Cameron ---------------------------------------- Notary Public My commission expires: [Seal] 55 EX-10.35 8 LOAN AGREEMENT 1 EXHIBIT 10.35 ================================================================================ THE SUMITOMO TRUST & BANKING CO., LTD. AND EMSTAR REALTY LLC - -------------------------------------------------------------------------------- LOAN AGREEMENT - -------------------------------------------------------------------------------- DATED: AS OF SEPTEMBER 19, 1996 LOCATION: 120 AND 130 EAST 39TH STREET NEW YORK, NEW YORK ================================================================================ BATTLE FOWLER LLP 75 EAST 55TH STREET NEW YORK, NEW YORK 10022 ATTENTION: ROBERT J. WERTHEIMER, ESQ. 2 TABLE OF CONTENTS
Title Page ARTICLE 1 INCORPORATION OF RECITALS AND EXHIBITS................................. 3 Incorporation of Recitals..................................... 3 Incorporation of Exhibits..................................... 3 ARTICLE 2 DEFINITIONS............................................................ 3 Defined Terms................................................. 3 Use of Defined Terms.......................................... 12 Use of Recital, Article, Section and Exhibit References....... 12 ARTICLE 3 REPRESENTATIONS AND WARRANTIES......................................... 12 Representations and Warranties of Borrower.................... 12 Survival of Representations and Warranties.................... 19 ARTICLE 4 TERMS OF LOAN AND DOCUMENTS............................................ 19 Agreement to Borrow and Lend.................................. 19 Loan Documents................................................ 19 Term of the Loan.............................................. 21 Prepayments................................................... 21 Due on Sale................................................... 21 Partial Sale of Premises...................................... 21 Conditions to Partial Sale of Premises........................ 22 ARTICLE 5 LOAN EXPENSES AND ADVANCES; SECURITY OF MORTGAGE FOR SAME.......................................... 23 Loan Origination Expenses..................................... 23 Lender's Loan Fee............................................. 23 Expenses and Advances Secured by Loan Documents............... 23 ARTICLE 6 REQUIREMENTS PRECEDENT TO THE OPENING OF THE LOAN............................................. 24 ARTICLE 7 LENDER'S OBLIGATION TO DISBURSE PROCEEDS OF LOAN....................... 27 Loan Opening.................................................. 27 ARTICLE 8 BORROWER'S AGREEMENTS.................................................. 27 Compliance with Requirements of Governmental Authorities...... 27 Inspection by Lender.......................................... 27
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Title Page ----- ---- Mechanics' Liens and Contest Thereof.............................................. 27 Settlement of Mechanics' Lien Claims.............................................. 28 Renewal of Insurance.............................................................. 28 Payment of Taxes.................................................................. 28 Personal Property................................................................. 29 Proceedings to Enjoin or Prevent Operation of the Project......................... 29 Lender's Attorneys' Fees and Expenses............................................. 29 Lender's Action for its Own Protection Only....................................... 30 Furnishing Information............................................................ 31 Documents of Further Assurance.................................................... 33 Furnishing Reports................................................................ 33 Operation of Project.............................................................. 34 Leasing ......................................................................... 34 Agreements........................................................................ 34 Furnishing Notices................................................................ 35 No Additional Debt................................................................ 35 Indemnification................................................................... 35 Insurance Reporting Requirements.................................................. 36 Compliance With Laws.............................................................. 37 Organizational Documents.......................................................... 37 Alterations....................................................................... 37 Lost Note......................................................................... 37 Hazardous Material................................................................ 37 Asbestos ......................................................................... 39 Annual Appraisals................................................................. 39 Access to the Project and Right to Cure Defaults Under Leases and Easement Agreements .............................................................. 39 Payments to Affiliates; Application of Cash Flow.................................. 39 Single Purpose Entity/Relocation of Borrower's Office............................. 40 Use of Loan Proceeds.............................................................. 40 Maintenance of Debt Service Coverage.............................................. 40 Escrow Account.................................................................... 41 Net Worth Decline................................................................. 41 ERISA ......................................................................... 42 Guarantors' Financial Tests....................................................... 42 Limitations on Suits Brought Against Lender....................................... 42 ARTICLE 9 ASSIGNMENTS....................................................................... 43 Lender's Right to Assign.......................................................... 43 Prohibition of Assignments by Borrower............................................ 44 Restrictions on Transfers of Interest............................................. 44 Prohibition of Transfers in Violation of ERISA.................................... 45 Successors and Assigns............................................................ 45 ARTICLE 10 EVENTS OF DEFAULT.......................................................................... 45
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Title Page ----- ---- ARTICLE 11 LENDER'S REMEDIES IN EVENT OF DEFAULT..................................... 49 Remedies Conferred Upon Lender................................... 49 Non-Waiver of Remedies........................................... 50 ARTICLE 12 GENERAL PROVISIONS........................................................ 50 Captions ........................................................ 50 Notices ........................................................ 50 Entire Agreement; Modification; Waiver........................... 52 Governing Law.................................................... 52 Acquiescence Not to Constitute Waiver of Lender's Requirements... 52 Disclaimer by Lender............................................. 52 Right of Lender to Make Advances to Cure Borrower's Defaults..... 54 Definitions Apply in Amendments.................................. 54 Time Is of the Essence........................................... 54 Execution in Counterparts........................................ 54 Waiver of Consequential Damages.................................. 54 Claims Against Lender............................................ 55 Jurisdiction; Service of Process................................. 55 Severability..................................................... 56 Waiver of Jury Trial............................................. 56 Survival of Indemnities.......................................... 56 No Additional Liability to Guarantors............................ 56 EXHIBITS: Exhibit A - Legal Description of Court Premises. Exhibit B - Legal Description of Tuscany Premises. Exhibit C - Permitted Exceptions. Exhibit D - Form of Rent Roll. Exhibit E - Governmental Approvals. Exhibit F - Form of Pledge Agreement. Exhibit G - Form of Debt Service Coverage Ratio Statement.
5 LOAN AGREEMENT THIS LOAN AGREEMENT (this "AGREEMENT") made and dated as of September 19, 1996 by and among THE SUMITOMO TRUST & BANKING CO., LTD., a Japanese banking corporation acting through its New York Branch, having an address at 527 Madison Avenue, New York, New York 10022 ("LENDER"), EMSTAR REALTY LLC, a New York limited liability company having an address at 539-541 Lexington Avenue, New York, New York ("BORROWER") and STARWOOD LODGING TRUST, a Maryland trust, STARWOOD LODGING CORPORATION, a Maryland corporation, and SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership, each having an address at 2231 East Camelback Road, Phoenix, Arizona 85016 (collectively, the "GUARANTORS"). PRELIMINARY STATEMENT WHEREAS, Lender has previously made a loan to Tuscany Operating Company, a New York limited partnership (the "COMPANY"), in the original principal amount of $24,000,000 (the "COURT LOAN"), which loan is evidenced by a certain Amended, Restated and Consolidated Mortgage Note from the Company to Lender dated as of January 19, 1990 (the "COURT NOTE") and secured by that certain Agreement of Spreader, Consolidation and Modification of Mortgage and Note between the Company and Lender dated as of January 19, 1990 (the "COURT MORTGAGE") which encumbers the premises described in Exhibit A attached hereto (the "COURT PREMISES"); WHEREAS, Hotel Tuscany Limited Partnership ("HOTEL TUSCANY LP") has previously received a loan from Republic Bank for Savings (f/k/a The Manhattan Savings Bank) (the "TUSCANY MORTGAGEE") in the original principal amount of $11,500,000, as subsequently reduced to $5,500,000, (the "TUSCANY LOAN"; the Court Loan and the Tuscany Loan shall be referred to collectively hereinafter as the "LOAN"), which loan is evidenced by a note from Hotel Tuscany LP to the Tuscany Mortgagee (the "TUSCANY NOTE") and secured by a mortgage between Hotel Tuscany LP and the Company dated as of November 16, 1988 (as subsequently modified and extended pursuant to that certain Modification and Extension Agreement dated as of September 1, 1994 between Hotel Tuscany LP and the Tuscany Mortgagee, the "TUSCANY MORTGAGE") which encumbers the premises described in Exhibit B attached hereto (the "TUSCANY PREMISES"; the Court Premises and the Tuscany Premises shall be referred to collectively as the "PREMISES"); WHEREAS, Lender has agreed to purchase the Tuscany Loan from the Tuscany Mortgagee for an aggregate purchase price of $3,375,000, and in connection therewith the Tuscany Note and Tuscany Mortgage shall be assigned simultaneously herewith by the Tuscany Mortgagee to Lender; 6 WHEREAS, there is constructed on each of the Court Premises and the Tuscany Premises a hotel, together with certain other improvements (collectively, the "BUILDING"; the Tuscany Premises, Court Premises, the Building and all related improvements and facilities, together with all rights, privileges, easements, hereditaments and appurtenances thereunto relating or appertaining, and all fixtures and equipment (other than "Tenant Improvements," as hereinafter defined) required for, or otherwise intended for use in connection with, the operation thereof, are herein collectively called the "PROJECT"; WHEREAS, the Company shall assign, and Hotel Tuscany, LLC ("HOTEL TUSCANY, LLC") shall assume, the Company's interest in the Court Loan and the Project pursuant to those certain assignment and assumption agreements and those certain bargain and sale deeds from the Company to Hotel Tuscany, LLC; WHEREAS, Tuscany LP shall assign, and the Hotel Tuscany, LLC shall assume, the interest of Tuscany LP in the Tuscany Loan and the Project with respect to the Tuscany Premises; WHEREAS, Hotel Tuscany LLC shall transfer its entire interest in the Court Loan, the Tuscany Loan and the Project to Borrower as part of its initial capital contribution into Borrower pursuant to those certain assignment and assumption agreements between Hotel Tuscany LLC and Borrower and certain bargain and sale deeds from Hotel Tuscany LLC to Borrower dated as of the date hereof; WHEREAS, Alstar Realty LLC, a New York limited liability company wholly-owned by members of the Starwood Group, has acquired a 49% interest in Borrower for approximately $9,125,000 plus its portion of the Loan; WHEREAS, Borrower and Lender shall enter into a certain Consolidated Amended and Restated Note (the "NOTE") which shall consolidate the Court Note and the Tuscany Note and amend and restate such notes in their entireties, and shall be secured by a certain Mortgage Spreader, Consolidation and Modification Agreement dated as of the date hereof between Borrower and Lender (the "MORTGAGE") which shall serve to consolidate the Court Mortgage and the Tuscany Mortgage and shall encumber the Premises; WHEREAS, in connection with the Loan, Guarantors shall deliver to Lender a Guaranty of Payment (the "GUARANTY"; the Note, the Mortgage, the Guaranty and all other documents executed now or hereafter in connection with the Loan shall be referred to collectively hereinafter as the "LOAN DOCUMENTS"); and WHEREAS, each of Borrower and Guarantor, and their respective affiliates, shall benefit from the terms and conditions contained herein and in the other Loan Documents. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows: 2 7 ARTICLE 1 INCORPORATION OF RECITALS AND EXHIBITS INCORPORATION OF RECITALS 1.1 The foregoing Recitals are made a part of this Agreement. INCORPORATION OF EXHIBITS 1.2 All Exhibits hereto (whether or not listed in the Index) are incorporated herein and expressly made a part hereof. ARTICLE 2 DEFINITIONS DEFINED TERMS 2.1 The following terms as used herein or in any of the other Loan Documents (unless otherwise defined therein), as the case may be, shall have the following meanings: ACCELERATED MATURITY DATE: The meaning set forth in Section 4.3. ACM: Any product or construction material containing more than 0.1 percent asbestos or any other substance containing asbestos and deemed hazardous by any applicable Laws. ADA: The Americans with Disabilities Act of 1990, as amended, and the regulations promulgated thereunder from time to time. AFFILIATE: When used with respect to any Person, shall mean any other Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, such Person. For purposes of this definition, the term "control" (including the correlative meanings of the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of such Person, whether through the ownership of voting securities, by contract or otherwise. AGREEMENT: This Loan Agreement, as originally executed or as may be hereafter supplemented, amended or restated in accordance with its terms from time to time in writing. 3 8 AMORTIZATION PAYMENT OR AMORTIZATION PAYMENTS: The mandatory repayments of the Loan, if any, required to be made by Borrower pursuant to and in accordance with the terms of the Note. APPRAISAL: The meaning set forth in Section 6.1(c)(xii). APPRAISER: Cushman & Wakefield or such other appraiser who is a Senior Commercial Appraiser of the Appraisal Institute and is qualified under the requirements of FIRREA, as Lender may from time to time designate. ASSIGNEE: The meaning set forth in Section 9.1(a). ASSIGNMENT AND ASSUMPTION AGREEMENT: The meaning set forth in the Recitals. BRANCH: The Sumitomo Trust & Banking Co., Ltd., New York Branch. BUILDING: The meaning set forth in the Recitals. BUSINESS DAY: Shall mean any day on which the Lender is open for business in New York City. CERTIFICATE: A certificate delivered by Borrower to Lender as of the Loan Opening Date relating to certain representations and warranties, the completeness and accuracy of which shall be certified by Borrower. CONSOLIDATED INDEBTEDNESS: All indebtedness of the Guarantors in accordance with generally accepted accounting principals consistently applied ("GAAP") which will include all liabilities for borrowed money including outstanding indebtedness under existing and future loan facilities, liabilities for the deferred purchase price of property or services acquired; all liabilities for borrowed money secured by any lien with respect to any property owned by the Guarantors or any entity directly or indirectly owned by any of the Guarantors (whether or not it has assumed or otherwise become liable for such liabilities) in an amount not to exceed the fair market value of the property securing such liability, or if assumed or otherwise become liable therefor, in an amount equal to such assumption or liability; the maximum stated amount of all letters of credit issued or acceptance facilities established and, without duplication, all drafts drawn thereunder (other than letters of credit supporting Consolidated Indebtedness); the amount of all obligations under "take or pay" or similar arrangements; the aggregate principal amount of outstanding Consolidated Indebtedness of a partnership in which any Guarantor is a general partner; and any guaranty by any Guarantor with respect to liabilities of a type described in any of the clauses above. Consolidated Indebtedness shall not include trade payables and accrued expenses arising or incurred in the ordinary course of business, but shall include all obligations of the character described above to the 4 9 extent the Borrower remains legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP. CONSOLIDATED TANGIBLE NET WORTH: The sum of the capital stock and additional paid-in capital plus retained earnings (or minus accumulated deficits which may be referred to as distributions in excess of earnings) less the sum of the goodwill, intellectual property, organizational expenses, unamortized debt discount and expenses, deferred costs and other similar intangibles of Starwood Lodging Trust and Starwood Lodging Corporation and their subsidiaries on a consolidated basis determined in conformity with GAAP as reflected in the consolidated balance sheet of the Guarantors and their subsidiaries in their forms 10-Q and 10-K filed with the Securities and Exchange Commission. DEBT SERVICE: The actual monthly interest payments which are required to be made under the Note. DEBT SERVICE COVERAGE: With respect to a particular twelve (12) month period, the figure calculated by dividing (a) Net Operating Income for such period by (b) Debt Service for such period. DEBT SERVICE COVERAGE RATE: 1.25. DEBT SERVICE COVERAGE STATEMENT: The meaning set forth in Section 8.1(l)(i). DEFAULT OR DEFAULT: Any event which, if it were to continue uncured, would, with notice or lapse of time or both, constitute an Event of Default. DOLLARS AND "$": Dollars in lawful money of the United States of America. EMPLOYEE BENEFIT PLAN: Any employee pension benefit plan which is defined in Section 3(3) of ERISA. ENGINEERING REPORTS: The engineering building inspection reports of the Court Premises and the Tuscany Premises, each dated March 6, 1996 and each prepared by Cosentini Associates Consulting Engineers at Borrower's sole cost and expense. ENVIRONMENTAL INDEMNITY: The indemnity described and defined in Section 4.2(k), as originally executed or as may be hereafter supplemented, amended or restated from time to time in writing. ENVIRONMENTAL PROCEEDINGS: The meaning set forth in Section 3.1(x). ENVIRONMENTAL REPORTS: The meaning set forth in Section 6.1(c)(viii). 