-----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, C1HvIOZ/R87pmcgLZrQztz0cCVOVjlRdxhXMwmDv8tNSOxXWDVh06I+SkuJwb7kH Infm6XH+VWAPqG5+DIuonQ== 0000950153-97-000466.txt : 19970509 0000950153-97-000466.hdr.sgml : 19970509 ACCESSION NUMBER: 0000950153-97-000466 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970508 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STARWOOD LODGING TRUST CENTRAL INDEX KEY: 0000048595 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 520901263 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06828 FILM NUMBER: 97598078 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07959 FILM NUMBER: 97598079 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-Q 1 FORM 10-Q FOR QUARTERLY PERIOD ENDED MARCH 31,1997 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [x] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1997 ---------------------------- 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 charter) (Exact name of registrant as specified in its charter) Maryland Maryland (State or other jurisdiction (State or other jurisdiction of incorporation or organization) of incorporation or organization) 52-0901263 52-1193298 (I.R.S. employer identification no.) (I.R.S. employer identification no.) 2231 East Camelback Road, Suite 410 2231 East Camelback Road, Suite 400 Phoenix, AZ 85016 Phoenix, AZ 85016 (Address of principal executive (Address of principal executive offices, including zip code) offices, including zip code) (602) 852-3900 (602) 852-3900 (Registrant's telephone number, (Registrant's telephone number, including area code) including area code)
Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No . ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 45,345,503 Shares of Beneficial Interest, par value $0.01 per share, of Starwood Lodging Trust paired with 45,345,503 Shares of Common Stock, par value $0.01 per share, of Starwood Lodging Corporation, outstanding as of May 5, 1997. 2 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The following financial statements of Starwood Lodging Trust and Starwood Lodging Corporation are provided pursuant to the requirements of this item. INDEX TO FINANCIAL STATEMENTS Starwood Lodging Trust and Starwood Lodging Corporation: Combined Consolidated Balance Sheets - As of March 31, 1997 and December 31, 1996 Combined Consolidated Statements of Operations - For the three months ended March 31, 1997 and 1996 Combined Consolidated Statements of Cash Flows - For the three months ended March 31, 1997 and 1996 Starwood Lodging Trust: Consolidated Balance Sheets - As of March 31, 1997 and December 31, 1996 Consolidated Statements of Operations - For the three months ended March 31, 1997 and 1996 Consolidated Statements of Cash Flows - For the three months ended March 31, 1997and 1996 Starwood Lodging Corporation: Consolidated Balance Sheets - As of March 31, 1997 and December 31, 1996 Consolidated Statements of Operations - For the three months ended March 31, 1997 and 1996 Consolidated Statements of Cash Flows - For the three months ended March 31, 1997 and 1996 Notes to Financial Statements 2 3 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION UNAUDITED COMBINED CONSOLIDATED BALANCE SHEETS (in thousands)
March 31, December 31, 1997 1996 ----------- ----------- ASSETS Hotel assets held for sale - net ................................ $ 29,233 $ 21,644 Hotel assets - net .............................................. 1,544,546 1,100,030 ----------- ----------- 1,573,779 1,121,674 Mortgage notes receivable - net ................................. 89,580 90,741 Investments ..................................................... 8 948 ----------- ----------- Total real estate investments ................................ 1,663,367 1,213,363 Cash and cash equivalents ....................................... 148,169 25,426 Accounts, interest and rent receivable .......................... 56,988 43,278 Notes receivable - net .......................................... 2,800 2,930 Inventories, prepaid expenses and other assets .................. 25,324 27,743 ----------- ----------- $ 1,896,648 $ 1,312,740 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Collateralized notes payable and revolving lines of credit ...... $ 593,025 $ 422,334 Mortgage and other notes payable ................................ 129,354 57,232 Accounts payable and other liabilities .......................... 53,572 57,296 Distributions payable ........................................... 22,868 19,258 ----------- ----------- 798,819 556,120 ----------- ----------- Commitments and contingencies MINORITY INTEREST ............................................... 254,451 163,959 ----------- ----------- SHAREHOLDERS' EQUITY Trust shares of beneficial interest at March 31, 1997 and December 31, 1996; $.01 par value; authorized 100,000,000 shares; outstanding 46,031,000 and 40,078,000 at March 31, 1997 and December 31, 1996, respectively ..................... 416 401 Corporation common stock at March 31, 1997 and December 31, 1996; $.01 par value; authorized 100,000,000 shares; outstanding 46,031,000 and 40,078,000 at March 31, 1997 and December 31, 1996, respectively ..................... 416 401 Additional paid-in capital ...................................... 1,088,641 827,760 Distributions in excess of earnings ............................. (246,095) (235,901) ----------- ----------- 843,378 592,661 ----------- ----------- $ 1,896,648 $ 1,312,740 =========== ===========
See accompanying notes to financial statements. 3 4 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION UNAUDITED COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
Three months ended March 31, ---------------------------- 1997 1996 -------- ------- REVENUE Rooms ............................................ $106,973 $37,126 Food and beverage ................................ 43,538 9,827 Other ............................................ 11,666 3,349 -------- ------- Total hotel revenue ............................ 162,177 50,302 Gaming ........................................... 3,920 6,829 Interest from mortgage and other notes ........... 4,086 2,525 Rents from leased hotel properties and income from investments ........................ 198 183 Management fees and other income ................. 2,338 740 -------- ------- 172,719 60,579 -------- ------- EXPENSES Rooms ............................................ 26,989 9,153 Food and beverage ................................ 33,682 7,839 Other ............................................ 57,051 18,590 -------- ------- Total hotel expenses ........................... 117,722 35,582 Gaming ........................................... 4,089 5,835 Interest ......................................... 10,491 3,223 Depreciation and amortization .................... 24,560 7,660 Administrative and general ....................... 5,815 2,373 -------- ------- 162,677 54,673 -------- ------- Income before minority interest .................. 10,042 5,906 Minority interest ................................ 2,256 1,816 -------- ------- NET INCOME ............................. $ 7,786 $ 4,090 ======== ======= NET INCOME PER PAIRED SHARE ............ $ 0.18 $ 0.20 ======== ======= Weighted Average Number of Paired Shares ......... 44,313 20,697 ======== =======
See accompanying notes to financial statements. 4 5 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION UNAUDITED COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Three months ended March 31, ---------------------------- 1997 1996 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) ................................................ $ 7,786 $ 4,090 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Minority interest .............................................. 2,256 1,816 Depreciation and amortization .................................. 24,560 7,660 Accretion of discount .......................................... (1,418) (780) Warrants and paired shares issued as compensation .............. 569 -- Changes in operating assets and liabilities: Increase in accounts receivable, inventories, prepaid expenses and other assets ............................ (12,862) (6,169) Increase (decrease) in accounts payable and other liabilities .. (3,872) 6,948 --------- --------- Net cash provided by operating activities ............ 17,019 13,565 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of hotel properties .................................. (229,979) (109,412) Improvements and additions to hotel assets ....................... (20,665) -- Purchase of investments .......................................... -- (9) Sales of investments ............................................. 940 -- Net proceeds from sales of hotel assets .......................... -- 634 Purchase of mortgage and other notes receivable .................. -- (20,113) Principal received on mortgage and other notes receivable ........ 2,816 941 --------- --------- Net cash used in investing activities ................ (246,888) (127,959) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings under collateralized notes payable and revolving lines of credit ...................................... 170,682 60,887 Borrowings under mortgage and other notes payable ................ 98,000 467 Principal payments on mortgage and other notes payable ........... (25,878) -- Net proceeds from equity offerings ............................... 129,667 -- Contributed capital and adjustments............................... (253) 76,068 Distributions paid ............................................... (19,606) (9,284) --------- --------- Net cash provided by financing activities ............ 352,612 128,138 --------- --------- INCREASE IN CASH AND CASH EQUIVALENTS ........................... 122,743 13,744 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD ...................................................... 25,426 9,332 --------- --------- CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD .......................................................... $ 148,169 $ 23,076 ========= =========
See accompanying notes to financial statements. 5 6 STARWOOD LODGING TRUST UNAUDITED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
March 31, December 31, 1997 1996 ----------- ----------- ASSETS Hotel assets held for sale - net ........................................... $ 19,715 $ 12,615 Hotel assets - net ......................................................... 1,433,350 988,309 ----------- ----------- 1,453,065 1,000,924 Mortgage notes receivable - net ............................................ 89,580 90,741 Mortgage notes receivable - Corporation .................................... 88,989 88,077 Investments ................................................................ 8 948 ----------- ----------- Total real estate investments ........................................ 1,631,642 1,180,690 Cash and cash equivalents .................................................. 124,272 3,810 Rent and interest receivable .............................................. 14,509 12,617 Notes receivable - net ..................................................... 1,980 2,237 Notes receivable - Corporation ............................................. 36,185 17,741 Prepaid expenses and other assets .......................................... 13,987 16,271 =========== =========== $ 1,822,575 $ 1,233,366 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Collateralized notes payable and revolving lines of credit ................. $ 593,025 $ 422,334 Mortgage and other notes payable ........................................... 127,704 55,269 Accounts payable and other liabilities ..................................... 9,588 9,200 Distributions payable ...................................................... 22,769 19,258 ----------- ----------- 753,086 506,061 ----------- ----------- Commitments and contingencies MINORITY INTEREST .......................................................... 248,389 158,005 ----------- ----------- SHAREHOLDERS' EQUITY Trust shares of beneficial interest at March 31, 1997 and December 31, 1996; $.01 par value; authorized 100,000,000 shares; outstanding 46,031,000 and 40,078,000 at March 31, 1997 and December 31, 1996, respectively ..................................... 416 401 Additional paid-in capital ................................................. 986,759 729,276 Distributions in excess of earnings ........................................ (166,075) (160,377) ----------- ----------- 821,100 569,300 =========== =========== $ 1,822,575 $ 1,233,366 =========== ===========
See accompanying notes to financial statements. 6 7 STARWOOD LODGING TRUST UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three months ended March 31, ---------------------------- 1997 1996 ------- ------- REVENUE Rents from Corporation ................................. $40,939 $13,520 Interest from Corporation .............................. 2,542 2,188 Interest from mortgage and other notes ................. 4,086 2,504 Rents from other leased hotel properties and income from joint ventures .......................... 198 183 Other income ........................................... 1,322 406 ------- ------- 49,087 18,801 ------- ------- EXPENSES Interest ............................................... 10,459 3,168 Depreciation and amortization .......................... 20,234 3,386 Administrative and general ............................. 2,213 1,188 ------- ------- 32,906 7,742 ------- ------- Income before minority interest ........................ 16,181 11,059 Minority interest ...................................... 3,998 3,917 ------- ------- NET INCOME ................................... $12,183 $ 7,142 ======= ======= NET INCOME PER SHARE ......................... $ 0.28 $ 0.35 ======= ======= Weighted Average Number of Shares ...................... 44,313 20,697 ======= =======
See accompanying notes to financial statements. 7 8 STARWOOD LODGING TRUST UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Three months ended March 31, ---------------------------- 1997 1996 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income ..................................................... $ 12,183 $ 7,142 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest ............................................ 3,998 3,917 Depreciation and amortization ................................ 20,234 3,386 Accretion of discount ........................................ (1,418) (780) Deferred interest - Corporation .............................. (998) 936 Warrants and paired shares issued as compensation ............ 528 -- Changes in operating assets and liabilities: Increase in rent and interest receivable, prepaid expenses and other assets ........................ (577) (2,708) Increase (decrease) in accounts payable and other liabilities. 240 (1,356) --------- --------- Net cash provided by operating activities .......... 34,190 10,537 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of hotel properties ................................ (229,979) (88,240) Improvements and additions to hotel assets ..................... (16,716) -- Purchase of investments ........................................ -- (9) Sales of investments ........................................... 940 -- Net proceeds from sales of hotel assets ........................ -- 634 Purchase of mortgage and other notes receivable ................ -- (20,113) Principal received on mortgage and other notes receivable ...... 2,682 925 Net change in notes receivable - Corporation ................... (18,358) (24,614) --------- --------- Net cash used in investing activities .............. (261,431) (131,417) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings under collateralized notes payable and revolving lines of credit .................................... 170,682 60,887 Borrowings under mortgage and other notes payable .............. 98,000 -- Principal payments on mortgage and other notes payable ......... (25,565) -- Net proceeds from equity offerings ............................. 123,215 -- Contributed capital and adjustments ............................ 977 76,169 Distributions paid ............................................. (19,606) (9,284) --------- --------- Net cash provided by financing activities .......... 347,703 127,772 --------- --------- INCREASE IN CASH AND CASH EQUIVALENTS .......................... 120,462 6,892 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD ................................................ 3,810 710 --------- --------- CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD ........................................................ $ 124,272 $ 7,602 ========= =========
See accompanying notes to financial statements. 8 9 STARWOOD LODGING CORPORATION UNAUDITED CONSOLIDATED BALANCE SHEETS (in thousands)
March 31, December 31, 1997 1996 --------- --------- ASSETS Hotel assets held for sale - net ................................... $ 9,518 $ 9,029 Hotel assets - net ................................................. 111,196 111,721 --------- --------- Total real estate investments ................................ 120,714 120,750 Cash and cash equivalents .......................................... 23,897 21,616 Accounts receivable ................................................ 42,479 30,661 Notes receivable ................................................... 820 693 Inventories, prepaid expenses and other assets ..................... 11,337 11,472 --------- --------- $ 199,247 $ 185,192 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Mortgage and other notes payable ................................... $ 1,650 $ 1,963 Mortgage notes payable - Trust ..................................... 88,989 88,077 Notes payable - Trust .............................................. 36,185 17,741 Accounts payable and other liabilities ............................. 43,984 48,096 Distributions payable .............................................. 99 -- --------- --------- 170,907 155,877 --------- --------- Commitments and contingencies MINORITY INTEREST .................................................. 6,062 5,954 --------- --------- SHAREHOLDERS' EQUITY Corporation common stock at March 31, 1997 and December 31, 1996; $.01 par value; authorized 100,000,000 shares; outstanding 46,031,000 and 40,078,000 at March 31, 1997 and December 31, 1996, respectively ........................ 416 401 Additional paid-in capital ......................................... 101,882 98,484 Accumulated deficit ................................................ (80,020) (75,524) --------- --------- 22,278 23,361 --------- --------- $ 199,247 $ 185,192 ========= =========
See accompanying notes to financial statements. 9 10 STARWOOD LODGING CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three months ended March 31, ---------------------------- 1997 1996 --------- -------- REVENUE Rooms ........................... $ 106,973 $ 37,126 Food and beverage ............... 43,538 9,827 Other ........................... 11,666 3,349 --------- -------- Total hotel revenue ........... 162,177 50,302 Gaming .......................... 3,920 6,829 Interest from notes receivable .. -- 21 Management fees and other income 1,016 334 --------- -------- 167,113 57,486 --------- -------- EXPENSES Rooms ........................... 26,989 9,153 Food and beverage ............... 33,682 7,839 Other ........................... 57,051 18,590 --------- -------- Total hotel expenses .......... 117,722 35,582 Gaming .......................... 4,089 5,835 Rent - Trust .................... 40,939 13,520 Interest - Trust ................ 2,542 2,188 Interest - other ................ 32 55 Depreciation and amortization ... 4,326 4,274 Administrative and general ...... 3,602 1,185 --------- -------- 173,252 62,639 --------- -------- Loss before minority interest ... (6,139) (5,153) Minority interest ............... (1,742) (2,101) --------- -------- NET LOSS .............. $ (4,397) $ (3,052) ========= ======== NET LOSS PER SHARE .... $ (0.10) $ (0.15) ========= ======== Weighted Average Number of Shares 44,313 20,697 ========= ========
See accompanying notes to financial statements. 10 11 STARWOOD LODGING CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Three months ended March 31, ---------------------------- 1997 1996 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss ....................................................... $ (4,397) $ (3,052) Adjustments to reconcile net loss to net cash provided by operating activities: Minority interest ............................................ (1,742) (2,101) Depreciation and amortization ................................ 4,326 4,274 Deferred interest - Trust .................................... 998 (936) Paired shares issued as compensation ......................... 41 -- Changes in operating assets and liabilities: Increase in accounts receivable, inventories, prepaid expenses and other assets .......................... (12,285) (3,461) Increase (decrease) in accounts payable and other liabilities. (4,112) 8,304 -------- -------- Net cash provided by (used in) operating activities....... (17,171) 3,028 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of hotel properties ................................ -- (21,172) Improvements and additions to hotel assets ..................... (3,949) -- Principal received on notes receivable ......................... 134 16 -------- -------- Net cash used in investing activities .................... (3,815) (21,156) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings under mortgage and other notes payable .............. -- 467 Principal payments on mortgage and other notes payable ......... (313) -- Net proceeds from equity offerings ............................. 6,452 -- Contributed capital and adjustments ............................ (1,230) (101) Net change in notes payable - Trust ............................ 18,358 24,614 -------- -------- Net cash provided by financing activities ................ 23,267 24,980 -------- -------- INCREASE IN CASH AND CASH EQUIVALENTS .......................... 2,281 6,852 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD ................................................ 21,616 8,622 -------- -------- CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD ....................................................... $ 23,897 $ 15,474 ======== ========
See accompanying notes to financial statements. 11 12 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION NOTES TO FINANCIAL STATEMENTS NOTE 1. INTERIM FINANCIAL STATEMENTS The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q which mandate adherence to Rule 10-01 of Regulation S-X. Accordingly, these statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management of Starwood Lodging Trust (the "Trust") and Starwood Lodging Corporation (the "Corporation"), all adjustments necessary for a fair presentation, consisting only of normal recurring accruals, have been included. The financial statements presented herein have been prepared in accordance with the accounting policies described in the Registrants' Joint Annual Report on Form 10-K for the year ended December 31, 1996 and should be read in conjunction therewith. NOTE 2. BASIS OF PRESENTATION The Trust and the Corporation (together, the "Company") have unilateral control of SLT Realty Limited Partnership ("Realty") and SLC Operating Limited Partnership ("Operating"), respectively, and therefore, the historical financial statements of Realty and Operating are consolidated with those of the Trust and the Corporation, respectively. Unless the context otherwise requires, all references herein to the "Company" refer to the Trust and the Corporation, and all references to the "Trust" and to the "Corporation" include the Trust and the Corporation and those entities respectively owned or controlled by the Trust or the Corporation, including Realty and Operating. Information with respect to the shares of beneficial interest of the Trust which are paired with shares of common stock of the Corporation (the "Paired Shares"), has been adjusted to reflect a three-for-two stock split effective January 27, 1997. The total number of units outstanding in Realty and Operating was 58,908,013 at March 31, 1997. For the three months ended March 31, 1996, the Company accounted for its 58.2% investment in the joint venture that owns the Boston Park Plaza under the equity method of accounting. Beginning with the Company's Joint Annual Report on Form 10-K for the year ended December 31, 1996, the Company has consolidated the results from the Boston Park Plaza and, accordingly, has recorded a minority interest relating to the 41.8% third party minority interest in such joint venture. In addition, the Company has restated its results for the three months ended March 31, 1996 to reflect the consolidation of this investment. NOTE 3. HOTEL ASSETS On January 8, 1997, the Company completed the purchase of the 220-room Deerfield Beach Hilton Hotel, located in Deerfield Beach, Florida, for approximately $11.5 million in cash. On January 17, 1997, the Company completed the purchase of the 263-room Radisson Hotel Denver South, located in Denver, Colorado, for approximately $21.75 million in cash. 12 13 On February 14, 1997, the Company acquired HEI Hotels, LLC ("HEI"), a Westport, Connecticut-based hotel operating company, which manages 19 hotels, and ten hotel properties (the "HEI Owned Hotels") that HEI owned in a joint venture with PRISA II, an institutional real estate investment fund managed by Prudential Real Estate Investors. Realty and Operating issued to PRISA II and the owners of HEI, limited partnership interests in Realty and Operating which are exchangeable for approximately 6.548 million Paired Shares of the Trust and Corporation (valued for purposes of the transaction at approximately $215 million), and paid $112 million in cash and notes in connection with the transaction. The HEI Owned Hotels consist of ten hotel assets (all of which are managed by HEI) 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 hotels managed by HEI (the "HEI Managed Hotels"), which contain a total of 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 21, 1997, the Company completed the purchase of the 578-room Days Inn in Chicago, Illinois for approximately $48 million in cash. On March 11, 1997, the Company completed the purchase of the 120-suite Hermitage Suites Hotel in Nashville, Tennessee for approximately $15.8 million, comprised of limited partnership interests in Realty and Operating exchangeable for 233,106 Paired Shares of the Trust and the Corporation (valued for the purposes of this transaction at $9.4 million) and $6.4 million in cash. On March 12, 1997, the Company completed the purchase of the 100-room Hotel De La Poste in New Orleans, Louisiana for approximately $16.0 million in cash. NOTE 4. TAX EXEMPT BONDS On February 20, 1997, the Company guaranteed bonds issued by The Philadelphia Authority for Industrial Development 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. NOTE 5. OFFERINGS On March 26, 1997, the Company completed a public offering of 3,000,000 Paired Shares (the "March 1997 Offering"). Net proceeds from the March 1997 Offering of approximately $130.0 million were used, in part, to fund the acquisition of the hotels referred to in Note 8 below. 13 14 NOTE 6. HOTEL ASSETS HELD FOR SALE At March 31, 1997, the Company's portfolio included six hotel properties which were held for sale. The six properties include the 293-room Radisson Marque Hotel in Winston-Salem, North Carolina, the 151-room Bay Valley Resort in Bay City, Michigan, the 155-room Tyee Hotel in Olympia, Washington, the 166-room Best Western in Las Cruces, New Mexico, the 175-room Best Western Airport in El Paso, Texas and the 142-room Best Western in Savannah, Georgia. On April 15, 1997, the Company sold the Radisson Marque Hotel in Winston-Salem for approximately $7.5 million in cash. NOTE 7. COMBINED PRO FORMA FINANCIAL INFORMATION Due to the impact of the 15 hotels acquired by the Company in the first quarter of 1997, the following combined pro forma statements of operations are presented to supplement the historical statements of operations. These combined pro forma statements reflect the acquisition of the HEI Owned Hotels as if they occurred on January 1, 1996:
Three months ended March 31, -------------------------- 1997 1996 -------------------------- Combined (in thousands, except per share amounts) Revenues ............................ $184,792 $82,840 Net income (loss) ................... 9,341 6,877 Net income (loss) per share ......... $ 0.21 $ 0.33
NOTE 8. SUBSEQUENT EVENTS On April 3, 1997, the Company completed the purchase of the 264-suite Marriott Suites hotel in San Diego, California for approximately $32.5 million in cash. On April 4, 1997, the Company completed the purchase of the 129-room Tremont Hotel in Chicago, Illinois for approximately $14.4 million in cash. On May 7, 1997, the Company completed the purchase of the 172-room Raphael Hotel in Chicago, Illinois for approximately $17.8 million in cash. NOTE 9. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No.128, Earnings Per Share (SFAS 128) which specifies the computation, presentation, and disclosure requirements for earnings per share. SFAS 128 replaces the presentation of primary and fully diluted EPS pursuant to Accounting Principles Board Opinion No. 15 Earnings Per Share (APB 15) with the presentation of basic and diluted EPS. Basic EPS excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The Company is required to adopt SFAS 14 15 128 with its December 31, 1997 financial statements and restate all prior period EPS information. The Company will continue to accounts for EPS under APB 15 until that time. A summary of the Company's basic EPS and diluted EPS for the three months ended March 31 follows:
1997 1996 ------------------------------- --------------- Basic and Basic EPS Diluted EPS Diluted EPS --------------- -------------- --------------- Trust $ 0.29 $ 0.28 $ 0.35 Corporation $(0.10) $(0.10) $(0.15) Combined $ 0.19 $ 0.18 $ 0.20
15 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management's Discussion and Analysis should be read in conjunction with the Management's Discussion and Analysis included in the Company's Joint Annual Report on Form 10-K for the year ended December 31, 1996. HISTORICAL RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 THE TRUST Rents from the Corporation, which are based largely on hotel revenues, increased $27.4 million for the three months ended March 31, 1997, as compared to the corresponding period of 1996. The increase was primarily the result of rents earned by the Trust on 41 hotels containing approximately 12,500 rooms (the "Acquired Hotels") acquired by the Trust since April 1996. The investment in the Acquired Hotels (the 442-room Clarion Hotel located at the San Francisco Airport, the 308-suite Doubletree Guest Suites in Irving, Texas, the 254-suite Doubletree Guest Suites in Ft. Lauderdale, Florida, and the 260-room Westin in Tampa, Florida acquired in April 1996; the 177-room Days Inn in Philadelphia, Pennsylvania and 251-suite Doubletree Guest Suites in Philadelphia, Pennsylvania acquired in July 1996; the acquisition of a portfolio of 8 hotels owned by an institution (the "Institutional Portfolio"), the acquisition of a portfolio of 9 hotels owned by Hotels of Distinction Ventures, Inc. (the "HOD Portfolio") (excluding the 293-room Radisson Marque in Winston-Salem, North Carolina which was acquired by the Corporation), and the 294-room Marriott Forrestal Village in Princeton, New Jersey acquired in August 1996; the 121-room Doral Tuscany and the 199-room Doral Court in New York, New York acquired in September 1996; the 257-room Westwood Marquis in Los Angeles, California acquired in December 1996; the 220-room Deerfield Beach Hilton in Deerfield Beach, Florida and 263-room Radisson Denver South in Denver, Colorado acquired in January 1997; the HEI Owned Hotels and the 578-room Days Inn Chicago acquired in February 1997 and the 120-suite Hermitage Suites in Nashville, Tennessee and the 100-room Hotel De La Poste in New Orleans, Louisiana acquired in March 1997), accounted for increased rents of $27.9 million for the three months ended March 31, 1997, as compared to the corresponding period in 1996. In addition, rents earned by the Trust from continuously owned properties leased to the Corporation decreased by approximately $500,000 for the three months ended March 31, 1997, as compared to the corresponding period in 1996. The decrease was primarily the result of the sale of three hotel assets in 1996 (the Best Western in Columbus Ohio, and the Bourbon Street Hotel and Casino and the King 8 Hotel, Gambling Hall and Truck Plaza (the "King 8") both located in Las Vegas, Nevada). Interest from the Corporation increased by approximately $354,000 for the three months ended March 31, 1997, as compared to the corresponding period of 1996. The increase in interest income was primarily a result of interest paid on the first mortgage of the Midland Hotel in Chicago, Illinois which was acquired by the Corporation in March 1996. Interest from mortgage and other notes amounted to $4.1 million for the three months ended March 31, 1997, as compared to $2.5 million for the corresponding period in 1996. The increase resulted from the purchase during the third quarter of 1996 of debt, a portion of which is 16 17 secured by the 305-room Holiday Inn in Milpitas, California and a first mortgage note secured by the King 8 which was sold in the fourth quarter of 1996. The increase was offset in part by principal amortization. Other income for the three months ended March 31, 1997 includes a $1.2 million gain (net of related expenses) realized in connection with the sale of securities. Interest expense increased by approximately $7.3 million for the three months ended March 31, 1997, as compared to the corresponding period of 1996. The increase was due to borrowings under two loan facilities and a term loan (the "Lehman Facilities") with Lehman Brothers, Inc. and certain of its affiliates ("Lehman Brothers"), and a loan facility with Goldman Sachs (the "Goldman Facility" and together with the Lehman Facilities, the "Lines of Credit"); a mortgage secured by the Doral Court and Doral Tuscany in New York, with the Sumitomo Trust and Banking Co., Ltd. (the "Doral Mortgage"); a mortgage secured by the Boston Park Plaza with the Life Insurance Company of Georgia (the "BPP Mortgage"); a short term loan with The Prudential Insurance Company of America on behalf of Prudential Property Investment Separate Accounts II; and the Tax Exempt Bonds, used to acquire the above mentioned properties offset by the net proceeds from two public offerings in 1996 and the March 1997 Offering. Depreciation and amortization expense increased by approximately $16.8 million during the three months ended March 31, 1997 as compared to the corresponding period of 1996, principally due to the acquisition of the Acquired Hotels. Administrative and general expenses for the three months ended March 31, 1997 increased by approximately $1.0 million to $2.2 million, as compared to $1.2 million for the corresponding period of 1996. The increase resulted predominantly from expenses incurred as a result of the awards granted under the Trust's Long-Term Incentive Plan, the hiring during the quarter of Gary M. Mendell as the President of the Trust, and the hiring in September 1996 of Steven R. Goldman as an officer the Trust (Mr. Goldman served as an officer of the Corporation until September 1996). Minority interest represents primarily the interest of the limited partners in Realty for the three months ended March 31, 1997, approximately $108,000 relating to the 41.8% minority interest of a third-party in the joint venture that owns the Boston Park Plaza hotel and approximately $82,000 relating to the 6.5% minority interest of a third-party in the joint venture that owns the Westwood Marquis. THE CORPORATION Hotel revenues increased by approximately $111.9 million for the three months ended March 31, 1997, as compared to the corresponding period of 1996. The leasing and assumption of management of the Acquired Hotels and the addition of 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 approximately $109.2 million for the three months ended March 31, 1997. The remaining increase of $2.7 million for the three months ended March 31, 1997 is attributable to other continuously owned properties. Hotel gross margin for the three months ended March 31, 1997, was $44.5 million, or 27.4% of hotel revenues, as compared to $14.7 million, or 29.3% of hotel revenues, for the same period of 1996. The decrease in gross margin was primarily due to the increase in the food and 17 18 beverage revenue component of total hotel revenue (26.9% for the three months ended March 31, 1997 as compared to 19.5% for the same period in 1996) resulting from the Company's continued investment in full-service hotels offset, in part, by increases in revenue per available room ("REVPAR") and the termination of third-party management agreements. Gaming revenues for the three months ended March 31, 1997, as compared to the corresponding period of 1996, decreased by approximately $2.9 million to $3.9 million. Gaming gross margin for the three months ended March 31, 1997 was a loss of $170,000, as compared to a profit of $994,000 for the corresponding period in 1996. The decrease in gaming revenues and the decline in gaming gross margin predominately resulted from the sale of the Bourbon Street Hotel and Casino in September 1996. The real property of 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 is scheduled to 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 three months ended March 31, 1997 includes approximately $157,000 of management fee income from the joint venture that owns the Boston Park Plaza hotel and approximately $309,000 of management fee income from the HEI Managed Hotels. Administrative and general expenses for the three months ended March 31, 1997 increased to $3.6 million or 2.2% of revenues, as compared to $1.2 million or 2.1% of revenues for the corresponding period of 1996. 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 awards granted under the Corporation's Long-Term Incentive Plan. Depreciation and amortization expense increased by approximately $52,000 for the three months ended March 31, 1997, as compared to the corresponding period of 1996. Minority interest represents primarily the interest of the limited partners in Operating, a loss of $454,000 relating to the 41.8% minority interest of a third-party in the joint venture that owns the Boston Park Plaza hotel and approximately $7,000 relating to the 6.5% minority interest of a third party in the joint venture that owns the Westwood Marquis. For information with respect to rent and interest paid to the Trust during the three months ended March 31, 1997 and 1996, see, "The Trust" immediately above. EXTERNAL GROWTH During the three months ended March 31, 1997, the Company acquired equity interests in 15 hotels containing more than 4,400 rooms at a combined cost exceeding $425 million, as follows: the 220-room Deerfield Beach Hilton in Deerfield Beach, Florida (January 1997); the 263-room Radisson Denver South in Denver, Colorado (January 1997); the HEI Owned Hotels consisting of 3,040 rooms (February 1997); the 578-room Days Inn in Chicago, Illinois (February 1997); the 120-suite Hermitage Suites Hotel in Nashville, Tennessee (March 1997); and the 100-room Hotel De La Poste in New Orleans, Louisiana (March 1997). 18 19 INTERNAL GROWTH On a same-store-sales basis, including the results of all hotels acquired prior to March 31, 1997, for the period from their respective dates of acquisition if acquired in 1997 as compared to the same period in 1996 and excluding hotels held for sale and hotels under substantial renovation during the quarter (Dallas Park Central in Dallas, Texas, Meany Tower in Seattle, Washington and the Westin Washington, D.C.), REVPAR for the three months ended March 31, 1997, increased 5.3% from $66.01 to $69.51 over the same period in 1996. The increase in REVPAR resulted from an increase in average daily rate ("ADR") of 8.9%, from $93.84 to $102.19, while the occupancy rate decreased by 2.3 percentage points. The overall REVPAR increase for the three months ended March 31, 1997 was largely attributable to the strong increase in REVPAR at the Company's upscale hotels. These hotels experienced an increase in REVPAR of 5.6% for the three months ended March 31, 1997, as compared to the corresponding period of 1996. ADR for the Company's upscale hotels increased 8.3% for the three months ended March 31, 1997, as compared to the corresponding period in 1996 while occupancy rates decreased by 1.7 basis points. The following tables summarize average occupancy, ADR and REVPAR on a year-over-year basis for the Company's 74 owned and operated (including owned but third-party managed hotels and including hotels acquired during the first quarter for the period beginning with their respective dates of acquisition and ending at the end of each period), non-gaming hotels for the three months ended March 31, 1997 and 1996:
THREE MONTHS ENDED MARCH 31, ----------------------------------- 56 Upscale Hotels 1997 1996 ------------- -------------- Occupancy Rate ................ 67.7% 69.4% ADR ........................... $105.35 $97.27 REVPAR ........................ $ 71.33 $67.54 REVPAR % change ............... 5.6%
THREE MONTHS ENDED MARCH 31, ----------------------------------- 18 Midscale/Economy Hotels 1997 1996 ------------- -------------- Occupancy Rate ................ 54.6% 64.0% ADR ........................... $69.84 $61.87 REVPAR ........................ $38.12 $39.60 REVPAR % change ............... (3.7)%
THREE MONTHS ENDED MARCH 31, ----------------------------------- 65 Non-Gaming Hotels(1) 1997 1996 ------------- -------------- Occupancy Rate ................ 68.0% 70.3% ADR ........................... $102.19 $93.84 REVPAR ........................ $ 69.51 $66.01 REVPAR % change ............... 5.3%
(1) Excluding six hotels held for sale and three hotels under substantial renovation during the quarter. 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 quarter were greatest at hotels located in the major urban markets of New York, Philadelphia, San 19 20 Francisco, San Diego, and Chicago. REVPAR was negatively impacted by the Easter holiday which fell during the first quarter of 1997 and during the second quarter of 1996. REVPAR for the quarter was also negatively impacted by the Atlanta properties (4.6% decrease in REVPAR) which benefited in 1996 from strong ADR and occupancy relating to pre-Olympic activities. 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 three months ended March 31, 1997 declined to 27.4% from 29.3% in the corresponding period in 1996. During the three months ended March 31, 1997, consistent with its business objective to capture the economic benefits otherwise retained by third-party operators, the Corporation assumed management of the 15 hotels acquired during the period. Management believes that the assumption of direct control over the operations of these hotels will allow the Corporation to effectively use the experience of management to improve operations. In addition, during the three months ended March 31, 1997, the Corporation assumed management of the HEI Managed Hotels. During the three months ended March 31, 1997, the Company completed the renovation of the Dallas Park Central, which reopened as the Radisson Hotel, and the $6 million renovation of the Westin in Washington, D.C. Other hotels with renovations in progress at the end of the first quarter included the Sheraton Colony Square in Atlanta, Georgia ($6.5 million total renovation) and the Meany Tower in Seattle, Washington (approximately $5.2 million). Renovations have also begun and are scheduled to be completed in 1997 and 1998 for the Clarion Hotel at the San Francisco Airport, the Radisson Hotel in Gainesville, Florida, the Westin in Tampa, Florida, the Doubletree Philadelphia Airport in Philadelphia, Pennsylvania, the Westwood Marquis in Los Angeles, California, and the Doral Inn, the Doral Tuscany and the Doral Court in New York. 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. Additional 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. 20 21 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 is 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 1997, the Trust paid a distribution of $0.39 per share (after giving effect to the three-for-two stock split in January 1997) declared in the fourth quarter of 1996. During the second quarter of 1997, the Trust paid a distribution of $0.39 per share declared in the quarter ending March 31, 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, through the issuance of additional equity or debt securities. In March 1996, Realty entered into a $24 million one year non-recourse secured term loan (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 Realty. As of March 31, 1997, Realty 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 maturity date of the Term Loan was extended to October 1997 with a right to further extend at the Company's option to April 1998. In July 1996, the maturity date of the Mortgage Loan Funding Facility (the "Mortgage Facility") with Lehman Brothers, which is secured by six notes receivable, was extended from January 25, 1997, to July 25, 1997. As of March 31, 1997, 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 March 31, 1997, the Company had borrowed $268.0 million under the Goldman Facility. On March 26, 1997, the Company completed the March 1997 Offering of 3,000,000 Paired Shares at a net price to the Company of approximately $43.35 per share. The net proceeds of approximately $130.0 million were used, in part, to fund the acquisitions of the 264-suite Marriott Suites hotel in San Diego, California, and the 129-room Tremont Hotel in Chicago, Illinois and for general corporate purposes. 21 22 As previously discussed, during the first quarter ended March 31, 1997, the Company completed the renovation of the Dallas Park Central in Dallas, Texas (now a Radisson) and the Westin in Washington, D.C. Other hotels with significant renovations in progress at the end of the first quarter or planned for 1997 and 1998, included the Sheraton Colony Square in Atlanta, Georgia; the Meany Tower Hotel in Seattle, Washington; the Westin in Tampa, Florida; the Doubletree Philadelphia Airport in Philadelphia, Pennsylvania; the Westwood Marquis in Los Angeles, California; the Clarion Hotel at the San Francisco Airport; the Radisson Hotel in Gainesville, Florida; and the Doral Inn, Doral Tuscany and Doral Court in New York, New York. In addition, the Boston Park Plaza's renovation is currently scheduled to begin in November, 1997, during a seasonally weak period. The Company plans to expend in excess of $100 million for renovations in 1997 including the renovations 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 excess funds from operations, additional debt financing, and additional equity raised in the public and private markets. As of March 31, 1997, since January 1, 1996, the Company has invested over $1.3 billion in acquisitions of hotel assets. As part of its investment strategy, the Company plans to continue 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 by Realty and Operating that are exchangeable for Paired Shares and the issuance of additional equity or debt securities by the Company. 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 on behalf of Prudential Property Investment Separate Account II in the principal amount of $97.5 million (the "Prudential Loan") in order to partially fund the acquisition of the HEI Portfolio. As of March 31, 1997, the Company had borrowed $72.0 million under the Prudential Loan, which bears interest at a rate of 7.0% and is due May 30, 1997. On February 20, 1997, the Company guaranteed the Tax Exempt Bonds in the principal amount of $39.5 million due October, 2013. 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. On April 3, 1997 the Company announced that it was working with institutional lenders on the development of new credit facilities for up to $700 million which would consolidate and replace current credit facilities and provide capacity for future acquisitions. 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. 22 23 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 Investments Trusts) (1) for the three months ended March 31, 1997, grew by 152% to $33.1 million, compared to combined FFO of $13.1 million for the corresponding period in 1996. The following table shows the calculation of historical combined FFO for the indicated periods:
Three months ended March 31, ------------------------ 1997 1996 ------------------------ (in thousands) Income before minority interest ......................... $ 10,042 $ 5,906 Real estate related depreciation and amortization ....... 24,560 7,660 Amortization of financing costs ......................... (1,121) (279) Minority interest-Boston Park Plaza ..................... (368) (162) ======== ======= Funds From Operations ................................... $ 33,113 $13,125 ======== =======
- ------------ (1) With respect to the presentation of FFO, management elected early adoption of the "new definition" as recommended in the March 1995 NAREIT White Paper on FFO beginning January 1, 1995. Management and industry analysts generally consider funds from operations to be one measure of the financial performance of an equity REIT that provides a relevant basis for comparison among REITs and it is presented to assist investors in analyzing the performance of the Company. FFO is defined as income before minority interest (computed in accordance with generally accepted accounting principles), excluding gains (losses) from debt restructuring and sales of property, and real estate related depreciation and amortization (excluding amortization of financing costs). FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs. FFO should not be considered an alternative to net income as an indication of the Company's financial performance or as an alternative to cash flows from operating activities as a measure of liquidity. FFO includes $1.4 million and $780,000 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 three months ended March 31, 1997 and 1996, respectively. 23 24 PART II. - OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities Recent Sales of Unregistered Securities During the quarter ended March 31, 1997, the Trust and the Corporation issued 74,698 Paired Shares in exchange for a like number of limited partnership units of Realty and Operating. In addition, in partial consideration for the acquisition of HEI and the HEI Owned Hotels each of Realty and Operating issued 6,548,225 partnership units. Immediately following the close of this transaction, 2,775,000 limited partnership unit were exchanged for a like number of Paired Shares of the Trust and Corporation. Also, in partial consideration for the acquisition of the Hermitage Suites Hotel in Nashville, Tennessee each of Realty and Operating issued 233,106 limited partnership units. The limited partnership units in Realty and Operating are exchangeable for, at the option of the Trust and the Corporation, either cash, Paired Shares (at the rate of one Paired Share for a limited partnership unit of Realty together with a limited partnership unit of Operating) or a combination of cash and Paired Shares. The issuance of Paired Shares by the Trust and the Corporation and the issuance of limited partnership units by Realty and Operating was each exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to Section 4(2) of the Securities Act. Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. 3.1 Bylaws of Starwood Lodging Corporation as amended. 3.2 Trustees' Regulations of Starwood Lodging Trust as amended. 24 25 10.1 Employment Agreement between Starwood Lodging Trust and Gary M. Mendell dated as of January 15, 1997. 10.2 Promissory Note dated, as of February 14, 1997, by SLT Realty Limited Partnership, and Starwood Lodging Trust (together "Makers"), Starwood Lodging Corporation, and SLC Operating Limited Partnership, in favor of the Prudential Insurance Company of America, on behalf of Prudential Property Investment Separate Account II ("Payee"). 10.3 Contribution Agreement, dated as of January 15, 1997, by and among HEI Hotels, L.L.C., Westport Management, L.L.C., Savior Limited Partnership, Judith Rushmore, Orna L. Shulman, Murray Dow, Steve Mendell, Gary Mendell, Zapco Communications, Inc., Westport Hospitality, Inc., Starwood Lodging Corporation, and SLC Operating Limited Partnership. 10.4 Contribution Agreement, dated as of January 15, 1997, by and among SLT Realty Limited Partnership, SLT Financing Partnership, SLC Operating Limited Partnership, Starwood Lodging Trust, Starwood Lodging Corporation and the individuals and entities set forth on schedules A-1 and A-2 who are signatories to the agreement. 10.5 Amended and Restated Installment Sale Agreement dated as of February 1, 1997 between Philadelphia Authority for Industrial Development and SLT Realty Limited Partnership. 10.6 Employment Agreement between Starwood Lodging Trust and Ronald C. Brown dated as of February 4, 1997. 10.7 Employment Agreement between Starwood Lodging Trust and Steven R. Goldman dated as of February 4, 1997. 11. Combined statement regarding computation of per share earnings. 27.1 Financial Data Schedule for Starwood Lodging Corporation. 27.2 Financial Data Schedule for Starwood Lodging Trust. (b) Reports on Form 8-K. On February 10, 1997, the Trust and the Corporation filed Joint Current Report on Form 8-K to report, under Item 2 of Form 8-K, the probable acquisition of HEI, and to file under Item 7 of Form 8-K, the following financial statements and pro forma financial information: STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION-Pro Forma Combined and Separate Pro Forma Balance Sheets at September 30, 1996. Combined and Separate Pro Forma Statements of Operations for the twelve months ended September 30, 1996. 25 26 PRU-HEI HOTEL GROUP Combined Balance Sheet as of January 2, 1997. Combined Statement of Operations for the Fifty-Three Week Period Ended January 2, 1997. Combined Statement of Changes in Owners' Capital. Combined Statement of Cash Flows for the Fifty-Three Week Period Ended January 2, 1997. WESTPORT HOLDINGS, L.L.C. Consolidated Balance Sheet as of January 2, 1997. Consolidated Statement of Operations for the Year Ended January 2, 1997. Consolidated Statement of Changes in Members' Capital. Consolidated Statement of Cash Flows for the Year Ended January 2, 1997. On February 14, 1997, the Trust and the Corporation filed a Joint Current Report on Form 8-K, under Item 2 of Form 8-K, to report the completion of the purchase of HEI. On March 20, 1997, the Trust and the Corporation filed a Joint Current Report on Form 8-K to file, under Item 5 of Form 8-K, a form of underwriting agreement. On March 21, 1997, the Trust and the Corporation filed a Joint Current Report on Form 8-K to file, as an exhibit under Item 7 of Form 8-K, an Indenture Trustee's statement of eligibility and qualification on Form T-1. 26 27 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STARWOOD LODGING TRUST STARWOOD LODGING CORPORATION Registrant Registrant /s/ RONALD C. BROWN /s/ ALAN M. SCHNAID - ----------------------------- --------------------------------------- Ronald C. Brown Alan M. Schnaid Senior Vice President and Vice President and Corporate Controller Chief Financial Officer (Principal Accounting Officer) (Principal Financial Officer) Date: May 8, 1997. - ----- 27 EX-3.1 2 BYLAWS OF STARWOOD LODGING CORPORATION AS AMENDED 1 Exhibit 3.1 BY-LAWS OF STARWOOD LODGING CORPORATION (AS AMENDED THROUGH APRIL 24, 1997) ARTICLE I OFFICES In addition to the required principal office, the Corporation may have such offices at such places, both within and without the State of Maryland, as the Board of Directors from time to time determines or as the business of the Corporation from time to time requires. ARTICLE II MEETINGS OF THE STOCKHOLDERS SECTION 1. ANNUAL MEETINGS. Annual meetings of the stockholders shall be held on such date and at such time and at such place in the United States (within or without the State of Maryland) as is designated from time to time by the Board of Directors and stated in the notice of the meeting. At each annual meeting the stockholders shall elect Directors and shall transact such other business as may properly be brought before the meeting. SECTION 2. SPECIAL MEETINGS. Unless otherwise prescribed by law, the Articles of Incorporation or these By-Laws, special meetings of the stockholders for any purpose or purposes may be called by the Board of Directors, the President or any two or more Directors, or by the Secretary upon the written request of stockholders owning not less than a majority of the shares of capital stock of the Corporation issued and outstanding and entitled to vote at any such meeting. Special meetings shall be held at such place in the United States (within or without the State of Maryland) as is designated by the Board of Directors and stated in the notice of the meeting. Requests for special meetings shall state the purpose or purposes of the proposed meeting. Unless requested by stockholders entitled to cast a majority of all votes entitled to be cast at the meeting, a special meeting need not be called to consider any matter which is substantially the same as a matter voted on at any special meeting of the stockholders held during the preceding twelve (12) months. 2 Within twenty (20) days after the Corporation receives a stockholder request for the calling of a special meeting, the Board of Directors shall designate the date on which such meeting is to be held and the Secretary shall inform the stockholders who make the request of the reasonably estimated costs of preparing and mailing a notice of the meeting, and on payment of those costs to the Corporation, notify each stockholder entitled to notice of the meeting. Any such special meeting shall be held on a date not earlier than the twentieth (20th) day, and not later than the ninetieth (90th) day, following the date on which such notice is given. Notwithstanding the foregoing, if as of the date a stockholder request for a special meeting is received or within twenty (20) days thereafter, the Board of Directors has called or calls a meeting of stockholders (whether annual or special) for a purpose or purposes other than the purpose(s) stated in the stockholder request, the Board of Directors need not call, and the Secretary need not give notice of, a separate and additional meeting of stockholders if (i) the Board of Directors determines in good faith that calling such a separate and additional meeting would require the Corporation to incur undue cost and expense, and (ii) the Secretary notifies both the requesting stockholder(s) and all other stockholders entitled to vote, within twenty (20) days after the Corporation receives the stockholder request, that the matter(s) proposed by the requesting stockholder(s) to be considered at a special meeting may be proposed and considered at the meeting otherwise called by the Board of Directors. In addition, if not later than the thirtieth (30th) day prior to the date on which any special meeting called by the Board of Directors pursuant to a stockholder request is to be held, the Board of Directors determines in good faith to present for consideration by the stockholders of the Corporation one or more matters other than those proposed by the requesting stockholder(s) to be so considered, the Board of Directors may postpone the previously called special meeting for a period of up to sixty (60) days following the date on which notice of such postponement is given. Notice of such postponement and of the additional matter(s) to be considered at such meeting shall be given by the Secretary not later than the thirtieth (30th) day prior to the originally scheduled meeting date. SECTION 3. PRESIDING OFFICERS. Meetings of the stockholders shall be presided over by the Chairman of the Board, or, if the Chairman is not present, by the President, or, if the President is not present, by a Vice President, or, if a Vice President is not present, such person who is chosen by the Board of Directors, or, if none, by a person to be chosen at the meeting by stockholders present in person or by proxy who own a majority of the shares of capital stock of the Corporation entitled to vote and be represented at such meeting. The secretary of meetings shall be the Secretary of the Corporation, or, if the Secretary is not present, an Assistant Secretary, or, if an Assistant Secretary is not present, such person as may be chosen by the Board of Directors, or, if none, such person who is chosen by the chairman of the meeting. The presiding officer at a meeting of the stockholders shall have all power and authority vested in a presiding officer by law or practice, including, without limitation, the authority to determine whether the nomination of any person is made in compliance with -2- 3 applicable provisions of these By-Laws (and to refuse to acknowledge the nomination of any person not made in such compliance); to determine whether any item of business proposed to be brought before the meeting has been properly brought (and to declare that any business not so brought shall be disregarded and not transacted); to establish rules pertaining to reasonable time limits and the amount of time that may be taken up in remarks by any stockholder or group of stockholders and otherwise pertaining to the conduct of the meeting; and to otherwise decide all matters relating to the conduct of the meeting. The presiding officer may appoint a parliamentarian and one or more sergeants-at-arms. The parliamentarian may advise the presiding officer upon matters relating to the conduct of the stockholders' meeting. The sergeant- or sergeants-at-arms shall have authority to take any and all actions that such persons deem necessary or appropriate to assure that the meeting is conducted with decorum and in an orderly manner, including, without limitation, authority to expel or cause the expulsion of any person who the presiding officer determines is failing to comply with the rules concerning the conduct of, or is otherwise disrupting, the meeting. SECTION 4. ADJOURNMENTS. Whether or not a quorum is present at any meeting of the stockholders, the stockholders entitled to vote thereat present in person or by proxy shall have the power to adjourn the meeting from time to time, without notice of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. Any business which might have been transacted at a meeting as originally called may be transacted at any meeting held after adjournment as provided in this Section 4, if a quorum is present in person or by proxy at such reconvened meeting. SECTION 5. PROXIES. Whenever the vote or consent of stockholders is required or permitted, such vote or consent may be given by a stockholder in person or by proxy. The appointment of a proxy or proxies shall be made by an instrument in writing executed by the stockholder or his duly authorized agent and filed with the Secretary of the Corporation. No proxy shall be valid after the expiration of eleven (11) months from the date of its execution unless the stockholder executing it specifies therein the length of time for which it is to continue in force. At a meeting of stockholders all questions concerning the qualification of voters, the validity of proxies, and the acceptance or rejection of votes, shall be decided by the secretary of the meeting unless inspectors of election are appointed pursuant to Section 6 of this Article II, in which event such inspectors shall pass upon all questions and shall have all other duties specified in said section. SECTION 6. INSPECTORS OF ELECTION. In advance of any meeting of the stockholders, the Board of Directors may appoint any one or more persons (other than nominees for office) to act as inspectors of election at the meeting or any adjournment thereof. If no inspector of election is so appointed, the presiding officer of the meeting may, and on the request of any stockholder or his proxy shall, appoint one or more such inspectors of election. The number of inspectors shall be either one (1) or three (3), as determined by the presiding officer; provided, however, that if such inspector(s) is or are to be appointed at the meeting on the request of one or more stockholders or proxies, the holders of a majority of the total number of shares represented at the meeting (in person or by duly executed proxy) shall -3- 4 determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector of election fails to appear at the meeting or fails or refuses to act as inspector, the presiding officer of the meeting may, and upon the request of any stockholder or his proxy shall, appoint a person to fill that vacancy. The inspectors of election shall: (a) Determine the number of shares of capital stock outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies; (b) Receive votes, ballots or consents; (c) Count and tabulate all votes or consents; (d) Determine and report to the Corporation the results of the voting; and (e) Do any other acts that may be proper to conduct the election or vote with fairness to all stockholders. On request of the presiding officer of the meeting or of any stockholder or his proxy, the inspector(s) of election shall make a report in writing of any question or other matter determined by him or them and execute a certificate of any facts found by him or them. If there are three (3) inspectors of election, the decision, act, report or certificate of a majority shall be effective in all respects as the decision, act, report or certificate of the inspectors. SECTION 7. BUSINESS. Except as may be otherwise provided by applicable law, the only business that shall be conducted at any meeting of the stockholders (other than matters incident to the conduct of the meeting) shall be business brought before the meeting by or at the direction of the Board of Directors or by a stockholder who complies with the procedures set forth in this Section 7. Except as otherwise provided by Section 1A of Article III of these By-Laws or by applicable law, the only business that shall be conducted at any meeting of the stockholders shall (i) have been specified in the notice of the meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) otherwise be brought before such meeting by or at the direction of the Board of Directors or the presiding officer of the meeting, or (iii) be otherwise properly brought before the meeting by or on behalf of a stockholder who shall have been a stockholder of record on the record date for such meeting, who shall continue to be entitled to vote thereat, and who shall have complied with the procedures set forth in the remainder of this Section 7. In addition to any and all other applicable requirements, for business to be properly brought before a meeting of the stockholders by a stockholder, the stockholder must have given timely notice thereat in writing to the Secretary. To be timely, a stockholder's notice must be delivered personally or mailed to and received at, the principal -4- 5 executive offices of the Corporation within ten days of the earlier of (i) the date that notice of the meeting was mailed in accordance with Article II hereof or prior public disclosure of the date of the meeting was made, or (ii) the date that a request for a special meeting was made by a stockholder in accordance with Section 2 of Article II hereof. A stockholder's notice to the Secretary shall set forth (i) a description of each item of business the stockholder proposes to bring before the meeting and the wording of the proposal, if any, to be submitted for a vote of the stockholders with respect thereto; (ii) the name and address of the stockholder; (iii) the class and number of shares of stock of the Corporation held of record, owned beneficially and represented by proxy by such stockholder as of the record date for the meeting (if such date shall then have been publicly disclosed) and as of the date of such notice; and (iv) all other information that would be required to be included in a proxy statement filed with the Securities and Exchange Commission (the "SEC") if, with respect to any such item of business, such stockholder were a participant in a solicitation subject to Section 14 of the Securities Exchange Act of 1934 (the "Exchange Act"), as from time to time amended. SECTION 8. INFORMAL ACTION BY STOCKHOLDERS. Any action required or permitted to be taken at a meeting of stockholders may be taken without a meeting if there is filed with the records of stockholders meetings a unanimous written consent which sets forth the action and is signed by each stockholder entitled to vote on the matter and a written waiver of any right to dissent signed by each stockholder entitled to notice of the meeting but not entitled to vote at it. ARTICLE III DIRECTORS SECTION 1. NUMBER; TENURE. The number of directors of the Corporation shall be not less than three (3) nor more than fifteen (15), and, within these limits, may be fixed, increased or decreased from time to time by a majority of the entire Board of Directors, or by the stockholders, but no such action may affect the tenure of office of any director. The directors shall be divided, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class to expire at the 1995 annual meeting of stockholders, the term of office of the second class to expire at the 1996 annual meeting of stockholders, and the term of office of the third class to expire at the 1997 annual meeting of stockholders, with each director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders, commencing with the 1995 annual meeting, (i) directors elected to succeed the class of directors whose terms then expire shall be elected for a term of -5- 6 office to expire at the third succeeding annual meeting of stockholders after their election, with each director of the class to hold office until his or her successor shall have been duly elected and qualified and (ii) except as otherwise required by law, if authorized by a resolution of the Board of Directors, directors may be elected to fill any vacancy on the Board of Directors, regardless of how such vacancy shall have been created. SECTION 1A. NOMINATION OF DIRECTORS. Nominations of persons for election to the Board of Directors at an annual meeting of the stockholders may be made at such meeting only by or at the direction of the Board of Directors, by any nominating committee or person(s) appointed by the Board of Directors, or by any stockholder entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this Section 1A. Any stockholder entitled to vote for the election of Directors may nominate one or more persons for election to the Board of Directors at a meeting only if written notice of such stockholder's intent to make such nomination or nominations has been delivered personally to the Secretary at, or been mailed to the Secretary and received at, the principal executive offices of the Corporation not less than 50 days nor more than 75 days prior to the meeting; provided, however, that in the event that less than 60 days' notice or prior public disclosure of the date of meeting is given or made to stockholders, notice by the stockholder to be timely must be so delivered or received not later than the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. Such stockholder's notice to the Secretary shall set forth: (i) the name and address of the stockholder who intends to make the nomination(s) and of the person or persons to be nominated; (ii) the class and number of shares of stock of the Corporation that are held of record, beneficially owned and represented by proxy by such stockholder as of the record date for the meeting (if such date then shall have been made publicly available) and as of the date of such notice; (iii) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (iv) a description of any contract, arrangement or understanding between such stockholder and each nominee and any other person or persons (naming such person or person) pursuant to which the nomination or nominations are to be made by such stockholder; (v) such other information regarding each nominee proposed by such stockholder as would be required to be disclosed in a proxy statement used in a solicitation of proxies for the election of directors which solicitation was subject to the rules and regulations of the SEC under Section 14 of the Exchange Act; and (vi) the consent of each nominee to serve as a Director of the Corporation if so elected. No person shall be eligible for election as a Director of the Corporation unless nominated in accordance with the procedures set forth herein. SECTION 2. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be chosen by the vote of a majority of the entire Board of Directors. The Chairman of the Board, if present, shall preside at all meetings of the stockholders and all meetings of the Board of -6- 7 Directors. The Chairman of the Board shall be, ex officio, a member of all standing committees, but shall not be an officer of the Corporation. SECTION 3. VACANCIES. Except as otherwise required by law, unless the Board of Directors otherwise determines, newly created directorships resulting from any increase in the authorized number of directors or any vacancies on the Board of Directors resulting from any cause shall be filled only by a majority vote of the directors then in office, though less than a quorum, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires and until such director's successor shall have been duly elected and qualified. No decrease in the numbers of authorized directors constituting the entire Board of Directors shall shorten the term of any incumbent director. SECTION 4. RESIGNATION. Any director may resign at any time by giving written notice to the Board of Directors, the Chairman of the Board, the Present, or the Secretary of the Corporation. Unless otherwise specified in such written notice, a resignation shall take effect upon delivery thereof. A resignation need not be accepted in order for it to be effective. SECTION 5. PLACE OF MEETINGS. The Board of Directors may hold both regular and special meetings either within or without the State of Maryland, at such place as the Board of Directors from time to time deems advisable. SECTION 6. ANNUAL MEETING. The annual meeting of each newly elected Board of Directors shall be held immediately following the annual meeting of stockholders, for the purpose of electing officers and transacting other business. No notice to the newly elected directors of such meeting shall be necessary for such meeting to be lawful, provided a quorum is present. SECTION 7. REGULAR MEETINGS. Regular meetings of the Board of Directors need not be held. SECTION 8. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called at any time by the President, and the President shall call a special meeting at any time upon the written request of two (2) directors. Written notice of the time and place of a special meeting shall be given to each director, either personally or by sending a copy thereof by mail or by telegraph, charges prepaid, to his address appearing on the books of the Corporation or theretofore given by him to the Corporation for the purpose of notice. In case of personal service, such notice shall be so delivered at least twenty-four (24) hours prior to the time fixed for the meeting. If such notice is mailed it shall be deposited in the United States mail in the place in which the principal office of the Corporation is located at least seventy-two (72) hours prior to the time fixed for the holding of the meeting. If telegraphed, it shall be delivered to the telegraph company at least forty-eight (48) hours prior to the time fixed for the holding of the meeting. If notice is not so given by the Secretary, it may be -7- 8 given by the President, or the directors requesting the meeting may issue the call and give the notice. SECTION 9. ADJOURNMENTS. A quorum of the directors may adjourn any meeting of the Board of Directors to meet again at a stated day and hour. In the absence of a quorum a majority of the directors present may adjourn from time to time to meet again at a stated day and hour prior to the time fixed for the next regular meeting of the Board of Directors. Notice of the time and place of an adjourned meeting need not be given to any director of the time and place is fixed at the meeting adjourned. SECTION 10. COMPENSATION. Directors shall be entitled to such compensation for their services as directors as from time to time may be fixed by the Board of Directors. No director who receives compensation as a director shall be barred from serving the Corporation in any other capacity or from receiving compensation and reimbursement of reasonable expenses for any or all such other services. SECTION 11. ACTION BY CONSENT. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting and without prior notice if a written consent in lieu of such meeting which sets forth the action so taken is signed either before or after such action by all directors. All written consents shall be filed with the minutes of the Board's proceedings. SECTION 12. MEETINGS BY TELEPHONE OR SIMILAR COMMUNICATIONS. The Board of Directors may participate in meetings by means of conference telephone or similar communications equipment, whereby all directors participating in the meeting can hear each other at the same time, and participation in any such meeting shall constitute presence in person at such meeting. A written record shall be made of all actions taken at any meeting conducted by a means of a conference telephone or similar communications equipment. SECTION 13. TRANSACTIONS WITH INTERESTED PERSONS. (a) Notwithstanding anything to the contrary contained in these By-Laws, in addition to any affirmative vote required either by law, the Partnership Agreement, the Articles of Incorporation of the Corporation or these By-Laws, any Transaction involving the Corporation or any of its subsidiaries or the Operating Partnership shall require the affirmative vote of a majority of the directors ("Disinterested Members") on the Board of Directors of the Corporation who are not employees, officers, directors, Affiliates or Associates of the Interested Person who or which is a party to the Transaction. (b) As used in this Section 13: (i) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on January 1, 1995. -8- 9 (ii) A Person shall "Beneficially Own" and be the "Beneficial Owner" of any Paired Shares or Units: (A) which such Person or any of its Affiliates or Associates or Associates beneficially owns, directly or indirectly, within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as in effect on January 1, 1995; or (B) which such Person or any of its Affiliates or Associates has (I) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (II) the right to vote pursuant to any agreement, arrangement or understanding (but neither such Person nor any such Affiliate or Associate shall be deemed to be the Beneficial Owner of any Paired Shares of Units solely by reason of a revocable proxy granted for a particular meeting of stockholders, pursuant to a public solicitation of proxies for such meeting, and with respect to which Paired Shares or Units neither such Person not any such Affiliate or Associate is otherwise deemed the Beneficial Owner); or (C) which are beneficially owned, directly or indirectly, within the meaning of the Rule 13d-3 under the Securities Exchange Act of 1934, as in effect on January 1, 1995, by any other Person with which such Person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (other than solely by reason of a revocable proxy as described in subparagraph (B) above) or disposing of any Paired Shares or Units. (iii) "Interested Person" shall mean any Person who or which is the Beneficial Owner, directly or indirectly, of 5% or more the outstanding Paired Shares or the outstanding Units or who or which is an Affiliate or Associate of the Trust, the Corporation or either of the Partnerships. for the purposes of determining whether a Person is an Interested Person, the number of Paired Shares or Units deemed to be outstanding shall include Paired Shares or Units deemed owned through application of paragraphs (A), (B) and (C) of paragraph (ii) above but shall not include any other unissued Paired Shares or Units which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. (iv) "Operating Partnership" shall mean SLC Operating Limited Partnership, a Delaware limited partnership. -9- 10 (v) "Paired Shares" shall mean the shares of common stock of the Corporation and the shares of beneficial interest of the Trust which are paired pursuant to the Pairing Agreement dated June 25, 1980 between the Trust and the Corporation, as it may be amended from time to time. (vi) "Partnership Agreement" shall mean the Limited Partnership Agreement of the Operating Partnership, as it may be amended from time to time. (vii) "Partnerships" shall mean the Operating Partnership and SLT Realty Limited Partnership, a Delaware limited partnership. (viii) "Person" shall mean any individual, limited partnership, general partnership, corporation, limited liability company or any other firm or entity. (ix) "Transaction" shall mean any contract, sale, lease, exchange, mortgage, transfer or disposition to or with, or any other transaction with, any Interested Person, including, without limitation, any election with respect to the method of payment for an exchange of Units for Paired Shares or any action to be taken by the Corporation, the Trust or the Partnerships with respect to the senior debt of SLT Realty Limited Partnership. (x) "Trust" shall mean Starwood Lodging Trust (formerly Hotel Investors Trust), a Maryland real estate investment trust. (xi) "Units" shall have the meaning set forth in the Partnership Agreement. (c) A majority of the Disinterested Members shall have the power and duty to determine, on the basis of information known to them after reasonable inquiry, all facts necessary to determine compliance with this Section 13, including, without limitation, (i) whether a Person is an Interested Person, (ii) the number of Paired Shares or Units that any Person Beneficially Owns, and (iii) whether a Person is an Affiliate or Associate of another. A majority of the Disinterested Members shall have the right to demand that any Person who is reasonably believed to be an Interested Person (or who holds of record Paired Shares or Units that any Interested Person Beneficially Owns) supply the Corporation with complete information as to (i) the record owner(s) of all Paired Shares or Units that such Person who is reasonably believed to be an Interested Person Beneficially Owns, (ii) the number of, and class or series of, Paired Shares or Units that such Person who is reasonably believed to be an Interested Person Beneficially Owns and the number(s) of the certificate(s), if any, evidencing such Paired Shares or Units and (iii) any other factual matter relating to the applicability or effect of this Section 13, as may be reasonably requested of such Person, and such Person shall furnish such information within 10 days after receipt of such demand. (d) Nothing contained in this Section 13 shall be construed to relieve any Interested Person from any fiduciary obligation imposed by law. -10- 11 (e) Notwithstanding anything to the contrary contained in these By-Laws, this Section 13 may be amended or repealed only by a majority of directors on the Board of Directors of the Corporation who are not employees, officers, Affiliates or Associates of the Trust, the Corporation, the Partnerships or any Interested Person. SECTION 14. INDEPENDENT DIRECTORS. Notwithstanding anything to the contrary contained in these By-Laws, not less than a majority of the Board of Directors of the Corporation shall be composed of "Independent Directors." For purposes of this Section 14, an "Independent Director" is a Director of the Corporation who is not employed by or an affiliate (as defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on June 29, 1995), of the Corporation, Starwood Lodging Trust or Starwood Capital Group, L.P. ARTICLE IV COMMITTEES SECTION 1. EXECUTIVE COMMITTEE. (a) The Board of Directors may appoint two or more directors to constitute an Executive Committee. One of such directors shall be designated as Chairman of the Executive Committee. The Executive Committee shall have and may exercise all of the rights, powers and authority of the Board of Directors, except as expressly limited by the Maryland General Corporation Law, as amended from time to time. (b) The Executive Committee shall fix its own rules of procedure and shall meet at such times and at such place or places as it may determine. The Chairman of the Executive Committee, or, in the absence of a Chairman, a member of the Executive Committee chosen by a majority of the members present, shall preside at meetings of the Executive Committee, and another member thereof chosen by the Executive Committee shall act as secretary. A majority of the Executive Committee shall constitute a quorum for the transaction of business, and the affirmative vote of a majority of the members present at a meeting shall be required for any action of the Executive Committee. SECTION 2. OTHER COMMITTEES. The Board of Directors may appoint such other committees as it shall deem advisable and with such authority as the Board of Directors shall from time to time determine. SECTION 3. OTHER PROVISIONS REGARDING COMMITTEES. (a) The Board of Directors shall have the power at any time to fill vacancies in, change the membership of, or discharge any committee. -11- 12 (b) Members of any committee shall be entitled to such compensation for their services as from time to time may be fixed by the Board of Directors. No committee member who receives compensation as a member of any one or more committees shall be barred from serving the Corporation in any other capacity or from receiving compensation and reimbursement of reasonable expenses for any or all such other services. (c) Unless prohibited by law, the provisions of Section 11 and Section 12 of Article III shall apply to all committees from time to time created by the Board of Directors. ARTICLE V OFFICERS SECTION 1. POSITIONS. The officers of the Corporation shall be chosen by the Board of Directors and shall consist of a President, one or more Vice Presidents, a Secretary and a Treasurer. The Board of Directors also may choose one or more Assistant Secretaries and Assistant Treasurers and such other officers and agents at the Board from time to time deems necessary or appropriate. The Board of Directors may delegate to the President of the Corporation the authority to appoint any officer or agent of the Corporation and to fill a vacancy other than the President, Secretary or Treasurer. The election or appointment of any officer of the Corporation in itself shall not create contract rights for any such officer. All officers of the Corporation shall exercise such powers and perform such duties as from time to time shall be determined by the Board of Directors. Any two or more offices may be held by the same person except the offices of President and Vice President, President and Secretary, or President and Assistant Secretary. SECTION 2. TERM OF OFFICE; REMOVAL. Each officer of the Corporation shall hold office at the pleasure of the Board of Directors and any officer may be removed, with or without cause, at any time by the affirmative vote of a majority of the directors then in office, provided that any officer appointed by the President pursuant to authority delegated to the President by the Board of Directors may be removed, with or without cause, at any time whenever the President in his or her absolute discretion shall consider that the best interests of the Corporation shall be served by such removal. Vacancies (however caused) in any office may be filled for the unexpired portion of the term by the Board of Directors (or by the President in the case of a vacancy occurring in an office to which the President has been delegated the authority to make appointments). SECTION 3. COMPENSATION. The salaries of all officers of the Corporation shall be fixed from time to time by the Board of Directors, and no officer shall be prevented from receiving a salary by reason of the fact that he also receives from the Corporation compensation in any other capacity. -12- 13 SECTION 4. PRESIDENT. The President shall be the chief executive officer of the Corporation and, subject to the direction of the Board of Directors, shall have general charge of the business, affairs and property of the Corporation and general supervision over its other officers and agents. In general, the President shall perform all duties incident to the office of President of a stock corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall have the power and authority to execute all written instruments, of every nature, on behalf of the Corporation, and shall be, ex officio, a member of all standing committees. In the absence of the Chairman of the Board, the President shall preside at all meetings of the Board of Directors and of the stockholders. SECTION 5. VICE PRESIDENTS. In the absence or disability of the President, the Vice President (or in the event there is more than one, the Vice Presidents in order of their rank as fixed by the Board of Directors or, if not ranked, the Vice-President designated by the Board of Directors), shall perform the duties and exercise the powers of the President. The Vice Presidents shall have the power and authority to execute on behalf of the Corporation all written instruments of every nature. A Vice President also generally shall assist the President and shall perform such other duties and have such other powers as from time to time may be prescribed by the Board of Directors. SECTION 6. SECRETARY. The Secretary shall attend all meetings of the Board of Directors and of the stockholders and shall record all votes and the proceedings of all meetings in a book to be kept for such purposes. The Secretary also shall perform like duties for the Executive Committee or other committees, if required by any such committee. The Secretary shall give (or cause to be given) notice of all meetings of the stockholders and all special meetings of the Board of Directors and shall perform such other duties as from time to time may be prescribed by the Board of Directors, the Chairman of the Board or the President. The Secretary shall have custody of the seal of the Corporation, shall have authority (as shall any Assistant Secretary) to affix the same to any instrument requiring it, and to attest the seal by his or her signature. The Board of Directors may give general authority to officers other than the Secretary or any Assistant Secretary to affix the seal of the Corporation and to attest the affixing thereof by his or her signature. SECTION 7. ASSISTANT SECRETARY. The Assistant Secretary, if any (or in the event there is more than one, the Assistant Secretaries in the order designated or, in the absence of any designation, the order of their election or appointment), in the absence or disability of the Secretary, shall perform the duties and exercise the powers of the Secretary. An Assistant Secretary shall perform such other duties and have such other powers as from time to time may be prescribed by the Board of Directors. SECTION 8. TREASURER. The Treasurer shall have the custody of the corporate funds, securities, other similar valuable effects, and evidences of indebtedness, shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation. The Treasurer shall disburse the funds of the Corporation in such manner as -13- 14 may be ordered by the Board of Directors from time to time and shall render to the Chairman of the Board, the President and the Board of Directors, at regular meetings of the Board or whenever any of them may so require, an account of all transactions and of the financial condition of the Corporation. SECTION 9. ASSISTANT TREASURER. The Assistant Treasurer, if any (or in the event there is more than one, the Assistant Treasurers in the order designated or, in the absence of any designation, in the order of their election or appointment), in the absence or disability of the Treasurer, shall perform the duties and exercise the powers of the Treasurer. An Assistant Treasurer shall perform such other duties and have such other powers as form time to time may be prescribed by the Board of Directors. ARTICLE VI NOTICES Except as otherwise specifically provided in these By-Laws, any notice required or permitted to be given to any director, officer, stockholder or committee member shall be given in writing, either personally or by first-class mail with postage prepaid, in either case addressed to the recipient at his or her address as it appears in the records of the Corporation. Personally delivered notices shall be deemed to be given at the time they are delivered at the address of the named recipient as it appears in the records of the Corporation, and mailed notices shall be deemed to be given at the time they are deposited in the United States mail. ARTICLE VII GENERAL PROVISIONS SECTION 1. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The President or any Vice President and the Secretary or Assistant Secretary of the Corporation shall have full power and authority to attend, act and vote at any meeting of security holders of other corporations in which the Corporation may hold securities, and at any such meeting shall possess and may exercise any and all rights and powers incident to the ownership of such securities which the Corporation possesses and has the power to exercise. SECTION 2. DIVIDENDS. Subject to the Maryland General Corporation Law, dividends upon the outstanding capital stock of the Corporation or other distributions may be declared by the Board of Directors at any annual, regular or special meeting and may be paid -14- 15 in cash, in property or in shares of the Corporation's capital stock. Stockholders shall have no right to any dividend or distribution unless and until declared by the Board of Directors. SECTION 3. REGISTERED STOCKHOLDERS. Except as otherwise provided by law, the Corporation shall be entitled to recognize the exclusive right of a person who is registered on its books as the owner of shares of its capital stock to receive dividends or other distributions (to the extent otherwise distributable or distributed) and to vote (in the case of voting stock) as such owner. The Corporation shall not be bound to recognize any equitable or legal claim to or interest in such shares on the part of any other person. The Corporation (or its transfer agent) shall not be required to send notices or dividends to a name or address other than the name or address of the stockholders appearing on the stock ledger maintained by the Corporation (or by the transfer agent or registrar, if any), unless any such stockholder shall have notified the Corporation (or the transfer agent or registrar, if any), in writing, of another name or address at least ten (10) days prior to the mailing of such notice or dividend. Nothing in these By-Laws shall be deemed to preclude the Corporation from inquiring as to the actual ownership of any shares of its capital stock, nor impose upon the Corporation or its transfer agent a duty, nor limit their rights to inquire into adverse claims. SECTION 4. LOST, STOLEN OR DESTROYED CERTIFICATE. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation which is claimed to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors, in its discretion, may require as a condition precedent to issuance that the owner of such lost, stolen or destroyed certificate, or his or her legal representative, advertise the same in such manner as the Board of Directors shall require and to deliver to the Corporation a bond in such sum, or other security in such form, as the Board of Directors may direct, as indemnity against any claim that may be made against the Corporation with respect to the certificate claimed to have been lost, stolen or destroyed. SECTION 5. RESERVES. The Board of Directors, in its sole discretion, may fix a sum which may be set aside or reserved over and above the paid-in capital of the Corporation as a reserve for any proper purpose, and from time to time may increase, diminish or vary such reserves. SECTION 6. FISCAL YEAR. The fiscal year of the Corporation shall be as determined from time to time by the Board of Directors. SECTION 7. SEAL. