EXHIBIT 10.3
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE (this "First Amendment to
Lease"), made as of the 24th day of November, 1997, by and between
▇▇▇▇ LIMITED PARTNERSHIP, a North Carolina limited partnership and
WINSTON HOTELS, INC., a North Carolina corporation (hereinafter
called "Lessor"), and CAPSTAR WINSTON COMPANY, L.L.C., a Delaware
limited liability company (hereinafter called "Lessee"), provides
as follows:
W I T N E S S E T H:
WHEREAS, pursuant to that certain Asset Purchase Agreement
dated as of October 29, 1997 (the "Purchase Agreement") by and
among WINSTON HOSPITALITY, INC. ("Winston"), ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, III
and ▇▇▇▇ ▇. ▇▇▇▇▇▇ ("Winston Shareholders"), CAPSTAR MANAGEMENT
COMPANY, L.P., a Delaware limited partnership ("CapStar") and
CAPSTAR HOTEL COMPANY, a Delaware corporation ("CapStar Corp."),
Winston has assigned to CapStar and CapStar has assigned to Lessee
all of its right, title and interest in 6 separate lease agreements
listed on Exhibit A attached hereto and incorporated herein by this
reference (individually, "Existing Lease" and collectively,
"Existing Leases");
WHEREAS, Lessee is an indirect subsidiary of CapStar Corp.
and, as such, is experienced in the management and operations of
facilities substantially similar to the hotel properties leased
pursuant to the Existing Leases; and
WHEREAS, Lessor (in consideration of the foregoing recital)
has consented to the assignment of the Existing Leases from Winston
to CapStar and from CapStar to Lessee, and Lessor and Lessee have
agreed to amend the Existing Leases in accordance with the terms of
this First Amendment to Lease.
NOW, THEREFORE, in consideration of the payment of rent and
the mutual agreements set forth herein and other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, Lessor and Lessee hereby amend the Existing Leases as
follows:
1. The definition of "Base Rate" is hereby modified by inserting
"prime" before "rate" on the first line thereof and by
deleting "as such bank's base rate" from the second line
thereof.
2. Section 1.2 is hereby modified by substituting "[November 30,
2012]" in lieu of "tenth anniversary of the last day of the
month in which the Commencement Date occurs" in the second and
third lines thereof.
3. The definition of "Gross Operating Profit" is hereby amended
by adding the following to the end of the definition:
No part of Lessee's central office overhead or
general or administrative expense (as opposed
to that of the Facility) shall be deemed to be
a part of Gross Operating Expenses, as herein
provided; provided that accounting services
provided to the Leased Property but performed
at Lessee's central office shall be included in
Gross Operating Expenses.
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4. Section 3.2 is hereby modified by adding the term "and
franchise reports" after the term "excise tax returns" on the
twelfth line thereof.
5. Sections 3.6 and 3.7 are hereby deleted and the following is
substituted in lieu thereof:
3.6 Annual Budget. Not later than forty-five
(45) days prior to the commencement of each
Fiscal Year, Lessee shall submit the following
Budgets to Lessor:
(a) An operating budget ("Operating
Budget") prepared in accordance with this
Section 3.6(a), in substantially the form
attached hereto as Exhibit E. The Operating
Budget shall be prepared in good faith and
otherwise in accordance with the Uniform System
to the extent applicable and shall show by
month and quarter and for the full Fiscal Year
in the degree of detail specified by the
Uniform System, the following:
(i) Lessee's reasonable estimate of
Gross Revenues (including room rates and
Room Revenues, food, beverage and other
revenues as applicable), Gross Operating
Expenses, and Gross Operating Profits for
the forthcoming Fiscal Year itemized on
schedules on a quarterly basis as approved
by Lessor and Lessee, as same may be
revised or replaced from time to time by
Lessee and approved by Lessor, together
with the assumptions, in narrative form,
forming the basis of such schedules.
(ii) A reasonable estimate of the
amounts to be dedicated to routine, non-
capital repair and maintenance; and
(iii) A cash flow projection.
(iv) Lessee's reasonable estimate of
Percentage Rent by quarter for the Fiscal
Year, and
(v) A narrative description of the
program for advertising and marketing the
Facility for the forthcoming Fiscal Year
containing a detailed budget itemization
of the proposed advertising expenditures
by category and the assumptions, in
narrative form, forming the basis of such
budget itemizations.
(b) A capital budget ("Capital Budget")
in substantially the form of Exhibit F hereto
(which shall not exceed five percent (5%) of
the estimated Room Revenues except to the
extent otherwise required in Article XXXIX),
containing a description in reasonable
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detail of the proposed Capital Improvements and
an estimate of all amounts Lessor will be
requested to provide for Capital Improvements
to the Facility or any of its components for
the Fiscal Year. The Capital Budget shall be
prepared in accordance with the Uniform System
to the extent applicable.