5 10 ENVIRONMENTAL SURVEY: The Phase I environmental survey of the Project dated July 19, 1996 prepared by Law Engineering and Environmental Services at Borrower's sole cost and expense. ERISA: Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder from time to time. ESCROW ACCOUNT: An interest bearing cash collateral account established by Lender with Branch in its name and under its sole control. ESTOPPEL CERTIFICATES: The meaning set forth in Section 4.2(m). EVENT OF DEFAULT: The meaning set forth in Section 10.1. FIRREA: Financial Institutions, Reform, Recovery and Enforcement Act, as amended, and the regulations promulgated thereunder from time to time. GOVERNMENTAL APPROVALS: The meaning set forth in Section 3.1(p). GOVERNMENTAL AUTHORITY: Any federal, state, county or municipal government, or political subdivision thereof, any governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality, or public body, or any court, administrative tribunal or public utility, whether foreign or domestic having jurisdiction over the Premises. GROSS REVENUES: For any period, all revenues derived from the ownership, operation, use, leasing and occupancy of the Project during such period, including rents received from tenants of the Project; provided, however, that in no event shall Gross Revenues include (a) any gain arising from any write-up of assets, (b) any loan proceeds, (c) any income derived from the sale of any part of the Project, (d) proceeds or payments under insurance policies (except that proceeds of rental loss or business interruption insurance covering the Project shall be included in Gross Revenues), (e) tips, service charges, gratuities, or similar amounts received by employees, (f) gross receipts of licensees, concessionaires, tenants, subtenants or similar third parties, (g) refunds, rebates, discounts, credits, etc., which are paid, retained or received by Borrower, (h) condemnation proceeds or sales proceeds in lieu of and/or under threat of condemnation or (i) any security deposits received from any tenants of the Project, unless and until the same are applied to rent or such tenants' other obligations in accordance with the terms of such tenants' leases. For any period, Gross Revenues (sometimes referred to as Revenue on the combined statement of operations) shall be determined on an accrual basis. GUARANTY: The guaranty of payment described and defined in Section 4.2(j), as originally executed or as may be hereafter supplemented, amended or restated from time to time in writing. 6 11 GUARANTORS: Collectively and jointly and severally Starwood Lodging Trust, Starwood Lodging Corporation and SLT Realty Limited Partnership. HANDLED/HANDLING: The past, present or future production, storage, handling, transferring, refining, treating, processing, managing, transporting, discharging, releasing or disposing of Hazardous Material. HAZARDOUS MATERIAL: Gasoline, petroleum and other petroleum by-products, asbestos (including, without limitation, any ACMs), explosives, PCBs, radioactive materials or any "hazardous" or "toxic" material, substance or waste which is defined by those or similar terms or is regulated as such under any statute, law, ordinance, rule or regulation of any Governmental Authority having jurisdiction over the Project or any portion thereof or its use, including any material, substance or waste which is: (a) defined as a "hazardous substance" under Section 311 of the Water Pollution Control Act (33 U.S.C. Sec. 1317), as amended; (b) defined as a "hazardous waste" under Section 1004 of The Resource Conservation and Recovery Act of 1976, 42 U.S.C. Sec. 6901 et seq., as amended; (c) defined as a "hazardous substance" or "hazardous waste" under Section 101 of The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Reauthorization Act of 1986, 42 U.S.C. Sec. 9601 et seq., or any so-called "superfund" or "superlien" law, including the judicial interpretations thereof; (d) defined as a "pollutant" or "contaminant" under 42 U.S.C.A. Sec. 9601(33); (e) defined as "hazardous waste" pursuant to 40 C.F.R. Part 260; (f) defined as a "hazardous chemical" under 29 C.F.R. Part 1910; or (g) subject to any other law or other past (and still in effect), present or future requirement of any Governmental Authority regulating, relating to, or imposing obligations, liability or standards of conduct concerning, the protection of human health, plant life, animal life, natural resources, property or the enjoyment of life or property free from the presence in the environment of any solid, liquid, gas, odor or any form of energy from whatever source. HAZARDOUS MATERIALS CLAIMS: The meaning set forth in Section 8.1(y)(ii)(B). INCLUDING: Including but not limited to. INDEMNIFIED PERSONS: The meaning set forth in Section 8.1(s). INSPECTING ENGINEER: Any engineer selected by Lender in connection with any alterations or restoration work undertaken with respect to the Improvements. INTERNAL REVENUE CODE: The Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder from time to time. 7 12 ITINERANT HOTEL GUESTS: Residential hotel guests other than those who are staying at the Premises pursuant to a contract for a period of thirty (30) or more days. KNOWLEDGE: When used to modify a representation or warranty, actual knowledge or such knowledge as a reasonable person under the circumstances should have after commercially reasonable inquiry and investigation, and shall apply to all of the parties comprising Borrower, the Property Manager and all of their respective employees, and all present and future owners, employees and officers of the Starwood Group and any replacements (in whole or in part) of such Starwood Group. LAWS: Collectively, all federal, state and local laws, statutes, codes, ordinances, orders, rules and regulations, including judicial opinions or precedential authority in the applicable jurisdiction, foreign or domestic, and all directions, requirements, orders and notices of violation of any Governmental Authority having or asserting jurisdiction over the Project or any party to any of the Loan Documents. LEASES: The meaning set forth in Section 8.1(o). LOAN: The meaning set forth in the Recitals. LOAN DOCUMENTS: Collectively, this Agreement, the Note, the Mortgage, the Guaranty, Pledge Agreement and all other documents and instruments listed in Section 4.2 and all other documents, instruments or certificates delivered to Lender herewith or from time to time to evidence or secure the Loan and the payment and performance of Borrower's obligations hereunder, as the same may be modified from time to time with the prior written consent of Lender and Borrower. LOAN FEE: The meaning set forth in Section 5.2. LOAN OPENING OR OPENING OF THE LOAN: The disbursement of Loan proceeds in accordance with the terms of this Agreement. LOAN OPENING DATE: The date of the Loan Opening. MANAGEMENT FEE: The fee payable to the Property Manager under the Management Agreement for the management of the Project. MATURITY DATE: The meaning set forth in Section 4.3. MINIMUM NET WORTH THRESHOLD: For any period, shall mean the aggregate Consolidated Tangible Net Worth of the Guarantors equal to or exceeding Two Hundred Fifteen Million Dollars ($215,000,000.00). MONTHLY EXCESS CASH FLOW: For any month, the amount by which Gross Revenues for such month exceed the sum of (a) Operating Expenses for such 8 13 month (determined on an accrual basis), (b) capital expenditures required for the Project and either paid or reserved against during such month, (c) the amount of interest on the Loan paid during such month, (d) Amortization Payments made during such month and (e) any reserve or escrow deposits established by Borrower for the benefit of Lender and posted as additional collateral for the Loan pursuant to the terms of the Loan Documents. MORTGAGE: The mortgage described and defined in the Recitals, as originally executed or as may be hereafter supplemented, amended or restated from time to time in writing. NET OPERATING INCOME: For any period, the amount by which Gross Revenues for such period exceed Operating Expenses for such period (determined on an accrual basis). NET WORTH: For any period, an amount equal to the net worth of a Guarantor calculated on a GAAP basis. NOTE: The meaning set forth in the Recitals. OPERATING EXPENSES: For any period, the actual costs and expenses of owning, operating, managing and maintaining the Project during such period incurred by Borrower including, without limitation, real estate taxes, insurance premiums, repairs, maintenance and utility costs and leasing fees and commissions; provided, however, that in no event shall Operating Expenses include (a) interest due on the Loan and Amortization Payments, if any, (b) any fees paid to Lender in connection with the Loan, (c) capital expenditures or reserves therefor or (d) depreciation, amortization and other non-cash items. OUTSTANDING AMOUNT: For any period, the amount of the outstanding principal balance of the Loan. PARTICIPANT: The meaning set forth in Section 9.1(b). PERMITTED EXCEPTIONS: Those matters listed in Exhibit C hereto, to which the interest of Borrower in the Real Estate is permitted to be subject at the Loan Opening Date and thereafter, and such other title exceptions or objections, if any, as Lender, or its counsel, may approve in advance in writing or which, pursuant to the terms hereof, do not require the approval of Lender, if any. Matters which are not listed on Exhibit C hereto but over which the Title Insurer has agreed to insure Lender pursuant to endorsements to, or affirmative insurance coverage in, the Title Policy (which endorsements or affirmative insurance coverage shall be in form and substance satisfactory to Lender) shall also be deemed Permitted Exceptions. PERMITTED INVESTMENTS: United States Treasury obligations or certificates of deposit of Branch, in either case having maturities of ninety (90) days 9 14 or less, or other debt obligations of the United States Government with maturities of ninety (90) days or less, approved by Lender in its sole discretion. PERMITTED TRANSFEREES: Any or all of (i) (a) the Estate of Alfred L. Kaskel, deceased, and/or (b) any or all of the executors of the Estate of Alfred L. Kaskel, deceased, and/or (c) Howard Kaskel, Carole Schragis, Anita Kaskel Roe and/or Doris Kaskel, and/or any of them or their lineal descendants, and/or (d) any corporation, entity or trust controlled by or created for the benefit of any or all of the foregoing and (ii) the Starwood Group. PERSON: Any individual, partnership, corporation, trust, unincorporated association, joint venture, government or any department or agency thereof, or any other entity. PLANS AND SPECIFICATIONS: The meaning set forth in Section 6.1(c)(xiv). PLEDGE AGREEMENT: That certain Pledge and Security Agreement between Borrower and Lender, dated of even date herewith. PREMISES: The meaning set forth in the Recitals. PROCEEDING: The meaning set forth in Section 12.13. PROHIBITED TRANSACTION: A prohibited transaction as described under Section 406 of ERISA and Section 4975 of the Internal Revenue Code. PROJECT: The meaning set forth in the Recitals. PROPERTY MANAGER: Any Affiliate of Borrower or any Guarantor or any other successor property manager. The initial Property Manager shall be Doral Hotels Management Corp. REAL ESTATE: That portion of the Project legally constituting real estate, including the land and all easements and rights appurtenant thereto. REIT STOCK: The meaning set forth in the definition of the term "Value". RENT ROLL: The Rent Roll for the Project, which shall be substantially in the form attached hereto as Exhibit D. The Rent Roll shall not include any Itinerant Hotel Guests. 10 15 ROUTINE USES: The use of Hazardous Materials at the Project in connection with the routine operation of a hotel/residential apartment building with commercial tenants, including cleaning and maintenance fluids, office supplies and other similar items, in each case used in accordance with, and so as not to cause a violation of, environmental Laws and in quantities and in a manner which do not violate environmental Laws. SECURITY DEPOSIT(S): Any and all security deposit(s) which, at a given point in time, are collected by Borrower, as lessor, from a tenant pursuant to such tenant's Lease, together with any interest earned thereon. SECURITY DEPOSIT ACCOUNT: An interest bearing account in Borrower's name in which the Security Deposits are deposited and held and from which they are disbursed. STANDING MATURITY DATE: The meaning set forth in Section 4.3. STARWOOD GROUP: Guarantors and any entity wholly owned, whether directly or indirectly, by any of the Guarantors. TENANT IMPROVEMENTS: The improvements and personal property which have been or will be installed at the Project by or on behalf of any tenant whether or not at its sole cost and expense, and which are or will be owned by such tenant. TITLE INSURER: New York Land Services, Inc., as agent for Commonwealth Land Title Insurance Company or such other title insurance company or companies licensed in the State of New York, as may be approved by Lender, together with the co-insurers and re-insurers of the foregoing title insurance company(ies). TITLE POLICY: The meaning set forth in Section 6.1(c)(iii). TOTAL LIABILITIES: The "Total Liabilities" set forth in the 10-K and 10-Q reports for Starwood Lodging Trust and Starwood Lodging Corporation as of the date of such report. TRANSFER: The meaning set forth in Section 9.2. TREASURY RATE: The interest rate per annum as of the date hereof for United States Government Treasury Securities selected by Lender with a five (5) year term as calculated by reference to the yield quoted in the Federal Reserve Weekly Release H15 (or its successor or replacement publication if said Weekly Release H15 is no longer issued or published at such time). VALUATION DATE: The first day of each calendar quarter commencing with the first day of the first calendar quarter following the closing date of the Loan, or, if such date is not a day on which trading occurs on the NYSE ("a Trading Day"), the next succeeding Trading Day. 11 16 VALUE: With respect to shares of Starwood Lodging Trust, which are comprised of a one-for-one pairing of the shares of beneficial interest of the Starwood Lodging Trust and the shares of common stock of the Starwood Lodging Corporation and currently traded on the New York Stock Exchange ("NYSE") under the symbol HOT (collectively, the "REIT Stock"), the average of the daily market price for the five (5) consecutive trading days immediately preceding the Valuation Date. The market price for each such trading day shall be determined as follows: (i) if the REIT Stock is listed or admitted to trading on the NYSE, any national securities exchange or the Nasdaq Stock Market ("Nasdaq"), the closing price on such day, or if no such sale takes place on such day, the average of the closing bid and asked prices on such day; (ii) if the REIT Stock is not listed or admitted to trading on the NYSE, any national securities exchange or the Nasdaq, the last reported sale price on such day or, if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported by a reliable quotation source designated by the Lender; or (iii) if the REIT Stock is not listed or admitted to trading on the NYSE, any national securities exchange or the Nasdaq and no such last reported sale price or closing bid and asked prices are available, the average of the reported high bid and low asked prices on such day, as reported by a reliable quotation source designated by the Lender, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than five (5) days prior to the date in question) for which prices have been so reported; provided, that if there are no bid and asked prices reported during the five (5) days prior to the date in question, the Value of the REIT Stock shall be determined by the Lender acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate. USE OF DEFINED TERMS 2.2 Defined terms may be used in the singular or the plural. When used in the singular preceded by "a", "an", or "any", such term shall be taken to indicate one or more members of the relevant class. When used in the plural, such term shall be taken to indicate all members of the relevant class. USE OF RECITAL, ARTICLE, SECTION AND EXHIBIT REFERENCES 2.3 The use herein of references to Recitals, Articles, Sections and Exhibits shall refer to the referenced Recital, Article or Section in, or Exhibit annexed to, this Agreement. ARTICLE 3 REPRESENTATIONS AND WARRANTIES REPRESENTATIONS AND WARRANTIES OF BORROWER 3.1 To induce Lender to execute and deliver this Agreement and to perform the obligations of Lender hereunder, Borrower hereby represents and warrants to Lender as follows: 12 17 (a) Borrower has good, transferable and insurable fee simple title to the Real Estate, subject only to the Permitted Exceptions. (b) Borrower is a limited liability company duly and validly formed and validly existing under the laws of the State of New York. Borrower has full power and authority to execute, deliver and perform the obligations and carry out the duties imposed upon Borrower by this Agreement and the other Loan Documents to which it is a party. Borrower has taken all necessary internal actions, and obtained all internal approvals and consents, necessary or appropriate to carry out Borrower's obligations and duties in connection with the Loan. (c) (i) Starwood Lodging Trust is a trust duly and validly formed and validly existing under the laws of the state of its formation. Starwood Lodging Trust has full power and authority to execute, deliver and perform the obligations and carry out the duties imposed upon it by this Agreement and the other Loan Documents to which it is a party. Starwood Lodging Trust has taken all necessary internal actions, and obtained all internal approvals and consents, necessary or appropriate to carry out its obligations and duties in connection with the Loan. (ii) SLT Realty Limited Partnership is a limited partnership duly and validly formed and validly existing under the laws of the state of its formation. SLT Realty Limited Partnership has full power and authority to execute, deliver and perform the obligations and carry out the duties imposed upon it by this Agreement and the other Loan Documents to which it is a party. SLT Realty Limited Partnership has taken all necessary internal actions, and obtained all internal approvals and consents, necessary or appropriate to carry out its obligations and duties in connection with the Loan. (iii) Starwood Lodging Corporation is a corporation duly and validly formed and validly existing under the laws of the state of its formation. Starwood Lodging Corporation has full power and authority to execute, deliver and perform the obligations and carry out the duties imposed upon it by this Agreement and the other Loan Documents to which it is a party. Starwood Lodging Corporation has taken all necessary internal actions, and obtained all internal approvals and consents, necessary or appropriate to carry out its obligations and duties in connection with the Loan. (d) All of the Loan Documents executed by Borrower and/or any Guarantor, as the case may be, have been duly and properly executed and delivered by such parties. (e) This Agreement, the Note, the Mortgage, the Guaranty, the Environmental Indemnity, Pledge Agreement and all of the other Loan Documents each constitutes legal, valid and binding obligations of Borrower and/or the Guarantors, as the case may be, and each of the Loan Documents and the security interests granted therein, if applicable, are enforceable in accordance with their respective terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditor's rights generally and limitations imposed by general principles of equity. 