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its incorporation and the words "Corporate Seal" and "State of Maryland." SECTION 8. AMENDMENT OF THE BY-LAWS. To the extent not prohibited by law, the Board of Directors shall have the power to adopt, alter and repeal these By-Laws, and to -15- 16 adopt new by-laws. The stockholders of the Corporation shall also have the power to alter and repeal these By-Laws, and to adopt new by-laws. -16- EX-3.2 3 TRUSTEES' REGULATIONS 1 Exhibit 3.2 TRUSTEES' REGULATIONS OF STARWOOD LODGING TRUST (AS AMENDED THROUGH APRIL 24, 1997) ARTICLE I TRUSTEES SECTION 1. NUMBER. There shall be not less than three (3) nor more than fifteen (15) Trustees; within such limits, the number of Trustees may be fixed, increased or decreased from time to time by the Trustees or the Shareholders. SECTION 2. QUALIFYING SHARES NOT REQUIRED. Trustees need not be Shareholders of the Trust. SECTION 3. QUORUM. A majority of the Trustees shall constitute a quorum. SECTION 4. ELECTION. The Trustees shall be divided, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class to expire at the 1995 Annual Meeting of Shareholders, the term of office of the second class to expire at the 1996 Annual Meeting of Shareholders and the term of office of the third class to expire at the 1997 Annual Meeting of Shareholders, with each Trustee to hold office until his or her successor shall have been duly elected and qualified. At each Annual Meeting of Shareholders, commencing with the 1995 Annual Meeting, (i) Trustees elected to succeed those Trustees whose terms then expire shall be elected for a term of office to expire at the third succeeding Annual Meeting of Shareholders after their election, with each Trustee to hold office until his or her successor shall have been duly elected and qualified, and (ii) if authorized by a resolution of the Board of Trustees, Trustees may be elected to fill any vacancy on the Board of Trustees, regardless of how such vacancy shall have been created. SECTION 5. VACANCIES. Vacancies occurring among the Trustees (including vacancies created by increases in number) may be filled by a majority of the remaining Trustees, though less than a quorum, or by a sole remaining Trustee, and the person so appointed shall hold office for a term expiring at the Annual Meeting of Shareholders at which the term of office of the class to which they have been appointed expires and until his successor is elected and qualified. SECTION 6. PLACE OF MEETING. Meetings of the Trustees shall be held at the principal office of the Trust or at such place within or without the State of Maryland as is fixed from time to time by resolution of the Trustees or by written consent of all Trustees. 2 Whenever a place other than the principal office is fixed by resolution as the place at which future meetings are to be held, written notice thereof shall be sent not later than the following business day to all Trustees who were absent from the meeting at which the resolution was adopted. SECTION 7. ORGANIZATION MEETING. Immediately following each Annual Meeting of Shareholders, a regular meeting of the Trustees shall be held for the purpose of organizing, electing officers, and transacting other business. Notice of such meetings need not be given. SECTION 8. REGULAR MEETINGS. Regular meetings of the Board of Trustees need not be held. SECTION 9. SPECIAL MEETINGS. Special meetings of the Trustees may be called at any time by the President, and the President shall call a special meeting at any time upon the written request of two (2) Trustees. Written notice of the time and place of a special meeting shall be given to each Trustee, either personally or by sending a copy thereof by mail or by telegraph, charges prepaid, to his address appearing on the books of the Trust or theretofore given by him to the Trust for the purpose of notice. In case of personal service, such notice shall be so delivered at least twenty-four (24) hours prior to the time fixed for the meeting. If such notice is mailed it shall be deposited in the United States mail in the place in which the principal office of the Trust is located at least seventy-two (72) hours prior to the time fixed for the holding of the meeting. If telegraphed, it shall be delivered to the telegraph company at least forty-eight (48) hours prior to the time fixed for the holding of the meeting. If notice is not so given by the Secretary, it may be given by the President, or the Trustees requesting the meeting may issue the call and give the notice. SECTION 10. ADJOURNED MEETINGS. A quorum of the Trustees may adjourn any Trustees' meeting to meet again at a stated day and hour. In the absence of a quorum a majority of the Trustees present may adjourn from time to time to meet again at a stated day and hour prior to the time fixed for the next regular meeting of the Trustees. The motion for adjournment shall be lodged with the records of the Trust. Notice of the time and place of an adjourned meeting need not be given to any Trustee if the time and place is fixed at the meeting adjourned. SECTION 11. WAIVER OF NOTICE. The transactions of any meeting of the Trustees, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if either before or after the meeting each of the Trustees not present signs a written waiver of notice or a consent to the holding of such meeting or an approval of the minutes thereof. All such waivers, consents, or approvals shall be lodged with the Trust records or made a part of the minutes of the meeting. 2 3 SECTION 12. ACTION WITHOUT MEETING. Any action required or permitted to be taken by the Trustees may be taken without a meeting, if a majority of the Trustees shall individually or collectively consent in writing to such action. Such written consent or consents shall be lodged with the records of the Trust. Such action by written consent shall have the same force and effect as a vote of the Trustees adopted at a meeting duly called and held. SECTION 13. POWERS AND DUTIES. The powers and duties of the Trustees, in addition to the powers and duties set forth in the Declaration, are: (a) Selection and Removal of Officers, Agents and Employees. To select all the other officers, agents and employees of the Trust, to remove them at pleasure, either with or without cause, to prescribe for them duties consistent with the Declaration and the Trustees' Regulations, and to fix their compensation. (b) Authorization of Signatures. From time to time to designate the person or persons authorized to sign or endorse checks, drafts, or other orders for the payment of money, issued in the name of or payable to the Trust. (c) Fixing Principal Office and Place of Meetings. From time to time to change the location of the principal office of the Trust and from time to time to designate any place within or without the State of Maryland as the place at which meetings of Trustees or of the Shareholders shall be held. (d) Committees. To appoint as executive committee and other committees, and to delegate to the executive committee any of the powers and authority of the Trustees over the business and affairs of the Trust, except the power to declare dividends and to adopt, amend or repeal Trustees' Regulations. It is intended that the executive committee will review applications for loans approved by the Advisor and suggest changes in their terms; grant final approval subject to the stated conditions of the Board of Trustees, to applications which have been preliminarily approved by the Trustees: modify loan commitments when insubstantial changes are necessary; approve borrowings for terms of less than one year; and hire and set salaries for employees of the Trust. The Trustees shall have the power to prescribe the manner in which proceedings of the executive committee and other committees shall be conducted. The executive committee shall be composed of two or more Trustees. (e) General Powers. Generally to exercise such other powers as are usually vested in directors of corporations organized under the laws of the State of Maryland. SECTION 14. TRANSACTIONS WITH INTERESTED PERSONS. (a) Notwithstanding anything to the contrary contained in these Trustees' Regulations, in addition to any affirmative vote required either by law, the Partnership Agreement, the Declaration of Trust of the Trust or these Trustees' Regulations, any Transaction involving the Trust or any of its subsidiaries or the Realty Partnership shall require the affirmative vote of a majority of the 3 4 Trustees ("Disinterested Members") on the Board of Trustees of the Trust who are not employees, officers, directors, Affiliates or Associates of the Interested Person who or which is a party to the Transaction. (b) As used in this Section 14: (i) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on January 1, 1995. (ii) A Person shall "Beneficially Own" and be the "Beneficial Owner" of any Paired Shares or Units: (A) which such Person or any of its Affiliates or Associates beneficially owns, directly or indirectly, within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as in effect on January 1, 1995; or (B) which such Person or any of its Affiliates or Associates has (I) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (II) the right to vote pursuant to any agreement, arrangement or understanding (but neither such Person nor any such Affiliate or Associate shall be deemed to be the Beneficial Owner of any Paired Shares or Units solely by reason of a revocable proxy granted for a particular meeting of shareholders, pursuant to a public solicitation of proxies for such meeting, and with respect to which Paired Shares or Units neither such Person nor any such Affiliate or Associate is otherwise deemed the Beneficial Owner); or (C) which are beneficially owned, directly or indirectly, within the meaning of the Rule 13d-3 under the Securities Exchange Act of 1934, as in effect on January 1, 1995, by any other Person with which such Person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (other than solely by reason of a revocable proxy as described in subparagraph (B) above) or disposing of any Paired Shares or Units. (iii) "Corporation" shall mean Starwood Lodging Corporation (formerly Hotel Investors Corporation), a Maryland corporation. 4 5 (iv) "Interested Person" shall mean any Person who or which is the Beneficial Owner, directly or indirectly, of 5% or more of the outstanding Paired Shares or the outstanding Units or who or which is an Affiliate or Associate of the Trust, the Corporation or either of the Partnerships. For the purposes of determining whether a Person is an Interested Person, the number of Paired Shares or Units deemed to be outstanding shall include Paired Shares or Units deemed owned through application of paragraphs (A), (B) and (C) of paragraph (ii) above but shall not include any other unissued Paired Shares or Units which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. (v) "Paired Shares" shall mean the shares of common stock of the Corporation and the shares of beneficial interest of the Trust which are paired pursuant to the Pairing Agreement dated June 25, 1980 between the Trust and the Corporation, as it may be amended from time to time. (vi) "Partnership Agreement" shall mean the Limited Partnership Agreement of the Realty Partnership, as it may be amended from time to time. (vii) "Partnerships" shall mean the Realty Partnership and SLC Operating Limited Partnership, a Delaware limited partnership. (viii) "Person" shall mean any individual, limited partnership, general partnership, corporation, limited liability company or any other firm or entity. (ix) "Realty Partnership" shall mean SLT Realty Limited Partnership, a Delaware limited partnership. (x) "Transaction" shall mean any contract, sale, lease, exchange, mortgage, transfer or disposition to or with, or any other transaction with, any Interested Person, including, without limitation, any election with respect to the method of payment for an exchange of Units for Paired Shares, or any action to be taken by the Trust, the Corporation or the Partnership with respect to the senior debt of the Realty Partnership. (xi) "Units" shall have the meaning set forth in the Partnership Agreement. (c) A majority of the Disinterested Members shall have the power and duty to determine, on the basis of information known to them after reasonable inquiry, all facts necessary to determine compliance with this Section 14, including, without limitation, (i) whether a Person is an Interested Person, (ii) the number of Paired Shares or Units that any Person Beneficially Owns, and (iii) whether a Person is an Affiliate or 5 6 Associate of another. A majority of the Disinterested Members shall have the right to demand that any Person who is reasonably believed to be an Interested Person (or who holds of record Paired Shares or Units that any Interested Person Beneficially Owns) supply the Corporation with complete information as to (i) the record owner(s) of all Paired Shares or Units that such Person who is reasonably believed to be an Interested Person Beneficially Owns, (ii) the number of, and class or series of, Paired Shares or Units that such Person who is reasonably believed to be an Interested Person Beneficially Owns and the number(s) of the certificate(s), if any, evidencing such Paired Shares or Units and (iii) any other factual matter relating to the applicability or effect of this Section 14, as may be reasonably requested of such Person, and such Person shall furnish such information within 10 days after receipt of such demand. (d) Nothing contained in this Section 14 shall be construed to relieve any Interested Person from any fiduciary obligation imposed by law. (e) Notwithstanding anything to the contrary contained in these Trustees' Regulations this Section 14 may be amended or repealed only by a majority of Trustees on the Board of Trustees of the Trust who are not employees, officers, Affiliates or Associates of the Trust, the Corporation, the Partnerships or any Interested Person. SECTION 15. INDEPENDENT TRUSTEES. Notwithstanding anything to the contrary contained in these Trustees' Regulations, not less than a majority of the Board of Trustees of the Trust shall be composed of "Independent Trustees." For purposes of this Section 15, an "Independent Trustee" is a Trustee of the Trust who is not employed by or an affiliate (as defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on June 29, 1995), of the Trust, Starwood Lodging Corporation or Starwood Capital Group, L.P. ARTICLE II OFFICERS SECTION 1. ENUMERATION. The officers of the Trust shall be a Chairman, a President, one or more Vice-Presidents, a Secretary, a Treasurer, and such other officers as are elected by the Trustees. Officers shall be elected by and shall hold office at the pleasure of the Trustees. Any two or more offices, except those of Chairman and President, President and Secretary, or President and Assistant Secretary, may be held by the same person. SECTION 2. POWERS AND DUTIES OF THE CHAIRMAN. The Chairman shall, if present, preside at all meetings of the Trustees and of the Shareholders and exercise and perform such other powers and duties as may be from time to time assigned to him by the 6 7 Trustees. The Chairman shall have the power and authority to execute all written instruments on behalf of the Trust of every nature whatsoever. He shall be, ex officio, a member of all standing committees. SECTION 3. POWERS AND DUTIES OF THE PRESIDENT. The President shall be the chief executive officer of the Trust and, subject to the control of the Trustees, shall have general supervision, direction and control of the business of the Trust and its employees and shall have such other powers and duties as are usually vested in the office of president and chief executive officer of a corporation. The President shall have the power and authority to execute all written instruments on behalf of the Trust of every nature whatsoever. In the absence of the Chairman, he shall preside at all meetings of the Trustees and of the Shareholders. He shall be, ex officio, a member of all standing committees. SECTION 4. POWERS AND DUTIES OF THE VICE PRESIDENTS. In the absence or disability of the President, the Vice-Presidents in order of their rank as fixed by the Trustees or, if not ranked, the Vice-President designated by the Trustees, shall perform all of the duties of the President and when so acting shall have all the powers of and be subject to all of the restrictions upon the President. The Vice-Presidents shall have the power and authority to execute on behalf of the Trust all written instruments of every nature whatsoever. The Vice-Presidents shall have such other powers and perform such other duties as are prescribed for them from time to time by the Trustees. SECTION 5. DUTIES OF THE SECRETARY. The Secretary shall (a) Minutes. Keep full and complete minutes of the meetings of the Trustees and of the meetings of the Shareholders and give notice, as required, of all such meetings; (b) Trust Seal. Keep the seal of the Trust and affix the same to all instruments executed by the Trust which require it; (c) Records. Maintain custody of and keep the records of the Trust except such as are in the custody of the Treasurer; (d) General Duties. Generally, perform all duties which pertain to his office and which are required by the Trustees. SECTION 6. DUTIES OF THE TREASURER. The Treasurer shall (a) Books of Account. Maintain custody of and keep the books of account of the Trust; (b) Receipt, Deposit and Disbursement of Funds. Receive, deposit and disburse funds belonging to the Trust; 7 8 (c) General Duties. Generally, perform all duties which pertain to his office and which are required by the Trustees. ARTICLE III SHAREHOLDERS SECTION 1. QUORUM. The presence in person or by proxy of Persons entitled to vote a majority of the voting shares at any meeting of Shareholders shall constitute a quorum. The Shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment notwithstanding the withdrawal of enough Shareholders to leave less than a quorum. SECTION 2. PLACE OF MEETING. Meetings of the Shareholders shall be held at the principal office of the Trust or at another convenient location within or without the State of Maryland as is designated by the Trustees or by the written consent of all Shareholders entitled to vote thereat, given either before or after the meeting and filed with the Secretary of the Trust. SECTION 3. ANNUAL MEETING. A regular annual meeting of the Shareholders shall be held on such date and at such time as may be fixed by the Board of Trustees. SECTION 4. SPECIAL MEETINGS. Special meetings of the Shareholders may be held at any time for any purpose or purposes. Such special meetings may be called at any time by the President or by the Trustees or by any two or more Trustees, or by one or more Shareholders holding not less than a majority of the outstanding Shares of the Trust. SECTION 4A. NOMINATION OF TRUSTEES. Nominations of Persons for election as Trustees at an annual meeting of the Shareholders may be made at such meeting only by or at the direction of the Trustees, by any nominating committee or person(s) appointed by the Trustees, or by any Shareholder entitled to vote for the election of Trustees at the meeting who complies with the notice procedures set forth in this Section 4A. Any Shareholder entitled to vote for the election of Trustees may nominate one or more Persons for election as Trustee at a meeting of Shareholders only if written notice of such Shareholder's intent to make such nomination or nominations has been delivered personally to the Secretary at, or been mailed to the Secretary and received at, the principal executive offices of the Trust not less than 50 days nor more than 75 days prior to the meeting; provided, however, that in the event that less than 60 days' notice or prior public disclosure of the date of meeting is given or made to Shareholders, notice by the Shareholder to be timely must be so delivered or received not later than the 10th day following the day on 8 9 which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. Such Shareholder's notice to the Secretary shall set forth: (i) the name and address of the Shareholder who intends to make the nominations(s) and of the Person or Persons to be nominated; (ii) the class and number of Shares that are held of record, beneficially owned and represented by proxy by such Shareholder as of the record date for the meeting (if such date then shall have been made publicly available) and as of the date of such notice; (iii) a representation that such Shareholder intends to appear in person or by proxy at the meeting to nominate the Person or Persons specified in the notice; (iv) a description of any contract, arrangement or understanding between such Shareholder and each nominee and any other Person or Persons (naming such Person or Persons) pursuant to which the nomination or nominations are to be made by such Shareholder; (v) such other information regarding each nominee proposed by such Shareholder as would be required to be disclosed in a proxy statement used in a solicitation of proxies for the election of directors which solicitation was subject to the rules and regulations of the Securities and Exchange Commission (the "SEC") under Section 14 of the Securities Exchange Act of 1934 (the "Exchange Act"), as from time to time amended; and (vi) the consent of each nominee to serve as a Trustee if so elected. No Person shall be eligible for election as a Trustee unless as nominated in accordance with the procedures set forth herein. SECTION 5. ADJOURNED MEETINGS. Any meeting of Shareholders, whether or not a quorum is present, may be adjourned from day to day or from time to time by the vote of a majority of the Shares the holders of which are either present at the meeting or represented by proxy. The motion for adjournment shall be lodged with the records of the Trust. SECTION 6. NOTICE OF REGULAR OR SPECIAL MEETINGS. Written notice specifying the place, day and hour of any regular or special meeting, the general nature of the business to be transacted thereof, to the extent required by law, and all other matters required by law shall be given to each Shareholder of record entitled to vote, either personally or by sending a copy thereof by mail or telegraph to his address appearing on the books of the Trust or theretofore given by him to the Trust for the purpose of notice or, if no address appears or has been given, addressed to the place where the principal office of the Trust is situated. It shall be the duty of the Secretary to give notice of each Annual Meeting of the Shareholders at least ten (10) days and not more than forty (40) days before the date on which it is to be held. If notice is not so given by the Secretary, it may be given by any other officer. Within twenty (20) days after the Trust receives a Shareholder request for the calling of a special meeting, the Trustees shall designate the date on which such meeting is to be held and the Secretary shall inform the Shareholders who make the request of the reasonably estimated costs of preparing and mailing a notice of the meeting, and on payment of those costs to the Trust, notify each Shareholder entitled to notice of the meeting. Any such special meeting shall be held on a date not earlier than the twentieth (20th) day, and not later than the ninetieth (90th) day, following the date on which such notice is given. If the date of 9 10 such special meeting is not so fixed and notice thereof given within seven (7) days after the date such Shareholder request is received by the Trust, the date of such meeting may be fixed by the Person or Persons requesting the meeting, in which event notice of such meeting shall be given by such Person or Persons not less than seven (7), nor more than sixty (60), days before the date on which the meeting is to be held. Notwithstanding the foregoing, if as of the date a Shareholder request for a special meeting is received or within twenty (20) days thereafter, the Trustees have called or call a meeting of Shareholders (whether annual or special) for a purpose or purposes other than the purpose(s) stated in the Shareholder request, the Trustees need not call, and the Secretary need not give notice of, a separate and additional meeting of Shareholders for the purpose(s) stated in the Shareholder request if (i) the Trustees determine in good faith that calling such a separate and additional meeting would require the Trust to incur undue cost and expense, and (ii) the Secretary notifies both the requesting Shareholder(s) and all other Shareholders entitled to vote, within twenty (20) days after the Trust receives the Shareholder request, that the matter(s) proposed by the requesting Shareholder(s) to be considered at a special meeting may be proposed and considered at the meeting otherwise called by the Trustees. In addition, if not later than the thirtieth (30th) day prior to the date on which any special meeting called by the Trustees pursuant to a Shareholder request is to be held, the Trustees determine in good faith to present for consideration by the Shareholders of the Trust one or more matters other than those proposed by the requesting Shareholder(s) to be considered, the Trustees may postpone the previously called special meeting for a period of up to sixty (60) days following the date of which notice of such postponement is given. Notice of such postponement and of the additional matter(s) to be considered at such meeting shall be given by the Secretary to all Shareholders entitled to vote at the meeting not later than the thirtieth (30th) day prior to the originally scheduled meeting date. For purposes of this Section 6, a Shareholder request shall be deemed received by the Trust when delivered to an officer of the Trust in person or on the date on which such request is mailed to the Trust, duly addressed to its principal office. SECTION 7. NOTICE OF ADJOURNED MEETINGS. It shall not be necessary to give any notice of the time and place of any adjourned meeting or of the business to be transacted thereat other than by announcement at the meeting at which such adjournment is taken. SECTION 8. PROXIES. The appointment of a proxy or proxies shall be made by an instrument in writing executed by the Shareholder or his duly authorized agent and filed with the Secretary of the Trust. No proxy shall be valid after the expiration of eleven (11) months from the date of its execution unless the Shareholder executing it specifies therein the length of time for which it is to continue in force, which is no case shall exceed seven (7) years from the date of its execution. At a meeting of Shareholders all questions concerning the qualification of voters, the validity of proxies, and the acceptance or rejection of votes, shall be decided by the secretary of the meeting unless inspectors of election are appointed pursuant 10 11 to Section 11 of this Article III, in which event such inspectors shall pass upon all questions and shall have all other duties specified in said section. SECTION 9. CONSENT OF ABSENTEES. The transactions of any meeting of Shareholders, either annual, special, or adjourned, however called and noticed, shall be as valid as though had at a meeting duly held after the regular call and notice if a quorum is present and, if either before or after the meeting, each Shareholder entitled to vote, not present in person or by proxy, signs a written waiver of notice or a consent to the holding of such meeting or an approval of the minutes thereof. All such waivers, consents or approvals shall be lodged with the Trust records or made a part of the minutes of the meeting. SECTION 10. VOTING RIGHTS. If no future date is fixed for the determination of the Shareholders entitled to vote at any meeting of Shareholders, only Persons in whose names Shares entitled to vote stand on the stock records of the Trust on the day of any meeting of Shareholders shall be entitled to vote at such meeting SECTION 11. NO CUMULATIVE VOTING. Shareholders shall not be entitled to cumulate votes in any elections of Trustees of the Trust. SECTION 12. CONDUCT OF MEETINGS; INSPECTORS OF ELECTION. The presiding officer at a meeting of the Shareholders shall have all power and authority vested in a presiding officer by law or practice, including, without limitation, the authority to determine whether the nomination of any person is made in compliance with applicable provisions of these Trustees' Regulations (and to refuse to acknowledge the nomination of any Person not made in such compliance); to determine whether any item of business proposed to be brought before the meeting has been properly brought (and to declare that any business not so brought shall be disregarded and not transacted); to establish rules pertaining to reasonable time limits and the amount of time that may be taken up in remarks by any Shareholder or group of Shareholders and otherwise pertaining to the conduct of the meeting; and to otherwise decide all matters relating to the conduct of the meeting. The presiding officer may appoint a parliamentarian and one presiding officer may appoint a parliamentarian and one or more sergeants-at-arms. The parliamentarian may advise the presiding officer upon matters relating to the conduct of the meeting. The sergeant- or sergeants-at-arms shall have authority to take any and all actions that such Persons deem necessary or appropriate to assure that the meeting is conducted with decorum and in an orderly manner, including, without limitation, authority to expel or cause the explosion of any Person who the presiding officer determines is failing to comply with the rules concerning the conduct of, or is otherwise disrupting, the meeting. In advance of any meeting of the Shareholders, the Trustees may appoint any one or more Persons (other than nominees for office) to act as inspectors of election at the meeting or any adjournment thereof. If no inspector of election is so appointed, the presiding officer of the meeting may, and on the request of any Shareholder or his proxy shall, appoint one or more such inspectors of election. The number of inspectors shall be either one (1) or three (3), as determined by the presiding officer; provided, however, that if such inspector(s) 11 12 is or are to be appointed at the meeting on the request of one or more Shareholders or proxies, the holders of a majority of Shares present (in person or by duly executed proxy) shall determine whether one (1) or three (3) inspectors are to be appointed. If the Person appointed as inspector or election fails to appear at the meeting or fails or refuses to act as inspector, the presiding officer of the meeting may, and upon the request of any Shareholder or his proxy shall, appoint a Person to fill that vacancy. The inspectors of election shall: (a) Determine the number of Shares outstanding and the voting power of each, the Shares represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies; (b) Receive votes, ballots or consents; (c) Count and tabulate all vote or consents; (d) Determine and report to the Trust the results of the voting; and (e) Do any other acts that may be proper to conduct the election or vote with fairness to all Shareholders. On the request of the presiding officer of the meeting or of any Shareholder or his proxy, the inspector(s) of election shall make a report in writing of any question or other matter determined by him or them and execute a certificate of any facts found by him or them. If there are three (3) inspectors of election, the decision, act, report or certificate of a majority shall be effective in all respects as the decision, act, report or certificate of the inspectors." SECTION 13. BUSINESS. Except as may be otherwise provided by applicable law, the only business that shall be conducted at any meeting of the Shareholders (other than matters incident to the conduct of the meeting) shall be business brought before the meeting by or at the direction of the Trustees or by a Shareholder who complies with the procedures set forth in this Section 13. Except as otherwise provided by Section 4A of Article III of these Trustees' Regulations or by applicable law, the only business that shall be conducted at any meeting of the Shareholders shall (i) have been specified in the notice of the meeting (or any supplement thereto) given by or at the direction of the Trustees, (ii) otherwise be brought before such meeting by or at the direction of the Trustees or the presiding officer of the meeting, or (iii) be otherwise properly brought before the meeting by or on behalf of a Shareholder who shall have been a Shareholder of record on the record date for such meeting, who shall continue to be entitled to vote thereat, and who shall have complied with the procedures set forth in the remainder of this Section 13. In addition to any and all other applicable requirements, for business to be properly brought before a meeting of the Shareholders by a Shareholder, the 12 13 Shareholder must have given timely notice thereof in writing to the Secretary. To be timely, a Shareholder's notice must be delivered personally or mailed to and received at the principal executive offices of the Trust within ten days of the earlier of (i) the date that notice of the meeting was mailed in accordance with Article III hereof or prior public disclosure of the date of the meeting was made or, (ii) the date that a request for a special meeting was made by a Shareholder in accordance with Section 6 of Article III hereof. A Shareholder's notice to the Secretary shall set forth (i) a description of each item of business the Shareholder proposes to bring before the meeting and the wording of the proposal, if any, to be submitted for a vote of the Shareholders with respect thereto; (ii) the name and address of the Shareholder; (iii) the class and number of Shares held of record, owned beneficially and represented by proxy by such Shareholder as of the record date for the meeting (if such date shall then have been publicly disclosed) and as of the date of such notice; and (iv) all other information that would be required to be included in a proxy statement filed with the SEC if, with respect to any such item of business, such Shareholder were a participant in a solicitation subject to Section 14 of the Exchange Act. SECTION 14. INFORMAL ACTION BY SHAREHOLDERS. Any action required or permitted to be taken at a meeting of Shareholders may be taken without a meeting if there is filed with the records of Shareholders meetings a unanimous written consent which sets forth the action and is signed by each Shareholder entitled to vote on the matter and a written waiver of any right to dissent signed by each Shareholder entitled to notice of the meeting but not entitled to vote at it. ARTICLE IV MISCELLANEOUS SECTION 1. RECORD DATES AND CLOSING OF TRANSFER BOOKS. From time to time the Trustees may fix a future date, not exceeding fifty (50) days preceding the date of any meeting of Shareholders or the date fixed for the payment of any dividend or distribution or for the allotment of rights or when any change or conversion or exchange of Shares is to go into effect, as the record date for the determination of the Shareholders entitled to notice of and to vote at any such meeting or to receive any such dividend or distribution or any allotment of rights or to exercise the rights with respect to any such change, conversion or exchange of Shares. If a time is so fixed only Shareholders of record on the date so fixed shall be entitled to notice of and to vote at such meeting or to receive such dividend or distribution or allotment of rights or to exercise such rights, as the case may be, notwithstanding any transfer of Shares on the books of the Trust after the record date so fixed. 13 14 SECTION 2. INSPECTION OF TRUST RECORDS. The share register or duplicate share register, the books of account, and the minutes of the proceedings of the Shareholders and Trustees shall be open to inspection upon the written demand of any Shareholder to the same extent as is permitted by the laws of Maryland for the inspection of corporate records by corporate shareholders. Such inspection may be made in person or by an agent or attorney and shall include the right to make extracts. Demand of inspection shall be made in writing upon the President, Secretary or Assistant Secretary of the Trust. SECTION 3. INSPECTION OF TRUSTEES' REGULATIONS. The Trustees shall keep at the principal office for the transaction of business of the Trust the original or a copy of the Trustees' Regulations as amended or otherwise altered to date, certified by the Secretary, which shall be open to inspection by the Shareholders at all reasonable times during office hours. SECTION 4. REPRESENTATION OF SHARES OF CORPORATIONS. The Chairman, the President or any Vice-President and the Secretary or Assistant Secretary of the Trust, acting either in person or by a proxy or proxies designated in a written instrument duly executed by said officers, are authorized to vote, represent, and exercise on behalf of the Trust all rights incident to any shares of any corporation standing in the name of the Trust. ARTICLE V SEAL The Trust shall have a seal containing the words: "Starwood Lodging Trust, Maryland, 1969." ARTICLE VI AMENDMENTS SECTION 1. BY SHAREHOLDERS. Except for any change for which a larger vote is required, these Trustees' Regulations may be amended or repealed or new or additional Trustees' Regulations may be adopted by the vote or written consent of Shareholders entitled to exercise a majority of the voting power of the Trust. SECTION 2. BY TRUSTEES. These Trustees' Regulations may be amended or repealed or new or additional Trustees' Regulations may be adopted by the vote or written 14 15 consent of the Trustees. The power hereby delegated may be revoked by the vote or written consent of Shareholders entitled to exercise a majority of the voting power of the Trust. ARTICLE VII DEFINITIONS All terms defined in the Declaration of Trust of Starwood Lodging Trust dated as of August 15, 1969 as amended from time to time shall have the same meaning when used in these Trustees' Regulations. 15 EX-10.1 4 EMPLOYMENT AGREEMENT WITH GARY M. MENDELL 1 Exhibit 10.1 EMPLOYMENT AGREEMENT between STARWOOD LODGING TRUST and GARY M. MENDELL Employment Agreement ("Agreement") dated as of January 15, 1997 between Gary M. Mendell (the "Executive") and Starwood Lodging Trust, a Maryland real estate investment trust (the "Company"), with its principal office at 2231 East Camelback Road, Suite 410, Phoenix, Arizona 85016. WHEREAS, the Company desires to employ the Executive as its President, and the Executive desires to accept such employment, upon the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the agreements and covenants contained herein, the Executive and the Company hereby agree as follows: ARTICLE I. Employment Section 1.01 Position; Responsibilities. (a) The Company hereby employs the Executive commencing on the date hereof (the "Commencement Date") but conditioned on the closing (the date of closing is referred to herein as the "Closing Date") under the Contribution Agreement (the "Contribution Agreement") dated as of January 15, 1997, among the Company, Starwood Lodging Corporation (the "Corporation"), SLT Realty Limited Partnership (the "Realty Partnership"), SLC Operating Limited Partnership (the "Operating Partnership") and the Contributing Parties named therein. The employment hereunder shall be at will and shall be terminable by either party with or without Cause and with or without notice; provided, however, the Executive shall give the Company at least 30 days advance written notice prior to any voluntary termination by the Executive. -1- 2 (b) The Board of Trustees of the Company has elected Executive as President of the Company, effective upon the Closing Date and conditioned on the closing under the Contribution Agreement. The Executive's responsibilities from and after the Closing Date shall include all matters customarily associated with the position of President, including, without limitation, subject to direction by the Chief Executive Officer or the Board (as hereinafter defined), those related to acquisitions, divestitures, finance, financial reporting, SEC compliance and investor relations for the Company and for the Realty Partnership and direct and indirect subsidiaries. The Executive shall perform such duties and services consistent with his position as may be assigned to him from time to time by the Board of Trustees of the Company or any committee of the Board (collectively, the "Board") or by the Chief Executive Officer. (c) The Board has also elected the Executive as a member of the Board effective on the Closing Date but conditioned on the closing under the Contribution Agreement, and the Executive agrees to serve as a member of the Board. (d) The Company will establish an office in Westport, Connecticut, where Executive will perform his duties and responsibilities, and such office will be adequately staffed for that purpose. The Executive will work with the Chief Executive Officer and the Board concerning the appropriate location of the Company's principal executive office and in connection therewith the appropriate relocations and hiring of employees. Section 1.02 Performance of Duties. The Executive shall duly and faithfully perform all of the duties assigned to him to the best of his abilities, and he shall devote his full time, attention and best efforts to the performance of such duties and (subject to Section 4.01) shall not engage in any other business activities except with the prior written approval of the Board. Section 1.03 Representation and Warranty of Executive. The Executive hereby represents and warrants to the Company that the Executive is not aware of any presently existing fact, circumstance or event (including, but without limitation, any health condition or legal constraint) which would preclude or restrict him from providing to the Company the services contemplated by this Agreement, or which would give rise to any -2- 3 breach of any term or provision hereof, or which could otherwise result in the termination of his employment hereunder for Cause. Section 1.04 Representation and Warranty of Company. The Company hereby represents and warrants to Executive that it has received all authorizations necessary for the execution of the Agreement on the terms and conditions set forth herein and for the grant of the Option and the Performance Award as set forth in Section 2.04 hereof and Attachments A and B hereto, that it has taken all actions necessary to make such grants. ARTICLE II. Compensation Section 2.01 General. The Company shall compensate the Executive for all of his services under this Agreement, as set forth below. Section 2.02 Basic Compensation. The Executive's minimum annual salary ("Base Salary") commencing on the Closing Date and conditioned upon the closing under the Contribution Agreement, shall be at the rate of $365,000 and shall be payable in bi-weekly or other installments in accordance with the Company's normal payment schedule for senior management. The Base Salary shall be subject to annual review commencing at the end of 1997 and at the end of each year thereafter, if the Executive is employed by the Company at that time, and may be increased (but not decreased) for subsequent years. Section 2.03 Incentive Compensation. In addition to the Base Salary, the Company shall pay to the Executive as incentive compensation ("Incentive Compensation"), in respect of each fiscal year of the Company which ends during the time when the Executive is employed by the Company, an amount determined in accordance with any bonus or short term incentive compensation program based upon achieving specified performance criteria which may be established by the Board either for the Executive or for senior management generally; provided, however, that in no event may such Incentive Compensation in respect of any fiscal year of the Company exceed 100% of the Executive's Base Salary for that year. All Incentive Compensation earned under this Section 2.03 shall be payable as soon as reasonably practicable, but in no -3- 4 event later than 120 days after the end of the relevant fiscal year of the Company. Section 2.04 Stock Option. On the date hereof, the Option Committee of the Board has granted to the Executive, conditioned upon the closing under the Contribution Agreement, a "Paired Option" (the "Option") under the Starwood Lodging Trust 1995 Long-Term Incentive Plan (Amended and Restated as of August 12, 1996) (the "LTIP") which was approved by a vote by the shareholders of the Company at the Annual Meeting of Shareholders held December 30, 1996. The Option is for the purchase of an aggregate of 200,000 Paired Shares of the Company and the Corporation (before giving effect to the three-for-two stock split by way of a 50% stock dividend declared by the Company on December 5, 1996). The Option is exercisable at $56.125 per Paired Share (which is the Fair Market Value per Paired Share on the date of grant as defined in the LTIP). The Option vests as to 20% of the number of Paired Shares covered thereby on each anniversary of the Closing Date, commencing with the second anniversary (occurring in 1999) through the fourth anniversary (occurring in 2001) of the Closing Date and the balance on the fifth anniversary of the Closing Date (occurring in 2002), except to the extent otherwise provided in the LTIP or the Option Agreement and the Option expires ten years from the Closing Date. The terms of the Option are a set forth in the Option Agreement annexed as Attachment "A," and is otherwise subject to all other provisions of the LTIP, except that (a) termination for Cause and for Good Reason shall be as set forth in and subject to this Agreement and (b) in the event the Executive's employment by the Company shall terminate for any reason other than (i) termination by the Company for Cause, or (ii) termination by the Executive without "Good Reason" prior to the first anniversary of the Closing Date or after 18 months from the Closing Date, all unvested portions of the Option shall thereupon immediately vest and remain exercisable until expiration of the full ten-year term of the Option. In addition, the Committee has concurrently granted to the Executive a Performance Award under the LTIP relating to all Paired Shares underlying the Option, the terms of which are set forth on the Term Sheet annexed as Attachment "B". The Performance Period under the Performance Award shall be the five year period commencing on December 5, 1996; and the Performance Measure shall be a 15% Shareholder Return over the Performance Period. The Executive shall be eligible for grants in the future of additional Paired Options, Paired Shares and -4- 5 Performance Awards under the LTIP at the discretion of the Option Committee of the Board. Upon exercise of any option, all Paired Shares delivered pursuant thereto will be subject to applicable resale and other restrictions as set forth in the LTIP. The Company shall use its best efforts to file and keep effective a registration statement on Form S-8 with the Securities and Exchange Commission covering the Paired Shares issuable under the LTIP. Section 2.05 Other Programs. The Executive shall also be entitled to participate in all employee benefit plans, including retirement programs, if any, and group health care plans, and to take time off for vacation or illness in accordance with the Company's policy for senior management. Such plans shall be comparable to those of the Corporation, and the Executive shall be entitled to such participation on a basis no less favorable to the Executive than is made available to the Chief Executive Officer of the Corporation; provided, however that the foregoing shall not apply to the LTIP or any other stock award, stock option or other stock derivative or equity based plan or program. The Executive shall also receive not less than four weeks paid vacation and all other fringe benefits as are from time to time made generally available to the senior management of the Company. Section 2.06 Expense Reimbursements. The Company shall reimburse the Executive for all proper expenses incurred by him in the performance of his duties hereunder in accordance with the policies and procedures established by the Company. Section 2.07 Withholding. The Base Salary and all other payments to the Executive for his services to the Company shall be subject to all withholding and deductions required or permitted by federal, state or other law, including those authorized by the Executive but not otherwise required by law, including but not limited to state, federal and local income taxes, unemployment tax, Medicare, FICA and any contributions pursuant to any employee benefit program which may be adopted by the Company for the benefit of its senior executives. ARTICLE III. Termination of Employment Section 3.01 Events of Termination. The Executive's employment by the Company is at will. Accordingly, it may be -5- 6 terminated at any time by the Company or the Executive with or without Cause (subject to compliance with applicable notice provisions of this Article III and Section 1.01 above). As stated in Section 1.01 above, Executive may terminate his employment hereunder at any time for any reason by delivering to the Company 30 days' advance written notice of termination. In addition, Executive may resign and terminate his employment hereunder for "Good Reason" (which shall also be deemed a termination by the Company other than for Cause), subject, however, to prior delivery to the Company of a Preliminary Notice of Good Reason and the failure of the Company to effect a cure within the time set forth below. For purposes of this Agreement, "Good Reason" means (i) the failure to elect and continue Executive as President of the Company or to nominate Executive for re-election as a member of the Board, (ii) the failure to assign Executive duties, authorities, responsibilities and reporting requirements consistent with his position and otherwise as set forth herein, or if the scope of Executive's duties and responsibilities as President of the Company are in the aggregate materially reduced, except for any reduction in duties and responsibilities due to Executive's illness or disability or temporary suspensions of duties and responsibilities pending results of any Board commissioned investigation as to potential "Cause" for termination of Executive's employment, (iii) a reduction in or a delay in the payment of Executive's total cash compensation and benefits from those required to be provided in accordance with the provisions of this Agreement, or a breach by the Company of any other material provision of this Agreement or the Option or Performance Award referred to in Section 2.04, (iv) a requirement by the Company, the Board or the Chief Executive Officer that Executive be based outside of Westport, Connecticut, other than on travel reasonably required to carry out Executive's obligations under the Agreement or, (v) the failure of the Company to obtain the assumption in writing of its obligations to perform this Agreement by any successor to all or substantially all of the assets of the Company within 15 days after a merger, consolidation, sale or similar transaction; provided, however, that (a) "Good Reason" shall not include acts which are cured by the Company within 30 days from receipt by the Company of a written notice from Executive (the "Preliminary Notice of Good Reason") identifying in reasonable detail the act or acts constituting "Good Reason", (b) "Good Reason" shall not exist unless the Preliminary Notice of Good Reason shall have been -6- 7 given by Executive within 60 days after learning of the act, failure or event (or, in the case of a series of related acts, failures or events, within 120 days of the first such act, failure or event) which Executive alleges constitutes "Good Reason" hereunder, (c) if the Company has failed to cure as provided above, "Good Reason" shall not exist unless Executive shall have given notice of termination hereunder for Good Reason within 60 days from delivery of the Preliminary Notice of Good Reason (which termination shall be effective 30 days from the giving of such notice), and (d) if the Company has commenced an expedited arbitration in the manner prescribed below within 15 days after receipt of the Executive's notice of termination, such termination shall be effective as a termination of employment and shall be deemed a termination by Executive other than for Good Reason unless and until the Arbitrator shall have determined otherwise. If the Company has timely commenced such an arbitration proceeding, in the manner prescribed below, no payments shall be due Executive under Section 3.02 (i) or (ii) hereof until the conclusion of the arbitration proceeding or further proceeding contemplated by Section 5.04 hereof and only if an award is rendered by the Arbitrator in favor of Executive. If the Company fails to file a demand for arbitration with the American Arbitration Association and file the requisite fees pursuant to Rule 4 of the National Rules for the Resolution of Employment Disputes effective June 1, 1996 (the "National Rules") within 15 days after receipt of notice of termination from the Executive, and diligently pursue such proceeding in accordance with the procedures set forth in Section 5.04 hereof, Executive's termination of employment from the Company shall be conclusively presumed to have been for Good Reason. The Company shall have the right to terminate for "Cause" upon notice to the Executive only in the event of (a) a material breach of this Agreement by the Executive, including without limitation, a willful failure by the Executive (other than any such failure resulting from Executive's incapacity due to physical or mental illness) substantially to perform his duties hereunder (not including, however, failure to meet performance targets or exercise of the Executive's rights to terminate during the Window Period (as hereinafter defined)), after being notified in writing by the Company of the particular acts or circumstances of such breach and the Executive's failure to cure within 30 days thereafter, (b) the commission by the Executive of one or more acts of theft, fraud or willful, material misappropriation from -7- 8 the Company, (c) a breach by the Executive of his fiduciary duties under Maryland laws as an officer or member of the Board of the Company, or (d) Executive's conviction of a felony. Notwithstanding the foregoing, termination by the Company for Cause shall not be effective until and unless (i) notice of intention to terminate for Cause has been given by the Company within four months after the Board learns of the act, failure or event constituting "Cause" and (ii) the Board has voted (at a meeting of the Board duly called and held as to which termination of Executive is an agenda item) by a majority vote to terminate Executive for Cause after Executive has been given notice of the particular acts or circumstances which are the basis for the termination for Cause and has been afforded at least 20 days notice of the meeting and an opportunity to present his position in writing and the Board has given notice of termination to Executive within three days thereafter (and the Executive's termination of employment shall be effective immediately upon receipt of such notice but shall not be deemed a termination of employment for Cause unless and until all of the conditions set forth in clauses (i) through (iii) hereof have occurred), and (iii) if Executive has commenced an expedited arbitration in the manner prescribed below within 15 days after such notice of termination, disputing the Company's right under this Agreement to terminate for Cause, the Arbitrator shall thereafter have determined that the Executive was terminated for Cause; provided, however, that (a) Company may suspend the Executive with pay at any time during the period commencing with the giving of notice to Executive under clause (i) above until final notice of termination is given under clause (ii) above; and (b) no further payments shall be due Executive under Section 3.02 hereof unless and until the Arbitrator shall have determined that the Executive was terminated without Cause. If Executive or his representative fails to file a demand for arbitration with the American Arbitration Association and file the requisite fees pursuant to Rule 4 of the National Rules within 15 days of receipt of notice of termination from the Board, and diligently pursue such proceeding in accordance with the procedures set forth in Section 5.04 hereof, such termination shall be conclusively presumed to have been for Cause. If the Arbitrator declines to rule that the Executive was terminated for Cause, the Executive shall be treated as having been terminated without Cause and Executive shall have the rights -8- 9 provided under Section 3.02 below with respect to a termination without Cause. For all purposes of this Agreement, "Good Reason" and "Cause" shall have the applicable defined meaning as set forth above in this Section 3.01. Upon any termination of his employment by the Company or by Executive, Executive will concurrently resign his membership, if any, on the Board. Section 3.02 Severance Package. In the event the Executive's employment under this Agreement is terminated by the Company other than for "Cause" (and a termination due to the Executive's death or permanent disability shall be treated for purposes of this Agreement as a termination by the Company other than for Cause) or by the Executive for "Good Reason", or by the Executive without "Good Reason" during the six month period (the "Window Period") commencing with the first anniversary of the Closing Date, then the Executive shall, subject to the delays permitted by Section 3.01 for arbitration, be entitled to receive the following ("Severance Package"): (i) an amount, which shall be payable in one lump sum within 30 days of the date of determination that the Executive's termination is (x) other than for Cause, (y) for Good Reason, or (z) without Good Reason during the Window Period, as applicable, equal to (a) one year's Base Salary based on the Base Salary then in effect plus (b) if the termination occurs prior to the third anniversary of the Commencement Date an amount equal to the greater of 70% of the Executive's Base Salary for the first year of his employment hereunder or the actual bonus for the immediately preceding year; (ii) the immediate vesting of the Option granted pursuant to Section 2.04 hereof (and the Performance Period with respect to such Award shall terminate on the effective date of Executive's termination of employment and the Performance Measure shall be computed through such date), with preservation of all rights relating to the Option and the Performance Award conferred under Section 2.04 hereof, and under the Option Agreement and the Term Sheet, for the full term of the Option and Performance Award and, following timely exercise of any such options, the Executive shall receive title to the shares issued in respect of such -9- 10 options free and clear of any lien, claim or encumbrance by, through or under the Company; (iii) Company paid medical insurance benefits available to all other senior executives of the Company during the 12-month period subsequent to termination of employment shall be paid by the Company, and thereafter all COBRA rights available to the Executive shall be paid by the Executive, but COBRA rights shall be measured from the termination date. During any delays permitted by Section 3.01 for arbitration to determine whether the Executive's termination by the Company was other than for "Cause" or by the Executive for "Good Reason," if a Corporate Transaction is agreed to which would constitute a Change of Control event under the LTIP, the Company will include appropriate provisions which Will enable the Executive to participate in such Change of Control event as if the arbitration were resolved favorably to the Executive, but subject to such a favorable resolution. The parties agree that the foregoing shall be the Executive's sole and exclusive monetary remedy by reason of termination by the Executive for "Good Reason", or without Good Reason during the Window Period, or by reason of any termination by the Company other than for "Cause", it being agreed that as his actual damages would be difficult to measure or quantify and would be impracticable to determine, such amount shall constitute liquidated damages for the Executive by reason of such termination by Executive for "Good Reason", or without Good Reason during the Window Period, or by reason of any termination by the Company other than for "Cause". Section 3.03 Rights on Termination for Cause or Without Good Reason. No Severance Package shall be due or owing to the Executive in the event that the Company shall terminate the Executive's employment for "Cause" or in the event that the Executive shall terminate his employment with the Company (other than during the Window Period) for reasons other than "Good Reason"; provided, however that Executive shall in all events be paid all accrued but unpaid Base Salary, awarded but unpaid Incentive Compensation, and other benefits through the date of termination. In addition, in the event that the Company shall terminate the Executive's employment for "Cause" or in the event that the Executive shall terminate his employment with the -10- 11 Company (other than during the Window Period) for reasons other than "Good Reason", then except as provided in the following two sentences, all unvested options, unvested Performance Awards and unvested restricted Paired Shares then held by Executive shall automatically be forfeited (subject, however, to any contrary determination of the Board in its sole discretion). No forfeiture of unvested Options, Performance Awards or unvested restricted Paired Shares shall occur until 15 days after the later of (i) the conclusion of any arbitration proceeding or further proceeding contemplated by Section 3.01 hereof or, (ii) if no arbitration proceeding is commenced, until the time for commencing such a proceeding has lapsed (the later of such two dates being referred to herein as the "Forfeiture Date"), but no additional service-based or time-based vesting shall occur with respect to any such Options, Performance Awards or Paired Shares following the date Executive's employment is deemed terminated under Section 3.01. Executive may exercise vested Options, and receive a settlement of vested Performance Awards at any time prior to the Forfeiture Date. In all other respects, the terms of the grant of any such options or award of any such Paired Shares shall govern. ARTICLE IV. Noncompetition; Confidential Information Section 4.01 Other Business Ventures. In addition to the restriction from having other employment provided in Section 1.02 hereof and except as expressly contemplated by Article VI below, during the term of the Executive's employment hereunder the Executive shall not, without the prior written approval of the Board, directly or indirectly engage in, represent, be connected with or have a financial interest in any business which is or, to the best of his knowledge, is about to become competitive with the business of the Company; provided, however, that nothing herein contained shall be deemed to prohibit the Executive from being a passive investor owning up to 2% of any class of outstanding securities of any company not in the business of owning or operating hotels whose stock is publicly traded, or from continuing (for a period of up to three years from the Closing Date) as a director, President and as an owner of equity in Hospitality Equity Investors, Inc., a Connecticut corporation. The Company shall have a right of first refusal with respect to Executive's interest in Hospitality Equity Investors, Inc., which shall be exercisable for thirty days after receipt by the Company -11- 12 of notice from Executive of a proposed transfer and the material terms thereof; and Executive and Company will promptly enter into a definitive right of first refusal agreement in customary form reflecting the foregoing. Notwithstanding any other provision of this Agreement, the performance by Executive of his duties with respect to Hospitality Equity Investors, Inc., and with respect to the partnerships for which it acts as general partner during the three-year period commencing on the Closing Date shall not be a basis for finding the Executive in breach of this Agreement so long as such corporation and partnerships do not acquire new properties, and Executive's time devoted to the affairs of such entities is limited to the amount reasonably necessary to discharge his fiduciary duties to the investors in such entities. Section 4.02 Confidential Information. Except (i) in the course of his employment with the Company, or (ii) as he may be required pursuant to any law or court order or similar process, the Executive shall not at any time during or after the term of the Executive's employment hereunder, directly or indirectly disclose or use any confidential information or proprietary data with respect to the Company or the Corporation, or any of their respective subsidiaries or affiliates that is not otherwise in the public domain. In the event of any dispute between the Executive and the Company or between the Executive or the Company and others, the Executive shall cooperate with the Company as to redaction or other protective measures with respect to any unnecessary public disclosure of any such confidential information or proprietary data. Section 4.03 Inducing of Company Employees. During the term of the Executive's employment hereunder, the Executive shall not, except in the course of the performance of his duties hereunder or with the prior approval of the Board, in any way directly or indirectly induce or attempt to induce or otherwise counsel, advise or encourage any person to leave the employ of the Company. In addition, in the event of termination of Executive's employment, the Executive shall not, with respect to any person or persons who to the Executive's best knowledge was employed by the Company, the Corporation, or their respective subsidiaries or the Realty Partnership or the Operating Partnership ("Company Employee") at any time during the period commencing six months prior to such termination: -12- 13 (i) for a period of 12 months following the date on which such termination becomes effective as aforesaid, in any way directly or indirectly hire, attempt to hire, or cause to be hired any Company Employee, without the prior written approval of the Board; and (ii) for a period of 12 months following the date on which such termination becomes effective as aforesaid, in any way directly or indirectly induce or attempt to induce or otherwise counsel, advise or encourage any Company Employee to leave the employment of the Company or the Corporation or their respective subsidiaries or the Realty Partnership or the operating Partnership, without the prior written approval of the Board. ARTICLE V. Miscellaneous Section 5.01 Notices. All notices, requests or other communications provided for in this Agreement shall be made, if to the Company, to the Secretary of the Company at the Company's principal executive office, and if to the Executive, to his address on the books of the Company (or to such other address as the Company or Executive may give to the other for purposes of notice hereunder). Copies of all notices given to Executive shall be sent to: Willkie Farr & Gallagher One Citicorp Center 153 East 53rd Street New York, NY 10022-4677 Attention: Bruce M. Montgomerie, Esq. Copies of all notices given to the Company shall be sent to: Sidley & Austin 555 W. 5th St. Los Angeles, CA 90013-1010 Attention: Sherwin L. Samuels, Esq. All notices, requests or other communications provided for in this Agreement shall be made in writing either (a) by personal -13- 14 delivery to the party entitled thereto, (b) by facsimile with confirmation of receipt, (c) by mailing in the United States mails to the last known address of the party entitled thereto or (d) by express courier service. The notice, request or other communication shall be deemed to be received upon personal delivery, upon confirmation of receipt of facsimile transmission or upon receipt by the party entitled thereto if by United States mail or express courier service; provided, however, that if a notice, request or other communication is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company. Section 5.02 Assignment and Succession. The rights and obligations of the Company under this Agreement shall inure to the benefit of and be binding upon its successors and assigns. The Executive's rights and obligations hereunder are personal and may not be assigned; provided, however that in the event of the termination of the Executive's employment due to the Executive's death or permanent disability, the Executive's legal representative shall have the right to receive the Severance Package as more particularly set forth in Section 3.02 above. Section 5.03 Headings. The Article, Section , paragraph and subparagraph headings are for convenience of reference only and shall not define or limit the provisions hereof. Section 5.04 Arbitration. In the event of any controversy, dispute or claim arising out of or related to this Agreement or the Executive's employment by the Company, the parties shall negotiate in good faith in an attempt to reach a mutually acceptable settlement of such dispute. If negotiations in good faith do not result in a settlement of any such controversy, dispute or claim, it shall be finally settled by expedited arbitration in accordance with the National Rules of the American Arbitration Association governing employment disputes, subject to the following: (a) The Arbitrator shall be determined from a list of names of five impartial arbitrators each of whom shall be an attorney experienced in arbitration matters concerning executive employment disputes, supplied by the American Arbitration Association (the "Association") chosen by Executive and the Company each in turn striking a name from the list until one name remains. -14- 15 (b) The expenses of the arbitration shall be borne equally by each party; and each party shall bear its own legal fees and expenses, except that Executive shall be awarded his reasonable attorney's fees and expenses if an award is rendered by the Arbitrator in his favor. (c) The Arbitrator shall determine whether and to what extent any party shall be entitled to damages under this Agreement. No party shall be entitled to punitive damages, and each party waives all such rights if any. (d) The Arbitrator shall not have the power to add to nor modify any of the terms or conditions of the this Agreement. The Arbitrator's decision shall not go beyond what is necessary for the interpretation and application of the provision of this Agreement in respect of the issue before the Arbitrator. The Arbitrator shall not substitute his or her judgment for that of the parties in the exercise of rights granted or retained by this Agreement. The Arbitrator's award or other permitted remedy, if any, and the decision shall be based upon the issue as drafted and submitted by the respective parties and the relevant and competent evidence adduced at the hearing. (e) The Arbitrator shall have the authority to award any remedy or relief provided for in this Agreement, in addition to any other remedy or relief (including provisional remedies and relief) that a court of competent jurisdiction could order or grant. In addition, the Arbitrator shall have the authority to decide issues relating to the interpretation, meaning or performance of this Agreement even if such decision would constitute an advisory opinion in a court proceeding or if the issues would otherwise not be ripe for resolution in a court proceeding, and any such decision shall bind the parties in their continuing performance of this Agreement. The Arbitrator's written decision shall be rendered within sixty days of the hearing. The decision reached by the Arbitrator shall be final and binding upon the parties as to the matter in dispute. To the extent that the relief or remedy granted by the Arbitrator is relief or remedy on which a court could enter judgment, a judgment upon the award rendered by the Arbitrator shall be entered in any court having jurisdiction thereof (unless in the case of an award of damages, the full amount of the award is paid within 10 days of its determination by the Arbitrator). Otherwise, the award shall be binding on the parties in -15- 16 connection with their continuing performance of this Agreement and in any subsequent arbitral or judicial proceedings between the parties. (f) The arbitration shall take place in New York City or in the locale of the Company's executive office in Connecticut, as elected by the party commencing arbitration. (g) The arbitration proceeding and all filing, testimony, documents and information relating to or presented during the arbitration proceeding shall be disclosed exclusively for the purpose of facilitating the arbitration process and for no other purpose and shall be deemed to be information subject to the confidentiality provisions of this Agreement. (h) The parties shall continue performing their respective obligations under this Agreement notwithstanding the existence of a dispute while the dispute is being resolved unless and until such obligations are terminated or expire in accordance with the provisions hereof. (i) The parties may obtain a pre-hearing exchange of information including depositions, interrogatories, production of documents, exchange of summaries of testimony or exchange of statements of position, and the Arbitrator shall limit such disclosure to avoid unnecessary burden to the parties and shall schedule promptly all discovery and other procedural steps and otherwise assume case management initiative and control to effect an efficient and expeditious resolution of the Dispute. At any oral hearing of evidence in connection with an arbitration proceeding, each party and its counsel shall have the right to examine its witness and to cross-examine the witnesses of the other party. No testimony of any witness shall be presented in written form unless the opposing party or parties shall have the opportunity to cross-examine such witness, except as the parties otherwise agree in writing. (j) Notwithstanding the dispute resolution procedures contained in this Section 5.04, either party may apply to any court having jurisdiction (i) to enforce this Agreement to arbitrate, (ii) to seek provisional injunctive relief so as to maintain the status quo until the arbitration award is rendered or the Dispute is otherwise resolved, or (iii) to challenge or vacate any final judgment, award or decision of the Arbitrator -16- 17 that does not comport with the express provisions of this Section 5.04. Section 5.05 Invalidity. If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect under any law, the validity, legality or enforceability of the remaining provisions hereof shall not in any way be affected or impaired. Section 5.06 Waivers. No omission or delay by either party hereto in exercising any right, power or privilege hereunder shall impair such right, power or privilege, nor shall any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof, or the exercise of any other right, power or privilege. Section 5.07 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Section 5.08 Entire Agreement. This Agreement contains the entire understanding of the parties and supersedes all prior agreements and understandings relating to the subject matter hereof. No representation, promise or inducement has been made by either party hereto that is not embodied in this Agreement and neither party shall be bound by or liable for any alleged representation, promise or inducement not set forth herein. This Agreement may not be amended, except by a written instrument hereafter signed by each of the parties hereto. Section 5.09 Interpretation. The parties hereto acknowledge and agree that each party and its or his counsel reviewed and negotiated the terms and provisions of this Agreement and have contributed to-its drafting. Accordingly, (i) the rules of construction to the effect that any ambiguities are resolved against the drafting party shall not be employed in the interpretation of this Agreement, and (ii) the terms and provisions of this Agreement shall be construed fairly as to all parties hereto and not in favor of or against any party regardless of which party was generally responsible for the preparation of this Agreement. -17- 18 Section 5.10 Governing-Law. This Agreement and the performance hereof shall be construed and governed in accordance with the internal laws of the State of New York without reference to principles of conflict of laws. Section 5.11 Disclaimer. The name "Starwood Lodging Trust" is the designation of a Maryland real estate investment trust and its Trustees (as Trustees but not personally) under a Declaration of Trust dated August 25, 1969, as amended and restated, and all persons dealing kith Starwood Lodging Trust must look solely to Starwood Lodging Trust's property for the enforcement of any claims against Starwood Lodging Trust, as the Trustees, officers, agents and security holders of Starwood Lodging Trust assume no personal obligations of Starwood Lodging -18- 19 Trust, and their respective property shall not be subject to claims of any person relating to such obligation. IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by its duly authorized officer and the Executive has signed this Agreement as of the day and year first above written. STARWOOD LODGING TRUST By: ---------------------------- Name: -------------------------- Its: --------------------------- ------------------------------- GARY M. MENDELL -19- 20 Execution Copy Attachment "A" to Employment Agreement between Starwood Lodging Trust and Gary M. Mendell dated January 15, 1997 STARWOOD LODGING TRUST NON-QUALIFIED STOCK OPTION AGREEMENT Starwood Lodging Trust, a trust organized under the laws of Maryland (the "Company"), hereby grants to Gary M. Mendell (the "Optionee") as of January 15, 1997 (the "Option Date"), pursuant to the provisions of the Starwood Lodging Trust 1995 Long-Term Incentive Plan (Amended and Restated as of August 12, 1996) (the "Plan"), a non-qualified option (the "Option") to purchase from the Company 200,000 Paired Shares (before giving effect to the three-for-two stock split by way of a 50% stock dividend declared by the Company on December 5, 1996), at the price of $56.125 per Paired Share upon and subject to the terms and conditions set forth below. References to employment by the Company shall include employment by a subsidiary or affiliate of the Company. Capitalized terms not defined herein or in the Employment Agreement entered into between Optionee and the Company dated January 15, 1997 (the "Employment Agreement") shall have the meanings specified in the Plan. This grant of the Option is subject to and conditioned upon the closing under the Contribution Agreement dated as of January 15, 1997 (the "Contribution Agreement") among the Company, Starwood Lodging Corporation, SLT Realty Limited Partnership, SLC Operating Limited Partnership and the Contributing Parties named therein. (The date of such closing is referred to herein as "the Closing Date".) 1. Option Subject to Acceptance of Agreement. The Option may not be exercised unless the optionee shall accept this Agreement by executing it in the space provided below and returning such original execution copy to the Company. 2. Time and Manner of Exercise of Option. 21 2.1. Maximum Term of Option. In no event may the option be exercised, in whole or in part, after ten years from Closing Date (the "Expiration Date"). 2.2. Exercise of Option. (a) The Option shall become exercisable as to one-fifth of the number of Paired Shares subject to the Option on each anniversary of the Closing Date, commencing with the second anniversary (occurring in 1999) through the fourth anniversary (occurring in 2001) of the Closing Date, and the balance on the fifth anniversary of the Closing Date (occurring in 2002), and otherwise as provided below in this Section 2.2. (b) If the Optionee's employment by the Company terminates for Cause, the Option, whether or not then exercisable, shall terminate automatically on the effective date of the Optionee's termination of employment for Cause. For purposes of this Section 2.2, optionee shall only be deemed terminated by the Company for Cause if his termination for Cause has become effective under and pursuant to the Employment Agreement (but, as provided in the Employment Agreement, only upon the conclusion of an arbitration proceeding, if it is timely commenced in accordance with such Agreement). (c) If the Optionee's employment by the Company is terminated by the Company other than for "Cause" within the meaning of Section 2.2(b) hereof (and a termination due to Executive's death or Disability shall be treated for purposes of this Agreement as a termination by the Company other than for "Cause" , or if the Optionee's employment by the Company is terminated by the Optionee for "Good Reason" as determined in accordance with the provisions of the Employment Agreement, or by the Optionee during the "Window Period" as permitted under the Employment Agreement, then the Option shall become fully exercisable and may thereafter be exercised by the Optionee or the Optionee's Legal Representative until and including the Expiration Date. (d) If the Optionee's employment by the Company is treated (after giving effect to any arbitration proceeding) as having been terminated by the Optionee without Good Reason (except during the "Window Period") under the Employment Agreement, the Option shall be exercisable only to the extent it is exercisable on the effective date of the Optionee's termination of employment and may thereafter be exercised by the 2 22 Optionee or the Optionee's Legal Representative until and including the earlier of (i) the date which is three months after the effective date of the Optionee's termination of employment or service (or, if later, the date which is 15 days after the Forfeiture Date) and (ii) the Expiration Date. (e) If the Optionee dies at any time prior to the Expiration Date following termination of employment for a reason giving Optionee the right to exercise until the Expiration Date under paragraph (c) above, the Option shall be exercisable by the Optionee's Legal Representative or Permitted Transferees, as the case may be, until and including the Expiration Date. 2.3 Method of Exercise. Subject to the limitations set forth in this Agreement, the Option may be exercised by the Optionee (1) by giving written notice to the Company specifying the number of whole Paired Shares to be purchased and accompanied by payment therefor in full (or arrangement made for such payment to the Company's satisfaction) either (i) in cash, (ii) previously owned whole Paired Shares (which the Optionee has held for at least six months prior to the delivery of such Paired Shares or which the Optionee purchased on the open market and for which the Optionee has good title, free and clear of all liens and encumbrances) having a fair market value, determined as of the date of exercise, equal to the aggregate purchase price payable pursuant to the Option by reason of such exercise, (iii) in cash by a broker-dealer acceptable to the Company to whom the Optionee has submitted an irrevocable notice of exercise or (iv) a combination of (i) and (ii), and (2) by executing such documents as the Company may reasonably request. The Committee shall have sole discretion to disapprove of an election pursuant to either clause (ii) or (iii). Any fraction of a Paired Share which would be required to pay such purchase price shall be disregarded and the remaining amount due shall be paid in cash by the Optionee. No certificate representing a Paired Share shall be delivered until the full purchase therefor has been aid. 2.4 Termination of Option. (a) In no event may the Option be exercised after it terminates as set forth in this Section 2.4. The Option shall terminate, to the extent not exercised pursuant to Section 2.3 or earlier terminated pursuant to Section 2.2, on the Expiration Date. (b) In the event that rights to purchase all or a portion of the Paired Shares subject to the Option expire or are 3 23 exercised, cancelled or forfeited, the Optionee shall promptly return this Agreement to the Company for full or partial cancellation, as the case may be. Such cancellation shall be effective regardless of whether the Optionee returns this Agreement. If the Optionee continues to have rights to purchase Paired Shares hereunder, the Company shall, within 10 days of the Optionee's delivery of this Agreement to the Company, either (i) mark this Agreement to indicate the extent to which the Option has expired or been exercised, cancelled or forfeited or (ii) issue to the Optionee a substitute option agreement applicable to such rights, which agreement shall otherwise be identical to this Agreement in form and substance. 3. Additional Terms and Conditions of Option. 3.1. Nontransferability of Option. The Option may not be transferred by the Optionee other than (i) by will or the laws of descant and distribution or pursuant to beneficiary designation procedures approved by the Company or (ii) as otherwise permitted under Rule 16b-3 under the Exchange Act. Except to the extent permitted by the foregoing sentence, during the Optionee's lifetime the Option is exercisable only by the Optionee or the Optionee's Legal Representative. Except as permitted by the foregoing, the Option may not be sold, transferred, assigned, pledged, hypothecated, voluntarily encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate, voluntarily encumber or otherwise dispose of the option, the Option and all rights hereunder shall, to the extent of any such attempt, immediately become null and void. 3.2. Investment Representation. The optionee hereby represents and covenants that (a) any Paired Shares purchased upon exercise of the Option will be purchased for investment and not with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), unless such purchase has been registered under the Securities Act and any applicable state securities laws; (b) any subsequent sale of any such Paired Shares shall be made either pursuant to an effective registration statement under the Securities Act and any applicable state securities laws, or pursuant to an exemption from registration under the Securities Act and such state securities laws; and (c) if requested by the Company, the Optionee shall submit a written statement, in form satisfactory 4 24 to the Company, to the effect that such representation (x) is true and correct as of the date of purchase of any Paired Shares hereunder or (y) is true and correct as of the date of any sale of any such Paired Shares, as applicable. As a further condition precedent to any exercise of the Option, the optionee shall comply with all regulations and requirements of any regulatory authority having control of or supervision over the issuance or delivery of the Paired Shares and, in connection therewith, shall execute any documents which the Board or the Committee shall in its sole discretion deem necessary or advisable. 3.3. Withholding Taxes. (a) As a condition precedent to the delivery of Paired Shares upon exercise of the Option, the Optionee shall, upon request by the Company, pay to the Company in addition to the purchase price of the Paired Shares, such amount of cash as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the "Required Tax Payments") with respect to such exercise of the Option. If the Optionee shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to the Optionee. (b) The Optionee may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company pursuant to Section 3.3(a), (2) delivery to the Company of previously owned whole Paired Shares (which the Optionee has held for at least six months prior to the delivery of such Paired Shares or which the Optionee purchased on the open market and for which the Optionee has good title, free and clear of all liens and encumbrances) having a fair market value, determined as of the date the obligation to withhold or pay taxes first arises in connection with the Option (the "Tax Date"), equal to the Required Tax Payments, (3) a cash payment by a broker-dealer acceptable to the Company to whom the Optionee has submitted an irrevocable notice of exercise or (4) any combination of (1) and (2). The Committee shall have sole discretion to disapprove of an election pursuant to any of clauses (2)-(4). Paired Shares to be delivered may not have a Fair Market Value in excess of the minimum amount of the Required Tax Payments. Any fraction of a Paired Share which would be required to satisfy any such obligation shall be disregarded and the remaining amount due shall be paid in cash by the Optionee. No certificate representing a Paired Share shall 5 25 be delivered until the Required Tax Payments have been satisfied in full. (c) Unless the Committee otherwise determines, if the optionee is subject to Section 16 of the Exchange Act, the Optionee may deliver to the Company previously owned whole Paired Shares in accordance with Section 3.3(b), but only if such delivery is in connection with the delivery of Paired Shares in payment of the exercise price of the option. 3.4 Adjustment. In the event of any stock split, stock dividend (including, without limitation, the three-for-two stock split by way of a 501 stock dividend declared by the Company on December 5, 1996), recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Paired Shares other than a regular cash dividend, the number and class of securities subject to the Option and the purchase price per security shall be appropriately adjusted by the Committee without an increase in the aggregate purchase price. If any adjustment would result in a fractional security being subject to the Option, the Company shall pay the Optionee, in connection with the first exercise of the Option, in whole or in part, occurring after such adjustment, an amount in cash determined by multiplying (i) the fraction of such security (rounded to the nearest hundredth) by (ii) the excess, if any, of (A) the fair market value of a Paired Share on the exercise date over (B) the exercise price of the Option. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive. 3.5. Compliance with Applicable Law. The Option is subject to the condition that if the listing, registration or qualification of the Paired Shares subject to the Option upon any securities exchange or under any law, or the consent or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the purchase or delivery of Paired Shares hereunder, the Option may not be exercised, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company agrees to use reasonable efforts to effect or obtain any such listing, registration, qualification, consent or approval. 6 26 3.6. Delivery of Certificates. Upon the exercise of the Option, in whole or in part, the Company shall deliver or cause to be delivered one or more certificates representing the number of Paired Shares purchased against full payment therefor. The Company shall pay all original issue or transfer taxes and all fees and expenses incident to such delivery, except as otherwise provided in Section 3.3. 3.7. Option Confers No Rights as Stockholder. The Optionee shall not be entitled to any privileges of ownership with respect to Paired Shares subject to the Option unless and until purchased and delivered upon the exercise of the option, in whole or in part, and the Optionee becomes a stockholder of record with respect to such delivered Paired Shares; and the Optionee shall not be considered a stockholder of the Company or the Corporation with respect to any such Paired Shares not so purchased and delivered. 3.8. Option Confers No Rights to Continued Employment. In no event shall the granting of the Option or its acceptance by the optionee give or be deemed to give the Optionee any right to continued employment by the Company or any affiliate of the Company. 3.9. Decisions of Board or Committee. The Board or the Committee shall have the right to resolve all questions which may arise in connection with the Option or its exercise. Any interpretation, determination or other action made or taken by the Board or the Committee regarding the Plan or this Agreement shall be final, binding and conclusive (subject to the provisions for termination by the Company for Cause and termination by the Optionee for Good Reason or without Good Reason during the window Period as set forth in the Employment Agreement). 3.10. Company to Reserve Paired Shares. The Company shall at all times prior to the expiration or termination of the Option reserve or cause to be reserved and keep or cause to be kept available, either in its treasury or out of its authorized but unissued Paired Shares, the full number of Paired Shares subject to the Option from time to time. 3.11. Agreement Subject to the Plan. Except to the extent otherwise expressly provided herein, this Agreement is subject to the provisions of the Plan and shall be interpreted in 7 27 accordance therewith. The Optionee hereby acknowledges receipt of a copy of the Plan. 3.12. Gross-Up. In the event that a Change in Control as defined in the Plan has occurred, and the aggregate of all payments or benefits made or provided to the Optionee under this Agreement, the Employment Agreement and under all other plans and programs of the Company (the "Aggregate Payment") is determined by the Internal Revenue Service ("IRS") or by the "Auditor" (as hereinafter defined) to constitute a Parachute Payment, as such term is defined in Section 28OG(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code"), the Company shall pay to the Optionee, prior to the time any excise tax imposed by Section 4999 of the Code ("Excise Tax") is payable with respect to such Aggregate Payment, an additional amount which, after the imposition of all income and excise taxes thereon, is equal to the Excise Tax on the Aggregate Payment. In no event shall the Company be obligated to pay the Optionee's income taxes due with respect to his exercise of the Option or with respect to payments or benefits received under any Performance Awards or under any other plans or programs of the Company. Unless a determination is made by the IRS, the determination of whether the Aggregate Payment constitutes a Parachute Payment and, if so, the amount to be paid to the Executive and the time of payment pursuant to the preceding sentence of this Section 3.12 shall be made by the accounting firm of Coopers & Lybrand (the "Auditor"). 4. Miscellaneous Provisions. 4.1. Designation as Non-Qualified Stock Option. The Option is hereby designated as not constituting an "incentive stock option" within meaning of section 422 of the Internal Revenue Code of 1986, as amended (the "Code"); this Agreement shall be interpreted and treated consistently with such designation. 4.2. Meaning of Certain Terms. (a) As used herein, the term "Legal Representative" shall include an executor, administrator, legal representative, beneficiary or similar person and the term "Permitted Transferee" shall include any transferee (i) pursuant to a transfer permitted under Section 4.4 of the Plan and Section 3.1 hereof or (ii) designated pursuant to beneficiary designation procedures which may be approved by the Company. 8 28 4.3. Successors. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the death of the Optionee, acquire any rights hereunder in accordance with this Agreement or the Plan. 4.4. Notices. All notices, requests or other communications provided for in this Agreement shall be made, if to the Company, to the Secretary of the Company at the Company's principal executive office, and if to the Optionee, to his address on the books of the Company (or to such other address as the Company or Optionee may give to the other for purposes of notice hereunder). Copies of all notices given to the Optionee shall be sent to: Willkie Farr & Gallagher One Citicorp Center 153 East 53rd Street New York, NY 10022-4677 Attention: Bruce M. Montgomerie, Esq. Copies of all notices given to the Company shall be sent to: Sidley & Austin 555 W. 5th St. Los Angeles, CA 90013-1010 Attention: Sherwin L. Samuels, Esq. All notices, requests or other communications provided for in this Agreement shall be made in writing either (a) by personal delivery to the party entitled thereto, (b) by facsimile with confirmation of receipt, (c) by mailing in the United States mails to the last known address of the party entitled thereto or (d) by express courier service. The notice, request or other communication shall be deemed to be received upon personal delivery, upon confirmation of receipt of facsimile transmission or upon receipt by the party entitled thereto if by United States mail or express courier service; provided, however, that if a notice, request or other communication is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company. 4.5. Governing Law. The Option, this Agreement, and all determinations made and actions taken pursuant hereto and 9 29 thereto, to the extent not governed by the laws of the United States, shall be governed by the laws of the State of New York and construed in accordance therewith without giving effect to principles of conflicts of laws. 4.6. Counterparts. This Agreement may be executed in two counterparts each of which shall be deemed an original and both of which together shall constitute one and the same instrument. 4.7 Disclaimer. The name "Starwood Lodging Trust" is the designation of a Maryland real estate investment trust and its Trustees (as Trustees but not personally) under a Declaration of Trust dated August 25, 1969, as amended and restated, and all persons dealing with Starwood Lodging Trust must look solely to Starwood Lodging Trust's property for the enforcement of any claims against Starwood Lodging Trust, as the Trustees, officers, agents and security holders of Starwood Lodging Trust assume no personal obligations of Starwood Lodging Trust, and their respective property shall not be subject to claims of any person relating to such obligation. 