3.7 Approval of Capital Budget. Within thirty
(30) days following submission of the Capital
Budget to Lessor, Lessor shall give Lessee
written notice either (a) that Lessor approves
the Capital Budget or (b) indicating with
reasonable specificity the respects in which
Lessor objects to the Capital Budget. In the
latter event, Lessor and Lessee shall act
promptly, reasonably and in good faith to seek
to resolve Lessor's objections. In the event
Lessor fails to deliver the notice set forth in
this section, within the required time period,
the Capital Budget shall be deemed approved.
Lessee, in its sole discretion, may designate
proposed capital projects as "mandatory"
projects in an aggregate amount not in excess
of twenty-five percent (25%) of the Capital
Budget, which mandatory projects shall not be
subject to Lessor's approval. In the event
that Lessor and Lessee fail to reach agreement
with respect to the Capital Budget within
thirty (30) days after receipt of Lessor's
written notice, Lessee and Lessor shall refer
any disputed Capital Budget matter to
arbitration using procedures set forth in
Article XL hereto and each party shall endeavor
to cause such arbitration to be completed as
quickly as possible, but in any event not later
than six (6) months following referral to
arbitration. While any arbitration is pending,
Lessee shall continue to operate the Facility
in accordance with the terms of this Lease,
including without limitation, making all
Capital Expenditures for approved portions of
the Capital Budget and mandatory projects to
the extent such mandatory projects are included
in the Capital Budget. Lessor shall be
obligated to make all Capital Expenditures
which are required pursuant to a Capital Budget
which has been approved or deemed approved in
accordance with the procedures set forth above.
3.8 Approval of Annual Budget. Within thirty
(30) days following submission of the Annual
Budget to Lessor, Lessor shall give Lessee
written notice either (a) that Lessor approves
the Annual Budget or (b) indicating with
reasonable specificity the respects in which
Lessor objects to the Annual Budget. In the
latter event, Lessor and Lessee shall act
promptly, reasonably and in good faith to seek
to resolve Lessor's objections. In the event
that Lessor and Lessee fail to reach agreement
with respect to the Annual Budget within thirty
(30) days after receipt of Lessor's written
notice, Lessee and Lessor shall refer any
disputed Annual Budget matter to arbitration
using procedures set forth in Article XL hereto
and each party shall endeavor to cause such
arbitration to be completed as
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quickly as possible, but in any event not later
than six (6) months following referral to
arbitration.
3.9 Capital Projects.
(a) The selection of all design
professionals and contractors for material
capital projects (i.e., in excess of $25,000)
shall be made by Lessor in its reasonable
discretion, after consultation with Lessee.
(b) Lessor may require that all contracts
in connection with capital projects be subject
to competitive bidding procedures reasonably
acceptable to Lessor. Lessor shall also have
the right to review and approve all material
contract bids (i.e., in excess of $25,000)
whether competitively bid or not. Lessor may
also retain, at its sole cost and expense, an
inspecting architect or engineer to monitor
costs, time, quality and performance for all
capital projects.
3.10 Books and Records. Lessee shall keep full
and adequate books of account and other records
reflecting the results of operation of the
Facility on an accrual basis, all in accordance
with the Uniform System and generally accepted
accounting principles to the extent applicable
and the obligations of Lessee under this Lease.
The books of account and all other records
relating to or reflecting the operation of the
Facility shall be kept either at the Facility
or at Lessee's offices in Raleigh, North
Carolina and shall be available to Lessor and
its representatives and its auditors or
accountants, at all reasonable times for
examination, audit, inspection, and
transcription. All of such books and records
pertaining to the Facility including, without
limitation, books of account, guest records and
front office records, at all times shall be the
property of Lessor and shall not be removed
from the Facility or Lessee's offices without
Lessor approval.
6. Article IV is hereby amended by adding the following as
Section 4.6:
4.6 Franchise Fees. Lessee will pay or cause
to be paid in a timely manner all franchise
fees due and owing in accordance with the terms
and conditions of the Franchise Agreement.
7. The last sentence of Section 5.2 is hereby deleted and the
following is substituted in lieu thereof:
If Lessor and Lessee are unable to agree upon
the amount of such abatement within 30 days
after such partial Taking, the matter may be
submitted by either party to arbitration
pursuant to the arbitration procedures set
forth in Article XL.
8. The sentence prior to the final sentence of Section 6.2 is
hereby deleted and the following is substituted in lieu
thereof:
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Upon the expiration or earlier termination of
the Term, Lessor or its designee shall retain
ownership of "par stock" (as such term is
generally used within the hotel industry) of
Inventory and shall have the option to purchase
all Inventory on hand at the Leased Property at
the time of such expiration or termination in
excess of par stock for a sale price equal to
the fair market value of such Inventory.