13 18 (f) When duly recorded or filed in the appropriate public records, the Mortgage and the Uniform Commercial Code financing statements delivered to Lender pursuant to Section 4.2 shall each create in favor of Lender a valid and perfected first priority lien upon the property purportedly subject thereto and, other than the filing of continuation statements under the Uniform Commercial Code, no further action will be required to perfect and maintain such lien. When executed, delivered and filed, as applicable, the Pledge Agreement and UCC-1 Financing Statements relating thereto shall create in favor of Lender a valid and perfected first priority lien upon the property purportedly subject thereto and no further action will be required to perfect and maintain such lien. (g) No provision of any mortgage, indenture, agreement, contract or other instrument to which Borrower or any Guarantor is a party requires the consent or authorization of any other person, firm or corporation as a condition precedent to the consummation of the transactions contemplated herein or in any of the other Loan Documents. (h) No approval of, or consent from, any Governmental Authority is required in connection with the execution, delivery and performance by Borrower and/or any Guarantor, as the case may be, of this Agreement or any of the other Loan Documents or in connection with the performance or consummation by Borrower and/or any Guarantor of any of the transactions contemplated hereby or thereby, or if required, such approval or consent has been obtained. (i) The execution, delivery and performance of the Loan Documents, the granting of the security interests therein and compliance with the provisions of this Agreement and the other Loan Documents, (i) have not constituted (and will not, upon the giving of notice or lapse of time or both, constitute) either (A) a breach or default under any organizational document of Borrower, any indenture, mortgage, deed of trust, franchise, permit, license, note or any other agreement or instrument to which Borrower or any Guarantor is a party or by which Borrower or any Guarantor or any of their respective properties (including the Project) may be bound or affected, or (B) a violation of any Law, court order, writ, injunction or other decree which may affect Borrower, any Guarantor or the Project, any part thereof, any interest therein, or the use thereof, and (ii) will not result in a lien against any property or assets of Borrower (other than liens in favor of Lender pursuant to the Loan Documents) or any Guarantor. (j) Except for lawsuits that are fully covered by insurance (and as to which such coverage has not been denied by the applicable insurance carrier), there are no actions, suits or proceedings pending, or threatened in writing which Borrower or any Affiliate of Borrower has received, involving the Project or against Borrower or any Guarantor that: (i) could or might materially and adversely affect the Project, or any portion thereof in the event such suit was decided in a manner adverse to the interests of Borrower or any Guarantor; (ii) might affect the validity or priority of the lien of the Mortgage or the security interests created by the other Loan Documents; (iii) might affect the ability of Borrower or any Guarantor to perform its respective obligations pursuant to and as contemplated by the terms and provisions of this Agreement and the other Loan Documents; (iv) could materially and 14 19 adversely affect the operations or financial condition of Borrower or (v) could or might cause any of the Guarantors to fail any of their financial covenants set forth herein or in Paragraph 2 of the Guaranty, if finally adjudicated against any of the Guarantors. (k) There are no pending, or threatened in writing, actions, suits or proceedings to revoke, attack, invalidate, rescind or modify the zoning of the Project or any part thereof, or any building or other permits heretofore issued with respect thereto, or asserting that such zoning or permits do not permit the continued use of any of the Building and the Project as presently used. (l) The copy of the articles of organization of Borrower furnished to Lender is a true, correct and complete copy thereof. (m) (i) No condemnation of any portion of the Project, (ii) no condemnation or relocation of any roadways abutting the Project, (iii) no proceeding to deny access to the Project and (iv) no proceeding which could adversely affect the operation of the Project, has, to Borrower's knowledge, commenced or is threatened in writing. No casualty affecting all or any portion of the Project has occurred which has not been fully repaired. (n) All financial statements furnished to Lender by Borrower or any Guarantor are true, correct and complete in all material respects as of the dates noted thereon, and all other information previously furnished to Lender by Borrower or any Guarantor in connection with the transactions contemplated by the Loan Documents is true, correct and complete in all material respects and does not fail to state any material fact necessary to make the statements made not misleading. Neither Borrower nor any Guarantor has any liability, contingent or otherwise which can be determined with specificity, not disclosed in such financial statements or such other information which would materially and adversely affect Borrower's or such Guarantor's ability to perform or discharge its respective obligations under the Loan Documents. (o) Intentionally Deleted. (p) To Borrower's knowledge, Borrower is in compliance with, and the use of the Project for its existing and intended uses and related uses is in compliance with and does not, other than as specifically identified in the violations searches (the "Violations Searches") prepared in connection with the Loan Opening, the Certificate, the title report, the Title Policy, the Environmental Survey and/or the Engineering Reports, violate (i) any Laws of any kind whatsoever (including the ADA, all other zoning and building Laws (other than as set forth in Section 8.1(u) hereof) and environmental protection Laws), or (ii) any building permits or other approvals, restrictions of record, or any agreement affecting the Project or any part thereof. To Borrower's knowledge, except as set forth in the Title Policy and except for the garage, neither the zoning nor any other right to use the Project is to any extent dependent upon or related to any real property other than the Project. Without limiting the generality of the foregoing, to Borrower's knowledge, all material consents, licenses and permits and all other authorizations or approvals, including all 15 20 permits issued by all applicable municipal and other governmental authorities concerning the operation, use and occupancy of the Project (collectively, "GOVERNMENTAL APPROVALS"), required as of the date hereof to operate the Project as the Project is now operated have been obtained (other than as set forth in Section 8.1(u) hereof), have been fully paid for, are in full force and effect and are in the form attached as Exhibit E, and all conditions thereto have been satisfied in all material respects; and all Laws of the State where the Project is located or any subdivision thereof relating to the operation of the Project have been complied with in all material respects. (q) To Borrower's knowledge, the Project, as the Project is now operated, has adequate water, gas and electrical supply, storm and sanitary sewerage facilities. (r) Borrower has dealt with no broker in connection with this Loan transaction and no brokerage fees or commissions are payable by or to any person in connection with any of the Loan Documents or the transactions contemplated thereby. Subject to the provisions of Section 12.6(f), Lender shall not be responsible for the payment of any fees or commissions, and Borrower shall pay, any brokerage fees or commissions due to any broker claiming to have dealt with Borrower in connection with the Loan and shall indemnify, defend and hold Lender harmless from and against any claims, liabilities, obligations, damages, costs and expenses (including reasonable attorneys' fees and disbursements) made against or incurred by Lender as a result of claims made or actions instituted by any broker or any person claiming to have dealt with Borrower in connection with the Loan. No written brokerage agreement exists between Borrower or any Guarantor and any leasing broker with respect to the Project. (s) No structural alterations have been made to the Project since the date of the survey delivered pursuant to Section 6.1(c)(iv) which would render such survey materially inaccurate. (t) Each of the Court Premises and the Tuscany Premises is taxed separately without regard to any other property and for all purposes the Project may be mortgaged and conveyed as two separate and independent parcels and tax lots. To the best of Borrower's knowledge, Borrower has paid all partnership, corporate, or limited liability company (as applicable) or other taxes and assessments charged by the State of New York and all taxes and assessments affecting the Project or otherwise payable by Borrower which are due and payable on or before the date hereof. (u) Borrower is not in the business of extending credit for the purpose of purchasing or carrying "margin stock" within the meaning of Regulation G, T, U or X issued by the Board of Governors of the Federal Reserve System, as at any time amended, and none of the proceeds of the Loan will be used for the purpose of purchasing or carrying any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock, and Borrower agrees to execute all instruments necessary to comply with all the requirements of Regulation U of the Federal Reserve System, as at any time amended. 16 21 (v) The Loan and the execution and performance of the Loan Documents do not constitute a Prohibited Transaction; Borrower does not have an Employee Benefit Plan; and the assets of Borrower do not constitute "plan assets" within the meaning of 29 C.F.R. Sec. 2510.3-101. (w) Borrower and all Guarantors are in material compliance with the provisions of ERISA. (x) None of Borrower, any Guarantor (in connection with the Project) or the Project is in violation of any environmental Law, except as expressly disclosed in the Environmental Survey, the Title Policy, the Violation Search, the Certificate or the Engineering Reports; except as aforesaid, none of Borrower nor any Guarantor has received any written notice of any such violation or claimed violation concerning the Project, and Borrower is not aware of any circumstances which could give rise to the issuance of any such notice. There are no pending civil (including actions by private parties), criminal or administrative actions, suits or proceedings affecting Borrower, any Guarantor (in connection with the Project) or the Project relating to environmental matters ("ENVIRONMENTAL PROCEEDINGS"), and Borrower has no knowledge of any threatened in writing Environmental Proceedings or any circumstances which could give rise to any future Environmental Proceedings. Except for Routine Uses (all of which are maintained in compliance with Law), neither Borrower nor any Guarantor has ever caused or permitted any Hazardous Material to be Handled over, on, under or at the Project, or any part thereof, or any other property adjacent thereto, or any other property owned by Borrower, or used the Project or any such other property permanently or temporarily as a dump site or storage site for any Hazardous Material. To Borrower's knowledge, except for Routine Uses (all of which are maintained in compliance with Law), no other person has ever caused or permitted any Hazardous Material to be Handled on, under, adjacent to or at the Project, or any part thereof, or used the Project or any such other property permanently or temporarily as a dump site or storage site for any Hazardous Material. To Borrower's knowledge, except as set forth in the Environmental Survey, the Project and all parts thereof are free of all Hazardous Material, except for Routine Uses, all of which are maintained in compliance with Law. The representations and warranties contained in this Section 3.1(x) shall survive until such time as all related claims which may be brought against Lender shall be time-barred by any applicable statute of limitations, notwithstanding the payment in full and the performance of all obligations of Borrower and any Guarantor under the Loan Documents or a foreclosure of the Project or deed-in-lieu thereof. (y) All statements set forth in the Recitals are true and correct. (z) Borrower is not a "foreign person" within the meaning of Section 1445 or 7701 of the Internal Revenue Code. (aa) Other than the tradenames -- "Doral Court" and "Doral Tuscany", Borrower uses no trade name and has not done and does not do business 17 22 under any name other than its actual name set forth herein. The principal place of business of Borrower is as stated on page 1 hereof. (ab) Borrower is, and at all times during the term of the Loan shall remain, a single purpose entity whose sole purpose is to own and operate the Project. (ac) Borrower is not a "Public Utility Holding Company" as defined in The Public Utility Holding Company Act of 1935, as amended. (ad) Property Manager manages the Project pursuant to that certain management agreement, dated as of the date hereof (the "MANAGEMENT AGREEMENT"), between Property Manager and Emstar Operating LLC, and as of the date hereof there are no material defaults by Borrower, or to Borrower's knowledge, by Property Manager under the Management Agreement. Except as set forth on the Certificate, there are no other management, employment or consulting agreements relating to Borrower or the Project. Except as set forth on the Certificate, no collective bargaining agreements or labor agreements cover any employees of Borrower. (ae) Borrower is the owner of all personal property, machinery and equipment located at the Project (other than the Tenant Improvements), all of which is free and clear of all chattel mortgages, conditional vendor's liens and other liens, encumbrances and security interests, other than as set forth on the Certificate. (af) Other than as specifically identified as such in the Violation Search and the Certificate, no notices of any claimed violations of Laws arising from the operation, use or occupancy of the Project which have not been cured have been served upon Borrower or any of its agents or representatives. To Borrower's knowledge, none of Borrower, any Guarantor (in connection with the Project) or the Project is involved in any investigation by or before any Governmental Authority, nor to Borrower's knowledge has any such investigation been threatened in writing. (ag) Borrower has not taken any of the actions described in Section 10.1(i) of this Agreement or been the subject of any of the involuntary actions described in Sections 10.1(g) and 10.1(i) of this Agreement. (ah) The information provided by Borrower to Lender in connection herewith concerning the Project, Borrower, any Guarantor and any Lease does not include an untrue statement of a material fact or omit to state any material fact or any other fact which is necessary to make the statements contained therein (in the light of the circumstances under which they were made) not misleading. (ai) Borrower does not provide any building services to tenants from which income other than rent or hotel room charges is generated or derived other than services related to the operation of the Project. 18 23 (aj) Since the date of the last financial statements of Borrower, Guarantor and the Project which have been delivered to Lender, there has been no change in the financial condition of Borrower, any Guarantor or the Project, respectively, that would (with the passage of time or the giving of notice, or both) constitute an Event of Default under the provisions of Sections 10.1(i), 10.1(q), 10.1(r) and/or 10.1(s). SURVIVAL OF REPRESENTATIONS AND WARRANTIES. 3.2 Borrower agrees that all of its representations and warranties set forth in Section 3.1 and elsewhere in this Agreement and the other Loan Documents will be true at the Loan Opening Date. ARTICLE 4 TERMS OF LOAN AND DOCUMENTS AGREEMENT TO BORROW AND LEND 4.1 Subject to all of the terms, provisions and conditions set forth in this Agreement and the other Loan Documents, Lender agrees to make and Borrower agrees to accept the Loan. The principal amount of the Loan disbursed to Borrower shall be TWENTY-SEVEN MILLION THREE HUNDRED SEVENTY-FIVE THOUSAND AND xx/100 ($27,375,000.00) DOLLARS. LOAN DOCUMENTS 4.2 In consideration of Lender's entry into this Agreement and Lender's agreement to make the Loan, Borrower shall, in sufficient time for review by Lender and its counsel prior to the Loan Opening Date, execute and deliver, or cause to be executed and delivered, to Lender the following documents and instruments in form and substance acceptable to Lender and its counsel: (a) The Note; (b) The Mortgage; (c) A security agreement granting Lender a first priority security interest in all fixtures, furniture, furnishings and equipment and any other personal property (tangible and intangible) now or hereafter owned by Borrower and located in, or used in connection with the operation of, the Project, which security agreement may be combined with the Mortgage; (d) Such Uniform Commercial Code financing statements as Lender's counsel determines are necessary or advisable to perfect, or notify third parties of, the security interests intended to be created by the Loan Documents; (e) To the extent assignable, a collateral assignment to Lender of all of Borrower's right, title and interest in, to and under all building 19 24 permits, governmental permits, licenses and authorizations issued from time to time in connection with the operation of the Project; (f) A collateral assignment to Lender of all of Borrower's right, title and interest in, to and under (i) all management, maintenance, service, supply or other agreements relating to the use and operation of the Project and all warranties and guaranties issued in connection therewith and (ii) all brokerage or leasing agreements relating to the Project; (g) A collateral assignment to Lender of all of Borrower's right, title and interest in, to and under (i) all plans and specifications pertaining to the Project and (ii) any and all tests, studies, surveys, audits, results and reports performed or prepared in connection with the Project, if required by Lender; (h) An assignment to Lender of all rents and all Leases, licenses, concessions and other similar contracts and agreements relating to or connected with the use and/or operation of the Project now or hereafter entered into, including, without limitation, all rents, issues, revenues, proceeds and profits from the Project or any of the foregoing; (i) [Intentionally Deleted] (j) That certain Guaranty of Payment (the "GUARANTY") dated as of the date hereof from Guarantors to Lender; (k) Hazardous Material Indemnification Agreement from Borrower to and for the benefit of Lender (the "ENVIRONMENTAL INDEMNITY") with respect to environmental representations, warranties and covenants; (l) A subordination agreement between Property Manager and Lender, pursuant to which Property Manager shall agree that upon the occurrence of an Event of Default and the acceleration of the Loan, the rights of Property Manager to receive the Management Fee shall in all respects be subject and subordinate to Lender's rights to receive payment in full of all of Borrower's obligations under the Loan Documents; (m) Estoppel certificates from each existing commercial and retail tenant of the Project to the extent required by Lender (collectively, the "ESTOPPEL CERTIFICATES"). (n) A general release from the Company to Lender releasing Lender from all liabilities which may have accrued as of the Loan Opening Date including, without limitation, any lender liability claims; and (o) Such other papers, documents and instruments as may be required by this Agreement or as Lender may reasonably require. 