4.8. Dispute Resolution. The provisions of Section 5.04 of the Employment Agreement relating to resolution of disputes shall also apply to resolution of disputes under this Agreement. STARWOOD LODGING TRUST By: ---------------------------------------- Name: ---------------------------------- Its: ---------------------------------- Accepted this ... day of January, 1997. 10 30 - ---------------------------------------------- Gary M. Mendell "Optionee" 11 31 ATTACHMENT "B" TO EMPLOYMENT AGREEMENT BETWEEN STARWOOD LODGING TRUST AND GARY M. MENDELL DATED JANUARY 15, 1997 TERM SHEET GARY M. MENDELL PERFORMANCE AWARD 1. All defined terms used in this Term Sheet and not defined in the Employment Agreement between Starwood Lodging Trust and Gary M. Mendell ("Executive") dated January 15, 1997 (the "Employment Agreement") shall have the meaning specified in the Starwood Lodging Trust 1995 Long-Term Incentive Plan, (Amended and Restated as of August 12, 1996) (the "Plan"). 2. Performance Award is deemed granted to Executive on the terms set forth herein on the date of grant of the Option under Section 2.04 of the Employment Agreement. Definitive Performance Award Agreement (the "Agreement") consistent with this Term Sheet to be executed and delivered no later than date similar agreements are executed and delivered to other senior executives to reflect the Performance Awards referenced in the Plan. Performance Award to Gary M. Mendell is effective and rights under this Term Sheet shall be enforceable notwithstanding absence of Agreement. 3. Performance Award applies to 200,000 Paired Shares under Option (before giving effect to three-for-two stock split by way of a 50% stock dividend declared by the Company on December 5, 1996). 1 32 4. Performance Period shall be the five-year period commencing on December 5, 1996 subject to acceleration and termination provisions of Employment Agreement and Plan. If vesting of the Option is accelerated under Section 2.2(c) of the Option Agreement or because of a Change of Control event under the Plan, the Performance Period shall expire upon such acceleration, and the Performance Measure shall be computed through such date and the Performance Award shall be settled in the manner provided in Section 4.2(c) of the Plan upon and to the extent of exercise of the Option. 5. Performance Measure shall be a 15% Shareholder Return. 6. Term of Performance Award shall be ten years, subject to the acceleration and termination provisions Section 4 of this Term Sheet. 7. The Performance Award Agreement shall be consistent with this Term Sheet and, to the extent not inconsistent therewith, the Plan, with the following modifications and exceptions: (i) The Agreement will not provide "otherwise" in the contemplation of Section 4.2(c) of the Plan. (ii) For all purposes, termination by the Company for Cause and by the Executive for Good Reason shall be treated as becoming effective pursuant to and as defined in the Employment Agreement, and termination by Executive for Good Reason, or without Good Reason during the Window Period, under the Employment Agreement shall be deemed a termination by the Company without Cause, and to the extent necessary, the Agreement shall be deemed to provide "otherwise" under Sections 4.2(b), 4.3(a) and 4.3(b) of the Plan. 2 33 8. The name "Starwood Lodging Trust" is the designation of a Maryland real estate investment trust and its Trustees (as Trustees but not personally) under a Declaration of Trust dated August 25, 1969, as amended and restated, and all persons dealing with Starwood Lodging Trust must look solely to Starwood Lodging Trust, as the Trustees, officers, agents and security holders of Starwood Lodging Trust assume no personal obligations of Starwood Lodging Trust, and their respective property shall not be subject to claims of any person relating to such obligation. 9. Notice and all other "Miscellaneous" provisions of Article V of the Employment Agreement to be equally applicable to Term Sheet and Agreement. Date: _______________ Starwood Lodging Trust By: Its: Gary M. Mendell 3 EX-10.2 5 PROMISSORY NOTE DATED AS OF FEBRUARY 14, 1997 1 Exhibit 10.2 SLT REALTY LIMITED PARTNERSHIP STARWOOD LODGING TRUST PURCHASE MONEY PROMISSORY NOTE $97,500,000.00 NEW YORK, NEW YORK FEBRUARY 14, 1997 WHEREAS, pursuant to that certain Contribution Agreement dated as of January 15, 1997 (the "REALTY CONTRIBUTION AGREEMENT"), by and among SLT Realty Limited Partnership, a Delaware limited partnership ("REALTY PARTNERSHIP"), Starwood Lodging Trust, a Maryland real estate investment trust ("TRUST" and together with Realty Partnership, "MAKERS"), Starwood Lodging Corporation, SLC Operating Limited Partnership, The Prudential Insurance Company of America, on behalf of Prudential Property Investment Separate Account II ("PAYEE"), the other Contributing Parties (as defined therein) and the Property Companies (as defined therein), Makers are purchasing interests in the Property Companies; WHEREAS, as partial payment of the Purchase Price (as defined in the Realty Contribution Agreement) for the Property Companies, Makers (and their affiliates) have requested that Payee accept this Note and Payee has agreed to accept this Note as such partial payment; and WHEREAS, unless otherwise indicated, capitalized terms shall have the meanings set forth in Section 7 hereof. NOW, THEREFORE, Makers, jointly and severally, agree as follows: FOR VALUE RECEIVED, each Maker, jointly and severally, unconditionally promises to pay to the order of Payee in the manner and at the place hereinafter provided, the principal amount of NINETY SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($97,500,000.00) on the Maturity Date, subject to the obligation of Makers to prepay a portion of this Note on or prior to February 20, 1997 pursuant to Section 1(b) hereof. Makers also promise to pay interest on the unpaid principal amount hereof from the date hereof until paid in full at a fixed rate per annum equal to 7.00%; provided that any principal amount not paid when due and, to the extent permitted by applicable law, any interest not paid when due, in each case whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (both before as well as after judgment), shall bear interest payable upon demand at a rate that is 6.00% 1 2 per annum in excess of the rate of interest otherwise payable under this Note. Interest on this Note shall be payable upon any prepayment of this Note (to the extent accrued on the amount being prepaid) and on the Maturity Date. All computations of interest shall be made by Payee on the basis of a 360 - day year, for the actual number of days elapsed in the relevant period (including the first day but excluding the last day of such period). In no event shall the interest rate payable on this Note exceed the maximum rate of interest permitted to be charged under applicable law. 1. PAYMENTS. (a) All payments of principal and interest in respect of this Note shall be made in lawful money of the United States of America in same day funds, payable in accordance with the wire instructions set forth in Schedule I hereto, or at such other place as Payee may direct in writing. Whenever any payment on this Note is stated to be due on a day that is not a Business Day, such payment shall instead be made on the next Business Day, and such extension of time shall be included in the computation of interest payable on this Note. Each payment made hereunder shall be credited first to interest then due and the remainder of such payment shall be credited to principal, and interest shall thereupon cease to accrue upon the principal so credited. Each of Payee and any subsequent holder of this Note agrees, by its acceptance hereof, that before disposing of this Note or any part hereof it will make a notation hereon of all principal payments previously made hereunder and of the date to which interest hereon has been paid; provided, however, that the failure to make a notation of any payment made on this Note shall not limit or otherwise affect the obligation of Makers hereunder with respect to payments of principal or interest on this Note. (b) Makers shall prepay $25,500,000.00 of the principal amount of this Note together with interest accrued thereon on or prior to February 20, 1997. (c) Makers may elect to extend the Maturity Date from April 15, 1997 to May 14, 1997 by giving written notice of such extension to Payee on or prior to 5:00 p.m. (New York City time) on April 11, 1997 (with time being of the essence). 2. PREPAYMENTS. Makers shall have the right at any time and from time to time to prepay the principal of this Note in whole or in part, without premium or penalty, upon at least 2 days' notice; provided that each such prepayment shall be in a minimum amount of $1,000,000 and integral multiples of $500,000 in excess of that amount (subject to Section 1(b) hereof). Any prepayment hereunder shall be accompanied by interest on the principal amount of the Note being prepaid to the date of prepayment. 3. COVENANTS. Each Maker, jointly and severally, covenants and agrees that until this Note is paid in full it will: 2 3 (a) promptly provide to Payee all financial and operational information with respect to such Maker as Payee may reasonably request; (b) promptly after the occurrence of an Event of Default or an event, act or condition that, with notice or lapse of time or both, would constitute an Event of Default, provide Payee with a certificate of the chief executive officer or chief financial officer of such Maker specifying the nature thereof and such Maker's proposed response thereto; (c) maintain a net worth equal to $275,000,000 plus seventy five percent (75%) of any equity issued by Makers after the date hereof; and (d) not merge or consolidate with any other Person, or sell, lease or otherwise dispose of all or any substantial part of its property or assets to any other Person outside the ordinary course of business. 4. REPRESENTATIONS AND WARRANTIES. Each Maker, jointly and severally, hereby represents and warrants to Payee that: (a) Realty Partnership is a duly organized and validly existing partnership in good standing under the laws of the State of Delaware and has the partnership power and authority to own and operate its properties, to transact the business in which it is now engaged and to execute and deliver this Note; (b) Trust is a duly organized and validly existing real estate investment trust in good standing under the laws of the State of Maryland and has the power and authority to own and operate its properties, to transact the business in which it is now engaged and to execute and deliver this Note; (c) this Note constitutes the duly authorized, legally valid and binding obligation of such Maker, enforceable against such Maker in accordance with its terms; (d) all consents and grants of approval required to have been granted by any Person in connection with the execution, delivery and performance of this Note have been granted; (e) the execution, delivery and performance by such Maker of this Note do not (i) violate any law, governmental rule or regulation, court order or agreement to which it is subject or by which its properties are bound or the agreement of limited partnership, as amended, or any other organizational documents of such Maker or (ii) result in the creation of any lien or other encumbrance with respect to the property of such Maker; 3 4 (f) there is no action, suit, proceeding or governmental investigation pending or, to the knowledge of such Maker, threatened against such Maker or any of its subsidiaries or any of their respective assets which, if adversely determined, would have a material adverse effect on the business, operations, properties, assets, condition (financial or otherwise) or prospects of such Maker and its subsidiaries, taken as a whole, or the ability of such Maker to comply with its obligations hereunder; and (g) the representations and warranties of Realty Partnership contained in Section 7.02 of the Realty Contribution Agreement and of Trust contained in Section 7.04 of the Realty Contribution Agreement (in each case, which, by this reference, are incorporated herein in their entirety) are and will be true, correct and complete on and as of the date hereof to the same extent as though made on and as of the date hereof, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete on and as of such earlier date. 5. EVENTS OF DEFAULT. The occurrence of any of the following events shall constitute an "EVENT OF DEFAULT": (a) failure of Makers to pay any principal, interest or other amount due under this Note when due, whether at stated maturity, by required prepayment (including without limitation as required under Section 1(b) hereof), declaration, acceleration, demand or otherwise; or (b) failure of any Maker to pay, or the default in the payment of, amounts due under or in respect of any promissory note, indenture or other agreement or instrument relating to any indebtedness for borrowed money of $1,000,000 or more owing by such Maker, to which it is a party or by which such Maker or any of its property is bound beyond any applicable grace period; or the occurrence of any other event or circumstance and notice or lapse of time or both which permits acceleration of such indebtedness; or (c) failure of any Maker to perform or observe in all material respects any other term, covenant or agreement to be performed or observed by it pursuant to this Note; or (d) any representation or warranty made by any Maker to Payee in connection with this Note shall prove to have been false in any material respect when made (including, without limitation, the representations and warranties contained in Sections 7.02 and 7.04 of the Realty Contribution Agreement and incorporated by reference herein in accordance with Section 4(f)); or 4 5 (e) any order, judgment or decree shall be entered against any Maker decreeing the dissolution or split-up of such Maker; or (f) suspension of the usual business activities of any Maker or the complete liquidation, or liquidation of a substantial portion, of any Maker's business; or (g) (i) a court having jurisdiction in the premises shall enter a decree or order for relief in respect of any Maker or any of its respective affiliates in an involuntary case under Title 11 of the United States Code entitled "Bankruptcy" (as now and hereinafter in effect, or any successor thereto, the "BANKRUPTCY CODE") or any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, which decree or order is not stayed; or any other similar relief shall be granted under any applicable federal or state law; or (ii) an involuntary case shall be commenced against any Maker or any of its respective affiliates under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over any Maker or any of its respective affiliates or over all or a substantial part of its property shall have been entered; or the involuntary appointment of an interim receiver, trustee or other custodian of any Maker or any of its respective affiliates for all or a substantial part of its property shall have occurred; or a warrant of attachment, execution or similar process shall have been issued against any substantial part of the property of any Maker or any of its respective affiliates, and, in the case of any event described in this clause (ii), such event shall have continued for 30 days unless dismissed, bonded or discharged; or (h) an order for relief shall be entered with respect to any Maker or any of its respective affiliates or any Maker or any of its respective affiliates shall commence a voluntary case under the Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or any Maker or any of its respective affiliates shall make an assignment for the benefit of creditors; or any Maker or any of its respective affiliates shall be unable or fail, or shall admit in writing its inability, to pay its debts as such debts become due; or the partners of any Maker or any of its respective affiliates (or any committee thereof) shall adopt any resolution or otherwise authorize action to approve any of the foregoing; or 5 6 (i) any Maker shall challenge, or institute any proceedings to challenge, the validity, binding effect or enforceability of this Note or any endorsement of this Note or any other obligation to Payee. 6. REMEDIES. Upon the occurrence of any Event of Default specified in Section 5(g) or 5(h) above, the principal amount of this Note together with accrued interest thereon shall become immediately due and payable, without presentment, demand, notice, protest or other requirements of any kind (all of which are hereby expressly waived by Makers). Upon the occurrence and during the continuance of any other Event of Default Payee may, by written notice to Makers, declare the principal amount of this Note together with accrued interest thereon to be due and payable, and the principal amount of this Note together with such interest shall thereupon immediately become due and payable without presentment, further notice, protest or other requirements of any kind (all of which are hereby expressly waived by Makers). 7. DEFINITIONS. The following terms used in this Note shall have the following meanings (and any of such terms may, unless the context otherwise requires, be used in the singular or the plural depending on the reference): "BUSINESS DAY" means any day other than a Saturday, Sunday or legal holiday under the laws of the State of New York or any other day on which banking institutions located in such state are authorized or required by law or other governmental action to close. "EVENT OF DEFAULT" means any of the events set forth in Section 5. "MATURITY DATE" means April 15, 1997, unless Makers notify Payee of Makers' election to extend the Maturity Date in accordance with Section 1(b) hereof, in which case "Maturity Date" shall mean May 14, 1997. "PERSON" means any individual, partnership, joint venture, firm, corporation, association, bank, trust or other enterprise, whether or not a legal entity, or any government or political subdivision or any agency, department or instrumentality thereof. 8. MISCELLANEOUS. (a) All notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, telefacsimile or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered as follows: if to Makers, at its address specified opposite its signature below; and if to Payee, at c/o Prudential Real Estate Investors, 8 Campus Drive Parsippany, NJ 07054, Attention: Gary L. Kauffman (Fax 201-683-1790), James P. Walker, Esq. (Fax 201-683-1788), with copies to: 6 7 O'Melveny & Myers LLP, 153 East 53rd Street, New York, New York 10022; Attention: Robert S. Insolia, Esq. (Fax 212-326-2061), or in each case at such other address as shall be designated in writing from time to time by Payee or Makers. All such notices and communications shall be effective when received by the other party. (b) Makers agree to indemnify Payee against any losses, claims, damages and liabilities and related expenses, including counsel fees and expenses, incurred by Payee arising out of or in connection with or as a result of the loan evidenced by this Note. In particular, Makers promise to pay all costs and expenses, including reasonable attorneys' fees, incurred in connection with the collection and enforcement of this Note. Makers agree to pay all reasonable out-of-pocket expenses of Payee incurred in connection with the enforcement and administration of this Note, the documents and instruments referred to herein and any amendments, waivers or consents relating hereto or thereto including, without limitation, the reasonable fees and expenses of outside counsel for Payee. In addition, Makers agree to pay, and to save Payee harmless from all liability for, any stamp or other documentary taxes which may be payable in connection with Makers' execution or delivery of this Note. (c) No failure or delay on the part of Payee or any other holder of this Note to exercise any right, power or privilege under this Note and no course of dealing between Makers and Payee shall impair such right, power or privilege or operate as a waiver of any default or an acquiescence therein, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies expressly provided in this Note are cumulative to, and not exclusive of, any rights or remedies that Payee would otherwise have. No notice to or demand on Maker in any case shall entitle Makers to any other or further notice or demand in similar or other circumstances or constitute a waiver of the right of Payee to any other or further action in any circumstances without notice or demand. (d) Makers and any endorser of this Note hereby consent to renewals and extensions of time at or after the maturity hereof, without notice, and hereby waive diligence, presentment, protest, demand and notice of every kind and, to the full extent permitted by law, the right to plead any statute of limitations as a defense to any demand hereunder. (e) If any provision in or obligation under this Note 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. (f) THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF MAKERS AND PAYEE HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS 7 8 OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. (g) ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY MAKER ARISING OUT OF OR RELATING TO THIS NOTE MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS NOTE EACH MAKER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS. Each Maker hereby agrees that service of all process in any such proceeding in any such court may be made by registered or certified mail, return receipt requested, to such Maker at its address set forth below its signature hereto, such service being hereby acknowledged by Maker to be sufficient for personal jurisdiction in any action against such Maker in any such court and to be otherwise effective and binding service in every respect. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of Payee to bring proceedings against such Maker in the courts of any other jurisdiction. (h) EACH MAKER AND, BY THEIR ACCEPTANCE OF THIS NOTE, PAYEE AND ANY SUBSEQUENT HOLDER OF THIS NOTE, HEREBY IRREVOCABLY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS NOTE OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS NOTE AND THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including without limitation contract claims, tort claims, breach of duty claims and all other common law and statutory claims. Each Maker and, by their acceptance of this Note, Payee and any subsequent holder of this Note, each (i) acknowledges that this waiver is a material inducement to enter into a business relationship, that each has already relied on this waiver in entering into this relationship, and that each will continue to rely on this waiver in their related future dealings and (ii) further warrants and represents that each has reviewed this waiver with its legal counsel and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS OF THIS NOTE. In the event of litigation, this provision may be filed as a written consent to a trial by the court. 8 9 (i) Makers agree that each Maker shall be jointly and severally liable for each and every obligation set forth in this Note. (j) Each Maker hereby waives the benefit of any statute or rule of law or judicial decision which would otherwise require that the provisions of this Note be construed or interpreted most strongly against the party responsible for the drafting thereof. (k) Realty Partnership is a partnership and the agreement herein contained shall remain in full force and effect notwithstanding any changes in the individuals composing such partnership, and the terms "Realty Partnership" and "Maker," as used herein, shall include any alternate or successor partnerships, but any predecessor partnerships and their respective partners shall not thereby be released from any liability. Payee may renew or extend any of the liabilities of any of the partners of the partnership and may make additional advances or extensions of credit to any of them or release or fail to set off any deposit account or credit of any of them or grant other indulgences to any of them, all from time to time, before or after the maturity hereof, with or without further notice to or assent from any of the other partners or other parties liable with respect hereto. (l) Makers agree and acknowledge that time is of the essence in this Note. (m) 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 subsequent thereto, which states that all persons dealing with Starwood Lodging Trust shall look solely to the assets of Starwood Lodging Trust for enforcement of any claims against Starwood Lodging Trust, and the trustees, officials, 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. [Remainder of Page Intentionally Left Blank] 9 10 IN WITNESS WHEREOF, each Maker has caused this Note to be executed and delivered by its duly authorized general partner, as of the day and year and at the place first above written. SLT REALTY LIMITED PARTNERSHIP By: STARWOOD LODGING TRUST, Its General Partner By: /S/ [ILLEGIBLE] ------------------------------------------ Name: Title: STARWOOD LODGING TRUST By: /S/ [ILLEGIBLE] ------------------------------------------------ Name: Title: Notice address for Makers: Starwood Lodging Trust 2231 East Camelback Road, Suite 410 Phoenix, AZ 85016 Telephone: (602) 852-3900 Telecopy: (602) 852-0984 Attention: Steven R. Goldman Attention: Nir Margalit, Esq. with a copy to: Kirkland & Ellis 200 East Randolph Drive Chicago, Illinois 60601 Telephone: (312) 861-2000 Telecopy: (312) 861-2200 Attention: Stephen G. Tomlinson, Esq. S-1 11 TRANSACTIONS ON PROMISSORY NOTE
Amount of Amount of Outstanding Amount of Principal Interest Principal Loan Made Paid Paid Balance Notation Date This Date This Date This Date This Date Made By - ---- --------- --------- --------- ----------- --------
EX-10.3 6 CONTRIBUTION AGREEMENT BY HEI HOTELS, L.L.C. 1 Exhibit 10.3 ================================================================================ CONTRIBUTION AGREEMENT DATED AS OF JANUARY 15, 1997 BY AND AMONG HEI HOTELS, L.L.C., WESTPORT MANAGEMENT, L.L.C., WESTPORT HOLDINGS, L.L.C., SAVIOR LIMITED PARTNERSHIP, JUDITH RUSHMORE, ORNA L. SHULMAN, MURRAY DOW, STEVE MENDELL, GARY MENDELL, ZAPCO COMMUNICATIONS, INC., WESTPORT HOSPITALITY, INC., STARWOOD LODGING CORPORATION, AND SLC OPERATING LIMITED PARTNERSHIP ================================================================================ 2 TABLE OF CONTENTS
PAGE ---- SECTION 1. DEFINITIONS................................................... 1 (a) Defined Terms................................................. 1 (b) Other Definitions............................................. 5 SECTION 2. BASIC TRANSACTION............................................. 6 (a) Contributed Assets............................................ 6 (b) Consideration................................................. 6 (c) Net Worth Adjustment.......................................... 7 (d) Limit on Consideration........................................ 8 SECTION 3. CLOSING OF THE TRANSACTION.................................... 8 SECTION 4. CONDITIONS TO OBLIGATION OF BUYER............................. 9 (a) Representations and Warranties................................ 9 (b) Performance of Covenants...................................... 9 (c) Consents...................................................... 9 (d) Regulatory Approval........................................... 9 (e) Delivery of Interests......................................... 9 (f) Reserved...................................................... 9 (g) Absence of Material Adverse Change........................... 10 (h) Absence of Litigation........................................ 10 (i) Compliance with Applicable Laws.............................. 10 (j) Related Transactions......................................... 10 (k) Reserved..................................................... 10 (l) Payoff Letter................................................ 10 (m) Reserved..................................................... 10 (n) Reserved..................................................... 10 (o) Reserved..................................................... 10 (p) Reserved..................................................... 11 (q) Seller Closing Deliveries.................................... 11 (r) Proceedings.................................................. 12 SECTION 5. CONDITIONS TO OBLIGATION OF SELLERS.......................... 12 (a) Representations and Warranties............................... 12 (b) Performance of Covenants..................................... 12 (c) Compliance with Applicable Laws.............................. 12 (d) Absence of Litigation........................................ 12
- ii - 3 TABLE OF CONTENTS (continued)
Page ---- (e) Regulatory Approval.......................................... 12 (f) Related Transactions......................................... 13 (g) Employment Agreements........................................ 13 (h) Buyer's Closing Deliveries................................... 13 (i) Proceedings.................................................. 13 (j) Reserved..................................................... 14 (k) No Material Adverse Change to Buyer.......................... 14 SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY, THE PRINCIPALS AND THE SELLERS............................................................. 14 (a) Organization of the Company.................................. 14 (b) Authorization of Transaction................................. 14 (c) Noncontravention; Consents................................... 14 (d) Capitalization of the Company................................ 15 (e) Brokers' Fees................................................ 16 (f) Subsidiaries and Investments................................. 16 (g) Financial Statements......................................... 16 (h) Events Subsequent to the Latest Balance Sheet................ 16 (i) Absence of Undisclosed Liabilities........................... 18 (j) Legal Compliance............................................. 18 (k) Leased Properties............................................ 19 (l) Title........................................................ 19 (m) Condition of Assets.......................................... 19 (n) Real Property................................................ 19 (o) Tax Matters.................................................. 20 (p) Intellectual Property........................................ 21 (q) Contracts and Commitments.................................... 22 (r) Insurance.................................................... 24 (s) Litigation; Proceedings...................................... 24 (t) Licenses and Permits......................................... 24 (u) Employees.................................................... 25 (v) Employee Benefits............................................ 26 (w) Environment, Health and Safety............................... 26 (x) Reserved..................................................... 27 (y) Reserved..................................................... 27 (z) Insider Interests............................................ 27 (aa) Reserved..................................................... 27 (bb) Investment Representation.................................... 27
- iii - 4 TABLE OF CONTENTS (continued)
Page ---- (cc) Closing Date................................................. 27 SECTION 7. REPRESENTATIONS AND WARRANTIES OF BUYER AND SLC.............. 27 (a) Organization of Buyer........................................ 28 (b) Authorization of Transaction................................. 28 (c) Noncontravention............................................. 28 (d) Status of the Partnership Agreement.......................... 28 (e) No Litigation; Proceedings................................... 28 (f) Units........................................................ 28 (g) Financial Statements; Undisclosed Liabilities................ 29 (h) Reservation of Paired Shares................................. 29 (i) Closing Date................................................. 29 SECTION 8. PRE-CLOSING COVENANTS........................................ 29 (a) Affirmative Covenants of the Company, the Principals, and the Sellers...................................................... 29 (b) Negative Covenants of the Company, the Principals and the Sellers...................................................... 31 (c) Affirmative Covenants of Buyer............................... 31 SECTION 9. SURVIVAL; INDEMNIFICATION.................................... 32 (a) Survival..................................................... 32 (b) Indemnification by the Principals and the Sellers............ 32 (c) Limits on Indemnification.................................... 33 (d) Indemnification by Buyer and SLC............................. 34 (e) Notice of Indemnification.................................... 34 (f) Failure to Notify............................................ 35 (g) Notice of Loss; Insurance.................................... 35 (h) Payment of Indemnification Amount............................ 36 (i) Dispute Resolution........................................... 37 (j) Type of Remedy............................................... 38 (k) Limitation on Liability of the Company....................... 38 SECTION 10. ADDITIONAL AGREEMENTS........................................ 39 (a) Sellers and Principals Nonsolicitation and Confidentiality... 39 (b) Exclusivity.................................................. 40 (c) Mutual Assistance and Records................................ 40 (d) Press Releases............................................... 40 (e) Transaction Expenses......................................... 41 (f) Certain Taxes................................................ 41
- iv - 5 TABLE OF CONTENTS (continued)
Page ---- (g) Further Assurances........................................... 41 (h) Litigation Support........................................... 41 (i) Admission of Buyer as Member................................. 42 (j) Post-Closing Status of the Company........................... 42 (k) Benefits for Employees of the Company........................ 42 (l) Retention of Managers of the Company......................... 42 (m) Retention By Sellers......................................... 42 (n) Reserved..................................................... 43 (o) Production of Schedules...................................... 43 (p) Disposition of the Interests by the Sellers.................. 43 SECTION 11. TERMINATION; EFFECT OF TERMINATION........................... 43 (a) Termination.................................................. 43 (b) Effect of Termination........................................ 44 (c) Deposit; Remedy for Pre-Closing Breach by Buyer.............. 44 SECTION 12. MISCELLANEOUS................................................ 44 (a) No Third Party Beneficiaries................................. 44 (b) Entire Agreement............................................. 45 (c) Successors and Assigns....................................... 45 (d) Counterparts................................................. 45 (e) Disclosure................................................... 45 (f) Severability................................................. 45 (g) Headings..................................................... 45 (h) Captions..................................................... 45 (i) Notices...................................................... 45 (j) Governing Law................................................ 47 (k) Consent to Jurisdiction...................................... 47 (l) Amendments and Waivers....................................... 47 (m) Incorporation of Exhibits and Schedules...................... 47 (n) Construction................................................. 48 (o) Knowledge of Sellers and Principals Attributable to the Company...................................................... 48
- v - 6
LIST OF EXHIBITS ---------------- Exhibit A - Term Sheet For Class A Units Exhibit B - Form of Exchange Rights Agreements Exhibit C - Form of Registration Rights Agreement Exhibit D-1 - Form of Employment Agreement - Gary Mendell Exhibit D-2 - Form of Employment Agreement - Murray Dow
LIST OF SCHEDULES ----------------- Schedule 2(a)(i) - Schedule of Sellers Selling to Buyer Schedule 2(a)(ii) - Schedule of Sellers Selling to SLC Schedule 2(b) - Allocation of Consideration Among Sellers Schedule 4(c) - Consents Schedule Schedule 4(l) - Indebtedness for which Payoff Letters are Requested Schedule 6(a) - Qualifications of the Company Schedule 6(c) - Noncontravention; Consents and Approvals; Licences and Permits Schedule 6(d) - Capitalization of the Company Schedule 6(e) - Brokers' Fees Schedule 6(g) - Financial Statements Schedule 6(h) - Events Subsequent to Latest Balance Sheet Schedule 6(i) - Otherwise Undisclosed Liabilities Schedule 6(j) - Legal Compliance Schedule 6(k) - Leased Property
- vi - 7 Schedule 6(o) - Tax Matters Schedule 6(p) - Intellectual Property Schedule 6(q) - Contracts and Commitments Schedule 6(r) - Insurance Schedule 6(s) - Litigation Schedule 6(t) - Licenses and Permits Schedule 6(u) - Employee Matters Schedule 6(w) - Environment, Health and Safety Schedule 6(z) - Insider Interests Schedule 7(c) - Noncontravention; Consents and Approvals Schedule 7(f) - Warrants, Options, etc. Schedule 12(i) - Notice Information for Principals and Sellers
- vii - 8 CONTRIBUTION AGREEMENT THIS CONTRIBUTION AGREEMENT (this "Agreement") is made and entered into as of January 15, 1997, by and among SLC Operating Limited Partnership, a Delaware limited partnership ("Buyer"), Starwood Lodging Corporation, a Maryland corporation ("SLC"), HEI Hotels L.L.C., a Delaware limited liability company (the "Company"), Westport Management, L.L.C., a Delaware limited liability company, Westport Holdings, L.L.C., a Delaware limited liability company, and Savior Limited Partnership, a Delaware limited partnership, the holders of all of the issued and outstanding membership interests of the Company (each a "Seller" and collectively, the "Sellers"), and Judith Rushmore, Orna L. Shulman, Murray Dow, Steve Mendell, Gary Mendell, Zapco Communications, Inc.,a Delaware corporation, and Westport Hospitality, Inc., a Delaware corporation, each either an executive of the Company or an owner of a Seller (each a "Principal" and collectively, the "Principals"). Buyer, SLC, the Company, the Principals and the Sellers are referred to collectively herein as the "Parties." Capitalized terms used herein and not otherwise defined are defined in Section 1. Subject to the terms and conditions set forth in this Agreement, the Sellers desire to contribute to Buyer and SLC, and Buyer and SLC desire to acquire from the Sellers, all of the issued and outstanding membership interests of the Company (the "Interests"), thereby acquiring the Company's business, assets and properties (operating as a going concern) which constitute the Company's business (the "Business"). NOW, THEREFORE, in consideration of the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties, intending to be legally bound, agree as follows: SECTION 1. DEFINITIONS. (a) Defined Terms. The following definitions shall be applied to the capitalized terms used in this Agreement for all purposes, unless otherwise clearly indicated to the contrary. "Affiliate" has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act of 1934, as amended. "Class A Unit" means the Class A Units described in the Term Sheet For Class A Units attached hereto as Exhibit A. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Corporation Shares" shall mean the shares of common stock, par value $.01 per share, of SLC. 9 "Employee Pension Benefit Plan" shall have the meaning set forth in Section 3(2) of ERISA. "Employee Welfare Benefit Plan" shall have the meaning set forth in Section 3(1) of ERISA. "Environmental, Health and Safety Laws" means all laws, rules and regulations of federal, state, local, and foreign governments (and all agencies thereof) and other requirements having the force or effect of law relating to or imposing liability or standards of conduct concerning pollution or protection of the environment, public health and safety, or employee health and safety, and all judgments, orders and decrees of federal, state, local and foreign governments (and all agencies thereof) having the force and effect of law issued or promulgated thereunder, and all related common law theories, including without limitation, the Comprehensive Environmental Response, Compensations and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976, the Occupational Safety and Health Act of 1970, each as amended. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Exchange Rights Agreement" means that certain Exchange Rights Agreement dated of even date herewith by and among Buyer, the Sellers, and certain other parties listed on the signature pages thereto substantially in the form of Exhibit B attached hereto. "GAAP" means United States generally accepted accounting principles, applied on a consistent basis. "Government Entity" means the United States of America or any other nation, any state or other political subdivision thereof, or any entity exercising executive legislative, judicial, regulatory or administrative functions of government. "Intellectual Property" means (i) all inventions (whether or not patentable or reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations, continuations-in-part, divisions, extensions, and reexaminations thereof, (ii) all registered and unregistered trademarks, service marks, trade dress, logos, trade names, Internet domain names and corporate names, including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith, (iii) all copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith, (iv) all trade secrets and confidential business information, (v) all computer software, (vi) all other proprietary rights, and (vii) all copies and tangible embodiments thereof; provided that the names "HEI International, Inc." "HEI Mid-East Hotels Ltd.," "HEI Israel Hotels, LLC" and "Hospitality Equity Investors, Inc.", and abbreviated forms thereof shall not be considered Intellectual Property. - 2 - 10 "Investments" means, with respect to any Person, any direct or indirect purchase or other acquisition by such Person of any notes, obligations, instruments, stock, securities or other ownership or beneficial interest (including partnership interests and joint venture interests) of any other Person, and any capital contribution by such Person to any other Person. "Lien" shall mean any security interest, pledge, bailment (in the nature of a pledge or for purposes of security), mortgage, deed of trust, the grant of a power to confess judgment, conditional sales and title retention agreement (including any lease in the nature thereof), charge, encumbrance or other similar arrangement or interest in real or personal property. "Marketing and Service Agreements" means any agreement or contract pursuant to which the Company provides sales, marketing and reservation services to hotels. "Material Adverse Effect" means any material adverse change in the business, assets, financial condition, operating results, employee relations, franchise relations, customer or supplier relations or business prospects of the entity in question, taken as a whole, other than any such changes occurring as a result of the consummation of the transactions contemplated by this Agreement and the Transaction Documents. "Multiemployer Plan" shall have the meaning set forth in Section 3(37) of ERISA. "Net Worth" means the aggregate amount of all the Company's assets minus the aggregate amount of all the Company's liabilities, with all such items defined and measured in accordance with GAAP, applied consistently with the 1995 Balance Sheet. If any item on (or which, under GAAP, should be reflected on) the 1995 Balance Sheet is not reflected in accordance with GAAP, Net Worth will nonetheless be computed in accordance with GAAP. "Partnership Agreement" means the Amended and Restated Limited Partnership Agreement of Buyer, dated as of June 29, 1995, as the same may be amended, modified or supplemented from time to time in accordance with its terms. "Paired Share Price" shall mean the unweighted average closing price for the Paired Shares on the New York Stock Exchange for the thirty consecutive trading days ending on the day before the date on which any determination is made. "Paired Shares" shall mean one common share of beneficial interest, par value $.01 per share, of SLT and one share of common stock, par value $.01 per share, of SLC that are subject to a pairing agreement between SLT and SLC. "Permitted Liens" means (i) any Lien created or existing pursuant to any indebtedness for borrowed money listed on Schedule 6(q) or reflected on the Estimated Closing Balance Sheet, (ii) Liens for Taxes not delinquent or the validity of which is being contested in good faith by appropriate proceedings and as to which adequate reserves have been established on the Company's - 3 - 11 financial statements in accordance with GAAP, and (iii) statutory landlord's, mechanic's, carrier's, worker's, repairman's or other similar Liens arising or incurred in the ordinary course of business. "Person" means an individual, a partnership, a limited liability company, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof). "PRISA Contribution Agreement" means that certain Contribution Agreement, dated of even date herewith, by and among SLTRLP, Buyer, and the parties listed on Schedule A thereto. "Prohibited Transaction" has the meaning set forth in Section 406 of ERISA and Section 4975 of the Code. "Registration Rights Agreement" means that certain Registration Rights Agreement dated of even date herewith by and among Buyer, the Sellers, SLT, SLTRLP, and certain other parties listed on the signature pages thereto substantially in the form of Exhibit C attached hereto. "SLT" means Starwood Lodging Trust, a Maryland real estate investment trust. "SLTRLP" means SLT Realty Limited Partnership, a Delaware limited partnership. "Subsidiary" means any corporation or other entity with respect to which a specified Person (or a Subsidiary thereof) has the power to vote or direct the voting of sufficient securities to elect a majority of the directors or persons performing similar functions or with respect to which such Person (or Subsidiary) acts as a general partner or managing member or otherwise controls the day-to-day operations of such entity. "Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not, and including any obligation to indemnify or otherwise assume or succeed to the Tax liability of any other Person. "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. "Transaction Documents" means this Agreement, the Exchange Rights Agreement, the Registration Rights Agreement, the Employment Agreements, the PRISA Contribution Agreement, and all other agreements, instruments, certificates and other documents to be entered into - 4 - 12 or delivered by any Party in connection with the transactions contemplated to be consummated by any of the foregoing. (b) Other Definitions. The terms set forth below are defined on the following pages of this Agreement. 1995 Balance Sheet ...................................................... 16 AAA ..................................................................... 37 Agreement ............................................................... 1 Arbitration Expenses .................................................... 37 Arbitrator .............................................................. 37 Business ................................................................ 1 Buyer ................................................................... 1 Buyer's Information ..................................................... 31 Cap ..................................................................... 33 Cash Portion ............................................................ 6 Closing ................................................................. 8 Closing Balance Sheet ................................................... 7 Closing Date ............................................................ 8 Closing Net Worth ....................................................... 7 Closing Price ........................................................... 6 Company ................................................................. 1 Confidential Information ................................................ 39 Consents ................................................................ 9 Consideration ........................................................... 6 Contribution Amount ..................................................... 6 Costs and Fees .......................................................... 37 Deposit ................................................................. 44 Dispute ................................................................. 37 Employment Agreements ................................................... 13 Estimated Closing Balance Sheet ......................................... 7 Estimated Closing Net Worth ............................................. 7 Financial Statements .................................................... 16 Indemnification Amount .................................................. 36 Indemnified Party ....................................................... 34 Indemnifying Party ...................................................... 34 Independent Auditor ..................................................... 7 Interests ............................................................... 1 Latest Balance Sheet .................................................... 16 Licenses ................................................................ 24 Liquor Licenses ......................................................... 25 Losses .................................................................. 32 Parties ................................................................. 1
- 5 - 13 Partnership Parties ..................................................... 32 Principal ............................................................... 1 Principals .............................................................. 1 Restricted Parties ...................................................... 39 Restricted Period ....................................................... 39 Seller .................................................................. 1 Sellers ................................................................. 1 SLC ..................................................................... 1 SLC Amount .............................................................. 6 Starwood Financial Statements ........................................... 29 Units ................................................................... 27 WARN .................................................................... 26
SECTION 2. BASIC TRANSACTION. (a) Contributed Assets. On and subject to the terms and conditions of this Agreement, at the Closing, for the consideration specified in Section 2(b), (i) Buyer agrees to purchase from each of the Sellers specified on Schedule 2(a)(i) to be attached hereto, and each of the Sellers specified thereon agrees to sell to Buyer, and (ii) SLC agrees to purchase from each of the Sellers specified on Schedule 2(a)(ii) to be attached hereto, and each of the Sellers specified thereon agrees to sell to SLC, all of such Seller's Interests, free and clear of all Liens other than Liens created or arising from actions taken by Buyer or SLC. (b) Consideration. Subject to Section 2(d), in addition to the execution and delivery of the Transaction Documents to which Buyer is a party, the consideration (the "Consideration") to be delivered by Buyer and SLC to Sellers at the Closing, allocated among the Sellers in proportion to their respective holdings of Interests as set forth in Schedule 2(b) to be attached hereto, shall consist of the following: (i) from Buyer, a number of Class A Units equal to the quotient of (x) the remainder of $14,500,000 (as adjusted pursuant to Section 2(c), the "Contribution Amount") minus the Cash Portion divided by (y) $49.25 (the "Closing Price"); and (ii) an amount of cash equal to $6,147,000 (the "Cash Portion"), payable by wire transfer of immediately available funds as follows: (A) from SLC, an amount of cash equal to the Consideration multiplied by the number 0.01 (the "SLC Amount"); - 6 - 14 (B) from Buyer, an amount of cash equal to the Cash Portion minus the SLC Amount. The Consideration may be increased or decreased in accordance with Section 2(c) hereof; all such adjustments shall be made in the same proportions of cash and Class A Units as shown on Schedule 2(b). The portion of the Consideration to be paid by Buyer and SLC and to be received by each Seller, and the part of such portion to be paid in the form of Class A Units and/or cash to such Seller, is set forth on Schedule 2(b); provided that the total number of Class A Units and Cash Portion received by all Sellers pursuant to this Section 2 shall not exceed the amounts set forth therefor in subsections (i) and (ii) above. (c) Net Worth Adjustment. (i) At least two (2) business days prior to the Closing, the Company and Sellers in good faith shall prepare an unaudited estimated consolidated balance sheet of the Company as of the Closing Date (the "Estimated Closing Balance Sheet") and an estimate of the Net Worth of the Company as of the close of business on the Closing Date (the "Estimated Closing Net Worth") based on the Company's books and records and other information then available. (ii) If Estimated Closing Net Worth is greater than zero, the Consideration shall be adjusted upwards by such excess. If Estimated Closing Net Worth is less than zero, the Consideration shall be adjusted downwards by such shortfall until the Consideration is zero. Class A Units included in the Consideration shall be reduced based on the Closing Price. (iii) As promptly as practicable, but in no event later than 75 days after the Closing, Sellers will deliver to Buyer a balance sheet of the Company as of the Closing (the "Closing Balance Sheet") prepared by the Company on a basis consistent with the 1995 Balance Sheet, which Closing Balance Sheet will reflect the Sellers' determination of the Net Worth as of the close of business on the Closing Date (the "Closing Net Worth"). (iv) If Buyer disagrees with Sellers' determination of Closing Net Worth, Buyer shall notify Sellers in writing of such disagreement (such notice setting forth the basis for such disagreement in reasonable detail) and Sellers and Buyer thereafter shall negotiate in good faith to resolve any such disagreements. If Sellers and Buyer are unable to resolve any such disagreements within thirty (30) days after Sellers deliver the Closing Balance Sheet to Buyer, Sellers and Buyer shall submit the dispute to a "Big Six" public accounting firm jointly selected by Sellers and Buyer (the "Independent Auditor") for resolution. If Sellers and Buyer are unable to agree upon an Independent Auditor, the Independent Auditor shall be selected by lot from a list of four "Big Six" accounting firms (of which two firms - 7 - 15 shall be selected by each of Sellers and Buyer, but excluding any firm which has previously audited the Company's or Buyer's financial statements). (v) Sellers and Buyer shall use their reasonable best efforts to cause the Independent Auditor to resolve all disagreements over the Closing Net Worth as soon as practicable, but in any event within 60 days after submission of the disputes to the Independent Auditor. The resolution of such disagreements and the determination of Closing Net Worth by the Independent Auditor shall be final and binding on Sellers and Buyer. (vi) The Independent Auditor will determine the allocation of its costs and expenses in determining the Closing Net Worth based upon the percentage which the portion of the contested amount not awarded to each party bears to the amount actually contested by such party. For example, if Buyer claims the Closing Net Worth is $1,000 greater than the amount determined by Sellers' accountants, and Sellers contests only $500 of the amount claimed by Buyer, and if the Independent Auditor ultimately resolves the dispute by awarding Buyer $300 of the $500 contested, then the costs and expenses of arbitration will be allocated 60% (i.e., 300 (divided by) 500) to Sellers and 40% (i.e., 200 (divided by) 500) to Buyer. (vii) If Closing Net Worth (as finally determined pursuant to this Section 2(c)) is greater than Estimated Closing Net Worth, Buyer shall, within three (3) business days after Closing Net Worth is finally determined pursuant to this Section 2(c), pay to the Sellers, in immediately available funds and Class A Units in the same proportions as shown on Schedule 2(b), using the Closing Price as the value per Paired Share, the difference between Closing Net Worth and Estimated Closing Net Worth. If Closing Net Worth is less than Estimated Closing Net Worth, the Sellers shall, within three (3) business days after Closing Net Worth is finally determined pursuant to this Section 2(c), in the same proportion as shown on Schedule 2(b), pay to Buyer, in immediately available funds or Class A Units (using the same such value) as Sellers shall elect, an amount equal to the difference between Closing Net Worth and Estimated Closing Net Worth. Without duplication, all amounts owed pursuant to this Section 2(c) shall include an amount equal to interest, from and excluding the Closing Date to and including the date of payment, at the prime rate announced by Chase Manhattan Corp. (or any successor thereto) from time to time, calculated on the basis of a 365-day year. (viii) All determinations pursuant to this Section 2(c) shall be made in accordance with GAAP. (d) Limit on Consideration. The Parties agree that, notwithstanding anything to the contrary in this Agreement, in no event shall the Consideration (valued for this purpose at the Closing Price), as adjusted, exceed an amount equal to $14,900,000. - 8 - 16 SECTION 3. CLOSING OF THE TRANSACTION. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Kirkland & Ellis, 153 East 53rd Street, New York, New York, at 10:00 a.m. local time on January 31, 1997, or such other time and place as the Parties may mutually determine (as modified below, the "Closing Date"); provided that either the Company or the Buyer may postpone the Closing Date for up to 60 days in order to obtain any consents or waivers of rights of first refusal required to transfer the franchise agreements. SECTION 4. CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions as of the Closing: (a) Representations and Warranties. The representations and warranties set forth in Section 6 shall be true and correct in all material respects at and as of the Closing Date as though then made and as though the Closing Date was substituted for the date of this Agreement throughout such representations and warranties, except to the extent of any change in the representations and warranties set forth in Section 6 solely caused by the transactions contemplated by the Transaction Documents or by ordinary course operations if such change does not have a Material Adverse Effect on the Company. (b) Performance of Covenants. The Sellers, the Principals and the Company shall have performed in all material respects all of their respective covenants and agreements required to be performed by them under this Agreement prior to the Closing Date. (c) Consents. Each of the Company, the Principals and Sellers will have obtained, on terms and conditions reasonably satisfactory to Buyer and without any liability, obligation, capital expenditure, additional commitment or other such action by the Company (other than any liability taken into account in Section 2(c) and any liability, obligation, capital expenditure, additional commitment or other such action provided for in Section 10(e)), (A) all consents, approvals, and releases by governmental agencies that are required for the consummation of the transactions contemplated by the Transaction Documents, (B) all consents, approvals, and releases by third parties that are required for the consummation of the transactions contemplated by the Transaction Documents, (C) all consents, approvals, and releases by third parties that are required in order to prevent a breach of, or a default under, or a termination, change in the terms or conditions or modification of, any instrument, contract, lease, license or other agreement to which the Company is a party and which is set forth on Schedule 4(c) to be attached hereto or to which any property of the Company is subject and which is set forth on Schedule 4(c), (D) releases of any and all Liens (other than Permitted Liens) held by third parties for which the underlying indebtedness has been, or will be, repaid by the Company on the Closing Date (collectively, the "Consents"). - 9 - 17 (d) Regulatory Approval. All necessary filings with regulatory authorities (including Hart-Scott-Rodino filings and approvals, if necessary) will have been made and all waiting periods will have expired. (e) Delivery of Interests. Each Seller shall have tendered all of his or her Interests, accompanied by a duly executed power of attorney over such Interests, endorsed in blank, on the Closing Date. (f) Reserved. (g) Absence of Material Adverse Change. Since the date hereof, there shall have been no event, circumstance or condition (not including (i) the termination of the management contract currently in force for the management of the Smithtown Sheraton and (ii) bonus payments to be made prior to Closing as disclosed pursuant to Section 6(h)(xii)) which has resulted or will result in a Material Adverse Effect on the Company, provided that for purposes of this Section 4(g) the existence of any Material Adverse Effect shall be determined by viewing the Company as a whole. (h) Absence of Litigation. No action or proceeding before any court or government body will be pending or threatened which, in the reasonable judgment of Buyer, makes it inadvisable or undesirable to consummate the transactions contemplated by any of the Transaction Documents by reason of the probability that the action or proceeding will result in a judgment, decree or order that would prevent the carrying out of the Transaction Documents or any of the transactions contemplated thereby, declare unlawful the transactions contemplated hereby or cause such transactions to be rescinded. (i) Compliance with Applicable Laws. The consummation of the transactions contemplated by the Transaction Documents will not be prohibited by any applicable constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge or other restriction of any Government Entity or subject Buyer or the Company to any penalty, liability or (in Buyer's sole judgment) other onerous condition arising under any applicable constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge or other restriction of any Government Entity. (j) Related Transactions. All of the Transaction Documents shall have been duly executed by all parties thereto and shall be in full force and effect, and the transactions contemplated in the PRISA Contribution Agreement shall have been or shall simultaneously be consummated in accordance with the terms thereof (unless such transactions have not been consummated by reason of Buyer's breach thereof). (k) Reserved. - 10 - 18 (l) Payoff Letter. Buyer shall have received at or prior to Closing a payoff letter in respect of each indebtedness listed on Schedule 4(l) to be attached hereto reasonably satisfactory in form and substance to Buyer and its counsel. (m) Reserved. (n) Reserved. (o) Reserved. (p) Reserved. (q) Seller Closing Deliveries. The Company, Principals and Sellers shall have delivered to Buyer at Sellers' expense each of the following: (i) an Officer's Certificate of the Company, dated as of the Closing Date, stating that the conditions specified in Section 4(a) through (j), inclusive, have been fully satisfied; (ii) a certificate (dated not less than five business days prior to the Closing) of the Secretary of State of the State of Delaware as to the good standing of the Company in the State of Delaware, and certificates (dated not less than five business days prior to the Closing) of good standing as a foreign limited liability company in each jurisdiction in which the Company does business where qualification to do business is required. (iii) copies of all agreements, filings, instruments and other documents evidencing the formation and organization of the Company as a limited liability company, all in form and substance reasonably satisfactory to Buyer and its counsel; (iv) such instruments of sale, transfer, assignment, conveyance and delivery, in form and substance reasonably satisfactory to counsel for Buyer, as are required in order to transfer to Buyer good and marketable title to the Interests, free and clear of all Liens; (v) with respect to each of the real property leases listed on Schedule 6(k), an estoppel letter from the landlords listed on Schedule 6(k), in form and content reasonably satisfactory to Buyer, stating the following: (a) the copy of the lease or sublease, as applicable, attached to the estoppel letter is a true, correct and complete copy of the lease or sublease, and represents the entire agreement between the landlord and the Company; (b) the Company is not in breach or default under the lease or sublease and no event has occurred which, with notice or the passage of time, would constitute a breach or default, or permit termination, modification or acceleration under the lease or sublease; (c) the landlord has not - 11 - 19 repudiated any provision of the lease or sublease; (d) there are no disputes, oral agreements or forbearance programs in effect as to the lease or sublease; (e) the amount of rent due under the lease and the date rent has been paid through; (f) the Company has satisfied all obligations as tenant under the lease or sublease; and (g) such other matters as Buyer may reasonably request; (vi) copies of the Consents and any filings related thereto; (vii) a duly executed certificate in the form prescribed by Treasury Regulations Section 1.1445-2(b)(2)(iii)(B) that no Seller is a foreign person; and (viii)such other documents relating to the transactions contemplated by the Transaction Documents as Buyer reasonably requests. (r) Proceedings. All proceedings taken or required to be taken by the Company, Principals or Sellers in connection with the transactions contemplated by the Transaction Documents to be consummated at or prior to the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to Buyer and its counsel. Buyer may waive any condition specified in this Section 4 if it executes a writing so stating at or prior to the Closing. SECTION 5. CONDITIONS TO OBLIGATION OF SELLERS. The obligation of Sellers to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions as of the Closing: (a) Representations and Warranties. The representations and warranties set forth in Section 7 shall be true and correct in all material respects at and as of the Closing Date as though then made and as though the Closing Date was substituted for the date of this Agreement throughout such representations and warranties. (b) Performance of Covenants. Buyer and SLC shall have performed in all material respects all of the covenants and agreements required to be performed by them under this Agreement prior to the Closing Date. (c) Compliance with Applicable Laws. The consummation of the transactions contemplated by the Transaction Documents will not be prohibited by any applicable constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge or other restriction of any Government Entity or subject the Sellers to any penalty, liability or other onerous condition arising under any applicable constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge or other restriction of any Government Entity. - 12 - 20 (d) Absence of Litigation. No action or proceeding before any court or government body will be pending or threatened which, in the judgment of the Sellers, makes it inadvisable or undesirable to consummate the transactions contemplated by any of the Transaction Documents by reason of the probability that the action or proceeding will result in a judgment, decree or order that would prevent the carrying out of the Transaction Documents or any of the transactions contemplated thereby, declare unlawful the transactions contemplated hereby or cause such transactions to be rescinded. (e) Regulatory Approval. All necessary filings with regulatory authorities (including Hart-Scott-Rodino filings and approvals, if necessary) will have been made and all waiting periods will have expired. (f) Related Transactions. All of the Transaction Documents shall have been duly executed by all parties thereto and shall be in full force and effect, and the transactions contemplated in the PRISA Contribution Agreement shall have been or shall simultaneously be consummated in accordance with the terms thereof. (g) Employment Agreements. Each of Gary Mendell and Murray Dow shall have entered into an Employment Agreement in the form of Exhibit D-1 and Exhibit D-2, respectively, attached hereto and each of the agreements that are exhibits thereto (collectively, the "Employment Agreements"), and each Employment Agreement and each of the agreements that are exhibits thereto shall be in full force and effect. (h) Buyer's Closing Deliveries. Buyer shall have delivered to the Sellers the following: (i) an Officer's Certificate of Buyer and SLC, dated as of the Closing Date, stating that the conditions applicable to such Party specified in Sections 5(a) through 5(g), inclusive, have been fully satisfied; (ii) certified copies of the resolutions of the board of directors of SLC authorizing and approving the transactions contemplated by the Transaction Documents to which SLC is a party; (iii) copies of all necessary governmental and third party consents, approvals, releases and filings required to be obtained by Buyer and SLC in connection with the consummation of the transactions contemplated hereby; (iv) a certificate (dated not less than five business days prior to the Closing) of the Secretary of State of the State of Delaware as to the good standing of Buyer in the State of Delaware and a certificate (dated not less than five business days prior to the Closing) of the Secretary of State of the State of Maryland as to the good standing of SLC in the State of Maryland; - 13 - 21 (v) such documents or other evidence of the issuance of the Class A Units referred to in Section 2(b) above as the Sellers may reasonably request; and (vi) such other documents relating to the transactions contemplated by the Transaction Documents as the Sellers reasonably request. (i) Proceedings. All proceedings taken or required to be taken by Buyer and SLC in connection with the transactions contemplated hereby to be consummated at or prior to the Closing and all documents incident thereto shall be satisfactory in form and substance to the Company and its counsel. (j) Reserved. (k) No Material Adverse Change to Buyer. Since the date hereof, there has been no event, circumstance or condition which has resulted in a Material Adverse Effect on Buyer, provided that for purposes of this Section 5(k) the existence of any Material Adverse Effect shall be determined by viewing SLT, SLC, SLTRLP and Buyer as a whole; provided further that any fluctuations in hotel market conditions in general or in the market prices of the Paired Shares shall not constitute a Material Adverse Effect. The Sellers may waive any condition specified in this Section 5 if they execute a writing so stating at or prior to the Closing. SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY, THE PRINCIPALS AND THE SELLERS. As a material inducement to Buyer to enter into and perform its obligations under this Agreement, the Company, the Principals and the Sellers jointly and severally represent and warrant to Buyer as follows: (a) Organization of the Company. The Company is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and is qualified to do business in every jurisdiction in which the nature of its business or its ownership of property requires it to be qualified, except where the failure to do so would not cause a Material Adverse Effect on the Company. Schedule 6(a) to be attached hereto lists all of the jurisdictions in which the Company is qualified to do business. (b) Authorization of Transaction. Each of the Company and the Sellers has full power and authority to execute and deliver the Transaction Documents to which it is a party and to perform its obligations thereunder. The members or managers of the Company and the Sellers have duly authorized the execution and delivery of the Transaction Documents to which the Company is a party and the consummation of the transactions contemplated thereby. No other proceedings on the part of the Company are necessary to approve and authorize the execution and delivery of the Transaction Documents or the consummation of the transactions contemplated by the Transaction - 14 - 22 Documents. Each Transaction Document to which the Company and Sellers are a party will, upon execution by such party constitute the valid and legally binding obligation of such party, enforceable against such party in accordance with its terms and conditions, subject to the effect of bankruptcy, insolvency, reorganization or other similar laws and to general principles of equity (whether considered in proceedings at law or in equity). (c) Noncontravention; Consents. (i) Neither the execution and the delivery of the Transaction Documents to which each of the Company, the Principals and Sellers is a party, nor the consummation of the transactions contemplated by the Transaction Documents, shall (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge or other restriction of any Government Entity to which the Company, the Principals or Sellers is subject or any provision of the articles of organization, by-laws, or operating agreement of the Company, (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, result in a premium, penalty or modification under, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under, any agreement, contract, lease, license, franchise, permit, indenture, mortgage, instrument or other arrangement to which the Company is a party or by which it is bound, unless such effect does not have a Material Adverse Effect on the Company, or (C) result in the imposition of any Lien upon any of the assets of the Company or upon the Interests, unless such effect does not have a Material Adverse Effect on the Company. Without limiting the generality of the foregoing, the Company has not entered into any agreement, nor is it bound by any obligation of any kind whatsoever, directly or indirectly, to transfer or dispose of (whether by sale of membership interests, assets, assignment, merger, consolidation or otherwise) the Company or the Business to any party other than Buyer. (ii) Except as set forth on Schedule 6(c) to be attached hereto, neither the Company, the Principals, nor the Sellers are required to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Government Entity or third party in order for such Party to enter into the Transaction Documents and to consummate the transactions contemplated by the Transaction Documents. Except as set forth on Schedule 6(c), no other authorization, consent, or approval is required to allow the Sellers to consummate the transactions. (d) Capitalization of the Company. The capitalization of the Company is completely set forth on Schedule 6(d) to be attached hereto, including the respective holdings of the Sellers and all other holders of Interests. There are no restrictions on the transfer of the Interests other than those set forth in the Company's constitutive documents and those arising from federal and applicable state securities laws. All currently issued and outstanding Interests were duly authorized and validly issued in accordance with the terms of the Company's constitutive documents and in compliance with applicable laws, and are fully paid and non-assessable. Except as set forth on Schedule 6(d) and except as created by this Agreement, there are no outstanding interests, equity - 15 - 23 interests (including, without limitation, any interests containing equity features), subscriptions, purchase rights, subscription rights, conversion rights, exchange rights, options, warrants, preemptive rights, rights of first refusal, rights of first offer, or other rights or other arrangements or commitments outstanding or obligating the Company or any holder of Interests to issue, sell or otherwise cause to be outstanding any Interests, any security convertible into or exercisable or exchangeable for Interests, or any other equity participation in the Company. There are no outstanding or authorized equity appreciation, phantom interest, profit participation or similar rights with respect to the Company. Except as set forth on Schedule 6(d), there are no voting trusts, proxies, or other agreements or understandings with respect to the Interests. At the Closing, upon receipt of the Interests, Sellers will have transferred the Interests to be contributed hereunder free and clear of all Liens, and, pursuant to Section 10(i), as of the Closing Buyer will be admitted as a member of the Company. (e) Brokers' Fees. Except as set forth on Schedule 6(e) to be attached hereto, neither the Company, the Principals, nor the Sellers have any liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. All items as set forth on Schedule 6(e) shall be the sole obligation of the Party that incurred such obligation; provided that in no event shall any assets of the Company be used to satisfy any such obligation (except to the extent that such obligations are paid out of Net Worth and do not reduce Net Worth to less than zero), it being understood and agreed that any such obligation on the part of the Company shall be fully paid and discharged when due by the Sellers (except as described in the previous parenthetical). (f) Subsidiaries and Investments. The Company has no subsidiaries and does not own, directly or indirectly, any stock, membership interests, partnership interests or joint venture interests in, or any security issued by, any other Person. (g) Financial Statements. Schedule 6(g) to be attached hereto contains the following financial statements (collectively, the "Financial Statements"): (i) the audited balance sheets of the Company as of December 31, 1995 (the "1995 Balance Sheet") and the related statements of income, members' equity and changes in financial position for the 226 day period then ended; and (ii) the unaudited balance sheets of the Company as of November 28, 1996 (the "Latest Balance Sheet") and the related statements of income, members' equity and changes in financial position for the eleven-month period then ended. Each of the Financial Statements (including in all cases the notes thereto, if any) is accurate and complete in all material respects, is consistent with the books and records of the Company (which, in turn, are accurate and complete in all material respects) and fairly presents in all material respects the financial condition and results of operations of the Company in accordance with GAAP throughout the periods covered thereby, subject in the case of unaudited financial statements to - 16 - 24 changes resulting from normal year-end adjustments (which will not be material individually or in the aggregate) and to the absence of materially adverse footnote disclosure. Each Financial Statement has been prepared in accordance with GAAP consistently applied. (h) Events Subsequent to the Latest Balance Sheet. Since the Latest Balance Sheet, there has not been any event, circumstance or condition which has resulted in Material Adverse Effect on the Company. Since that date, except as set forth on Schedule 6(h) to be attached hereto, the Company has conducted its businesses in the ordinary course of business consistent with past custom and practice, has incurred no liabilities other than in the ordinary course of business consistent with past custom and practice, and has not: (i) sold, assigned, conveyed, transferred, canceled, leased, licensed, encumbered or waived any property, tangible asset, Intellectual Property or other intangible asset or right other than in the ordinary course of business and consistent with past custom and practice; (ii) entered into any agreement, contract, lease, license or other arrangement (or series of related agreements, contracts, leases and licenses and arrangements) other than in the ordinary course of business consistent with past custom and practice; (iii) other than in the ordinary course of business, accelerated, terminated, modified (except pursuant to Buyer's instructions) or canceled any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) involving more than $50,000 to which the Company is a party or by which the Company is bound and no other party has and, to the Company's knowledge, no other party intends to take any such action; (iv) sold, assigned, transferred, abandoned or permitted to lapse any licenses or permits which, individually or in the aggregate, are material to the Business or any portion thereof, or any Intellectual Property or other intangible assets; (v) waived any right other than in the ordinary course of business consistent with past practice and custom; (vi) made any loan or advance to, or guarantee for the benefit of, or any Investment in, any Person; (vii) made capital expenditures and commitments therefor in excess of $50,000; (viii) mortgaged or pledged any of its assets or subjected any of them to any Lien; - 17 - 25 (ix) experienced any damage, destruction, or loss (whether or not covered by insurance) to any of its or their properties or assets in excess of $50,000; (x) except as disclosed pursuant to Section 6(h)(xii) or referred to in Section 6(h)(xiii) below, entered into any employment contract or collective bargaining agreement, written or oral, or modified the terms of any such existing contract or agreement; (xi) granted any increase in the base compensation of any of its managers, members, officers or employees other than in the ordinary course of business consistent with past custom and practice; (xii) adopted, amended, modified or terminated any bonus, profit-sharing, incentive, severance, Employee Pension Benefit Plan, Employee Welfare Benefit Plan or other plan, contract or commitment for the benefit of any of its managers, members, officers and employees; (xiii)except as provided in Section 10(m), entered into any transaction with any of its managers, members, officers, employees or Affiliates (other than ordinary course employment and deferred compensation and bonus arrangements entered into in accordance with past custom and practice) which are not reflected on the 1995 Balance Sheet or the Latest Balance Sheet (each of which obligations shall be paid prior to Closing or shall be reflected on the Closing Balance Sheet); (xiv) experienced any other occurrence, event, incident, action, failure to act or transaction outside of the ordinary course of business (except as contemplated by the Transaction Documents) or entered into any other material transaction, whether or not in the ordinary course of business that has resulted in Material Adverse Effect; or (xv) committed to do any of the foregoing. (i) Absence of Undisclosed Liabilities. Except as set forth on Schedule 6(i) to be attached hereto, the Company has no debts, liabilities or obligations of any nature (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due and regardless of when asserted including, without limitation, Taxes with respect to or based upon transactions or events occurring on or before the Closing), and to the knowledge of the Company there is no basis for any proceeding, hearing, investigation, charge, complaint, claim with respect to any debt, liability or obligation, except for (i) liabilities reflected in the liabilities section of the Latest Balance Sheet, (ii) liabilities under agreements, contracts, purchase orders and other similar arrangements set forth on Schedule 6(q) attached hereto or not set forth on Schedule 6(q) due solely to the specific dollar threshold contained in Section 6(q) which have arisen in the ordinary course of business (none of which relates to a breach of contract or default), and (iii) liabilities which have arisen since the date - 18 - 26 of the Latest Balance Sheet in the ordinary course of business (none of which relates to (x) breach of contract, default, breach of warranty, or infringement or any liability under any Environmental, Health and Safety Laws, or (y) tort, violation of law. or any other action, suit or proceeding which require the payment by the Company of an amount, either individually or in the aggregate, in excess of $20,000). (j) Legal Compliance. Except as set forth on Schedule 6(j) to be attached hereto, the Company has complied with and is in compliance with all applicable laws, rules and regulations of federal, state, local and foreign governments (and all agencies thereof), and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed, commenced or threatened against any of them alleging any failure to so comply, except to the extent that failure to comply has not and will not have a Material Adverse Effect on the Company, taken as a whole. (k) Leased Properties. Schedule 6(k) to be attached hereto lists all real property that is occupied by the Company (other than the Hotels (as defined in the PRISA Contribution Agreement)) in connection with its business but not owned by the Company and the leases, subleases and agreements by which such property is used and occupied. Except as otherwise described on Schedule 6(k), with respect to each such parcel of leased real property: (i) the leases and subleases described on Schedule 6(k) constitute all of the leases, subleases and agreements under which the Company holds any interest in any real estate used in connection with its business; (ii) the Company has delivered to the Buyer and its counsel true, correct and complete copies of all of the leases, subleases and agreements described on Schedule 6(k); (iii) each such lease, sublease or agreement is legal, valid, binding, enforceable and in full force and effect as to the Company, and will continue to be legal, valid, binding, enforceable and in full force and effect on identical terms after the Closing; (iv) the Company or to the Company's knowledge, any other party to any such lease, sublease or agreement is not in breach or default thereof, and no event has occurred which, with notice or the lapse of time, or both, would constitute such a breach or default or permit termination, modification or acceleration thereof or thereunder; (v) to the Company's knowledge, no party other than the Company to any such lease, sublease or agreement has repudiated any provision thereof; (vi) there are no disputes, oral agreements or forbearance programs in effect as to any such lease, sublease or agreement; (vii) no such lease, sublease or agreement has been modified in any respect, except to the extent disclosed in documents delivered to the Buyer and its counsel; (viii) the Company has not assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in any leasehold or subleasehold except for Permitted Liens; (ix) to the Company's knowledge, all buildings, improvements and other property thereon are supplied with utilities and other services necessary for the operation thereof (including gas, electricity, water, telephone, sanitary and storm sewers and access to public roads); and (x) there are no pending (or, to the best of the Company's knowledge, threatened) condemnation proceedings, lawsuits, or other administrative actions relating to such parcel or other matters affecting adversely the current use, occupancy, or value of such parcel. - 19 - 27 (l) Title. The Company owns good and marketable title, free and clear of all Liens (other than Permitted Liens), to all of the tangible personal and intangible property and assets of the Company shown on the Latest Balance Sheet or acquired thereafter which have not been disposed of in the ordinary course of business consistent with past custom and practice, except for rights of licensors and lessors of such assets which are subject to a license or lease described in Schedule 6(q) or Schedule 6(k), or not required to be described on such schedules. (m) Condition of Assets. All of the Company's machinery, equipment and other tangible personal property and assets are in good condition and repair, except for ordinary wear and tear. (n) Real Property. The Company does not directly or indirectly own any real property. (o) Tax Matters. Except as set forth on Schedule 6(o) to be attached hereto, (i) the Company has timely filed or shall timely file all Tax Returns which are required to be filed, and all such Tax Returns are true, complete and accurate in all material respects and have been prepared in compliance with applicable law; (ii) all Taxes due and payable as of the Closing Date by the Company, whether or not shown on a Tax Return, have been paid or shall be paid by the Company or the Sellers, all Taxes accrued but not yet due are shown on the Closing Balance Sheet and no Taxes are delinquent; (iii) no deficiency for any amount of Tax has been asserted or assessed by a taxing authority against the Company or any Seller with respect to the operations of the Company and neither the Company nor any Seller has any knowledge that any such assessment or asserted Tax liability shall be made; (iv) the Company does not reasonably expect any taxing authority to claim or assess any additional Taxes for any period, and no audit or investigation by any taxing authority is pending or has been threatened in writing; (v) the Company has not consented to extend the time beyond the Closing in which any Tax may be assessed or collected by any Taxing authority; (vi) the Company has no liability for Taxes of any other Person under Treasury Regulations Section 1.1502-6 or any similar provision of local, state or foreign Tax law; - 20 - 28 (vii) the Company is not a party to or bound by any Tax allocation or Tax sharing agreement and has no current or potential contractual obligation to indemnify any other person with respect to Taxes; (viii)the Company is, and since its formation has been, validly classified as a partnership for federal income tax purposes; (ix) no claim has ever been made by a taxing authority in a jurisdiction where the Company does not pay Tax or file Tax Returns that the Company is or may be subject to Taxes assessed by such jurisdiction; (x) the Company has withheld and prior to Closing shall have paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, creditor, independent contractor or other third party; and (xi) Schedule 6(o) contains a list of states, territories and jurisdictions (whether foreign or domestic) in which the Company is required to file Tax Returns relating to the Business. (p) Intellectual Property. (i) Schedule 6(p) to be attached hereto sets forth a complete and correct list of all: (A) patented or registered Intellectual Property and pending patent applications or other applications for registrations of Intellectual Property owned or filed by or on behalf of the Company; (B) all trade names, Internet domain names and unregistered trademarks and service marks owned by the Company; (C) all licenses or similar agreements or arrangements for the Intellectual Property to which the Company is a party, either as licensee or licensor. (ii) Except as set forth on Schedule 6(p): (A) the Company owns and possess all right, title and interest in and to, or to the Company's knowledge has a valid and enforceable license to use, the Intellectual Property used in the operation of the Business as currently conducted and as currently proposed to be conducted, free and clear of all liens, licenses, security interests, encumbrances and other restrictions; - 21 - 29 (B) to the Company's knowledge no claim by any third party contesting the validity, enforceability, use or ownership of any such Intellectual Property has been made, is currently outstanding or is threatened, and there are no grounds for the same; (C) to the Company's knowledge no loss or expiration of any such Intellectual Property is threatened, pending or reasonably foreseeable; (D) the Company has not received any notice of, and neither the Company, any Principal nor any Seller have any knowledge of any facts which indicate a likelihood of, any infringement or misappropriation by, or conflict with, any third party with respect to such Intellectual Property; (E) the Company has not infringed, misappropriated or otherwise conflicted with any Intellectual Property rights or other rights of any third parties and no infringement, misappropriation or conflict will occur as a result of the operation of the Business as currently conducted or as currently proposed to be conducted; and (F) the transactions contemplated by this Agreement will not conflict with, violate, terminate or create a right to terminate any license or other agreement with any third party relating to such Intellectual Property or result in a modification in the terms of any such license or other agreement. (iii) The Company, the Principals and Sellers have taken all necessary action to maintain and protect such Intellectual Property so as not to adversely effect the validity, enforcement, use or ownership of such Intellectual Property. The Intellectual Property owned or used by the Company prior to the Closing will be owned or available for use by the Company on identical terms and conditions immediately subsequent to the Closing. (q) Contracts and Commitments. Except as set forth on Schedule 6(q) to be attached hereto, the Company is not a party to any written or oral: (i) (A) contract for the employment of any officer, individual employee, or other person or entity on a full-time, part-time, consulting or other basis for a discernable period of time (not including any oral employment-at-will contracts entered into in the ordinary course of business or any employment contracts with non-executives), (B) contract with any labor union, (C) severance agreement or (D) agreement relating to loans to officers, managers, members or affiliates, other than advances in the ordinary course of business consistent with past practice and custom; - 22 - 30 (ii) agreement or indenture relating to the borrowing of money or to the mortgaging, pledging or otherwise placing a lien on any asset or group of assets of the Company; (iii) outstanding powers of attorney executed on behalf of the Company or any Guaranty; (iv) guarantee of any obligation for borrowed money or otherwise; (v) agreement with respect to the lending or investing of funds to or in any other Person; (vi) management contract or other similar arrangement relating to the management and operation of hotels; (vii) partnership, joint venture or other similar agreement or arrangement; (viii)lease or agreement under which it is lessee of or holds or operates any property, real or personal, owned by any other party, except for any lease of personal property under which the aggregate rental payments do not exceed $25,000; (ix) lease or agreement under which it is lessor of or permits any third party to hold or operate any property, real or personal, owned or controlled by it; (x) assignment, license, indemnification or agreement with respect to any form of intangible property, including any Intellectual Property, except as already disclosed on Schedule 6(p) or any franchise or marketing representation agreement or arrangement; (xi) contract or group of related contracts with the same party (excluding purchase orders entered into in the ordinary course of business) for the purchase or sale of products or services under which the undelivered balance of such products and services has a selling price in excess of $50,000; (xii) contract which limits its freedom to use any Intellectual Property anywhere in the world, except as required by applicable licenses, or which prohibits it from freely engaging in business anywhere in the world; (xiii)any material agreement with any Government Entity; (xiv) contract or group of related contracts with the same party continuing over a period of more than six months from the date or dates thereof that is not terminable by each party thereto on sixty (60) days or less notice without penalty; - 23 - 31 (xv) contract relating to the marketing or sales of its services; or (xvi) other agreement material to the Business or involving payments or receipts greater than $50,000 in any fiscal year. Except as specifically disclosed in Schedule 6(q),the Company has performed all material obligations required to be performed by it and is not in default under or in breach of nor in receipt of any claim of default or breach under any agreement, lease, contract, commitment or other agreement to which it is a party; and no event has occurred which with the passage of time or the giving of notice or both would result in a default, breach or event of noncompliance under any such agreement or would allow any other party to such agreement to terminate, modify or accelerate any