9. Section 7.2(f) is hereby deleted and the following is
substituted in lieu thereof:
(f) Lessee agrees to deliver to Lessor
upon request by Lessor from time to time a list
of hotels and motels (and locations) owned or
managed by Lessee and its Affiliates.
(g) During the Term, neither Lessee nor
any Affiliate of Lessee that is "controlled" by
CapStar (i.e., CapStar owns, directly or
indirectly, fifty percent (50%) or more of the
ownership interests in such entity or has the
ability to direct management of such entity)
("Controlled Affiliate") shall build or develop
a hotel, motel, inn or other lodging facility
within five (5) miles of, and in direct
competition with, the Leased Property, (i.e.,
such lodging facility is substantially similar
to the Leased Property with respect to level of
services provided, market segment and price
point). In the event that Lessee or a
Controlled Affiliate acquires, owns, operates
or manages a hotel, motel, inn or other lodging
facility within five (5) miles of the Leased
Property, Lessee agrees that, during the Term,
neither it nor its Controlled Affiliate will
solicit on a targeted basis any executive or
managerial employees or material customer
accounts of the Leased Property.
10. Article XIV is hereby deleted and the following is
substituted in lieu thereof:
14.1 Insurance Proceeds. Subject to the
provisions of Section 14.5, all proceeds
payable by reason of any loss or damage to the
Leased Property, or any portion thereof, and
insured under any policy of insurance required
by Article XIII of this Lease shall be paid to
Lessor and shall be made available, in
accordance with this Article, for
reconstruction or repair, as the case may be,
of any damage to or destruction of the Leased
Property, or any portion thereof, and, if
applicable, shall be paid out by Lessor from
time to time for the reasonable costs of such
reconstruction or repair upon satisfaction of
reasonable terms and conditions specified by
Lessor.
14.2 Reconstruction in the Event of Damage or
Destruction Covered by Insurance.
(a) If the Leased Property is totally or
partially destroyed by a risk covered by the
insurance described in Article XIII and the
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Facility thereby is rendered Unsuitable for its
Primary Intended Use, Lessor may, at Lessor's
option to be exercised within ninety (90) days
after the date of such occurrence, restore the
Facility to substantially the same condition as
existed immediately before the damage or
destruction and otherwise in accordance with
the terms of the Lease.
(b) If the Leased Property is partially
destroyed by a risk covered by the insurance
described in Article XIII, but the Facility is
not thereby rendered Unsuitable for its Primary
Intended Use, Lessor shall promptly restore the
Facility to substantially the same condition as
existed immediately before the damage or
destruction and otherwise in accordance with
the terms of the Lease to the extent of
insurance proceeds received by Lessor.
14.3 Lessee's Property. All insurance proceeds
payable by reason of any loss of or damage to
any of Lessee's Personal Property shall be paid
to Lessee; provided, however, no such payments
shall diminish or reduce the insurance payments
otherwise payable to or for the benefit of
Lessor hereunder.
14.4 Abatement of Rent. Any damage or
destruction due to casualty notwithstanding,
this Lease shall remain in full force and
effect and Lessee's obligation to make rental
payments and to pay all other charges required
by this Lease shall remain unabated during the
first six months of any period required for the
applicable repair and restoration. Thereafter,
Base Rent shall be equitably abated.
14.5 Damage Near End of Term. If damage to or
destruction of the Facility rendering it
Unsuitable for its Primary Intended Use occurs
during the last 24 months of the Term, then
Lessor shall have the right to terminate this
Lease by giving written notice to Lessee within
30 days after the date of damage or
destruction, whereupon all accrued Rent shall
be paid immediately, and this Lease shall
automatically terminate five days after the
date of such notice.
14.6 Waiver. Lessee hereby waives any statutory
rights of termination that may arise by reason
of any damage or destruction of the Facility
that Lessor is obligated to restore or may
restore under any of the provisions of this
Lease.
11. Section 15.3 is hereby modified by deleting "subject to the
provisions of Section 15.7," from the second line thereof and
by deleting the last sentence thereof.
12. Section 15.5 is hereby modified by substituting "Lessor" in
lieu of "Lessee" in the fourth line thereof and by deleting
the last sentence thereof.
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13. Section 15.6 is hereby modified by substituting "Lessor" in
lieu of "Lessee" in both instances where it appears on the
thirteenth line thereof by deleting the parenthetical phrase
"(subject to Lessor's contributions as set forth below)" where
it appears on the fifteenth line, and by deleting the last
sentence thereof.
14. Article 15 is hereby modified by deleting Section 15.7
therefrom.