20 25 Notwithstanding anything contained herein to the contrary, Lender acknowledges and agrees that all the requirements of this Section 4.2 have been satisfied in full or waived by Lender as of the Loan Opening Date. TERM OF THE LOAN 4.3 Without limiting the provisions of the Note, the unpaid principal balance, together with any accrued and unpaid interest and all other sums then due and payable under the Note and under the other Loan Documents, if not sooner paid, whether by reason of acceleration or otherwise, shall be paid in full on September 18, 2001 (the "STANDING MATURITY DATE"), unless the entire outstanding principal balance of the Note, together with all accrued but unpaid interest thereon, and all other sums which then may be payable under the Note becomes due and payable or are paid by Borrower on an earlier date due to acceleration of the Note or prepayment thereof (the "ACCELERATED MATURITY DATE"). As used herein the term "MATURITY DATE" shall mean the date that is the first to occur of (i) the Standing Maturity Date; or (ii) the Accelerated Maturity Date. PREPAYMENTS 4.4 Borrower shall have the right to make prepayments of the Loan in accordance with the terms of the Note. DUE ON SALE 4.5 The unpaid principal balance, all accrued and unpaid interest and all other sums due and payable under the Note, including any prepayment fees, and the other Loan Documents, if not sooner paid, shall be paid in full upon, except as expressly permitted under Sections 4.6, 9.2 or 9.3, a Transfer by Borrower or the Guarantors of (i) all or any portion of the Project, (ii) all or any portion of the Borrower's right, title and interest in and to the Project or (iii) any interest in Borrower or any interest in any entity which holds an interest in, or directly or indirectly controls, Borrower. PARTIAL SALE OF PREMISES 4.6 Notwithstanding anything to the contrary in this Article 4, Borrower, subject to the satisfaction of the conditions set forth in Section 4.7 below shall have the right, with the payment by Borrower to Lender of the applicable prepayment premiums, to sell either, but not both, the Court Premises or the Tuscany Premises provided that (i) following the proposed sale of one of the properties (i.e., either the Court Premises or Tuscany Premises) the remaining balance of the Loan shall not exceed seventy-five (75%) of the value of the remaining property which is subject to the Loan, as determined by a then current appraisal and (ii) ninety-five percent (95%) of the gross sales proceeds are utilized to pay down the principal portion of the Loan. 21 26 CONDITIONS TO PARTIAL SALE OF PREMISES 4.7 Subject to the conditions set forth in Section 4.6 above, and further subject to the satisfaction of each of the conditions set forth below, Lender shall release a portion of the lien of the Mortgage encumbering either the Court Premises or the Tuscany Premises (such premises which may be released, the "Released Premises", such premises which remain subject to the Mortgage after the Released Premises have been released, the "Remaining Premises"). As a condition precedent to Lender's obligation to release a Released Premises each of the following conditions shall be satisfied: (a) No Event of Default or event which with the passage of time or notice or both would constitute an Event of Default, shall be existing under this Agreement, the Note, the Mortgage, or any other Loan Document; (b) All instruments and documents to be executed and delivered, other than purchase or option agreements, in connection with any release shall be in form and substance reasonably satisfactory to Lender and its counsel; (c) All costs and expenses incurred by Lender in connection with any release, including, but not limited to, reasonable attorneys' fees and disbursements, recording fees and title charges and premiums, shall be paid by Borrower; (d) The Remaining Premises shall have been properly designated and established as a separate tax lot or lots by the pertinent taxing authority in which such parcel or parcels are located, distinct from the Released Premises to insure, among other things, that the ability of Lender to foreclose the Mortgage attributable to the Remaining Premises and sell the Remaining Premises shall not be hindered or compromised in any manner whatsoever as a result of any such release; (e) Borrower shall provide Lender with such title insurance endorsements or new title policies affirmatively assuring that the release of the Released Premises shall not impair the lien or affect the priority of the Mortgage, as Lender may reasonably require in connection with the making of any such release; (f) The Remaining Premises shall continue to be subject to the lien of the Mortgage; and (g) The Remaining Premises shall be able to meet the Debt Service Coverage, as determined by Lender, immediately following the release of the Released Premises based on the portion of the Debt which will remain owing to Lender after the Released Premises are released. SEVERANCE AND PARTIAL RELEASE OF MORTGAGE 22 27 4.8 Provided the conditions set forth in Sections 4.6 and 4.7 above have been fully satisfied, Lender shall execute severance and release documents required to release the Released Premises provided any such severance arrangement is then permitted by Law and provided further that Lender shall not be required to execute any affidavits in connection with any such severance. ARTICLE 5 LOAN EXPENSES AND ADVANCES; SECURITY OF MORTGAGE FOR SAME LOAN ORIGINATION EXPENSES 5.1 Borrower agrees to pay all third party expenses of the Loan incurred by Lender, including all amounts payable pursuant to Sections 5.2 and 5.3 below, and also including all recording charges, title insurance charges, costs of surveys, costs of appraisals, costs for certified copies of instruments, all reasonable fees, expenses and charges of appraisal, construction, architectural, engineering, environmental, insurance and other consultants, all brokerage fees and commissions, and all reasonable fees and expenses (including word processing and photocopying expenses) of Lender's attorneys, in connection with or arising out of the making of the Loan and the Loan Opening. LENDER'S LOAN FEE 5.2 Borrower agrees to pay, in consideration of Lender's entry into this Agreement, a loan fee (the "LOAN FEE") of $410,625 (which fee is equal to 1.5% of the original principal amount of the Loan). The Loan Fee shall be paid to Lender on or before the Loan Opening Date. EXPENSES AND ADVANCES SECURED BY LOAN DOCUMENTS 5.3 All expenses, fees, advances or payments made by Lender under this Agreement or any of the other Loan Documents occurring after the date hereof, including, without limitation, those made in connection with (i) a Default or an Event of Default or (ii) any request of Borrower or any Guarantor or indemnitor to Lender in connection with the Loan or the Project (including any request that Lender prepare additional documents or review additional documents), all of which Borrower hereby agrees to pay, and all amounts expended by Lender pursuant to Section 11.1(b)(i) or for Lender's various consultants' fees and attorneys' fees and expenses, if any, and all other Loan expenses shall, as and when advanced or incurred by Lender, constitute additional indebtedness secured by the Mortgage and the other Loan Documents to the same extent and effect as if the terms and provisions of this Agreement were set forth therein; provided, however, that Borrower shall not be obligated to reimburse any of Lender's expenses in excess of $10,000 in any given year, unless such expenses are incurred in connection with an Event of Default. If Lender utilizes attorneys following a Default, but prior to an Event of Default, Borrower shall not be obligated to reimburse Lender for such legal fees unless it is determined that Borrower was in Default under this Agreement or any of the other Loan Documents. 23 28 ARTICLE 6 REQUIREMENTS PRECEDENT TO THE OPENING OF THE LOAN 6.1 Borrower shall perform and satisfy all of the following conditions precedent on or before the Loan Opening Date, and Borrower agrees that Lender's obligation to disburse the Loan is conditioned upon Borrower's performance or satisfaction of all such conditions precedent: (a) No Default or Event of Default by Borrower or any Guarantor shall exist under this Agreement or any of the other Loan Documents. (b) Borrower shall have executed and delivered or caused to be executed and delivered to Lender all of the Loan Documents as required by, and in accordance with, Section 4.2, duly and properly executed by the respective parties thereto, and Borrower shall have paid all amounts required to be paid by Borrower on or before the Loan Opening Date pursuant to Article 5. (c) Borrower shall have furnished to Lender the following, in sufficient time for review by Lender and its counsel prior to the Loan Opening Date, all of which shall be in form and substance reasonably satisfactory to Lender and its counsel: (i) A certified copy of the Articles of Organization of Borrower issued by the office of the Secretary of State of New York and any amendments thereto. (ii) The Assignment and Assumption Agreement. (iii) A mortgagee policy of title insurance (the "TITLE POLICY") satisfactory in form and substance to Lender. (iv) A survey for each of the Court Premises and the Tuscany Premises satisfactory in form and substance to Lender. (v) Opinions from counsel to Borrower and the Guarantors satisfactory to Lender, which Borrower and the Guarantors hereby direct their respective attorneys to deliver to Lender. (vi) The current Rent Roll for the Project in form and substance reasonably satisfactory to Lender. The Rent Roll shall indicate (A) gross monthly rent collections from the Project, (B) the approximate square footage of retail space that is currently occupied, (C) the number of rooms leased for more than a thirty (30) day period, and (D) the names of any residential tenants (other than Itinerant Hotel Guests). The Rent Roll shall be certified by Borrower's managing member as being true, correct and complete as of the date of closing. 24 29 (vii) A copy of any written management agreement (including, but not limited to, the Management Agreement) and any brokerage agreement relating to the Project, together with a statement as to any commissions payable upon the happening of certain stated events, all of which shall be approved by Lender. (viii) All existing environmental reports relating to the Project that are in the possession of Borrower, any Guarantor or any Affiliate, agent or consultant of Borrower or any Guarantor (the "ENVIRONMENTAL REPORTS") including, without limitation, the Environmental Survey, certified to Lender. (ix) The Engineering Reports, certified to Lender. (x) Evidence satisfactory to Lender that the Project and the use thereof are in compliance with all applicable zoning and building codes, environmental Laws, wetlands protection Laws and any other Laws of any applicable Governmental Authority (including the ADA and any requirements for parking), including all requirements and conditions set forth in all permits, licenses and other approvals which have been obtained or are required to be obtained from Governmental Authorities for the operation, use or occupancy of the Project, and that all approvals, permits, licenses and certificates required to be obtained from any Governmental Authority or other third party for the operation, use or occupancy of the Project have been so obtained, have been paid for and are valid and in full force and effect. Such evidence may include information shown on the survey, endorsements to the Title Policy and photocopies, in duplicate, of building permits and any special permits, licenses or certificates (including certificates of occupancy) issued by any Governmental Authority, including the municipality in which the Project is located, which are required in connection with the operation of the Project. (xi) Current tax lien, bankruptcy, judgment and Environmental Control Board lien searches against Borrower and all Guarantors. Current searches of all Uniform Commercial Code financing statements filed with such offices as Lender's counsel designates, with respect to Borrower and each Guarantor, respectively, as debtor, which searches shall show that no Uniform Commercial Code financing statements are filed or recorded against any of Borrower or any Guarantor in which the collateral is described as personal property or fixtures constituting a part of, or used in connection with, the Project other than equipment leases. (xii) An Appraisal Institute certified appraisal of the Project (the "APPRAISAL") performed for and certified to Lender by the Appraiser, in conformity with the requirements of FIRREA and on a basis and using a methodology satisfactory to Lender, and disclosing an appraised value of the Project reflecting a value satisfactory to Lender in its sole discretion. All fees related to the preparation of the Appraisal shall be paid by Borrower. (xiii) (A) Copies of financial statements of the Company, Hotel Tuscany LP and each of the Guarantors in form and substance satisfactory to Lender. 25 30 (xiv) To the extent available, a complete set of "as-built" plans and specifications of each of the Buildings comprising the Project (collectively, the "PLANS AND SPECIFICATIONS"), certified as being true, complete and correct by Borrower. (xv) With respect to the assignments described in Section 4.2(e), Section 4.2(f), Section 4.2(g) and Section 4.2(i), Borrower shall have delivered to Lender advance consents to such assignments from such third parties as shall be required in order to deliver such assignments and as Lender may reasonably require. (xvi) Borrower shall have furnished Lender with a certification of Borrower or other evidence satisfactory to Lender that: (A) there has been no change in the financial condition of Borrower or any of the Guarantors or the Project that would constitute an Event of Default under the provisions of Sections 10.1(i), 10.1(q), 10.1(r) and/or 10.1(s); (B) All Leases are subordinate to the Loan, all Leases are in full force and effect and there are no set-offs, defenses, counterclaims or written disputes with respect to any Leases. (xvii) Evidence satisfactory to Lender that no bankruptcy petitions have been filed against or by any of the tenants or by or against Borrower, or by or against any Guarantor. (xviii) A copy of all Leases, which Leases are acceptable to Lender in its sole discretion. (xix) An agreement between Lender and any lessee under any Lease pursuant to which such lessee agrees to subordinate its interest in the Court Premises or the Tuscany Premises, as the case may be, to Lender's interest in the Premises. (xx) Such other evidence, documents and instruments as may be required under this Agreement or as Lender may reasonably require. Notwithstanding anything contained herein to the contrary, Lender acknowledges and agrees that other than in connection with any matters which Borrower or any Guarantor has undertaken to perform after the Loan Opening Date in a writing delivered at the closing, all the requirements set forth in this Section 6.1 have either been satisfied in full or waived by Lender as of the Loan Opening Date. 26 31 ARTICLE 7 LENDER'S OBLIGATION TO DISBURSE PROCEEDS OF LOAN LOAN OPENING 7.1 In that Borrower has complied with and satisfied all conditions precedent to the Loan Opening, Lender has acquired the Tuscany Loan as of the date hereof. ARTICLE 8 BORROWER'S AGREEMENTS 8.1 Borrower further covenants and agrees to and with Lender as follows: COMPLIANCE WITH REQUIREMENTS OF GOVERNMENTAL AUTHORITIES (a) At all times after the Loan Opening Date, Borrower will, in all material respects, comply with, and will, in all material respects, cause the Project to be in compliance with, all applicable Laws and requirements of Governmental Authorities, including all requirements and conditions set forth in all permits, licenses and other approvals which have been obtained or are required to be obtained from Governmental Authorities for the operation, use or occupancy of the Project as it is then being operated, used or occupied. INSPECTION BY LENDER (b) Borrower will cooperate, and will use reasonable efforts to cause all tenants and any managing agent or Property Manager to cooperate, with Lender in arranging for inspections from time to time, of the Project by Lender and its agents and representatives at any time during normal business hours following reasonable notice, except in the case of an emergency when no notice shall be required. MECHANICS' LIENS AND CONTEST THEREOF (c) Borrower will not suffer or permit any mechanics' lien or claim to be filed or otherwise asserted against the Project other than work performed by non-Affiliated tenants without Borrower's consent, and will promptly discharge the same, or cause the same to be discharged, by payment, bonding or otherwise within thirty (30) days after the institution of foreclosure proceedings based on any such liens. 27 32 SETTLEMENT OF MECHANICS' LIEN CLAIMS (d) If Borrower shall fail, after any applicable notice or cure period, to discharge any mechanics' lien or claim filed or otherwise asserted against the Project (other than work performed by non-Affiliated tenants) or cause the same to be discharged by payment, bonding or otherwise in accordance with the Loan Documents after the institution of foreclosure proceedings based on any such liens, Lender may, at its election (but shall not be obligated to), (i) procure the release and discharge of any such lien or claim and any judgment or decree thereon, without inquiring into or investigating the amount, validity or enforceability of such lien or claim and (ii) effect any settlement or compromise of the same, and any amounts expended by Lender in connection therewith, including premiums paid or security furnished in connection with the issuance of any surety company bonds, shall be deemed to constitute additional indebtedness evidenced by the Note (even if the total amount of such indebtedness would then exceed the face amount of the Note), payable on demand and secured by the Mortgage and other Loan Documents. Notwithstanding anything contained herein to the contrary, Lender agrees not to exercise its rights to cure such liens so long as within thirty (30) days of notice from Lender to Borrower, Borrower bonds over such mechanics' lien and has the mechanics lien released against the Real Estate. RENEWAL OF INSURANCE (e) Intentionally Deleted PAYMENT OF TAXES (f) Subject to the provisions of Section 5 of the Mortgage, Borrower shall pay, or cause to be paid, with respect to Borrower and the Project, all general and special taxes, real estate taxes, assessments and charges, sales and excise taxes, any tax that is due or becomes due in respect of the issuance of the Note or the recording of the Mortgage (other than taxes based on Lender's income, franchise, revenue and other similar taxes), and any other taxes that affect the Project or the ability of Borrower or any Guarantor to discharge its respective obligations under the Loan Documents until such time as Lender reasonably believes that title is materially impaired by, and Borrower is in danger of losing the Project due to, same, and shall, upon request, furnish to Lender copies of the receipts therefor; provided, however, that after prior notice to Lender in the case of any material item, Borrower, at its own expense, may contest by appropriate legal proceeding, promptly initiated and conducted in good faith and with due diligence, the amount or validity or application in whole or in part of any of the Taxes (as such term is defined in the Mortgage), provided that (i) no Event of Default exists under this Agreement, the Note, the Mortgage or any other document entered into in connection herewith or therewith, (ii) Borrower shall have either paid all amounts claimed to be due "under protest" or such proceeding shall suspend the collection of the Taxes from Borrower and from the Mortgaged Property (as such term is defined in the Mortgage), (iii) such proceeding shall be permitted under and be conducted in accordance with the provisions of any other instrument to which Borrower or the Mortgaged Property is subject and shall not constitute a default thereunder, and (iv) neither the Mortgaged Property nor any 28 33 part thereof or interest therein will in the reasonable opinion of Lender be in danger of being sold, forfeited, terminated, cancelled or lost. If Borrower fails to commence such contest or, having commenced to contest the same, and having deposited such security required by Lender, shall thereafter fail to prosecute such contest in good faith and with due diligence, or, upon adverse conclusion of any such contest, shall fail to pay such tax, assessment or charge, Lender may, at its election (but shall not be obligated to), pay and discharge any such tax, assessment or charge, and any interest or penalty thereon, and any amounts so expended by Lender, except amounts deposited by Borrower with Lender as security in accordance herewith, shall be payable on demand and secured by the Mortgage and the other Loan Documents. PERSONAL PROPERTY (g) (i) All of Borrower's personal property (which shall not be deemed to include the Tenant Improvements), fixtures, furnishings, furniture, attachments and equipment located on or used in connection with the Project, shall always be located at the Project and shall also be kept free and clear of all chattel mortgages, conditional vendor's liens and all other liens, encumbrances and security interests of any kind whatever (other than liens granted in favor of Lender under the Loan Documents), (ii) Borrower will be the owner of said personal property, fixtures, attachments and equipment and (iii) Borrower shall, from time to time upon reasonable demand by Lender, furnish Lender with evidence of such ownership reasonably satisfactory to Lender, including searches of applicable public records. Notwithstanding anything to the contrary in this subsection, Borrower shall have the right to sell or dispose of any such property in the ordinary course of its business and may enter into equipment leases and installment contracts, but Lender shall have no obligation to enter into a non-disturbance agreement for any such equipment lease or installment contract. PROCEEDINGS TO ENJOIN OR PREVENT OPERATION OF THE PROJECT (h) If any action, suit or proceeding is filed or otherwise commenced seeking to enjoin or otherwise prevent or declare unlawful the operation, use or occupancy of the Project