rights under any such agreements or otherwise take any action which would have a Material Adverse Effect on the Company. The Company has no knowledge of any breach or anticipated breach by any other party of any agreement relating to the Business. Each item described on Schedule 6(q) is valid, binding and enforceable against the Company in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization or other similar laws and to general principles of equity (whether considered in proceedings at law or in equity). Upon consummation of the transactions contemplated by the Transaction Documents, subject to the receipt of any necessary approvals and consents set forth on Schedule 6(c), each item described on Schedule 6(q) shall be in full force and effect without penalty or other modification. Buyer has been supplied with a true and correct copy of each of the contracts which are referred to on Schedule 6(q), together with all amendments, waivers or other modifications thereto and renewals and extensions thereof. (r) Insurance. Schedule 6(r) to be attached hereto lists and briefly describes each insurance policy maintained by the Company with respect to its properties, assets and business. All of such insurance policies are in full force and effect and will remain in full force and effect following the Closing for the remainder of their respective terms without any further action or payment (other than premiums payable in the ordinary course) by the Buyer and the Company is not in default with respect to its obligations under any of such insurance policies and has not received any notification of cancellation of any of such insurance policies and has no claim outstanding which could be expected to cause a material increase in the Company's insurance rates. The Company maintains insurance coverage of a type and amount customary for organizations of similar size engaged in similar lines of business. (s) Litigation; Proceedings. Except as set forth on Schedule 6(s) to be attached hereto, there are no actions, suits, proceedings (including grievance proceedings), hearings, orders, investigations, inquiries, charges, complaints or claims pending or to the Company's knowledge threatened against or affecting the Company or the Business (or, to the Company's knowledge, pending or threatened against or affecting any of the officers, managers, members or employees of the Company with respect to the Business), or to which the Company may be bound or affected, at law or in equity, or before or by any Government Entity which, if adversely determined, would reasonably be expected to have a Material Adverse Effect on the Company viewing the Company as a whole. The Company (i) is not subject to any judgment, order or decree of, or settlement or - 24 - 32 conciliation agreement subject to enforcement by, any Government Entity, (ii) has not received any opinion or memorandum or legal advice from legal counsel to the effect that it is exposed, from a legal standpoint to any liability or disadvantage which may be material to its businesses or (iii) is not engaged in any legal action to recover monies due it or for damages sustained by it. (t) Licenses and Permits. Schedule 6(t) to be attached hereto contains a complete listing and summary description of all material permits, licenses, certificates, approvals and other authorizations of any Government Entity or other similar rights (collectively, the "Licenses") used in the conduct of the Business. Except as indicated Schedule 6(t), the Company owns or possess all right, title and interest in and to all of the Licenses that are necessary to conduct the Business as presently conducted and as presently proposed to be conducted, including, without limitation, all Licenses required under any federal, state or local law relating to public health and safety, employee health and safety, pollution or protection of the environment other than those Licenses where the failure to obtain such Licenses would not reasonably be expected to have a Material Adverse Effect on the Company viewing Company as a whole. The Company is in material compliance with the terms and conditions of such Licenses and has received no notices that it is in violation of any of the terms or conditions of such Licenses. The Company has taken all necessary action to maintain such Licenses. No loss or expiration of any such License is threatened (to the Company's knowledge), pending or reasonably foreseeable other than expiration in accordance with the terms thereof. Except as indicated on Schedule 6(t), all of the material Licenses shall survive the transfer of the Interests to the Buyer. Notwithstanding anything to the contrary in this Section 6(t), Buyer hereby acknowledges that some of the permits, licenses, certificates, approvals and other authorizations of any Government Entity required in order to serve alcohol in connection with the operation of the Business (the "Liquor Licenses") may not be transferable. Furthermore, Buyer hereby agrees to bear the cost of transferring each Liquor License. Sellers hereby agree to fully cooperate with Buyer in effecting the transfer of the Liquor Licenses. (u) Employees. (i) The Company has complied and remains in compliance with all laws and contracts relating to labor and employment including, without limitation, provisions thereof relating to wages, hours, equal opportunity, collective bargaining, immigration and the payment of social security and other taxes. (ii) Except as set forth in Schedule 6(u) to be attached hereto: (A) there is no charge or complaint pending or, to knowledge of the Company, threatened before any Government Entity against the Company, or any of its employees, officers or managers, alleging violation of any federal, state or local statute, ordinance or regulation relating to any employee's (or group of employees') employment or prospective employment at the Company, and to the knowledge of the Company no basis for any such claim exists; nor will this transaction form the basis of or result in any such charge or complaint; - 25 - 33 (B) within the last three years the Company has not experienced any union organizing attempt, strikes, work stoppage or slow down, or any other labor dispute or question concerning representation, and no such action is currently pending or, to knowledge of the Company, threatened; (C) the Company is not a party to any collective bargaining agreement or relationship with any labor union; (D) to the knowledge of the Principals, no executive, key employee or group of employees of the Company has any plans to terminate their employment with the Company; (E) no current or former employee of the Company has asserted any claim or, to knowledge of the Company, threatened any claim against the Company for overtime pay, wages, salary or bonus or vacation time, excluding in each case current payroll periods; and (F) neither the Company nor any of the Company's members, managers, officers or employees is subject to any noncompete, nonsolicitation, employment, consulting or similar agreement relating to, affecting, or in conflict with, the Business or his, her or its activities for the Business. (G) The Company has not implemented any plant or operating unit closing, or layoff of employees, that could implicate the Worker Adjustment Retraining and Notification ("WARN") Act of 1988, as amended, or any similar state or local law or regulation, and no such layoffs will be implemented before Closing without advance notification to Buyer. - 26 - 34 (v) Employee Benefits. Other than a 401(k) plan: the Company has no deferred or incentive compensation (excluding discretionary cash bonuses disclosed pursuant to Section 6(h)(xii)), profit sharing, retirement, hospitalization, Employee Pension Benefit Plans or Employee Welfare Benefit Plans. The Company is not a participating or contributing employer in any Multiemployer Plan with respect to employees of the Company nor has the Company incurred any withdrawal liability with respect to any Multiemployer Plan or any liability in connection with the termination or reorganization of any Multiemployer Plan. The Company has not incurred and has no reason to expect that it will incur any liability to the PBGC or otherwise under Title IV of ERISA (including any withdrawal liability) or under the Code with respect to any Employee Pension Benefit Plan that the Company or any member of its Controlled Group (within the meaning of Code Section 414(b) and (c)) has ever maintained or to which any of them has ever contributed, or ever has been required to contribute. Any such plans that the Company has ever maintained or to which it has ever contributed, including the 401(k) plan, have been administered in compliance with ERISA and the Code and all applicable laws. (w) Environment, Health and Safety. Except as set forth on Schedule 6(w) to be attached hereto or in the environmental reports delivered to Buyer and listed on Schedule 6(w): (i) the Company has obtained all permits, licenses, and other authorizations which are required for the ownership and operation of the Business under all applicable Environmental, Health and Safety Laws; (ii) the Company has not handled or disposed of any substance, arranged for the disposal of any substance, exposed any employee or other individual to any substance or condition, or owned or operated the Business or any property or facility (and, to knowledge of the Company, no such property or facility is contaminated with hazardous materials, substances or waste) so as to give rise to any liability or corrective or remedial obligation under any Environmental, Health and Safety Laws; (iii) the Company has complied with all Environmental, Health and Safety Laws, and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand or notice has, to the Company's knowledge, been filed or commenced against the Company alleging any failure to so comply; (iv) the Company has not assumed or undertaken any liability of any other Person under any Environmental, Health and Safety Laws; (v) to the Company's knowledge, no underground storage tanks, landfills or waste disposal areas, asbestos-containing materials, or PCB-containing equipment or fluids have been or are present on any real property listed on Schedule 6(k); and - 27 - 35 (vi) the transactions contemplated by this Agreement do not impose any obligations under any Environmental, Health and Safety Laws for site investigation or cleanup, or notification to any government agencies or third parties. (x) Reserved. (y) Reserved. (z) Insider Interests. Except as set forth on Schedule 6(z) or as set forth in Section 10(m), to be attached hereto, no officer, member or manager of the Company or any relative or Affiliate of such Person has any agreement with the Company or any interest in any property (real, personal or mixed, tangible or intangible) used in or pertaining to the Business, except solely as a member or employee. (aa) Reserved. (bb) Investment Representation. Sellers are receiving the Class A Units to be delivered pursuant hereto (the "Units") for their own account with the present intention of holding such Units for purposes of investment, and each such party has no intention of selling such Units in a distribution in violation of the federal securities laws or any applicable state securities laws. Each Seller is either an accredited investor as defined in Rule 501 of the Securities Act of 1933, as amended (an "Accredited Investor") or, together with their Purchaser Representative, is sophisticated. (cc) Closing Date. The representations and warranties of the Company, any Principal or any Seller contained in this Section 6 and elsewhere in this Agreement and all information contained in any exhibit, schedule or attachment hereto or in any writing delivered by, or on behalf of, the Company, any Principal or any Seller to Buyer shall be true and correct on the Closing Date as though then made, except as affected by the transactions expressly contemplated by this Agreement. SECTION 7. REPRESENTATIONS AND WARRANTIES OF BUYER AND SLC. As a material inducement to the Company, the Principals and Sellers to enter into and perform their obligations under this Agreement, Buyer and SLC hereby represent and warrant to such Parties as follows: (a) Organization of Buyer. Buyer is a limited partnership duly organized, validly existing, and in good standing under the laws of the State of Delaware, and is qualified to do business in all jurisdictions in which such qualification is required. SLC is a corporation duly organized, validly existing, and in good standing under the laws of the State of Maryland, and is qualified to do business in all jurisdictions in which such qualification is required. - 28 - 36 (b) Authorization of Transaction. Buyer and SLC have full power and authority to enter into this Agreement and perform all of their obligations hereunder. The execution and delivery of this Agreement and the performance by Buyer and SLC of their obligations hereunder have been duly authorized by such action as may be required, and no further action or approval is required in order to constitute this Agreement as a binding and enforceable obligation of Buyer and SLC. (c) Noncontravention. Neither the execution and the delivery of the Transaction Documents, nor the consummation of the transactions contemplated by the Transaction Documents, shall (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any Government Entity to which Buyer or SLC is subject or any provision of their partnership agreement or articles of incorporation, respectively, or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which Buyer or SLC is a party or by which Buyer or SLC is bound or to which any of their assets are subject. Except as set forth on Schedule 7(c) to be attached hereto, Buyer and SLC are not required to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order for the Parties to consummate the transactions contemplated by the Transaction Documents. (d) Status of the Partnership Agreement. The Partnership Agreement is in full force and effect, a true, complete and correct copy thereof has been delivered to the Company and there are no dissolution, termination or liquidation proceedings pending or contemplated with respect to Buyer. To Buyer's knowledge, there are no uncured defaults or breaches by any partner under the Partnership Agreement. Buyer is taxable as a "partnership" as defined in Section 7701(a) of the Code and is not taxable as a publicly traded partnership within the meaning of Section 7704 of the Code. (e) No Litigation; Proceedings. There are no pending or, to Buyer's knowledge, threatened investigations, actions, suits, proceedings or claims against or affecting Buyer at law or in equity or before or by any Government Entity which, if determined adversely, would have a material adverse impact on Buyer or the transactions contemplated hereby. (f) Units. The capitalization of Buyer is as set forth in its Partnership Agreement. There are no restrictions on the transfer of the Units other than those contained in the Partnership Agreement, the Exchange Rights Agreement or the Registration Rights Agreement and those arising from federal and applicable state securities laws. Except as set forth on Schedule 7(f) to be attached hereto and except as created by this Agreement, as of the date hereof, there are no outstanding subscriptions, options, warrants, preemptive or other rights or other arrangements or commitments obligating Buyer to issue any Class A Units. If and when issued, the Paired Shares issuable upon exchange of the Units delivered hereunder pursuant to the Exchange Rights Agreement will be duly authorized, validly issued and fully paid. At the Closing, upon receipt of the Interests, Buyer will - 29 - 37 have transferred the Units free and clear of all Liens (other than any liens in favor of the partners of Buyer pursuant to the Partnership Agreement), and as of the Closing, Sellers will be admitted as limited partners of Buyer. The issuance of the Units to Sellers at the Closing will not require any approval or consent of any Government Entity except any such approval that shall have been obtained on or prior to the Closing. Assuming the accuracy of the representation in Section 6(bb) the issuance of the Units to Sellers hereunder is exempt from registration under the Securities Act of 1933 and applicable state securities laws. (g) Financial Statements; Undisclosed Liabilities. True and complete copies of (i) the audited financial statements of Buyer as of December 31, 1995, together with all related notes and schedules thereto, accompanied by the reports thereon of Buyer's independent auditors and (ii) the unaudited financial statements of Buyer as of September 30, 1996 for the nine months then ended, together with all notes and schedules thereto (collectively, the "Starwood Financial Statements") have been delivered to the Sellers. The Starwood Financial Statements were prepared in accordance with the books of account and other financial records of Buyer, present fairly the consolidated financial condition and results of operations of Buyer as of the dates thereof or for the periods covered thereby, and have been prepared in accordance with GAAP and since the date of the latest Starwood Financial Statements, there has not been any event, circumstance or condition which has resulted in Material Adverse Effect on the Company; provided that for purposes of this Section 7(g) the existence of any Material Adverse Effect shall be determined by viewing SLT, SLC, SLTRLP and Buyer as a whole; provided further that any fluctuations in hotel market conditions in general or in the market prices of the Paired Shares shall not constitute a Material Adverse Effect. (h) Reservation of Paired Shares. Upon the Closing, SLC shall have reserved for issuance a number of SLC's common shares, and has the right to acquire shares of Starwood Lodging Trust, equal to the number of Paired Shares into which the Units are exchangeable pursuant to the Exchange Rights Agreement. (i) Closing Date. The representations and warranties of Buyer contained in this Section 7 and elsewhere in this Agreement and all information contained in any exhibit, schedule or attachment hereto shall be true and correct on the Closing Date as though then made, except as affected by the transactions expressly contemplated by this Agreement. SECTION 8. PRE-CLOSING COVENANTS. (a) Affirmative Covenants of the Company, the Principals, and the Sellers. From and after the date of this Agreement to the Closing Date, except as otherwise consented to in writing by Buyer, the Sellers and the Principals shall, and shall cause the Company to: (i) conduct the Company's operations according to the ordinary and usual course of business and use reasonable best efforts to preserve intact its business organization, keep available the services of officers and employees, and maintain satisfactory relationships with suppliers, customers, franchisees and others having business relationships with them; - 30 - 38 (ii) promptly inform Buyer in writing of any variances from the representations and warranties contained in Section 6 (which notification shall not be deemed to amend any disclaimers made therein or cure any breach thereof) or of any facts, circumstances or conditions which are likely to result in the Buyer's conditions to Closing not being satisfied by the date contemplated in Section 11(a)(iii); (iii) permit representatives and agents of Buyer to have reasonable access (upon reasonable notice, during normal business hours, coordinated through Murray Dow) to the Company's books, records, property, facilities, customers, suppliers, sales representatives, consultants, key employees and independent accountants in connection with Buyer's due diligence review of the Company; (iv) use commercially reasonable efforts to obtain all third party and governmental approvals and consents necessary or desirable to consummate the transactions contemplated hereby and to cause the other conditions to Buyer's obligations hereunder to be satisfied; (v) maintain all of the Company's assets in good repair, order and condition, except for ordinary wear and tear not caused by neglect, and maintain insurance reasonably comparable to that in effect on the date hereof; (vi) maintain the existence of and use reasonable efforts to protect all Intellectual Property used in the Business; (vii) maintain the existence of and protect all of the governmental permits, licenses, approvals and other authorizations of the Business; (viii)comply with all applicable laws, ordinances, and regulations in the operation of the Business (including, without limitation, Environmental, Health and Safety Laws); (ix) maintain its books, accounts and records in accordance with GAAP; and (x) conduct the cash management customs and practices of the Business (including, without limitation, the collection of receivables and payment of payables) in the usual and ordinary course of business in accordance with past custom and practice. (b) Negative Covenants of the Company, the Principals and the Sellers. From and after the date of this Agreement to the Closing Date, without the prior written consent of Buyer, the Sellers and Principals shall not, and shall not permit the Company to: - 31 - 39 (i) take any action referred to in Section 6(h); (ii) except as specifically contemplated by this Agreement, enter into any transaction other than in the ordinary course of business; (iii) declare or pay any dividends or make any other distributions in respect of the Interests which would result in the Company having a negative Closing Net Worth of greater than $14,500,000; (iv) issue, authorize or propose the issuance of, or purchase, redeem or propose the purchase or redemption of, any membership interests of or other equity interest (or interest containing equity features) in the Company or securities convertible into or exchangeable for, or rights, warrants or options (including employee options) to acquire, any such interests or other convertible securities; (v) transfer any of the assets of the Company to any Person other than in the ordinary course of business; or (vi) take any action which would cause the representations or warranties contained in Section 6 to cease to be true and correct as of the Closing as though then made. (c) Affirmative Covenants of Buyer. From and after the date of this Agreement to the Closing Date, except as otherwise consented to in writing by the Company, Buyer shall: (i) promptly inform the Company in writing of any variances from the representations and warranties contained in Section 7 (which notification shall not be deemed to amend any disclaimers made therein or cure any breach thereof) or of any facts, circumstances or conditions which are likely to result in the Sellers' conditions to Closing not being satisfied by the date contemplated in Section 11(a)(iii); (ii) permit representatives and agents of the Sellers and the Company to have reasonable access (upon reasonable notice, during normal business hours) to Buyer's books, records, property, facilities, customers, suppliers, sales representatives, consultants, key employees and independent accountants ("Buyer's Information") in connection with Sellers' and the Company's due diligence review of Buyer, provided that each of the Company, the Sellers, the Principals, and each party given such access shall not, directly or indirectly, use for its or his own purposes or disclose to any third party any Buyer's Information without the prior written consent of Buyer, unless and to the extent that (a) the Buyer's Information becomes widely and generally known to and available for use by the hotel and hospitality industry other than as a result of any such party's acts or omissions to act or (b) such party is required by order of a court of competent jurisdiction (by subpoena or similar process) to disclose or discuss any Buyer's Information (provided that in such case, such party shall promptly inform Buyer of such event, shall cooperate with Buyer in - 32 - 40 attempting to obtain a protective order or to otherwise restrict such disclosure and shall only disclose Buyer's Information to the minimum extent necessary to comply with any such court order); and (iii) use commercially reasonable efforts to obtain all third party and governmental approvals and consents necessary or desirable to consummate the transactions contemplated hereby and to cause the other conditions to Buyer's obligations hereunder to be satisfied. SECTION 9. SURVIVAL; INDEMNIFICATION. (a) Survival. All representations, warranties, covenants and agreements set forth in this Agreement or in any certificate or other writing delivered in connection with this Agreement shall survive the Closing and the consummation of the transactions contemplated thereby notwithstanding any examination made for or on behalf of the Sellers, the Principals, or Buyer, the knowledge of any of their officers, directors, partners, employees or agents, or the acceptance of any certificate or opinion; provided that the Company's, the Principals' and the Sellers' obligation to indemnify Buyer in respect of breaches thereof shall be subject to the limitations set forth in (c) below; provided further that the Company's obligation to indemnify or make contributions to the Sellers and the Principals in respect of breaches thereof shall be subject to the limitations set forth in Section 9(k); and provided further that the Buyer's obligation to indemnify the Company, the Sellers and the Principals in respect of breaches thereof shall be subject to the limitations set forth in Section 11(c). (b) Indemnification by the Principals and the Sellers. Subject to the limitations set forth in (c) below, the Principals and the Sellers shall jointly and severally indemnify Buyer and each of its respective affiliates, officers, directors, partners, employees, agents, representatives, successors and permitted assigns (collectively, the "Partnership Parties") and hold each of them harmless against and pay on behalf of or reimburse such Partnership Parties in respect of any loss (including diminution in value of, or losses incurred by or in respect of, the Company), liability, demand, claim, action, cause of action, cost, damage, deficiency, tax, penalty, fine or expense, whether or not arising out of third party claims (including, without limitation, interest, penalties, reasonable attorneys' fees and expenses, court costs and all amounts paid in investigation, defense or settlement of any of the foregoing) (collectively, "Losses") which any such Partnership Party may suffer, sustain or become subject to, as a result of, in connection with, relating or incidental to or by virtue of: (i) the breach of any representation or warranty contained in this Agreement or any schedule or exhibit hereto by the Company, the Principals or the Sellers; (ii) the breach of any covenant or agreement of the Company, the Principals, or the Sellers contained in this Agreement by the Company, the Principals or the Sellers; and - 33 - 41 (iii) any claims of any brokers or finders claiming by, through or under the Company, the Principals, or the Sellers with regard to the contribution of the Interests. For the purposes of subsections (i) and (ii) above, if Buyer or SLC has actual knowledge at the Closing that a representation, warranty, covenant or agreement of the Company, the Sellers or the Principals has been breached by the Company, the Sellers or the Principals, and Buyer or SLC is fully aware of both the nature and extent of such breach and elects to consummate the transactions contemplated hereby in spite of such breach, then Buyer and SLC will be deemed to have waived such breach, and the Company, the Principals and the Sellers will not have to indemnify Buyer or SLC against any Losses resulting from such breach to the extent of Buyer's knowledge thereof. (c) Limits on Indemnification. The Indemnification provided for in Section 9(b) above is subject to the following limitations: (i) the Company, the Principals, and the Sellers will be liable to Partnership Parties with respect to claims referred to in subsection (b)(i) above only if such Partnership Party gives written notice to the Company, the Principals, and the Sellers: (A) within 12 months after the Closing Date for claims arising from breaches of the representations and warranties set forth in Sections 6(c) (except 6(c)(i)(A)), 6(g), 6(h), 6(i), 6(k), 6(l), 6(m), 6(n), 6(p), 6(q), 6(r), 6(s), 6(t), 6(u) (other than 6(u)(i)), 6(v) and 6(cc) (to the extent related to the other sections referenced in this Section 9(c)(i)(A)); (B) prior to 30 days following the expiration of the applicable statute of limitations for claims by governmental authorities or third parties against the Company which relate to breaches of the representations and warranties set forth in Sections 6(c)(1)(A), 6(e), 6(j), 6(o), 6(u)(i), 6(w), 6(bb) and 6(cc) (to the extent related to the other sections referenced in this Section 9(c)(i)(B)); or (C) at any time after the Closing Date for claims arising from breaches of the representations and warranties set forth in Sections 6(a), 6(b), 6(d), 6(f), 6(z) and 6(cc) (to the extent related to the other sections referenced in this Section 9(c)(i)(C)). (ii) The Company, the Principals, and the Sellers will not be liable for any Loss with respect to claims referred to in subsection (b)(i) and (ii) above to the extent such Losses exceed an amount equal to the sum of $500,000 (the "Cap"). - 34 - 42 (d) Indemnification by Buyer and SLC. Buyer and SLC, jointly and severally agree to indemnify the Company, the Principals, or the Sellers and their agents, representatives, successors and assigns and to hold them harmless against any Loss which they may suffer, sustain or become subject to, as the result of a breach of any representation, warranty, covenant or agreement by Buyer or SLC contained in this Agreement; provided that Buyer shall provide such indemnification with respect to any breach of the representations and warranties contained in Sections 7(c) through 7(i) only if Buyer shall have received written notice of such breach (1) within 12 months after the Closing Date for breaches of Sections 7(c), 7(d), 7(e), 7(g), and 7(i) (to the extent related to the other Sections referenced in this Section 9(d)(1)), and (2) at any time after the Closing Date for breaches of Sections 7(a), 7(b), 7(f) and 7(h) and 7(i) (to the extent related to the other Sections referenced in this Section 9(d)(2)); provided further that Buyer's liability under this Section 9(d) shall be limited pursuant to Section 9(k). For the purposes of this Section 9(d), if the Company, any Principal or any Seller has actual knowledge at the Closing that a representation, warranty, covenant or agreement of the Buyer or SLC has been breached by the Buyer or SLC, and such Party is fully aware of both the nature and extent of such breach and elects to consummate the transactions contemplated hereby in spite of such breach, then the Company, the Principals and the Sellers will be deemed to have waived such breach, and Buyer and SLC will not have to indemnify the Company, the Principals or the Sellers against any Losses resulting from such breach to the extent of the Company's, the Principals' and the Sellers' knowledge thereof. (e) Notice of Indemnification. If a party hereto seeks indemnification under this Section 9, such party (the "Indemnified Party") shall give written notice to the other party (the "Indemnifying Party") of the facts and circumstances giving rise to the claim. In that regard, if any suit, action, claim, liability or obligations shall be brought or asserted by any third party which, if adversely determined, would entitle the Indemnified Party to indemnity pursuant to this Section 9, the Indemnified Party shall promptly notify the Indemnifying Party of the same in writing, specifying in reasonable detail the basis of such claim and the facts pertaining thereto. The Indemnifying Party, if it so elects, shall assume and control the defense thereof (and shall consult with the Indemnified Party with respect thereto), including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all necessary expenses; provided that, as a condition precedent to the Indemnifying Party's right to assume control of such defense, it must first: (i) admit in writing its obligation to provide indemnification in respect of such matter and (ii) demonstrate that it will bear the greatest portion of the Loss if the claim is successful in light of the Threshold and the Cap; and provided further that the Indemnifying Party shall not have the right to assume control of such defense if the claim which the Indemnifying Party seeks to assume control (1) seeks non-monetary relief; or (2) involves criminal or quasi-criminal allegations. In the event that the Indemnified Party retains control of the defense of such claim, the Indemnified Party shall use good faith efforts, consistent with prudent business judgment, to defend such claim. If the Indemnifying Party is permitted to assume and control the defense and elects to do so, the Indemnified Party shall have the right to employ counsel separate from counsel employed by the Indemnifying Party in any such action and to participate in the defense thereof, but the fees and expenses of such counsel employed by the Indemnified Party shall be at the expense of the Indemnified Party unless (A) the employment thereof has been specifically authorized by the Indemnifying Party in writing, (B) the Indemnifying - 35 - 43 Party has been advised by counsel that a reasonable likelihood exists of a conflict of interest between the Indemnifying Party and the Indemnified Party and such counsel advises the Indemnifying Party of the general nature of such conflict, or (C) the Indemnifying Party has failed to assume the defense and employ counsel. The Indemnifying Party shall not be liable for any settlement of any such action or proceeding effected without the written consent of the Indemnifying Party, which consent shall not be unreasonably withheld; however, if there shall be a final judgment for the plaintiff in any such action, the Indemnifying Party agrees to indemnify and hold harmless the Indemnified Party from and against any loss or liability by reason of such judgment subject to the limitations of Section 9(c). (f) Failure to Notify. In the event any senior officer (including, without limitation, any president or executive vice-president) of any Indemnified Party has actual knowledge of any valid claim or defense (and not merely any facts or circumstances which may give rise to such claim or defense) against a third party who is a party to the applicable claim in connection with any Loss as to which such Indemnified Party seeks indemnification pursuant to this Section 9 and such Indemnified Party without good reason fails to notify the Indemnifying Party of such claim or defense or without good reason fails to assert such claim or defense on its own behalf, then the Indemnified Party shall not be entitled to receive indemnification from the Indemnifying Party to the extent of the Loss which is proven by the Indemnifying Party to have been occasioned by such failure to notify or such failure to assert such claim or defense. The determination of whether a party had "good reason" for any failure to notify or failure to assert any claim or defense shall be made by the Arbitrator pursuant to Section 9(i) in the event of any dispute with respect thereto. (g) Notice of Loss; Insurance. (i) In the event any Indemnified Party is insured pursuant to an unexpired insurance policy against any occurrence giving rise to any Loss as to which such Indemnified Party seeks indemnification pursuant to this Section 9, the Indemnified Party shall promptly give notice of such insurance coverage to the Indemnifying Party and the Indemnifying Party shall, in its reasonable discretion, elect either (i) to require the Indemnified Party to make a claim pursuant to such insurance policy for such Loss and the Indemnifying Party's obligation to indemnify the Indemnified Party shall thereafter be reduced by the amount of insurance proceeds received by the Indemnified Party as a result of such claim or (ii) to indemnify the Indemnified Party without requiring a claim to be made by the Indemnified Party on such insurance policy. In the event the Indemnifying Party elects to require the Indemnified Party to make a claim on such insurance policy pursuant to clause (i) above, the Indemnifying Party shall pay any increase in insurance premiums resulting directly and proximately from such claim by the Indemnified Party on such insurance policy; provided that if any such increase in such insurance premium is caused by one or more claims on such insurance policy as a result of Losses which are not subject to indemnification pursuant to this Section 9, then the Indemnifying Party shall be obligated to pay such increase in insurance premiums only to the extent such increase is attributable to claims made by the Indemnified Party pursuant to clause (i) above. The determination of the amount of such increase in insurance premiums attributable to any claim made pursuant to clause (i) above - 36 - 44 shall be made by the mutual agreement of the Parties acting in good faith, and in the event the Parties are unable to so agree shall be made by the Arbitrator pursuant to subsection (i) below. The Indemnified Party shall provide to the Indemnifying Party such documentation relating to such increase in insurance premium as shall be necessary to establish the amount of such increase and shall otherwise cooperate with the Indemnifying Party in establishing the amount of such increase attributable to the claim made pursuant to clause (i) above. (ii) Notwithstanding any of the provisions of this Section 9, the Sellers and the Principals shall use reasonable best efforts to make and pursue claims for insurance proceeds for Losses which Buyer incurs and which may be covered by insurance policies that were in effect prior to the Closing (irrespective of any limitations on survival of the Principals' or the Sellers' direct liability therefor), and to promptly remit any proceeds received on account of such claims to Buyer upon receipt, it being agreed that Losses satisfied by such proceeds shall not be applied against the Cap. (h) Payment of Indemnification Amount. In the event that any Party is entitled to indemnification hereunder from any other Party, within 15 days after a final determination of the amount of such indemnification pursuant to the terms of this Section 9 (the "Indemnification Amount"), the Indemnifying Party shall pay such Indemnification Amount either (i) by payment of immediately available funds to the Indemnified Party or (ii) if the Indemnified Party is a Partnership Party, by delivering or causing Buyer to cancel on its books and records a number of Units held by the Indemnifying Party having a current market value (based upon the Paired Share Price as of the date of the final determination of such Indemnification Amount) equal to the Indemnification Amount, and to the extent such delivery or cancellation of Units is insufficient to pay such Indemnification Amount, immediately available funds for the remaining balance of such Indemnification Amount. To the extent any Indemnifying Party fails to pay the Indemnification Amount within such 15 day period, the Indemnification Amount shall accrue interest for the benefit of the Indemnified Party at a rate per annum equal to the prime rate announced by Chase Manhattan Corp. at the end of such 15 day period plus 2%, compounded quarterly, until paid. Without limiting the obligations of the Principals and the Sellers set forth above, in the event that the transactions contemplated hereby are consummated and the Partnership Parties are entitled to indemnification from the Principals and/or the Sellers and such Persons fail to timely pay the Indemnification Amount, then without limiting any other remedies the Partnership Parties may have at law or in equity, the Partnership Parties may elect to satisfy such amount, in whole or in part, by canceling a number of Units and/or Paired Shares held by the Sellers and/or their Permitted Transferees (as defined in the Exchange Rights Agreement) having a current market value (based upon the Paired Share Price as of the date of such cancellation) equal to the Indemnification Amount plus any interest accrued thereon, in which case the holder of such canceled Units and/or Paired Shares shall surrender such canceled Units and/or Paired Shares to the issuer(s) thereof immediately following delivery to such holder of written notice of such cancellation. - 37 - 45 (i) Dispute Resolution. Any dispute, controversy, or claim arising under or relating to this Section 9 ("Dispute") shall be resolved by final and binding arbitration administered by the American Arbitration Association ("AAA") under its Commercial Arbitration Rules, subject to the following: (i) Any party to a Dispute may demand that any Dispute be submitted to binding arbitration. The demand for arbitration shall be in writing, shall be served on the other party in the manner prescribed herein for the giving of notices, and shall set forth a short statement of the factual basis for the claim, specifying the matter or matters to be arbitrated. (ii) The arbitration shall be conducted by an arbitrator appointed by the AAA (the "Arbitrator") who shall conduct such evidentiary or other hearings as such arbitrator deems necessary or appropriate and thereafter shall make a final determination as soon as practicable. Any arbitration pursuant hereto shall be conducted by the Arbitrator as the parties may mutually agree or, if the parties do not so agree, under the guidance of the Federal Rules of Civil Procedure and the Federal Rules of Evidence, but the Arbitrator shall not be required to comply strictly with such Rules in conducting any such arbitration. All such arbitration proceedings shall take place in New York, NY. (iii) Except as provided herein: (A) each party shall bear its own "Costs and Fees," which are defined as all reasonable pre-award expenses of the arbitration, including travel expenses, out-of-pocket expenses (including but not limited to, copying and telephone) witness fees, and reasonable attorney's fees and expenses; (B) the fees and expenses of the Arbitrator and all other costs and expenses incurred in connection with the arbitration ("Arbitration Expenses") shall be borne equally by the parties; and (C) Notwithstanding the foregoing, the Arbitrator shall be empowered to require any one or more of the parties to bear all or any portion of such Costs and Fees and/or the fees and expenses of the Arbitrator in the event that the Arbitrator determines such party has acted unreasonably or in bad faith. (iv) The Arbitrator shall have the authority to award any remedy or relief that a Court of the State of New York could order or grant, including, without limitation, specific performance of any obligation created under the Transaction Documents, the awarding of punitive damages, the issuance of an injunction, or the imposition of sanctions for abuse or frustration of the arbitration process. The decision of the Arbitrator and any award pursuant thereto shall be in writing and counterpart copies thereof shall be delivered to each party. The decision and award of the Arbitrator shall be binding on all parties. In - 38 - 46 rendering such decision and award, the Arbitrator shall not add to, subtract from or otherwise modify the provisions of this Section 9. Either party to the arbitration may seek to have judgment upon the award rendered by the Arbitrator entered in any court having jurisdiction thereof. (v) Each party agrees that it will not file any suit, motion, petition or otherwise commence any legal action or proceeding for any matter which is required to be submitted to arbitration as contemplated herein except in connection with the enforcement of an award rendered by the Arbitrator and except to seek non-monetary equitable relief including, with limitation, the issuance of an injunction or temporary restraining order pending a final determination by the Arbitrator. Upon the entry of any order dismissing or staying any action or proceeding filed contrary to the preceding sentence, the party which filed such action or proceeding shall promptly pay to the other party the reasonable attorney's fees, costs and expenses incurred by such other party prior to the entry of such order. (j) Type of Remedy. The Parties hereto each acknowledge and agree that, to the extent permitted by law, the sole and exclusive remedy with respect to any claims for monetary relief relating to the subject matter of this Agreement shall be pursuant to the indemnification provisions set forth in this Section 9. Notwithstanding the foregoing, each of the Parties hereto acknowledges and agrees that the other Parties hereto would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached and that any remedy at law would be inadequate. Accordingly, each of the Parties hereto agrees that the other Parties hereto shall be entitled to retain all non-monetary equitable remedies available to it, including, without limitation, injunctive relief to prevent breaches of the provisions of this Agreement and specific enforcement of this Agreement and the terms and provisions hereof in any action instituted before any arbitrator pursuant to Section 9(i) above or in any court of the United States or any state thereof having jurisdiction over the parties and the matter as allowed pursuant to Section 9(i) above or otherwise, in addition to any other remedy to which it may be entitled, at law or in equity, other than claims for monetary relief, which shall be governed by the terms of this Section 9. Notwithstanding the foregoing, nothing in this Section 9(j) shall limit or restrict any Party's right to maintain or recover on any action based upon fraud or misrepresentation. (k) Limitation on Liability of the Company. Notwithstanding anything to the contrary contained in this Agreement, in the event that the transactions contemplated by this Agreement have been consummated as contemplated hereby, the Company shall have no liability whatsoever (whether pursuant to this Section 9 or otherwise) to any Partnership Party, nor to any Principal or any Seller in respect of any claim the basis for which arose prior to the Closing, whether arising by reason of a claim for contribution in respect of any liability arising hereunder, a right of indemnification under the Company's constitutive documents, any other agreement between the Company and such Party or otherwise, and the Sellers and the Principals hereby waive and release the Company from any such obligation effective as of the Closing. - 39 - 47 SECTION 10. ADDITIONAL AGREEMENTS. (a) Sellers and Principals Nonsolicitation and Confidentiality. (i) During the period beginning on the Closing Date and ending on the third anniversary of the Closing Date (the "Restricted Period"), the Sellers and the Principals (collectively, the "Restricted Parties") shall not (A) induce or attempt to induce any employee of the Company, Buyer or their Affiliates to leave their employ, hire any management-level employee (whether or not solicited) or otherwise in any way interfere with the relationship between Buyer, the Company or their Affiliates and any of their employees or (B) induce or attempt to induce any supplier, licensee, licensor, franchisee, or other business relation of Buyer, the Company or their Affiliates to cease doing business with them or in any way interfere with the relationship between Buyer, the Company or their Affiliates and any customer or business relation. (ii) Each of Buyer and SLC acknowledges that the information, observations and data relating to the Business of a proprietary and/or confidential nature which either party has obtained as a result of its due diligence review of the Company, and each Restricted Party acknowledges that the information, observations and data relating to the Business of a proprietary and/or confidential nature which any such Restricted Party has obtained as an employee, officer, manager or member of the Company, or will obtain during the course of his or its association with the Company, Buyer and their Affiliates after the Closing, are the property of such Person ("Confidential Information"). Each Restricted Party agrees that it or he shall not, directly or indirectly, use for its or his own purposes or disclose to any third party any of such Confidential Information without the prior written consent of Buyer, unless and to the extent that the aforementioned matters (a) become generally known to and available for use by the hotel and hospitality industry other than as a result of any Restricted Party's acts or omissions to act; (b) are rightfully received by a Restricted Party from a party who was not subject to any obligations of confidentiality; or (c) to the extent a Restricted Party is required by order of a court of competent jurisdiction (by subpoena or similar process) to disclose or discuss any Confidential Information (provided that in such case, such Restricted Party shall promptly inform Buyer of such event, shall cooperate with Buyer in attempting to obtain a protective order or to otherwise restrict such disclosure and shall only disclose Confidential Information to the minimum extent necessary to comply with any such court order). Buyer and SLC agree that, in the event the transactions contemplated hereby are not consummated in accordance with the terms hereof, they shall not, directly or indirectly, use for their own purposes or disclose to any third party any of such Confidential Information without the prior written consent of the Company, unless and to the extent that the aforementioned matters (a) become generally known to and available for use by the hotel and hospitality industry other than as a result of either Buyer's or SLC's acts or omissions to act; (b) are rightfully received by Buyer or SLC from a party who was not subject to any obligations of confidentiality; or (c) to the extent Buyer or SLC is required by order of a court of competent jurisdiction (by subpoena or similar process) to disclose or discuss any - 40 - 48 Confidential Information (provided that in such case, such party shall promptly inform the Company of such event, shall cooperate with the Company in attempting to obtain a protective order or to otherwise restrict such disclosure and shall only disclose Confidential Information to the minimum extent necessary to comply with any such court order). (iii) The Parties hereto agree that each may suffer irreparable harm from a breach by any other Party of any of the covenants or agreements contained in this Section 10. In the event of an alleged or threatened breach by any Party of any of the provisions of this Section 10(a), each other Party or their successors or assigns may, in addition to all other rights and remedies existing in their favor, apply to any court of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof (including the extension of the Restricted Period by a period equal to the length of the violation of this Section 10(a)), in each case without the necessity of posting a bond or other security. (iv) Each Party agrees that the covenants made in Section 10(a)(i), (ii) and (iii) shall be construed as an agreement independent of any other provision of this Agreement and shall survive any order of a court of competent jurisdiction terminating any other provision of this Agreement. (b) Exclusivity. During the period from the date of this Agreement to the earlier of (i) the Closing or (ii) the date that this Agreement is terminated, if it is terminated, in accordance with its terms, neither the Company, any Principal, nor any Seller will, directly or indirectly, without the prior written consent of Buyer, initiate discussions or engage in negotiations with, or provide any information other than publicly available information to, any Person (other than Buyer and their respective representatives) concerning any possible proposal regarding a sale of the Interests or a merger, consolidation, sale of assets (other than sales of inventory in the ordinary course of business) or other similar transaction involving the Company. Any such activity will constitute a material breach of this Agreement. (c) Mutual Assistance and Records. The Parties agree that they will mutually cooperate in the expeditious filing of all notices, reports and other filings with any governmental authority required to be submitted jointly by Buyer and any Seller in connection with the execution and delivery of this Agreement, the other agreements contemplated hereby and the consummation of the transactions contemplated hereby or thereby. (d) Press Releases. Unless required by law (in which case each of Buyer and the Company hereby agree to use reasonable efforts to consult with the other party prior to any such disclosure as to the form and content of such disclosure), after the date hereof, through and including the Closing Date, no press releases, announcements to the employees, customers or suppliers of the Company or other releases of information related to this Agreement or the transactions contemplated the Transaction Documents will be issued or released without the consent of both Buyer and the Company. After the Closing, Buyer may issue any such releases of information at its sole discretion. - 41 - 49 (e) Transaction Expenses. Each Party shall pay all of its expenses incurred in connection with the transactions contemplated hereby (whether consummated or not); provided that any expenses incurred but not paid by the Company prior to the Closing (other than those expenses expressly assumed by Buyer or SLC hereunder) shall be reflected as a current liability on the books and records of the Company and shall be included in the determination of Estimated Closing Net Worth and Closing Net Worth. Fees, costs and expenses incurred in terminating or assigning the any franchise agreements or in obtaining replacement franchise agreements therefor shall be borne by Buyer; provided, however, that if such costs shall exceed the sum of $500,000 with respect to the Atlanta Embassy Suites Hotel, all such costs in excess of such amount with respect to such hotel shall be borne equally by the Sellers and Buyer. The costs of transferring the Liquor Licences is provided for in Section 6(t) hereof. (f) Certain Taxes. Each of Buyer, on the one hand, and the Sellers, on the other hand, shall be responsible for, as and when due, one-half of all transfer, documentary, sales, use, stamp, registration, conveyance, value added or other Taxes and fees arising out of the sale of the Interests or otherwise incurred in connection with this Agreement or the consummation of the transactions contemplated by the Transaction Documents and all charges for or in connection with the recording of any document or instrument contemplated hereby; provided that the Sellers shall solely be responsible for the satisfaction of any Taxes based on income arising under any local, state, or federal Tax law, rule, or regulation in respect of the transactions contemplated by this Agreement. Each Seller will, at his own expense, file all necessary Tax Returns and other documentation in connection with the Taxes and fees encompassed in this Section 10(f). (g) Further Assurances. The Sellers shall execute and deliver such further instruments of conveyance and transfer and take such additional action as Buyer may reasonably request to effect, consummate, confirm or evidence the transfer to Buyer of the Interests, and the Sellers shall execute such documents as may be reasonably necessary to assist Buyer in preserving or perfecting its rights in the Interests. (h) Litigation Support. Except in the case of a dispute among the parties hereto, in the event and for so long as any Party actively is contesting or defending against any charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand in connection with (i) any transaction contemplated by this Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving the Company, each of the other Parties will cooperate with such contesting or defending Party and its counsel in the contest or defense, make available their personnel, inform such party of any facts giving rise to any defense or counterclaim and provide such testimony and access to their books and records as shall be necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending Party (unless the contesting or defending Party is entitled to indemnification therefor under Section 9(b)). - 42 - 50 (i) Admission of Buyer as Member. Effective as of the Closing and conditioned upon the consummation thereof, the Sellers, in their capacity as members of the Company, hereby unanimously consent to the admission of Buyer and SLC as members of the Company in substitution of the Sellers. (j) Post-Closing Status of the Company. Buyer hereby covenants and agrees that for a minimum period of three years after the Closing Date, the Company will operate in its current fashion managing the assets and hotels currently managed by the Company and shall remain a wholly-owned subsidiary of Buyer or SLC. As additional hotels are acquired by SLTRLP and leased to Buyer, it is anticipated that certain of these hotels be managed by the Company and appropriate staffing levels will be maintained. Each of the existing operating personnel of the Company shall report to Murray Dow in his capacity as Chief Operating Officer of the Company. The Company will not be merged into Buyer or SLC before the end of such three year period without the prior written consent of Gary Mendell (in his capacity as a Seller). Thereafter, the Company shall be merged into Buyer (or one of its affiliates) rather than disposed of if Buyer no longer wishes the Company to remain as a wholly-owned subsidiary. Buyer agrees to keep the principal offices of the Company in the vicinity of Westport, Connecticut, for a minimum period of two years after the Closing. (k) Benefits for Employees of the Company. Buyer hereby covenants and agrees that after the Closing it will cause the Company to continue to pay the current employees of the Company wages and bonuses and current benefits at no less than the level they are currently receiving for a period of two years or until their term of employment ceases, whichever is earlier. Buyer shall also make available for grant, at the direction of Gary Mendell (in his capacity as a Seller), to employees of the Company (other than Gary Mendell and Murray Dow) 100,000 options (before the 3:2 split in the Paired Shares) with respect of Paired Shares, exercisable at the closing price of the Paired Shares on the day immediately preceding the grant date. (l) Retention of Managers of the Company. The six general managers to be designated by Murray Dow and all executive-level employees of the Company other than Murray Dow and Gary Mendell, (whose term of office shall be governed by their employment agreements) shall be guaranteed employment in their current positions at their current levels of compensations for a minimum period of 2 years after Closing. (m) Retention By Sellers. Buyer and SLC acknowledge and consent to the retention by the Sellers of all rights in and to, and the continued use of, the names HEI International, Inc., HEI Mid-East Hotels Ltd., HEI Israel Hotels, LLC, and Hospitality Equity Investors, Inc., and abbreviated forms thereof, the retention of the interests in the entities having such names and the continued involvement by those entities in their current businesses, including the following hotel properties: Marriot Seaview Hotel, Atlantic City, NJ; Marriot Residence Inn, Shelton, CT; Marriot Residence Inn, Princeton, NJ; Danbury Hilton, Danbury, CT; and Marriot Hotel, Trumbull, CT, Sheraton Gateway Houston Airport, Houston, TX; Ontario Airport Hilton, Ontario, CA; Bethesda Ramada; Bethesda, MD; Wilmington Hilton, Wilmington, DE; Sheraton Long Island; Smithtown, - 43 - 51 NY. Buyer acknowledges and approves of the Company's obligation to continue to provide services to HEI Mid-East Hotels Ltd. (and its international management affiliates) at arm's length pricing, subject to periodic review and approval by the Company's General Partner as to the fairness of the pricing in light of the services provided by the Company. (n) Reserved. (o) Production of Schedules. Each Party hereby covenants and agrees to deliver all schedules required to be delivered hereunder by such Party, with such delivery being made in accordance with the terms of Section 12.01 of the PRISA Contribution Agreement. (p) Disposition of the Interests by the Sellers. The Parties acknowledge that, prior to the Closing, one or more of the Sellers may undergo dissolution or may transfer all or substantially all of their assets to some or all of the Principals. The Parties further acknowledge that in such an event, all of the obligations and liabilities assigned hereunder to any such Seller shall be fully performed and discharged by the Principals who receive the assets of such Seller, and the rights of such Seller shall inure to such Principals. SECTION 11. TERMINATION; EFFECT OF TERMINATION. (a) Termination.This Agreement may be terminated as provided below: (i) by mutual written consent of Buyer and the Sellers; (ii) by Buyer if there has been a material misrepresentation or breach of warranty or covenant hereunder on the part of the Company, the Principals or the Sellers, or by the Sellers if there has been a material misrepresentation or breach of warranty or covenant hereunder on the part of the Buyer, in both cases only if such breach or misrepresentation is not cured within 15 days of notice of such breach or misrepresentation given by the aggrieved Party to the other Parties (except no such notice or 15-day period shall be permitted if such breach or misrepresentation is incurable in the reasonable opinion of the aggrieved Party); (iii) by either Buyer or the Sellers if all material conditions to such party's obligations (including, but not limited to, the conditions set forth in Sections 4 and 5, as applicable) have not been satisfied or waived and the transactions contemplated hereby have not been consummated by the Closing Date, as postponed pursuant to Section 3; or (iv) by either Buyer or the Sellers, within three days of the other's delivery of schedules as contemplated by Section 10(o), but only if such schedules disclose matters which, taken as a whole, materially adversely affect the business prospects, assets, liabilities, financial condition or operating results of the Party on whose behalf such schedules were submitted; - 44 - 52 (v) provided that neither Buyer nor the Sellers shall be entitled to terminate pursuant to this Section 11(a) if such Party's willful breach of this Agreement has prevented the consummation of the transactions contemplated hereby. (b) Effect of Termination. In the event of the termination of this Agreement pursuant to subsection (a) above, this Agreement and the other Transaction Documents shall thereafter become void and have no effect, and no party hereto shall have any liability and is hereby unconditionally released from any such liability to any other party hereto or its members, partners, managers, directors or officers in respect thereof, except for breaches of this Agreement prior to the time of such termination provided that the following Sections of this Agreement shall survive such a termination: 9, 10(a)(ii), 10(a)(iii), 10(a)(iv), 10(d), 10(e), 11 and 12. (c) Deposit; Remedy for Pre-Closing Breach by Buyer. (i) SLTRLP has deposited or has caused to be deposited certain amounts in an escrow account as contemplated in the PRISA Contribution Agreement (the "Deposit"). Forfeiture of the Deposit as contemplated in the PRISA Contribution Agreement shall be the sole and exclusive remedy of the Sellers in the event that (A) Buyer fails to consummate the transactions contemplated by this Agreement and the Transaction Documents, (B) all of the conditions to the obligations of Buyer contained in Section 4 and elsewhere have been satisfied, and (C) Buyer is not permitted to terminate this Agreement pursuant to Section 11(a); and Buyer shall use its reasonable best efforts to cause the Deposit to be paid as required under the PRISA Contribution Agreement. Such forfeiture shall constitute liquidated damages paid by Buyer for the benefit of the Sellers as a result of Buyer's breach, and shall be the sole and exclusive remedy of the Sellers against Buyer for any and all such breaches. (ii) In the event that the transactions contemplated by this Agreement and the other Transaction Documents are not consummated and the Deposit is not subject to forfeiture under the PRISA Contribution Agreement, the Deposit shall be subject to return to the Buyer, SLTRLP or such other depositing party as set forth in the PRISA Contribution Agreement. The Company, the Principals, and the Sellers shall use their reasonable best efforts in such case to cause the Deposit to be returned to Buyer, SLTRLP or such other depositing party under such circumstances. SECTION 12. MISCELLANEOUS. (a) No Third Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns. - 45 - 53 (b) Entire Agreement. This Agreement (including the documents referred to herein) and the Transaction Documents constitute the entire agreement between the Parties and supersedes any prior understandings, agreements or representations by or between the Parties, written or oral, that may have related in any way to the subject matter hereof and shall survive the Closing. (c) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Party; provided that Buyer may (i) assign any or all of its rights and interests hereunder to one or more of its Affiliates, to any lender providing financing for the transactions contemplated hereby or to any Person acquiring all or substantially all of Buyer's assets (however effected) and (ii) designate one or more of its Affiliates to perform its obligations hereunder provided that Buyer remains bound by the terms of this Agreement. (d) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. (e) Disclosure. To the extent that a disclosure made on any of the schedules to this Agreement is clearly and unambiguously applicable to any other schedule to this Agreement, such disclosure shall be deemed to have been made on such other schedule. (f) Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. (g) Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. (h) Captions. The captions used in this Agreement are for convenience of reference only and do not constitute a part of this Agreement and shall not be deemed to limit, characterize or in any way affect any provision of this Agreement, and all provisions of this Agreement shall be enforced and construed as if no caption had been used in this Agreement. (i) Notices. All notices, requests, demands, claims, and other communications hereunder shall be in writing. Any notice, request, demand, claim or other communication hereunder shall be deemed duly given when delivered personally or telecopied (with copy sent by mail within one day of transmission) to the recipient or sent to the recipient by reputable express courier service (charges prepaid), and addressed to the intended recipient as set forth below: - 46 - 54 If to the Company: HEI Hotels, L.L.C. 55 Greens Farms Road Westport Corporate Office Park, North Building Westport, CT 06880 Telephone: 203-226-9540 Telecopy: 203-454-7678 Attention: Gary Mendell with a copy to: Willkie Farr & Gallagher 153 East 53rd Street New York, NY 10022 Telephone: 212-935-8000 Telecopy: 212-821-8111 Attention: Bruce M. Montgomerie If to Buyer and/or SLC: Starwood Lodging Corporation 2231 E. Camelback #400 Phoenix, AZ 85016 Telephone: 602-852-3900 Telecopy: 602-852-0984 Attention: Nir Margalit and: Kirkland & Ellis 200 East Randolph Drive Chicago, Illinois 60601 Telephone: (312) 871-2000 Telecopy: (312) 861-2200 Attention: Gary R. Silverman, Esq. - 47 - 55 and Sidley & Austin 555 West Fifth Street Los Angeles, CA 90013 Telephone: 213-896-6000 Telecopy: 213-896-6600 Attention: Sherwin L. Samuels, Esq. If to the Principals and/or the Sellers: see Schedule 12(i) attached hereto Any Party may send any notice, request, demand, claim or other communication hereunder to the intended recipient at the address set forth above using any other means, but no such notice, request, demand, claim or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Party notice in the manner herein set forth. (j) Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of New York without giving effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. (k) Consent to Jurisdiction Each of the Parties irrevocably submits to the exclusive jurisdiction of the federal and state courts located in the State of New York for the purposes of any suit or other proceeding arising out of the transactions contemplated by this Agreement. Each of the Parties further agrees to commence any such suit or proceeding only in one of the federal or state courts located in the State of New York. (l) Amendments and Waivers. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by Buyer, the Principals and the Sellers. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. (m) Incorporation of Exhibits and Schedules. The exhibits and schedules identified in this Agreement are incorporated herein by reference and made a part hereof. - 48 - 56 (n) Construction. Where specific language is used to clarify by example a general statement contained herein, such specific language shall not be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates. The language used in this Agreement shall be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be applied against any Party. (o) Knowledge of Sellers and Principals Attributable to the Company. Whenever any statement herein or in any schedule, exhibit, certificate or other document delivered to any Party pursuant to this Agreement is made "to the Company's knowledge" or "to the best of the Company's knowledge" or words of similar intent or effect, the Company's knowledge shall be deemed to include the knowledge of each of Gary Mendell, Arthur Green and Murray Dow. * * * * * - 49 - 57 IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written. BUYER: SLC OPERATING LIMITED PARTNERSHIP By: Starwood Lodging Corporation Its: Managing General Partner By: _______________________________________ Name: _____________________________________ Title: ____________________________________ SLC: STARWOOD LODGING CORPORATION By: _______________________________________ Name: _____________________________________ Title: ____________________________________ THE COMPANY: HEI HOTELS, L.L.C. By: _______________________________________ Name: _____________________________________ Title: ____________________________________ 58 THE SELLERS: WESTPORT MANAGEMENT, L.L.C. By: _______________________________________ Name: _____________________________________ Title: ____________________________________ WESTPORT HOLDINGS, L.L.C. By: _______________________________________ Name: _____________________________________ Title: ____________________________________ SAVIOR LIMITED PARTNERSHIP By: _______________________________________ Name: _____________________________________ Title: ____________________________________ 59 -------------------------------------------- GARY MENDELL -------------------------------------------- STEVE MENDELL -------------------------------------------- JUDITH RUSHMORE -------------------------------------------- MURRAY DOW -------------------------------------------- ORNA L. SHULMAN ZAPCO COMMUNICATIONS, INC. By: _______________________________________ Name: _____________________________________ Title: ____________________________________ WESTPORT HOSPITALITY, INC. By: _______________________________________ Name: _____________________________________ Title: ____________________________________ 60 TERM SHEET FOR CLASS A UNITS 1. Members of HEI ("Members") to be issued a new class of limited partnership interest in SLC Operating Limited Partnership ("SLC") called "Class A Units." 2. The Class A Units are intended to put the Members in substantially the same after-tax economic position as if the Members had been issued limited partnership units in both SLC and SLT Realty Limited Partnership ("SLT") in a 5:95 ratio. More particularly, the Class A Units: a. Will be entitled to preferred distributions (including liquidating distributions) from SLC, to be distributed prior to other distributions, in an amount equal to the sum of the distributions from an equal number of units from SLT and SLC, when and as paid from SLT or SLC, as applicable. b. Will have an exchange rights agreement with Starwood Lodging Corporation ("Corporation") entitling each Class A Unit to be exchanged for, at the Corporation's election, one paired share of the Corporation and Starwood Lodging Trust ("Trust") or the cash equivalent of one paired share. c. Will have a registration rights agreement with the Trust and the Corporation that provides the Members with substantially the same rights as the Contributing Parties Registration Rights Agreement under the PRISA Contribution Agreement. 3. To the extent that the distributions with respect to the Class A Units would otherwise be taxed in a less favorable manner than distributions with respect to units in SLT, the Class A Units will be entitled to either a special allocation of tax items or a cash gross up. 4. SLC will agree that, without the consent of a majority of the Class A Units (not to be unreasonably withheld or delayed provided all distributions are current), it will limit its borrowings from SLT or other sources so that SLC has at all times sufficient borrowing capacity to discharge its obligations with respect to the Class A Units (including the Exchange Rights Agreement) and SLC will use its best effort to make the distributions described in paragraph a. at the same time as dividends made by SLT. 5. If any distributions with respect to the Class A Units are not paid when due, such distributions will accumulate and compound at a rate of prime plus 8% per annum. EX-10.4 7 CONTRIBUTION AGREEMENT BY SLT REALTY L.P. 1 Exhibit 10.4 ================================================================================ CONTRIBUTION AGREEMENT DATED AS OF JANUARY 15, 1997 BY AND AMONG SLT REALTY LIMITED PARTNERSHIP SLT FINANCING PARTNERSHIP SLC OPERATING LIMITED PARTNERSHIP STARWOOD LODGING TRUST STARWOOD LODGING CORPORATION AND THE INDIVIDUALS AND ENTITIES SET FORTH ON SCHEDULES A-1 AND 1-2 HERETO WHO ARE SIGNATORIES TO THIS AGREEMENT ================================================================================ 2 TABLE OF CONTENTS ARTICLE I DEFINITIONS 1.01 Property.....................................................2 1.02 Certain Other Definitions....................................3 ARTICLE II CONTRIBUTION; CONSIDERATION; DEPOSIT 2.01 Agreement to Contribute.....................................11 2.02 Reserved....................................................12 2.03 Consideration for Contribution..............................12 2.04 [Reserved]..................................................12 2.05 Deposit.....................................................12 ARTICLE III TITLE 3.01 Title to Property...........................................13 ARTICLE IV NET WORKING CAPITAL ADJUSTMENT 4.01 Net Working Capital Adjustment..............................15 (a) Estimated Closing Balance Sheet....................15 (b) Adjustment.........................................15 (c) Final Closing Balance Sheet........................16 (d) Independent Auditor................................16 (e) Final Adjustment...................................17 4.02 Errors......................................................17 ARTICLE V [Reserved] ARTICLE VI RISK OF LOSS 6.01 Risk of Loss................................................18 6.02 Casualty....................................................18 6.03 Eminent Domain..............................................18 6.04 Elections Upon Casualty or Eminent Domain...................18 (a) Minor Loss.........................................18 (b) Substantial Loss...................................18 (c) Major Casualty Damage..............................19 6.05 Adjustment Amount...........................................19 ARTICLE VII REPRESENTATIONS AND WARRANTIES 7.01 Contributing Party's Representation and Warranties..........20 (a) Subsidiaries and Investments.......................20 (b) Property Company Capitalization; Title to Property Company Interests .................................20 (c) Tax Matters........................................21 (d) Insurance..........................................23 2 3 (e) Single-Purpose Entity..............................23 (f) Leases.............................................23 (g) Compliance With Laws...............................23 (h) Contracts..........................................24 (i) Employees..........................................24 (j) No Pending Condemnation Proceedings................24 (k) Real Estate Taxes..................................24 (l) No Other Interests.................................24 (m) No Litigation......................................24 (n) No Further Action; Execution and Delivery..........24 (o) Good Standing......................................25 (p) Proprietary Rights.................................25 (q) Financial Statements...............................25 (r) Events Subsequent to November 28, 1996.............25 (s) Absence of Undisclosed Liabilities.................26 (t) No "Foreign Person"................................26 (u) Environmental Matters - No Violations..............26 (v) Environmental Matters - Environmental Claims.......27 (w) [Reserved].........................................27 (x) Investment Representation..........................27 (y) Binding Effect.....................................28 (z) Status of Constituent Documents....................28 7.02 The Partnerships' Representations and Warranties............28 (a) Power and Authority Non-contravention, Investment..28 (b) Good Standing......................................29 (c) Binding Effect.....................................29 (d) Status of the Constituent Documents................29 (e) No Litigation; Proceedings.........................29 (f) Units..............................................29 (g) Financial Statements; Undisclosed Liabilities......30 (h) Conduct in the Ordinary Course of Business.........30 (i) ERISA Matters......................................30 7.03 The Corporation's Representation and Warranties.............31 (a) Power and Authority, Non-contravention.............31 (b) Good Standing......................................31 (c) Binding Effect.....................................31 (d) Status of the Constituent Documents................31 (e) No Litigation; Proceedings.........................31 (f) Capitalization.....................................31 (g) Financial Statements; Undisclosed Liabilities......32 (h) Conduct in the Ordinary Course of Business.........32 (i) SEC Documents......................................32 (j) Reservation of Shares..............................32 (k) ERISA Matters......................................33 7.04 The Trust's Representations and Warranties..................33 (a) Power and Authority, Non-contravention.............33 3 4 (b) Good Standing......................................33 (c) Binding Effect.....................................33 (d) Status of the Constituent Documents................33 (e) No Litigation; Proceedings.........................34 (f) Capitalization.....................................34 (g) Financial Statements; Undisclosed Liabilities......34 (h) Conduct in the Ordinary Course of Business.........34 (i) SEC Documents......................................35 (j) Reservation of Shares..............................35 (k) ERISA Matters......................................35 ARTICLE VIII CONDITIONS 8.01 Conditions to the Partnerships' Obligations.................35 (a) Exchange Rights Agreement..........................35 (b) HEI Contribution...................................35 (c) No Material Misrepresentation etc..................36 (d) Title to Property..................................36 (e) Contributing Parties' Proceedings..................36 (f) Contributing Party's Performance, Consents.........36 (g) Licenses...........................................37 (h) Franchise License Agreements.......................37 (i) Notices............................................37 (j) ERISA Limitations..................................37 8.02 Conditions to Contributing Party's Obligations..............37 (a) The Starwood Parties' Proceedings..................38 (b) The Starwood Parties' Performance..................38 (c) No Material Misrepresentation etc..................38 (d) Exchange Rights Agreement..........................38 (e) Registration Rights Agreement......................38 (f) [Reserved].........................................38 (g) HEI Contribution...................................38 (h) [Reserved].........................................38 (i) Partnership Amendments.............................38 (j) ERISA Limitations..................................39 ARTICLE IX DOCUMENTS 9.01 The Contributing Parties' Closing Deliveries................40 (a) Assignment of Property Company Interests...........40 (b) Confirmation of Distribution of Contributed Assets.40 (c) Bills of Sale and General Assignment...............40 (d) Affidavits Regarding Authority, "Foreign Person"...40 (e) Title Requirements.................................40 (f) Transfer Tax Returns...............................40 (g) [Reserved].........................................40 (h) Pay-Off Letters....................................41 (i) Good Standing Certificate..........................41 4 5 (j) Others as Reasonably Required......................41 9.02 The Partnerships Closing Deliveries.........................41 (a) Good Standing Certificate..........................41 (b) Partnership Amendments.............................41 (c) Affidavit..........................................41 (d) Others as Reasonably Required......................41 9.03 Closing Deliveries by the Trust and the Corporation.........41 (a) Good Standing......................................41 (b) Paired Shares......................................41 (c) Affidavit..........................................42 (d) Others as Reasonably Required......................42 ARTICLE X COSTS 10.01 Transaction Costs...........................................42 ARTICLE XI BROKERAGE 11.01 Broker......................................................42 ARTICLE XII SCHEDULES, CLOSING, "AS IS" 12.01 Schedules...................................................43 12.02 Access......................................................43 (a) Access - Partnerships..............................43 (b) Access - Contributing Parties......................43 12.03 Certain Definitions.........................................44 12.04 Deliveries..................................................44 12.05 Effect of Inspections, "As Is"..............................44 (c) [Reserved].........................................45 12.06 Delivery of Property Company Records........................45 12.07 The Partnerships' Indemnification...........................45 12.08 Date and Location Closing...................................46 ARTICLE XIII EARNEST MONEY, DEFAULT AND REMEDIES 13.01 Duties of Escrow Agent......................................46 (a) Earnest Money Deposits.............................46 (b) Disputes...........................................46 (c) Costs..............................................46 (d) Limited Duties.....................................46 (e) Liability..........................................46 13.02 Default.....................................................47 (a) Contributing Parties Default.......................47 (b) Starwood Parties' Default..........................47 (c) [Reserved].........................................48 ARTICLE XIV INDEMNIFICATION 14.01 Survival....................................................48 14.02 Indemnification by Contributing Parties.....................48 5 6 14.03 Indemnification by Starwood Parties.........................49 14.04 Procedures..................................................51 ARTICLE XV FURTHER ASSURANCES 15.01 Further Assurances..........................................54 ARTICLE XVI PRE-CLOSING OPERATIONS 16.01 Contributing Party's Conduct of Business....................54 16.02 On-Site Representative......................................55 ARTICLE XVII NOTICES 17.01 Procedure for Notice........................................55 ARTICLE XVIII ADDITIONAL COVENANTS 18.01 Board Representation........................................57 18.02 Obligation of the Contributing Parties As to Closing Conditions..................................................58 18.03 Obligation of The Starwood Parties As to Closing Conditions..................................................58 ARTICLE XIX [RESERVED] ARTICLE XX MISCELLANEOUS 20.01 Modifications and Waivers...................................58 20.02 Governing Law...............................................58 20.03 Captions etc................................................58 20.04 Rules of Construction.......................................59 20.05 Successors and Assigns......................................59 20.06 Entire Agreement............................................59 20.07 Counterparts................................................59 20.08 Starwood Lodging Trust......................................59 20.09 Confidentiality and Exclusivity.............................59 20.10 Joint Liability.............................................60 20.11 Press Releases..............................................60 20.12 Expiration..................................................60 LIST OF SCHEDULES....................................................63 LIST OF EXHIBITS.....................................................65 6 7 CONTRIBUTION AGREEMENT THIS AGREEMENT is made and entered into as of January 15, 1997, by and among SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership ("SLT"), SLT FINANCING PARTNERSHIP, a Delaware general partnership ("SLT FINANCING") and SLC OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership ("SLC", and together with SLT and SLT Financing, the "PARTNERSHIPS"), STARWOOD LODGING TRUST, a Maryland real estate investment trust (the "TRUST"), STARWOOD LODGING CORPORATION, a Maryland corporation (the "CORPORATION"), the individuals and entities listed on Schedule A-1 attached hereto and made a part hereof (each a "CONTRIBUTING PARTY" and collectively, the "CONTRIBUTING PARTIES") and the entities set forth on Schedule A-2 attached hereto and made a part hereof (each a "PROPERTY COMPANY" and collectively, the "PROPERTY COMPANIES"), each of whom are parties to this Agreement as evidenced by their execution hereof. RECITALS A. The Contributing Parties are the direct or indirect owners of the limited liability company membership interests, limited partnership interests (as general or limited partners), joint venture interests or general partnership interests, as applicable, in the respective Property Companies as set forth opposite each Contributing Party's name on Schedule A-1 (collectively, the "PROPERTY COMPANY INTERESTS"). B. The Property Companies are the owners of ten (10) hotels and the related real and personal property, both tangible and intangible, all as more particularly described in Article I below (each a "HOTEL" and collectively, the "HOTELS"). Each Property Company owns the Hotel set forth opposite its name on Schedule A-2 attached hereto. C. The Partnerships, the Trust and the Corporation (collectively, the "STARWOOD PARTIES") and the Contributing Parties desire to provide for the following transactions to be effected simultaneously but in the order set forth below, all upon the terms and conditions herein set forth: (1) The Contributing Parties desire to cause the Property Companies to distribute to the Contributing Parties certain tangible and intangible personal property assets owned by the Property Companies in connection with the operation of the Hotels, as such assets are more particularly described on Schedule B attached hereto (the "CONTRIBUTED ASSETS") and SLC desires to acquire from the Contributing Parties such Contributed Assets for the purpose of operating the Hotels in exchange for limited partnership interests in SLC as set forth on Schedule B and the Contributing Parties desire to contribute such assets to SLC and to receive such consideration therefor all upon the terms and conditions herein set forth. (2) Certain Contributing Parties which are entities which are direct owners of Hotel Company Interests shall distribute such Hotel Company Interest to the Contributing Parties which own interests in such entities. 8 (3) SLT Financing desires to acquire from the Contributing Parties the Property Company Interests described on Schedule C attached hereto and the Contributing Parties desire to transfer such Property Company Interests to SLT Financing all upon the terms and conditions herein set forth. (4) SLT desires to acquire from the Contributing Parties the Property Company Interests described on Schedule D attached hereto in exchange for cash and limited partnership interests in SLT as set forth in Schedule D and the Contributing Parties desire to contribute such Property Company Interests to SLT and to receive such consideration therefor all upon the terms and conditions herein set forth. (5) The Contributing Parties desire to immediately upon closing convert a portion of the limited partnership interests in SLT and SLC received pursuant hereto into Paired Shares (as defined below) as more particularly set forth on Schedule E attached hereto. D. The Trust, on behalf of the Trust and on behalf of SLT (as the general partner of SLT), and the Corporation, on behalf of the Corporation and on behalf of SLC (as the managing general partner of SLC), entered into a letter of intent with HEI Hotels, LLC and The Prudential Insurance Company of America on behalf of Prudential Property Investment Separate Account II, collectively on behalf of the Contributing Parties, which letter of intent is dated December 9, 1996 (the "LETTER OF INTENT"), regarding the transactions contemplated in this Agreement and the HEI Contribution Agreement (as hereinafter defined). Upon execution of this Agreement and the other Transaction Documents (as defined below) this Agreement and the other Transaction Documents shall supersede the terms and provisions of the Letter of Intent. IN CONSIDERATION of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement, intending to be bound legally and equitably, agree as follows: ARTICLE I DEFINITIONS 1.01 Property. The term "PROPERTY" means and includes with respect to each Property Company, such Property Company's right title and interest in and to: (a) the land described in Schedule 1.01 hereto designated thereon as owned by such Property Company, together with all right, title and interest in and to any land lying in the bed of any street, road, avenue or alleyway open, proposed or closed in front of or adjoining such land, and all right, title and interest in and to any strips, gores, easements, rights of way, riparian rights and privileges belonging to or inuring to the benefit of such land and all right, title and interest in and to any tenements, hereditaments and appurtenances belonging or in anywise appertaining to any or all of the aforesaid (the "LAND"), (b) all buildings, structures and improvements now or hereafter erected or situate on, over or beneath the Land, including, but not limited to, the Hotels (the "BUILDINGS"), (c) the Tenant Leases (the Land, the Buildings and the Tenant Leases are sometimes collectively referred to herein as the "REAL PROPERTY"), (d) the FF&E, (e) the Inventory and other tangible personal property now or hereafter 2 9 situate on, attached or appurtenant to or used in connection with the Land and/or the Buildings (collectively, with the FF&E, the "TANGIBLE PERSONAL PROPERTY"), (e) the Intangible Property, (I) the Contracts, (g) the Proprietary Rights, and (h) the Miscellaneous Interests, and in all cases whether owned by such Property Company as of the date of this Agreement or acquired by such Property Company prior to the Closing Date (defined below). 1.02 Certain Other Definitions. (a) "ADA" means the Americans with Disabilities Act, as amended. (b) "AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Exchange Act. (c) "ASSUMED DEBT" means those mortgage loan obligations of certain of the Property Companies as set forth on Schedule 1.02(c). (d) [RESERVED] (e) "BUSINESS DAY" means any day other than Saturdays, Sundays and legal holidays on which federal banks are not open for business. (f) "CLOSING" and "CLOSING DATE" are defined in Section 12.08. (g) "CODE" means the Internal Revenue Code of 1986, as amended. (h) "CLOSING VALUE" of an OP Unit shall mean the greater of (i) the average closing price of a Paired Share as reported as of the close of trading on the New York Stock Exchange on the five (5) trading days immediately preceding the date of Closing, or (ii) $49.25. (i) [RESERVED] (j) "CONSTITUENT DOCUMENTS" means: (1) with respect to any Person that is a limited partnership: (i) its agreement of limited partnership; (ii) its certificate of limited partnership; (iii) any amendments or supplements to items (i) and (ii); and (iv) any other certificate or instrument required to be filed in the jurisdiction of formation of such Person to evidence the formation or continued existence thereof; (2) with respect to any Person that is a limited liability company: (i) the operating agreement for such Person; (ii) the certificate of formation for such Person; (iii) any amendments or supplements to the items described in clauses (i) and (ii) above; and (iv) any other certificate or instrument required to be filed in the jurisdiction of formation of such Person to evidence the formation or continued existence thereof; 3 10 (3) with respect to a Person that is a corporation: (i) its articles of incorporation; (ii) its by-laws; (iii) any amendments or supplements to the items described in clauses (i) and (ii); and (iv) any other certificate or instrument required to be filed in the jurisdiction of formation of such Person to evidence the formation or continued existence thereof; (4) with respect to any Person that is a general partnership or joint venture, the agreement of general partnership or joint venture agreement for such person and any amendments or modifications thereto; and (5) with respect to any Person that is a trust: (i) the declaration of trust for such Person; (ii) the trust regulations, if any, pertaining thereto; (iii) any amendment or supplement to the items set forth in clauses (i) and (ii) above; and (iv) any other certificate or instrument required to be filed in the jurisdiction of formation of such Person to evidence its formation or continued existence. (k) "CONTRACTS" means with respect to each Property Company, the interest of such Property Company in: (1) those future reservations and advance bookings for the use of all or any part of the Property, involving aggregate payments to the Property Company of $25,000 or more in any 12 month period, and (2) those other agreements, utility contracts, leases (other than Tenant Leases), concession agreements, the License Agreements, service contracts, and commitments which have an aggregate unpaid balance of $25,000.00 or more by the Property Company or are not terminable without payment of any fee or penalty on sixty (60) days or less notice. (l) "CONTRIBUTED ASSETS" is defined in Recital C(1). (m) "CORPORATION SHARES" has the meaning given in Section 7.03(f). (n) "DEPOSIT" has the meaning given in Section 2.05. (o) "ELIGIBLE INVESTMENT" has the meaning given in Section 2.04(b). (p) "ENVIRONMENTAL LAWS" means and includes any law or regulation of any federal, state or local governing or administrative body relating to pollution or protection or cleanup of the environment (including, but not limited to, ambient air, surface water, groundwater, land surface or subsurface strata) including without limitation the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), the Resources Conservation and Recovery Act of 1976, as amended ("RCRA") and other such Legal Requirements relating to (i) release, containment, removal, remediation, response, cleanup or abatement of any sort of hazardous substance, pollutant, contaminant or waste, (ii) the manufacture, generation, formulation, processing, labeling, distribution, introduction into commerce, use, treatment, handling, storage, disposal or transportation of any chemical or toxic substance or (iii) the 4 11 management, use, storage, disposal, cleanup or removal of asbestos, asbestos-containing materials, polychlorinated biphenyls or any other chemical or toxic substance. (q) "ENVIRONMENTAL REPORTS" has the meaning given in Section 7.01(u). (r) "EQUIPMENT LEASES" means, with respect to each Property Company, any leases to which such Property Company is a party for telephone systems, computer systems, electronic door lock systems, mini bars and other equipment and systems used in connection with the Hotels. (s) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the regulations, interpretations and exemptions promulgated thereunder. (t) "EVALUATION MATERIALS" has the meaning given in Section 2.04(c). (u) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (v) "EXCLUDED LIABILITIES" is defined in Section 8.02(i). (w) "FF&E" means with respect to each Property Company, the interest of such Property Company in, all fixtures, furniture, furnishings, fittings, equipment, computer hardware, machinery, apparatus, artwork, appliances, and audio/visual equipment and used in connection with the ownership, operation and maintenance of the Hotels owned by such Property Company (other than the Inventory). FF&E shall also include funds in the aggregate amount of Two Million Nine Hundred Thousand Dollars ($2,900,000.00), subject to adjustment as provided for below, as a reserve for scheduled calendar year 1997 FF&E expenditures for all of the Hotels; provided, however, that such sum shall be adjusted at Closing: (1) upwards to reflect the aggregate amount then unpaid for certain FF&E expenditure items budgeted for the Hotels with respect to calendar year 1996, as such items are described on Schedule 1.02(w), and (2) downwards to reflect any amount expended prior to Closing for certain FF&E expenditure items budgeted for the Hotels with respect to calendar year 1997, as such items are described on Schedule 1.02(w); i.e., such sum assumes that at Closing all FF&E expenditures budgeted for 1996 will have been paid and no FF&E expenditures budgeted for 1997 will have been paid. (x) "FINANCIAL STATEMENTS" is defined in Section 7.01(q). (y) "GAAP" means United States generally accepted accounting principles, applied on a consistent basis. (z) "GOVERNMENT ENTITY" means any federal, state or municipal governmental or quasi governmental body or agency or any subdivision thereof. 