or any portion thereof as it is presently used, or if any other action, suit or proceeding of the nature described in Section 3.1(j) above, is filed or otherwise commenced, Borrower shall give immediate notice thereof to Lender, and, at its sole expense (i) cause such proceedings to be diligently contested in good faith by appropriate proceedings and (ii) in the event of an adverse ruling or decision relating to the Project, prosecute all allowable appeals therefrom. Borrower shall resist the entry or seek the stay of any temporary or permanent injunction that may be entered against the Project. LENDER'S ATTORNEYS' FEES AND EXPENSES (i) In case of any default under this Agreement or any of the other Loan Documents, Borrower shall pay Lender's reasonable attorneys' fees and expenses as set forth in Section 5.3. In case of any Event of Default under this Agreement or any of the other Loan Documents, Borrower (in addition to Lender's reasonable attorneys' fees and expenses to be paid by Borrower under Section 5.3) 29 34 shall pay all of Lender's reasonable attorneys' fees and expenses in connection with the enforcement of this Agreement and the other Loan Documents and with the collection of all amounts payable hereunder and thereunder. Notwithstanding anything to the contrary set forth herein, if Lender utilizes attorneys following a Default, but prior to an Event of Default, Borrower shall not be obligated to reimburse Lender for such legal fees unless it is determined that Borrower or any Guarantor was in Default under this Agreement or any of the other Loan Documents. In addition to, and without limiting the generality of the foregoing, if at any time hereafter prior to repayment of the Loan in full upon (x) the occurrence of a Default or an Event of Default or (y) a request by Borrower, any Guarantor, or any guarantor or indemnitor to Lender, in either of the cases described in clauses (x) or (y), Lender employs counsel for advice or other representation (whether or not any suit has been, or shall thereafter be, filed and whether or not other legal proceedings have been, or shall thereafter be, instituted, whether or not Lender shall be a party thereto) with respect to the Loan, the Project or any part thereof, this Agreement or any of the other Loan Documents, or to protect, collect, lease, sell, take possession of, foreclose upon or liquidate any of the Project in accordance with the terms of the Loan Documents, or to attempt to enforce any security interest or lien in any of the Project in favor of Lender, or to enforce any rights of Lender or any of Borrower's obligations hereunder or under any of the other Loan Documents, or any obligations of any other person, firm or corporation (including any guarantor or indemnitor) which may be obligated to Lender by virtue of this Agreement or any other Loan Document heretofore or hereafter delivered to Lender by or for the benefit of Borrower, then, in any such event, all of the reasonable attorneys' fees and expenses arising from such services, and all reasonable third party expenses, costs and charges relating thereto, shall be paid by Borrower on demand and, if Borrower fails to pay such fees, costs and expenses, payment thereof by Lender shall be deemed to constitute additional indebtedness evidenced by the Note (even if the total amount of such indebtedness would then exceed the face amount of the Note), payable on demand and secured by the Mortgage and other Loan Documents. LENDER'S ACTION FOR ITS OWN PROTECTION ONLY (j) The authority herein conferred upon Lender, and any action taken by Lender, to inspect the Project will be exercised and taken by Lender and by Lender's employees, agents and representatives for their own protection only and may not be relied upon by Borrower or any other party for any purposes whatever; and neither Lender nor Lender's employees, agents and representatives shall be deemed to have assumed any responsibility to Borrower or any other party with respect to any such action herein authorized or taken by Lender or Lender's employees, agents and representatives. Any review, investigation or inspection conducted by Lender, any architectural, engineering or other consultants retained by Lender or any agent or representative of Lender in order to verify independently Borrower's satisfaction of any conditions precedent to the disbursement of Loan proceeds under this Agreement, Borrower's performance of any of the other covenants, agreements and obligations of Borrower under this Agreement, or the validity of any representations and warranties made by Borrower hereunder (regardless of whether or not the party conducting such review, investigation or inspection should have discovered that any of such conditions precedent were not 30 35 satisfied or that any such covenants, agreements or obligations were not performed or that any such representations or warranties were not true), shall not affect (or constitute a waiver by Lender of) (i) any of Borrower's representations and warranties under this Agreement or Lender's reliance thereon or (ii) Lender's reliance upon any certifications of Borrower, or any other party required under this Agreement, or any other facts, information or reports furnished to Lender by Borrower or any other party. FURNISHING INFORMATION (k) (i) The Guarantors shall deliver to Lender quarterly and annual financial statements for each of the Guarantors as soon as available and in no event later than (x) one hundred twenty (120) days after the close of each calendar year or (y) forty-five (45) days after the close of each quarter, as applicable. The Borrower shall deliver monthly operating statements setting forth profits and losses for the preceding month within forty-five (45) days of the close of each month. Borrower's quarterly and annual financial statements shall be prepared and maintained in accordance with the highest standards of reporting prepared by such entity. Borrowers' monthly operating statements shall be certified as true, complete and correct by a member of Borrower and a principal of each Guarantor. Such monthly statements must show actual sources and uses of cash during the preceding month. Guarantors shall deliver its 10-K and 10-Q filings, as applicable, in satisfaction of such quarterly and annual reporting requirements. Commencing with the end of the calendar quarter in which falls the date which is twenty-four (24) months after the closing, and at the end of each calendar quarter thereafter until the Loan is repaid in full, Borrower and each Guarantor shall deliver to Lender along with Borrower's monthly operating statements a calculation of the Debt Service Coverage in substantially the form attached hereto as Exhibit G, for the immediately preceding twelve month period certified as true and correct by a member of Borrower and each Guarantor (each a "DEBT SERVICE COVERAGE STATEMENT") and accompanied by back-up documentation in detail reasonably satisfactory to Lender to enable Lender to easily calculate the Debt Service Coverage for the twelve month period in question. In addition, if at any time during such calendar quarter rents equal to or in excess of Fifty Thousand Dollars ($50,000) are or have been sixty (60) days or more in arrears, a delinquency report specifying the amount overdue, the period of time so due and the tenants from whom such amounts are due, including a so-called "aging" of accounts receivable presented in a format reasonably satisfactory to Lender and (z) Net Operating Income statements (certified by a member of Borrower and each Guarantor to the best of their knowledge) showing all information necessary to calculate Net Operating Income for the Project for the preceding quarter and the actual calculations of the Net Operating Income for the preceding quarter. Within sixty (60) days following the end of each calendar year, Borrower shall deliver to Lender a Rent Roll certified by Borrower as being true, correct and complete in all material respects. Each such Rent Roll provided to Lender shall disclose all leasing activity (other than to Itinerant Hotel Guests) and the current aggregate rentals for the Project, the name of each tenant, the rent payable and the Security Deposit, if any, paid by such tenant and the Lease expiration date. Each such Rent Roll shall be delivered together with a certified statement that, other than as set forth in the Rent Roll, and other than Itinerant Hotel Guests, there are no tenancy, occupancy rights, oral leases or other 31 36 agreements concerning the use and occupancy of any portion of the Project, including such an agreement which would affect the rental rates. Additionally, Borrower will: (A) promptly supply Lender with such information concerning its affairs and property relating to the operation of the Project as Lender may reasonably request from time to time hereafter, which information shall not include any confidential documentation which is of a proprietary nature (e.g. tax returns); (B) promptly notify Lender of any condition or event which constitutes (or which upon the giving of notice or lapse of time, or both, would constitute) a breach, default, or Event of Default under this Agreement or of any of the other Loan Documents, including any event or circumstance which causes any information which has previously been provided by it to Lender to include an untrue statement of material fact or to omit to state any material fact or any fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading and, in such event, Borrower and/or any Guarantor (as may be appropriate) shall promptly furnish to Lender updated or revised information which will correct such untrue statement or include such omitted fact; (C) maintain a system of accounting in accordance with GAAP (as applied in the United States) consistently applied; (D) cooperate, and will use reasonable efforts to cause all agents or employees who have prepared any of the financial statements required by this Section 8.1(k) to cooperate with Lender in arranging for examinations from time to time of such financial statements by Lender and its agents and representatives at any time during normal business hours following reasonable notice; (E) at any time during regular business hours and on reasonable advance notice, permit Lender and any of its agents or representatives, at Lender's sole cost and expense, to have access to the Property Manager's office and examine all of its books and records regarding Borrower and the operation of the Project, if (A) an Event of Default has occurred and is continuing or (B) Lender believes, in good faith, that either (x) a material adverse change in the financial condition of Borrower or the Project has occurred or (y) a misapplication of revenues from the Project, Security Deposits, insurance proceeds or condemnation awards in contravention of the provisions of this Agreement, the Mortgage or any other Loan Document has occurred; (F) permit Lender to copy and make abstracts from any and all of such books and records reviewed by Lender or its representatives pursuant to this Section 8.1(k). (G) promptly notify Lender of the institution of any action, suit or proceeding involving the Project, Borrower or any Guarantor which is not fully covered by insurance, and which under any contingency, if determined adversely to the interests of Borrower or Guarantor, as applicable, could result (A) in 32 37 liability to the Project and/or Borrower in excess of One Million Dollars ($1,000,000) or (B) of any Guarantor in excess of Five Million Dollars ($5,000,000). (H) maintain reasonably detailed records substantiating all expenditures for capital or other material improvements to the Project, and provide the same to Lender upon request and not destroy such records for three (3) years without Lender's prior written consent, provided, however, that notwithstanding Borrower's right to destroy such records after three (3) years, Borrower shall continue to provide such records to Lender for its review for as long as Borrower maintains same; and (ii) Borrower shall promptly furnish to Lender copies of all other information concerning Borrower, any Guarantor and/or the Project as is reasonably requested from time to time by Lender. DOCUMENTS OF FURTHER ASSURANCE (l) From time to time, Borrower shall execute, deliver, record and furnish such documents as may be reasonably necessary or desirable to (i) perfect and maintain perfected as valid liens upon the Project, the liens granted by Borrower to Lender under the Mortgage and the collateral assignments and other security interests under the other Loan Documents as contemplated by this Agreement and (ii) correct any errors of a typographical nature or inconsistencies which may be contained in any of the Loan Documents. Without limiting the generality of the foregoing, Borrower hereby covenants that not more than six (6) months nor less than one (1) month prior to the date on which any continuation statements are required to be filed with respect to maintaining and preserving the perfection of the liens granted by Borrower to Lender pursuant to this Agreement and the other Loan Documents, Borrower shall, if the same are provided by Lender, file or cause to be filed all such continuation statements and send copies evidencing such filing to Lender. Nothing contained herein shall be deemed to limit Lender's right to file any such financing and/or continuation statements on Borrower's behalf pursuant to applicable law. FURNISHING REPORTS (m) Borrower shall provide to Lender, promptly after Borrower's receipt thereof, copies of all inspections, reports, test results and other material information received by Borrower from time to time from its employees, agents, representatives, architects, engineers and any other parties involved in the operation of the Project, which reveal a material problem or defect in the Project or any of its systems which would cost in excess of $1,000,000. This provision, however, does not apply to any violation of Environmental Laws. Accordingly, any violations of Environmental Laws shall be deemed material regardless of the cost of remediation or the penalty or fine attributable to such violation and Borrower shall give Lender immediate notice upon its receipt thereof. 33 38 OPERATION OF PROJECT (n) As long as any portion of the Loan remains outstanding, the Project shall be operated as hotels, except for the existing rental units. Borrower shall fully and faithfully perform all of its material covenants, agreements and obligations under any Leases of space in the Project. Other than Leases with Emstar Operating LLC, Borrower shall not enter into or terminate a Lease equal to or greater than ten percent (10%) of the square footage at either the Tuscany Premises or the Court Premises without Lender's consent, which consent shall not unreasonably be withheld. LEASING (o) All present and future leases of space at the Project, any ground leases, and all subleases, license agreements, concession agreements, tenancy agreements, occupancy agreements and any other agreements, together with all modifications, extensions and renewals thereof (except for any such agreements with Itinerant Hotel Guests) (collectively, the "LEASES") shall be assigned to Lender (together with security deposits) as additional security for the Loan. Upon Lender's request, Borrower shall promptly deliver to Lender true and complete copies of all Leases. Lender shall have no obligation to deliver a subordination, non-disturbance and attornment agreement to any tenants located at the Premises. AGREEMENTS (p) Borrower may enter into, modify, amend, waive, terminate or cancel any agreement or Lease affecting the Project without the prior approval of Lender provided such actions are taken in the ordinary course of business. Borrower shall give Lender notice of the entering into of any such agreement or Lease pursuant to which Borrower shall or may incur liabilities in excess of $500,000 over the full term of the agreement within twenty-four (24) hours of the execution of such agreement. At all times until the Loan has been paid in full and all obligations under the Loan Documents have been performed, the Project shall be managed by Property Manager, which Property Manager shall receive a management fee no higher than competitive management fees for similar services in the area where the Project is located. Borrower shall be permitted to change the manager of the Property without the consent of Lender. Borrower will enter into and cause Property Manager to enter into an assignment and subordination of such Management Agreement in form satisfactory to Lender, assigning and subordinating Property Manager's interest in the Project and all fees and other rights of Property Manager pursuant to such Management Agreement to the rights of Lender under the Loan Documents. Borrower shall cause Property Manager to hold and maintain all necessary licenses, certifications and permits required by Law. Borrower, at Lender's request made at any time while an Event of Default continues, shall terminate the Management Agreement and replace the Property Manager with a manager approved by Lender. 34 39 FURNISHING NOTICES (q) Borrower shall deliver to Lender copies of all notices of default received or given by Borrower (or its agents or representatives) under any commercial Lease within ten (10) Business Days after such notice is given or received, as the case may be. Borrower shall also provide Lender with copies of all material notices pertaining to the Project or any part thereof received by Borrower or the Property Manager (or their agents or representatives) from any Governmental Authority or from any insurance company providing insurance on any portion of, or any interest in, the Project within ten (10) Business Days after such notice is received. NO ADDITIONAL DEBT (r) Borrower shall not, without the prior written consent of Lender, (i) directly or indirectly create or permit or suffer to exist any additional indebtedness secured by a lien or security interest on, in or to all or any portion of the Project or any interest in Borrower, (ii) incur any other additional indebtedness (whether personal or nonrecourse, secured or unsecured) other than accounts payable incurred during the normal course of Borrower's business and outstanding for a period of less than ninety (90) days, subject to Borrower's right to dispute such amounts without making payment, (iii) further encumber any personalty used at the Project or (iv) enter into any commitments for additional indebtedness. Notwithstanding anything to the contrary contained herein or in any other Loan Document, (x) Borrower shall have the right, from time to time, to borrow up to an aggregate of $1,000,000 (i.e., at no time shall the total amount of Borrower unsecured debt exceed such amount) on an unsecured basis for (a) Project's capital expenditures or (b) any other operating requirements related to the Project; and (y) any indebtedness of Borrower to any Guarantor or any Affiliate of Borrower or the Guarantors now or hereafter existing is hereby subordinated to the Loan and the performance of each and every obligation of Borrower and the Guarantors contained herein and in the other Loan Documents. Borrower agrees that following the occurrence and continuance of an Event of Default, Borrower will not make any payment on account of such subordinated debt to any of the Guarantors or any Affiliate of Borrower or the Guarantors. Any such payments made to any of the Guarantors or any Affiliate of Borrower or the Guarantors in contravention of this Section 8.1(r) shall be held in trust for Lender and shall be paid over to Lender on account of the Loan and Borrower's or the Guarantors' obligations under the Loan Documents. Notwithstanding anything contained in this Section 8.1(r) to the contrary, Borrower shall be permitted to deliver a promissory note which is not secured by the Project or any portion thereof in the original principal amount of up to $5,000,000 to Carol Management Company. INDEMNIFICATION (s) Borrower shall unconditionally indemnify, defend and hold harmless Lender, its officers, directors, shareholders, employees and agents, and any successor to any interest of Lender in or to the Project or the Loan and such successor's officers, directors, shareholders, employees, agents, partners and 35 40 principals (all of the foregoing are collectively called "INDEMNIFIED PERSONS") from and against any and all claims, losses, costs and expenses (including reasonable litigation costs and attorneys' fees, expenses and disbursements), damages (including indirect and consequential damages), obligations and liabilities of any nature whatsoever made against or suffered or incurred by any Indemnified Persons by reason of the assertion against such Indemnified Persons by any party of any claim relating to or arising out of (i) construction of alterations or improvements to the Building or the Project; (ii) the operation or maintenance of the Project, including, without limitation, by reason of the assignment of Leases, or the rents, issues or profits of the Project, or Lender's exercise of any right of remedy provided for herein or available at Law, or by reason of any alleged obligation or undertaking of Lender relating to any Lease; (iii) the institution by any broker or person claiming to have dealt with Borrower in connection with the Loan; (iv) any breach of any representation or warranty, any default or Event of Default hereunder or under any of the other Loan Documents; (v) any other matter arising in connection with the Loan, Borrower, the Project, the use of the Project or any part thereof by tenants, guests or invitees, the Loan Documents, or entry into or consummation of the transactions contemplated by any of the Loan Documents; (vi) the investigation, defense and settlement of claims and the procurement of any prohibited transaction exemption under ERISA by reason of a breach by Borrower of Section 9.4 of this Agreement; (vii) any other action or inaction by, or matter which is the responsibility of, Borrower; (viii) relating to or arising out of the present or future presence or Handling of any Hazardous Material in, on or around the Project other than Routine Uses which have been in compliance with Laws; (ix) relating to or arising out of the failure of the Project to comply from and after the date hereof with any applicable environmental Laws now or hereafter in effect; (x) relating to or arising out of any claim, action, suit or proceeding brought or threatened by any person or entity relating to Hazardous Material in any way connected to the Project; or (xi) relating to or arising out of any remediation, repair, restoration, replacement, abatement and/or removal of any Hazardous Material at the Project; provided, however, that Borrower shall not be obligated to indemnify any indemnified Person against such indemnified Person's gross negligence or willful misconduct. Notwithstanding anything contained herein to the contrary, the provisions of this Section 8.1(s) are in all respects subject to the provisions of Section 12.16 (Survival of Indemnities). INSURANCE REPORTING REQUIREMENTS (t) Borrower shall promptly notify its insurance carrier or agent therefor (with a copy of such notification being provided to Lender) if there is any (i) occurrence which, under the terms of any insurance policy then in effect with respect to the Project, requires such notification, (ii) increase in any hazard insured by such insurance carrier or any new or otherwise unanticipated hazard requiring insurance by such insurance carrier at, or relating to the Project or (iii) transfer of ownership. 36 41 COMPLIANCE WITH LAWS (u) Borrower shall comply in all material respects with all Laws (including all applicable zoning, building, health, fire, Department of Housing and Community Renewal, and environmental Laws) of any Governmental Authority having jurisdiction over Borrower or the Project; provided, however, that Lender acknowledges that the use of the Tuscany Premises as a transient hotel may violate certain zoning ordinances regarding use, and Borrower shall not be obligated to seek a variance for zoning or a complying certificate of occupancy for use of the Tuscany Premises unless the City of New York takes legal action against the Tuscany Premises based on such violations. ORGANIZATIONAL DOCUMENTS (v) Without the prior written consent of Lender (A) Borrower shall not terminate nor permit or suffer any material amendment or modification of Borrower's operating agreement or any other organizational documents (as applicable) other than as permitted pursuant to Section 9.3(b) below, or suffer or permit the admission of any new member. ALTERATIONS (w) Other than in connection with a casualty or condemnation, without the prior written consent of Lender, Borrower shall not make, nor suffer nor permit any tenant to make, any material structural alterations to the Project which would cause less than 50% of either the Tuscany Premises or the Court Premises to be in operation at any one time. LOST NOTE (x) If the Note is mutilated, destroyed, lost, or stolen, Borrower shall promptly deliver to Lender, in substitution therefor, a new promissory note containing the same terms and conditions as the Note with a notation thereon (i) of the unpaid principal and accrued and unpaid interest and (ii) stating that such promissory note is a duplicate original of the Note, intended to replace the Note. HAZARDOUS MATERIAL (y) Except for Routine Uses (but only to the extent such materials are properly contained, labeled and used in accordance with all applicable Laws), Borrower shall (i) keep, and shall use reasonable efforts to cause all tenants, subtenants and Property Managers to keep, the Project free of all Hazardous Material, (ii) comply, and shall cause all tenants, subtenants and Property Managers to comply in all material respects, with all environmental Laws, including Laws regarding Hazardous Material, (iii) pay promptly when due the costs of removal or remediation of any Hazardous Material in, over, on or under, or emanating from, the Project to the extent required to be paid by Borrower pursuant to applicable Law, and (iv) keep the Project free of any lien imposed pursuant to such environmental Laws. 37 42 Without limiting the generality of the foregoing: (i) Except for Routine Uses (all of which are maintained in compliance with Law), Borrower shall not engage in the Handling of, or allow the Handling of, any Hazardous Material at or from the Project. At Lender's request, Borrower shall, from time to time, conduct an environmental audit of the Project at Borrower's sole cost and expense, (x) to confirm Borrower's completion of any remedial actions and compliance with environmental Laws and requirements of any Governmental Authority in connection with such remedial actions, (y) if, in Lender's reasonable judgment, it is appropriate under the circumstances (including in connection with any action by Lender to foreclose this Mortgage) or (z) at any other time if based on a good faith belief by Lender that a proper reason exists therefor, but not more frequently than two (2) times from the date hereof through the Maturity Date. Borrower shall cooperate in the conduct of all such environmental audits and shall use reasonable efforts to cause any tenants to give Lender and its agents and its employees access to the Project to conduct such audits at reasonable times and upon reasonable advance notice except in the case of an emergency. (ii) Borrower shall promptly advise Lender in writing of: (A) any enforcement, cleanup, removal or other governmental or regulatory action at or relating to the Project instituted by any Governmental Authority pursuant to any applicable environmental Laws; (B) any written claim or threatened (in writing) claim of which Borrower has knowledge made by any third party against Borrower or the Project relating to damage, contribution, cost recovery, compensation, loss or injury resulting from any violation or claimed violation of any environmental Laws (the matters set forth in clauses (A) and (B) are hereinafter referred to as "HAZARDOUS MATERIALS CLAIMS"); and (C) Borrower's discovery of any occurrence or condition at the Project or on any real property adjoining or in the vicinity of the Project that would be likely to result in the Project, or any part thereof, being subject to the imposition of any lien or encumbrance, or any restrictions on the ownership, occupancy, transferability or use of the Project under any applicable environmental Laws. (iii) Lender shall have the right (but shall not be obligated) to join and participate in, as a party if it so elects, any legal proceedings or actions initiated in connection with any Hazardous Materials Claims and to have all reasonable attorneys' fees and disbursements and all other expenses incurred in connection therewith paid by Borrower; provided, however, that until such time as an Event of Default has occurred, Borrower shall have the right to prosecute and control any such claims or proceedings. 38 43 ASBESTOS (z) Borrower shall not install or permit to be installed any ACM's at the Project. Borrower shall enter into an operations and management agreement to prevent any ACM's currently present at the Project from creating any violations of Law and shall promptly abate all ACM's currently present at the Project to the extent required by Law. ANNUAL APPRAISALS (aa) Solely if required by governmental or quasi-governmental regulators of financial institutions or pursuant to applicable laws or regulations, Lender shall be entitled to obtain, at Borrower's expense, an update of the Appraisal; provided, however, that Borrower's obligation under this Section 8.1(aa) shall be limited to a total of two (2) appraisals during the term of this Loan and cost of such appraisals shall not exceed $30,000 in the aggregate. The update of the Appraisal shall be performed for, and certified to, Lender by the Appraiser, in conformity with the requirements of FIRREA and on a basis and using a methodology satisfactory to Lender. Nothing contained in this Section 8.1(aa) shall limit Lender's right to perform appraisals of the project at its own expense. Lender shall have the option of requesting Borrower to provide the update of the Appraisal or of ordering the same directly. ACCESS TO THE PROJECT AND RIGHT TO CURE DEFAULTS UNDER LEASES AND EASEMENT AGREEMENTS (ab) In the event of a material default by Borrower under any Lease, beyond any applicable notice or cure period set forth therein, Lender shall, upon ten (10) days prior written notice to Borrower, have the right (but not the obligation) to cure or cause the cure of such default and, if, in order to effect such cure, Lender must enter upon and/or take possession of the Project, or any portion thereof, Lender may, and Borrower hereby grants Lender the right to, enter in and upon and take exclusive possession of the Project, or such portion thereof, for the purpose of curing such default. Any costs incurred by Lender in curing such default shall be deemed to constitute additional indebtedness evidenced by the Note (even if the total amount of such indebtedness would then exceed the face amount of the Note), payable on demand and secured by the Mortgage and other Loan Documents. Borrower shall not enter into, modify, amend, waive any material provision of, terminate or cancel any agreements containing appurtenant easements necessary for the operation of the Project as it is presently operated, and Borrower shall fully and faithfully perform all of its covenants, agreements and obligations with respect to such appurtenant easements under such documents. PAYMENTS TO AFFILIATES; APPLICATION OF CASH FLOW (ac) None of Borrower, any Guarantor (in connection with the Project), nor the Property Manager shall receive any overhead fees, leasing fees, management fees, marketing fees, consulting fees (or any fees similar to the foregoing) during the term of the Loan, except to the extent such fees do not exceed 39 44 the amount that would have been paid to non-affiliated parties for the same services in an arms-length transaction. SINGLE PURPOSE ENTITY/RELOCATION OF BORROWER'S OFFICE (ad) As long as the Loan remains outstanding, Borrower shall engage solely in the business of operating the Project, and shall not acquire any material assets or properties (real estate or non-real estate) except in connection with the operation of the Project. If Borrower shall change its principal place of business at any time during the term of the Loan, Borrower shall notify Lender within ten (10) days prior to the effectiveness of such change and shall execute and deliver to Lender any and all documents, instruments or amendments reasonably requested by Lender to duly perfect its liens granted pursuant to the Loan Documents, including, without limitation, the execution and delivery of Uniform Commercial Code filings. Any and all recording or filing fees or other costs and expenses incurred by Lender in connection with such change of place of business shall be paid by Borrower. USE OF LOAN PROCEEDS (ae) Borrower shall not use or permit any Loan proceeds to be used for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System) or to extend credit to others for the purpose of purchasing or carrying any margin stock. MAINTENANCE OF DEBT SERVICE COVERAGE (af) (i) Throughout the term of the Loan, Borrower shall maintain Debt Service Coverage equal to or greater than the Debt Service Coverage Rate. For purposes of this Section 8.1(af), Debt Service Coverage shall be tested as of the end of each calendar quarter, commencing with the calendar quarter in which falls the day which is twenty-four (24) months from the date hereof, with a measuring period equal to the twelve (12) calendar months immediately preceding such calendar quarter. If Borrower fails to furnish Lender with any Debt Service Coverage Statement and the requisite back-up documentation in connection therewith within thirty (30) days following notice from Lender to Borrower, it shall constitute an Event of Default and Lender reserves the right to, after written notice to Borrower, unilaterally calculate, in good faith, Debt Service Coverage for the applicable period based on such information as is then available to Lender. (ii) If Debt Service Coverage for any measuring period shall be less than the Debt Service Coverage Rate, then Borrower shall within five (5) Business Days after the calculation of such Debt Service Coverage Rate, at its option, either (A) reduce the outstanding principal amount of the Loan (in which event Borrower shall be responsible for all prepayment costs caused by any such reduction of the outstanding principal amount of the Loan) until such time as the Debt Service Coverage equals or exceeds the Debt Service Coverage Rate, or (B) deposit additional collateral acceptable to Lender which has sufficient value to reduce the Outstanding Amount to a level sufficient to achieve a Debt Service Coverage which equals or exceeds the Debt Service Coverage Rate. In the event that Borrower elects to deposit 40 45 additional collateral to Lender in order to satisfy the provisions of this Section 8.1(af)(ii), Lender shall not be obligated to return such collateral until such time as the Debt Service Coverage (without taking into account any additional collateral then being held by Lender) is equal to or greater than the Debt Service Coverage Rate for two (2) consecutive calendar quarters. Notwithstanding anything to the contrary in the immediately preceding sentence, Lender shall have no obligation to return to Borrower any additional collateral at any time that an Event of Default is then occurring. ESCROW ACCOUNT (ag) The Escrow Account shall be established and maintained for the deposit of funds in connection with Borrower's requirement to meet the Debt Service Coverage Rate and/or the Guarantors failure to meet the Minimum Net Worth Threshold as required from time to time under the provisions of this Agreement and at such time that such Escrow Account is required. Borrower agrees to execute and deliver the Pledge Agreement (the "Security Agreement") in substantially the form attached hereto as Exhibit F, if Borrower intends to deposit cash in lieu of reducing the Loan to meet the Debt Service Coverage Rate and/or the Guarantors fail to meet the Minimum Net Worth threshold. All withdrawals from the Escrow Account shall require Lender's consent, authorization, and signature. The Escrow Account shall be pledged to Lender as additional collateral for the Loan pursuant to the Security Agreement. All interest earned on the Escrow Account shall be kept in the Escrow Account in the name of the Borrower with Lender as secured party and at the Branch or at a bank selected by Lender and applied in the same manner as the other funds in the Escrow Account from time to time. Throughout the term of the Loan, Lender shall have a perfected, first priority security interest in and to all amounts deposited in the Escrow Account and all interest earned thereon. Provided no Event of Default exists and is continuing, funds in the Escrow Account shall, to the extent practicable, be invested in Permitted Investments. NET WORTH DECLINE (ah) (i) Throughout the term of the Loan, the Guarantors shall be required to meet the Minimum Net Worth Threshold. If the Minimum Net Worth Threshold shall not be met at any time, then Borrower or Guarantors shall thereafter, at Lender's option, either (i) pay all Monthly Excess Cash Flow to Lender to reduce the outstanding principal amount of the Loan (in which event Borrower shall be responsible for all funding losses caused by any such reduction of the outstanding principal amount of the Loan) until annual financial statements of the Guarantors delivered to Lender in accordance with Section 8.1 indicate that the Minimum Net Worth Threshold is once again being met or (ii) Lender may accelerate the indebtedness evidenced by the Note. Any deposit or payment to be made pursuant to this Section 8.1(ah) shall be made not later than five (5) days after the end of the applicable month. (ii) In the event that the Consolidated Tangible Net Worth of all of the Guarantors in the aggregate is less than Two Hundred Fifteen Million 41 46 Dollars ($215,000,000.00), it shall constitute an Event of Default, as more particularly described in Article 10 herein. ERISA (ai) While any portion of the Loan is outstanding (i) the Borrower shall not maintain an Employee Benefit Plan and if the Borrower becomes under the common control (within the meaning of Section 414 of the Internal Revenue Code of 1986, as amended) with any of the Guarantors, the Guarantors shall indemnify the Borrower from and against any liability attributable to the Borrower directly or indirectly which arises out of a violation of any provision of ERISA relating to an Employee Benefit Plan maintained or contributed to by any of the Guarantors or any failure by the Guarantors to fund a contribution obligation pursuant to an Employee Benefit Plan, notwithstanding anything contained in Section 12.17 hereof to the contrary, and (ii) none of the assets of Borrower will constitute "plan assets" within the meaning of 29 C.F.R. Sec. 2510.3-101. During the term of the Loan Borrower will not be in violation of any of the provisions of ERISA. (aj) Borrower shall invest no less than $750,000 per annum in the Project during each of the first four (4) years of the Loan on a cumulative basis (e.g. in the event Borrower invests $1,800,000 in the first year of the Loan, Borrower shall have no obligation to invest any money into the Project in the second year of the Loan and shall only be obligated to invest $450,000 in the third year of the Loan and $750,000 in the fourth year of the Loan). In the event Borrower fails to invest the required amount in any year, on a cumulative basis, Borrower shall deposit any such shortfall into the Deposit Account (as such term is defined in the Pledge Agreement), provided, however, that notwithstanding the provisions of the Pledge Agreement, no funds deposited into the Deposit Account pursuant to this Section 8.1(aj) shall be released from the Deposit Account without Lender's prior written consent unless such funds are then being invested in the Project. Upon receipt of a certification from Borrower that the money requested is for a specified investment in the Project and no Event of Default or default beyond applicable grace and cure periods, if any, shall have occurred and be continuing, Lender, within five (5) days of receipt of such request, shall release the requested amount to Borrower or to a contractor at Borrower's direction. GUARANTORS' FINANCIAL TESTS (ak) Until the Loan is repaid in full by Borrower to Lender, each of the Guarantors shall satisfy each of the financial tests as set forth in Paragraph 2 of the Guaranty on a quarterly basis. In the event the Guarantors fail to satisfy any of the financial tests set forth in Paragraph 2 of the Guaranty, at Lender's option, it shall constitute