5 12 (aa) "HEI" means HEI Hotels, LLC, a Delaware limited liability company. (bb) "HEI CONTRIBUTION AGREEMENT" means the Contribution Agreement of even date herewith between the Partnerships, HEI and the other parties thereto for the contribution of the "HEI Business" (as defined therein) to the Partnerships pursuant to the terms thereof. (cc) "HEI CONTRIBUTION" has the meaning set forth in the HEI Contribution Agreement. (dd) "INTANGIBLE PROPERTY" means with respect to each Property Company all use, occupancy, liquor and other operating permits and licenses relating thereto used in connection with the Property owned by such Property Company; the interest of the Property Company in all information and reservation systems owned by such Property Company, including all computer programs, software and documentation thereof relating to such systems (subject to the limitations of any applicable license agreements pertaining thereto), and including all electronic data processing systems, program specifications, source codes, logs, input data and report layouts and forms, record file layouts, diagrams, functional specifications and narrative descriptions, flow-charts and other related materials used in connection therewith; and all contract rights. The Intangible Property shall not include any rights to the name "Prudential" or any derivative thereof. (ee) "INVENTORY" means with respect to each Property Company, all merchandise, inventories, materials and supplies used or intended for use at or held for sale in connection with the operation of the Hotel and owned by such Property Company (and not by tenants or concessionaires) including, without limitation: (i) All beer, wine, spirits and other alcoholic and non-alcoholic beverages (to the extent the same may be legally transferred to the Partnerships); (ii) Food inventory, china, silverware, glassware and other kitchen supplies and equipment; (iii) Office and engineering supplies; (iv) Housekeeping and other cleaning supplies, paper and other supplies including, but not limited to, stationery, toilet paper, writing pens, and menus; (v) Towels, linens, bedding and other guest room supplies, including without limitation, bathing and personal hygiene supplies; (vi) Inventory stocks of furniture, furnishings, carpeting, drapery fabrics and wall coverings; (vii) Supplies used with respect to any recreational facility comprising a portion of the Property; and 6 13 (viii) Inventories at all sundry shops or other retail outlets located in or comprising a portion of the Real Property. (ff) "INVESTMENTS" means, with respect to any Person, any direct or indirect purchase or other acquisition by such Person of any notes, obligations, instruments, stock, securities or other ownership or beneficial interest (including, without limitation, partnership interests and joint venture interests) in any other Person, and any capital contribution by such Person to any other Person. (gg) "KNOWLEDGE" as to the Starwood Parties shall mean the present actual knowledge of Steve Goldman or any of the other persons identified on Schedule 1.02(gg) with respect to the Starwood Parties, and as to the Contributing Parties shall mean the present actual knowledge of Gary Mendell or any of the other persons identified on Schedule 1.02(gg) with respect to the Contributing Parties. As used herein, "Knowledge" of a breach of any covenant, representation or warranty means the actual knowledge of any such individual of the fact or circumstance which constitutes such a breach, whether or not such individual actually knows such fact or circumstance does constitute a breach of this Agreement or the other Transaction Documents. (hh) "LEGAL REQUIREMENTS" means all federal, state and local laws, statutes, ordinances, rules and regulations affecting or in any way relating to the Property or its operation, including, without limitation any Environmental Laws, ADA and the Occupational Safety and Health Act of 1970 as amended. (ii) "LIABILITIES" means any liability, obligation, cost or expense of any nature whatsoever, whether now known or unknown, asserted or unasserted, accrued or unaccrued, liquidated or unliquidated or due or to become due, including, without limitation, any liability in respect of any Taxes or other Legal Requirements. (jj) "LICENSE AGREEMENT" means with respect to each Property Company, the franchise and license agreement to which such Property Company is a party as identified opposite its name on Schedule 1.02(jj). (kk) "LIEN" means any lien, pledge, encumbrance, security agreement, conditional sale agreement or other title retention device. (ll) "MANAGEMENT AGREEMENT" means with respect to each Property Company, the hotel management agreement to which HEI and such Property Company are parties as identified on Schedule 1.02(ll) and "MANAGER" means HEI in such capacity under the applicable Management Agreement. (mm) "MINIMUM SHARE OWNERSHIP" means either (i) ownership by PRISA II of a total number of SLT OP Units and SLC OP Units plus Paired Shares which (in the aggregate) equals fifty percent (50%) or more of the aggregate number of SLT OP Units, SLC OP Units and Paired Shares (if any) received by PRISA II at Closing as a part of the Contribution Amount, or (ii) that PRISA II is one of the five largest shareholders of the Trust on a fully diluted basis (assuming, 7 14 for purposes of such calculation, that all outstanding SLT OP Units and SLC OP Units (other than those owned by the Trust and the Corporation) have been converted into Paired Shares). (nn) "MISCELLANEOUS INTERESTS" means with respect to each Property Company, all of such Property Company's right, title and interest in and to (i) the business operations conducted by such Property Company directly or through agents with, in or upon the Land, Buildings and/or Tangible Personal Property (the "HOTEL BUSINESS") including, without limitation, the good will pertaining thereto, (ii) all promotional and advertising literature and materials, catalogs, booklets, manuals, records, guest, tenant and supplier lists and correspondence with guests, tenants and/or suppliers, (iii) transferable telephone exchange numbers, (iv) originals (or, where appropriate, copies) of all financial, personnel and other books, records and files wherever located and held by or on behalf of such Property Company or its agents in connection with the Property, including without limitation, copies thereof in computer readable form (where available) and (v) all other assets, properties, rights and claims of the Property Companies which are used or held for use in connection with the Property and/ or the Hotel Business including, without limitation, guest histories and the Hotels' sales and marketing plans. (oo) "NET WORKING CAPITAL" means as to each Property Company, the aggregate amount as of the Closing Date of (i) all such Property Company's cash, cash equivalents, accounts receivable and other current assets, minus (ii) the aggregate amount of all such Property Company's accounts payable and all other current liabilities, with all such items defined and measured in accordance with GAAP, applied consistently with the Financial Statements for such Property Company. If any item on (or which, under GAAP, should be reflected on) the Financial Statements for such Property Company is not reflected in accordance with GAAP, Net Working Capital for such Property Company will nonetheless be computed in accordance with GAAP. In computing Net Working Capital, all accounting entries will be taken into account regardless of their amount, all known errors and omissions will be corrected and all known proper adjustments will be made. (pp) "NEW ENCUMBRANCES" has the meaning given in Section 3.01(b). (qq) "OWNERSHIP LIMITATION" means the limitations contained in the declaration of trust for the Trust and the Corporation's articles of incorporation prohibiting actual or constructive ownership by any one person or group of related persons of more than 8% of the issued and outstanding Paired Shares taking into account the attribution rules of Section 544(a) of the Code as modified by Section 856(h) of the Code or Section 318(a) of the Code as modified by Section 856(d)(5) of the Code. (rr) "PAIRED SHARES" means one common share of beneficial interest, par value $.01 per share of the Trust and one share of common stock, par value $.01 per share, of the Corporation that are subject to a pairing agreement between the Trust and the Corporation. (ss) "PAIRING AGREEMENT" means the Pairing Agreement dated as of June 25, 1980, as amended, between the Trust and the Corporation providing, in relevant part, for the pairing of all outstanding Trust Shares and Corporation Shares and requiring, as a condition of transfer, that Trust Shares are transferable only together with an equal number of Corporation Shares and that Corporation Shares are transferable only together with an equal number of Trust Shares. 8 15 (tt) "PARTNERSHIP AGREEMENTS" means the limited partnership agreements for SLC and SLT, including any amendments thereto. (uu) "PERMITTED ENCUMBRANCES" has the meaning given in Section 3.01(b). (vv) "PERSON" means an individual, a partnership, a limited liability company, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a Governmental Entity. (ww) "PRISA II" means The Prudential Insurance Company of America on behalf of Prudential Property Investment Separate Account II. (xx) [RESERVED] (yy) "PROPRIETARY RIGHTS" means, with respect to any Property Company, such Property Company's interest in the following (other than such interest held under a License Agreement): all patents and applications therefor, all trademarks, trademark registrations and applications therefor, all copyrights, copyright registrations and applications owned or held by such Property Company in connection with its Hotel, including, without limitation, those listed on Schedule 1.02(yy) hereto and the right to use the names of the Hotels and their restaurants, dining and meeting rooms (other than pursuant to a License Agreement). (zz) "PURSUIT COSTS" is defined in Section 3.01(d). (aaa) "PLAN ASSET REGULATION" is defined in Section 7.02(f). (bbb) "SEC DOCUMENTS" means copies of all reports and statements jointly filed by the Trust and the Corporation with the Securities and Exchange Commission ("SEC") since January 1, 1995. (ccc) "SECURITIES ACT" means the Securities Act of 1933, as amended. (ddd) "SINGLE-PURPOSE ENTITY" means a corporation, general or limited partnership or limited liability company which was organized solely for the purpose of owning a Hotel and at all times since its formation: (i) has not engaged in any material business or owned material assets unrelated to such Hotel; (ii) if such entity is a limited partnership, has as its only general partners (A) general partners which were organized solely for the purpose of owning such general partnership interest and which at all times since their formation have not engaged in any material business or owned any material assets unrelated to such general partnership interest, or (B) PRISA II; 9 16 (iii) has maintained its accounts, books and records separate from any other Person; (iv) subject to the rights and interests of Manager under the applicable Management Agreement for such Hotel (including such rights in or with respect to any accounts for such Hotel), has not commingled its funds or assets with those of any other Person; (v) has conducted its business in its name except for the use of the name of the Hotel and other tradenames in the conduct of its business, which tradenames are set forth on Schedule 1.02(ddd); (vi) has maintained its financial statements and accounting records separate from any other Person; (vii) has paid or reimbursed, directly or through Manager or other independent contractors acting on its behalf, its own liabilities out of its own funds and assets; (viii) has complied in all material respects with the requirements of its Constituent Documents and other applicable corporate, limited liability company or partnership formalities; (ix) has held and identified itself as a separate and distinct entity under its own name (except as provided in clause (v) above) and not as a division or part of any other Person or entity; and (x) has not made loans to or guaranteed the loans or other obligations of any Person or entity. (eee) "SLC OP UNITS" has the meaning given in Section 2.03. (fff) "SLT OP UNITS" has the meaning given in Section 2.03. (ggg) "STARWOOD PARTIES" is defined in Recital C. (hhh) "SUBSIDIARY" means any Person with respect to which a specified Person has the power to vote or direct the voting of sufficient securities to elect a majority of the directors or persons performing similar functions or with respect to which such Person acts as a general partner or managing member or otherwise controls the day-to-day operations of such entity. (iii) "TAX" means any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any 10 17 interest, penalty, or addition thereto, whether disputed or not, and including any obligation to indemnify or otherwise assume or succeed to such tax liability of any other Person. (jjj) "TAX RETURN" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. (kkk) "TITLE COMMITMENTS" has the meaning given in Section 3.01(b). (lll) "TITLE INSURER" means First American Title Insurance Company. (mmm) "TITLE POLICIES" has the meaning given in Section 8.01(d). (nnn) "TENANT LEASE(S)" means with respect to any Hotel, any lease, license or other occupancy agreement granting to any Person (excluding HEI and the Property Company which owns such Hotel) the right to use and occupy any portion of such Hotel, other than guest room reservations or advance booking agreements entered into in the ordinary course of business or otherwise disclosed in the Schedules to this Agreement. (ooo) "TRANSACTION DOCUMENTS" means this Agreement, the Exchange Rights Agreement, the Registration Rights Agreement, the HEI Contribution Agreement, the Co-Investment Agreement, and all other agreements, instruments, certificates and other documents to be entered into or delivered by any party in connection with the transactions contemplated to be consummated by any of the foregoing. (ppp) "TRUST SHARES" has the meaning given in Section 7.04(f). (qqq) "UNPERMITTED TITLE EXCEPTIONS" has the meaning given in Section 3.01(b). ARTICLE II CONTRIBUTION; CONSIDERATION; DEPOSIT 2.01 Agreement to Contribute. Each of the Contributing Parties hereby jointly and severally agrees to: (i) cause the Property Company in which such Contributing Party owns a Property Company Interest to distribute the Contributed Assets owned by such Property Company to the Contributing Parties owning such Property Company Interests in-kind in proportion to their respective Property Company Interests in such Property Company, (ii) contribute to SLC the Contributed Assets received by such Contributing Party in exchange for SLC OP Units as set forth below; (iii) contribute to SLT a portion of the Property Company Interests owned by such Contributing Party in exchange for Cash and SLT OP Units as set forth below; and (iv) contribute to SLT Financing the remaining portion of the Property Company Interests owned by such Contributing Party in exchange for Cash as set forth below. 11 18 2.02 Reserved. 2.03 Consideration for Contribution. In consideration of the contribution of the Contributed Assets and Property Company Interests to the Partnerships by the Contributing Parties, the Partnerships shall cause to be delivered to the Contributing Parties at Closing the following items of value having an agreed upon aggregate value equal to Three Hundred Twelve Million Three Hundred Eighty Thousand Dollars ($312,380,000), (the "CONTRIBUTION AMOUNT"), subject to adjustment as provided in this Agreement: (1) pay cash in the amount of $80,525,000.00 (the "CASH"); (2) assume or take subject to the Assumed Debt (which shall be repayable by SLT without prepayment penalty or premium); and (3) the balance of the Contribution Amount in limited partnership interests ("OP UNITS") in the Partnerships (based upon $49.25 per Paired Share), consisting of an equal number of OP Units of SLT ("SLT OP UNITS") and OP Units of SLC ("SLC OP UNITS"), exchangeable, subject to the Ownership Limitation, into an equal number of Paired Shares as provided in and subject to the limitations of the Exchange Rights Agreement. The Contributing Parties shall have the right to convert a portion of the SLT OP Units and SLC OP Units so received into Paired Shares immediately following the issuance thereof in accordance with Schedule E attached hereto. The parties agree the allocation of the Contribution Amount among the Contributing Parties shall be as set forth on Schedule 2.03 and that each of the Partnerships is receiving assets with a fair market value substantially equal to the Cash and OP Units in such Partnership issued in exchange therefor. Any sales tax due upon the contribution of the Contributed Assets shall constitute a Transaction Cost (as defined in Section 10.01). 2.04 [Reserved] 2.05 Deposit. (a) The Contributing Parties acknowledge that SLT shall on the date of execution hereof make an earnest money deposit (together with any interest earned thereon, the "INITIAL DEPOSIT") in the amount of Five Million Dollars ($5,000,000) with First American Title Insurance Company (the "ESCROW AGENT") pursuant to the terms of the escrow instructions (the "ESCROW AGREEMENT") in the form attached as Exhibit "A" hereto. Provided this Agreement has not been sooner terminated, upon the approval or deemed approval of the Schedules of this Agreement (as provided in Section 12.01), SLT shall deposit with the Escrow Agent on or prior to 6:00 P.M. (EST) on January 17, 1997 an additional $5,000,000.00 (the "ADDITIONAL DEPOSIT" and together with the Initial Deposit and any interest or other earnings on either the "DEPOSIT"), for a total deposit of $10,000,000.00. The Deposit shall be non-refundable except as provided herein. (b) If the Closing shall occur, the Deposit shall be applied to the Cash portion of the Contribution Amount. If this Agreement is terminated pursuant to Section 12.01, the Initial 12 19 Deposit shall be returned by the Escrow Agreement to SLT. If the Partnerships fail or refuse to close for any reason other than (x) an uncured default by one or more of the Contributing Parties under Section 13.02 of this Agreement, (y) the failure of one or more of the conditions in Section 8.01, or (z) termination of this Agreement pursuant to Article VI, the Deposit shall be paid to the Contributing Parties, as liquidated damages as their sole and exclusive remedy for such default. If (1) one or more of the Contributing Parties fail or refuse to perform their obligations under this Agreement, or (2) if one or more of the conditions set forth in Section 8.01 is not satisfied or waived by the Partnerships, or (3) this Agreement is terminated pursuant to Article VI, then subject to the provisions of Section 13.02, the Deposit shall be refunded and repaid to SLT. (c) The Deposit shall be invested in accordance with the terms of the Escrow Agreement and interest shall accrue for the benefit of and be paid to the party to whom the Deposit is paid pursuant to this Section 2.05. (d) The duties of the Escrow Agent hereunder are purely ministerial in nature, and the Escrow Agent shall have no liability to either party so long as it acts in good faith in accordance with the provisions of the Escrow Agreement. ARTICLE III TITLE 3.01 Title to Property. (a) Prior to or contemporaneously with the execution and delivery of this Agreement, each of the Contributing Parties will deliver to SLT a copy of the most recent surveys of the Real Property as the Contributing Parties have in their possession (the "OLD SURVEYS"). If required by the Title Insurer as a condition to the removal of any survey exceptions from the Title Policies, the Starwood Parties may obtain prior to the Closing a recertification of one or more of the Surveys or a new survey of each parcel of the Real Property, prepared by a licensed surveyor, satisfactory to SLT, and conforming to 1992 ALTA/ACSM Minimum Requirements for Urban Land Title Surveys ("NEW SURVEYS" and, together with the Old Surveys, the "SURVEYS"), including Table A Items Nos. 1-4 and 6-14, and such other standards as the Title Insurer may require. The Surveys shall be so certified (or recertified) to SLT, and Title Insurer in a form satisfactory to such parties. (b) The Partnerships have had a bringdown of title to the Real Property performed by the Title Insurer and shall provide copies thereof (the "TITLE COMMITMENTS") to the applicable Contributing Parties and shall obtain such UCC searches and other evidence of title to the Property Company Interests and the remainder of the Property as the Partnerships shall deem appropriate (the "SEARCHES"). Except as set forth on Schedule 3.01 hereto, the matters disclosed by the Title Commitments and the Old surveys are referred to herein as the "Permitted Encumbrances". The matters set forth on Schedule 3.01 shall be limited to such matters that materially impair the current use, value or continued operation of the affected Hotel and such matters are referred to as 13 20 "Unpermitted Title Exceptions". Notwithstanding the foregoing, Permitted Encumbrances shall include (and Unpermitted Title Exceptions shall exclude) any and all Liens securing: (i) the Assumed Debt; (ii) unpaid real estate taxes and assessments not yet due and payable; (iii) Uniform Commercial Code vendor liens securing the non-delinquent payment for goods; and (iv) obligations of any Property Company which will be credited at Closing in the Net Working Capital adjustment provided for in Article IV, i.e., Liens securing any current liabilities of such Property Company. In the event that (i) the Searches disclose Liens or other encumbrances not disclosed by the Title Commitments or that are not otherwise Permitted Encumbrances; or (ii) the Partnerships obtain any New Surveys, or any subsequent bringdowns of the Title Commitments or the Searches, and the same disclose matters which are not disclosed by the Old Surveys, Title Commitments or the Searches and are not otherwise Permitted Encumbrances in accordance with the foregoing, the Partnerships shall promptly so notify the applicable Contributing Party, but such additional matters ("NEW ENCUMBRANCES") shall be Permitted Encumbrances unless objected to in writing by the Partnerships prior to Closing, in which event the matters so objected to shall be Unpermitted Title Exceptions, unless the Starwood Parties proceed to consummate the Closing transactions provided for herein notwithstanding such matters, as provided for in Section 3.01(d) below, in which event all matters disclosed to the Starwood Parties prior to Closing shall constitute Permitted Exceptions for purposes of this Agreement. (c) As to any Unpermitted Title Exceptions, the Contributing Parties shall notify the Partnerships as soon as reasonably practicable but in all events prior to Closing, whether the Contributing Parties: (i) will cause the same to be discharged or removed at or prior to Closing (whereupon the Contributing Parties will be obligated to do so); or (ii) will not cause the same to be so discharged. The Contributing Parties' failure to respond shall constitute such Contributing Parties' election to proceed under clause (ii). (d) If the Contributing Parties shall notify the Partnerships pursuant to paragraph (c)(ii) that the Contributing Parties will not cause an Unpermitted Title Exception to be discharged at or prior to Closing, or shall be deemed to have made such election, the Closing shall be deferred, if necessary, to the date which is five (5) business days after receipt of such notice by the Partnerships, and the Partnerships shall notify the Contributing Parties within such five (5) business day period of the Partnerships' election in its sole discretion, either: 14 21 (i) to accept title subject to such Unpermitted Title Exception(s) as the Contributing Parties shall have declined to cure, without reduction in or offset to the Contribution Amount; or (ii) to terminate this Agreement and receive a prompt refund of the Deposit; provided, however, that if any such Unpermitted Title Exception is a New Encumbrance, the Partnerships shall also be entitled to receive reimbursement by the Contributing Parties of the reasonable out-of-pocket fees and expenses actually incurred by the Starwood Parties in pursuing the transactions contemplated hereby including, without limitation: travel expenses; fees and expenses of third party service providers providing legal, accounting, engineering, or other services in connection with such pursuit; title insurance, survey and other search fees; and other customary analytical or due diligence expenses (collectively, the "PURSUIT COSTS") up to an amount not to exceed One Million Dollars ($1,000,000) within fifteen (15) days after providing to the Contributing Parties an invoice setting forth in reasonable detail the amount of such Pursuit Costs. The Partnerships' failure to respond on a timely basis shall constitute the Partnerships' election to proceed under clause (ii). The foregoing shall constitute the sole remedies of the Starwood Parties with respect to the matters provided for in this Section 3.01(d) (without limiting the generality of the foregoing, the provisions of Section 13.02(a) shall not apply thereto). ARTICLE IV NET WORKING CAPITAL ADJUSTMENT 4.01 Net Working Capital Adjustment. (a) Estimated Closing Balance Sheet. Net Working Capital for each of the Property Companies shall be determined as of the Closing Date in accordance with the procedure set forth below, and the Cash portion of the Contribution Amount shall be adjusted up or down in accordance with such determination. At least two (2) business days prior to the Closing, each Property Company and the Partnerships in good faith shall prepare an unaudited estimated balance sheet of such Property Company as of the Closing Date (the "ESTIMATED CLOSING BALANCE SHEET") and an estimate of the Net Working Capital of the Property Company as of the close of business on the Closing Date (the "ESTIMATED CLOSING NET WORKING CAPITAL") based on the Property Company's books and records and other information then available. For purposes of the determination of Estimated Net Working Capital, all of the guest room revenue and applicable tax for the night preceding the Closing Date shall be treated as accounts receivable of such Property Company for the day preceding the Closing Date, but the Starwood Parties shall receive a credit in the determination of Net Working Capital equal to one-half (1/2) of the amount of such accounts receivable for guest room revenue and applicable tax for the night preceding the Closing Date. (b) Adjustment. If the Estimated Closing Net Working Capital for any Property Company is greater than zero, the Cash portion of the Contribution Amount allocated to the Property Company Interests in such Property Company shall be adjusted upwards by such excess. If 15 22 Estimated Closing Net Working Capital for any Property Company is less than zero, the Cash portion of the Contribution Amount allocated to the Property Company Interest in such Property Company shall be adjusted downwards by such shortfall until the Cash Portion is zero, and thereafter the number of OP Units included in the portion of the Contribution Amount allocated to Property Company Interests in such Property Company shall be reduced based upon the Closing Value, until such shortfall is fully offset. (c) Final Closing Balance Sheet. As promptly as practicable, but in no event later than ninety (90) days after Closing, the Partnerships will cause HEI to deliver to the Contributing Parties a balance sheet of each of the Property Companies as of the Closing (the "CLOSING BALANCE SHEET") prepared by HEI on a basis consistent with the most recent balance sheet on the Financial Statements for such Property Company, which Closing Balance Sheet will reflect the HEI's determination (as certified by the chief financial officer of HEI) of the Net Working Capital as of the close of business on the Closing Date (the "CLOSING NET WORKING CAPITAL") of such Property Company. (d) Independent Auditor. (i) If the Contributing Parties disagree with HEI's determination of Closing Net Working Capital, the Contributing Parties shall notify the Partnerships in writing of such disagreement (such notice setting forth the basis for such disagreement in reasonable detail) and the Partnerships and the Contributing Parties thereafter shall negotiate in good faith to resolve any such disagreements. If the Partnerships and the Contributing Parties are unable to resolve any such disagreements within thirty (30) days after the Partnerships cause HEI to deliver the Closing Balance Sheet to the Contributing Parties, the Partnerships and the Contributing Parties shall subject the dispute to a "Big Six" public accounting firm jointly selected by the Partnerships and the Contributing Parties (the "INDEPENDENT AUDITOR") for resolution. If the Partnerships and the Contributing, Parties are unable to agree upon an Independent Auditor, the independent Auditor shall be selected by lot from a list of four "Big Six" accounting firms (of which two firms shall be selected by each of the Partnerships and the Contributing Parties, but excluding any firm which has previously audited such Property Company's or any of the Starwood Parties' financial statements). (ii) The Partnerships and the Contributing Parties shall use their reasonable best efforts to cause the Independent Auditor to resolve all disagreements over the Closing Net Working Capital as soon as practicable, but in any event within 60 days after submission of the disputes to the Independent Auditor. The resolution of such disagreements and the determination of Closing Net Working Capital by the Independent Auditor shall be final and binding on the Partnerships and the Contributing Parties. 16 23 (iii) The Independent Auditor will determine the allocation of its costs and expenses in determining the Closing Net Working Capital based upon the percentage which the portion of the contested amount not awarded to each party bears to the amount actually contested by such party. For example, if the Contributing Parties claim the Closing Net Working Capital is $1,000 greater than the amount determined by the Partnership's accountants, and the Partnerships contest only $500 of the amount claimed by the Contributing Parties, and if the Independent Auditor ultimately resolves the dispute by awarding the Contributing Parties $300 of the $500 contested, then the costs and expenses of arbitration will be allocated 60% (i.e., 300 500) to the Partnerships and 40% (i.e., 200 500) to the Contributing Parties. (e) Final Adjustment. If the Closing Net Working Capital for any Property Company (as finally determined pursuant to Section 4.01(c) or (d), as applicable) is greater than the Estimated Closing Net Working Capital, the Partnerships shall, within three (3) business days after the Closing Net Working Capital is so finally determined, pay to the Contributing Parties owning Property Company Interests in such Property Company in immediately available funds, the difference between the Closing Net Working Capital and the Estimated Closing Net Working Capital. If the Closing Net Working Capital for such Property Company is less than the Estimated Closing Net Working Capital for such Property Company, the Contributing Parties owning Property Company Interests in such Property Company shall, within three (3) business days after the Closing Net Working Capital for such Property Company is so finally determined, pay to the Partnerships, in immediately available funds, the difference between Closing Net Working Capital and Estimated Closing Net Working Capital for such Property Company. All amounts owed pursuant to this Section 4.01 (e) shall include interest thereon, from and excluding the day which is fifteen (15) days after the date on which the party entitled to receive such amount makes written demand for its payment to and including the date of payment, at the "prime" rate as announced by Chase Manhattan Bank N.A. on the date on which such demand is made calculated on the basis of a 365-day year. All determinations pursuant to this Section 4.01(e) shall be made in accordance with GAAP. 4.02 Errors. Notwithstanding the foregoing and in addition to the provisions of Subsections 4.01(a) - (e), if at any time within one year following Closing either party discovers any items which should have been included in the Net Working Capital Adjustments but which were omitted therefrom, or any error in the computation of such adjustments, or any items not previously capable of determination, such items or error shall be properly adjusted as of Closing without interest thereon. ARTICLE V [Reserved] 17 24 ARTICLE VI RISK OF LOSS 6.01 Risk of Loss. Subject to the following provisions of this Article VI, the Contributing Parties shall bear all risk of all loss or damage to the Property from all causes until Closing. 6.02 Casualty. If one or more of the Hotels is materially damaged by any fire or other casualty prior to Closing, the Property Company owning such damaged Hotel will immediately notify the Partnerships in writing of the same (a "CASUALTY NOTICE"). The Casualty Notice will include a reasonably detailed description of the property damage and such Property Company's best estimate of the cost and time required to repair such damage. The cost of repairing such damage to any Hotel as estimated by an architect or other qualified consultant retained by such Property Company is herein referred to as a "CASUALTY LOSS" with respect to such Hotel. 6.03 Eminent Domain. In the event that a portion of one or more of the Hotels are taken by eminent domain or becomes subject to a taking by eminent domain or a deed in lieu of condemnation prior to Closing, the affected Property Company will immediately notify the Partnerships in writing, of the same (a "EMINENT DOMAIN NOTICE"). The reasonably estimated value of the portion of any Hotel taken or subject to taking by eminent domain is herein referred to as a "CONDEMNATION LOSS" with respect to such Hotel. 6.04 Elections Upon Casualty or Eminent Domain. If any of the events described in Section 6.02 or Section 6.03 occurs prior to Closing, then the provisions of this Section 6.04 shall apply: (a) Minor Loss. Subject to Section 6.04(c) below, if the amount of the Casualty Loss or the Condemnation Loss, as applicable (the "LOSS"), to any Hotel is equal to or less than One Million Dollars ($1,000,000), then the Partnerships shall receive a credit to the Cash portion of the Contribution Amount equal to the Adjustment Amount (as defined in Section 6.05), and in such event the Closing will be as otherwise provided herein with respect to the Property Company Interests and Contributed Assets of the Property Company which owns the Hotel subject to such Loss. (b) Substantial Loss. Subject to Section 6.04(c) below, if the amount of the Loss to any Hotel is greater than One Million Dollars ($1,000,000), then the Partnerships, must elect (as their sole and exclusive remedy) with respect to the Property Company Interests and Contributed Assets of the Property Company owning such Hotel either: (i) to proceed with the transaction without the Property Company Interests and Contributed Assets of such Property Company, with a reduction in the Contribution Amount based on Schedule 2.03; provided, however, that the Partnerships shall not have the right to make such election under this clause (i) with respect to more than two Hotels; or (ii) to proceed with the transaction contemplated by this Agreement with such Property Company Interests and Contributed Assets, including (as assets of such 18 25 Property Company) such Property Company's rights in any insurance or condemnation proceeds (as applicable) which remain unpaid to such Property Company in connection with such Loss and a credit against the Cash portion of the Contribution Amount equal to the Adjustment Amount, and in such event the Closing will be as otherwise provided herein. Such election must be made by the Partnerships within ten (10) business days following receipt of the Casualty Notice or Eminent Domain Notice (the "Loss Election Date"), as applicable (the "LOSS NOTICE"), and the Closing Date shall be extended, if necessary, to the third (3rd) Business Day following the Loss Election Date. The Partnerships' failure to give timely notice under this Section 6.04(b) will be deemed to be an election under clause (ii). (c) Major Casualty Damage. If the aggregate amount of the Loss with respect to any Hotel is greater than Five Million Dollars ($5,000,000), or if three or more Hotels each have a Loss in excess of One Million Dollars ($1,000,000), then the Partnerships must elect (as their sole and exclusive remedy) either: (i) to proceed in accordance with Section 6.04(b) above; or (ii) to terminate this Agreement by giving notice to such effect to the Contributing Parties not later than the Loss Election Date. In the event of such termination, then the entire amount of the Deposit will be refunded to SLT. The Partnerships' failure to give timely notice under this Section 6.04(c) will be deemed to be an election under clause (ii) of this Section 6.04(c). 6.05 Adjustment Amount. As used in this Article VI, "ADJUSTMENT AMOUNT" means the sum of (i) in the case of casualty damage covered by a Property Company's property casualty insurance, the amount of the deductible under such insurance policy with respect to such casualty damage (not to exceed the amount of such casualty damage), plus (ii) any amounts previously paid to such Property Company as insurance or condemnation proceeds, as applicable, and not expended by such Property Company prior to Closing for the purpose for which received (including but not limited to expenditures for restoration of the affected Hotel in connection with such casualty or condemnation); provided, however, that in determining the adjustments to be made to the Cash portion of the Contribution Amount at Closing for the Adjustment Amount (in accordance with this Article VI) and for Net Working Capital (in accordance with Article IV), appropriate adjustment shall be made so as to not double count as current assets of a Property Company any unexpended amounts received by a Property Company as insurance or condemnation proceeds or the right of a Property Company to receive any insurance or condemnation proceeds, and so as to not double count as current liabilities of such Property Company any liabilities of a Property Company for which such insurance or condemnation proceeds have been or will be payable. 19 26 ARTICLE VII REPRESENTATIONS AND WARRANTIES 7.01 Contributing Party's Representation and Warranties. To induce the Starwood Parties to enter into this Agreement each Contributing Party makes the following representations and warranties on behalf of such Contributing Party, and on behalf of or with respect to the Property Company in which such Contributing Party owns Property Company Interests all of which (i) are now true, and (ii) except as expressly provided herein to the contrary, shall be true as of Closing, subject, in each case, to the exceptions set forth on the Schedules attached to this Agreement and on any supplemental schedules thereof as may be delivered to the Starwood Parties prior to the Closing, provided, however, that: (1) prior to Closing, the remedies of the Starwood Properties for any breach of such representations and warranties shall be limited in accordance with Section 13.02(a); (2) an election by the Starwood Parties to complete Closing notwithstanding Knowledge of any breach thereof shall constitute a waiver of such breach in accordance with Section 12.05(b); and (3) after Closing, the liability of the Contributing Parties for any breach of such representations and warranties shall be limited in accordance with Section 14.02(b). Subject to the foregoing, the Contributing Parties represent and warrant as follows: (a) Subsidiaries and Investments. The Property Company has no subsidiaries and does not own, directly or indirectly, any stock, membership interests, partnership interests or joint venture interests in, or similar equity ownership interest issued by, any other Person. (b) Property Company Capitalization; Title to Property Company Interests. (i) The capitalization of the Property Company is completely set forth on Schedule 7.01(b) hereto. There are no restrictions on the transfer of the Property Company Interests other than those set forth in the Property Company's Constituent Documents, true, correct and complete copies of which have been provided to the Partnerships, and those arising from federal and applicable state securities laws. All currently issued and outstanding Property Company Interests were duly authorized and validly issued in accordance with the terms of the Property Company's Constituent Documents and in compliance with applicable laws, and are fully paid and non-assessable. Except as set forth on Schedule 7.01(b) and except as created by this Agreement, there are no outstanding interests, equity interests, subscriptions, purchase rights, subscription rights, conversion rights, exchange rights, options, warrants, preemptive rights, rights of first refusal, rights of first offer, or other rights or other arrangements or commitments outstanding or obligating the Property Company to issue, sell or otherwise cause to be outstanding any Property Company Interests, any security convertible into or exercisable or exchangeable for Property Company Interests, or any other equity participation in the Property Company. At the Closing, upon receipt 20 27 of the Property Company Interests, SLT and SLT Financing will be admitted as a member partner or joint venturer (as applicable) of the Property Company. (ii) Each Contributing Party severally represents and warrants as follows in this subsection (b)(ii) with respect to the Property Company Interest(s) set forth opposite its name on Schedule 7.01(b) hereto. Such Contributing Party owns all of such Property Company Interest(s) and there are no other holders of all or any portion of or interests in such Property Company Interest(s). Such Property Company Interest(s) contributed to the Partnerships at Closing by such Contributing Party will be free and clear of all Liens. Except as set forth on Schedule 7.01(b) and except as created by this Agreement, there are no outstanding interests, equity interests, subscriptions, purchase rights, subscription rights, conversion rights, exchange rights, options, warrants, preemptive rights, rights of first refusal, rights of first offer, or other rights or other arrangements or commitments outstanding with respect to such Property Company Interest(s) or obligating such Contributing Party to issue, sell or otherwise cause to be outstanding any Property Company Interests, any security convertible into or exercisable or exchangeable for Property Company Interests, or any other equity participation in the Property Company. Such Property Company Interest(s) are not subject to any voting trusts, proxies, or other agreements or understandings. Each Contributing Party that is a Person other than an individual has full power and authority to enter into this Agreement and to assume and perform all of its obligations hereunder and the execution and delivery of this Agreement and the performance by such non-individual Contributing Party of its obligations hereunder have been duly authorized by such partnership, trust, limited liability and/or corporate action (including, without limitation approval by each of the partners and/or shareholders thereof of such Contributing Party) as may be required. Notwithstanding any other provision of this Agreement or the other Transaction Documents, the liability of each Contributing Party for the representations and warranties of such Contributing Party pursuant to this subsection (b)(ii) shall be several and not joint, and no Contributing Party shall be liable or responsible for the representations and warranties made by any other Contributing Party pursuant to this subsection (b)(ii) or pursuant to any similar provision of the other Transaction Documents. (c) Tax Matters. Except as set forth on Schedule 7.01(c): (i) the Property Company has timely filed or shall timely file all Tax Returns which are required to be filed, and all such Tax Returns are true, complete and accurate in all respects and have been prepared in compliance with applicable law. The Property Company is taxed as a "partnership" as defined in Section 761(a) of the Code; (ii) all Taxes due and payable as of the Closing Date by the Property Company, whether or not shown on a Tax Return, have been paid or shall be paid by the Property Company or the Contributing Parties, or adjusted for pursuant to Article IV, and all Taxes accrued but not yet due are shown on the Financial Statements provided pursuant to Section 7.01(q) or the Estimated Closing Balance Sheet or the Closing Balance Sheet in accordance with Section 4.01 and no Taxes are delinquent; 21 28 (iii) no deficiency for any amount of Tax has been asserted or assessed by a taxing authority against the Property Company or any Contributing Party with respect to the operations of the Property Company and the Contributing Parties have no Knowledge that any such assessment or asserted Tax liability shall be made; (iv) no audits or investigations by any taxing authority are currently pending, or to the Knowledge of the Contributing Parties threatened, and to the Contributing Parties' Knowledge, the Property Company does not reasonably expect any taxing authority to claim or assess any additional Taxes for any period; (v) the Property Company has not consented to extend the time beyond the Closing in which any Tax may be assessed or collected by any Taxing authority; (vi) the Property Company has not been a member of an Affiliated Group (as defined in Section 1504 of the Code) or any similar group defined under local, state or foreign Tax law and has no liability for Taxes of any other Person under Treasury Regulations Section 1.1502-6 or any similar provision of local, state or foreign Tax law; (vii) the Property Company is not a party to or, to the Knowledge of the Contributing Parties, bound by any Tax allocation or Tax sharing agreement and has no contractual obligation to indemnify any other person with respect to Taxes; (viii) the Property Company does not have any obligation to make any payment that will be non-deductible under Section 280G of the Code (or any corresponding provision of state, local or foreign Tax law); (ix) to the Knowledge of the Contributing Parties, no claim has ever been made by a taxing authority in a jurisdiction where the Property Company does not pay Tax or file Tax Returns that the Property Company is subject to Taxes assessed by such jurisdiction; (x) the Property Company has no liability for any Taxes, if any, required to have been withheld and paid in connection with amounts paid or owing to any employee, creditor, independent contractor or other third party other than amounts adjusted for pursuant to Article IV; and (xi) Schedule 7.01(c) contains a list of all states, territories and jurisdictions (whether foreign or domestic) in which the Property Company is required to file Tax Returns. 22 29 (d) Insurance. Schedule 7.01(d) attached hereto lists and briefly describes each insurance policy maintained by the Property Company with respect to its properties, assets and business. All of such insurance policies are in full force and effect and will not, by their terms, terminate by reason of the transactions provided for herein at Closing, and the Property Company is not in default with respect to its obligations under any of such insurance policies and has not received any notification of cancellation of any of such insurance policies and has no claim outstanding which could be expected to cause a material increase in the Property Company's insurance rates. (e) Single-Purpose Entity. Except as set forth on Schedule 7.01(e), the Property Company, at all times since its formation has been a Single-Purpose Entity. (f) Leases. Schedule 7.01(f) contains a true and complete list of all Tenant Lease(s) under which the aggregate remaining payments to the Property Company owning the affected Hotel exceed $25,000.00, including all addenda, amendments and modifications thereto, and the Contributing Party has previously provided to the Partnerships true and correct copies of each such item. Except as noted on Schedule 7.01(f): (i) the Contributing Parties have no Knowledge that the lessor or the lessee under any Lease has failed to pay, perform or observe any of the terms, covenants and conditions on the such party's part to be paid, performed and observed thereunder; (ii) all brokerage, leasing and other commissions and all other compensation and fees due and payable in connection with the Tenant Lease(s), have been fully paid, shall be included in the Net Working Capital adjustment at Closing in accordance with Article IV, or shall be fully paid by the Contributing Party prior to the Closing; (iii) except as shown on Schedule 7.01(f), no tenant has prepaid rent for more than the following month, has received or is entitled to receive a rent concession in connection with its tenancy, or is entitled to any work (not yet performed) or consideration (not yet given) in connection with its tenancy, (iv) the Property Company is the holder of the lessor's interest under each of the Tenant Leases and has not assigned or hypothecated any of such rights other than in respect of the Assumed Debt. (g) Compliance With Laws. The Contributing Parties have no Knowledge of a violation of any Legal Requirements, or any standards and regulations of appropriate supervising Boards of Fire Underwriters and similar agencies, bearing on construction, operation or use of the Property or any part thereof (other than as to matters previously cured), or that any investigation has been commenced or is contemplated respecting any such possible violation other than as disclosed in the written information made available to the Starwood Parties. To the Contributing Parties' Knowledge, all notices, licenses, permits, certificates and authority required in connection with the construction, completion, use or occupancy of the Real Property or any part thereof by the Property Company have been obtained and are and on the Closing Date will be in effect and in good standing. This subsection (g) shall exclude, however, any representation concerning the Edison Crowne Plaza, or the Property Company which owns that Hotel, with regard to all Legal Requirements which constitute Environmental Laws. (h) Contracts. True and complete copies of all Contracts (including all amendments thereto) to which the Property Company is a party or by which it is bound have been delivered to the Partnerships. Except as set forth in Schedule 7.01(h): (i) there are no Contracts to which the Property Company is a party or by which it is bound; (ii) the Property Company has 23 30 complied with all material provisions of such Contracts and, to the Knowledge of the Contributing Parties, no party thereto is in material default under any of them; and (iii) to the Knowledge of the Contributing Parties, all such Contracts are in full force and effect and no event has occurred which constitutes or which with the passage of time or the giving of notice, or both, would constitute a default under any thereof or would excuse performance by any party thereto. (i) Employees. Except as set forth on Schedule 7.01(i), there are no union contracts, collective bargaining agreements or other labor contracts affecting the Property or any of the employees thereof (other than tenants, concessionaires or other independent contractors other than Manager). The Property Company has no employees and to the Contributing Parties' Knowledge, there are no employees of Manager who by reason of any Legal Requirement, union contract, collective bargaining agreement or other Contract would become employees of the Partnerships by reason of the acquisition of the Property Company Interests by the Partnerships. The Property Company has no single-employer or multi-employer defined benefit pension plans covered by Title IV of ERISA. (j) No Pending Condemnation Proceedings. The Contributing Parties have no Knowledge of pending or proposed condemnation proceedings affecting the Property or any part thereof. (k) Real Estate Taxes. Except as set forth on Schedule 7.01(k), (i) the Property Company has not commenced any proceedings which are pending for the reduction of the assessed valuation of the Real Property or any portion thereof, and (ii) the Contributing Parties have no Knowledge of any special assessment affecting the Property. (l) No Other Interests. Except as set forth on Schedule 7.01(l), to the Knowledge of the Contributing Parties, no Person other than the Contributing Parties has any right to acquire any interest in the Property or any part thereof. (m) No Litigation. Except as set forth on Schedule 7.01(m), neither the Contributing Party, nor the Property Company is a party to, and to the Contributing Parties' Knowledge there is no pending or threatened litigation, claim, action or proceeding by any Person which would materially impair the use, occupancy or value of the Property or any part thereof or which otherwise relates to the Property or the Contributing Parties' Property Company Interests. (n) No Further Action; Execution and Delivery. No further action or approval by any Person is required in order to constitute this Agreement as a binding and enforceable obligation of each Contributing Party. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereunder on the part of the Contributing Party do not and will not violate its Constituent Documents (if any) or the Constituent Documents of the applicable Property Company, and do not and will not conflict with or result in the breach of any condition or provision of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrances upon any of the property or assets of the applicable Property Company or upon any Property Company Interest by reason of the terms of any contract, mortgage, lien, lease, agreement, indenture, instrument or judgment to which the Contributing Party is a party or which is binding upon the Contributing Party or the applicable Property Company. 24 31 (o) Good Standing. The Property Company, and each Contributing Party which is a Person other than an individual, is duly organized, validly existing and in good standing under the laws of the State of its organization and the Property Company is qualified to do business and is in good standing in the State in which the Real Property is located. (p) Proprietary Rights. To the best of the Contributing Parties' Knowledge, Schedule 1.02(ll) contains a true and complete list of all Proprietary Rights (including registration numbers, where applicable) and all license agreements (whether as licensor or licensee) relating to such Proprietary Rights. Except as otherwise set forth in Schedule 1.02(ll), the Property Company owns or has the right to use all Proprietary Rights currently used by it in the Property's business as presently conducted, all of which ownership rights are in good standing and, to the Contributing Parties' Knowledge, uncontested. The Contributing Parties have no Knowledge of any claim, action, proceeding or investigation pending or threatened against the Property Company with respect to any such Proprietary Rights or that any party thereto is in substantial default under any license or other agreement relating to such Proprietary Rights, or that any such licenses and agreements are not valid, enforceable and in full force and effect. (q) Financial Statements. Representatives of the Contributing Parties have delivered to the Starwood Parties true and complete copies of all financial statements with respect to each of the Hotels (i) as were delivered to the applicable Property Company by the entity from which the Property Company acquired the Hotel, and (ii) as have been prepared by Manager on behalf of the applicable Property Company with respect to periods since the acquisition of such Hotel by Property Company through the four-week fiscal period which ended November 28, 1996 (collectively, the "FINANCIAL STATEMENTS"). To the Knowledge of the Contributing Parties, the Financial Statements for each Property Company have been based on information contained in the Property Company's books and records, fairly present the Property Company's financial condition and results of operations as of the times and for the periods referred to therein, and have been prepared in accordance with GAAP. (r) Events Subsequent to November 28, 1996. Since November 28, 1996, to the Contributing Parties' Knowledge, there has not been any material adverse change in the business, assets, financial condition or operating results of the Property Company. Since that date, except as set forth on Schedule 7.01(r) attached hereto, the Property Company has conducted its business in the ordinary course of business consistent with past custom and practice, and has incurred no Liabilities other than in the ordinary course of business consistent with past custom and practice. Except as hereinafter provided, this subsection (r) shall exclude, however, any representation concerning the Edison Crowne Plaza, or the Property Company which owns that Hotel, with regard to Liabilities in respect of those Legal Requirements which constitute Environmental Laws, provided that to the Contributing Parties' Knowledge, there is no material violation of such representation as it relates to such Hotel. (s) Absence of Undisclosed Liabilities. Except as set forth on Schedule 7.01(s), to the Knowledge of the Contributing Parties, the Property Company has no Liabilities of the nature required by GAAP to be shown on a balance sheet, except for; 25 32 (i) Liabilities reflected or reserved against on the unaudited balance sheet of the Property Company as of November 28, 1996 in the liabilities section of such balance sheet; (ii) Liabilities which have arisen since November 28, 1996 in the ordinary course of business of the Property Company (none of which relates to breach of contract, default, breach of warranty, tort, infringement, violation of any Legal Requirement, or any other action, suit or proceeding); and (iii) Liabilities which will be reflected or reserved against on the Estimated Closing Balance Sheet (as provided for in Section 4.01(a) above) or on the Closing Balance Sheet (as provided for in Section 4.01(c) above) in the liabilities sections of such balance sheets. Except as hereinafter provided, this subsection (s) shall exclude, however, any representation concerning the Edison Crowne Plaza, or the Property Company which owns that Hotel, with regard to Liabilities in respect of those Legal Requirements which constitute Environmental Laws, provided that to the Contributing Parties' Knowledge, there is no material violation of such representation as it relates to such Hotel. (t) No "Foreign Person". The Contributing Party is not a "foreign person," as such term is defined in Section 1445 of the Code. The sale transaction contemplated by this Agreement is not subject to Section 897 of the Code or to the withholding requirements of Section 1445 of the Code. (u) Environmental Matters - No Violations. (i) Except as to the Edison Crowne Plaza, all environmental reports (including all revisions and updates thereto) pertaining to the Property prepared by or on behalf of the Contributing Party or the Property Company or otherwise in its possession or control (the "ENVIRONMENTAL REPORTS") are listed on Schedule 7.01(u) and true and complete copies of such Environmental Reports have been delivered to the Partnerships. As to the Edison Crowne Plaza, to the Knowledge of the Contributing Party, Schedule 7.01(u) lists all Environmental Reports pertaining to such Hotel which disclose material information relating to the environmental condition of such Hotel. The representations and warranties in Section 7.01(u)(ii) and in Section 7.01(v) shall not apply to the Edison Crowne Plaza Hotel or to the Property Company which owns such Hotel, and the representations and warranties in Section 7.01(g), with respect to the Edison Crowne Plaza and such Property Company shall be limited to exclude Environmental Laws from the Legal Requirements applicable to such representations and warranties. (ii) Subject to Section 7.01(u)(i) above, the Contributing Parties have no Knowledge that any condition exists on the Property as a result of its operation or activities thereon which condition constitutes a violation of or which will give rise to Environmental Clean-Up Liabilities or Environmental Claims pursuant to any Environmental Laws relating to the Property. "ENVIRONMENTAL CLEANUP LIABILITY" means any cost or expense of any nature whatsoever required to be undertaken under or pursuant to any Environmental Law to contain, remove, remedy, respond 26 33 to, clean up or abate any release of hazardous substance, pollutant, contaminant or waste, or other contamination of surface water, groundwater, land surface or subsurface strata, whether on-site or off-site, arising from activities at the Property including, but not limited to, manufacture, generation, formulation, processing, labeling, distribution, introduction into commerce or on-site or off-site use, treatment, handling, storage, disposal or transportation of any hazardous substance, pollutant, contaminant or waste, but excluding cleaning supplies used in connection with the Hotel Business which are properly packaged and stored, and used in compliance with all Environmental Laws. (v) Environmental Matters - Environmental Claims. Subject to Section 7.01(u)(i) above, except as set forth in the Environmental Reports, the Contributing Parties have no Knowledge of any pending, threatened or contemplated Environmental Claims affecting the Property (excluding the Edison Crowne Plaza). "ENVIRONMENTAL CLAIMS" means any claim for reimbursement of remediation expense, personal injury, property damage or damage to natural resources made, asserted or prosecuted by or on behalf of any third party (whether based on negligent acts or omissions, statutory liability, strict liability without fault or otherwise) including, without limitation, any governmental entity, employee, former employee or guest, or their respective legal representatives, heirs, beneficiaries and estates, relating to or arising out of the release of any hazardous substance, pollutant, contaminant or waste or the violation of any Environmental Law. (w) [Reserved] (x) Investment Representation. The Contributing Party is receiving the SLT OP Units and the SLC OP Units (collectively, the "UNITS") to be delivered pursuant hereto for its own account (other than with respect to PRISA II) with the present intention of holding such Units for purposes of investment, and each such party has no intention of selling Units in a distribution in violation of the federal securities laws or any applicable state securities laws. Except for the individuals listed on Schedule 7.01(x), the Contributing Party and, for each Contributing Party other than PRISA II which is not an individual, each Person owning equity interests in such Contributing Party other than PRISA II (an "EQUITY OWNER"), is an accredited investor as defined in Rule 501 of the Securities Act (an "ACCREDITED INVESTOR") and has sufficient knowledge and experience in financial and business matters and investing in entities similar to the Trust, the Corporation, SLT and SLC so as to be able to evaluate the risks and merits of its investment in SLT and SLC and the Contributing Party, and any Equity Owner therein, has had an opportunity to discuss the business, management and financial affairs of the Trust, the Corporation, SLT and SLC with the management of the Trust and the Corporation. Except for the individuals listed on Schedule 7.01(x), each Permitted Transferee (as defined in the Transfer Restriction and Exchange Rights Agreement) is, and immediately prior to receiving any Units will be, an Accredited Investor. The Contributing Party and any Equity Owner therein understands that (i) the Paired Shares and Units have not been registered under the Securities Act by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated under the Securities Act, and (ii) upon any issuance of the Paired Shares pursuant to the Transfer Restriction and Exchange Agreement, such Paired Shares must be held indefinitely unless such Shares are registered upon receipt thereof, or unless a subsequent disposition thereof is registered under the Securities Act and applicable state securities laws or is exempt from such registration. 27 34 (y) Binding Effect. When executed and delivered by each Contributing Party, the Transaction Documents required to be executed by the respective Contributing Parties will each be duly authorized, valid and binding upon such Contributing Party. (z) Status of Constituent Documents. Schedule 7.01(z) sets forth a true and complete list of each Property Company's Constituent Documents. Each of the Property Company's Constituent Documents is in full force and effect, and true, complete and correct copies thereof have been delivered to the Partnerships. There are no dissolution, termination or liquidation proceedings pending or, to the Knowledge of the Contributing Parties, contemplated with respect to the Property Company. To the Contributing Parties' Knowledge there are no uncured defaults or breaches by any Person under the Constituent Documents for such Property Company. 7.02 The Partnerships' Representations and Warranties. To induce the Contributing Parties to enter into this Agreement, each Partnership makes the following representations and warranties, as to itself, all of which (i) are now true and (ii) shall be true as of the Closing: (a) Power and Authority Non-contravention, Investment. The Partnership has full power and authority to enter into this Agreement and to assume and perform all of its obligations hereunder; the execution and delivery of this Agreement and the performance by the Partnership of its obligations hereunder have been duly authorized by such action as may be required, and no further action or approval is required in order to constitute this Agreement as a binding and enforceable obligation of the Partnership. Neither the execution nor delivery of this Agreement by the Partnership, nor consummation of the transactions contemplated hereby or compliance with or fulfillment of the terms and provisions hereof by the Partnership, will (i) conflict with, result in a breach of the terms, conditions or provisions of, or constitute a default, an event of default or an event creating rights of acceleration, termination or cancellation or a loss of rights, or result in the creation or imposition of any encumbrance upon any of the assets of the Partnerships under the Partnership's Constituent Documents, or any other instrument, agreement, mortgage, indenture, deed of trust, permit, concession, grant, franchise, license, judgment, order, award, decree or other restriction of which the Partnership is a party or any of its properties is subject or by which any of them is bound or any Legal Requirement affecting any of them, or (ii) require the approval, consent or authorization of, or the making of any declaration, filing or registration with, any third party or any foreign, federal, state or local court, Government Entity or regulatory body, by or on behalf of the Partnership, except for (A) the applicable requirements of the gaming authorities of the State of Nevada and of the Clark County, Nevada Liquor and Gaming Licensing Board (the "NEVADA GAMING APPROVALS") and (B) the filing of appropriate documents with the SEC under the Securities Act. The Partnerships are receiving the Property Company Interests to be delivered hereto for their own account with the present intention of holding such Property Company Interests for purposes of investment, and each Partnership has no intention of selling such Property Company Interests in a distribution in violation of federal securities, laws or any applicable state securities laws. The Partnerships are Accredited Investors and have sufficient knowledge and experience in financial and business matters and investing in entities similar to the Property Companies so as to be able to evaluate the risks and merits of their investment in the Property Companies and the Partnerships have had an opportunity to discuss the business, management and financial affairs of the Property Companies with the management of the Property Companies. 28 35 (b) Good Standing. The Partnership is duly organized, validly existing and in good standing under the laws of the state of its formation and are qualified to do business in all jurisdictions in which such qualification legally is required. (c) Binding Effect. When executed and delivered by each Partnership, the Transaction Documents required to be executed by the Partnership hereunder will each be duly authorized, valid and shall be binding upon the Partnership. (d) Status of the Constituent Documents. Schedule 7.02(d) sets forth a true and complete list of all of the Partnerships' Constituent Documents. Each of the Partnership's Constituent Documents is in full force and effect, and true, complete and correct copies thereof have been delivered to the Contributing Party. There are no dissolution, termination or liquidation proceedings pending or, to the Knowledge of the Starwood Parties, contemplated with respect to the Partnership. There are no uncured defaults or breaches by the general partner or to the Knowledge of the Starwood Parties, any limited partner under the Partnerships' Constituent Documents. (e) No Litigation; Proceedings. Except as set forth on Schedule 7.02(e), there are no pending or, to Starwood Parties' Knowledge, threatened actions, suits, proceedings or claims against or affecting the Partnership at law or in equity or before or by any Government Entity. (f) Units. The capitalization of each of the Partnerships is as set forth in their respective Partnership Agreements. As of December 31, 1996, 32,682,481 OP Units of each of SLC and SLT were issued and outstanding, of which at least the OP Units of SLT and SLC set forth on Schedule 7.02(f) were held by limited partners that are not affiliated with the Trust within the meaning of the Department of Labor's ERISA plan asset regulation, 29 C.F.R. Section 2510.3-101(f) (the "Plan Asset Regulation"). There are no restrictions on the transfer of the SLT OP Units and SLC OP Units to be issued pursuant to Section 2.03 other than those contained in the respective Partnership's Constituent Documents, the Transfer Restriction and Exchange Rights Agreement or the Registration Rights Agreement and those arising from federal and applicable state securities laws. All currently issued and outstanding OP Units were duly authorized and validly issued in accordance with the terms of the respective Partnership's Constituent Documents and in compliance with applicable laws and are convertible into Paired Shares in accordance with the terms of the Transfer Restriction and Exchange Rights Agreement. Except as set forth on Schedule 7.02(f) and except as created by this Agreement, as of the date hereof, there are no outstanding subscriptions, options, warrants, preemptive or other rights or other arrangements or commitments obligating the Partnerships to issue any Units. If and when issued, the Paired Shares issuable upon exchange of the Units delivered hereunder pursuant to the Transfer Restriction and Exchange Rights Agreement will be duly authorized, validly issued, fully paid and non-assessable. At the Closing, upon receipt of the Property Company Interests and Contributed Assets, the Partnerships will have transferred the Units to be issued hereunder free and clear of all Liens (other than any Liens in favor of the partners of the Partnership pursuant to the Partnership's Constituent Documents), and as of the Closing, the Contributing Partners will be admitted as limited partners of the Partnerships. The issuance of the Units to the Contributing Parties at the Closing will not require any approval or consent of any Person except any such approval that shall have been obtained on or prior to the Closing. Assuming the accuracy of the representations in Section 7.01(x), the issuance of the Units to the Contributing 29 36 Parties hereunder is exempt from registration under the Securities Act and applicable state securities laws. (g) Financial Statements; Undisclosed Liabilities. True and complete copies of (i) the audited financial statements of SLC and SLT as of December 31, 1995, together with all related notes and schedules thereto, accompanied by the reports thereon of SLC's and SLT's independent auditors, and (ii) the unaudited financial statements of SLC and SLT as of September 30, 1996 and for the nine months then ended, together with all related notes and schedules thereto (collectively, the "PARTNERSHIPS' FINANCIAL STATEMENTS"), have been delivered to the Contributing Parties. The Partnerships' Financial Statements were prepared in accordance with the books of account and other financial records of SLC and SLT, present fairly the consolidated financial condition and results of operations of SLC and SLT as of the dates thereof or for the periods covered thereby, and have been prepared in accordance with GAAP. Except as disclosed on Schedule 7.02(g), (i) there are no Liabilities of SLC and SLT of the nature required by GAAP to be shown on a balance sheet, other than Liabilities reflected or reserved against on the balance sheets of SLC and SLT as of September 30, 1996, and (ii) Liabilities which have arisen since that date in the ordinary course of business. (h) Conduct in the Ordinary Course of Business. Except as set forth on Schedule 7.02(h), since September 30, 1996, the business of each of the Partnerships has been conducted in all material respects in the ordinary course, consistent with past practice, and the business of each of the Partnerships will be conducted as aforesaid through the Closing. (i) ERISA Matters. The terms of this transaction are not materially less favorable to PRISA II than the terms that would be available generally in an arms'-length transaction between unrelated parties. Neither Partnership maintains or contributes to an employee benefit plan maintained by an employer or employee organization identified on Schedule 7.02(i). (j) Tax Status. Each Partnership is taxable as a "partnership" as defined in Section 7701(a) of the Code, and is not taxable as a corporation by reason of being a publicly traded partnership within the meaning of Section 7704 of the Code. 7.03 The Corporation's Representation and Warranties. To induce the Contributing Parties to enter into this Agreement, the Corporation makes the following representations and warranties, all of which (i) are now true and (ii) shall be true as of the Closing: (a) Power and Authority, Non-contravention. The Corporation has full power and authority to enter into this Agreement and to assume and perform all of its obligations hereunder, the execution and delivery of this Agreement and the performance by the Corporation of its obligations hereunder have been duly authorized by such action as may be required, and no further action or approval is required in order to constitute this Agreement as a binding and enforceable obligation of the Corporation; neither the execution or delivery of this Agreement by the Corporation, nor consummation of the transactions contemplated hereby or compliance with or fulfillment of the terms and provisions hereof by the Corporation, will (i) conflict with, result in a breach of the terms, conditions or provisions of, or constitute a default, an event of default or an event creating rights of acceleration, termination or cancellation or a loss of rights, or result in the 30 37 creation or imposition of any encumbrance upon any of the assets of the Corporation, under the Corporation's Constituent Documents, the Pairing Agreement or any other instrument, agreement, mortgage, indenture, deed of trust, permit, concession, grant, franchise, license, judgment, order, award, decree or other restriction of which the Corporation is a party or any of its respective properties is subject or by which any of them is bound, or under any Legal Requirements affecting any of them, or (ii) require the approval, consent or authorization of, or the making of any declaration, filing or registration with, any third party or any foreign, federal, state or local court, Governmental Entity or regulatory body, by or on behalf of the Corporation, except for (A) the Nevada Gaming Approvals, or (B) the filing of appropriate documents with the SEC under the Exchange Act. (b) Good Standing. The Corporation is duly organized, validly existing and in good standing under the laws of the state of its formation and is qualified to do business in all jurisdictions in which such qualification legally is required. (c) Binding Effect. When executed and delivered by the Corporation, the documents required to be executed by the Corporation hereunder will each be duly authorized, valid and shall be binding upon the Corporation. (d) Status of the Constituent Documents. Schedule 7.03(d) sets forth a true and complete list of the Corporation's Constituent Documents. The Corporation's Constituent Documents are in full force and effect, and true, complete and correct copies thereof have been delivered to the Contributing Party. There are no dissolution, termination or liquidation proceedings pending, or contemplated with respect to the Corporation. (e) No Litigation; Proceedings. Except as set forth on Schedule 7.03(e), there are no pending or, to the Starwood Parties' Knowledge, threatened actions, suits, proceedings or claims against or affecting the Corporation at law or in equity or before or by any Government Entity. (f) Capitalization. As of December 31, 1996, the entire authorized capital stock of the Corporation (the "CORPORATION SHARES") consisted of 100,000,000 shares of which 26,718,649 were issued and outstanding and 73,281,351 shares were held in treasury. Each issued and outstanding Corporation Share has been paired with an issued and outstanding Trust Share (as hereinafter defined) pursuant to the terms of the Pairing Agreement. The Paired Shares issued to the Contributing Parties at Closing will be duly authorized, validly issued, fully paid and nonassessable and shall be issued hereunder free and clear of all Liens. Except as set forth on Schedule 7.03(f), there are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that require the Corporation to issue, sell, or otherwise cause to become outstanding any Corporation Shares. The Issuance of the Paired Shares to the Contributing Parties at the Closing will not require any approval or consent of any Person except for any such approval that shall have been obtained on or prior to the Closing. Assuming the accuracy of the representations in Section 7.01(x), the issuance of the Paired Shares to the Contributing Parties is exempt from registration under the Securities Act and applicable state securities laws. There are no restrictions on the transfer of the Paired Shares other than those in the Constituent Documents of the Trust and the Corporation, the Transfer Restriction and Exchange 31 38 Rights Agreement, or the Registration Rights Agreement and those arising from federal and applicable state securities laws. (g) Financial Statements; Undisclosed Liabilities. True and complete copies of (i) the audited financial statements of the Corporation as of December 31, 1995, together with all related notes and schedules thereto, accompanied by the reports thereon of the Corporation's independent auditors, and (ii) the unaudited financial statements of the Corporation as of September 30, 1996 and for the nine months then ended, together with all related notes and schedules thereto (collectively, the "CORPORATION'S FINANCIAL STATEMENTS"), have been delivered to the Contributing Parties. The Corporation's Financial Statements were prepared in accordance with the books of account and other financial records of the Corporation, present fairly the consolidated financial condition and results of operations of the Corporation as of the dates thereof or for the periods covered thereby, and have been prepared in accordance with GAAP. Except as disclosed on Schedule 7.03(g), (i) there are no Liabilities of the Corporation of the nature required by GAAP to be shown on a balance sheet, other than Liabilities reflected or reserved against on the balance sheets of the Corporation as of September 30, 1996, and (ii) Liabilities which have arisen since that date in the ordinary course of business. (h) Conduct in the Ordinary Course of Business. Except as set forth on Schedule 7.03(h), since September 30, 1996, the business of the Corporation has been conducted in all material respects in the ordinary course, consistent with past practice, and the business of the Corporation will be conducted as aforesaid through the Closing. (i) SEC Documents. The SEC Documents taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. (j) Reservation of Shares. Upon Closing, the Corporation shall have reserved for issuance a number of Corporation Shares equal to the number of Paired Shares into which the SLC OP Units included in the Contribution Amount are exchangeable pursuant to the Transfer Restriction and Exchange Rights Agreement. (k) ERISA Matters. The terms of this transaction are not materially less favorable to PRISA II than the terms that would be available generally in an arms'-length transaction between unrelated parties. The Corporation does not maintain or contribute to an employee benefit plan maintained by an employer or employee organization identified on Schedule 7.03(k). 7.04 The Trust's Representations and Warranties. To induce the Contributing Parties to enter into this Agreement, the Trust makes the following representations and warranties, all of which (i) are now true and (ii) shall be true as of the Closing: (a) Power and Authority, Non-contravention. The Trust has full power and authority to enter into this Agreement and to assume and perform all of its obligations hereunder; the execution and delivery of this Agreement and the performance by the Trust of its obligations hereunder have been duly authorized by such action as may be required, and no further action or approval is required in order to constitute this Agreement as a binding and enforceable obligation 32 39 of the Trust; neither the execution or delivery of this Agreement by the Trust, nor consummation of the transactions contemplated hereby or compliance with or fulfillment of the terms and provisions hereof by the Trust, will (i) conflict with, result in a breach of the terms, conditions or provisions of, or constitute a default, an event of default or an event creating rights of acceleration, termination or cancellation or a loss of rights, or result in the creation or imposition of any encumbrance upon any of the assets of the Trust under the Trust's Constituent Documents, the Pairing Agreement or any other instrument, agreement, mortgage, indenture, deed of trust, permit, concession, grant, franchise, license, judgment, order, award, decree or other restriction to which the Trust is a party or any of its properties is subject or by which it is bound, or under any Legal Requirements affecting it, or (ii) require the approval, consent or authorization of, or the making of any declaration, filing or registration with, any third party or any foreign, federal, state or local court, Government Entity or regulatory body, by or on behalf of the Trust, except for (A) the Nevada Gaming Approvals, or (B) the filing of appropriate documents with the SEC under the Securities Act. (b) Good Standing. The Trust is duly organized, validly existing and in good standing under the laws of the state of its formation and is qualified to do business in all jurisdictions in which such qualification legally is required. (c) Binding Effect. When executed and delivered by the Trust, the documents required to be executed by the Trust hereunder will each be duly authorized, valid and shall be binding upon each Trust. (d) Status of the Constituent Documents. Schedule 7.04(d) sets forth a true and complete list of the Trust's Constituent Documents. The Trust's Constituent Documents are in full force and effect, and a true, complete and correct copy thereof has been delivered to the Contributing Party. There are no dissolution, termination or liquidation proceedings pending or contemplated with respect to the Trust. The Trust has elected to be taxed as a REIT (as defined below) for its taxable year ending December 31, 1995 and the Trust is organized and operated in such a manner as to qualify for taxation as a "real estate investment trust" as defined in Section 856 of the Code ("REIT") for the taxable year ending December 31, 1995 and through the Closing Date. The Trust is grandfathered from the application of Section 269B of the Code pursuant to Section 136(c)(3) of the Deficit Reduction Act of 1984. (e) No Litigation; Proceedings. Except as set forth on Schedule 7.04(e), there are no pending or, to the Starwood Parties' Knowledge, threatened actions, suits, proceedings or claims against or affecting the Trust at Law or in equity or before or by any (Government Entity which would prevent or impair the transactions contemplated hereby. (f) Capitalization. The entire authorized shares of beneficial interest of the Trust (the "TRUST SHARES") as of December 31, 1996 consisted of 100,000,000 shares of which 26,718,649 were issued and outstanding and 73,281,351 shares were held in treasury. Each issued and outstanding Trust Share has been paired with an issued and outstanding of Corporation Share pursuant to the terms of the Pairing Agreement. The Paired Shares issued to the Contributing Parties at Closing will be duly authorized, validly issued, full paid and non-assessable and shall be issued hereunder free and clear of all Liens. Except as set forth on Schedule 7.04(f), there are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, 33 40 exchange rights, or other Contracts or commitments that require the Trust to issue, sell or otherwise cause to become outstanding any Paired Shares. The Issuance of the Paired Shares to the Contributing Parties at the Closing will not require any approval or consent of any Person except for any such approval that shall have been obtained on or prior to the Closing. Assuming the accuracy of the representations in Section 7.01(x), the issuance of the Paired Shares to the Contributing Parties is exempt from registration under the Securities Act and applicable state securities laws. There are no restrictions on the transfer of the Paired Shares other than those in the Constituent Documents of the Trust and the Corporation, the Transfer Restriction and Exchange Rights Agreement, or the Registration Rights Agreement and those arising from federal and applicable state securities laws. (g) Financial Statements; Undisclosed Liabilities. True and complete copies of (i) the audited financial statements of the Trust as of December 31, 1995, together with all related notes and schedules thereto, accompanied by the reports thereon of the Trust's independent auditors, and (ii) the unaudited financial statements of the Trust as of September 30, 1996 and for the nine months then ended, together with all related notes and schedules thereto (collectively, the "TRUST'S FINANCIAL STATEMENTS"), have been delivered to the Contributing Parties. The Trust's Financial Statements were prepared in accordance with the books of account and other financial records of the Trust, present fairly the consolidated financial condition and results of operations of the Trust as of the dates thereof or for the periods covered thereby, and have been prepared in accordance with GAAP. Except as disclosed on Schedule 7.04(g), (i) there are no Liabilities of the Trust of the nature required by GAAP to be shown on a balance sheet, other than Liabilities reflected or reserved against on the balance sheets of the Trust as of September 30, 1996, and (ii) Liabilities which have arisen since that date in the ordinary course of business. (h) Conduct in the Ordinary Course of Business. Except as set forth on Schedule 7.04(h), since September 30, 1996, the business of the Trust has been conducted in all material respects in the ordinary course, consistent with past practice, and the business of the Trust will be conducted as aforesaid through the Closing. (i) SEC Documents. The SEC Documents taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. (j) Reservation of Shares. Upon Closing, the Trust shall have reserved for issuance a number of Trust Shares equal to the number of Paired Shares into which the SLT OP Units included in the Contribution Amount are exchangeable pursuant to the Transfer Restriction and Exchange Rights Agreement. (k) ERISA Matters. The terms of this transaction are not less favorable to PRISA II than the terms that would be available generally in an arms'-length transaction between unrelated parties. The Trust does not maintain or contribute to an employee benefit plan maintained by an employer or employee organization identified on Schedule 7.04(k). 34 41 ARTICLE VIII CONDITIONS 8.01 Conditions to the Partnerships' Obligations. The obligation of the Partnerships to acquire the Property Company Interests and the Contributed Assets from the Contributing Parties and to pay the Contribution Amount is subject to satisfaction prior to or simultaneously with the Closing of the following conditions, any of which may be waived in writing in whole or in part by the Partnerships. Subject to Section 12.05(b), a failure of the circumstances made a condition under this Section 8.01 shall not constitute a waiver of any covenants, warranties and representations provided for elsewhere in this Agreement; provided, however, that notwithstanding the foregoing, (i) the Partnerships' sole remedies in the event any such conditions are not satisfied or waived shall be to terminate this Agreement and receive a refund of the Deposit or to proceed as otherwise contemplated by the provisions of Section 13.02(a); and (ii) if Closing occurs, the liability of the Contributing Parties in connection with any breach of the covenants, representations or warranties provided elsewhere in this Agreement shall be limited as provided in Section 12.05(b) and Section 14.02(a): (a) Exchange Rights Agreement. The Contributing Parties shall have entered into the Transfer Restriction and Exchange Rights Agreement in the form of Exhibit "B" attached hereto (the "EXCHANGE RIGHTS AGREEMENT"), and the Exchange Rights Agreement shall be in full force and effect. (b) HEI Contribution. The HEI Contribution shall have been completed in accordance with the terms of the HEI Contribution Agreement. (c) No Material Misrepresentation etc. There shall not be any material error, misstatement or omission in the representations or warranties made by any Contributing Party in this Agreement. (d) Title to Property. SLT shall have obtained from the Title Insurer an ALTA Owners Policy of Title Insurance, Form B-1970 (or such other form acceptable to SLT), for each of the parcels of Real Property based upon the Title Commitments ("TITLE POLICIES"). The Title Policies will be dated as of the Closing Date and must: (i) insure title to the applicable parcels of Real Property and all recorded easements benefiting such parcels, subject only to Permitted Encumbrances; (ii) contain an "extended coverage endorsement" insuring over the general exceptions contained customarily in such policies; and (iii) contain non-imputation and "Fairway" endorsements. 35 42 The Title Policies must not raise any material survey defect or encroachment from or onto any of the Real Property which has not been cured or insured over prior to the Closing. Title to the Property other than the Real Property shall be subject to no Liens other than Permitted Encumbrances. In addition to the requirements of the Title Policies set forth above, the Partnerships may, at their sole cost and expense, obtain such additional endorsements as they may desire, but the non-availability of any such optional additional endorsements shall not constitute a failure of a condition to Closing. (e) Contributing Parties' Proceedings. All proceedings to be taken by the Contributing Parties and Property Companies in connection with the transactions contemplated by this Agreement shall have been contemplated and all documents to be furnished by them incident thereto shall be reasonably satisfactory in substance and in form to the Partnerships and the Partnerships' counsel. (f) Contributing Party's Performance, Consents. Subject to the provisions of Section 8.01(g) regarding licenses and Section 8.01(h) regarding License Agreements, all covenants, actions and agreements made by each Contributing Party which are to be performed or completed on or before the Closing shall have been performed or completed in all material respects, and all documents to be delivered by each Contributing Party at the Closing shall have been delivered, and each Contributing Party and Property Company shall have received all consents, authorizations and approvals required in connection with the transactions contemplated in this Agreement except where the failure to obtain such consent does not and would not reasonably be expected to have a material adverse effect on the use or value of the Property, the performance by the affected Contributing Party of its obligations hereunder or the ability to operate the affected Hotel after Closing in substantially the same manner in which it is presently operated. (g) Licenses. There shall have been issued all appropriate licenses and/or approvals required to permit the continued operation of all portions of the Property, including without limitation full liquor service at the Property, from and after the Closing, provided that the Contributing Parties and the Partnerships shall cooperate fully to effect the transfer of all licenses, permits and approvals as of Closing, but if despite such efforts any license cannot be transferred as of Closing, the Contributing Parties and the Partnerships shall agree to reasonable alternate arrangements customary in the applicable jurisdiction so as to permit the continued operation of the affected Hotel(s) in the manner in which presently operated and Closing shall proceed as scheduled. (h) Franchise License Agreements. With respect to each License Agreement, the applicable Property Company, shall have received all consents or other relief required from the licensor thereunder to permit the transaction contemplated hereby or shall have terminated such License Agreement effective as of the Closing Date, provided: (i) that the Contributing Parties and the Partnerships shall cooperate fully to attempt to negotiate a mutually acceptable resolution of such matters with each franchisor or licensor under a License Agreement, but if despite such efforts such resolution has not been fully negotiated and agreed to by Closing, the Contributing Parties and the Partnerships shall agree to reasonable alternate arrangements and Closing shall proceed as scheduled; and 36 43 (ii) that any fees or capital expenditures required to be paid under or in connection with such License Agreement as a condition for the approval by the licensor or franchisor of the transfer, termination or reissuance of the same shall, subject to Section 10.01 hereof, be borne by the Partnerships. (i) Notices. Each Contributing Party or Property Company, as appropriate, shall execute and deliver all notices required by any Contract or permit issued by any Governmental Entity for the transactions contemplated herein. (j) ERISA Limitations. Any limitations on OP Unit ownership by the Contributing Parties reasonably necessary to comply with the Plan Asset Regulation so as to avoid the result that the assets of SLT and/or SLC constitute "Plan Assets" for purposes of the Plan Asset Regulation and which may arise due to the transactions contemplated in this Agreement and in the other Transaction Documents shall be resolved in a manner mutually satisfactory to the Contributing Parties and the Starwood Parties. In resolving any such limitations, the Starwood Parties and the Contributing Parties shall first consider equal decreases in the number of OP Units and increases in the number of Paired Shares to be issued immediately after Closing, and, if the parties do not mutually agree to do so, the parties may alternatively agree to decrease the number of OP Units to be delivered to the Contributing Parties pursuant to Section 2.03 and increase the Cash portion of the Contribution Amount based on the Closing Value of the OP Units not delivered. The parties currently contemplate that immediately following the issuance of the OP Units at the Closing, PRISA II shall convert approximately 1,850,000 OP Units into Paired Shares, leaving PRISA II with approximately 1,150,000 OP Units in each of SLT and SLC. The parties hereby agree to cooperate in all reasonable respects to endeavor to resolve any such limitations without the necessity of increasing the Cash portion of the Contribution Amount. 