an Event of Default under this Agreement. LIMITATIONS ON SUITS BROUGHT AGAINST LENDER 42 47 (al) Borrower and Guarantors acknowledge and agree that they shall not make any claim which seeks damages in excess of the then Outstanding Amount in any actions or suits brought by either the Borrower or the Guarantors against Lender. ARTICLE 9 ASSIGNMENTS LENDER'S RIGHT TO ASSIGN 9.1 (a) Assignment. Lender shall have the right, at its sole cost and expense, without the consent of Borrower, to assign, transfer, sell, negotiate, pledge or otherwise hypothecate this Agreement and any of its rights and security hereunder and under the Loan Documents, including the Note, the Mortgage and any of the other Loan Documents, to any other party (an "ASSIGNEE"). Borrower hereby agrees that all of the rights and remedies of Lender in connection with the interest so assigned shall be enforceable against Borrower by an Assignee with the same force and effect and to the same extent as the same would have been enforceable by Lender but for such assignment. (b) Participants. Lender shall have the right, at its sole cost and expense, without the consent of Borrower, to syndicate or sell participations to one or more other lenders (a "PARTICIPANT") in or to all or a portion of its rights and obligations under the Loan and the Loan Documents; provided, however, that notwithstanding any such sale, Lender agrees that unless Borrower otherwise gives its prior written consent, Lender or any of its affiliates shall retain responsibility for the administration of the Loan, Borrower shall only be required to deal with Lender, and Lender will act as lead Lender for its Participants unless retention is prohibited under any applicable agreement with its Participants, by court order or by any Governmental Authority having jurisdiction over Lender or its affiliates. (c) Availability of Records; Further Assurances. Borrower acknowledges and agrees that Lender may provide to any Assignee or Participant originals or copies of this Agreement, the Note, the Mortgage, any other Loan Documents and any other documents, instruments, certificates, opinions, insurance policies, letters of credit, reports, requisitions and other materials and information of every nature or description, and may communicate all oral information, at any time submitted by or on behalf of Borrower or any Guarantor or received by Lender in connection with the Loan, Borrower or any Guarantor; provided, however, that Lender shall require that any and all Assignees and Participants (actual or potential) use their best efforts to keep financial information concerning the Borrower and Guarantors confidential. In order to facilitate assignments to Assignees and sales to Participants, Borrower shall execute such further documents, instruments or agreements as Lender may reasonably require, at Lender's expense, provided such additional documentation is consistent with the terms of the Loan Documents and contains exculpation provisions to the extent applicable. In addition, Borrower agrees to cooperate in a reasonable manner with Lender in the exercise of Lender's rights pursuant to this Section 9.1, including providing such information and documentation 43 48 regarding Borrower, the Guarantors and their businesses and finances as Lender or any potential Assignee or Participant may reasonably request (provided the type of information requested is consistent with the type of information required to be provided pursuant to the terms of the Loan Documents) and to meet with potential Assignees and Participants at a time and place mutually convenient for all parties. (d) Lender as Agent. Borrower acknowledges, that Lender, as agent for itself and any Assignees and Participants, shall have the sole and exclusive authority to execute and perform this Agreement and each other Loan Document on behalf of itself, as Lender, and as agent for itself and the Assignees and Participants; it being the intention and agreement of the parties hereto that at all times during the term of the Loan, Lender shall be solely responsible for the administration and performance of all Loan Documents notwithstanding any such sale or assignment; provided, however, that Lender shall have the right at any time to withdraw as Agent. Except as otherwise provided in this Article 9, Borrower shall have no obligation to recognize or take any action or to deal directly with any Assignee or Participant, and no Assignee or Participant shall have any right to take any action or to deal directly with Borrower with respect to the rights, benefits and obligations of Borrower under this Agreement, the other Loan Documents or any one or more documents or instruments in respect thereof. Borrower may rely conclusively on the actions of Lender as agent to bind Lender, the Assignees and the Participants, notwithstanding that the particular action in question may, pursuant to this Agreement or any other agreement, be subject to the consent or direction of any Assignee or Participant. Notwithstanding the foregoing, Lender shall be permitted at any time to sell its interest in the Loan and have no obligation to act as the servicer of the Loan following its sale. PROHIBITION OF ASSIGNMENTS BY BORROWER 9.2 Borrower shall not assign or attempt to assign its rights under this Agreement without the prior written consent of Lender, which consent shall not be unreasonably withheld or delayed. Borrower will not suffer or permit any of its interest or rights in the Project to be assigned, sold, pledged, encumbered, transferred, hypothecated or otherwise disposed of (each a "TRANSFER") until the Loan and all other sums evidenced by the Note and/or secured by the Mortgage and the other Loan Documents have been paid in full. RESTRICTIONS ON TRANSFERS OF INTEREST 9.3 (a) Unless permitted by Section 9.3(b) below, none of the Guarantors shall (i) voluntarily or involuntarily, directly or indirectly Transfer any interest which it may have in Borrower, or in any entity which holds an interest in or directly or indirectly controls Borrower, or (ii) cause, suffer or permit any of the foregoing to occur (whether voluntarily or involuntarily), without in each instance the prior written consent of Lender, which consent Lender may withhold in its sole and absolute discretion. (b) The consent of Lender shall not be required for (i) the transfer of any interest in Borrower to one or any number of the Permitted 44 49 Transferees, or (ii) any transfer (x) in connection with a transaction in which Borrower or any member in Borrower is merged or consolidated with another entity or in which substantially all of Borrower's or such member's assets are transferred, (y) to members of Borrower, or (z) to an Affiliate of Borrower or an Affiliate of a member of Borrower. Borrower covenants and agrees that the Permitted Transferees which are Affiliates of the Guarantors (exclusive of any Permitted Transferees which are Affiliates of Carol Management Entities) shall at all times maintain, directly or indirectly, at least 49% of the record and beneficial interests of Borrower. PROHIBITION OF TRANSFERS IN VIOLATION OF ERISA 9.4 In addition to the prohibitions set forth above in Section 9.2 and Section 9.3 and in the Mortgage and the other Loan Documents, and not in limitation thereof, Borrower shall not Transfer its interest or rights in this Agreement or in the Project, or attempt to do any of the foregoing or suffer any of the foregoing, nor shall any party owning a direct or indirect interest in Borrower Transfer any of its rights or interest (direct or indirect) in Borrower, attempt to do any of the foregoing or suffer any of the foregoing, if such action would cause the Loan, or the exercise of any of Lender's rights in connection therewith, to constitute a Prohibited Transaction or otherwise result in Lender being deemed in violation of any applicable provision of ERISA or the Internal Revenue Code. SUCCESSORS AND ASSIGNS 9.5 Subject to the foregoing restrictions on transfer and assignment contained in this Article 9, this Agreement shall inure to the benefit of and shall be binding on the parties hereto and their respective heirs, executors, legal representatives, successors and permitted assigns. ARTICLE 10 EVENTS OF DEFAULT 10.1 The occurrence of any one or more of the following shall constitute an "EVENT OF DEFAULT," as such term is used herein: (a) If Borrower fails to pay the unpaid principal amount of the Loan when due, whether at the Maturity Date or upon acceleration or otherwise as provided herein and in the Note; (b) If Borrower fails to pay any monthly installment of interest under the Note within the later of (i) five (5) days of the date when due and (ii) twenty-four (24) hours after written notice from Lender to Borrower; (c) If Borrower fails to observe or perform any covenant, agreement or obligation hereunder or under the other Loan Documents involving the payment of money, other than the payment of principal or interest under the Note; provided, however, that no Event of Default shall be deemed to occur in the event of Borrower's failure to reimburse Lender for any expense as required hereunder or 45 50 under any other Loan Document unless such failure continues beyond five (5) days after written notice by Lender to Borrower that Borrower has failed to pay such expense; (d) If Borrower fails to perform any of its non-monetary covenants, agreements and obligations under this Agreement other than those set forth in Sections 8.1(y) and 8.1(z), or has otherwise breached any of the covenants, agreements and conditions of this Agreement other than those set forth in Sections 8.1(y) and 8.1(z), and such failure or breach shall continue for thirty (30) days after written notice thereof from Lender; provided, however, that if such failure or breach by its nature cannot be cured within such thirty (30) day period but is capable of being cured, then the same shall not constitute an Event of Default so long as Borrower commences such cure within such thirty (30) day period and establishes to Lender in Lender's sole discretion that it is diligently prosecuting such cure to completion within a reasonable period of time under the circumstances; (e) If Borrower shall default in the performance or observance of any of its obligations under either Sections 8.1(y) or 8.1(z) of this Agreement, and such default shall continue after notice to Borrower and after the first to occur of (i) thirty (30) days after such notice thereof from Lender; provided, however, that if such failure or breach by its nature cannot be cured within such thirty (30) day period but is capable of being cured, then the same shall not constitute an Event of Default so long as Borrower commences such cure within such thirty (30) day period and establishes to Lender in Lender's sole discretion that it is diligently prosecuting such cure to completion, and (ii) the expiration of the cure period permitted under applicable Law; (f) If any material representation or warranty (including the representations and warranties of Borrower set forth in Article 3 of this Agreement) of Borrower, or of any Guarantor made herein or in any such guaranty, or in any certificate, report, financial statement or other instrument furnished in connection with the making of this Loan Agreement, the Note, the Mortgage, any other Loan Document or any guaranty, shall prove false or misleading in any material respect when made; provided, however, that any such misrepresentation shall not constitute an Event of Default in the event that such misrepresentation is capable of being made truthful and Borrower makes such misrepresentation truthful within ten (10) days of notice from Lender of such misrepresentation; (g) If all or substantially all of the assets of Borrower are attached, seized, subjected to a writ of distress warrant, or are levied upon, or come into the possession of any receiver, trustee, custodian or assignee for the benefit of creditors, and the same is not vacated, stayed, dismissed, set aside or otherwise remedied within ninety (90) days after the occurrence thereof; (h) If Borrower is enjoined, restrained or in any way prevented by any court order from operating the Project, or if a notice of lien, levy or assessment is filed of record with respect to all or any part of the property of Borrower by any Governmental Authority, which could affect the performance of the obligations of Borrower hereunder or under the other Loan Documents, as the case 46 51 may be, or if any proceeding is filed or commenced seeking to enjoin, restrain or in any way prevent Borrower from conducting all or a substantial part of its business affairs, and in any of such events, Borrower shall fail to cause the same to be vacated, stayed, dismissed, set aside or remedied within thirty (30) days after the occurrence thereof; (i) If any petition is filed by or against Borrower under the Federal Bankruptcy Code or any similar state or federal law, whether now or hereafter existing (and, in the case of involuntary proceedings, either failure to cause the same to be vacated, stayed or set aside within ninety (90) days after filing or the entry of an order for relief); or if Borrower makes an assignment for the benefit of creditors or admits in writing its inability to pay its debts as they become due; (j) If Borrower fails to comply with the provisions set forth in Section 8.1(af) within ten (10) Business Days after notice that Borrower has failed to so comply. (k) If any Transfer is made in violation of Section 9.2, Section 9.3 or Section 9.4, or in violation of prohibitions against disposition of any interest in Borrower contained in the Mortgage; (l) Intentionally Deleted; (m) If (i) the Guaranty ceases at any time to be valid, binding and enforceable against any Guarantor or if any Guarantor repudiates any of its obligations under, or denies the validity or enforceability of all or any portion of the Guaranty or (ii) the Environmental Indemnity ceases at any time to be valid, binding and enforceable against Borrower or if Borrower repudiates any of its obligations under, or denies the validity or enforceability of all or any portion of the Environmental Indemnity; (n) If there exists any fraud or misappropriation by Borrower or any Guarantor in connection with the Loan; (o) If an "Event of Default" or "event of default" occurs under any of the other Loan Documents and continues beyond the applicable grace period, if any, contained therein; (p) If Borrower fails to comply with the Restoration Requirements contained in Sections 3(b) or 7 of the Mortgage; (q) If all or substantially all of the assets of any Guarantor are attached, seized, subjected to a writ of distress warrant, or are levied upon, or come into the possession of any receiver, trustee, custodian or assignee for the benefit of creditors, and either (i) the same is not vacated, stayed, dismissed, set aside or otherwise remedied within ninety (90) days after the occurrence thereof or (ii) provided no other Event of Default then exists, either Borrower or the Guarantors shall fail to provide a replacement acceptable to Lender to execute the Guaranty within ninety (90) days after the occurrence thereof; 47 52 (r) If a notice of lien, levy or assessment is filed of record with respect to all or any part of the property of any Guarantor by any Governmental Authority, which could materially adversely affect the performance of the obligations of such Guarantor under the Guaranty or if any proceeding is filed or commenced seeking to enjoin, restrain or in any way prevent any Guarantor from conducting all or a substantial part of its business affairs, and in any of such events, either (i) the affected Guarantor shall fail to cause the same to be vacated, stayed, dismissed, set aside or remedied within ninety (90) days after the occurrence thereof or (ii) provided no other Event of Default then exists, either Borrower or such Guarantor shall fail to provide a replacement acceptable to Lender to execute the Guaranty within ninety (90) days after the occurrence thereof; (s) If any petition is filed by or against any Guarantor under the Federal Bankruptcy Code or any similar state or federal law, whether now or hereafter existing (and, in the case of involuntary proceedings, either (i) such Guarantor fails to cause the same to be vacated, stayed or set aside within ninety (90) days after filing or the entry of an order for relief or (ii) provided no other Event of Default then exists, such Guarantor or Borrower fails to provide a replacement acceptable to Lender to execute the Guaranty within ninety (90) days after the occurrence thereof), or if any Guarantor makes an assignment for the benefit of creditors or admits in writing its inability to pay his or her debts as they become due and either Borrower or such Guarantor shall fail to provide a replacement acceptable to Lender to execute the Guaranty within ninety (90) days after the occurrence thereof; or (t) If the Guarantors in the aggregate have a Consolidated Tangible Net Worth less than the Minimum Net Worth Threshold; or (u) If a default shall occur beyond applicable grace and cure period, if any, under the Mortgage. Nothing contained in this Section 10.1 is intended to effect an extension of any grace and cure periods provided in the other Loan Documents and all grace and cure periods contained herein shall run concurrently, and not consecutively, with the grace and cure periods contained in the other Loan Documents. 48 53 ARTICLE 11 LENDER'S REMEDIES IN EVENT OF DEFAULT REMEDIES CONFERRED UPON LENDER 11.1 (a) Upon the occurrence and during the continuation of an Event of Default under Section 10.1(i), (q), (r) and (s), the Note shall immediately and automatically become due and payable in full without notice, presentment, demand, protest or other action of any kind, all of which Borrower hereby expressly waives, and Lender shall, in addition to the foregoing and all other remedies conferred upon Lender by law and by the terms of the Note, the Mortgage or the other Loan Documents, have the right, but not the obligation, to pursue one or more of the remedies set forth in Section 11.1(b), concurrently or successively, it being the intent hereof that all of such remedies shall be cumulative and that no such remedy shall be to the exclusion of any other. (b) Upon the occurrence and during the continuation of any Event of Default, Lender shall, in addition to all other remedies conferred upon Lender by law and by the terms of the Note, the Mortgage, and the other Loan Documents, have the right but not the obligation to pursue any one or more of the following remedies, concurrently or successively, it being the intent hereof that all such remedies shall be cumulative and that no such remedy shall be to the exclusion of any other: (i) Take any action which, in Lender's sole judgment, is necessary or appropriate to effect observance and performance of the covenants, agreements and obligations of Borrower under this Agreement, or the other Loan Documents, as the case may be. Without limiting the generality of the foregoing, and for the purpose aforesaid, upon the occurrence and during the continuation of an Event of Default, Borrower hereby irrevocably appoints and constitutes Lender its lawful attorney in fact with full power of substitution, and agrees that Lender shall be entitled to (A) pay, settle or compromise all existing bills and claims the nonpayment of which might result in liens against the Project or take such other action as Lender shall determine to prevent such bills and claims from resulting in liens against the Project, (B) execute all applications and certificates which may be required by any of the Loan Documents, (C) prosecute and defend all actions or proceedings connected with or relating to the Project, (D) take possession of and operate the Project and (E) do any and every act which Borrower may do in its own behalf; it being understood and agreed that the foregoing power of attorney shall be a power coupled with an interest and cannot be revoked; (ii) Withhold further disbursement of the proceeds of the Loan (if any); (iii) Declare the Note to be immediately due and payable; (iv) Use and apply any monies deposited by Borrower, with Lender, regardless of the purpose for which the same was deposited, 49 54 to cure any default or to apply on account of any indebtedness under this Agreement which is due and owing to Lender; and (v) Exercise or pursue any other right or remedy permitted under this Agreement, or any of the other Loan Documents or conferred upon Lender by operation of Law. NON-WAIVER OF REMEDIES 11.2 No waiver of any breach or default of any provision of this Agreement or any other Loan Document shall constitute or be construed as a waiver by Lender of any subsequent or prior breach or default or of any breach or default of any other provision of this Agreement or any other Loan Document. ARTICLE 12 GENERAL PROVISIONS CAPTIONS 12.1 The captions and headings of various Articles and Sections of this Agreement and Exhibits pertaining hereto are for convenience only and are not to be considered as defining or limiting in any way, the scope or intent of the provisions hereof. NOTICES 12.2 Any notice, demand, request or other communication which any party hereto may be required or may desire to give hereunder shall be in writing and shall be deemed to have been properly given and received: (a) if hand delivered, on the day so delivered to the address set forth below; (b) if mailed, on the third Business Day after the day on which it is deposited in the United States mails in the continental United States, registered or certified mail, postage prepaid, return receipt requested, addressed as set forth below; or (c) if by Federal Express or other reputable express courier service, on the next Business Day after delivery to such express courier service, addressed as set forth below; or (d) for other than notices of default, if by telecopy transmission, on the day and at the time on which delivered to such party at the address and the telecopier number set forth below: If to Lender: The Sumitomo Trust & Banking Co., Ltd. 527 Madison Avenue New York, New York 10022 Telephone: (212) 326-0600 Telecopier: (212) 418-4848 Attention: Real Estate Department Manager 50 55 with a copy to: Battle Fowler LLP 75 East 55th Street New York, NY 10021 Telephone: (212) 856-7000 Telecopier: (212) 856-7808 Attention: Robert J. Wertheimer Esq. If to Borrower: Emstar Realty LLC c/o SLT Realty Limited Partnership 2231 East Camelback Road Phoenix, AZ 85016 Telephone: (602) 852-3900 Telecopier: (602) 852-0686 Attention: Ronald Brown, Chief Financial Officer with copies to: Willkie Farr & Gallagher One Citicorp Center 153 East 53rd Street New York, New York 10022 Telephone: (212) 821-8000 Telecopier: (212) 821-8111 Attention: Eugene A. Pinover, Esq. and: Alter Bartfeld & Mantel 90 Park Avenue New York, New York 10016 Telephone: (212) 953-5500 Telecopier: (212) 953-5061 Attention: Arthur S. Mantel, Esq. or at such other address or to such other addressee as the party to be served with notice may have furnished in writing to the party seeking or desiring to serve notice as a place for the service of notice. Notwithstanding the fact that Lender has agreed to deliver copies to Borrower's counsel, Borrower acknowledges that such copies are courtesy copies only, and Lender's failure to deliver such notices shall not negate the effectiveness of any notice given to Borrower. 