8.02 Conditions to Contributing Party's Obligations. The obligation of the Contributing Parties to contribute the Property Company Interests and Contributed Assets to the Partnerships is subject to satisfaction simultaneously with the Closing of the following conditions (any of which may be waived in whole or in part by the Contributing Parties, but only in writing at or prior to the Closing). Subject to Section 12.05(b), a failure to discover any circumstances made a condition under this Section 8.02 shall not constitute a waiver of any covenants, warranties and representations provided for elsewhere in this Agreement and the Contributing Parties sole remedies in the event any such conditions are not satisfied or waived shall be to proceed as contemplated by Section 13.02(b) or Article XIV. (a) The Starwood Parties' Proceedings. All proceedings to be taken by the Starwood Parties in connection with the transactions contemplated by this Agreement shall have been completed and all documents to be furnished by them incident thereto shall be reasonably satisfactory in substance and in form to the Contributing Parties and their counsel. (b) The Starwood Parties' Performance. All covenants, actions and agreements made by each Starwood Party which are to be performed or completed on or before the Closing shall have been performed or completed in all material respects, including, without limitation, payment of the Contribution Amount, and all documents to be delivered by each Starwood Party at the Closing shall have been delivered, and each Starwood Party shall have received all consents required 37 44 in connection with the transactions contemplated in this Agreement except where the failure to obtain such consent does not and would not reasonably be expected to have a material adverse effect on the performance by the affected Starwood Party of its obligations hereunder. (c) No Material Misrepresentation etc. There shall not be any material error, misstatement or omission in the representations or warranties made by the Starwood Parties in this Agreement. (d) Exchange Rights Agreement. The Starwood Parties shall have entered into the Exchange Rights Agreement and the Exchange Rights Agreement shall be in full force and effect. (e) Registration Rights Agreement. The Starwood Parties shall have entered into the Registration Rights Agreement in the form of Exhibit "C" attached hereto (the "REGISTRATION RIGHTS AGREEMENT"), and the Registration Rights Agreement shall be in full force and effect. (f) [Reserved] (g) HEI Contribution. The HEI Contribution shall have been completed in accordance with the HEI Contribution Agreement. (h) [Reserved] (i) Partnership Amendments. The Contributing Parties shall have been admitted as limited partners to SLT and SLC pursuant to the terms of an amendment to the partnership agreements of each of SLT and SLC reflecting the issuance of the OP Units to the Contributing Parties and their admission to the respective Partnerships, which amendments shall be in form and substance reasonably satisfactory to the Contributing Parties and their counsel. Such amendments shall provide, in part, that upon receipt by the Partnerships of the Property Company Interests and the Contributed Assets and the admission of the Contributing Parties to the Partnerships, the Partnerships shall indemnify and hold harmless the Contributing Parties of and from Liabilities of the Property Company whose interests have been acquired except for any undisclosed material Liability of such Property Company as of the Closing Date (collectively, the "EXCLUDED LIABILITIES"); provided, however, that the Excluded Liabilities shall not include: (i) any Liability incurred in the ordinary course of operating the applicable Hotel prior to the Closing Date; (ii) any Liability disclosed by the Transaction Documents, the Schedules or Exhibits thereto, any supplement to such schedules or exhibits delivered to the Starwood Parties prior to Closing, the agreements, reports or other documents referred to in any of the foregoing, the Financial Statements, the financial statements prepared in connection with the Net Working Capital adjustment provided for in Article IV; (iii) any Liability of which the Starwood Parties otherwise had Knowledge prior to Closing; or 38 45 (iv) any Liability incurred on or after the Closing Date; and the Partnerships shall be obligated to hold the Contributing Parties harmless from all such enumerated Liabilities. (j) ERISA Limitations. Any limitations on OP Unit ownership by the Contributing Parties reasonably necessary to comply with the Plan Asset Regulation so as to avoid the result that the assets of SLT and/or SLC constitute "Plan Assets" for purposes of the Plan Asset Regulation and which may arise due to the transactions contemplated in this Agreement and in the other Transaction Documents shall be resolved in a manner mutually satisfactory to the Contributing Parties and the Starwood Parties. In resolving any such limitations, the Starwood Parties and the Contributing Parties shall first consider equal decreases in the number of OP Units and increases in the number of Paired Shares to be issued immediately after Closing, and, if the parties do not mutually agree to do so, the parties may alternatively agree to decrease the number of OP Units to be delivered to the Contributing Parties pursuant to Section 2.03 and increase the Cash portion of the Contribution Amount based on the Closing Value of the OP Units not delivered. The parties currently contemplate that immediately following the issuance of the OP Units at the Closing, PRISA II shall convert approximately 1,850,000 OP Units into Paired Shares, leaving PRISA II with approximately 1,150,000 OP Units in each of SLT and SLC. The parties hereby agree to cooperate in all reasonable respects to endeavor to resolve any such limitations without the necessity of increasing the Cash portion of the Contribution Amount. ARTICLE IX DOCUMENTS 9.01 The Contributing Parties' Closing Deliveries. At the closing, each Contributing Party shall execute as necessary and deliver or cause to be delivered the following: (a) Assignment of Property Company Interests. Duly executed and acknowledged Assignment and Assumption of the Property Company Interests in form and substance reasonably satisfactory to the Parties and their counsel and sufficient to transfer and convey all right, title and interest in, to and under the Property Company Interests to the respective Partnerships who shall countersign and return a copy of the same to signify such Partnership's assumption of obligations thereunder arising after the Closing, subject to the provisions of Section 8.02(i). (b) Confirmation of Distribution of Contributed Assets. Copies of duly executed instruments whereby each Property Company distributes title to the Contributed Assets owned by such Property Company to the Contributing Parties holding Property Company Interests therein (to permit such Contributing Parties to contribute such assets to SLC in accordance with this Agreement). (c) Bills of Sale and General Assignment. A duly executed and acknowledged Bill of Sale and General Assignment from the Contributing Parties in form and substance reasonably 39 46 satisfactory to the Parties and their counsel and sufficient to transfer and convey the Contributed Assets to SLC. (d) Affidavits Regarding Authority, "Foreign Person". Affidavits sworn to by each Contributing Party to the effect (1) that the signatures on the instruments executed and delivered by such Contributing Party in connection with the transactions contemplated hereby are sufficient to bind such party; (2), if such Contributing Party is not an individual, that all requisite consents or approvals to the Closing transactions required under the applicable Constituent Documents have been obtained; (3) that the Contributing Party is not a "foreign person" as that term is defined in Section 1445(f)(3) of the Code; and (4) that the U.S. taxpayer identification number of each Contributing Party is as set forth in such affidavit. (e) Title Requirements. Subject to the Constituent Parties' obligations under Section 3.01, any and all certificates, affidavits and other instruments and documents which the Title Company shall reasonably require to permit it to issue the Title Policies in the condition required herein. (f) Transfer Tax Returns. All transfer and other tax returns and information returns as may be required in connection with the transactions contemplated by this Agreement, duly executed by the applicable Property Company. (g) [Reserved] (h) Pay-Off Letters. Pay-off letters with respect to the Assumed Debt indicating all sums required to satisfy and permit the discharge of record of any lien securing the Assumed Debt. (i) Good Standing Certificate. A Certificate (dated not more than ten business days prior to the Closing) of the Secretary of State of the state of formation for each Property Company as to the good standing in such state of each of the Property Companies. (j) Others as Reasonably Required. Such other documents as may be reasonably required to consummate the transactions herein contemplated. 9.02 The Partnerships Closing Deliveries. The Partnerships at Closing shall pay or cause to be paid the Contribution Amount to the Contributing Parties and shall execute, acknowledge and/or deliver to the Contributing Parties: (a) Good Standing Certificate. A certificate (dated not more than ten business days prior to the Closing) of the Secretary of State of the State of Delaware as to the good standing of each of the Partnerships in the State of Delaware. (b) Partnership Amendments. The amendments to the Partnership Agreements for SLT and SLC required by Section 8.02(i). 40 47 (c) Affidavit. An affidavit sworn to by a general partner or officer of each of the Partnerships to the effect that (1) the signatures on the instruments executed and delivered by the Partnerships in connection with this transaction are sufficient to bind the Partnerships, (2) all requisite consents or approvals to the Closing transactions required under the applicable Constituent Documents have been obtained, and (3) the consummation of the transaction by the Partnerships are not prohibited or restricted in any way either under the Constituent Documents or under Legal Requirements applicable to the transaction. (d) Others as Reasonably Required. Such other documents as may be reasonably required to consummate the transactions herein contemplated. 9.03 Closing Deliveries by the Trust and the Corporation. At Closing, each of the Trust and the Corporation shall respectively execute and deliver to the Contributing Parties the following: (a) Good Standing. A certificate (dated not more than ten business days prior to the Closing) of the Secretary of State of the State of Maryland for each of the Trust and the Corporation as to the good standing of each of the Trust and the Corporation respectively in the State of Maryland. (b) Paired Shares. Such stock certificates or other evidence of the issuance of the Paired Shares, if any, to the Contributing Parties as the Contributing Parties may reasonably request. (c) Affidavit. Affidavits sworn to by an officer of the Corporation and the Trust to the effect that (1) the signatures on the instruments executed and delivered by the Corporation and Trust in connection with this transaction are sufficient to bind the Corporation and the Trust (2) all requisite consents or approvals to the Closing transactions required under the applicable Constituent Documents have been obtained, and (3) the consummation of the transaction by the Corporation and the Trust are not prohibited or restricted in any way either under the Constituent Documents or under Legal Requirements applicable to the transaction. (d) Others as Reasonably Required. Such other documents as may be reasonably required to consummate the transactions herein contemplated. ARTICLE X COSTS 10.01 Transaction Costs. The Partnerships and the Contributing Parties shall each pay one-half (1/2) of the amount of all costs associated with transfer taxes, deed stamps, gains taxes, sales or use taxes relating to the transfer of personal property (collectively "TRANSFER COSTS") and the costs associated with title searches and the issuance of the Title Policies (other than optional endorsements) and preparation of surveys (collectively "TITLE COSTS"). The Partnerships and the Contributing Parties shall each bear and pay one-half (1/2) of any escrow costs and recording fees and charges. Fees, costs and expenses incurred in terminating or assigning the License Agreements or in obtaining replacement franchise agreements therefor shall be borne by the Partnerships; provided, however, that if such costs shall exceed $500,000 with respect to the Atlanta Embassy Suites Hotel, 41 48 all such costs in excess of such amount with respect to such Hotel shall be borne equally by the Contributing Parties and the Starwood Parties. Fees, costs and expenses incurred in connection with the issuance of all appropriate licenses and/or approvals required to permit the continued operation of full liquor service at the Property shall be borne by the Partnerships. All other costs and expenses incurred by the Contributing Parties in connection herewith, including, without limitation, all attorneys' fees and costs shall be borne by the Contributing Parties. All other costs and expenses incurred by the Starwood Parties in connection herewith, including, without limitation, all attorneys' fees and costs shall be borne by the Starwood Parties. ARTICLE XI BROKERAGE 11.01 Broker. Each Contributing Party and each of the Starwood Parties represents and warrants that it has not dealt with any broker in connection with this transaction other than (i) Goldman, Sachs & Co., whose fees shall be paid by the Contributing Parties, (ii) Prudential Securities Incorporated whose fees shall be paid by HEI (as provided in the HEI Contribution Agreement) and (iii) Merrill, Lynch & Co., whose fees shall be paid by HEI pursuant to its agreement with Merrill, Lynch & Co. Each of the Starwood Parties and each Contributing Party hereby agrees to indemnify, defend and hold the other parties to this Agreement harmless from and against any claim, cost, damage or expense including reasonable attorneys' fees in defense thereof, made by any other broker claiming to have been retained by such Person in connection with the transactions contemplated hereby. ARTICLE XII SCHEDULES, CLOSING, "AS IS" 12.01 Schedules. Each of the parties hereto shall cause to be prepared and delivered to the other parties hereto all Schedules pertaining to such party as soon as reasonably practicable after the date hereof. If, prior to 6:00 P.M. (EST) on January 17, 1997, the Starwood Parties have not terminated this Agreement in accordance with the following sentence, the Starwood Parties shall be deemed to have approved such Schedules and SLT shall be obligated to immediately increase the Deposit by $5,000,000 as provided for in Section 2.05 above. If the Schedules disclose matters which, taken as a whole, materially adversely affect the business prospects, assets, liabilities, financial condition or operating results of the party on whose behalf such Schedule was submitted, then, the party for whose benefit such Schedule was submitted, may, by notice to the party on whose behalf such Schedule was submitted, elect to terminate this Agreement, in which event this Agreement (and all other Transaction Documents) shall terminate and be of no further force and effect, except for those provisions which specifically survive such termination, and the Initial Deposit shall be returned to SLT. 42 49 12.02 Access. (a) Access - Partnerships. The Contributing Parties shall permit the Partnerships and their authorized representatives at such time or times as the Partnerships may reasonably request (and either before or after Closing) (i) upon reasonable prior notice, to inspect, review, or copy the books and records, including, without limitation, any financial statements (collectively, the "PROPERTY COMPANY RECORDS") of each of the Property Companies and/or their respective agents' relating to the ownership, management and operation of the Property for any periods prior to the Closing Date (the "PROPERTY COMPANY RECORDS REVIEW"), (ii) to inspect the physical condition of the Property (the "PHYSICAL INSPECTION"), (iii) to enter the Property for the purpose of observing the taking of any inventories and the counting of house cash, and (iv) to schedule and perform interviews of Hotel employees, provided that all such interviews shall be scheduled through Murray Dow of HEI who shall make all reasonable efforts to accommodate the Partnerships' scheduling requests. The Contributing Parties shall cause the Property Companies to direct the managers of the Hotels to cooperate in such investigations by the Partnerships, and take such steps as may be reasonably within the power of the Property Companies to compel the managers so to cooperate, and the Partnerships shall use commercially reasonable efforts to minimize disruption to the Hotel Business. (b) Access - Contributing Parties. The Starwood Parties shall permit the Contributing Parties and their authorized representatives at such time or times as the Contributing Parties may reasonably request (and either before or after Closing (i) upon reasonable prior notice, to inspect, review, or copy the books and records, including, without limitation, any financial statements (collectively, the "STARWOOD RECORDS") of each of the Starwood Parties and/or their respective agents' relating to the ownership, management and operation of the Starwood Parties or their hotels (the "STARWOOD RECORDS REVIEW"), and (ii) to schedule and perform interviews of employees of the Starwood Parties, their affiliates and managers, provided that all such interviews shall be scheduled through Steve Goldman who shall make all reasonable efforts to accommodate the Contributing Parties' scheduling requests. 12.03 Certain Definitions. For the purposes of Section 12.02: (a) Records (of the Property Companies or the Starwood Parties, as applicable) shall include, without limitation, all past and current, rent rolls, paid bill files, depreciation schedules, canceled checks, payroll tax returns and any additional records reasonably requested by the Partnerships or the Contributing Parties, as the case may be (excluding bank statements) in the possession of the Property Companies or the Starwood Parties, or their respective agents; and (b) Physical Inspection may include, without limitation, the roofs, foundation, interiors, soil, landscaping, painting, pools, dumpster pads, heating systems, electrical systems, plumbing, sewerage systems, water supply, painting, appliances, carpeting, drapes, clubhouse, roads, parking areas and inspection for evidence of termite infestation and/or environmental matters. 12.04 Deliveries. The Contributing Parties shall fully cooperate with the Partnerships and the Partnerships' representatives in making the foregoing review, audit and inspection, and shall upon request from the Partnerships deliver to the Partnerships such information, reports or other records 43 50 as may be relevant to such review and within the possession of the Contributing Parties or the Property Companies. The Starwood Parties shall fully cooperate with the Contributing Parties and the Contributing Parties' representatives in making the foregoing review, audit and inspection, and shall upon request from the Partnerships deliver to the Partnerships such information, reports or other records as may be relevant to such review and within the possession of the Starwood Parties or the Property Companies. 12.05 Effect of Inspections, "As Is". (a) Upon completion of the Closing, the Partnerships will be deemed to have accepted the Property on an "As Is" basis, subject to the provisions of Articles VII, XIV and XVI (as limited in accordance with Sections 12.05(b), 13.02(a) and 14.02(b) of this Agreement) and the terms and conditions of the other Transaction Documents. The sole obligation of the Contributing Parties with respect to the physical condition of the Property will be to contribute the Property Company Interests and the Contributed Assets to the Partnerships with the Property in substantially the same physical condition (excluding normal wear and tear) as existed on the date of execution and delivery of this Agreement. Subject to the provisions of Articles VII, XIV, and XVI (as limited in accordance with Sections 12.05(b), 13.02(a) and 14.02(b) of this Agreement), the Partnerships have agreed to accept possession of the Property Company Interests and Contributed Assets on the Closing Date with the Property and Hotel Business of each Hotel on an "As Is" basis. The Partnerships and Contributing Parties agree that at Closing the Property will be "As Is," and, except as expressly set forth in Section 7.01 hereof, such Closing transactions will be without representation or warranty of any kind, express or implied (including, without limitation, warranty of income potential, operating expenses, uses, merchantability or fitness for a particular purpose), and the Partnerships do hereby disclaim and renounce any such representation or warranty other than as expressly made pursuant to Section 7.01 (but subject to the limitations and qualifications provided for in this Agreement). For purposes of this Agreement, the term "As Is" means, as and where the Property presently exist as of the date of execution and delivery of this Agreement, including, without limitation, all faults, defects, claims, Liens, and other conditions of every kind or description with respect to (a) the physical and environmental condition of the Property and the Hotels (including defects seen and unseen and conditions natural and artificial), (b) subject to Article III, the Property Companies' title to the Real Property and the Hotels, (c) subject to Article III, the Property Companies' title to the Tangible Personal Property, Intangible Property, Proprietary Interests and Miscellaneous Interests, (d) all Legal Requirements to which the Property is subject, (e) the financial operations of the Hotels, demands, actions, or causes of action that relate in any way to the Hotels or the ownership and operations thereof and, (f) all other matters related in any way to the ownership and operation of the Property and the Hotels, whether known or unknown, subject in each case to the obligations of the Contributing Parties under Articles VII, XIV and XVI (as limited in accordance with Sections 12.05(b), 13.02(a) and 14.02(b) of this Agreement) and the terms of the other Transaction Documents. (b) The right of inspection, review and audit referred to in Section 12.02(a) of this Agreement, and the exercise of such right by the Partnerships shall not constitute a waiver by the Partnerships of the breach of any covenant, representations or warranty of the Contributing Parties; provided, however, that if the Starwood Parties have Knowledge of any such breach at the time of Closing, and elect to complete the Closing in accordance with the terms hereof notwithstanding such 44 51 Knowledge, then the Starwood Parties shall irrevocably be deemed to have waived any such breach of which the Starwood Parties had Knowledge at Closing. Likewise, the review, investigation and analysis of the Starwood Parties, the OP Units and the Paired Shares by the Contributing Parties shall not constitute a waiver by the Contributing Parties of the breach of any covenant, representation or warranty of the Starwood Parties; provided, however, that if the Contributing Parties have Knowledge of any such breach at the time of Closing, and elect to complete the Closing notwithstanding such Knowledge, then the Contributing Parties shall irrevocably be deemed to have waived any such breach of which the Contributing Parties had Knowledge at Closing. For purposes of this Section 12.05(b) and Article XIII and XIV, Knowledge with respect to a party shall include the present actual Knowledge of the individual attorneys actively representing such party in connection with the transactions contemplated hereby. (c) [Reserved] 12.06 Delivery of Property Company Records. The Contributing Parties shall cause the Property Company Records to remain with the Property Companies upon the contribution of the Property Company Interests and Contributed Assets to the Partnerships at Closing. The Partnerships agree for a period of five (5) years subsequent to the Closing Date, upon request of the Contributing Parties, to make available to the Contributing Parties all information and statements in the Partnerships' possession (including, without limitation, the Property Company Records) with regard to any period prior to the Closing Date which may be reasonably required by the Contributing Parties in connection with the Property Companies' control of the Property or the operation thereof. 12.07 The Partnerships' Indemnification. The Partnerships agree to indemnify, defend and hold the Contributing Parties harmless from and against any claim, damage or expense, including reasonable attorneys' fees, incurred by the Contributing Parties and arising from the Partnerships' entry upon the Property for the performance of the Partnerships' due diligence reviews and such indemnification shall survive the Closing or termination of this Agreement. 12.08 Date and Location Closing. The Closing of the transactions contemplated by this Agreement (the "CLOSING") shall take place on January 31, 1997 at 10:00 a.m. at the offices of Kirkland & Ellis, 153 East 53rd Street, New York, NY, or at such other time and place as the parties may mutually determine (the "CLOSING DATE"), provided that either party hereto may adjourn the Closing for a period not to exceed thirty (30) days for the purpose of obtaining the consents required pursuant to Section 8.01(h) (provided that such period shall be sixty (60) days with respect to the consent required from Hilton Hotels Corp.) 45 52 ARTICLE XIII EARNEST MONEY, DEFAULT AND REMEDIES 13.01 Duties of Escrow Agent. The duties of Escrow Agent will be as provided in the Escrow Agreement and shall include: (a) Earnest Money Deposits. During the term of this Agreement, Escrow Agent will hold, deposit, invest and deliver the Deposits in accordance with the terms and provisions of this Agreement. (b) Disputes. If this Agreement is terminated by the mutual written agreement of the Contributing Parties and the Starwood Parties, or if Escrow Agent is unable to determine at any time to whom any of the Deposit should be delivered, or if a dispute develops between the Contributing Parties and the Starwood Parties concerning to whom the Deposit should be delivered, then in any such event, Escrow Agent will request joint written instructions from the Contributing Parties and the Starwood Parties and will deliver the Deposit in accordance with such joint written instructions. In the event that such written instructions are not received by Escrow Agent within ten (10) days after Escrow Agent has served a written request for instructions upon the Contributing Parties and the Starwood Parties, Escrow Agent will have the right to pay the Deposit into a court of competent jurisdiction and interplead the Contributing Parties and the Starwood Parties in respect thereof, and thereafter Escrow Agent will be discharged of any obligations in connection with this Agreement. (c) Costs. If costs or expenses are incurred by Escrow Agent because of litigation or a dispute between the Contributing Parties and the Starwood Parties arising out of the holding of the Deposit in escrow, the Contributing Parties and the Starwood Parties will each pay Escrow Agent one-half of such reasonable and direct costs and expenses. Except for such costs and expenses, no fee or charge will be due or payable to Escrow Agent for its services as escrow holder other than its usual and customary investment fees, if any. (d) Limited Duties. By joining in the Escrow Agreement, Escrow Agent undertakes only to perform the duties and obligations imposed upon it under the terms of the Escrow Agreement and expressly does not undertake to perform any of the other covenants, terms and provisions incumbent upon the Contributing Parties and the Starwood Parties hereunder. (e) Liability. The Starwood Parties and the Contributing Parties hereby agree and acknowledge that Escrow Agent assumes no liability in connection herewith except for gross negligence or willful misconduct; that Escrow Agent will never be responsible for the validity, correctness or genuineness of any document or notice referred to under this Agreement; and that Escrow Agent may seek advice from its own counsel and will be fully protected in any action taken by it in good faith in accordance with the opinion of its counsel. 46 53 13.02 Default. (a) Contributing Parties Default. Notwithstanding any other provision of this Agreement, if the Contributing Parties, or any one of them, fail to perform any of their material obligations or agreements within fifteen (15) days following written demand for such performance contained herein and if the Starwood Parties are not then in default of any of their material obligations and agreements contained herein, then as their sole and exclusive remedy the Starwood Parties may elect to: (i) terminate this Agreement by giving written notice of termination and the reasons therefor to the Contributing Parties, in which event neither the Contributing Parties nor the Starwood Parties will have any further obligations or liabilities one to the other hereunder (except for any indemnity of one party by the other which expressly survives Closing or termination of this Agreement), and the Contributing Parties and Escrow Agent will immediately thereafter return the entire Deposit to SLT and the Contributing Parties shall reimburse the Starwood Parties for all Pursuit Costs actually incurred by the Starwood Parties in pursuing the transactions contemplated hereby up to an amount not to exceed One Million Dollars ($1,000,000); (ii) waive such default and complete the Closing as contemplated by this Agreement without any adjustment to or reduction in the Contribution Amount as a result of such default (except to the extent to the same affects the Net Working Capital Adjustment pursuant to Section 4.01); or (iii) waive all other actions, rights or claims for damages, other than costs and expenses incurred in enforcing this Agreement and bring an equitable action for specific performance of the terms of this Agreement (i.e., to compel any Contributing Party to comply with its covenants under this Agreement). If the Starwood Parties shall elect to proceed pursuant to clause (iii) above and shall successfully prosecute such action for specific performance, the Contributing Parties shall reimburse the Starwood Parties for all fees, costs and expenses incurred in prosecuting such action including, without limitation, reasonable attorneys fees, but if the Contributing Parties shall prevail in any such action, the Starwood Parties shall reimburse the Contributing Parties for all fees, costs and expenses incurred in defending such action including, without limitation, reasonable attorneys fees. (b) Starwood Parties' Default. If the Starwood Parties fail to close the transaction contemplated hereby (except for permitted terminations set forth herein) and the Contributing Parties are not then in default of any of their material obligations or agreements contained herein, then the Contributing Parties' sole option hereunder will be to terminate this Agreement, whereupon Escrow Agent will pay the Deposit to the Contributing Parties as liquidated damages, and the Starwood Parties will have no further obligations or liabilities hereunder (except for any indemnity or liability specifically stated to survive termination of this Agreement). The Contributing Parties' election to receive the Deposit as liquidated damages is agreed to due to the difficulty, inconvenience, and uncertainty of ascertaining actual damages for such breach by the Starwood Parties and the Starwood Parties agree that the same is a reasonable and fair estimate of such damages. The Starwood Parties 47 54 waive and release any right to (and covenant that they will not) sue the Contributing Parties or the Property Companies or seek or claim a refund of all or any portion of the Deposit on the grounds that it is unreasonable in amount and exceeds the Contributing Parties' actual damages or that its retention by the Contributing Parties constitutes a penalty. (c) [Reserved] ARTICLE XIV INDEMNIFICATION 14.01 Survival. Subject to the provisions of Section 12.05(b) and Section 13.02, and to the completion of the Closing, all representations, warranties, covenants and agreements set forth in the Transaction Documents or in any certificate or other writing delivered in connection with the Transaction Documents shall survive such Closing, and the consummation of the transactions contemplated thereby notwithstanding any examination made for or on behalf of the Starwood Parties or the Contributing Parties; provided that the Contributing Parties' obligation to indemnify the Starwood Parties and the Starwood Parties' obligation to indemnify the Contributing Parties in respect of breaches thereof shall be subject to the limitations set forth below. The provisions of this Article XIV shall apply only after Closing, and none of the Starwood Parties, the Contributing Parties or the Property Companies shall have any liability or obligation under the provisions of this Article XIV unless and until the Closing occurs. 14.02 Indemnification by Contributing Parties. (a) Subject to the provisions of Sections 12.05(b) and 13.02(a), and the limitations set forth in Section 14.02(b) below, as the exclusive remedy of the Starwood Parties under this Agreement after Closing, the Contributing Parties hereby jointly and severally (except as otherwise provided in Section 7.01(b)(ii) above, with respect to the representations and warranties therein made severally by the Contributing Parties and as to which the indemnification obligations created hereby shall also be several), agree to indemnify each of the Starwood Parties (who for purposes of this Article XIV, shall include each of their respective Affiliates, officers, directors, partners, employees, agents, representatives, successors and permitted assigns) and hold each of them harmless against and pay on behalf of or reimburse such Starwood Parties in respect of any liability (including, without limitation, interest, penalties, reasonable attorneys fees and expenses, court costs and amounts paid in investigation, defense or settlement of any of the foregoing) (collectively, "LOSSES") which any such Starwood Party may suffer, sustain or become subject to, as a result of, in connection with, relating or incidental to or by virtue of the breach of any covenant, representation or warranty made by the Contributing Parties under this Agreement (a "BREACH"). (b) The indemnification provided for in Section 14.02(a) above is subject to the following limitations: (i) Each Contributing Party will be liable to the Starwood Parties under Section 14.02(a) with respect to a Breach only (a) if Starwood Parties 48 55 had no Knowledge of such Breach on or before the Closing Date; and (b) the Starwood Parties give the Contributing Party written notice of such claim under Section 14.02(a): (A) within the earlier of (i) six months after the Closing Date or (ii) thirty (30) days following completion of the final determination of Closing Net Working Capital of any Property Company pursuant to Section 4.01(d) for claims arising from or relating to any Breach except a breach of the representations and warranties of Contributing Parties under Sections 7.01(b)(i), (b)(ii), (e), (n) or (x); (B) within twelve (12) months after the Closing Date for claims arising from or relating to any breaches of the representations and warranties of the Contributing Parties under Section 7.01(b)(i); (C) Within eighteen (18) months after the Closing Date for claims arising from or relating to any breaches of the representations and warranties of the Contributing Parties under Section 7.01(e); or (D) at any time after the Closing Date for claims arising from or relating to any breaches of the representations and warranties of the Contributing Parties under Sections 7.01 (b)(ii), or (x). (ii) The Contributing Parties will not be liable for any Loss arising from any Breach unless and until the aggregate amount of all such Losses relating to all such Breaches exceeds $100,000 (the "THRESHOLD"), in which case the Contributing Parties, shall be liable for the amount of all such Losses in excess of the Threshold; provided that the aggregate liability of the Contributing Parties hereunder shall not exceed: (i) $500,000 in respect of Losses relating to any single Hotel; and (ii) $2,750,000 (the "CAP AMOUNT") in respect of all Losses for which indemnification is sought by the Starwood Parties pursuant hereto. 14.03 Indemnification by Starwood Parties. (a) Subject to the provisions of Sections 12.05(b) and 13.02(a), and the limitations set forth in Section 14.03(b) below, as the exclusive remedy of the Contributing Parties under this Agreement after Closing, the Starwood Parties hereby jointly and severally agree to indemnify each of the Contributing Parties (who for purposes of this Article XIV, shall include each of their respective Affiliates, officers, directors, partners, employees, agents, representatives, successors and permitted assigns) and hold each of them harmless against and pay on behalf of or reimburse such Contributing Parties in respect of any liability (including, without limitation, interest, 49 56 penalties, reasonable attorneys fees and expenses, court costs and amounts paid in investigation, defense or settlement of any of the foregoing) (collectively, "LOSSES") which any such Contributing Party may suffer, sustain or become subject to, as a result of, in connection with, relating or incidental to or by virtue of the breach of any covenant, representation or warranty made by the Starwood Parties under this Agreement (a "BREACH"). (b) The Indemnification provided for in Section 14.03(a) above is subject to the following limitations; (i) Each Starwood Party will be liable to the Contributing Parties with respect to claims referred to in subsection (a)(i) above only if (a) the Contributing Parties had no Knowledge of such claim on or before the Closing Date and (b); if the Contributing Parties give the Starwood Parties written notice of such claim: (A) within the earlier of (i) six months after the Closing Date or (ii) thirty (30) days following completion of the final determination of Closing Net Working Capital of any Property Company pursuant to Section 4.01(d) for claims arising from or relating to breaches of the representations and warranties set forth in Sections 7.02 (e), (g), and (h), 7.03 (e), (g), and (h) and 7.04 (e) (g) and (h); (B) within twelve (12) months after the Closing Date for claims arising from or relating to any breaches of the representations and warranties set forth in Section 7.03(f) or 7.04(f); (C) at any time after the Closing Date for claims arising from or relating to breaches of the representations and warranties set forth in Section 7.02(a) - (d), (f), or (i) - (j), 7.03 (a) - (d), or (i) - (k) or 7.04 (a) - (d), or (i) - (k). (ii) The Starwood Parties will not be liable for any Loss arising from any breach of any covenant, representation or warranty contained in this Agreement or any Schedule or Exhibit hereto unless and until the aggregate amount of all such Losses relating to all such breaches exceeds the Threshold, in which case the Starwood Parties, shall be liable for the amount of all such Losses in excess of the Threshold; subject to a maximum aggregate liability for all such Losses in the amount of the Cap Amount. 14.04 Procedures. (a) If a party hereto seeks indemnification under this Article XIV such party (the "INDEMNIFIED PARTY") shall give written notice to the other party (the "INDEMNIFYING PARTY") of the facts and circumstances giving rise to the claim. In that regard, if any suit, action, claim, liability or obligations shall be brought or asserted by any third party which, if adversely determined, would 50 57 entitle the Indemnified Party to indemnity pursuant to this Article XIV, the Indemnified Party shall promptly notify the Indemnifying Party of the same in writing, specifying in detail the basis of such claim and the facts pertaining thereto and the Indemnifying Party, if it so elects, shall assume and control the defense thereof (and shall consult with the Indemnified Party with respect thereto), including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all necessary expenses; provided that the Indemnifying Party shall not have the right to assume control of such defense if the claim which the Indemnifying Party seeks to assume control (1) seeks non-monetary relief; or (2) involves criminal or quasi-criminal allegations. In the event that the Indemnified Party retains control of the defense of such claim, the Indemnified Party shall use good faith efforts, consistent with prudent business judgment, to defend such claim. If the Indemnifying Party is permitted to assume and control the defense and elects to do so, the Indemnified Party shall have the right to employ counsel separate from counsel employed by the Indemnifying Party in any such action and to participate in the defense thereof, but the fees and expenses of such counsel employed by the Indemnified Party shall be at the expense of the Indemnified Party unless (A) the employment thereof has been specifically authorized by the Indemnifying Party in writing, (B) the Indemnifying Party has been advised by counsel that a reasonable likelihood exists of a conflict of interest between the Indemnifying Party and the Indemnified Party and such counsel advises the Indemnifying Party of the general nature of such conflict, (C) the Indemnifying Party has failed to assume the defense and employ counsel, or (D) the Indemnified Party has reasonably determined that an adverse outcome could have a material adverse effect on its business, reputation or could reasonably be expected to have a materially adverse precedential effect; in which case the fees and expenses of the Indemnified Party's counsel shall be paid by the Indemnifying Party. The Indemnifying Party shall not be liable for any settlement of any such action or proceeding effected without the written consent of the Indemnifying Party, however, if there shall be a final judgment for the plaintiff in any such action, the Indemnifying Party agrees to indemnify and hold harmless the Indemnified Party from and against any loss or liability by reason of such judgment. (b) In the event any Indemnified Party which is an individual, or any senior officer (including, without limitation, any president or vice-president) of any other Indemnified Party or any general partner or member thereof, has actual knowledge of any valid claim or defense (and not merely any facts or circumstances which may give rise to such claim or defense) against a third party who is a party to the applicable claim in connection with any Loss as to which such Indemnified Party seeks indemnification pursuant to this Article XIV and such Indemnified Party without good reason fails to notify the Indemnifying Party of such claim or defense or without good reason fails to assert such claim or defense on its own behalf, then the Indemnified Party shall not be entitled to receive indemnification from the Indemnifying Party to the extent of the Loss which is proven by the Indemnifying Party to have been occasioned by such failure to notify or such failure to assert such claim or defense. The determination of whether a party had "good reason" for failure to notify or failure to assert any claim or defense shall be made by the Arbitrator pursuant to subsection (i) below. (c) In the event any Indemnified Party is insured pursuant to an unexpired insurance policy against any occurrence giving rise to any Loss as to which such Indemnified Party seeks indemnification pursuant to this Article XIV (including, without limitation, pursuant to any insurance policy maintained by any Property Company before or after Closing), the Indemnified 51 58 Party shall promptly give notice of such insurance coverage to the Indemnifying Party and the Indemnifying Party shall, in its reasonable discretion, elect either (i) to require the Indemnified Party to make a claim pursuant to such insurance policy for such Loss and the Indemnifying Party's obligation to indemnify the Indemnified Party shall thereafter be reduced by the amount of insurance proceeds received by the Indemnified Party as a result of such claim or (ii) to indemnify the Indemnified Party without requiring a claim to be made by the Indemnified Party on such insurance policy. In the event the Indemnifying Party elects to require the Indemnified Party to make a claim on such insurance policy pursuant to clause (i) above, the Indemnifying Party shall pay any increase in insurance premiums resulting directly and proximately from such claim by the Indemnified Party on such insurance policy; provided that if any such increase in such insurance premium is caused by one or more claims on such insurance policy as a result of Losses which are not subject to indemnification pursuant to this Article XIV, then the Indemnifying Party shall be obligated to pay such increase in insurance premiums only to the extent such increase is attributable to claims made by the Indemnified Party pursuant to clause (i) above. The determination of the amount of such increase in insurance premiums attributable to any claim made pursuant to clause (i) above shall be made by the mutual agreement of the Parties acting in good faith, and in the event the Parties are unable to so agree shall be made by the Arbitrator pursuant to subsection (i) below. The Indemnified Party shall provide to the Indemnifying Party such documentation relating to such increase in insurance premium as shall be necessary to establish the amount of such increase and shall otherwise cooperate with the Indemnifying Party in establishing the amount of such increase attributable to the claim made pursuant to clause (i) above. (d) In the event that the Starwood Parties are entitled to any indemnification hereunder from the Contributing Parties, within 15 days after a final determination of the amount of such indemnification pursuant to the terms of this Article XIV (the "INDEMNIFICATION AMOUNTS"), the Contributing Parties shall make an election to pay (and shall pay) such Indemnification Amount either (i) by payment of immediately available funds to the Starwood Parties or (ii) by delivering or causing the Partnerships to cancel on their respective books and records an equal number of SLT OP Units and SLC OP Units held by the Contributing Parties having a current market value (based upon the Paired Share price as of the date of the final determination of such Indemnification Amount) equal to the Indemnification Amount, and to the extent such delivery or cancellation of SLT OP Units and SLC OP Units is insufficient to pay such Indemnification Amount, immediately available funds for the remaining balance of such Indemnification Amount. In the event that the Contributing Parties are entitled to any indemnification hereunder from the Starwood Parties, within 15 days after a final determination of the amount of such indemnification pursuant to the terms of this Article XIV, the Starwood Parties shall satisfy such obligation by payment of immediately available funds to the Contributing Parties. (e) Any dispute, controversy, or claim arising under or relating to this Article XIV ("DISPUTE") shall be resolved by final and binding arbitration administered by the American Arbitration Association ("AAA") under its Commercial Arbitration Rules, subject to the following: (i) Either party may demand that any Dispute be submitted to binding arbitration. The demand for arbitration shall be in writing, shall be served on the other party in the manner prescribed herein for the giving of notices, and shall set forth a short statement of the factual basis for the claim, specifying the matter or matters to be arbitrated. 52 59 (ii) The arbitration shall be conducted by an arbitrator appointed by the AAA (the "ARBITRATOR") who shall conduct such evidentiary or other hearings as such arbitrator deems necessary or appropriate and thereafter shall make a final determination as soon as practicable. Any arbitration pursuant hereto shall be conducted by the Arbitrator as the parties may mutually agree or, if the parties do not so agree, under the guidance of the Federal Rules of Civil Procedure and the Federal Rules of Evidence, but the Arbitrator shall not be required to comply strictly with such Rules in conducting any such arbitration. All such arbitration proceedings shall take place in New York, New York. (iii) Except as provided herein: (A) each party shall bear its own "COSTS AND FEES," which are defined as all reasonable pre-award expenses of the arbitration, including travel expenses, out-of-pocket expenses (including but not limited to, copying and telephone) witness fees, and reasonable attorney's fees and expenses; (B) the fees and expenses of the Arbitrator and all other costs and expenses incurred in connection with the arbitration ("ARBITRATION EXPENSES") shall be borne equally by the parties; and (C) notwithstanding the foregoing, the Arbitrator shall be empowered to require any one or more of the parties to bear all or any portion of such Costs and Fees and/or the fees and expenses of the Arbitrator in the event that the Arbitrator determines such party has acted unreasonably or in bad faith. (iv) The Arbitrator shall have the authority to award damages, including costs but shall not have the authority to award punitive damages, to impose sanctions for abuse or frustration of the arbitration process, or to compel specific performance. The decision of the Arbitrator and any award pursuant thereto shall be in writing and counterpart copies thereof shall be delivered to each party. The decision and award of the Arbitrator shall be binding on all parties. In rendering such decision and award, the Arbitrator shall not add to, subtract from or otherwise modify the provisions of this Article XIV. Either party to the arbitration may seek to have judgment upon the award rendered by the Arbitrator entered in any court having jurisdiction thereof. (v) Each party agrees that it will not file any suit, motion, petition or otherwise commence any legal action or proceeding for any matter which is required to be submitted to arbitration as contemplated herein except in connection with the enforcement of an award rendered by the Arbitrator and except to seek non-monetary equitable relief including, with limitation, the issuance of an injunction or temporary restraining order pending a final determination by the Arbitrator. Upon the entry of any order dismissing or staying any action or proceeding filed contrary to the preceding sentence, the party which filed such action or proceeding shall promptly pay to the other party the reasonable attorney's fees, costs and expenses incurred by such other party prior to the entry of such order. 53 60 (vi) All aspects of the arbitration shall be considered confidential and shall not be disseminated by any party with the exception of the ability and opportunity to prosecute its claim or assert its defense to any such claim. The Arbitrator shall be required to issue prescriptive orders as may be required to enforce and maintain this covenant of confidentiality during the course of the arbitration and after the conclusion of same so that the result and the underlying data, information, materials and other evidence are forever withheld from public dissemination with the exception of its subpoena by a court of competence jurisdiction in an unrelated proceeding brought by a third party. (f) Nothing in this Article XIV shall limit or restrict any party's right to maintain or recover on any action based upon fraud. ARTICLE XV FURTHER ASSURANCES 15.01 Further Assurances. The Contributing Parties, the Property Companies and the Starwood Parties, at or after Closing, and without further consideration, shall execute, acknowledge and deliver to the other such other documents and instruments, and take such other actions, as either shall reasonably request or as may be necessary more effectively to transfer to the Partnerships the Property in accordance with this Agreement. ARTICLE XVI PRE-CLOSING OPERATIONS 16.01 Contributing Party's Conduct of Business. Except as required by applicable Legal Requirements, until the Closing or earlier termination of this Agreement, each Contributing Party shall with respect to the Property Company in which it owns Property Company Interests: (a) operate or cause HEI as manager, to operate the Property in accordance with the terms of the Management Agreements applicable thereto diligently and only in the ordinary course of business consistent with past practices so as to preserve its business and goodwill intact, and reserve for the Partnerships the goodwill and relationships of the Property Companies with their suppliers, tenants, and others having relations with them and so as to: (i) maintain the Property in material compliance with all Legal Requirements; (ii) maintain all insurance presently maintained thereon in full force and effect, and (iii) comply in all material respects with any License Agreement applicable to each Hotel; (b) not sell, transfer, pledge or convey any Property Company Interest (except for distributions to the holders of equity interests in a Contributing Party), or permit the Property Company or HEI, except in the ordinary course of business, to sell, assign, or convey any right, title, or interest whatever in or to the Property or any part thereof, or any Inventory or 54 61 create or permit to exist any Lien thereon without promptly discharging the same (other than in the ordinary course of business) or with respect to Permitted Encumbrances; (c) promptly inform the Partnerships in writing of any variances from the representations and warranties contained in Section 7.01; (d) use reasonable efforts to cooperate with the Partnerships in order to attempt to obtain all third party and governmental approvals and consents necessary or desirable to consummate the transactions contemplated hereby and to cause the other conditions to the parties obligations hereunder to be satisfied; and (e) maintain its books, accounts and records in accordance with GAAP consistently applied. 16.02 On-Site Representative. After the date of execution and delivery of this Agreement, the Partnerships shall be entitled to have their representatives on-site at the Hotels to participate in and receive all information pertaining to the operation and management of each Hotel Business, and the parties shall reasonably cooperate in such efforts. ARTICLE XVII NOTICES 17.01 Procedure for Notice. All notices, demands, consents, approvals and other communications which are required or desired to be given hereunder shall be in writing and shall be sent by Federal Express or other similar courier, with a simultaneous copy by facsimile transmission, to the recipient as set forth below or at such other address as such parties shall have last designated by notice to the other: IF TO THE CONTRIBUTING PARTIES: c/o HEI Hotels LLC 55 Greens Farms Road Westport Corporate Office Park Westport, CT 06880 Fax No. 203/454-7678 c/o Prudential Real Estate Investors 8 Campus Drive Parsippany, NJ 07054 Attention: Gary L. Kauffman (Fax: 201/683-1790) Joseph D. Margolis, Esq. (Fax: 201/683-1788) James P. Walker, Esq. (Fax: 201/683-1788) 55 62 with copies to: O'Melveny & Myers LLP 153 East 53rd Street New York, New York 10022 Attention: Robert S. Insolia, Esq. (Fax No. 212/326-2061) William N. Cooney, Esq. (Fax No. 213/669-6407) Willkie, Farr & Gallagher 153 East 53rd Street New York, New York 10022 Attention: Bruce M. Montgomerie, Esq. Fax No. 212/821-8927 IF TO THE STARWOOD PARTIES: SLT Operating Limited Partnership c/o Starwood Lodging Trust 2231 East Camelback Road, Suite 410 Phoenix, AZ 85016 Telephone: (602) 852-3900 Telecopy: (602) 852-0984 Attention: Steven R. Goldman SLC Operating Limited Partnership c/o Starwood Lodging Corporation 2231 East Camelback Road, Suite 400 Phoenix, AZ 85016 Telephone: (602) 852-3900 Telecopy: (602) 852-0984 Attention: Nir Margalit, Esq. Starwood Lodging Trust 2231 East Camelback Road, Suite 410 Phoenix, AZ 85016 Telephone: (602) 852-3900 Telecopy: (602) 852-0984 Attention: Steven R. Goldman Starwood Lodging Corporation 2231 East Camelback Road, Suite 400 Phoenix, AZ 85016 Telephone: (602) 852-3900 Telecopy: (602) 852-0984 Attention: Nir Margalit, Esq. 56 63 WITH COPIES TO: Kirkland & Ellis 200 East Randolph Drive Chicago, Illinois 60601 Telephone: (312) 861-2000 Telecopy: (312) 861-2200 Attention: Stephen G. Tomlinson, Esq. Sidley & Austin 555 West Fifth Street Los Angeles, CA 90013 Telephone: 213/896-6000 Telecopy: 213/896-6600 Attention: Sherwin L. Samuels, Esq. Notices signed by the parties' respective attorneys shall be deemed sufficient within the meaning of this Section without the signatures of the parties themselves. Notices, demands, consents, approvals, and other communications shall be deemed given one (1) day after delivery to such courier. During the existence of a strike, notice and other communications may be given by personal service and such notices and communications shall be effective when delivered. ARTICLE XVIII ADDITIONAL COVENANTS 18.01 Board Representation. (a) Not later than fifteen (15) days after the Closing Date, the Trust shall: (i) take all necessary action, if any, to increase the number of trustees of the Trust by two, and (ii), subject to the Nevada Gaming Approvals, nominate and support for election to the board of trustees of the Trust Gary M. Mendell and Roger S. Pratt. (b) For so long as PRISA II shall maintain the Minimum Share Ownership, PRISA II shall continue to be entitled to designate, subject to the Nevada Gaming Approvals, one representative to be nominated for election to the board of trustees of the Trust, and the Trust shall cause the board of trustees of the Trust to so nominate such designee, and to support such nomination along with the other nominees of management and the board of directors, for election to the board of trustees of the Trust at any annual or special meeting of the shareholders of the Trust called for the purpose of electing trustees. Roger Pratt is the individual so designated by PRISA II as of the date of this Agreement. If the representative designated by PRISA II shall be elected to the board of trustees of the Trust, such right of PRISA II shall be suspended until such representative is up for re-election or the seat occupied thereby otherwise becomes vacant. Upon the death, disability, retirement, removal (with or without cause) or resignation of any such trustee designated by PRISA II, PRISA II shall have the right to designate a replacement for such individual to fill such capacity and 57 64 serve as a trustee of the Trust for the remainder of the departing trustee's term, and the trustees of the Trust shall appoint such replacement individual to the board of trustees of the Trust to fill such vacancy. If PRISA II shall at any time fail to maintain the Minimum Share Ownership, then the rights granted to PRISA II by this Section 18.01 shall immediately terminate and the party designated by PRISA II, if then a Trustee of the Trust, shall promptly resign such trusteeship. (c) The election and removal of trustees of the Trust shall at all times remain subject to the terms and conditions of the Trust's Constituent Documents. The provisions of this Section 18.01 shall survive Closing. 18.02 Obligation of the Contributing Parties As to Closing Conditions. The Contributing Parties shall use commercially reasonable efforts to satisfy or cause to be satisfied all closing conditions pursuant to Sections 8.01 and 8.02 which are within the reasonable control of the Contributing Parties, including, without limitation, attempting to obtain the consent, authorization or approval of any Person required in connection with the transactions contemplated in this Agreement. Such consents or approvals with respect to licenses and with respect to the License Agreements shall be subject to the specific provisions of Section 8.01(g) and Section 8.01(h), respectively. 18.03 Obligation of The Starwood Parties As to Closing Conditions. The Starwood Parties shall use commercially reasonable efforts to satisfy or cause to be satisfied all Closing conditions pursuant to Sections 8.01 and 8.02 which are within the reasonable control of the Starwood Parties, including, without limitation, obtaining the consent, authorization or approval of any Person required in connection with the transactions contemplated in this Agreement. ARTICLE XIX [RESERVED] ARTICLE XX MISCELLANEOUS 20.01 Modifications and Waivers. This Agreement may not be changed or terminated orally. No waiver of any party of any breach hereunder shall be deemed a waiver of any other or subsequent breach. 20.02 Governing Law. This Agreement shall be construed, interpreted and applied in accordance with the internal laws of the State of New York without giving effect to doctrines relating to conflicts of laws. 58 65 20.03 Captions etc. The titles of the Articles, Sections or subsections of this Agreement are nor convenience only and shall not be considered or referred to in resolving questions of interpretation or construction. 20.04 Rules of Construction. This Agreement shall be construed without regard to any presumption or other rule requiring construction against the party causing this Agreement to be drafted. If any words or phrases in this Agreement shall have been stricken out or otherwise eliminated, whether or not any other words or phrases have been added, this Agreement shall be construed as if the words or phrases so stricken out or otherwise eliminated were never included in this Agreement and no implication or inference shall be drawn from the fact that such words or phrases were so stricken out or otherwise eliminated. All terms and words used in this Agreement, regardless of the number or gender in which they are used, shall be deemed to include any other number and any other gender as the context may require. 20.05 Successors and Assigns. This Agreement will be binding upon and inure to the benefit of the parties hereto and to their respective heirs, executors, administrators and successors and assigns, it being the intention of the parties not to confer any benefits hereunder upon any other persons, firms, corporations or other entities. 20.06 Entire Agreement. This Agreement and the Exhibits and Schedules hereto, which are incorporated in and form a part of this Agreement, contains all of the terms agreed upon between the parties with respect to the subject matter hereof and supersedes all prior understandings, if any, with respect thereto. 20.07 Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original, but all of which shall constitute but one and the same instrument. 20.08 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 subsequent thereto, which states that all persons dealing with Starwood Lodging Trust shall look solely to the assets of Starwood Lodging Trust for enforcement of any claims against Starwood Lodging Trust, and the trustees, officials, 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. 20.09 Confidentiality and Exclusivity. (a) Each party acknowledges that the information, observations and data relating to the business of the other parties hereto of a proprietary and/or confidential nature which the such party possess or which any such party has obtained or will obtain during the course of the transactions provided for herein are the property of such other parties ("CONFIDENTIAL INFORMATION"). Each party agrees that it or he shall not, directly or indirectly, use for its or his own purposes or disclose to any third party any of such Confidential Information without the prior written consent of the other parties, unless and to the extent that the aforementioned matters (a) become 59 66 generally known to and available for use by the hotel and hospitality industry other than as a result of any party's acts or omissions to act; (b) are rightfully received by a party from a party who was not subject to any obligations of confidentiality; or (c) to the extent a party is required by order of a court of competent jurisdiction (by subpoena or similar process) to disclose or discuss any Confidential Information (provided that in such case, such party shall promptly inform the other parties of such event, shall cooperate with the such other parties in attempting to obtain a protective order or to otherwise restrict such disclosure and shall only disclose Confidential Information to the minimum extent necessary to comply with any such court order). Notwithstanding the foregoing, after the Closing, the Starwood Parties may use for their own purposes or disclose to any third party any Confidential Information relating solely to the business of the Property Companies acquired pursuant hereto without the prior written consent of the other parties hereto. (b) During the period from the date of execution of this Agreement to the earliest of (i) the date of termination of this Agreement, (ii) the Closing Date, or (iii) February 15, 1997, neither the Contributing Parties nor any Property Company will, directly or indirectly, without the prior written consent of the Starwood Parties: (i) submit, solicit, initiate, encourage, or pursue any proposal or offer from any Person or enter into any agreement or accept any offer relating to any (a) reorganization, liquidation, dissolution or recapitalization of any Property Company, (b) merger or consolidation involving the Property Companies, (c) purchase or sale of any assets owned by, or equity ownership interests in, any Property Company, or (d) any similar transaction or business combination involving the Property Companies or substantially all of the assets of any of them (each of the foregoing actions described in clauses (a) - (d), a "RESTRICTED TRANSACTION"; or (ii) furnish any information with respect to, assist or participate in or facilitate in any manner any Restricted Transaction. The Contributing Parties each agree to notify the Starwood Parties immediately if any Person makes any written proposal or offer with respect to a Restricted Transaction to any of them or to any Property Company. (c) The parties hereto agree that they may each suffer irreparable harm from a breach by any other party of any of the covenants or agreements contained herein. In the event of an alleged or threatened breach by any party of any of the provisions of this Section 20.09, the other parties or their successors or assigns may, in addition to all other rights and remedies existing in their favor, apply to any court of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof. Each party agrees that the covenants made in Section 20.09 shall be construed as an agreement independent of any other provision of this Agreement and shall survive any order of a court of competent jurisdiction terminating any other provision of this Agreement. 20.10 Joint Liability. The liability of SLT, SLC, SLT Financing, the Corporation and the Trust under this Agreement shall be joint and several. 20.11 Press Releases. Except as may otherwise be required by law or mutually agreed by the Parties, the timing and content of all press releases and other public announcements and all announcements to the Contributing Parties' and Property Companies customers, suppliers or licensors relating to the transactions contemplated by the Transaction Documents shall be determined jointly by the Starwood Parties and the Contributing Parties. 60 67 20.12 Expiration. The offer made in this Agreement by the Starwood Parties execute the transactions contemplated hereby shall expire, if not sooner accepted by the Contributing Parties by execution and delivery of this Agreement, at 5:00 P.M. E.S.T. on January 16, 1997 and shall be of no force or effect thereafter. 61 68 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. SLT: SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership By: STARWOOD LODGING TRUST, a Maryland real estate investment trust, General Partner By: __________________________________ Name: __________________________________ Its: __________________________________ SLT FINANCING: SLT FINANCING PARTNERSHIP, a Delaware general partnership By: SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership By: STARWOOD LODGING TRUST, a Maryland real estate investment trust, General Partner By: __________________________________ Name: __________________________________ Its: __________________________________ 69 SLC: SLT OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership By: STARWOOD LODGING corporation, a Maryland corporation, Managing General Partner By: __________________________________ Name: __________________________________ Its: __________________________________ TRUST: STARWOOD LODGING TRUST, a Maryland real estate investment trust By: _________________________________________ Name: _________________________________________ Its: _________________________________________ CORPORATION: STARWOOD LODGING CORPORATION, a Maryland corporation By: _________________________________________ Name: _________________________________________ Its: _________________________________________ 70 THE PROPERTY COMPANIES PRUDENTIAL HEI JOINT VENTURE By: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, on behalf of PRUDENTIAL PROPERTY INVESTMENT SEPARATE ACCOUNT II By: ________________________________________ Gary L. Kauffman Vice President By: ATLANTA HOTEL ASSOCIATES, LP By: HOSPITALITY EQUITY INVESTORS, INC. Its Majority General Partner By: ____________________________________ Gary M. Mendell President 71 VIRGINIA HOTEL ASSOCIATES, L.P. By: PRUWEST NORFOLK, L.L.C., Its Partner By: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, on behalf of PRUDENTIAL PROPERTY INVESTMENT SEPARATE ACCOUNT II, Its Partner By: _______________________________ Gary L. Kauffman Vice President By: WESTPORT NORFOLK ASSOCIATES LIMITED PARTNERSHIP By: WESTPORT HOSPITALITY, INC. Its General Partner By: _________________________________ Gary M. Mendell President EDISON HOTEL ASSOCIATES, L.P. By: PRUWEST EDISON, L.L.C., Its Partner By: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, on behalf of PRUDENTIAL PROPERTY INVESTMENT SEPARATE ACCOUNT II, Its Member By: _______________________________ Gary L. Kauffman Vice President By: WESTPORT RARITAN, L.L.C., Its Partner By: ___________________________________ Gary M. Mendell Managing Member 72 BW HOTEL REALTY, L.P. By: PRUWEST BALTIMORE, L.L.C., Its Partner By: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, on behalf of PRUDENTIAL PROPERTY INVESTMENT SEPARATE ACCOUNT II, Its Member By: ________________________________ Gary L. Kauffman Vice President By: WESTPORT BWI, L.L.C., Its Partner By: ____________________________________ Gary M. Mendell Managing Member NOVI HOTEL ASSOCIATES, L.P. By: PRUWEST NOVI, L.L.C., Its Partner By: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, on behalf of PRUDENTIAL PROPERTY INVESTMENT SEPARATE ACCOUNT II, Its Member By: ________________________________ Gary L. Kauffman Vice President By: WESTPORT NOVI, L.L.C., Its Partner By: _______________________________ Gary M. Mendell Managing Member 73 PARK RIDGE HOTEL ASSOCIATES, L.P. By: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, on behalf of PRUDENTIAL PROPERTY INVESTMENT SEPARATE ACCOUNT II, Its Partner By: ____________________________________ Gary L. Kauffman Vice President By: WESTPORT PARK RIDGE, L.P., Its Partner By: WESTPORT PARK RIDGE, L.L.C., Its General Partner By: ______________________________ Gary M. Mendell Managing Member By: WESTPORT PARK RIDGE, L.L.C., Its Partner By: _____________________________ Gary M. Mendell Managing Member LONG BEACH HOTEL ASSOCIATES, L.L.C. By: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, on behalf of PRUDENTIAL PROPERTY INVESTMENT SEPARATE ACCOUNT II, Its Member By: __________________________________ Gary L. Kauffman Vice President By: WESTPORT LONG BEACH, L.L.C., Its Member By: _____________________________ Gary M. Mendell Managing Member 74 CHARLESTON HOTEL ASSOCIATES, L.L.C. By: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, on behalf of PRUDENTIAL PROPERTY INVESTMENT SEPARATE ACCOUNT II, Its Member By: ____________________________________________ Gary L. Kauffman Vice President By: WESTPORT CHARLESTON, L.L.C., Its Member By: ____________________________________________ Gary M. Mendell Managing Member SANTA ROSA HOTEL ASSOCIATES, L.L.C. By: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, on behalf of PRUDENTIAL PROPERTY INVESTMENT SEPARATE ACCOUNT II, Its Member By: ____________________________________________ Gary L. Kauffman Vice President By: WESTPORT SANTA ROSA, L.L.C., Its Member By: ____________________________________________ Gary M. Mendell Managing Member 75 CRYSTAL CITY HOTEL ASSOCIATES, L.L.C. By: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, on behalf of PRUDENTIAL PROPERTY INVESTMENT SEPARATE ACCOUNT II, Its Member By: ____________________________________________ Gary L. Kauffman Vice President By: WESTPORT CRYSTAL CITY, L.L.C., Its Member By: ____________________________________________ Gary M. Mendell Managing Member THE CONTRIBUTING PARTIES THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, ON BEHALF OF PRUDENTIAL PROPERTY INVESTMENT SEPARATE ACCOUNT II By: _________________________________________ Gary L. Kauffman Vice President ATLANTA HOTEL ASSOCIATES, LP By: HOSPITALITY EQUITY INVESTORS, INC. Its Majority General Partner By: ________________________________ Gary M. Mendell President 76 PRUWEST NORFOLK, L.L.C. By: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, on behalf of PRUDENTIAL PROPERTY INVESTMENT SEPARATE ACCOUNT II, Its Member By: ____________________________________________ Gary L. Kauffman Vice President PRUWEST EDISON, L.L.C. By: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, on behalf of PRUDENTIAL PROPERTY INVESTMENT SEPARATE ACCOUNT II, Its Member By: ____________________________________________ Gary L. Kauffman Vice President PRUWEST BALTIMORE, L.L.C. By: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, on behalf of PRUDENTIAL PROPERTY INVESTMENT SEPARATE ACCOUNT II, Its Member By: ____________________________________________ Gary L. Kauffman Vice President PRUWEST NOVI, L.L.C. By: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, on behalf of PRUDENTIAL PROPERTY INVESTMENT SEPARATE ACCOUNT II, Its Member By: ____________________________________________ Gary L. Kauffman Vice President 77 WESTPORT NORFOLK ASSOCIATES LIMITED PARTNERSHIP By: WESTPORT HOSPITALITY, INC. Its General Partner By: ____________________________________________ Gary M. Mendell President WESTPORT RARITAN, L.L.C. By: _____________________________________________________ Gary M. Mendell Managing Member WESTPORT BWI, L.L.C. By: _____________________________________________________ Gary M. Mendell Managing Member WESTPORT NOVI, L.L.C. By: _____________________________________________________ Gary M. Mendell Managing Member WESTPORT PARK RIDGE, L.P. By: WESTPORT PARK RIDGE, L.L.C., Its General Partner By: ____________________________________________ Gary M. Mendell Managing Member 78 WESTPORT PARK RIDGE, L.L.C. By: _____________________________________________________ Gary M. Mendell Managing Member WESTPORT LONG BEACH, L.L.C. By: _____________________________________________________ Gary M. Mendell Managing Member WESTPORT CHARLESTON, L.L.C. By: _____________________________________________________ Gary M. Mendell Managing Member WESTPORT SANTA ROSA, L.L.C. By: _____________________________________________________ Gary M. Mendell Managing Member WESTPORT CRYSTAL CITY, L.L.C. By: _____________________________________________________ Gary M. Mendell Managing Member WESTPORT HOSPITALITY, INC. By: _____________________________________________________ Gary M. Mendell President 79 WESTPORT HOLDINGS, L.L.C. By: _____________________________________________________ Gary M. Mendell Managing Member By: _____________________________________________________ Murray L. Dow, II Managing Member By: _____________________________________________________ Orna L. Shulman Managing Member HOSPITALITY EQUITY INVESTORS, INC. By: _____________________________________________________ Gary M. Mendell President THE GARY MENDELL FAMILY TRUST By: _____________________________________________________ Eleanor Mendell Trustee ZAPCO INTEREST HOLDINGS LIMITED PARTNERSHIP By: ZAPCO VERMONT AVENUE, INC. Its General Partner By: ____________________________________________ Orna L. Shulman Vice President 80 LOUDOUN INTERTECH DEVELOPMENT CORPORATION By: _____________________________________________________ Orna L. Shulman Vice President _______________________________________________ Gary M. Mendell _______________________________________________ Steve Mendell _______________________________________________ Murray L. Dow, II _______________________________________________ Judith K. Rushmore _______________________________________________ Ellen-Jo Mendell _______________________________________________ Orna L. Shulman _______________________________________________ Felix J. Cacciato, Jr. _______________________________________________ Arthur C. Green _______________________________________________ Mark J. Rosinsky _______________________________________________ Randi L. Rosinsky 81 _______________________________________________ John Daily _______________________________________________ Michael D. Hall _______________________________________________ Harvey Moore _______________________________________________ Tracey Driscoll _______________________________________________ Tom Clearwater 82 LIST OF SCHEDULES Schedule A-1 Contributing Parties and Property Company Interests Schedule A-2 Property Companies and Hotels Schedule B Contributed Assets and SLC Limited Partnership Interests Schedule C Property Company Interests Contributed to SLT Financing Schedule D Property Company Interests Contributed to SLT and SLT Limited Partnership Interests Schedule E Conversion of Partnership Interests Into Paired Shares Schedule 1.01 Land Schedule 1.02(c) Assumed Debt Schedule 1.02(w) FF&E Reserve Accounts Schedule 1.02(gg) Knowledge Persons Schedule 1.02(jj) License Agreements Schedule 1.02(ll) Management Agreements Schedule 1.02(yy) Proprietary Rights Schedule 1.02 (ddd) Tradenames Schedule 2.03 Allocation of Contribution Amount Schedule 3.01 Unpermitted Title Exceptions Schedule 7.01(b) Capitalization of Property Companies Schedule 7.01(c) Tax Matters Schedule 7.01(d) Insurance Policies Schedule 7.01(e) Single Purpose Entity Exceptions Schedule 7.01(f) Leases Schedule 7.01(h) Contracts Schedule 7.01(i) Employee Matters Schedule 7.01(k) Real Estate Taxes Schedule 7.01(l) Interests in the Property Schedule 7.01(m) Litigation (Contributing Parties) Schedule 7.01(q) Financial Statements Schedule 7.01(r) Events Subsequent to November 28, 1996 Schedule 7.01(s) Liabilities (Contributing Parties) Schedule 7.01(u) Environmental Matters, Environmental Reports Schedule 7.01(x) Non-Accredited Investors (Contributing Parties) Schedule 7.01(z) Property Company Constituent Documents Schedule 7.02(d) Partnership Constituent Documents Schedule 7.02(e) Litigation (Partnerships) Schedule 7.02(f) Rights or Commitments as to Partnership Units Schedule 7.02(g) Liabilities (Partnerships) Schedule 7.02(h) Conduct (Partnerships) Schedule 7.02(i) Employee Benefit Plans (Partnerships) 83 Schedule 7.03(d) Corporation Constituent Documents Schedule 7.03(e) Litigation (Corporation) Schedule 7.03(f) Rights or Commitments as to Corporation Shares Schedule 7.03(g) Liabilities (Corporation) Schedule 7.03(h) Conduct (Corporation) Schedule 7.03(k) Employee Benefit Plans (Corporation) Schedule 7.04(d) Trust Constituent Documents Schedule 7.04(e) Litigation (Trust) Schedule 7.04(f) Rights or Commitments as to Trust Shares Schedule 7.04(g) Liabilities (Trust) Schedule 7.04(h) Conduct (Trust) Schedule 7.04(k) Employee Benefit Plans (Trust) EX-10.5 8 AMENDED AND RESTATED INSTALLMENT SALE AGREEMENT 1 Exhibit 10.5 Closing Item No. A-2 1997A AMENDED AND RESTATED INSTALLMENT SALE AGREEMENT Between PHILADELPHIA AUTHORITY FOR INDUSTRIAL DEVELOPMENT and SLT REALTY LIMITED PARTNERSHIP Dated as of February 1, 1997 (Relating to a Project situate in the City of Philadelphia, Pennsylvania) 2 TABLE OF CONTENTS
Page ---- I. Background, Representations and Findings............................. 1 1.1 Background........................................................... 1 1.2 Company Representations.............................................. 2 1.3 Issuer Representations and Findings.................................. 3 II. Project Facilities................................................... 4 2.1 Transfer of Project Facilities....................................... 4 2.2 Construction of Future Improvements to Project Facilities............ 4 2.3 Provisions with Respect to Title..................................... 4 2.4 Administration of Contracts.......................................... 5 2.5 Notices and Permits.................................................. 5 2.6 Additions and Changes to the Project Facilities...................... 5 III. Financing the Project................................................ 5 3.1 Issuance of Bonds; Additional Financing.............................. 5 3.2 Bond Fund............................................................ 6 3.3 Bonds Not to Become Arbitrage Bonds.................................. 6 3.4 Restriction on Use of Bond Fund...................................... 6 IV. Sale and Purchase of the Project Facilities.......................... 6 4.1 Sale and Purchase of the Project Facilities.......................... 6 4.2 Security Interest.................................................... 7 4.3 Payment of Purchase Price............................................ 7 4.4 Acceleration of Payment to Redeem Bonds.............................. 7 4.5 No Defense or Set-Off................................................ 7 4.6 Settlement........................................................... 8 4.7 Assignment of Issuer's Rights........................................ 8 V. Covenants of the Company............................................. 9 5.1 Maintenance and Operation of the Project Facilities.................. 9 5.2 Maintenance of Existence............................................. 9 5.3 Payment of Trustee's and Remarketing Agent's Compensation and Expenses........................................................... 10 5.4 Payment of Issuer's Fees and Expenses................................ 10 5.5 Condemnation of Project Facilities................................... 10 5.6 Damage to Project Facilities......................................... 10 5.7 Indemnity Against Claims............................................. 11 5.8 Taxes, Other Governmental Charges and Utility Charges................ 12 5.9 Insurance............................................................ 13 5.10 Prohibition of Liens................................................. 13
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Page ---- 5.11 Granting of Easements................................................ 14 5.12 Compliance with Laws................................................. 15 5.13 Recording Instruments................................................ 15 5.14 Filing of Financing Statements....................................... 15 5.15 Notice and Certification With Respect to Bankruptcy Proceedings...... 16 5.16 Continuing Disclosure................................................ 16 5.17 Representations as to Environmental Matters.......................... 17 5.18 Covenants as to Environmental Matters................................ 17 5.19 Certain Definitions.................................................. 17 5.20 Covenants of the Company with Respect to Federal Tax-Exempt Status of Bonds........................................................... 18 5.21 Annual Certificate of the Company.................................... 19 VI. Events of Default and Remedies....................................... 19 6.1 Events of Default; Acceleration...................................... 19 6.2 Payment of Purchase Price on Default; Suit Therefor.................. 21 6.3 Other Remedies....................................................... 22 6.4 Waiver............................................................... 23 6.5 Cumulative Rights.................................................... 23 VII. Miscellaneous........................................................ 23 7.1 Receipt of Indenture................................................. 23 7.2 Limitation of Liability of the Issuer................................ 23 7.3 Notices.............................................................. 24 7.4 Severability......................................................... 24 7.5 Applicable Law....................................................... 24 7.6 Assignment........................................................... 24 7.7 Amendments........................................................... 25 7.8 Term of Agreement.................................................... 25 7.9 No Warranty of Condition or Suitability by the Issuer................ 25 7.10 Adjustments.......................................................... 25 7.11 Zoning............................................................... 26 7.12 Company's Federal Income Taxation.................................... 26 7.13 Amounts Remaining in Debt Service Fund............................... 26 7.14 Survival of Covenants, Conditions and Representations................ 26 7.15 Headings............................................................. 26 7.16 Exculpatory Clause................................................... 26 7.17 Waiver of Distraint.................................................. 26 7.18 Survival of Agreement................................................ 27 I. Background, Representations and Findings............................. 1 1.1 Background........................................................... 1
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Page ---- 1.2 Company Representations.............................................. 2 1.3 Issuer Representations and Findings.................................. 3 II. Project Facilities................................................... 4 2.1 Transfer of Project Facilities....................................... 4 2.2 Construction of Future Improvements to Project Facilities............ 4 2.3 Provisions with Respect to Title..................................... 4 2.4 Administration of Contracts.......................................... 5 2.5 Notices and Permits.................................................. 5 2.6 Additions and Changes to the Project Facilities...................... 5 III. Financing the Project................................................ 5 3.1 Issuance of Bonds; Additional Financing.............................. 5 3.2 Bond Fund............................................................ 6 3.3 Bonds Not to Become Arbitrage Bonds.................................. 6 3.4 Restriction on Use of Bond Fund...................................... 6 IV. Sale and Purchase of the Project Facilities.......................... 6 4.1 Sale and Purchase of the Project Facilities.......................... 6 4.2 Security Interest.................................................... 7 4.3 Payment of Purchase Price............................................ 7 4.4 Acceleration of Payment to Redeem Bonds.............................. 7 4.5 No Defense or Set-Off................................................ 7 4.6 Settlement........................................................... 8 4.7 Assignment of Issuer's Rights........................................ 8 V. Covenants of the Company............................................. 9 5.1 Maintenance and Operation of the Project Facilities.................. 9 5.2 Maintenance of Existence............................................. 9 5.3 Payment of Trustee's and Remarketing Agent's Compensation and Expenses........................................................... 10 5.4 Payment of Issuer's Fees and Expenses................................ 10 5.5 Condemnation of Project Facilities................................... 10 5.6 Damage to Project Facilities......................................... 10 5.7 Indemnity Against Claims............................................. 11 5.8 Taxes, Other Governmental Charges and Utility Charges................ 12 5.9 Insurance............................................................ 13 5.10 Prohibition of Liens................................................. 13 5.11 Granting of Easements................................................ 14 5.12 Compliance with Laws................................................. 15 5.13 Recording Instruments................................................ 15 5.14 Filing of Financing Statements....................................... 15
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Page ---- 5.15 Notice and Certification With Respect to Bankruptcy Proceedings...... 15 5.16 Continuing Disclosure................................................ 16 5.17 Representations as to Environmental Matters.......................... 16 5.18 Covenants as to Environmental Matters................................ 17 5.19 Certain Definitions.................................................. 17 5.20 Covenants of the Company with Respect to Federal Tax-Exempt Status of Bonds............................................................. 18 5.21 Annual Certificate of the Company.................................... 19 VI. Events of Default and Remedies....................................... 19 6.1 Events of Default; Acceleration...................................... 19 6.2 Payment of Purchase Price on Default; Suit Therefor.................. 21 6.3 Other Remedies....................................................... 21 6.4 Waiver............................................................... 23 6.5 Cumulative Rights.................................................... 23 VII. Miscellaneous........................................................ 23 7.1 Receipt of Indenture................................................. 23 7.2 Limitation of Liability of the Issuer................................ 23 7.3 Notices.............................................................. 23 7.4 Severability......................................................... 24 7.5 Applicable Law....................................................... 24 7.6 Assignment........................................................... 24 7.7 Amendments........................................................... 25 7.8 Term of Agreement.................................................... 25 7.9 No Warranty of Condition or Suitability by the Issuer................ 25 7.10 Adjustments.......................................................... 25 7.11 Zoning............................................................... 25 7.12 Company's Federal Income Taxation.................................... 26 7.13 Amounts Remaining in Debt Service Fund............................... 26 7.14 Survival of Covenants, Conditions and Representations................ 26 7.15 Headings............................................................. 26 7.16 Exculpatory Clause................................................... 26 7.17 Waiver of Distraint.................................................. 26 7.18 Survival of Agreement................................................ 26
(iv) 6 THIS AMENDED AND RESTATED INSTALLMENT SALE AGREEMENT, dated as of February 1, 1997 (this "Agreement"), by and between THE PHILADELPHIA AUTHORITY FOR INDUSTRIAL DEVELOPMENT (the "Issuer") and SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership (the "Company"), provides as follows: I. Background, Representations and Findings. 1.1 Background. (a) The Issuer is a public instrumentality of the Commonwealth of Pennsylvania and a body corporate and politic organized and existing under the Pennsylvania Economic Development Financing Law, Act of August 23, 1967, P.L. 251, as amended and supplemented, 73 P.S. Sections 371 et seq. (the "Act"). Under the Act, the Issuer is authorized to enter into agreements providing for the acquisition of industrial and commercial development projects and the sale thereof to occupants for the public purposes of alleviating unemployment and maintaining employment at a high level and creating and developing employment opportunities by the acquisition and financing of industrial, commercial, manufacturing and research and development enterprises. (b) The Issuer has undertaken the financing of the costs of a project (the "Project") consisting of the acquisition of certain real property and the improvements thereon fronting on Island Avenue and otherwise abutting a loop egress ramp from Interstate 95 in Philadelphia, Pennsylvania (the "Premises"), the construction and installation of certain improvements and equipment in and on the Premises (the Premises, together with such improvements and equipment being hereinafter referred to as the "Project Facilities"), and the sale of the Project Facilities to the Company for use and operation by the Company or its designee as a suite hotel. A more complete description of the Project Facilities and the Premises are set forth in Exhibit "A" attached to this Agreement. The Issuer and Philadelphia HSR Limited Partnership, a Massachusetts limited partnership ("HSR"), entered into an Installment Sale Agreement (the "Original Agreement"), dated as of October 1, 1983, for the sale of the Project Facilities to HSR on an installment basis. To finance the Project, the Issuer issued its Commercial Development Revenue Bonds (Suite Hotel Project), Series A in the aggregate principal amount of $27,275,000 (the "Prior Bonds") under a Mortgage and Trust Indenture dated as of October 1, 1983 between the Issuer and Mellon Bank, N.A. (as successor trustee to CoreStates Bank, N.A., which was successor by merger to First Pennsylvania Bank, N.A.), as trustee (the "Prior Trustee"), as amended and supplemented by a Supplemental Mortgage and Trust Indenture dated as of June 1, 1991 (collectively, the "Original Indenture") between the Issuer and the Prior Trustee. 7 (c) HSR transferred its equity interests in the Project Facilities to the Company and has assigned to the Company all of its rights, title, interests and obligations in, to and under the Original Agreement and the Original Indenture pursuant to an Assignment and Assumption Agreement dated as of June 3, 1996 between HSR and the Company. (d) The Company has requested and the Issuer has proposed to provide for the current refunding of the Prior Bonds through the issuance of up to $27,820,000 aggregate principal amount of the Issuer's Commercial Development Revenue Refunding Bonds (Doubletree Guest Suites Project) Series 1997A (the "Bonds"). The Issuer and the Company intend that the interest on the Bonds will not be included in gross income under the Internal Revenue Code of 1986, as amended. (e) The Issuer and First Union National Bank, as trustee (the "Trustee"), have simultaneously herewith entered into an Amended and Restated Mortgage and Trust Indenture dated as of the date hereof (the "Indenture") for the purposes of amending and restating in its entirety the Original Indenture and to provide for the issuance of and security for the Bonds. (f) The Issuer has requested and SLT Realty Limited Partnership, a Delaware limited partnership (the "Guarantor"), has proposed to irrevocably and unconditionally guaranty the full and prompt payment of the principal of, interest on, and premium, if any, on the Bonds by entering into a Guaranty Agreement dated as of February 1, 1997 between the Guarantor and the Trustee. (g) The Issuer and the Company hereby enter into this Agreement for the purposes of amending and restating in its entirety the Original Agreement and providing for the sale of the Project Facilities to the Company for purchase price amounts sufficient to pay the principal, interest and premium, if any, due on the Bonds. 1.2 Company Representations. The Company represents that: (a) The Company is a limited partnership duly organized and existing in good standing under the laws of the State of Delaware, is authorized to conduct business in the Commonwealth of Pennsylvania and has full power and legal right to enter into this Agreement and perform its obligations hereunder. The making and performance of this Agreement on the Company's part have been duly authorized by all requisite action and will not violate or conflict with its Partnership Agreement or any governmental rule or regulation or with any agreement, instrument or document by which the Company or any of its properties is bound. 2 8 (b) The refinancing of the Project Facilities, as provided under this Agreement, will tend to promote the employment and general welfare of the residents of the City of Philadelphia and the Commonwealth of Pennsylvania by promoting the continuation and expansion of gainful employment opportunities for such residents. (c) The Company intends to operate the Project Facilities as a commercial development project within the meaning of the Act. 1.3 Issuer Representations and Findings. The Issuer hereby confirms its findings and represents that: (a) The Issuer is a public body corporate and politic established in the Commonwealth of Pennsylvania pursuant to the Act, is authorized and empowered by the provisions of the constitution and laws of the Commonwealth of Pennsylvania (including the Act) and its resolutions dated January 21, 1997 and February 18, 1997, to enter into the transactions contemplated by this Agreement and to carry out its obligations hereunder. The Project Facilities constitute and will constitute a commercial development project within the meaning of the Act. (b) The Company as the equitable owner of the Project Facilities is engaged in commercial activities in the Commonwealth of Pennsylvania requiring substantial capital and creating substantial employment opportunities, and its operations contribute to economic growth and the creation of employment opportunities in the Commonwealth of Pennsylvania. The Company is financially responsible to assume its obligations prescribed by this Agreement and the Act and is qualified to be a commercial occupant for purposes of the Act. (c) The Project Facilities will promote the health, safety and general welfare of the people of the Commonwealth of Pennsylvania and the public purposes of the Act by alleviating unemployment and by maintaining employment at a high level and creating and developing employment opportunities in the Commonwealth of Pennsylvania. (d) The Project Facilities are located wholly within the boundaries of the City of Philadelphia, Pennsylvania. (e) The Project Facilities have been approved by the Pennsylvania Department of Community and Economic Development (formerly the Pennsylvania Department of Commerce) as required by the Act. (f) The Project Facilities have been approved by a publicly elected local official as required by the Act, after a public hearing held upon reasonable notice. 3 9 (g) The issuance of the Bonds and the execution of this Agreement and the Indenture have been approved by the Issuer at a duly constituted meeting. (h) Except as otherwise permitted by this Agreement, the Issuer covenants that it has not and will not pledge the income and revenues derived from this Agreement other than to secure the Bonds. II. Project Facilities. 2.1 Transfer of Project Facilities. The Company hereby grants, conveys and assigns to the Issuer and the Trustee all of the right, title and interest which it may have in and to the Project Facilities. Upon request of the Issuer or the Trustee, the Company will grant, convey and assign, or cause to be granted, conveyed and assigned, to the Issuer and the Trustee, by deed, bill of sale, lease, assignment, license, grant of easement or other appropriate instrument, such interest as it may have in the Project Facilities and such additional rights as the Issuer or the Trustee shall require in order to comply with the Act. The Company will be entitled to physical possession and control of the Project Facilities, the Premises and all machinery, equipment, improvements, fixtures and all other tangible personal property thereon, at all times prior, during and subsequent to such granting, conveyance and assignment, and will be liable at all such times for all risks, losses and damages with respect to the Project Facilities and the Premises. The Issuer and the Trustee agree that, without the prior written consent of the Company, it will not create any lien, encumbrance, charge, easement, license, covenant, reversion, condition or restriction upon the Project Facilities other than the security intended to be given under the Indenture. 2.2 Construction of Future Improvements to Project Facilities. The Company may award contracts and purchase orders covering construction for future improvements of the Project Facilities. Any contracts and purchase orders so awarded are hereinafter called the "Contracts." Each Contract for construction will contain a valid waiver by the contractor of the right to file and maintain any mechanic's liens on the Project Facilities, which waiver shall be filed before commencement of work in the office of the Prothonotary of the City of Philadelphia. The Company will pay all sums required to complete the same to the extent that the cost thereof is not provided pursuant to the Indenture. 2.3 Provisions with Respect to Title. Any Contracts will provide that legal title to the equipment included in the Project Facilities shall pass directly from the Contractor to the Issuer, and at no time shall legal title to any portion of the Project Facilities vest in, nor become the property of, the Company. The Company agrees that title to the Project Facilities will remain in the Issuer until settlement pursuant to Section 4.6 hereof, and that the Issuer's title to the Project Facilities shall constitute ownership and not a security interest; provided, however, that the Company alone shall be entitled to deduct all depreciation on, 4 10 and take any available tax credits in respect of, the Project Facilities on the Company's income tax returns. 2.4 Administration of Contracts. The Company will have full responsibility for preparing, administering, amending and enforcing any Contracts and litigating or settling claims thereunder, and will be entitled to all warranties, guaranties and indemnities provided under any Contracts and by law. Subject to the provisions of Section 2.6 hereof, the Company may make additions to or changes in the Project Facilities without prior consultation with the Issuer or the Trustee (as hereinafter defined). 2.5 Notices and Permits. The Company shall give or cause to be given all notices and comply or cause compliance with all laws, ordinances, municipal rules and regulations and requirements of public authorities applying to or affecting the conduct of work on the Project Facilities, and the Company will defend and save the Issuer, its officers, members, agents and employees, harmless from all fines due to failure to comply therewith. The Company shall procure or cause to be procured all permits and licenses necessary for the prosecution of the work. 2.6 Additions and Changes to the Project Facilities. The Company may, at its option and at its own cost and expense, at any time and from time to time, make such improvements, additions and changes to the Project Facilities as it may deem to be desirable for its uses and purposes, provided that: (i) such improvements, additions and changes shall constitute part of the Project Facilities and be subject to the liens and security interests created by the Indenture; and (ii) the Company shall not permit any removal, demolition, substitution, improvement, alteration or deterioration of the Project Facilities or any other act which would materially impair or reduce the usefulness or value thereof, or the Issuer's interest therein, or the security provided under the Indenture without the prior written consent of the Issuer and the Trustee. The Company will revise Exhibit "A" from time to time to reflect any material additions to, deletions from and changes in the Project Facilities and will notify the Issuer and the Trustee of the nature, location and estimated costs of such modifications. Upon written request of the Company, the Issuer shall give a bill of sale to the Company, and the Trustee shall execute termination statements for any filings made to perfect the security interests created by the Indenture and by Section 4.2 hereof for any chattel or fixture permanently removed from the Project Facilities by the Company. III. Financing the Project. 3.1 Issuance of Bonds; Additional Financing. In order to refinance the Project Facilities, the Issuer, upon request of the Company, will use its best efforts to issue and sell, in one or more series, $27,820,000 aggregate principal amount of its Commercial Development Revenue Refunding Bonds (Doubletree Guest Suites Project) Series 1997A. 5 11 The Bonds will be issued under and secured by the Indenture, intended to be recorded in the Department of Records in and for the City of Philadelphia prior to the recordation of this Agreement. The Company agrees that its interest in the Project Facilities and its rights hereunder are and shall be subordinate to the rights of the Trustee under the Indenture, and agrees to comply with and be bound by all of the provisions thereof that are binding upon the Issuer. The Company hereby agrees to make all payments of the Purchase Price (as defined in Section 4.3 hereof) and other amounts due hereunder to enable the Issuer to make all payments required of it under the Bonds and the Indenture. The Bonds will be payable solely from payments made by the Company pursuant to the terms hereof, or from other moneys available for such purpose under the terms of the Indenture. The net proceeds of the Bonds shall be applied pursuant to Section 3.2 hereof and Section 4.02 of the Indenture. 3.2 Bond Fund. Upon the issuance of the Bonds, the Company will provide the Prior Trustee $1,207,356.64 which, together with the proceeds of the Bonds in the amount of $27,264,712.80, will be used to pay the principal of and accrued interest on the Prior Bonds on February 20, 1997. The Company shall deposit monies with the Trustee in the Bond Fund in amounts sufficient for the payment of Costs of issuance as provided in Section 3.04 of the Indenture. 3.3 Bonds Not to Become Arbitrage Bonds. As provided in Article V of the Indenture, the Trustee will invest moneys held by the Trustee as directed by the Company. The Issuer and the Company hereby covenant to each other and to the holders of the Bonds that, notwithstanding any other provision of this Agreement or any other instrument, they will neither make nor instruct the Trustee to make any investment or other use of the Debt Service Fund or other proceeds of the Bonds which would cause the Bonds to be arbitrage bonds under Section 148 of the Code and the regulations thereunder, and that they will comply with the requirements of such Section and regulations throughout the terms of the Bonds. The Company shall not resell any Bonds purchased by it pursuant to Section 6.06 of the Indenture at a price in excess of the principal amount thereof unless it shall have first delivered to the Trustee an opinion of nationally recognized bond counsel satisfactory to the Trustee to the effect that such resale will not cause interest on the Bonds to become subject to Federal income tax under the Code, as then enacted and construed. 3.4 Restriction on Use of Bond Fund. The Company shall not use or direct the use of moneys from the Bond Fund in any way, or take or omit to take any other action, so as to cause the interest on any Bonds to become subject to Federal income tax, and shall use all of the spendable proceeds of the Bonds to refund the Prior Bonds. IV. Sale and Purchase of the Project Facilities. 4.1 Sale and Purchase of the Project Facilities. The Issuer hereby agrees to sell to the Company, who hereby agrees to purchase, the Project Facilities under and subject 6 12 nevertheless, to all easements, covenants, reversions, conditions and restrictions existing at the time of settlement pursuant to Section 4.6 hereof, for the Purchase Price set forth in Section 4.3 hereof. 4.2 Security Interest. In order to secure its obligations hereunder, the Company hereby assigns, transfers, sets over and grants to the Issuer and the Trustee a security interest in all of the Company's right, title and interest which it may have in and to the Project Facilities consisting of equipment, including without limitation all equipment described in Exhibit A whether now owned or hereafter acquired by the Company, and in all fixtures, fittings, furnishings, furniture, machinery, appliances, apparatus, equipment, rents, contracts, permits, licenses, leases, income and accounts now owned or hereafter acquired by the Company and located in or on the Project Facilities, all substitutions and replacements therefor, and all proceeds thereof, including all insurance and condemnation proceeds. The terms of this Section 4.2 shall constitute a security agreement within the meaning of the Pennsylvania Uniform Commercial Code. The terms of this Section 4.2 shall not apply to any such equipment or other personal property which is now or hereafter leased by the Company or is subject to a purchase money security interest. 4.3 Payment of Purchase Price. The Company shall pay or cause to be paid as set forth in this Section 4.3 the purchase price (the "Purchase Price") for the Project Facilities. The Purchase Price will be an amount equal to the principal or applicable redemption price of, and interest on, the Bonds. The Purchase Price shall be payable in installments which, as to amount, correspond to the payments of the principal or applicable redemption price of, and interest on, the Bonds. All such installments of the Purchase Price are to be made to the Trustee on or prior to the corresponding principal, redemption or interest payment dates of the Bonds in funds available for payment, on such Bond payment dates. If the Company fails to make any payment or fails to make any complete payment required pursuant to this Section 4.3, the Trustee shall demand payment of such deficiency or non-payment from the Guarantor under the Guaranty. Payments of the principal or applicable redemption price of and interest on the Bonds from any moneys held by the Trustee in the Debt Service Fund established under the Indenture shall constitute payments of Purchase Price on behalf of the Company. 4.4 Acceleration of Payment to Redeem Bonds. Whenever any Bonds are subject to optional redemption pursuant to the Indenture, the Issuer will, upon receipt of written direction of the Company, direct the Trustee to call the same for redemption as provided in the Indenture. Whenever any Bonds are subject to mandatory redemption pursuant to the Indenture, the Company will cooperate with the Issuer and the Trustee in effecting such redemption. 4.5 No Defense or Set-Off. Except as provided in Section 7.16 hereof, the obligations of the Company to make or cause to be made payments of the Purchase Price 7 13 shall be absolute and unconditional without defense or set-off (except for the defense of actual payment) by reason of any default by the Issuer under this Agreement or under any other agreement between the Company and the Issuer or for any other reason, including without limitation, any acts or circumstances that may constitute failure of consideration, destruction of or damage to the Project Facilities, commercial frustration of purpose, or failure of the Issuer to perform and observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or connected with this Agreement, it being the intention of the parties that the payments required of or on behalf of the Company hereunder will be paid in full when due without any delay or diminution whatsoever. Payments of the Purchase Price and additional sums required to be paid by or on behalf of the Company hereunder shall be received by the Issuer or its assigns as net sums and the Company agrees to pay or cause to be paid all charges against or which might diminish such net sums. 4.6 Settlement. Settlement for the Project Facilities shall take place within 60 days after (i) the Company shall have paid or caused to be paid all amounts to be paid by or on behalf of the Company under the terms of this Agreement and (ii) the Indenture shall have been released pursuant to Section 12.01 thereof; provided that no Event of Default as defined herein has occurred and is continuing, and provided that settlement shall be held only after the Company gives 10 days prior written notice to the Issuer of said settlement, said notice to be given by the Company not later than 10 days prior to the expiration of said 60-day period. In the event the Company refuses to take and record title to the Project Facilities within the aforesaid 60-day period, the Company shall pay to the Issuer, or its agent, a service charge of $100.00 per month until such time as the Company accepts and records title to the Project Facilities. At settlement, the Issuer will convey to the Company by special warranty deed and bill of sale the Project Facilities excepting, however, any part of the Project Facilities taken by eminent domain (or conveyed by a bona fide sale in lieu thereof) during the term of this Agreement and subject, nevertheless, to all easements, covenants, reversions, conditions and restrictions, existing at the time of the conveyance to the Issuer pursuant to the Original Indenture and the Original Agreement, or thereafter created or agreed to by the Company. The Company agrees to pay all taxes, charges and costs, including but not limited to reasonable legal fees, recording fees, notary fees and any other similar fees and charges which must be paid in order to complete settlement and in connection with the conveyance of the interest of the Issuer in the Project Facilities from the Issuer to the Company hereunder and, with respect to the Indenture and any other mortgage lien created by the Issuer with the Company's consent, all mortgage satisfaction costs and fees. 4.7 Assignment of Issuer's Rights. As security for the payment of the Bonds, the Issuer will assign to the Trustee all the Issuer's rights under this Agreement (except the rights of the Issuer under Sections 5.4 and 5.7 hereof). The Company consents to such assignment and agrees to make or cause to be made payments of the Purchase Price under Sections 4.3 and 4.4 hereof directly to the Trustee without defense or set-off by reason 8 14 of any dispute between the Company and the Trustee. Whenever the Company is required to obtain the consent of the Issuer hereunder, the Company shall also obtain the consent of the Trustee. V. Covenants of the Company. 5.1 Maintenance and Operation of the Project Facilities. (a) During the term of this Agreement, the Company will at its own cost and expense keep and maintain, or cause to be kept and maintained, in good repair and condition (excepting reasonable wear and tear) the Project Facilities and all additions and improvements thereto, and pay, or cause to be paid, any utility charges and other costs and expenses arising out of its use of the Project Facilities, and will maintain and cause to be operated the Project Facilities as a "commercial facility" (as defined in the Act), provided this covenant shall not require the Company to operate any portion of the Project Facilities after it is no longer economical and feasible, in the Company's judgment, to do so and shall not prevent the Company from selling all or any portion of the Project Facilities. This covenant is personal to the Company and its successors or subsidiaries and will not be binding upon purchasers of any portions of the Company's properties. The Company may from time to time enter into management agreements, franchise agreements, license agreements and other similar agreements with respect to operation of the Project Facilities, including that lease agreement with SLC Operating Limited Partnership regarding the Project Facilities. (b) The Company agrees to timely pay for any improvements to the Project Facilities lawfully done or lawfully ordered to be done by any municipal, state or Federal authority and to comply in all material respects at its own cost and expense with all lawful and enforceable notices received from public authorities from and after the date hereof, which affect the Project Facilities and the use and operation thereof, other than those improvements, orders and notices, the amount, validity or application of which is at the time being contested, in whole or in part, in good faith by appropriate proceedings promptly initiated and diligently conducted. 5.2 Maintenance of Existence. (a) So long as settlement pursuant to Section 4.6 hereof has not occurred, the Company will maintain its existence and its qualification to do business in Pennsylvania, except that it may (i) admit additional general partners and limited partners, (ii) permit the withdrawal of limited partners and (iii) with the consent of the Issuer and the Trustee, permit the withdrawal of one or more of the general partners, if such partnership transfers do not have an adverse effect on the tax-exempt status of interest on the Bonds. 9 15 (b) In the event that Starwood Lodging Trust, a Maryland real estate investment trust, the sole general partner of the Company, liquidates or dissolves during any time when the Company is the equity owner of the Project Facilities, voluntarily or involuntarily, the Bonds will immediately be subject to redemption at the option of the Company, in whole, pursuant to the Indenture. 5.3 Payment of Trustee's and Remarketing Agent's Compensation and Expenses. The Company will pay the Trustee's reasonable compensation and expenses under the Indenture, including all costs of redeeming Bonds thereunder, and will indemnify the Trustee, as provided in Section 9.04 of the Indenture. The Company will pay the Remarketing Agent's reasonable compensation and expenses under the Indenture, including all costs of remarketing Bonds thereunder, and will indemnify the Remarketing Agent as provided in the Remarketing Agreement. 5.4 Payment of Issuer's Fees and Expenses. Except to the extent payment is provided from the proceeds of the Bonds, the Company will pay the Issuer's standard administration fees and all reasonable expenses, including legal and accounting fees, incurred by the Issuer in connection with the issuance of the Bonds, and the performance by the Issuer of its functions and duties under this Agreement and the Indenture. The Issuer's standard administration fees in respect of this Agreement are $41,730 (all of which has been prepaid) payable upon the execution and delivery of this Agreement, plus 1% of each payment of interest on the Bonds made pursuant to the Indenture payable at the Issuer's address hereinafter set forth at the respective times such payments of interest on the Bonds are payable. 5.5 Condemnation of Project Facilities. In the event that the Project Facilities or a portion thereof are condemned by a third party in the exercise of the power of eminent domain (or a bona fide sale in lieu of such condemnation shall have occurred), the Company covenants that it will deposit the proceeds received from the condemnation or sale of the Project Facilities with the Trustee and if no Event of Default under the Indenture has occurred and is continuing, the Company may elect to apply the condemnation or sale proceeds to the costs of replacing the portion of the Project Facilities which is the subject of such condemnation, or, if permitted by the terms of the Bonds, to the redemption of the Bonds then Outstanding. 5.6 Damage to Project Facilities. In the event of damage to or destruction of part or all of the Project Facilities, the Company shall either: (i) restore the Project Facilities as nearly as practicable to their condition immediately before such damage or destruction or (ii) if permitted by the terms of the Bonds, exercise within one year of the date of such occurrence its option to request the Issuer to call the Bonds for redemption. Damage to or destruction of all or a portion of the Project Facilities, or condemnation of all or any part of the Premises, shall not terminate this Agreement, or cause any abatement of or 10 16 reduction in the payments to be made by or on behalf of the Company or otherwise affect the respective obligations of the Issuer or the Company, except as set forth in this Agreement. In the event of damage to or destruction of the Project Facilities or any part thereof, the proceeds of any insurance policies required to be maintained under Section 5.9(a) hereof shall be paid to the Trustee, and if no Event of Default as defined herein or in the Indenture has occurred and is continuing, shall be applied, at the election of the Company and in the manner directed by the Company, to the repair or restoration of the portion of the Project Facilities which is the subject of such damage or destruction or, if the Company has elected to have Bonds called for redemption, as a prepayment of the Purchase Price. If the Issuer or the Company is the payee, or one of the payees, of any check or other instrument representing payment of any insurance proceeds referred to in this Section 5.6, the Issuer or Company will endorse the same to the order of the Trustee and deliver the same to the Trustee; and if the Issuer or the Company fails to do so, the Issuer and the Company hereby irrevocably authorize any officer or employee of the Trustee to endorse and deliver the same as the Issuer's or Company's attorney-in-fact. 5.7 Indemnity Against Claims. In the exercise of the power of the Issuer and its members and officers and employees and agents hereunder including (without limiting the foregoing) the application of moneys, the investment of funds and the letting or other disposition of the Project Facilities in the event of default by the Company, neither the Issuer nor its members, officers, employees or agents shall be accountable to the Company for any action taken or omitted by it or its members or officers or employees or agents in good faith and believed by it or them to be authorized or within the discretion or rights or powers conferred. The Issuer, its officers, members, employees and agents shall be protected in its or their acting upon any paper or document believed by it or them to be genuine, and it or they may conclusively rely upon the advice of counsel and may (but need not) require further evidence of any fact or matter before taking any action. No recourse shall be had by the Company for any claims based thereon or under the Indenture against any member or officer of the Issuer alleging personal liability on the part of such person unless such claims are based upon the bad faith, fraud or deceit of such person. The Company will indemnify and hold harmless the Issuer and each member, officer, employee and agent of the Issuer against any and all claims, losses, damages or liabilities, joint and several, to which the Issuer or any member or officer or employee or agent of the Issuer may become subject, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of the Project or the Project Facilities or are based upon other alleged acts or omissions in connection with the Project or the Project Facilities by the Issuer unless the losses, damages or liabilities arise from bad faith, fraud or deceit of the member, officer, employee or agent of the Issuer to be indemnified. In the event any claim is made or action brought against the Issuer, or any member, officer, employee or agent of the Issuer, except for claims or actions brought which arise from malfeasance or nonfeasance in office, bad faith, fraud or deceit, the Issuer may direct the Company to assume the defense of the claim and any action brought thereon (if the Issuer gives the Company written notice of such direction within ten (10) days 11 17 of the institution of such claim or action) and pay all reasonable expenses (including attorney's fees) incurred therein; or the Issuer may assume the defense of any such claim or action, the reasonable cost (including attorney's fees) of which shall be paid by the Company upon written request of the Issuer to the Company; provided, however, the counsel selected by the Issuer to conduct such defense shall be approved by the Company which approval shall not be unreasonably withheld, and further provided that the Company may engage its own counsel to participate in the defense of any such action if such engagement does not give rise to a conflict of interest involving such counsel. The defense of any such claim shall include the taking of all actions necessary or appropriate thereto. Any claim for indemnification hereunder shall be by written notice. 5.8 Taxes, Other Governmental Charges and Utility Charges. The Company shall pay, or cause to be paid, as the same respectively become due, all taxes, assessments, whether general or special, and governmental charges of any kind whatsoever that may at any time be lawfully assessed or levied against or with respect to the Project Facilities, including any equipment or related property installed or brought by the Company therein or thereon (including, without limiting the generality of the foregoing, any taxes levied upon or with respect to the revenues or income of the Issuer from the Project), and all utility and other charges incurred in the operation, maintenance, use, occupancy and upkeep of the Project Facilities; provided, that with respect to special assessments or other governmental charges that lawfully may be paid in installments over a period of years, the Company shall be obligated to pay only such installments as are required to be paid during the term hereof. If the Project Facilities are not taxed because of any interest the Issuer may have in respect thereof, the Company shall pay to the political subdivisions in which the Project Facilities are located an amount equal to the taxes that would be otherwise due and payable, except to the extent all or a portion of the Project Facilities are benefited by any real estate tax abatement ordinance or program. Such amounts in lieu of taxes shall be payable by the Company directly to the political subdivisions in which the Project Facilities are located. The Company may, at its expense, in good faith contest any such taxes, assessments and other charges and, in the event of any such contest (and the Issuer will cooperate in such contest [but at no expense to the Issuer] if legally required or reasonably helpful to do so), may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom, unless the Issuer or the Trustee shall notify the Company that, in the opinion of counsel, by nonpayment of any such items the lien of the Indenture will be materially endangered or the Project Facilities or any part thereof will be subject to loss or forfeiture, in which event such taxes, assessments or charges shall be paid promptly. The Company shall not use, as a basis for contesting any tax, assessment or charge, the fact that legal title to the Project Facilities is held by a body of governmental or quasi-governmental status. The Issuer will cooperate fully with the Company in any such contest. The Company also agrees to comply at its own cost and expense with all notices received from public authorities from and after the date hereof. Except in the case where the Company shall be contesting its obligation to pay any of the 12 18 foregoing items pursuant to the terms of this Section, in the event that the Company shall fail to pay any of the foregoing items required by this Section to be paid by the Company, the Issuer or the Trustee may (but shall be under no obligation to), after ten (10) days prior written notice to the Company of its intent to do so, pay the same and any amounts so advanced therefor by the Issuer or the Trustee shall become an additional obligation of the Company to the one making the advancement, which amounts, together with interest thereon at the rate of 15% per annum from the date thereof, the Company agrees and covenants to pay. 5.9 Insurance. (a) During the time that any Bonds are outstanding, the Company shall at its own cost and expense: (1) Insure the Project Facilities for any peril included within the classification "fire and extended coverage", or, during the period of any construction on the Premises, "builder's risk coverage" in an amount equal to its insurable value, subject to deductions of not more than $10,000, including standard mortgagee clauses in favor of the Trustee and naming the Issuer and the Company as insureds as their respective interests may appear and naming the Trustee as the sole loss payee. The Company shall have full authority to adjust and settle claims and shall pay any fees or costs incident thereto. (2) Maintain comprehensive general liability insurance which names the Issuer and the Trustee as the insureds, for the benefit of the Issuer as well as the Company, and excess liability insurance of $2,000,000 per occurrence and $5,000,000 aggregate coverage. The Company shall have full authority to adjust and settle claims and shall pay any fees or costs incident thereto. (b) The Company shall require that any contractor employed for construction of any improvements to the Project Facilities provide comprehensive general liability coverage and worker's compensation coverage in amounts customarily carried by contractors with respect to such construction. (c) The insurance policies or endorsements shall cover the entire Project Facilities and shall provide that the coverage will not be reduced or cancelled without 30 days prior written notice to the Issuer and the Trustee. The Company shall provide the Issuer and the Trustee with certificates from the insurers at such times as may be necessary to show that insurance is being maintained as required by this Section 5.9. 5.10 Prohibition of Liens. The Company shall not create or suffer to be created by any other person any lien or charge upon the Debt Service Fund, the Project 13 19 Facilities or any part thereof or upon the rents, contributions or charges or receipts or revenues therefrom other than in favor of the Issuer or the Trustee; provided, that nothing in this Agreement shall limit the right of the Company to enforce payments from the Debt Service Fund pursuant to Section 4.03 of the Indenture; provided, further that the Company may grant a subordinate mortgage and/or security agreement upon its interest in the Project Facilities or any part thereof to secure any loans it may hereafter obtain. Upon the request of the Company, the Issuer agrees to execute a joinder to any such mortgage and/or security agreement to subject its interest in the Project Facilities to the lien thereof; provided, however, that the Issuer shall not incur any personal liability or be required to execute any evidence of indebtedness in connection therewith. The Company further agrees to pay or cause to be discharged or make adequate provision to satisfy and discharge, within 60 days after the same shall become due, any such lien or charge and also all lawful claims or demands for labor, materials, supplies or other charges which, if unpaid, might be or become a lien upon the Debt Service Fund, the Project Facilities or any part thereof or the revenues or income therefrom; provided, however, that nothing in this Section 5.10 shall require the Company to pay or cause to be discharged or make provision for any such lien or charge so long as the validity thereof shall be contested in good faith and so long as the Project Facilities or any part thereof are not subject to loss or forfeiture. The Issuer shall cooperate with the Company in any such contest conducted at the Company's expense. 5.11 Granting of Easements. If no Event of Default under this Agreement has occurred and is continuing, the Company may, notwithstanding anything contained in this Agreement to the contrary, at any time or times, grant easements, licenses, rights of way and other rights or privileges in the nature of easements with respect to any property included in the Project Facilities, free from the lien of this Agreement, or release or amend existing easements, licenses, rights of way and other rights or privileges, all with or without consideration and upon such terms and conditions as the Company shall determine, and the Issuer agrees that it will execute and deliver any instrument necessary or appropriate to confirm and grant, release or amend any such easement, license, right of way or other right or privilege, upon receipt by the Issuer and the Trustee of: (a) A copy of the instrument of grant, release, or amendment in form satisfactory to the Issuer and the Trustee; (b) A written application signed by the Company requesting such instrument; and (c) A certificate executed by the Company, and such other persons as the Issuer and the Trustee may reasonably require, stating that such grant, release or amendment is not detrimental to the proper conduct of the business of the Company, and that such grant, release or amendment will not impair the effective use or interfere with the efficient and economical operation of the Project Facilities and will not in any material 14 20 respect weaken, diminish or impair the security intended to be given by or under the Indenture. If the instrument of grant shall so provide, any such easement or right and rights of such other parties thereunder shall be superior to the rights of the Issuer under this Agreement and shall not be affected by any termination of this Agreement or default on the part of the Company hereunder. If no Event of Default has occurred and is then continuing, any payments or other consideration received by the Company for any such grant shall be and remain the property of the Company but, if an Event of Default has occurred and is then continuing, all rights then existing of the Company with respect to or under such grant, shall inure to the benefit of and be exercisable by the Issuer and the Trustee. Nothing in this Agreement shall diminish the respective rights of the Trustee under the Indenture, including without limitation, the right to prohibit the granting of easements without their prior written consent if such prior consent is reserved. 5.12 Compliance with Laws. With respect to the Project Facilities and any additions, alterations or improvements thereto, the Company will at all times comply in all material respects with all applicable requirements of Federal, state and local laws and with all applicable lawful requirements of any agency, board, or commission created under the laws of the Commonwealth of Pennsylvania or of any other duly constituted public authority, and will use, and permit the use of, the Project Facilities only for such purposes as are lawful under the Act; provided, however, that the Company shall be deemed in compliance with this Section 5.12 so long as it is contesting in good faith any such requirement by appropriate legal proceedings. 5.13 Recording Instruments. This Agreement (or a memorandum hereof) shall be recorded in the Department of Records in and for the City of Philadelphia, Pennsylvania and in such other place or places as may be required by law at the expense of the Company, it being the intention of the parties hereto that the Indenture shall first be recorded and that this Agreement (or a memorandum hereof) shall be recorded immediately after the Indenture. 5.14 Filing of Financing Statements. The Company shall at its own expense cause financing statements under the Pennsylvania Uniform Commercial Code to be filed in the places required by law in order to perfect the security interests created by Section 4.2 hereof, naming the Issuer as first secured party and the Trustee as its assignee. From time to time, as reasonably requested by the Trustee, the Company shall furnish to the Trustee an opinion of counsel setting forth what actions, if any, should be taken by the Company or the Trustee to preserve such security interest in favor of the Trustee, and the right, title and interest of the Trustee in and to the trust estate created under the Indenture. The Company shall execute and file or cause to be executed and filed all further instruments as shall be required by law or reasonably required by the Trustee to preserve such security interest, and 15 21 shall furnish satisfactory evidence to the Trustee of the filing and refiling of such instruments. 5.15 Notice and Certification With Respect to Bankruptcy Proceedings. The Company shall promptly notify the Trustee of the occurrence of any of the following events and shall keep the Trustee informed of the status of any petition in bankruptcy filed (or bankruptcy or similar proceeding otherwise commenced) against the Company and/or the Guarantor: (i) application by the Company and/or the Guarantor for or consent by the Company and/or the Guarantor to the appointment of a receiver, trustee, liquidator or custodian or the like of itself or of its property, or (ii) admission by the Company and/or the Guarantor in writing of its inability to pay its debts generally as they become due, or (iii) general assignment by the Company and/or the Guarantor for the benefit of creditors, or (iv) adjudication of the Company and/or the Guarantor as a bankrupt or insolvent, or (v) commencement by the Company and/or the Guarantor of a voluntary case under the United States Bankruptcy Code or filing by the Company and/or the Guarantor of a voluntary petition or answer seeking reorganization of the Company and/or the Guarantor, an arrangement with creditors of the Company and/or the Guarantor or an order for relief or seeking to take advantage of any insolvency law or filing by the Company and/or the Guarantor of an answer admitting the material allegations of an insolvency proceeding, or action by the Company and/or the Guarantor for the purpose of effecting any of the foregoing, (vi) if without the application, approval or consent of the Company and/or the Guarantor, a proceeding shall be instituted in any court of competent jurisdiction, under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking in respect of the Company and/or the Guarantor an order for relief or an adjudication in bankruptcy, reorganization, dissolution, winding up, liquidation, a composition or arrangement with creditors, a readjustment of debts, the appointment of a trustee, receiver, liquidator or custodian or the like of the Company and/or the Guarantor or of all or any substantial part of its assets, or other relief in respect thereof under any bankruptcy or insolvency law. 5.16 Continuing Disclosure. The Company hereby covenants and agrees that it will comply with and carry out all the provisions of the Continuing Disclosure Agreement. Notwithstanding any other provision of this Agreement, failure by the Company to comply with the Continuing Disclosure Agreement shall not be considered an Event of Default hereunder; however, the Trustee may (and, at the direction of the Registered Owners (as defined in the Continuing Disclosure Agreement) of at least 25% in aggregate principal amount of the Bonds Outstanding, shall) or any Registered Owner of Bonds (as defined in the Continuing Disclosure Agreement) may take such actions as may be necessary and appropriate, including seeking specific performance by court order, to cause the Company to comply with its obligations under this Section 5.16, but only to the extent that the Trustee receives indemnity satisfactory to it for costs, expenses and any other liabilities. 16 22 5.17 Representations as to Environmental Matters. (a) The Company is in compliance with all applicable Environmental Laws relating to the Project Facilities, except for matters which, individually or in the aggregate, could not have a Material Adverse Effect. (b) The Company has all Environmental Approvals necessary or desirable for the ownership and operation of the Project Facilities as presently operated except for matters which, individually or in the aggregate, could not have a Material Adverse Effect. (c) To the best of the Company's knowledge, there is no Environmental Claim pending or threatened, nor are there any past or present acts, omissions, events or circumstances that could form the basis of any Environmental Claim, against the Company except for matters which, individually or in the aggregate, could not have a Material Adverse Effect. (d) The Project Facilities are not an Environmental Cleanup Site. 5.18 Covenants as to Environmental Matters. The Company hereby covenants and agrees that: (a) The Company will comply with all applicable Environmental Laws relating to the Project Facilities, except for matters which, individually or in the aggregate, could not have a Material Adverse Effect. (b) Promptly upon becoming aware of any Environmental Claim pending or threatened against the Company and relating to the Project Facilities, or any past or present acts, omissions, events or circumstances that could form the basis of such Environmental Claim, which if adversely resolved, individually or in the aggregate, could have a Material Adverse Effect, the Company shall give the Trustee notice thereof, together with a written statement of an authorized officer of the Company setting forth the details thereof and any action with respect thereto taken or proposed to be taken by the Company. 5.19 Certain Definitions. In addition to the terms defined in the recitals, as used herein: "Environmental Approvals" shall mean any governmental action pursuant to or required under any Environmental Law. "Environmental Claim" shall mean, with respect to any person, any action, suit, proceeding, investigation, notice, claim, complaint, demand, request for information or 17 23 other written communication by any other person (including any governmental authority or citizens group) alleging, asserting or claiming any actual or potential: (a) violation of any Environmental Law, (b) liability under any Environmental Law or (c) liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, fines or penalties arising out of, or based on, or resulting from, the presence or release into the environment of any Environmental Concern Materials at the Project Facilities. "Environmental Cleanup Site" shall mean any location which is listed or proposed for listing on the National Priorities List, on CERCLIS or on any other similar state list of sites requiring investigation or cleanup, or which is the subject of any pending or threatened action, suit, proceeding or investigation relating to or arising from any alleged violation of any Environmental Law. "Environmental Concern Materials" shall mean (a) any flammable substance, explosive, radioactive material, hazardous material, hazardous waste, toxic substance, solid waste, pollutant, contaminant or any related material, raw material, substance, product or by-product of any substance specified in, or regulated or otherwise affected by, any "Environmental Law", (b) any toxic chemical or other substance from or related to industrial, commercial or institutional activities, and (c) asbestos, gasoline, diesel fuel, motor oil, waste and used oil, heating oil and other petroleum products or compounds, polychlorinated biphenyls, radon and urea formaldehyde. "Environmental Law" shall mean any law, whether now existing or subsequently enacted, relating to: (a) pollution or protection of the environment, including natural resources, (b) exposure of persons, including but not limited to employees, to Environmental Concern Materials, (c) protection of the public health or welfare from the effects of products, by-products, wastes, emissions, discharges or releases of Environmental Concern Materials, or (d) regulation of the manufacture, use or introduction into commerce of Environmental Concern Materials including their manufacture, formulation, packaging, labeling, distribution, transportation, handling, storage or disposal. "Environmental Law" shall also include Environmental Approvals and the terms and conditions thereof. "Material Adverse Effect" shall mean a material adverse effect on the business, operations, condition (financial or otherwise) or prospects of the Company. 5.20 Covenants of the Company with Respect to Federal Tax-Exempt Status of Bonds. It is the intention of the parties hereto that the interest on the Bonds be and remain excluded from gross income for federal income tax purposes, and, to that end, the Company does hereby covenant with the Issuer, the Trustee and each of the holders of any Bonds, as follows: 18 24 (a) that it will not cause or permit the proceeds of the Bonds or the Project Facilities to be used in a manner which will cause the interest on the Bonds to lose the exemption from federal income taxation conferred by Section 103 of the Code and Section 103 of the 1954 Code; (b) that so long as the Bonds are outstanding, it will fully comply with all effective rules, rulings and regulations promulgated by the Department of Treasury or the Internal Revenue Service with respect to the Bonds issued under Section 103 of the Code and Section 103 of the 1954 Code so as to maintain the tax-exempt status of the interest payable on the Bonds; (c) that it will make no change in the Project Facilities which would result in the Project Facilities not being an exempt airport facility within the meaning of Section 103(b)(4)(D) of the 1954 Code; (d) that it shall not directly or indirectly use or permit the use (including the making of any investment) of any proceeds of the Bonds or any other funds of the Issuer or the Company, or take or omit to take any action, that would cause the Bonds to be "arbitrage bonds" within the meaning of Section 148(a) of the Code; and (e) that it shall calculate or cause to be calculated and shall pay or cause to be paid to the Untied States any arbitrage rebate at such times as required under the Code. 5.21 Annual Certificate of the Company. The Company shall provide the Trustee with a certificate certifying, to the best of the Company's knowledge, whether an Event of Default under this Agreement has occurred within the preceding calendar year. The Company shall provide the Trustee with such certificate within thirty days of the end of each calendar year at the address of the Trustee provided in Section 7.03 hereof or at such other address as the Trustee shall provide. VI. Events of Default and Remedies. 6.1 Events of Default; Acceleration. Each of the following events is hereby defined as, and is declared to be and to constitute, an "Event of Default": (a) failure by the Company to make or cause to be made any payment of Purchase Price in respect of principal or redemption price of the Bonds required to be made under Section 4.3 or 4.4 hereof in accordance with the conditions set forth in such Section on or before the date and time such payment is due; or 19 25 (b) failure by the Company to make or cause to be made any payment of the Purchase Price in respect of interest or premium on the Bonds required to be made under Section 4.3 or 4.4 hereof in accordance with the conditions set forth in such Section on or before the date and time such payment is due; or (c) failure by the Company to observe and perform any other covenant, condition or agreement on its part to be observed or performed under this Agreement for a period of 60 days after written notice, specifying such failure and requesting that it be remedied, is given to the Company by the Issuer or the Trustee; provided, that if such failure is of such nature that it can be corrected, but not within such period, the same shall not constitute an Event of Default so long as the Company institutes corrective action within such 60-day period and is diligently pursuing the same; or (d) failure by the Guarantor to make or cause to be made any payment of Purchase Price in respect of principal or redemption price of the Bonds required to be made under the Guaranty in accordance with the conditions set forth in the Guaranty on or before the date and time such payment is due; or (e) failure by the Guarantor to make or cause to be made any payment of the purchase price of the Bonds equal to the principal amount thereof plus accrued interest thereon upon mandatory purchase on a Purchase Date pursuant to the terms of the Indenture; or (f) failure by the Guarantor to observe and perform any other covenant, condition or agreement on its part to be observed or performed under the Guaranty for a period of 60 days after written notice, specifying such failure and requesting that it be remedied, is given to the Guarantor by the Issuer or the Trustee; provided, that if such failure is of such nature that it can be corrected, but not within such period, the same shall not constitute an Event of Default so long as the Guarantor institutes corrective action within such 60-day period and is diligently pursuing the same; or (g) for any reason the Bonds become due and payable by acceleration in accordance with the terms thereof; then and in each and every such case the Trustee, as assignee of the Issuer, by notice in writing to the Company, may (and shall in the case of an Event of Default described in clause (g) of this Section ) declare all sums which the Company is obligated to pay under this Agreement to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Agreement contained to the contrary notwithstanding. 20 26 In case the Trustee shall have proceeded to enforce any right under this Agreement and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Issuer or the Trustee, then and in every such case the Company, the Issuer and the Trustee shall be restored respectively to their several positions and rights hereunder, and all rights, remedies and powers of the Company, the Issuer and the Trustee shall continue as though no such proceeding had been taken. 6.2 Payment of Purchase Price on Default; Suit Therefor. (a) Subject to the provisions of Section 7.16 hereof, the Company covenants that, in case default shall be made in the payment of any sum payable by or on behalf of the Company under Section 4.3 or 4.4 of this Agreement as and when the same shall become due and payable, whether at maturity or by acceleration or otherwise -- then, upon demand of the Trustee, the Company will pay or cause to be paid to the Issuer or its assignee the whole amount of the Purchase Price that then shall have become due and payable under such Sections ; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including a reasonable compensation to its assignee, its agents, attorney and counsel, and any expenses or liabilities incurred by the Issuer or the Trustee other than through its gross negligence or bad faith. In case the Company shall fail forthwith to pay or cause to be paid such amounts upon such demand, the Issuer or its assignee shall be entitled and empowered to institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Company and collect in the manner provided by law out of the Project Facilities the moneys adjudged or decreed to be payable. (b) In case there shall be pending proceedings for the bankruptcy or for the reorganization of the Company under the Federal bankruptcy laws or any other applicable law, or in case a receiver or trustee shall have been appointed for the benefit of the creditors or the property of the Company or in the case of any other similar judicial proceedings relative to the Company, or to the creditors or property of the Company, the Trustee shall be entitled and empowered, by intervention in such proceedings or otherwise, to file and prove a claim or claims for the whole amount of the Purchase Price, including interest owing and unpaid in respect thereof, and, in case of any judicial proceedings, to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Issuer or the Trustee allowed in such judicial proceedings relative to the Company, its creditors, or its property, and to collect and receive any moneys or other property payable or deliverable on any such claims, and to distribute the same after the deduction of its charges and expenses; and any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized to make such payments to Issuer or the Trustee, and to pay to Issuer or the Trustee any amount due it for compensation and expenses, including reasonable counsel fees incurred by it up to the date of such distribution. 21 27 6.3 Other Remedies. The Trustee shall be entitled to any one or more of the following remedies: (a) The Company shall upon demand of the Trustee surrender forthwith the possession of the Project Facilities, and it shall be lawful for the Trustee, by such officer or agent as it may appoint, to take possession of all or any part of the Project Facilities together with the books, papers and accounts of the Company located at the Project Facilities and pertaining thereto, and to hold, operate and manage the same, and from time to time make such repairs and improvements as the Trustee shall deem wise. (b) The Trustee may lease the Project Facilities or any part thereof, in the name and for the account of the Company, receive and sequester the rents, revenues, issues, earnings, income, products and profits therefrom, collect rentals and enforce all other remedies of the Company under any existing leases for any part of the Project Facilities, and apply such receipts and any moneys received from any receiver of any part of the Project Facilities to the payment of the Company's obligations hereunder, and, subject to Section 7.16 hereof, the Company shall remain liable for any deficiency in the payment of such obligations after the application of such receipts and moneys. (c) The Trustee may terminate this Agreement and resell the Project Facilities at a private or public sale, after giving the notice set forth in Section 6.3(e) below, and the moneys collected under such resale will be applied to the payment of the Company's obligations hereunder, and, subject to Section 7.16 hereof, the Company shall remain liable for any deficiency in the payment of its obligations under this Agreement after the application of such proceeds. (d) The Trustee may take whatever action may be available at law or in equity as may appear necessary or desirable to collect the Purchase Price and any other amounts payable by the Company hereunder, or to enforce performance and observance of any obligation, agreement or covenant of the Company under this Agreement. (e) The Trustee shall be entitled to all the rights and remedies available from time to time under the Pennsylvania Uniform Commercial Code as secured party in respect of the property subject to the security interest created under Section 4.2 hereof, including without limitation the right to take possession of such property and foreclose or otherwise realize upon any of such property and to dispose of any of such property at public or private sale(s) or other proceedings without advertisement or notice except as required by law (it being understood that notice of any intended public or private sale or other disposition shall be deemed to have been reasonably made if delivered or mailed, postage prepaid, to the Company at the address of the Company maintained with the records of the Trustee at least fifteen days prior to the date of public sale or the date after which the private sale or other disposition is to be consummated), and the Company agrees 22 28 that the Trustee or its nominee may become the purchaser at any such sale(s), the proceeds of such sale to be applied as provided in subparagraph (f) of this Section. (f) Any moneys received by the Issuer under this Section 6.3 shall be paid to its assignee and applied pursuant to the provisions of Section 8.11 of the Indenture. No action taken pursuant to this Section 6.3 (including repossession of the Project Facilities or termination of this Agreement) shall relieve the Company or the Guarantor from their respective obligations pursuant to Sections 4.3, 4.4 and 6.2 hereof, all of which shall survive any such action. Notwithstanding the preceding sentence, the obligations of the Company under this Agreement shall be limited as provided in Section 7.16 hereof. 6.4 Waiver. The Company hereby waives and relinquishes the benefits of any present or future law exempting the Project Facilities from attachment, levy or sale on execution, or any part of the proceeds arising from the sale thereof, and all benefit of stay of execution or other process. 6.5 Cumulative Rights. No remedy conferred upon or reserved to the Issuer or its assignee by this Agreement is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement or now or hereafter existing at law or in equity or by statute. No waiver by the Issuer or its assignee of any breach by the Company of any of its obligations, agreements or covenants hereunder shall be a waiver of any subsequent breach, and no delay or omission to exercise any right or power shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. VII. Miscellaneous. 7.1 Receipt of Indenture. The Company hereby acknowledges that it has received an executed copy of the Indenture and is familiar with its provisions, and agrees that it will take all such actions as are required or contemplated of it under the Indenture to preserve and protect the rights of the Trustee and of the Bondholders thereunder and that it will not take any action which would cause a default thereunder. It is agreed by the Company and the Issuer that any redemption of Bonds prior to maturity shall be effected as provided in the Indenture. 7.2 Limitation of Liability of the Issuer. In the event of any default by the Issuer hereunder, the liability of the Issuer to the Company shall be enforceable only out of its interest in the Project Facilities and under this Agreement and there shall be no other 23 29 recourse for damages by the Company against the Issuer, its officers, members, agents and employees, or any of the property now or hereafter owned by it or them. 7.3 Notices. Notice hereunder shall be effective upon receipt and shall be given by personal service or by certified or registered mail, return receipt requested, to: The Issuer - Philadelphia Authority For Industrial Development 2600 Centre Square West 1500 Market Street Philadelphia, Pennsylvania 19102 Attn: Chairman The Company or - SLT Realty Limited Partnership Guarantor c/o Starwood Lodging Trust 2231 East Camelback Road Suite 410 Phoenix, Arizona 85016 Attn: Chief Financial Officer The Trustee - First Union National Bank 123 South Broad Street Philadelphia, Pennsylvania 19109 Attn: Corporate Trust Administration Any notices to the Issuer or the Company hereunder shall be effective only if copies have been sent in a similar manner to the Trustee. 7.4 Severability. If any provision hereof is found by a court of competent jurisdiction to be prohibited or unenforceable, it shall be ineffective only to the extent of such prohibition or unenforceability, and such prohibition or unenforceability shall not invalidate the balance of such provision to the extent it is not prohibited or unenforceable, nor invalidate the other provisions hereof, all of which shall be liberally construed in favor of the Issuer or its assignee in order to effect the provisions of this Agreement. 7.5 Applicable Law. This Agreement shall be deemed to be a contract made in Pennsylvania and governed by Pennsylvania law. 7.6 Assignment. The Company shall not assign this Agreement or any interest of the Company herein, either in whole or in part, except with the prior written approvals of the Issuer and the Trustee (which approvals shall be given if the following conditions are fulfilled: (i) the assignee assumes in writing all of the obligations of the 24 30 Company hereunder; (ii) neither the validity nor the enforceability of this Agreement shall be adversely affected by such assignment; (iii) the Project Facilities shall continue in the opinion of nationally-recognized bond counsel to be a "project" as such term is defined in the Act after such assignment; (iv) such assignment shall not, in the opinion of nationally recognized bond counsel, have an adverse effect on the tax-exempt status of the Bonds; and (v) such assignment shall be approved by the Issuer which approval shall not be unreasonably withheld if the proposed assignee is of good character and integrity. No change in the composition of the general or limited partners of the Company permitted under Section 5.2 hereof shall be deemed an assignment for purposes of this Section 7.6. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns, and the terms "Issuer" and "Company" shall, where the context requires, include the parties and their respective successors and assigns and any entity resulting from any acquisition, merger, consolidation, dissolution or other change in the corporate form of the Issuer or the Trustee. 7.7 Amendments. This Agreement may not be amended except by an instrument in writing signed by the Issuer and the Company and, if such amendment occurs after the issuance of any of the Bonds, consented to by the Trustee as authorized by Section 11.03 of the Indenture. 7.8 Term of Agreement. This Agreement and the respective obligations of the parties hereto shall be in full force and effect from the date hereof until (i) the principal or redemption price of, and premium, if any, and all interest on, the Bonds shall have been paid, or provision for such payment shall have been made pursuant to the term of the Indenture, (ii) the Indenture shall have been released pursuant to Section 12.01 thereof, and (iii) the Company and the Issuer shall have satisfied their respective obligations under Section 4.6 hereof. 7.9 No Warranty of Condition or Suitability by the Issuer. The Issuer makes no warranty, either express or implied, as to the condition of the Project Facilities or any part thereof or that they will be suitable for the Company's purposes or needs. The Company acknowledges and agrees that the Issuer is not a dealer in property of such kind, and that the Issuer has not made, and does not hereby make any representation or warranty or covenant, except as otherwise set forth herein, with respect to the condition or suitability of the Project Facilities in any respect or in connection with or for the purposes and uses of the Company, or any representation or warranty or covenant of any kind or character, express or implied, with respect thereto. 7.10 Adjustments. The Company agrees to pay all charges and costs which are required and whenever required in connection with the Issuer's acquisition of the Project Facilities and in connection with the conveyance of the Project Facilities from the Issuer to 25 31 the Company. The Company agrees that the Issuer shall not be responsible for any inaccuracies in any settlement sheet in connection with the foregoing. 7.11 Zoning. The Issuer makes no representations as to the zoning of the Premises. 7.12 Company's Federal Income Taxation. Consistent with the terms and conditions of this Agreement, the Issuer agrees that the Company shall be deemed the owner of the Project Facilities for Federal income tax purposes and further agrees to cooperate fully with the Company in obtaining favorable Federal income tax treatment of this sale and the Project Facilities subject hereto. For such purposes, the parties acknowledge their intent to create a valid installment purchase agreement herein, with legal title to the Project Facilities held by Issuer prior to transfer of such title to Company upon completion of its obligations hereunder. 7.13 Amounts Remaining in Debt Service Fund. It is agreed by the parties that any amounts remaining in the Debt Service Fund or any other fund established under the Indenture, after payment in full of the Bonds (or provision for payment thereof having been made in accordance with the provisions of the Indenture) and of the fees, charges and expenses of the Trustee and the Issuer in accordance with the Indenture, shall, upon release of the Indenture pursuant to Section 12.01 thereof, be paid to the Company by the Trustee as overpayment of the Purchase Price. 7.14 Survival of Covenants, Conditions and Representations. All covenants, conditions and representations of the Company contained herein which, by nature, impliedly or expressly involve performance in any particular manner after the delivery of the Issuer's deed or which cannot be ascertained to have been performed until after the said delivery, shall survive said delivery. 7.15 Headings. The captions or headings in this Agreement are for convenience of reference only and shall not control or affect the meaning or construction of any provision hereof. 7.16 Exculpatory Clause. Notwithstanding any provision of this Agreement to the contrary, the liability of the Company under this Agreement shall be limited to its interest in the Project Facilities. 7.17 Waiver of Distraint. The Issuer waives any statutory or common law right it may have to distrain upon or place a lien against any equipment, machinery, furniture or other personal property now or hereafter located on or in the Project Facilities which is owned by any party other than the Company. 26 32 7.18 Survival of Agreement. This Agreement and the obligations and rights of the Company and the Issuer hereunder shall bind and inure to the benefit of, the successors and assigns of the Company and the Issuer hereunder. 27 33 IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have caused this Agreement to be executed and delivered as of the date first written above. PHILADELPHIA AUTHORITY FOR INDUSTRIAL DEVELOPMENT [SEAL] Attest /s/ [ILLEGIBLE] By /s/ [ILLEGIBLE] ____________________ ___________________________ Secretary (Vice) Chairman SLT REALTY LIMITED PARTNERSHIP By: STARWOOD LODGING TRUST*, a Maryland real estate investment trust, its sole general partner By: /s/ Ronald C. Brown -------------------------------- Ronald C. Brown Senior Vice President and Chief Financial Officer - -------- * The name "Starwood Lodging Trust" is a designation of Starwood Lodging Trust, a Maryland real estate investment trust ("Starwood") and its trustee (as trustee but not personally) under the Declaration of Trust of Starwood Lodging Trust dated August 25, 1969, as amended and restated as of June 6, 1988, and further amended as of February 1, 1995 and as the same may be further amended, modified, supplemented, reinstated or superseded from time to time. All persons dealing with Starwood shall look solely to Starwood's assets for the enforcement of any claims against Starwood and the trustee, officers, agents and security holders of Starwood assume no personal liability for obligations entered into on behalf of Starwood, and their respective individual assets shall not be subject to the claims of any person relating to such obligation. 28 34 Exhibit A Description of Project Facilities The Project Facilities consist of (i) the real property fronting on, or having irrevocable access to, Island Avenue and otherwise abutting a loop egress ramp currently under construction from Interstate 95 in Philadelphia, Pennsylvania and more fully described on the Real Estate Description attached hereto, together with an eight-story, approximately two hundred fifty-one (251) key suite hotel, and (ii) all accounts, licenses, permits, fixtures, fittings, furnishings, furniture, machinery, appliances, apparatus and equipment now existing and hereafter acquired and used in the operation of such facility. A-1 35 Exhibit A (continued) PREMISES "A" BLOCK 56 S 3 LOT 127 ALL THAT CERTAIN parcel or tract of land. SITUATE in the City of Philadelphia, County of Philadelphia and Commonwealth of Pennsylvania as shown on Drawing Number 6, entitled "Topographic and Boundary Survey The Beacon Companies", prepared by Pennoni Associates Inc., dated September 8, 1983, last revised October 20, 1983, being more particularly bounded as follows: BEGINNING at a point in the Easterly line of Island Avenue, L.R. 67281 (138 feet wide) said point being located the following course and distances as measured along said Easterly line form the intersection of the Southerly line of Interstate 95, L.R. 795 and the aforementioned Easterly line of Island Avenue, South 22 degrees 41 minutes 49 seconds East a distance of 255.51 feet to the beginning point of the herein described Parcel; thence (1) leaving the Easterly line of said Island Avenue along land designated as Parcel H1 North 31 degrees 26 minutes 33 seconds East a distance of 133.66 feet to a point; thence (2) along same south 58 degrees 33 minutes 27 seconds East a distance of 268.46 feet to a point; thence (3) along same South 6 degrees 12 minutes 20 seconds East a distance of 19.77 feet to a point; thence (4) along same and partly crossing former Essington Avenue, reserved as a right of way for drainage, water main and public utility purposes, South 58 degrees 33 minutes 27 seconds East a distance of 99.66 feet to a point; thence (5) still along same and passing through said former Essington Avenue and said right of way, South 31 degrees 26 minutes 33 seconds West a distance of 312.91 feet to a point in the curved Northerly line of Penrose Avenue, L.R. 67053 (170 feet wide); thence (6) along said Northerly line of Penrose Avenue along a curve to the right having a radius of 572.65 feet for an arc distance of 114.77 feet to a point, said curve having a chord bearing of North 41 degrees 45 minutes 36 seconds West for a chord distance of 114.58 feet; thence (7) along same along another curve to the right having a radius of 107.92 feet for an arc distance of 51.02 feet to the end of a non-tangent curve, said curve having a chord bearing of North 55 degrees 26 minutes 13 seconds West for a chord distance of 50.55 feet; thence (8) along the Easterly line of Island Avenue North 22 degrees 41 minutes 49 seconds West a distance of 271.49 feet to the first mentioned point and place of beginning. TOGETHER with a right a way, the former Essington Avenue reserved for drainage, water main and public utility purposes. A-2 36 PREMISES "B" BLOCK 56 S 7 LOT 118 BLOCK 56 S 3 LOT 128 ALL THAT CERTAIN parcel or tract of land. SITUATE in the City of Philadelphia, County of Philadelphia and Commonwealth of Pennsylvania as shown on Drawing Number 6, entitled "Topographic and Boundary Survey The Beacon Companies", prepared by Pennoni Associates, Inc., dated September 8, 1983, last revised October 20, 1983, being more particularly bounded and described as follows: BEGINNING at a point in the Easterly line of Island Avenue, L.R. 67281 (138 feet wide) said point being located the following course and distance as measured along said Easterly line from the Intersection of the Southerly line of Interstate 95, L.R. 795 and the aforementioned Easterly line of Island Avenue, South 22 degrees 41 minutes 49 seconds East, a distance of 106.79 feet to the beginning point of the herein described parcel; thence (1) leaving the Easterly line of said Island Avenue along land designated as Parcel H2 North 67 degrees 18 minutes 11 seconds East a distance of 105.01 feet to a point; thence (2) along same crossing former Essington Avenue reserved as the right of way for drainage, water main and public utility purposes, South 58 degrees 33 minutes 27 seconds East a distance of 679.64 feet to a point; (3) North 31 degrees 26 minutes 33 seconds East along same a distance of 49.90 feet to a point common with land designated as Parcel H4; thence (4) along said land of Parcel H4 North 76 degrees 26 minutes 33 seconds East a distance of 138.81 feet to a point; thence (5) along same, South 58 degrees 33 minutes 27 seconds East a distance of 308.43 feet to a point in the curved Westerly line of Ramp X Interstate 95, L.R. 795 (variable width); thence (6) along the Westerly line of said Interstate 95, L.R. 795 along a curve to the right having a radius of 358.80 feet for an arc distance of 207.09 feet to a non-tangent point, said curve having a chord bearing South 33 degrees 3 minutes 46 seconds West for a chord distance of 204.22 feet; thence (7) along same South 59 degrees 40 minutes 9 seconds West a distance of 171.49 feet to a point; thence (8) along same South 86 degrees 55 minutes 46 seconds West a distance of 136.34 feet to a point; thence (9) along same, North 75 degrees 49 minutes 42 seconds West a distance of 137.73 feet to a point; thence (10) along same South 14 degrees 10 minutes 18 seconds West a distance of 9.98 feet to a point in the Northerly line of Penrose Avenue, L.R. 67053 (170 feet wide); thence (11) along said Northerly line of Penrose Avenue North 75 degrees 49 minutes 42 seconds West a distance of 115.32 feet to the beginning of a non-tangent curve; thence (12) along a curve to the right having a radius of 572.65 feet for an arc distance of 210.32 feet to a point common with land designated as Parcel H3, said curve having a chord bearing North 58 degrees 1 minute 25 seconds West for a chord distance of 209.14 feet; thence (13) leaving the Northerly line of said Penrose Avenue along land designated as Parcel H3 and passing through said former Essington Avenue and said right of way, North 31 degrees 26 minutes 33 seconds East a distance of 312.91 feet to a point; thence (14) along same and partly crossing said former Essington Avenue and said right of way North 58 degrees 33 minutes A-3 37 27 seconds West a distance of 99.66 feet to a point; thence (15) along same North 6 degrees 12 minutes 20 seconds West a distance of 19.77 feet to a point; thence (16) along same North 58 degrees 33 minutes 27 seconds West a distance of 268.46 feet to a point; thence (17) still along same South 31 degrees 26 minutes 33 seconds West a distance of 133.66 feet to a point in the Easterly line of said Island Avenue; thence (18) along the Easterly line of Island Avenue North 22 degrees 41 minutes 49 seconds West a distance of 148.72 feet to the first mentioned point and place of beginning. TOGETHER with a right a way, the former Essington Avenue reserved for drainage, water main and public utility purposes. A-4 38 COMMONWEALTH OF PENNSYLVANIA : : ss. COUNTY OF PHILADELPHIA : On this, the 19th day of February, 1997, before me, the undersigned notary public, personally appeared James F. McManus, who acknowledged himself to be the Chairman of PHILADELPHIA AUTHORITY FOR INDUSTRIAL DEVELOPMENT, and that he as such Officer, being authorized to do so, executed the foregoing instrument for the purpose therein contained by signing the name of said authority by himself as such officer. IN WITNESS WHEREOF, I hereunto set my hand and official seal. /s/ Laura L. Dillon -------------------------- Notary Public My Commission Expires: [NOTARIAL SEAL] - ------------------------------------ NOTARIAL SEAL LAURA L. DILLON. Notary Public City of Philadelphia, Phila, County My Commission Expires April 5, 1997 - ------------------------------------ 39 STATE OF ARIZONA : : ss. COUNTY OF MARICOPA : On this, the 17th day of February, 1997, before me, the undersigned notary public, personally appeared Ronald C. Brown, who acknowledged himself to be the Senior Vice President and Chief Financial Officer of Starwood Lodging Trust, a Maryland real estate investment trust, the general partner of SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership, and that he as such officer, being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of said limited partnership by himself as such general partner. IN WITNESS WHEREOF, I hereunto set my hand and official seal. /s/ Gail L. Jackson ------------------------- Notary Public My Commission Expires: [NOTARIAL SEAL] - ------------------------------------ NOTARY PUBLIC STATE OF ARIZONA Maricopa County Gail L. Jackson My Commission Expires July 17, 2000 - ----------------------------------- 40 Closing Item No. A-3 MEMORANDUM OF AMENDED AND RESTATED INSTALLMENT SALE AGREEMENT KNOWN ALL MEN BY THESE PRESENTS, that PHILADELPHIA AUTHORITY FOR INDUSTRIAL DEVELOPMENT, a public instrumentality of the Commonwealth of Pennsylvania and a body corporate and politic organized and existing under the Pennsylvania Economic Development Financing Law, Act of August 23, 1967, P.L. 251, as amended and supplemented, 73 P.S. Sections 371 et seq., with offices at 1500 Market Street, Philadelphia, Pennsylvania, as seller (the "Authority"), has entered into a certain Amended and Restated Installment Sale Agreement dated as of February 1, 1997 (the "Agreement"), with SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership, as buyer (the "Company"), with offices at 2231 E. Camelback Road, Suite 410, Phoenix, Arizona, covering the purchase of the premises situate in Philadelphia, Pennsylvania, as more fully described in Exhibit "A" attached hereto, the purchase price for which is to be paid in installment amounts equal to pay the debt service on the Authority's Commercial Development Revenue Refunding Bonds (Doubletree Guest Suites Project), Series 1997A. TOGETHER with the buildings and improvements thereon erected or to be erected thereon, and together with all easements, tenements, appurtenances, hereditaments, fixtures, rights and privileges belonging to or in any way pertaining or beneficial to the premises. UNDER AND SUBJECT to all exceptions, covenants, and restrictions against the title as acquired by Philadelphia Authority for Industrial Development on even date with that of the Agreement, as well as all other restrictions, covenants, and conditions created by the Agreement. This Memorandum is intended for recording purposes only and does not supersede, diminish, add or change the terms of the Agreement. All of the terms, conditions, provisions, and covenants of the Agreement are incorporated in this Memorandum of Installment Sale Agreement by reference as though fully set forth herein, and the Agreement and this Memorandum of Installment Sale Agreement shall be deemed to constitute a single instrument or document; provided, however, that in the event of a conflict between this Memorandum of Installment Sale Agreement and the Agreement, the terms and conditions of the Agreement shall govern. The liability of the Authority pursuant to the terms of the Agreement is limited to the rights, title and interest of the Authority in and to the facilities constituting the Project Facilities as defined in the Agreement. 41 IN WITNESS WHEREOF, the parties hereto have caused these presents to be executed under seal as of this 20th day of February 1997. ATTEST: PHILADELPHIA AUTHORITY FOR [SEAL] INDUSTRIAL DEVELOPMENT By: /s/ [ILLEGIBLE] BY: /s/ [ILLEGIBLE] _______________________ ___________________________ Secretary Chairman SLT REALTY LIMITED PARTNERSHIP By: STARWOOD LODGING TRUST*, a Maryland real estate investment trust, its sole general partner By: /s/ Ronald C. Brown ---------------------------------- Ronald C. Brown Senior Vice President and Chief Financial Officer - -------- * The name "Starwood Lodging Trust" is a designation of Starwood Lodging Trust, a Maryland real estate investment trust ("Starwood") and its trustee (as trustee but not personally) under the Declaration of Trust of Starwood Lodging Trust dated August 25, 1969, as amended and restated as of June 6, 1988, and further amended as of February 1, 1995 and as the same may be further amended, modified, supplemented, reinstated or superseded from time to time. All persons dealing with Starwood shall look solely to Starwood's assets for the enforcement of any claims against Starwood and the trustee, officers, agents and security holders of Starwood assume no personal liability for obligations entered into on behalf of Starwood, and their respective individual assets shall not be subject to the claims of any person relating to such obligation. 2 42 EXHIBIT A PREMISES "A" BLOCK 56 S 3 LOT 127 ALL THAT CERTAIN parcel or tract of land. SITUATE in the City of Philadelphia, County of Philadelphia and Commonwealth of Pennsylvania as shown on Drawing Number 6, entitled "Topographic and Boundary Survey The Beacon Companies", prepared by Pennoni Associates Inc., dated September 8, 1983, last revised October 20, 1983, being more particularly bounded as follows: BEGINNING at a point in the Easterly line of Island Avenue, L.R. 67281 (138 feet wide) said point being located the following course and distance as measured along said Easterly line form the intersection of the Southerly line of Interstate 95, L.R. 795 and the aforementioned Easterly line of Island Avenue, South 22 degrees 41 minutes 49 seconds East a distance of 255.51 feet to the beginning point of the herein described Parcel; thence (1) leaving the Easterly line of said Island Avenue along land designated as Parcel H1 North 31 degrees 26 minutes 33 seconds East a distance of 133.66 feet to a point; thence (2) along same south 58 degrees 33 minutes 27 seconds East a distance of 268.46 feet to a point; thence (3) along same South 6 degrees 12 minutes 20 seconds East a distance of 19.77 feet to a point; thence (4) along same and partly crossing former Essington Avenue, reserved as a right of way for drainage, water main and public utility purposes, South 58 degrees 33 minutes 27 seconds East a distance of 99.66 feet to a point; thence (5) still along same and passing through said former Essington Avenue and said right of way, South 31 degrees 26 minutes 33 seconds West a distance of 312.91 feet to a point in the curved Northerly line of Penrose Avenue, L.R. 67053 (170 feet wide); thence (6) along said Northerly line of Penrose Avenue along a curve to the right having a radius of 572.65 feet for an arc distance of 114.77 feet to a point, said curve having a chord bearing of North 41 degrees 45 minutes 36 seconds West for a chord distance of 114.58 feet; thence (7) along same along another curve to the right having a radius of 107.92 feet for an arc distance of 51.02 feet to the end of a non-tangent curve, said curve having a chord bearing of North 55 degrees 26 minutes 13 seconds West for a chord distance of 50.55 feet; thence (8) along the Easterly line of Island Avenue North 22 degrees 41 minutes 49 seconds West a distance of 271.49 feet to the first mentioned point and place of beginning. TOGETHER with a right-of-way, the former Essington Avenue reserved for drainage, water main and public utility purposes. CONTAINING 2.1726 Acres of Land. A-1 43 PREMISES "B" BLOCK 56 S 7 LOT 118 ALL THAT CERTAIN parcel or tract of land. SITUATE in the City of Philadelphia, County of Philadelphia and Commonwealth of Pennsylvania as shown on Drawing Number 6, entitled "Topographic and Boundary Survey The Beacon Companies", prepared by Pennoni Associates, Inc., dated September 8, 1983, last revised October 20, 1983, being more particularly bounded and described as follows: BEGINNING at a point in the Easterly line of Island Avenue, L.R. 67281 (138 feet wide) said point being located the following course and distance as measured along said Easterly line from the Intersection of the Southerly line of Interstate 95, L.R. 795 and the aforementioned Easterly line of Island Avenue, South 22 degrees 41 minutes 49 seconds East, a distance of 106.79 feet to the beginning point of the herein described parcel; thence (1) leaving the Easterly line of said Island Avenue along land designated as Parcel H2 North 67 degrees 18 minutes 11 seconds East a distance of 105.01 feet to a point; thence (2) along same crossing former Essington Avenue reserved as the right of way for drainage, water main and public utility purposes, South 58 degrees 33 minutes 27 seconds East a distance of 679.64 feet to a point; thence (3) North 31 degrees 26 minutes 33 seconds East along same a distance of 49.90 feet to a point common with land designated as Parcel H4; thence (4) along said land of Parcel H4 North 76 degrees 26 minutes 33 seconds East a distance of 138.81 feet to a point; thence (5) along same, South 58 degrees 33 minutes 27 seconds East a distance of 308.43 feet to a point in the curved Westerly line of Ramp X Interstate 95, L.R. 795 (variable width); thence (6) along the Westerly line of said Interstate 95, L.R. 795 along a curve to the right having a radius of 358.80 feet for an arc distance of 207.09 feet to a non-tangent point, said curve having a chord bearing South 33 degrees 3 minutes 46 seconds West for a chord distance of 204.22 feet; thence (7) along same South 59 degrees 40 minutes 9 seconds West a distance of 171.49 feet to a point; thence (8) along same South 86 degrees 55 minutes 46 seconds West a distance of 136.34 feet to a point; thence (9) along same, North 75 degrees 49 minutes 42 seconds West a distance of 137.73 feet to a point; thence (10) along same South 14 degrees 10 minutes 18 seconds West a distance of 9.98 feet to a point in the Northerly line of Penrose Avenue, L.R. 67053 (170 feet wide); thence (11) along said Northerly line of Penrose Avenue North 75 degrees 49 minutes 42 seconds West a distance of 115.32 feet to the beginning of a non-tangent curve; thence (12) along a curve to the right having a radius of 572.65 feet for an arc distance of 210.32 feet to a point common with land designated as Parcel H3, said curve having a chord bearing North 58 degrees 1 minute 25 seconds West for a chord distance of 209.14 feet; thence (13) leaving the Northerly line of said Penrose Avenue along land designated as Parcel H3 and passing through said former Essington Avenue and said right of way, North 31 degrees 26 minutes 33 seconds East a distance of 312.91 feet to a point; thence (14) along same, and partly crossing said former Essington Avenue and said right of way North 58 degrees 33 minutes 27 seconds West a distance of 99.66 feet to a point; thence (15) along same North 6 degrees 12 minutes 20 seconds West a distance of 19.77 feet to a point; thence (16) along same North 58 degrees 33 minutes 27 seconds West a distance of 268.46 feet to a point; thence A-2 44 (17) still along same South 31 degrees 26 minutes 33 seconds West a distance of 133.66 feet to a point in the Easterly line of said Island Avenue; thence (18) along the Easterly line of Island Avenue North 22 degrees 41 minutes 49 seconds West a distance of 148.72 feet to the first mentioned point and place of beginning. TOGETHER with a right-of-way, the former Essington Avenue reserved for drainage, water main and public utility purposes. CONTAINING 6.4473 Acres of Land. A-3 45 COMMONWEALTH OF PENNSYLVANIA ) ) SS: COUNTY OF PHILADELPHIA ) On this 20th day of February, 1997, before me the subscriber, the Notary Public, in and for the Commonwealth of Pennsylvania, personally appeared James F. McManus who acknowledged himself to be the Vice Chairman of the PHILADELPHIA AUTHORITY FOR INDUSTRIAL DEVELOPMENT, a Pennsylvania nonprofit corporation, and that they, being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of said corporation by himself as such officer. WITNESS my hand and seal the day and year aforesaid. /s/ Laura L. Dillon --------------------------------- Notary Public My Commission Expires: [SEAL] - ------------------------------------ NOTARIAL SEAL LAURA L. DILLON. Notary Public City of Philadelphia. Phila, County My Commission Expires April 5, 1997 - ----------------------------------- 4 46 STATE OF ARIZONA ) ) SS: COUNTY OF MARICOPA ) On this 17th day of February, 1997, before me the subscriber, a Notary Public, in and for the State of Arizona, personally appeared Ronald C. Brown who acknowledged himself to be the Senior Vice President and Chief Financial Officer of STARWOOD LODGING TRUST, a Maryland real estate investment trust, and the sole general partner of SLT Realty Limited Partnership, a Delaware limited partnership, and that he, being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of said limited partnership by himself as such officer. WITNESS my hand and seal the day and year aforesaid. /s/ Gail L. Jackson ----------------------------------- Notary Public My Commission Expires: [SEAL] - ------------------------------------ NOTARY PUBLIC STATE OF ARIZONA Maricopa County GAIL L. JACKSON My commission Expires July 17, 2000 - ----------------------------------- 47 Closing Item No. A-4 - -------------------------------------------------------------------------------- GUARANTY AGREEMENT Dated as of February 1, 1997 by SLT REALTY LIMITED PARTNERSHIP, as Guarantor to FIRST UNION NATIONAL BANK, as Trustee - -------------------------------------------------------------------------------- Securing $27,820,000 Philadelphia Authority for Industrial Development Commercial Development Revenue Refunding Bonds (Doubletree Guest Suites Project) Series 1997A 48 GUARANTY AGREEMENT THIS GUARANTY AGREEMENT (the "Guaranty") made as of February 1, 1997, by SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership (the "Guarantor"), to and for the benefit of FIRST UNION NATIONAL BANK, a national banking association, acting as trustee (the "Trustee") under an Amended and Restated Mortgage and Trust Indenture (the "Indenture") dated as of February 1, 1997 between Philadelphia Authority for Industrial Development (the "Authority") and the Trustee. BACKGROUND The Authority is issuing its Commercial Development Revenue Refunding Bonds (Doubletree Guest Suites Project) Series 1997A in the aggregate principal amount of $27,820,000 (the "Bonds") pursuant to the Indenture. The proceeds of the Bonds will be used by the Authority to refund $27,275,000 aggregate principal amount of the Authority's Commercial Development Revenue Bonds (Suite Hotel Project) Series A (the "Prior Bonds"). The proceeds of the Prior Bonds were previously issued to finance the costs of a project (the "Project Facilities") consisting of the acquisition, construction and equipping of an approximately 251-key suite hotel which is currently known as the Doubletree Guest Suites and is located adjacent to the Philadelphia International Airport in the City of Philadelphia, Pennsylvania, as more fully described in the Indenture. Under the terms of an Amended and Restated Installment Sale Agreement (the "Agreement") dated as of February 1, 1997, between the Authority and SLT Realty Limited Partnership, a Delaware limited partnership (the "Company"), the Company will make payments sufficient to pay the principal or redemption price of and interest on the Bonds, when due, which payments will be made directly to the Trustee. The Company's obligations under the Agreement are non-recourse and are secured solely by the Company's interest in the Project Facilities. Capitalized terms used and not otherwise defined herein shall have the meaning set forth in the Indenture. The Guarantor is willing to enter into this Guaranty in order to provide further security for the Bonds. NOW, THEREFORE, in consideration of the issuance of the Bonds by the Authority and in order to induce potential investors to purchase the Bonds, and intending to be legally bound hereby, the Guarantor hereby covenants and agrees as follows: Section 1. (a) The Guarantor hereby guarantees for the equal protection and benefit of all registered owners of the Bonds: (i) the full and prompt payment of the principal of the Bonds when and as the same shall become due, whether at the stated maturity thereof, at redemption prior to maturity or otherwise; (ii) the full and prompt payment of any interest on the Bonds when and as the same shall become due; (iii) the full and prompt payment of the premium (if any) upon redemption, of any Bonds; (iv) the purchase price of the Bonds upon mandatory purchase on a Purchase Date pursuant to the terms of the Indenture; and (v) the payment, at the times required under Section 4.3 of the 49 Agreement, of such amounts as are required to make up any deficiency which may occur in the Debt Service Fund established under the Indenture. (b) In addition to payments made under paragraph (a) above, the Guarantor agrees to pay all expenses and charges (including court costs and attorneys' fees) paid or incurred by the Trustee in realizing any of the payments hereby guaranteed or, to the extent permitted by law, in enforcing this Guaranty. (c) All payments by the Guarantor shall be paid in lawful money of the United States of America. Each and every default in payment of the principal of, premium (if any) or interest on the Bonds or of any payment required under Section 4.3 of the Agreement shall give rise to a separate cause of action hereunder and separate suits may be brought hereunder as each cause of action arises. Section 2. This Guaranty is a contract of suretyship and is an independent, absolute, irrevocable and unconditional present and continuing guaranty of payment and not of collection which shall remain in full force and effect until terminated pursuant to Section 6 hereof. The obligations of Guarantor hereunder shall not be affected, modified or impaired upon the happening from time to time of any event, including without limitation any of the following, whether or not with notice to, or the consent of, the Guarantor: (a) the failure by the Guarantor to continue to have its facilities operated or the failure to perform any obligation contained in the Agreement or in any other agreement, for any reason whatsoever including, without limiting the generality of the foregoing, insufficiency of funds, negligence or willful misconduct on the part of the Company, the Guarantor, their agents or independent contractors, including any lessees, legal action of any nature which prohibits operation of the Guarantor's facilities, labor disputes, war, insurrection, natural catastrophe or laws, rules or regulations of any body, governmental or otherwise; (b) the compromise, settlement, release or termination of any or all of the obligations, covenants or agreements of the Authority under the Agreement; (c) the failure to give notice to the Guarantor of the occurrence of an event of default under the terms and provisions of this Guaranty or the Agreement; (d) the waiver of the payment, performance or observance by the Authority, the Guarantor or the Company of any of the obligations and covenants of any of them contained in the Agreement; (e) the extension of the time for payment of any principal of, premium (if any) or interest on the Bonds or of the time for performance of any other obligations, covenants or agreements under or arising out of the Agreement; 2 50 (f) the modification or amendment (whether material or otherwise) of any obligation, covenant or agreement set forth in the Agreement, except as such amendment shall affect the Guarantor's obligation to make payment hereunder; (g) the taking or the omission of any of the actions referred to in the Agreement; (h) any failure, omission or delay on the part of the Authority or the Trustee to enforce, assert or exercise any right, power or remedy conferred on the Authority or the Trustee in this Guaranty or the Agreement, or any other act or acts on the part of the Authority or the Trustee; (i) the validity, regularity or enforceability of the Bonds or the Agreement; (j) the voluntary or involuntary liquidation, dissolution, sale or other disposition of all or substantially all the assets, marshalling of assets and liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition with creditors or readjustment of, or other similar proceedings affecting the Company, the Guarantor or the Authority or any of the assets of any of them or any allegation or contest of the validity of this Guaranty in any such proceeding; (k) to the extent permitted by law, the release or discharge of the Guarantor from the performance or observance of any obligation, covenant or agreement contained in this Guaranty by operation of law; (l) the default or failure of the Guarantor fully to perform any of its obligations set forth in this Guaranty; or (m) the damage or partial or total destruction of the Guarantor's or the Company's facilities or the Project Facilities or any part thereof, or the taking of title to the temporary use of the Guarantor's or the Company's facilities or the Project Facilities or any part thereof, by any lawful authority. Section 3. No set-off, counterclaim, reduction, or diminution of an obligation, or any defense of any kind or nature which the Guarantor has or may come to have against the Company, the Authority or the Trustee shall be available hereunder to the Guarantor; provided that nothing contained herein shall prohibit the Guarantor from asserting any claim against the Company, the Authority or the Trustee in a separate proceeding, which proceeding shall in no way delay the prompt performance by the Guarantor of its obligations hereunder. Section 4. In the event of a default: (a) in the payment of principal of the Bonds when and as the same shall become due, whether at the stated maturity thereof, by 3 51 redemption prior to maturity or otherwise; (b) in the payment of any interest on the Bonds when and as the same shall become due; (c) in the payment of the premium (if any) upon the redemption of any of the Bonds; or (d) in the payment of the purchase price of Bonds subject to mandatory purchase on a Purchase Date; and regardless of the reason for any such default, or in the event the Guarantor receives notice from the Trustee of a deficiency in the Debt Service Fund and the failure of the Company to deposit an amount sufficient to cure such deficiency, the Guarantor shall forthwith upon demand by the Trustee, pay the full amount in default or the full amount of such deficiency, to the Trustee. The Trustee, in its sole discretion, shall have the right to proceed first and directly against the Guarantor under this Guaranty without proceeding against or exhausting any other remedies which it may have and without resorting to any other security held by the Authority or the Trustee. The Guarantor agrees to pay all costs, expenses and fees, including all reasonable attorneys' fees, which may be incurred by the Trustee in enforcing this Guaranty following any default on the part of the Guarantor hereunder, whether the same shall be enforced by suit or otherwise. Section 5. (a) This Guaranty shall terminate automatically: (i) upon payment in full of the Bonds or the defeasance of the Bonds in accordance with Section 12.01 of the Indenture; or (ii) in the event that the Guarantor owns all of the outstanding Bonds, upon election by the Guarantor to terminate this Guaranty; or (iii) upon the sale of the Project Facilities by the Company to a third party and/or the purchase of the Bonds pursuant to the mandatory tender provisions of the Indenture. (b) Upon termination of this Guaranty, the Guarantor shall have no further obligations hereunder, except as provided herein with respect to expenses incurred in connection with the enforcement hereof. Section 6. Any right of the Guarantor by subrogation to the rights of the Trustee shall be subordinate to all rights and claims of the Trustee and the prior payment in full of the Bonds and the interest thereon. Section 7. The Guarantor covenants that so long as this Guaranty shall remain in effect, it will maintain its corporate existence, will not merge or consolidate with another corporation or dissolve or otherwise dispose of all or substantially all of its assets, unless the following conditions shall be met: (a) the successor corporation (if other than the Guarantor) agrees in writing to assume all obligations of the Guarantor under this Guaranty; 4 52 (b) the aggregate of the unrestricted fund balance and restricted fund balance of the Guarantor (or such successor corporation) immediately following such merger, consolidation or transfer shall be not less than that immediately prior to the merger, consolidation or transfer; (c) the Authority and the Trustee shall have received (i) an opinion of Bond Counsel (as defined in the Agreement) satisfactory to each of them that the validity and exemption from federal income tax of the interest on the Bonds will not be adversely affected by such merger, consolidation or transfer and (ii) an opinion of counsel to the Guarantor that all consents and approvals required to be obtained from any federal, state or local government, department, agency, authority or instrumentality (other than the Authority acting in its capacity as seller pursuant to the Agreement) and any other public or private body, including accrediting organizations, having regulatory jurisdiction and authority over the Guarantor have been received; and Section 8. No remedy herein conferred upon or reserved to the Trustee is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Guaranty or now or hereafter existing at law or in equity. No delay or omission to exercise any right or power accruing upon any default, omission or failure or performance hereunder shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Trustee to exercise any remedy reserved to it in this Guaranty, it shall not be necessary to give any notice to the Guarantor prior to the demand for payment. In the event any provision contained in this Guaranty should be breached by the Guarantor and thereafter duly waived by the Trustee, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. No waiver, amendment, release or modification of this Guaranty shall be established by conduct, custom or course of dealing. Section 9. The invalidity or unenforceability of any one or more provisions in this Guaranty shall not affect the validity or enforceability of the remaining portions of this Guaranty, or any part thereof. Section 10. The Guarantor hereby covenants to comply with the rules and regulations of the Pennsylvania Securities Commission contained in 64 Pa. Code Chapter 202, Section 202.092, as the same may be amended or supplemented from time to time (the "Guaranty Regulations"), including the following: (1) to file with the Trustee a copy of the Guarantor's certified balance sheet and profit and loss statement within 150 days after the completion of each of the Guarantor's fiscal years; (2) to reimburse the Trustee the cost of distributing to Bondholders who so request copies of the certified balance sheets and profit and loss statements specified in clause (1) and the costs of notifying the Bondholders of the occurrence of any of the events, and distributing the Bondholders list, described in Section 5 53 202.092 (8)(a)(iii) of the Guaranty Regulations; and (3) to notify the Trustee within 24 hours after the Guarantor becomes "insolvent" as that term is defined in the next paragraph. "Insolvent" for the purpose hereof shall mean the inability of the Guarantor to pay its debts as they fall due in the usual course of business, or having liabilities in excess of the fair market value of assets. For purposes of this definition, the Guarantor will not be considered insolvent if the auditor's report to the Guarantor's certified balance sheet and profit and loss statement did not contain a "going concern qualification". A "going concern qualification" for the purposes hereof shall mean a qualification contained in the auditor's report based upon the criteria contained in the Statement on Auditing Standard 34 promulgated by the American Institute of Certified Public Accountants, Inc. Section 11. (a) This Guaranty may be amended or supplemented by the parties hereto at any time and from time to time, in writing signed by all the parties hereto, without the consent of the Bondholders (1) to add additional covenants of the Guarantor for the security of Bondholders; or (2) to cure any ambiguity or to cure, correct or supplement any provision of this Guaranty in such manner as shall not be inconsistent with this Guaranty and shall not impair the security hereof or materially adversely affect the Bondholders. (b) This Guaranty may be amended or supplemented by the parties hereto at any time and from time to time, in writing signed by all the parties hereto, but only after approval by the registered owners of at least a majority in aggregate principal amount of the Bonds outstanding under the Agreement; provided, that (i) no amendment shall be made which materially adversely affects some but less than all of the Bonds outstanding under the Agreement without the consent of the registered owners of at least a majority in aggregate principal amount of the Bonds so affected; and (ii) no amendment which materially adversely affects the security for the Bonds may be made without the consent of the registered owners of 100% of the Bonds outstanding under the Agreement. Notwithstanding the provisions of the preceding sentence, no amendments may be made to this Guaranty with respect to (1) the interest payable upon any Bonds, (2) the dates of maturity or redemption provisions of any Bonds, and (3) this Section 11 or any provision requiring the consent of the registered owners of 100% of the Bonds outstanding under the Agreement, without the consent of the registered owners of 100% of the Bonds outstanding under the Agreement. Section 12. This Guaranty shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. Section 13. The liability of the Guarantor hereunder shall be an absolute and unconditional general obligation of the Guarantor and there shall be no recourse against any assets of the limited partners or the general partner of the Guarantor other than against their respective partnership interests in the Guarantor with respect to the Guarantor's obligations hereunder. 