51 56 ENTIRE AGREEMENT; MODIFICATION; WAIVER 12.3 This Agreement and the other Loan Documents and instruments delivered in connection herewith constitute the entire agreement among the parties with respect to the Project and the Loan and supersede all prior agreements, written and oral, relating to the subject matter hereof. Neither Lender nor any employee of Lender has made or is authorized to make any representation or agreement upon which Borrower may rely unless such matter is made for the benefit of Borrower and is in writing signed by an authorized officer of Lender. Borrower agrees that it has not and will not rely on any custom or practice of Lender, or on any course of dealing with Lender, in connection with the Loan unless such matter is set forth in this Agreement or the other Loan Documents or in a written instrument made for the benefit of Borrower and signed by an authorized officer of Lender. No modification, waiver, amendment, discharge or change of this Agreement shall be valid unless the same is in writing and signed by the party against whom the enforcement of such modification, waiver, amendment, discharge or change is sought. GOVERNING LAW 12.4 THIS AGREEMENT IS A CONTRACT ENTERED INTO AND TO BE PERFORMED IN THE STATE OF NEW YORK AND SHALL BE GOVERNED BY AND CONSTRUED UNDER THE INTERNAL LAWS (AS OPPOSED TO THE LAWS OF CONFLICTS) OF THE STATE OF NEW YORK. ACQUIESCENCE NOT TO CONSTITUTE WAIVER OF LENDER'S REQUIREMENTS 12.5 Each and every covenant and condition for the benefit of Lender contained in this Agreement may be waived by Lender; provided, however, that to the extent Lender may have acquiesced in any noncompliance with any conditions, covenants or obligations of Borrower contained herein, such acquiescence shall not be deemed to constitute a waiver by Lender of the performance by Borrower of any subsequent conditions, covenants or obligations to be performed by Borrower hereunder, other than Lender's waiver of any closing conditions, which waivers shall be conclusive. DISCLAIMER BY LENDER 12.6 (a) This Agreement is made for the sole benefit of Borrower and Lender (and Lender's successors and assignees and participants, if any, any transferee of Borrower permitted pursuant to Sections 9.2 and 9.3 and any Permitted Transferees, if any), and no other person or persons shall have any benefits, rights or remedies under or by reason of this Agreement, or by reason of any actions taken by Lender pursuant to this Agreement. Lender shall not be liable to any party for any debts or claims accruing in favor of any such party against Borrower or others or against the Project. Borrower is not and shall not be an agent of the Lender for any purposes. Except as expressly set forth in the Loan Documents, Lender is not and shall not be an agent of Borrower for any purposes. Lender, by making the Loan or 52 57 any action taken pursuant to any of the Loan Documents, shall not be deemed a partner or a joint venturer with Borrower or a fiduciary of Borrower. (b) By accepting or approving anything required to be observed, performed, fulfilled or given to Lender pursuant to the Loan Documents, including, without limitation, the Environmental Survey, the Engineering Reports, the ADA Report and any certificate, statement of profit and loss or other financial statement, survey, appraisal, lease or insurance policy, Lender shall not be deemed to have warranted or represented the accuracy, sufficiency, legality, effectiveness or legal effect of the same, or of any term, provision or condition thereof, and such acceptance or approval thereof shall not constitute (i) a warranty or representation to anyone with respect thereto by Lender or (ii) a waiver of any of Borrower's or any Guarantor's obligations or liabilities under this Agreement or any of the other Loan Documents with respect to any facts, matters or circumstances disclosed in any of the reports or other documents described in this Section 12.6(b), other than Lender's waiver of any closing conditions, which waivers shall be conclusive. (c) Lender neither undertakes nor assumes any responsibility or duty to Borrower to select, review, inspect, supervise, pass judgment upon or inform Borrower of any matter in connection with the Project, and Borrower shall rely entirely upon its own judgment with respect to such matters, and any review, inspection, supervision, exercise of judgment or supply of information to Borrower by Lender in connection with such matters is for the protection of Lender only and neither Borrower nor any third party is entitled to rely thereon. (d) Lender owes no duty of care to protect Borrower with respect to any matter reviewed or investigated by Lender in connection with the Loan. (e) Lender shall not be directly or indirectly liable or responsible for any loss, claim, cause of action, liability, indebtedness, damage or injury of any kind or character to any person or property arising from any activity on, or occupancy or use of, all or any portion of the Project, including any loss, claim, cause of action, liability, indebtedness, damage or injury caused by, or arising from: (i) any defect in any building, structure, grading, fill, landscaping or other improvements thereon or in any on-site or off-site improvement or other facility therein, thereon or relating thereto irrespective of whether or not any such defect was disclosed in any of the reports or other documents described in Section 12.6(b) above; (ii) any act or omission of Borrower, any of the Guarantors, any Affiliate of Borrower or any of the Guarantors or any of Borrower's agents, employees, independent contractors, licensees or invitees; (iii) any accident at the Project or any fire, flood or other casualty or hazard thereon; (iv) the failure of Borrower, any of Borrower's licensees, employees, invitees, agents, independent contractors or other representatives to maintain all or any portion of the Project in a safe condition; and (v) any nuisance made or suffered on any part of the Project; except to the extent that any of the circumstances described above are caused by the gross negligence or willful misconduct of Lender or its officers, contractors, employees, representatives or agents (provided they are acting in their capacity as such) or once Lender enters upon or has possession of the Project pursuant to the terms hereof. 53 58 (f) Lender represents and warrants to Borrower that it has not dealt with any broker and notwithstanding anything contained herein to the contrary, Lender shall be responsible for any fees or commissions of any broker with whom Lender has dealt and not disclosed to Borrower. RIGHT OF LENDER TO MAKE ADVANCES TO CURE BORROWER'S DEFAULTS 12.7 If (i) Borrower shall default beyond any applicable notice or cure period in any of Borrower's covenants, agreements or obligations contained in this Agreement or the other Loan Documents, or (ii) Lender determines in good faith that an emergency or other exigent circumstances exist, Lender may (but shall not be obligated to) perform any of such covenants, agreements and obligations. Any amounts expended by Lender to cure Borrower's defaults, including any amounts expended by Lender pursuant to Section 11.1(b)(i), shall constitute additional indebtedness evidenced by the Note (even if the total amount of such indebtedness would then exceed the face amount of the Note), payable on demand and secured by the Mortgage and the other Loan Documents. DEFINITIONS APPLY IN AMENDMENTS 12.8 Definitions contained in this Agreement which identify documents, including the other Loan Documents, shall be deemed to include all future amendments and supplements thereto entered into from time to time to satisfy the requirements of this Agreement or otherwise with the consent of Lender and Borrower. Reference to this Agreement contained in any of the foregoing documents shall be deemed to include all amendments and supplements to this Agreement. TIME IS OF THE ESSENCE 12.9 Time is hereby declared to be of the essence of this Agreement and of every part hereof. EXECUTION IN COUNTERPARTS 12.10 This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. WAIVER OF CONSEQUENTIAL DAMAGES 12.11 In no event shall Lender be liable to Borrower for consequential damages, whatever the nature of a breach by Lender of its obligations under this Agreement or any of the other Loan Documents, and Borrower for itself and all Affiliates hereby waives all claims for consequential damages. Notwithstanding anything herein or in any other Loan Document to the contrary, Borrower shall not be liable to Lender for indirect or consequential damages except in connection with any matter, claim, loss or damage arising out of an environmental condition or claim. Notwithstanding the foregoing, Borrower shall not claim or raise a defense to a claim 54 59 by Lender that sums due under any of the Loan Documents are or constitute consequential or indirect damages. CLAIMS AGAINST LENDER 12.12 Lender shall not be in default under this Agreement, or under any other Loan Documents, unless a written notice specifically setting forth the claim of Borrower shall have been given to Lender and Lender does not promptly commence a cure thereof and diligently proceed to remedy or cure the default (if any) within ninety (90) days after notice from Borrower. If it is determined in any proceedings that Lender has improperly failed to grant its consent or approval, where such consent or approval is required by this Agreement or any other Loan Document to be obtained, Borrower's sole remedy shall be to obtain declaratory relief determining such withholding to have been improper, and Borrower hereby waives, for itself and any Affiliate of Borrower, all claims for damages or set-off against Lender resulting from any withholding of consent or approval by Lender. JURISDICTION; SERVICE OF PROCESS 12.13 WITH RESPECT TO ANY SUIT, ACTION OR PROCEEDINGS RELATING TO THIS AGREEMENT, THE PROJECT OR ANY OTHER LOAN DOCUMENT (EACH, A "PROCEEDING"), BORROWER AND LENDER IRREVOCABLY (A) SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE COUNTY OF NEW YORK AND THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT LOCATED IN THE COUNTY OF NEW YORK; AND (B) WAIVE ANY OBJECTION WHICH THEY MAY HAVE AT ANY TIME TO THE LAYING OF VENUE OF ANY PROCEEDING BROUGHT IN ANY SUCH COURT, WAIVE ANY CLAIM THAT ANY PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND FURTHER WAIVE THE RIGHT TO OBJECT, WITH RESPECT TO SUCH PROCEEDING, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER SUCH PARTY. NOTHING IN THIS AGREEMENT SHALL PRECLUDE BORROWER OR LENDER FROM BRINGING A PROCEEDING IN ANY OTHER JURISDICTION NOR WILL THE BRINGING OF A PROCEEDING IN ANY ONE OR MORE JURISDICTIONS PRECLUDE THE BRINGING OF A PROCEEDING IN ANY OTHER JURISDICTION. BORROWER AND LENDER FURTHER AGREE AND CONSENT THAT, IN ADDITION TO ANY METHODS OF SERVICE OF PROCESS PROVIDED FOR UNDER APPLICABLE LAW, ALL SERVICE OF PROCESS IN ANY PROCEEDING IN ANY NEW YORK STATE OR UNITED STATES COURT SITTING IN THE CITY AND COUNTY OF NEW YORK MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO BORROWER OR LENDER AT THE ADDRESS INDICATED ABOVE, AND SERVICE SO MADE SHALL BE COMPLETE UPON RECEIPT; PROVIDED, HOWEVER, THAT IF BORROWER OR LENDER SHALL REFUSE TO ACCEPT DELIVERY, SERVICE SHALL BE DEEMED COMPLETE FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN SO MAILED. 55 60 SEVERABILITY 12.14 The parties hereto intend and believe that each provision in this Agreement comports with all applicable local, state and federal laws and judicial decisions. However, if any provision or provisions, or if any portion of any provision or provisions, in this Agreement is found by a court of law to be in violation of any applicable local, state or federal law, statute, ordinance, administrative or judicial decision, or public policy, and if such courts declare such portion, provision or provisions of this Agreement to be illegal, invalid, unlawful, void or unenforceable as written, then it is the intent of all parties hereto that such portion, provision or provisions shall be given force to the fullest possible extent that they are legal, valid and enforceable, and that the remainder of this Agreement shall be construed as if such illegal, invalid, unlawful, void or unenforceable portion, provision or provisions were not contained therein, and that the rights, obligations and interests of Borrower and Lender under the remainder of this Agreement shall continue in full force and effect. WAIVER OF JURY TRIAL 12.15 BORROWER, GUARANTORS AND LENDER EACH HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS OR RELATING THERETO OR ARISING FROM THE LENDING RELATIONSHIP WHICH IS THE SUBJECT OF THIS AGREEMENT AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. SURVIVAL OF INDEMNITIES 12.16 All indemnities concerning environmental matters of Borrower or any other party contained in this Agreement or any other Loan Document shall survive until such time as all related claims which may be brought against Lender shall be time-barred by any applicable statute of limitations, notwithstanding the payment in full of all obligations under the Note and the other Loan Documents. Other than as set forth in the immediately preceding sentence, all indemnities set forth in this Agreement or any other Loan Document are in all respects subject to the provisions of Section 12.15 hereof and shall terminate upon the payment in full of all obligations due under the Note and the other Loan Documents or a foreclosure of the Project or deed-in-lieu thereof. NO ADDITIONAL LIABILITY TO GUARANTORS 12.17 The Guarantors' liability to Lender shall be determined under and pursuant to the terms of the Guaranty and the Guarantors shall incur no additional liability by their execution of this Agreement in excess of the Guarantors' obligations set forth in the Guaranty. 56 61 Borrower, Guarantors and Lender have executed this Agreement as of the day and year first set forth above. BORROWER: EMSTAR REALTY LLC, a New York limited liability company By: Alstar Realty LLC, its Managing Member By: SLT Realty Limited Partnership, a Member By: Starwood Lodging Trust,* its general partner By: /s/ Ronald C. Brown ----------------------------------- Name: Ronald C. Brown Title: Sr. Vice President and Chief Financial Officer - -------- * Starwood Lodging Trust. The name "Starwood Lodging Trust" is a designation of Starwood Lodging Trust and its Trustees (as Trustees but not personally) under a Declaration of Trust dated August 25, 1969, as amended and restated as of June 6, 1988, and as further amended on February 1, 1995 and as the same may be further amended from time to time, and all persons dealing with Starwood Lodging Trust shall look solely to Starwood Lodging Trust's assets for the enforcement of any claims against Starwood Lodging Trust, as the Trustees, officers, agents and security holders of Starwood Lodging Trust assume no personal liability for obligations entered into on behalf of Starwood Lodging Trust, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. 57 62 GUARANTORS: STARWOOD LODGING TRUST By: /s/ Ronald C. Brown ------------------------------------- Name: Ronald C. Brown Title: Sr. Vice President and Chief Financial Officer STARWOOD LODGING CORPORATION By: /s/ Steven R. Goldman ------------------------------------ Name: Steven R. Goldman Title: Sr. Vice President SLT REALTY LIMITED PARTNERSHIP By: Starwood Lodging Trust, its general partner By: /s/ Ronald C. Brown ------------------------------------- Name: Ronald C. Brown Title: Sr. Vice President and Chief Financial Officer LENDER: THE SUMITOMO TRUST & BANKING CO., LTD, New York Branch By: /s/ Brad D. Gillman ------------------------------------- Brad D. Gillman, Senior Vice President and Department Manager 58 EX-23.1 9 CONSENT OF COOPERS & LYBRAND LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Starwood Lodging Trust and Starwood Lodging Corporation on Form S-3 (File Nos. 333-13411, 333-13325 and 333-22219) and Form S-8 (File No. 333-02721) of our report dated February 21, 1997, appearing in the Annual Report on Form 10-K of Starwood Lodging Trust and Starwood Lodging Corporation for the year ended December 31, 1996. Coopers & Lybrand L.L.P. Phoenix, Arizona March 10, 1997 EX-23.2 10 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 333-22219, 333-13325 and 333-13411 on Form S-3 and No. 333-02721 on Form S-8 of Starwood Lodging Trust and Starwood Lodging Corporation of our report dated March 24, 1995, appearing in this Annual Report on Form 10-K of Starwood Lodging Trust and Starwood Lodging Corporation for the year ended December 31, 1996. DELOITTE & TOUCHE LLP Los Angeles, California March 6, 1997 EX-27.1 11 FDS FOR STARWOOD 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 10K. 0000048595 STARWOOD LODGING TRUST 1 U.S. DOLLARS YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 1 3,810,000 0 211,413,000 0 0 17,219,000 1,000,924,000 0 1,233,366,000 28,458,000 0 0 0 401,000 568,899,000 1,233,366,000 0 115,059,000 0 0 46,651,000 0 23,088,000 33,589,000 33,589,000 33,589,000 0 0 0 33,589,000 1.12 0
EX-27.2 12 FDS FOR STARWOOD 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 ON FORM 10K. 0000316206 STARWOOD LODGING CORPORATION 1 U.S. DOLLARS YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 1 21,616,000 0 31,354,000 0 0 11,472,000 120,750,000 0 185,192,000 48,096,000 0 0 0 401,000 22,960,000 185,192,000 408,740,000 410,156,000 0 296,849,000 113,182,000 0 9,333,000 (7,715,000) (7,715,000) (7,715,000) 0 1,077,000 0 (6,638,000) (0.22) 0
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