6 54 IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be executed and delivered to the Trustee in its name and behalf as of the date first above written. SLT REALTY LIMITED PARTNERSHIP By: STARWOOD LODGING TRUST*, a Maryland real estate investment trust, its sole general partner By: /s/ Ronald C. Brown -------------------------------- Ronald C. Brown Senior Vice President and Chief Financial Officer Accepted: FIRST UNION NATIONAL BANK, as Trustee By: /s/ [ILLEGIBLE] ______________________________ Title: Vice President ----------------------------- - -------- * The name "Starwood Lodging Trust" is a designation of Starwood Lodging Trust, a Maryland real estate investment trust ("Starwood") and its trustee (as trustee but not personally) under the Declaration of Trust of Starwood Lodging Trust dated August 25, 1969, as amended and restated as of June 6, 1988, and further amended as of February 1, 1995 and as the same may be further amended, modified, supplemented, reinstated or superseded from time to time. All persons dealing with Starwood shall look solely to Starwood's assets for the enforcement of any claims against Starwood and the trustee, officers, agents and security holders of Starwood assume no personal liability for obligations entered into on behalf of Starwood, and their respective individual assets shall not be subject to the claims of any person relating to such obligation. 7 55 STATE OF ARIZONA : : ss. COUNTY OF MARICOPA : On this, the 17th day of February, 1997, before me, the undersigned notary public, personally appeared Ronald C. Brown, who acknowledged himself to be the Senior Vice President and Chief Financial Officer of Starwood Lodging Trust, a Maryland real estate investment trust, the general partner of SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership, and that he as such officer, being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of said limited partnership by himself as such general partner. IN WITNESS WHEREOF, I hereunto set my hand and official seal. /s/ Gail L. Jackson ------------------------- Notary Public My Commission Expires: [NOTARIAL SEAL] - ------------------------------------ NOTARY PUBLIC STATE OF ARIZONA Maricopa County GAIL L. JACKSON My commission Expires July 17, 2000 - ----------------------------------- 56 PHILADELPHIA AUTHORITY FOR INDUSTRIAL DEVELOPMENT $27,820,000 COMMERCIAL DEVELOPMENT REVENUE REFUNDING BONDS (DOUBLETREE GUEST SUITES PROJECT) SERIES 1997A AND $11,650,000 COMMERCIAL DEVELOPMENT REVENUE REFUNDING BONDS (DAYS INN PROJECT) SERIES 1997B BOND PURCHASE AGREEMENT February 14, 1997 Philadelphia Authority for Industrial Development 2600 Centre Square 1500 Market Street Philadelphia, PA 19102 SLT Realty Limited Partnership c/o Starwood Lodging Trust 2231 E. Camelback Road Suite 410 Phoenix, AZ 85016 Goldman, Sachs & Co. ("Underwriter") hereby offers to enter into this Bond Purchase Agreement ("Purchase Agreement") with the Philadelphia Authority for Industrial Development ("Authority") and SLT Realty Limited Partnership ("SLT"). Upon execution of this Purchase Agreement by the Underwriter, the Authority and SLT, this Purchase Agreement will be binding upon the Authority, SLT and the Underwriter. This offer is made subject to your acceptance of this Purchase Agreement on or before 6:00 P.M., Philadelphia, Pennsylvania time, February 14, 1997, or such later date as the parties may agree and, if not so accepted, will be subject to withdrawal by the Underwriter upon notice delivered to your office at any time prior to the acceptance hereof by you. 57 1. Introduction. The Authority is authorized to issue its $27,820,000, aggregate principal amount, Commercial Development Revenue Refunding Bonds (Doubletree Guest Suites Project), Series 1997A ("1997A Bonds"), and its $11,650,000, aggregate principal amount, Commercial Development Revenue Refunding Bonds (Days Inn Project), Series 1997B ("1997B Bonds"; together with the 1997A Bonds, the "Bonds"), pursuant to the Pennsylvania Economic Development Financing Law, Act of August 23, 1967, P.L. 251, as amended and supplemented ("Act"), resolution of the Authority adopted January 21, 1997, as amended and supplemented by a resolution to be adopted February 18, 1997 (collectively, the "Resolution"). The 1997A Bonds are issued under and pursuant to an Amended and Restated Mortgage and Trust Indenture, dated as of February 1, 1997 ("1997A Indenture"), by and between the Authority and First Union National Bank, as trustee ("1997A Trustee"). The 1997B Bonds are issued under and pursuant to an Amended and Restated Mortgage and Trust Indenture, dated as of February 1, 1997 ("1997B Indenture"), by and between the Authority and First Union National Bank, as trustee ("1997B Trustee"). The 1997A and 1997B Indentures are collectively referred to herein as the "Indentures". The 1997A Trustee and the 1997B Trustee are collectively referred to herein as the "Trustee". Capitalized terms used herein and not otherwise defined shall have the meanings ascribed thereto in the Indentures. The 1997A Bonds are being issued by the Authority to effect the refunding of the Authority's $27,275,000, aggregate principal amount, Commercial Development Revenue Bonds (Suite Hotel Project), Series A ("Suite Hotel Bonds"), and the 1997B Bonds are being issued to effect the refunding of the Authority's $9,725,000, aggregate principal amount, Commercial Development Revenue Bonds (Economy Inn Project), Series A, and its $1,700,000, aggregate principal amount, Commercial Development Revenue Bonds, (Economy Inn Project), Series B (collectively, the "Economy Inn Bonds"). The Suite Hotel Bonds and the Economy Inn Bonds are collectively referred to herein as the "Prior Bonds". The Prior Bonds were issued to finance the costs of the acquisition, construction and equipping of two hotels located adjacent to the Philadelphia International Airport, in Philadelphia, Pennsylvania, which are now a Doubletree Guest Suites hotel and a Days Inn hotel. Equitable ownership of the Doubletree Guest Suites hotel was acquired by SLT as of June 3, 1996, and equitable ownership of the Days Inn hotel was acquired by SLT as of July 1, 1996. Starwood Lodging Trust, a Maryland real estate investment ("Starwood"), is the sole general partner of SLT. The 1997A Bonds are special and limited obligations of the Authority and will be payable solely from revenues derived by the Authority under an Amended and Restated Installment Sale Agreement, dated as of February 1, 1997, by and between the Authority and SLT ("1997A Installment Sale Agreement"). The 1997B Bonds are special limited obligations of the Authority and are payable solely from revenues derived by the Authority under an Amended and Restated Installment Sale Agreement, dated as of February 1, 1997 ("1997B Installment Sale Agreement"; together with the 1997A Installment Sale Agreement, the "Installment Sale Agreements"). Under each Installment Sale Agreement, the Authority is selling to SLT the real estate and improvements comprising, in the case of the 1997A Installment Sale Agreement, a Doubletree Guest Suites hotel ("1997A Project Facilities"), and in the case of the 1997B Installment Sale Agreement, the real estate and improvements comprising a Days Inn hotel ("1997B Project Facilities", together with the 1997A Project Facilities, the "Project Facilities"). Under each Indenture, the Authority will assign to the applicable Trustee all of its right, title and interest in the applicable Installment Sale Agreement (except for its rights to receive certain fees and indemnification). SLT's obligations under each Installment Sale Agreement are non-recourse obligations of SLT and are limited to SLT's interests 2 58 in the respective Project Facilities. SLT has agreed in each Installment Sale Agreement to make payments in amounts and at times sufficient to timely pay in full all principal of and interest on the applicable Series of Bonds. Each Indenture creates a mortgage lien on the applicable Project Facilities in favor of the applicable Trustee. The Bonds are special and limited obligations of the Authority and each series of Bonds is payable solely from the revenues pledged under the applicable Indenture for their payment and are not obligations of the City of Philadelphia, the Commonwealth of Pennsylvania or any other political subdivision thereof. Neither the general credit of the Authority, nor the credit or taxing power of the City of Philadelphia, the Commonwealth of Pennsylvania or any other political subdivision thereof is pledged to the payment of the principal of the Bonds or interest thereon or any premium or other cost incident thereto. The Authority has no taxing power. Payment of principal of, redemption premium, if any, mandatory purchase price and interest on each Series of Bonds when due has been unconditionally guaranteed by SLT pursuant to a separate Guaranty Agreement (each, a "Guaranty"), each dated as of February 1, 1997, from SLT to the applicable Trustee. Each Guaranty is a general full recourse obligation of SLT. 2. Purchase, Sale and Delivery of Bonds. On the basis of the representations, warranties, covenants and agreements contained herein, but subject to the terms and conditions herein act forth, the Underwriter hereby agrees to purchase from the Authority and the Authority hereby agrees to sell to the Underwriter, all but not less than all of the 1997A Bonds at a purchase price of $27,264,712.80, plus accrued interest from February 1, 1997, and all but not less than all of the 1997B Bonds at a purchase price of $11,417,466, plus accrued interest from February 1, 1997. The Bonds will mature on the dates and in the amounts, and will bear interest at the rates, set forth on Schedule I attached hereto and incorporated herein by reference. As compensation for acting as Underwriter, the Underwriter shall be paid a fee for the 1997A Bonds in the amount of $495,752.40, and a fee for the 1997B Bonds of $207,603.00, both on the Closing Date, by a wire transfer of immediately available, federal funds by SLT. Pursuant to and subject to the terms of this Purchase Agreement, the Authority shall be obligated to sell simultaneously all of the Bonds to the Underwriter and the Underwriter shall be obligated to purchase all of the Bonds, and all of the Bonds shall be delivered by the Authority and accepted and paid for by the Underwriter on the Closing Date (hereinafter defined). The Authority will deliver the Bonds, or cause the Bonds to be delivered to The Depository Trust Company, New York, New York ("DTC"), in definitive form against payment of the purchase price in immediately available funds for the account of the Authority on February 20, 1997, or at such other date or place as the Underwriter, the Authority and SLT agree upon (such date being herein referred to as the "Closing Date"). The Bonds shall be issuable initially in minimum denominations of $100,000, and integral multiples of $5,000 above such amount. 3. Preliminary and Final Official Statements. The Authority has previously provided the Underwriter with copies of its Preliminary Official Statement dated February 3, 1997 relating to the Bonds (the "Preliminary Official Statement"). As of its date, the Preliminary Official Statement was "deemed final" by the Authority and SLT for purposes of paragraph b(1) of Rule 15c2-12 of the Securities and Exchange Commission ("Rule"), except for the omission of no more than the following 3 59 information: the offering price, interest rate, underwriting compensation, aggregate principal amount, principal amount per year of sinking fund redemption, if any, and other terms of the Bonds depending on such matters. The Authority shall deliver or cause to be delivered to the Underwriter, promptly after the acceptance by SLT and the Authority of this Purchase Agreement, a copy of the Official Statement dated February 18, 1997, relating to the Bonds (the "Official Statement"). As soon as practicable after the date hereof, but in any event within seven (7) business days from the date hereof, the Authority shall deliver or cause to be delivered to the Underwriter a sufficient number of printed copies of the Official Statement as the Underwriter may reasonably request so as to enable the Underwriter to comply with the provisions of Paragraph (b)(4) of the Rule, and with Rules G-32 and G-36 and all other applicable rules of the Municipal Securities Rulemaking Board. The Authority shall be under no obligation to determine what number of copies of the Official Statement requested by the Underwriter pursuant to the preceding sentence shall be sufficient to enable the Underwriter to comply with the requirements of the Rule. The Authority and SLT (a) authorize the use and distribution of copies of the Official Statement (including all amendments thereof and supplements thereto), the Indentures, the Installment Sale Agreements, the Guaranties and any other related documents and certificates in connection with the public offering and sale of the Bonds, and (b) approve of and ratify the use and distribution by the Underwriter, prior to the date hereof, of the Preliminary Official Statement in connection with the offering of the Bonds. The Authority will provide to the Underwriter such number of copies of the Resolution as the Underwriter shall reasonably request. 4. Representations, Warranties and Covenants by the Authority. By its execution hereof, the Authority represents and warrants to, and agrees with, the Underwriter that the Authority is and will be on the Closing Date validly existing as a body corporate and politic established as an instrumentality of the Commonwealth of Pennsylvania ("Commonwealth") pursuant to the Act, and has, and at the Closing Date will have, full legal right, power and authority (i) to enter into this Purchase Agreement, (ii) to adopt the Resolution and cause the delivery of the Bonds to the Underwriter pursuant to the Resolution and the Indentures as provided herein, and (iii) to carry out and consummate the transactions contemplated by this Purchase Agreement, the Resolution, the Indentures, and the Installment Sale Agreements and as described in the Official Statement. The Authority hereby further represents, warrants and agrees as follows: (a) The Authority, with respect to the Bonds, has complied with, and will at the Closing Date be in compliance in all material respects with, the Resolution, the Indentures and the Act. (b) Prior to or simultaneously with the acceptance hereof, the Authority has duly adopted the Resolution, has duly authorized and approved the Indentures, the Installment Sale Agreements and the Official Statement, and has duly authorized and approved the execution and delivery of, and the performance by the Authority of the obligations contained in, the Resolution, the Bonds, this Purchase Agreement, the Installment Sale Agreements and the Indentures and the consummation by it of all other transactions contemplated by the Official Statement. 4 60 (c) The Authority, with respect to the Bonds, is not in material breach of or default under any applicable law or administrative regulation of the Commonwealth, any department, division, agency or instrumentality thereof, or the United States of America or any applicable judgment or decree or any loan agreement, note, resolution, certificate, agreement or other instrument to which the Authority is a party or is otherwise subject; and the adoption of the Resolution and the execution and delivery of this Purchase Agreement, the Bonds, the Indentures, the Installment Sale Agreements and compliance with the provisions thereof will not conflict with or constitute a material breach of or default under any applicable law or administrative regulation of the Commonwealth, any department, division, agency or instrumentality thereof, or the United States of America or any applicable judgment or decree or any loan agreement, note resolution, certificate, agreement or other instrument to which the Authority is a party or is otherwise subject. (d) All approvals, consents and orders of any governmental authority, board, agency or commission having jurisdiction which would constitute a condition precedent to the performance by the Authority or its obligations hereunder and under the Resolution, the Indentures and the Bonds have been obtained, except that no representation is made as to any approvals, consents or orders applicable under federal or state securities laws. (e) The Bonds, the Resolution and the Indentures shall conform to the descriptions thereof contained in the Official Statement; and the Bonds, when validly issued, authenticated and delivered in accordance with the Resolution and the Indentures and sold to the Underwriter as provided therein, will be validly issued and outstanding special and limited obligations of the Authority entitled to the benefits of the applicable Indenture. (f) The Indentures, the Bonds, this Purchase Agreement, and the Installment Sale Agreements, shall constitute valid and binding obligations of the Authority enforceable in accordance with their terms, subject to any applicable bankruptcy, insolvency, reorganization or similar laws or legal or equitable principles affecting the enforcement of creditors' rights generally. (g) The statements and information contained in the Official Statement with respect to the Authority under the captions "INTRODUCTION-Philadelphia Authority for Industrial Development," "THE AUTHORITY", and "ABSENCE OF LITIGATION-The Authority" are true, correct and complete in all material respects, and with respect to such statements and information, the Official Statement does not contain any untrue statement of a material fact and does not omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Authority consents to the use of such statements and information in the Official Statement. (h) At the Closing Date, the information describing the Authority contained in the Official Statement under the captions "INTRODUCTION-Philadelphia Authority for Industrial Development", "THE AUTHORITY", and "ABSENCE OF LITIGATION-The Authority" shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 5 61 (i) No litigation is pending or, to the best knowledge of the Authority, threatened in any court in any way affecting the existence of the Authority or the title of any member of the Authority or employee of the Authority to the office held by such member or employee, or seeking to restrain or enjoin the issuance, sale or delivery of the Bonds or the collection of revenues of the Authority pledged or to be pledged to pay the principal of and interest on the Bonds, or the pledge thereof, or in any way contesting or affecting the validity or enforceability of the Bonds, the Resolution, the Indentures, this Purchase Agreement, the Installment Sale Agreements, or contesting the completeness or accuracy of the Official Statement or contesting the powers of the Authority or its authority with respect to the Bonds, the Resolution, the Indentures, this Purchase Agreement or the Installment Sale Agreements. (j) The Authority will apply the proceeds of the Bonds in accordance with the Resolution and the Indentures and as described in the Official Statement. (k) If between the date of this Purchase Agreement and the date ninety (90) days after the end of the "underwriting period" (as defined in the Rule), an event occurs affecting the Authority which, in the opinion of the Underwriter, could cause the Official Statement to contain an untrue statement of a material fact or to omit to state a material fact which should be included therein for the purposes for which the Official Statement was to be used or which is necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, the Authority will amend or supplement the Official Statement in a form and in a manner reasonably acceptable to the Underwriter and shall provide the Underwriter with such amendment or supplement in such numbers as the Underwriter shall reasonably request. For the purposes hereof, the "underwriting period" shall end on the Closing Date unless the Underwriter otherwise notifies the Authority in writing. (l) The Authority will furnish such information, execute such instruments and take such other action in cooperation with the Underwriter as the Underwriter may reasonably request to qualify the Bonds for offer and sale under the Blue Sky or other securities laws and regulations of such states and other jurisdictions of the United States of America as the Underwriter may designate; provided, however, the Authority shall not be required to register as a dealer or broker in any such state or jurisdiction nor shall it be required to qualify to do business in or consent to the jurisdiction of such state or jurisdiction. Any certificate relating to the issuance and delivery of the Bonds signed by an authorized member or officer of the Authority and delivered to the Underwriter at or prior to the Closing Date shall be deemed a representation and warranty by the Authority in connection with this Purchase Agreement to the Underwriter as to the statements made therein. The Authority agrees that all representations, warranties and covenants made by it herein, and in certificates, agreements or other instruments delivered pursuant hereto or in connection herewith, shall be deemed to have been relied upon by the Underwriter, and that all representations, warranties and covenants made by the Authority herein and therein and all the Underwriters' rights hereunder and thereunder shall survive the delivery of the Bonds. 6 62 5. Representations, Warranties and Covenants by SLT. SLT represents, warrants and agrees as follows: (a) SLT is duly organized, validly existing and in good standing as a Delaware limited partnership qualified to do business in the Commonwealth and has all necessary power and authority to own and cause the operation of the Project Facilities and to conduct all its other business and affairs, as presently conducted in the State of Delaware, in the Commonwealth and elsewhere. (b) The statements and information contained in the Official Statement with respect to SLT, its affiliates and the Project Facilities, including the statements contained in the Official Statement under the captions "INTRODUCTION," "ESTIMATED SOURCES AND USES OF FUNDS," "SLT REALTY LIMITED PARTNERSHIP," "PROJECT FACILITIES OPERATING DATA", "THE PROJECT FACILITIES," "CERTAIN BONDHOLDERS' RISKS" AND "ABSENCE OF LITIGATION-SLT" and in Appendix A to the Official Statement are true, correct and complete in all material respects, and with respect to such statements and information, the Official Statement does not contain any untrue statement of a material fact and does not omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. SLT consents to the use of such statements and information in the Official Statement. (c) At the Closing Date, the information describing SLT, its affiliates and the Project Facilities contained in the Official Statement, including statements contained in the Official Statement under the captions "INTRODUCTION," "ESTIMATED SOURCES AND USES OF FUNDS," "SLT REALTY LIMITED PARTNERSHIP," "THE PROJECT FACILITIES," "PROJECT FACILITIES OPERATING DATA", "CERTAIN BONDHOLDERS' RISKS" AND "ABSENCE OF LITIGATION-SLT" and in Appendix A to the Official Statement shall not contain any untrue statement of a material fact and or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (d) The execution and delivery of this Purchase Agreement, the Installment Sale Agreements, the Guaranties, the Continuing Disclosure Agreement for each Series of Bonds, dated as of February 1, 1997, by and between SLT and First Union National Bank, as Dissemination Agent (collectively, the "Disclosure Agreements") and all other documents to be executed and delivered by SLT in connection with the Bonds (collectively, the "SLT Documents"), the consummation of the transactions contemplated in the SLT Documents and the compliance by SLT with the provisions thereof will not result in a breach or violation of any of the terms or provisions of, or constitute a default under, the certificate of limited partnership or limited partnership agreement of SLT, any indenture, mortgage or other agreement or instrument to which SLT is a party or by which it is bound or any existing law, administrative regulation or rule, judgment, court order or consent decree to which it is subject. (e) SLT has full right, power and authority to enter into, execute and deliver the SLT Documents and to perform its obligations thereunder. 7 63 (f) SLT has obtained, or will obtain prior to the issuance of the Bonds, all consents, approvals, authorizations and orders of governmental or regulatory authorities that are required to be obtained by SLT (i) as a condition precedent to the execution by SLT of the SLT Documents, or (ii) as of the date of issuance of the Bonds to effectuate the transactions described in the Official Statement, or (iii) to own and cause the operation of the Project Facilities. (g) SLT is not in default in the payment of the principal of or interest on any of its indebtedness for borrowed money and is not in default in any material respect under any agreement under and subject to which any indebtedness for borrowed money has been incurred, and no event has occurred and is continuing under the provisions of any such agreement that constitutes or, with the lapse of time or the giving of notice or both, would constitute such a default thereunder. (h) There is no litigation at law or in equity or any proceeding before any court or governmental agency involving SLT pending or, to the best knowledge of SLT, threatened in which any liability of SLT is not adequately covered by insurance or in which any unfavorable judgment or order would have a material adverse effect upon the business or assets of SLT or would adversely affect SLT's existence or authority to do business, the validity, execution or delivery of the SLT Documents, or the performance of SLT's obligations thereunder. (i) SLT has not taken or omitted to take, and shall not take or omit to take, any action which action or omission will cause SLT to breach, violate or default under any provision of the SLT Documents. (j) Subsequent to the date of any financial statements included in the Official Statement or incorporated by reference therein, SLT has not incurred any material liabilities, direct or contingent, which are not disclosed in the Official Statement, nor has there been any material adverse change in the financial position, results of operations or conditions, financial or otherwise, of SLT, whether or not arising from transactions in the ordinary course of business. (k) SLT will furnish such information, execute such instruments and take such other action in cooperation with the Underwriter as the Underwriter may reasonably request (i) to qualify the Bonds for offer and sale under the Blue Sky or other securities laws and regulations of such states and other jurisdictions of the United States of America as the Underwriter may designate, provided, however, that SLT shall not be required to register as a dealer or broker in any such state or jurisdiction or be required to file a general consent to service of process or become subject to service of process in any jurisdiction in which SLT is not subject to service of process, (ii) to determine the eligibility of the Bonds for investment under the laws of such states and other jurisdictions, and (iii) to continue such qualifications in effect so long as may be required for the distribution of the Bonds. (l) From the date hereof until the date ninety (90) days after the end of the "underwriting period" (as defined in the Rule), SLT will notify the Authority and the Underwriter upon the occurrence of any material event affecting SLT, its operations, assets or facilities, the SLT Documents or the Project Facilities. 8 64 (m) (i) SLT shall indemnify and hold harmless the Authority, its governing body, agents, attorneys, officers and employees, past, present and future (together, the "Authority Indemnified Parties"), to the full extent permitted by law against any and all losses, claims, damages, liabilities or expenses asserted against any Authority Indemnified Party arising in connection with the issuance sale and delivery of the Bonds, including any and all losses, claims, damages and liabilities or expenses asserted against any Authority Indemnified Party caused by any untrue statement or alleged untrue statement of a material fact contained in the Preliminary Official Statement, the Official Statement and any amendments or supplements thereto, or the omission or alleged omission therein of a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Underwriter shall indemnify and hold harmless the Authority Indemnified Parties to the same extent as the foregoing indemnity from SLT to the Authority, but only with reference to written information relating to the Underwriter furnished by it in writing specifically for use in the preparation of the Official Statement. This indemnity agreement will be in addition to any liability which the Underwriter may otherwise have. The Authority and SLT acknowledge that the statements set forth under the heading "UNDERWRITING" in the Official Statement constitute the only information furnished in writing by or on behalf of the Underwriter for inclusion in the Official Statement. (ii) SLT hereby indemnifies and holds harmless (with respect to the portions of the Preliminary Official Statement and Official Statement set forth hereafter) the Underwriter and each person, if any, who controls the Underwriter within the meaning of the Securities Act of 1933 as amended (together, the "Underwriter Indemnified Parties") against any losses, claims, damages or liabilities, joint or several, to which the Underwriter or such controlling persons may become subject under such act or otherwise insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or misleading statement or allegedly misleading statement of a material fact contained in the Preliminary Official Statement or Official Statement or caused by any omission or alleged omission from the Preliminary Official Statement or Official Statement of any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading to the extent such losses, claims, damages, liabilities or expenses are caused by any such untrue or misleading statement or omission or allegedly untrue or misleading statement or omission in the information contained in the Preliminary Official Statement or the Official Statement under the captions "SLT REALTY LIMITED PARTNERSHIP", "ESTIMATED SOURCES AND USES OF FUNDS", "PROJECT FACILITIES OPERATING DATA", "THE PROJECT FACILITIES", "CERTAIN BONDHOLDERS' RISKS", and "ABSENCE OF LITIGATION-SLT", and Appendix A. In case any action shall be brought against the Underwriter or any controlling person of the Underwriter in respect to which indemnify may be sought under this subparagraph, the Underwriter shall promptly notify SLT in writing and SLT shall promptly assume the defense thereof, including the employment of counsel and the payment of all expenses. Any one or more of the Underwriter or controlling persons of the Underwriter shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such party unless employment of such counsel has been specifically authorized by SLT or unless the named parties to such action (including any impleaded parties) include both SLT and the Underwriter and the Underwriter shall have been advised by counsel that a conflict of interest 9 65 may arise and for this reason it is not desirable for the same counsel to represent SLT and the Underwriter. SLT shall not be liable for any settlement of any such action effected by the Underwriter or the controlling persons of the Underwriter, without the consent of SLT. If an action is settled with the consent of the Underwriter and SLT or if there shall be a final judgment for the plaintiff in any such action against SLT or the Underwriter, with or without the consent of SLT, SLT agrees to indemnify and hold harmless the Underwriter to the extent provided in this Purchase Agreement. (iii) The Underwriter shall indemnify and hold harmless (with respect to the portion of the Preliminary Official Statement or Official Statement as set forth hereafter) SLT and each person, if any, who controls SLT within the meaning of the Securities Act of 1933 as amended (together, the "SLT Indemnified Parties'), against any losses, claims, damages or liabilities, joint or several, to which SLT or such controlling persons may become subject under such act or otherwise insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or misleading statement or allegedly misleading statement of a material fact contained in the Preliminary Official Statement or Official Statement or caused by any omission or alleged omission from the Preliminary Official Statement or Official Statement of any material fact necessary in order to make the statement made therein, in light of the circumstances under which they were made, not misleading to the extent such losses, claims, damages, liabilities or expenses are caused by any such untrue or misleading statement or omission or allegedly untrue or misleading statement or omission in the information contained in the Preliminary Official Statement or the Official Statement under the caption "UNDERWRITING". In case any action shall be brought against SLT or any controlling person of SLT in respect to which indemnity may be sought under this subparagraph, SLT shall promptly notify the Underwriter in writing and the Underwriter shall promptly assume the defense thereof, including the employment of counsel and the payment of all expenses. Any one or more of SLT or controlling persons of SLT shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such party unless employment of such counsel has been specifically authorized by the Underwriter or unless the named parties to such action (including any impleaded parties) include both the Underwriter and SLT and SLT shall have been advised by counsel that a conflict of interest may arise and for this reason it is not desirable for the same counsel to represent the Underwriter and SLT. The Underwriter shall not be liable for any settlement of any such action effected by SLT or the controlling persons of SLT, without the consent of the Underwriter. If any action is settled with the consent of SLT and the Underwriter, or if there shall be a final judgment for the plaintiff in any such action against the Underwriter or SLT, with or without the consent of the Underwriter, the Underwriter agrees to indemnify and hold harmless SLT to the extent provided in this Purchase Agreement. (iv) If any of the Authority Indemnified Parties, Underwriter Indemnified Parties or SLT Indemnified Parties (each an "Indemnified Party") is advised in an opinion of counsel that there may be conflicting interests between the party obligated hereunder to provide indemnity (here an "Indemnifying Party") and the Indemnified Party or legal defenses available to the Indemnified Party which are different from or in addition to those available to the Indemnifying Party or if the Indemnifying Party shall, after this notice and within a period of time necessary to preserve any and all defenses to any claim asserted, fail to assume 10 66 the defense or to employ counsel for that purpose reasonably satisfactory to the Indemnified Party, the Indemnified Party shall have the right, but not the obligation, to undertake the defense of, and to compromise or settle the claim or other matter on behalf of, for the account of, and at the risk of, the Indemnifying Party. (n) Obligations of SLT Nonrecourse. Anything in this Purchase Agreement to the contrary notwithstanding, other than the provisions of Section 5(m)(i) or (ii) hereof (for which recourse may be had against the general assets of SLT but not assets of Starwood which do not consist of partnership interests in SLT) irrespective of any breach, incompleteness or inaccuracy of any statement, certification, representation, warranty, covenant, agreement or understanding of any nature whatsoever made by SLT, no recourse shall be had for the payment of any claim based on or in respect of this Purchase Agreement against SLT or any partner of SLT, either directly or through any successor or assign of SLT or any partner of SLT, or under any rule of law, statute or constitution, or by the enforcement of any assessment or penalty, or otherwise, it being expressly understood that, except as provided above, all obligations of SLT under this Purchase Agreement are solely nonrecourse obligations of SLT limited solely to SLT's interest in the Project Facilities and that all such liability of SLT is and is to be, by the acceptance of this Purchase Agreement by the Authority and the Underwriter, expressly waived and released as a condition of, and as consideration for, the execution and delivery of this Purchase Agreement; provided, however, that nothing contained herein shall constitute a waiver of the obligations of SLT to indemnify the Authority and the Underwriter hereunder or shall be taken to prevent the enforcement, by way of specific performance of all liabilities, obligations and undertakings of SLT contained in this Purchase Agreement; provided further, however, that in no event shall any deficiency judgment or other type of personal monetary judgment be sought or secured against assets of SLT other than the Project Facilities (other than with respect to the provisions of Section 5(m)(i) or (ii) hereof). (o) SLT shall not take any action or omit to take any action, which action or omission would adversely affect the exclusion of interest on any Bond from gross income for federal income tax purposes. Any certificate relating to the issuance and delivery of the Bonds signed by an authorized member or officer of SLT and delivered to the Underwriter at or prior to the Closing Date shall be deemed a representation and warranty by SLT in connection with this Purchase Agreement to the Underwriters as to the statements made therein. SLT agrees that all representations, warranties and covenants made by SLT herein, and in certificates, agreements or other instruments delivered pursuant hereto or in connection herewith, shall be deemed to have been relied upon by the Underwriter and the Authority and that all representations, warranties and covenants made by SLT herein and therein and all the Underwriter's and Authority's rights hereunder and thereunder shall survive the delivery of the Bonds. 6. Termination. The Underwriter may terminate its obligations hereunder by written notice to the Authority and SLT if, at any time subsequent to the date hereof and on or prior to the Closing Date: 11 67 (a) in the Congress of the United States legislation shall be introduced or enacted or approved by the President, or a decision by a court of the United States shall be rendered, or a ruling, regulation, proposed regulation or statement by or on behalf of the Treasury Department of the Internal Revenue Service of the United States, with respect to federal taxation upon revenues or other income of the general character to be derived by the Authority or upon interest received on the Bonds or on obligations of the general character of the Bonds which, in the opinion of the Underwriter, materially and adversely affects the marketability of the Bonds; or (b) legislation shall be enacted or any action shall be taken by the Securities and Exchange Commission which, in the opinion of counsel to the Underwriter, has the effect of requiring the offer or sale of the Bonds to be registered under the Securities Act of 1933, as amended or the Indenture to be qualified as an indenture under the Trust Indenture Act of 1939, as, amended, or any event shall have occurred or shall exist which, in the reasonable judgment of the Underwriter, makes untrue or incorrect in any material respect any statement or information contained in the Official Statement or is not reflected in the Official Statement but should be reflected therein in order to make the statements or information contained therein, in light of the circumstances under which such statements were made, not misleading in any material respect; or (c) (i) in the Underwriter's reasonable judgment, the market price of the Bonds is adversely affected because: (a) additional material restrictions not in force as of the effective date hereof shall have been imposed upon trading in securities generally by any governmental authority or by any national securities exchange; (b) the New York Stock Exchange or other national securities exchange, or any governmental authority, shall impose, as to the Bonds or similar obligations, any material restrictions not now in force, or increase materially those now in force, with respect to the extension of credit by, or the charge to the net capital requirements of, underwriters; (c) a general banking moratorium shall have been established by federal, New York or Commonwealth authorities; or (d) a war involving the United States of America shall have been declared, or any other national or international calamity shall have occurred (economic or otherwise), or any conflict involving the armed forces of the United States of America shall have escalated to such a magnitude as to materially affect the Underwriter's ability to market the Bonds; (ii) there shall have occurred any material change, or any other event which in the Underwriter's opinion materially adversely affects the marketability of the Bonds, or any material development involving a prospective change in, or affecting particularly the affairs of SLT, the hotel and hospitality industry, or the economy of the Commonwealth generally or the City of Philadelphia, which, in the Underwriter's reasonable judgment, materially impairs the investment quality of the Bonds or the ability of the Underwriter to market the Bonds; or (iii) any litigation shall be instituted, pending or threatened to restrain or enjoin the issuance, sale or delivery of the Bonds or in any way contesting or affecting any authority for or the validity of the Bonds, any of the proceedings of the Authority taken with respect to the issuance or sale thereof, the pledge or application of any revenues provided for the payment of the Bonds or the existence or powers of the Authority; or (d) there shall have occurred any change which, in the reasonable judgment of the Underwriter, makes unreasonable or unreliable any of the assumptions upon which payment of debt service on the Bonds is predicated. 12 68 7. Conditions to Obligations of Underwriter. The obligations of the Underwriter to purchase and pay for the Bonds on the Closing Date are subject to the accuracy of the representations and warranties of the Authority and SLT herein as of the date hereof and as of the Closing Date, to the accuracy of statements to be made on behalf of the Authority and SLT hereunder, to the performance by the Authority and SLT of their obligations hereunder, and to the following additional conditions precedent; (a) Copies of Documents. At or prior to the Closing Date, the Underwriter shall have received: (i) one certified copy of the Resolution; and (ii) one executed copy of each of the Indentures, the Installment Sale Agreements, the Guaranties and the Continuing Disclosure Agreements. (b) Effectiveness of Documents. The Resolution, the Indentures, the Installment Sale Agreements, the Guaranties, this Purchase Agreement and the Disclosure Agreements and all official action of the Authority and all partnership action of SLT relating thereto, shall be in full force and effect and shall not have been amended, modified or supplemented, except as may have been agreed to in writing by the Underwriter, and the Official Statement shall have been executed and shall not have been amended or supplemented except as may have been agreed to in writing by the Underwriter. (c) Approving Opinion of Bond Counsel. The Authority shall have received the approving opinions of Ballard Spahr Andrews & Ingersoll, Philadelphia, Pennsylvania ("Bond Counsel") dated the Closing Date and substantially in the form attached to the Official Statement as Appendix C thereto; the Underwriter shall have received a letter of Bond Counsel, dated the Closing Date, and addressed to the Underwriter to the effect that the approving opinion may be relied upon by the Underwriter to the same extent as if such opinion were addressed to it. (d) Opinion of Counsel to the Authority. The Underwriter shall have received an opinion of Philip Brandt, Esquire, Counsel to the Authority, dated the Closing Date and addressed to the Underwriter and the Authority, to the effect that (i) no litigation before any court of the United States of America sitting in the Commonwealth or of the Commonwealth is pending or, to his knowledge, threatened in any way affecting the existence of the Authority or the titles of its members to their respective offices, or seeking to restrain or to enjoin the issuance, sale or delivery of the Bonds, the application of the proceeds thereof in accordance with the Indentures, or the collection or application of revenues of the Authority pledged or to be pledged to pay the principal of and interest on the Bonds, or the pledge thereof or of the proceeds of the Bonds, or in any way contesting or affecting the validity or enforceability of the Bonds, the Indentures, the Resolution, the Installment Sale Agreements, this Purchase Agreement, or any action of the Authority contemplated by any of said documents, or in any way contesting the completeness or accuracy of the Official Statement or the powers of the Authority or its authority with respect to the Bonds, the Indentures, the Resolution, the Installment Sale Agreements, this Purchase Agreement or any action on the part of the Authority contemplated by any of said documents or the Official Statement; (ii) the Authority is a duly organized and existing public body corporate and politic of the 13 69 Commonwealth, acting pursuant to the Act, with full legal right, power and authority to perform all of its obligations under this Purchase Agreement, the Bonds, the Resolution, the Indentures and the Installment Sale Agreements, and the Authority has duly adopted the Resolution, which Resolution is now in full force and effect, and has duly authorized, executed and delivered this Purchase Agreement, and duly authorized, executed and delivered, or causes to be delivered the Indentures, the Bonds, the Installment Sale Agreements, and the Official Statement, and (assuming due authorization, execution and delivery by the other parties thereto, where necessary) the Indentures, the Installment Sale Agreements, this Purchase Agreement and the Bonds constitute legal, valid and binding agreements of the Authority; (iii) the adoption of the Resolution, and the execution and delivery of the Indentures, the Bonds, the Installment Sale Agreements, this Purchase Agreement and the other instruments contemplated by any of such documents to which the Authority is a party, and compliance with the provisions of each thereof, will not conflict with or constitute a breach of or default under any applicable law or administrative rule or regulation of the Commonwealth, the United States of America, or of any department, division, agency or instrumentality of either thereof, or any applicable court or administrative decree or order or any loan agreement, note, ordinance, resolution, indenture, contract, agreement or other instrument to which the Authority is a party or is otherwise subject or bound; (iv) notice of the issuance of the Bonds has been given to the Department of Community and Economic Development of the Commonwealth; (v) the approval of the Mayor of the City of Philadelphia, which approval is a condition precedent to the Authority's issuance of the Bonds, has been obtained; and (vi) the statements contained in the Official Statement under the captions "INTRODUCTION-Philadelphia Authority for Industrial Development, "THE AUTHORITY," and "ABSENCE OF LITIGATION-Authority"; insofar as such statements purport to describe the Authority are true and correct in all material respects. (e) Supplemental Opinion of Bond Counsel. The Underwriter shall have received a supplemental opinion of Bond Counsel, dated the Closing Date and addressed to the Underwriter, to the effect that (i) this Purchase Agreement has been duly authorized, executed and delivered by the Authority and is a valid and binding obligation of the Authority enforceable against it in accordance with its terms (except as enforcement may be limited by bankruptcy, insolvency, reorganization or similar laws or equitable principles relating to or limiting creditors' rights generally); (ii) the Bonds are exempt from registration under the Securities Act of 1933, as amended, and the Indentures do not have to be qualified under the Trust Indenture Act of 1939, as amended; and (iii) the statements contained in the Official Statement under the captions "INTRODUCTION," "THE BONDS", "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS" and in Appendix B insofar as such statements describe the Bonds, the Indentures, the Installment Sale Agreements and the Guaranties, and under the caption "TAX EXEMPTION", present a fair and accurate summary of the provisions of such documents and as to the legal matters set forth or described therein. (f) Certificate of the Trustee. The Underwriter shall have received a certificate, dated the Closing Date and signed by an authorized officer of the Trustee to the effect that: (i) the Trustee is a national banking association duly organized, validly existing and in good standing under the laws of the United States, is duly 14 70 qualified to do business and to exercise trust powers in all jurisdictions where the nature of its operations as contemplated by the Indentures legally requires such qualification and has the corporate power to take all action required or permitted of it under the Indentures; (ii) the execution, delivery and/or performance by the Trustee of its duties and obligations under the Indentures, and the performance by the Trustee of its duties and obligations under the Indentures have been duly authorized by all necessary corporate action on the part of the Trustee, and under present law do not and will not contravene the Articles of Association or ByLaws of the Trustee or conflict with or constitute a breach of or default under any law, administrative regulation, court decree or any agreement or instrument to which the Trustee is subject; (iii) all approvals, consents and orders of any governmental authority or agency having jurisdiction in the matter which would constitute a condition precedent to the performance by the Trustee of its duties and obligations under the Indentures have been obtained and are in full force and effect; (iv) the Indentures have been duly entered into and delivered by the Trustee and constitute the legal, valid and binding obligations of the Trustee, enforceable against the Trustee in accordance with their respective terms, except as the enforceability thereof may be limited by applicable bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights or by general principles of equity; (v) no litigation is pending or, to the best of such officer's knowledge, threatened in any way contesting or affecting the existence or powers (including trust powers) of the Trustee or the Trustee's ability to fulfill its duties and obligations under the Indentures; and (vi) the Bonds have been authenticated and the Indentures have been executed and delivered by authorized officers of the Trustee. (g) Certificate of the Authority. The Underwriter shall have received a certificate, dated the Closing Date and signed by a duly authorized officer of the Authority to the effect that: (i) there is no action, suit proceeding, investigation at law or in equity before or by any court, public board or body pending or, to the knowledge of the Authority, threatened, wherein an unfavorable decision, ruling or finding would: (a) affect the existence of the Authority or the titles of its members to their respective offices, (b) restrain or enjoin the issuance, sale and delivery of the Bonds, or the revenues of the Authority pledged or to be pledged to pay the principal of, redemption premium, if any, and interest on the Bonds or the pledge thereof, (c) contest or affect the validity or enforceability of the Bonds, the Resolution, the Indentures, the Installment Sale Agreements or this Purchase Agreement, (d) contest the completeness or accuracy of the 15 71 Official Statement or (e) contest the powers of the Authority or its authority with respect to the Bonds, the Resolution, the Indentures, the Installment Sale Agreements, or this Purchase Agreement; (ii) the Authority has complied or will comply with all agreements, covenants and arrangements and has satisfied or will satisfy all conditions on its part to be complied with, performed or satisfied at or prior to the Closing Date; (iii) the representations and warranties of the Authority contained herein and in the Indentures are true, complete and correct in all material respects as of the Closing Date; (iv) the Preliminary Official Statement as to the Authority was deemed final as of its date by the Authority within the meaning of the Rule. (h) Defeasance Opinion of Bond Counsel. The Underwriter shall have received an opinion of Bond Counsel addressed to the Underwriter and the Authority to the effect that the Prior Bonds are deemed to have been paid within the meaning and with the effect expressed in the Original Indentures and that the liens of the Indentures have been discharged with respect to the Prior Bonds. (i) Opinions of SLT's Counsel. The Underwriter, Bond Counsel and the Authority shall have received the opinions of Kutak Rock, Phoenix, Arizona, counsel to SLT, and other counsel to SLT, in form and substance satisfactory to the Underwriter, as to the matters set forth in Exhibit A attached hereto and incorporated herein by reference. (j) Certificate of SLT. A certificate signed by an authorized officer of Starwood, as General Partner of SLT, to the effect that (i) the representations and warranties of SLT set forth herein and in the Installment Sale Agreements are true and correct as of the Closing Date; (ii) SLT has performed all of its obligations hereunder and satisfied all conditions on its part to be satisfied hereunder on or prior to the Closing Date, and (iii) the statements and information contained in the Official Statement (including statistical and financial information therein) under the headings "INTRODUCTION," "ESTIMATED SOURCES AND USES OF FUNDS," "SLT REALTY LIMITED PARTNERSHIP," "THE PROJECT FACILITIES," "PROJECT FACILITIES OPERATING DATA," "CERTAIN BONDHOLDERS' RISKS," "ABSENCE OF LITIGATION-SLT" and in Appendix A to the Official Statement, to the extent that such statements and information relate to SLT, its affiliates, operations, assets and facilities, the Project Facilities, SLT's participation in the transactions contemplated by and described in the Official Statement and the plan of financing, are true, correct and complete in all material respects; and, with respect to such statements and information, the Official Statement does not contain any untrue statement of a material fact and does not omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; and (iv) SLT has deemed the Preliminary Official Statement "final" as of its date within the meaning of the Rule. 16 72 (k) Opinion of General Partner's Counsel. The Underwriter, Bond Counsel and the Authority shall have received the opinion of Starwood's Counsel, Sidley & Austin, Los Angeles, California, as to the matters set forth in Exhibit B attached hereto and incorporated herein by reference. (1) Certificate of General Partner. A certificate signed by an authorized officer of Starwood as to the matters set forth in Exhibit C attached hereto and incorporated herein by reference. (m) Non-Arbitrage Certificate. A certificate executed by authorized officers of the Authority and on behalf of SLT by an authorized officer of Starwood, as General Partner of SLT, in form and substance satisfactory to Bond Counsel, as to the facts, circumstances and reasonable expectations of the Authority and SLT with respect to the Bonds and the application of the proceeds thereof and such other matters as are necessary to establish the excludability of interest on the Bonds from gross income for federal income tax purposes; (n) Form 8038. A completed and executed Form 8038 and evidence of filing thereof with the Internal Revenue Service; (o) Title Insurance. Policies of title insurance issued by Commonwealth Land Title Insurance Company insuring the title of the Authority and SLT in the Project Facilities and the priority of the mortgage liens created by the Indentures written in the aggregate principal amount of the Bonds, in form and substance satisfactory to the Underwriter. (p) UCC-1s. Uniform Commercial Code Financing Statements on Form UCC-1 executed by the Authority and SLT with respect to the security interests granted by the Authority and SLT, in form and substance satisfactory to the Underwriter. (q) Audited Financial Statements of SLT for the year ended December 31, 1995. (r) Evidence of payment of the redemption price of the Prior Bonds, including accrued interest thereon. (s) Other Opinions, etc. Such additional legal opinions, certificates, proceedings, instruments and other documents as the Underwriter or Bond Counsel may reasonably request. All the opinion letters, certificates, instruments and other documents mentioned above or elsewhere in this Purchase Agreement shall be deemed to be in compliance with the provisions hereof if, but only if, they are in form and substance reasonably satisfactory to the Underwriter. The Underwriter shall have the right to waive any condition set forth in this Section 7. 8. Expenses. If the Closing occurs hereunder, the Underwriter shall be under no obligation to pay, and SLT shall pay from moneys furnished by SLT, any expense incident to the performance of SLT's or the Authority's obligations hereunder, including, but not limited to, the fees and expenses of the Authority, printing costs (including the printing and delivery of the preliminary and final Official Statements), costs of filing and recording fees, title insurance premiums, initial fees 17 73 and charges of the Trustee, legal fees and charges of SLT and the Authority (including fees and disbursements of Bond Counsel and Counsel to the Authority), fees and charges for execution of the Bonds, transportation, printing and safekeeping of Bonds, the fees and expenses of Underwriter's counsel, and any other similar costs, charges and fees in connection with the foregoing, all as set forth as Closing Costs on a Closing Statement to be approved in writing by SLT. The Authority shall have no liability hereunder for any such expenses. 9. Limited Liability of Autbority. SLT's and the Underwriter's remedies against the Authority hereunder shall be limited to specific performance or other appropriate remedy to enforce the Authority's obligations hereunder and, notwithstanding any provision to the contrary herein set forth, no provision of this Purchase Agreement shall be construed so as to give rise to a pecuniary liability of the Authority or its members, officers or employees or to give rise to a charge upon the general credit of the Authority or such members, officers or employees; and any pecuniary liability hereunder of the Authority shall be limited to its interests in the Project Facilities and the lien of any judgment shall be restricted thereto. The Authority shall not be required to do any act whatsoever to mitigate the damages to the other parties if any breach or default shall occur hereunder. 10. Notices. Any notice or other communication to be given to SLT or the Authority under this Purchase Agreement may be given by delivering the same in writing to SLT or the Authority at its address set forth above, and any notice or other communication to be given to the Underwriter under this Purchase Agreement may be given by delivering the same in writing to Goldman, Sachs & Co., 85 Broad Street, 24th Floor, New York, NY 10004, attention: Kenneth C. Rogozinski. The approval of other action or exercise of judgment by the Underwriter shall be evidenced by a writing signed on behalf of the Underwriter by Goldman, Sachs & Co. and delivered to the Authority. 11. Successors. This Purchase Agreement is made solely for the benefit of the Authority, the Underwriter and SLT (including their successors or assigns) and no other person shall acquire or have any right hereunder or by virtue hereof. All the representations, warranties, covenants, and agreements contained herein shall remain operative and in full force and effect and shall survive delivery of any payment for the Bonds hereunder, regardless of any investigation made by the Underwriter or on its behalf. 12. Governing Law. This Purchase Agreement shall be governed by the laws of the Commonwealth. 13. Counterparts. The Purchase Agreement may be executed and delivered in any number of counterparts, and such counterparts taken together shall constitute one and the same instrument. 18 74 14. Effectiveness. This Purchase Agreement shall become effective by and among the Underwriter, SLT and the Authority upon the execution of the acceptance hereof by SLT and the Authority. Very truly yours, GOLDMAN, SACHS & CO. By: /s/ Goldman, Sachs & Co. -------------------------------------------- Accepted this 14th day of February, 1997 SLT REALTY LIMITED PARTNERSHIP By: STARWOOD LODGING TRUST, as General Partner* By: /s/ Ronald C. Brown ------------------------------- Name: RONALD C. BROWN Title: Senior Vice President and Chief Financial Officer Accepted this 14th day of February, 1997 PHILADELPHIA AUTHORITY FOR INDUSTRIAL DEVELOPMENT By: ------------------------------ Name: ------------------------------ Its: ------------------------------ * The name "Starwood Lodging Trust" is a designation of Starwood Lodging Trust, a Maryland real estate investment trust ("Starwood") and its trustee (as trustee but not personally) under the Declaration of Trust of Starwood Lodging Trust dated August 25, 1969, as amended and restated as of June 6, 1988, as further amended as of February 1, 1995, and as the same may be further amended, modified, supplemented, reinstated or superseded from time to time. All persons dealing with Starwood shall look solely to Starwood's assets for the enforcement of any claims against Starwood and the trustee, officers, agents and security holders of Starwood assume no personal liability for obligations entered into on behalf of Starwood, and their respective individual assets shall not be subject to the claims of any person relating to such obligation. 19 75 Schedule I
Bonds Maturity Interest Rate Yield ----- -------- ------------- ----- $27,820,000 Commercial October 1, 2027 6.50% 6.70% Development Revenue Refunding Bonds. (Doubletree Guest Suites Project), Series 1997A $11,650,000 Commercial October 1, 2027 6.50% 6.70% Development Revenue Refunding Bonds (Days Inn Project) Series 1997B
Initial Term Rate Period February 1, 1997 to but not including October 1, 2013 76 EXHIBIT A MATTERS TO BE COVERED IN THE OPINION OF SLT'S COUNSEL 1. SLT duly organized, validly existing and in good standing as a Delaware limited partnership and is qualified to transact business in the Commonwealth, with full power to own its properties and conduct its business as described in the Preliminary Official Statement and the Official Statement. 2. SLT has duly executed and delivered the Bond Purchase Agreement and has duly authorized the distribution of the Preliminary Official Statement and has duly approved the Official Statement. 3. SLT has full power and authority to enter into the SLT Documents, and each of the SLT Documents has been duly authorized, executed and delivered by SLT and is valid and binding agreement of SLT, enforceable in accordance with its terms. 4. Except as may be set forth in the Preliminary Official Statement and in the Official Statement, to such counsel's knowledge after due inquiry, and except with respect to claims, if any, which are covered by SLT's insurance carriers, there is no action, suit, proceeding or investigation at law or in equity before or by any court, public board or body pending or threatened against or affecting SLT, or to which SLT is a party or of which property of SLT is subject, wherein an unfavorable decision, ruling or finding would materially and adversely affect SLT, or which would materially and adversely affect the transactions contemplated by the SLT Documents and described in the Preliminary Official Statement and in the Official Statement, or which would adversely affect the validity of the Bonds or the SLT Documents or which would materially and adversely affect the financial condition or operations of SLT. With respect to negligence claims, if any, such counsel is not aware of any claim which may reasonably be expected to result in any judgment against SLT in excess of SLT's insurance coverage limitations. 5. The approval by SLT of the Preliminary Official Statement and the Official Statement, and the execution and delivery by SLT of the Bond Purchase Agreement and the SLT Documents, and other agreements contemplated thereby, the terms and provisions thereof, the approval by SLT of the Indentures, compliance by SLT with the provisions of the SLT Documents, fulfillment by SLT of the terms thereof and consummation by SLT of the transactions contemplated thereby (under the circumstances contemplated thereby), do not and will not in any respect conflict with or constitute, on the part of SLT a breach or violation or default under its partnership agreement and do not in any material respect constitute on the part of SLT a breach or violation or default under any agreement, indenture, mortgage, deed of trust, lease or other instrument to which SLT is a party, or by which it is or may be bound, or any existing laws, regulations, administrative or court order or decree to which SLT is or may be subject. 6. SLT has complied in all material respects with all applicable requirements of the Commonwealth and its respective agencies and instrumentalities to operate the Project Facilities substantially as they are being operated and is qualified under such requirements to conduct its business as it is presently being conducted. 77 7. SLT has obtained all necessary licenses, approvals and permits which are required to enable SLT to own and operate the Project Facilities as described in the Official Statement, and all approvals, consents and orders of any governmental authority, board, agency or commission having jurisdiction which would constitute a condition precedent to the performance by SLT of its obligations under the SLT Documents. 8. The statements contained in the Preliminary Official Statement and the Official Statement (except for financial and statistical data, as to which no statement need be made) are true and correct insofar as they relate to SLT, Starwood and its affiliates, and the Project Facilities, and do not omit to state any fact necessary to make the statements therein, insofar as they relate to SLT, Starwood and its affiliates, and the Project Facilities, in light of the circumstances under which they were made, not misleading. Without having undertaken to determine independently the accuracy or completeness of, or to verify the information contained in, the Preliminary Official Statement and the Official Statement (except for the inquiry necessary to make the statement in the preceding sentence), nothing has come to such counsel's attention which would lead it to believe that the Preliminary Official Statement and the Official Statement (except for the financial statements appearing in Appendix A, and other financial and statistical material included elsewhere in the Preliminary Official Statement and the Official Statement, as to which no opinion need be expressed) contains any untrue statement of a material fact or omits to state a material fact with respect thereto necessary to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 9. The Indentures create a valid security interest in the mortgaged property described therein and pledged to secure the obligations thereunder in which a security interest may be created under the Pennsylvania Uniform Commercial Code as enacted and construed on the date hereof, which security interest, upon the filing of financing statements on Form UCC-1, in the offices of the Secretary of the Commonwealth and the Office of the Prothonotary and the Recorder of Deeds for Philadelphia, Pennsylvania, will be perfected to the extent that perfection can be achieved by filing, subject to timely filing of appropriate continuation statements. 78 EXHIBIT B TO BOND PURCHASE AGREEMENT MATTERS TO BE COVERED IN THE OPINION OF STARWOOD COUNSEL 1. Starwood is a real estate investment trust validly existing in good standing under the laws of the State of Maryland, with full legal right, power and authority to execute and deliver the SLT Documents on behalf of SLT. 2. Starwood has, by all necessary corporate action, duly authorized the execution and delivery of the SLT Documents by Starwood, on behalf of SLT. 3. No consent, approval, authorization or order of, or filing, registration or declaration with, any court or governmental body is required by or on behalf of Starwood for the execution and delivery of the SLT Documents by Starwood on behalf of SLT. 4. The execution and delivery of the SLT Documents by Starwood, on behalf of SLT, do not violate Starwood's Declaration of Trust or by-laws, or any court order by which Starwood is bound and such actions do not constitute a default under any agreement, indenture, mortgage, lease, note or other obligation or instrument to which Starwood is a party or by which it or its properties is bound. 5. There is no legal action, suit, proceeding, inquiry or investigation at law or in equity (before or by any court, agency, arbitrator, public board or body or other entity or person) pending or, to our knowledge, threatened against Starwood or any basis therefor: (a) in any way contesting the existence of the Starwood; (b) in any way contesting the authority of the officers of Starwood to act on behalf of SLT; or (c) wherein an unfavorable decision, ruling or finding would have a material adverse effect on the operations of Starwood or the transactions on the part of SLT contemplated by the SLT Documents. 79 EXHIBIT C TO BOND PURCHASE AGREEMENT MATTERS TO BE COVERED IN THE CERTIFICATE OF STARWOOD 1. Starwood is a real estate investment trust validly existing in good standing under the laws of the State of Maryland, with full legal right, power and authority to execute and deliver the SLT Documents on behalf of SLT. 2. Starwood has, by all necessary corporate action, duly authorized the execution and delivery of the SLT Documents by Starwood, on behalf of SLT. 3. No consent, approval, authorization or order of, or filing, registration or declaration with, any court or governmental body is required by or on behalf of Starwood for the execution and delivery of the SLT Documents by Starwood on behalf of SLT. 4. The execution and delivery of the SLT Documents by Starwood, on behalf of SLT, do not violate Starwood's Declaration of Trust or by-laws, or any court order by which Starwood is bound and such actions do not constitute a default under any agreement, indenture, mortgage, lease, note or other obligation or instrument to which Starwood is a party or by which it or its properties is bound. 5. There is no legal action, suit, proceeding, inquiry or investigation at law or in equity (before or by any court, agency, arbitrator, public board or body or other entity or person) pending or, to our knowledge, threatened against Starwood or any basis therefor: (a) in any way contesting the existence of the Starwood; (b) in any way contesting the authority of the officers of Starwood to act on behalf of SLT; or (c) wherein an unfavorable decision, ruling or finding would have a material adverse effect on the operations of Starwood or the transactions on the part of SLT contemplated by the SLT Documents. 6. Starwood has approved on behalf of SLT the distribution and use of the Preliminary Official Statement dated February 3, 1997 and the Official Statement dated February , 1997 (together, the "Offering Document") in connection with the offering and sale of the Bonds. 7. After review of the Offering Document and such investigation as Starwood has deemed necessary, with respect to factual matters contained in the description of Starwood, SLT, any affiliates thereof (including, but not limited to SLC Operating Limited Partnership and Starwood Lodging Corporation) and the Project Facilities (as defined in the Offering Document) and their respective operations, there exists in the Offering Document no untrue statement of a material fact or omission to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. EX-10.6 9 EMPLOYMENT AGREEMENT WITH RONALD C. BROWN 1 Exhibit 10.6 [Starwood Lodging Trust Letterhead] February 4, 1997 Mr. Ronald C. Brown 6026 E. Cholla Lane Scottsdale, AZ 85253 Dear Ron, We are very pleased to confirm our understanding of your full-time employment by Starwood Lodging Trust ("The Trust") as the Senior Vice President and Chief Financial Officer. As you know, shares of the Trust trade on the NYSE as paired shares with those of Starwood Lodging Corporation, ("The Corporation"). The following will serve to confirm the principal attributes of your employment. 1. START DATE: Your employment with the Trust commenced on July 10, 1995. 2. DUTIES: You have been employed as the Senior Vice President and Chief Financial Officer of the Trust and shall perform such duties and services as may be assigned to you from time to time by the Chief Executive Officer and/or the Board of Trustees. You shall devote your full time and attention to the affairs of the Trust and to your duties as Senior Vice President and Chief Financial Officer. 3. BASE SALARY: Your base salary is expressed in annualized terms, will be $200,000 per year, payable bi-weekly and subject to the usual withholdings for FICA, 401 (k) contributions (to the extent the Trust has or adopts a 401 (k) program), state and federal unemployment tax and Medicare. 4. BONUS: You are eligible to receive a performance bonus based upon achieving specified performance criteria which will be established and approved. 5. EMPLOYEE BENEFITS: You are eligible to participate in all employee benefit programs of the Trust as are generally available to other executives of the Trust. 6. OPTIONS: You have received several grants of stock options for paired shares in the Company. Such options were granted at the fair market value (i.e., closing price) of the paired shares on the NYSE on such date. Such options have and will vest one-third annually on each anniversary of the date of grant of such options, with the exception of certain options granted, which have a five year vesting period. The contingencies to vesting and any acceleration of vesting will be the same as are those generally applicable to other senior executives of the Trust and the Corporation. At the same time shares are delivered pursuant to the exercise of your options, such shares shall be subject to resale pursuant to the requirements of Rule 144. 7. RESTRICTED STOCK: You received an initial award of 15,000 paired shares of stock pursuant to a long-term Incentive Program, the details of which are contained in the proxy statement of the Trust dated November 25, 1996 ("the proxy statement"). The performance criteria and other contingencies associated with such stock or other securities shall be the same as those generally applicable to other senior executives of the Trust and Corporation. In no event will the vesting period for such restricted stock exceed three years and you will be entitled to receive dividends on your restricted stock even though the same are not fully vested (subject to prospective forfeiture in the event and to the extent that the restricted stock grant fails to vest in whole or in part.) You are entitled to certain performance awards as set forth in the proxy statement. 8. TERMINATION/SEVERANCE: The trust reserves the right to terminate your employment with or without cause at any time. In the event of an involuntary termination without cause or in the event of any breach by the Trust of your employment agreement entitling you to terminate same (after expiration of applicable notice and cure periods for the benefit of the Trust), you shall receive, as your sole right, exclusive remedy and liquidated 2231 East Camelback Road - Suite 410 - Phoenix, Arizona 85016 - Telephone 602.852.3900 - Facsimile 602.852.0984 2 February 4, 1997 Page 2 damages, a termination package equal to twelve (12) months base salary and the vesting of your options and restricted stock shall be accelerated to the date of such termination. The Trust will also continue to provide medical benefits coverage during the 12 month period subsequent to the termination of your employment. A change of control in the Company as outlined in the proxy statement will be treated in the same manner as a termination without cause. No severance shall be due in the event that you are terminated for cause or in the event that you leave the full-time employ of the Trust voluntarily. In the event of any disputes with respect to your employment by the Trust, then you and the Trust agree that the same shall be resolved through binding arbitration in the jurisdiction of the Trust's headquarters and in accordance with the rules and procedures from time to time of the American Arbitration Association. This letter represents the entirety of our agreement with respect to your employment and any prior discussions or negotiations are hereby merged herein. If this offer is acceptable to you, then please sign this letter in the space provided below and return a copy of this letter to me. Very truly yours, STARWOOD LODGING TRUST By /s/ Barry Sternlicht ----------------------- Barry Sternlicht, Chairman and Chief Executive Officer ACCEPTED AND AGREED TO: /s/ Ronald C. Brown - ---------------------- Ronald C. Brown EX-10.7 10 EMPLOYMENT AGREEMENT WITH STEVEN R. GOLDMAN 1 Exhibit 10.7 [Starwood Lodging Trust Letterhead] February 4, 1997 Mr. Steven R. Goldman 6900 Berneil Lane Paradise Valley, AZ 85253 Dear Steve, We are very pleased to confirm our understanding of your full-time employment by Starwood Lodging Trust ("The Trust") as the Senior Vice President and Director of Acquisitions. As you know, shares of the Trust trade on the NYSE as paired shares with those of Starwood Lodging Corporation, ("The Corporation"). The following will serve to confirm the principal attributes of your employment. 1. START DATE: Your employment with the Trust commenced on September 25, 1996. 2. DUTIES: You have been employed as the Senior Vice President and Director of Acquisitions of the Trust and shall perform such duties and services as may be assigned to you from time to time by the Chief Executive Officer and/or the Board of Trustees. You shall devote your full time and attention to the affairs of the Trust and to your duties as Senior Vice President and Director of Acquisitions. 3. BASE SALARY: Your base salary is expressed in annualized terms, will be $200,000 per year, payable bi-weekly and subject to the usual withholdings for FICA, 401 (k) contributions (to the extent the Trust has or adopts a 401 (k) program), state and federal unemployment tax and Medicare. 4. BONUS: You are eligible to receive a performance bonus based upon achieving specified performance criteria which will be established and approved. 5. EMPLOYEE BENEFITS: You are eligible to participate in all employee benefit programs of the Trust as are generally available to other executives of the Trust. 6. OPTIONS: You have received several grants of stock options for paired shares in the Company. Such options were granted at the fair market value (i.e., closing price) of the paired shares on the NYSE on such date. Such options have and will vest one-third annually on each anniversary of the date of grant of such options, with the exception of certain options granted, which have a five year vesting period. The contingencies to vesting and any acceleration of vesting will be the same as are those generally applicable to other senior executives of the Trust and the Corporation. At the same time shares are delivered pursuant to the exercise of your options, such shares shall be subject to resale pursuant to the requirements of Rule 144. 7. RESTRICTED STOCK: You received an initial award of 25,000 paired shares of stock pursuant to a long-term Incentive Program, the details of which are contained in the proxy statement of the Trust dated November 25, 1996 ("the proxy statement"). The performance criteria and other contingencies associated with such stock or other securities shall be the same as those generally applicable to other senior executives of the Trust and Corporation. In no event will the vesting period for such restricted stock exceed three years and you will be entitled to receive dividends on your restricted stock even though the same are not fully vested (subject to prospective forfeiture in the event and to the extent that the restricted stock grant fails to vest in whole or in part.) You are entitled to certain performance awards as set forth in the proxy statement. 8. TERMINATION/SEVERANCE: The trust reserves the right to terminate your employment with or without cause at any time. In the event of an involuntary termination without cause or in the event of any breach by the Trust of your employment agreement entitling you to terminate same (after expiration of applicable notice and cure periods for the benefit of the Trust), you shall receive, as your sole right, exclusive remedy and liquidated 2231 East Camelback Road - Suite 410 - Phoenix, Arizona 85016 - Telephone 602.852.3900 - Facsimile 602.852.0984 2 February 4, 1997 Page 2 damages, a termination package equal to twelve (12) months base salary and the vesting of your options and restricted stock shall be accelerated to the date of such termination. The Trust will also continue to provide medical benefits coverage during the 12 month period subsequent to the termination of your employment. A change of control in the Company as outlined in the proxy statement will be treated in the same manner as a termination without cause. No severance shall be due in the event that you are terminated for cause or in the event that you leave the full-time employ of the Trust voluntarily. In the event of any disputes with respect to your employment by the Trust, then you and the Trust agree that the same shall be resolved through binding arbitration in the jurisdiction of the Trust's headquarters and in accordance with the rules and procedures from time to time of the American Arbitration Association. This letter represents the entirety of our agreement with respect to your employment and any prior discussions or negotiations are hereby merged herein. If this offer is acceptable to you, then please sign this letter in the space provided below and return a copy of this letter to me. Very truly yours, STARWOOD LODGING TRUST By /s/ Barry Sternlicht ----------------------- Barry Sternlicht, Chairman and Chief Executive Officer ACCEPTED AND AGREED TO: /s/ Steven R. Goldman - ---------------------- Steven R. Goldman EX-11 11 COMBINED STATEMENT OF COMPUTATION OF EARNINGS 1 EXHIBIT 11 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION UNAUDITED COMBINED COMPUTATION OF EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three months ended March 31, ---------------------------- 1997 1996 -------- ------- Net income ........................................................... $ 7,786 $ 4,090 ======== ======= Weighted average number of paired shares outstanding during the period ................................................. 41,773 20,697 Stock option equivalents ........................................ 2,025 -- Restricted stock equivalents .................................... 514 -- Deferred stock equivalents ...................................... 1 -- -------- ------- Paired shares used for computation of primary earnings per share ..... 44,313 20,697 Reduction in stock option equivalents ............................. (123) -- -------- ------- Paired shares used for computation of fully diluted earnings per share.......................................................... 44,190 20,697 ======== ======= EARNINGS PER PAIRED SHARE: Primary ........................................................... $ 0.18 $ 0.20 ======== ======= Fully Diluted ..................................................... $ 0.18 $ 0.20 ======== =======
EX-27.1 12 FINANCIAL DATA SCHEDULE OF STARWOOD LODGING CORP.
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 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 1 23,897,000 0 43,299,000 0 0 11,337,000 120,714,000 0 199,247,000 44,083,000 0 0 0 416,000 27,924,000 199,247,000 167,113,000 167,113,000 0 121,811,000 48,867,000 0 2,574,000 (4,397,000) (4,397,000) (4,397,000) 0 0 0 (4,397,000) (0.10) 0
EX-27.2 13 FINANCIAL DATA SCHEDULE OF STARWOOD LODGING 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 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 1 124,272,000 0 231,243,000 0 0 13,995,000 1,453,065,000 0 1,822,575,000 32,357,000 0 0 0 416,000 1,069,073,000 1,822,575,000 0 49,087,000 0 0 22,447,000 0 10,459,000 12,183,000 12,183,000 12,183,000 0 0 0 12,183,000 0.28 0
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