15. Section 16.1 is hereby deleted and the following is
substituted in lieu thereof:
16.1 Events of Default. If any one or more of
the following events (individually, an "Event
of Default") occurs:
(a) if an Event of Default occurs under
any other lease between Lessor and Lessee any
Controlled Affiliate; or
(b) if Lessee fails to make payment of
the Base Rent, Percentage Rent or Additional
Charges within fifteen (15) days after the same
becomes due and payable; or
(c) if Lessee fails to observe or perform
any other term, covenant or condition of this
Lease and such failure is not cured by Lessee
within a period of thirty (30) days after
receipt by such party of Notice thereof from
Lessor, unless such failure cannot with due
diligence be cured within a period of thirty
(30) days, in which case it shall not be deemed
an Event of Default if Lessee proceeds promptly
and with due diligence to cure the failure and
diligently completes the curing thereof
provided, however, in no event shall such cure
period extend beyond 90 days after such Notice
(provided that no Event of Default shall be
deemed to have occurred pursuant to this
subsection (c) to the extent that Lessee's
failure to observe or perform any term,
covenant or condition of this Lease is caused
by Lessor's failure to fulfill its obligations
under this Lease); or
(d) if there occurs a transfer of a
controlling interest in Lessee (50% or more of
the ownership interests in Lessee) without the
prior consent of Lessor, which may be withheld
in Lessor's sole discretion, subject to
Section 23.1 as modified hereby; or
(e) if Lessee shall file a petition in
bankruptcy or reorganization for an arrangement
pursuant to any federal or state bankruptcy law
or any similar federal or state law, or shall
be adjudicated a bankrupt or shall make an
assignment for the benefit of creditors or
shall admit in writing its inability to pay its
debts generally as they become due, or if a
petition or answer proposing the adjudication
of Lessee as a bankrupt or its reorganization
pursuant to any federal or state bankruptcy law
or any similar federal or state law shall be
filed in any court and Lessee shall be
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adjudicated a bankrupt and such adjudication
shall not be vacated or set aside or stayed
within sixty (60) days after the entry of an
order in respect thereof, or if a receiver of
the Lessee of the whole or substantially all of
the assets of the Lessee shall be appointed in
any proceedings brought by the Lessee or if any
such receiver, trustee or liquidator shall be
appointed in any proceeding brought against
Lessee shall not be vacated or set aside or
stayed within sixty (60) days after such
appointment; or
(f) if Lessee is liquidated or dissolved,
or begins proceedings toward such liquidation
or dissolution, or, if Lessee in any manner,
permits the sale or divestiture of
substantially all of its assets; or
(g) if the estate or interest of Lessee
in the Leased Property or any part thereof is
voluntarily or involuntarily transferred,
assigned, conveyed, levied upon or attached in
any proceeding (unless Lessee is contesting
such lien or attachment in good faith in
accordance with this Lease); or
(h) if, except as a result of damage,
destruction or a partial or complete
Condemnation, Lessee voluntarily ceases
operations on the Leased Property for a period
in excess of thirty (30) days; or
(i) if an event of default has been
declared by the franchisor under the Franchise
Agreement with respect to the Facility on the
Leased Property as a result of any action or
failure to act by the Lessee or any other
person with whom Lessee contracts for
management services at the Facility, other than
a failure to complete improvements required by
the franchisor because Lessor has not provided
funds for such improvements to the extent
required pursuant to this Lease; or
(j) the occurrence of an Event of Default
under the Guarantee of Lease executed by
CapStar Corp. in favor of Lessor with respect
to Lessee's obligations under this Lease.
Then, and in any such event, Lessor may
exercise one or more remedies available to it
herein or at law or in equity, including but
not limited to its right to terminate this
Lease giving Lessee not less than ten (10)
days' notice of such termination.
If litigation is commenced with respect to
any alleged default under this Lease, the
prevailing party in such litigation shall
receive, in addition to its damages incurred,
such sum as the court shall
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determine as its reasonable attorneys' fees, and
all costs and expenses incurred in connection
therewith.
16. Section 19.6 is hereby deleted and the following is
substituted in lieu thereof:
19.6 Payments to Affiliates of Lessee.
Notwithstanding anything to the contrary
contained in this Lease, Lessee shall make no
payments to Affiliates unless expressly set
forth in the Annual Budget (which may provide
for payment of management fees to an Affiliate
of Lessee) or otherwise expressly agreed to in
writing by Lessor, in either case, after full
written disclosure (including information
regarding competitive pricing) by Lessee to
Lessor of the affiliation and any other related
information requested by Lessor.
19.7 Management Agreement. Lessor shall have
the right in its sole and absolute discretion
to approve or disapprove in advance any manager
or proposed manager (a "Manager") of the
Facility which is not an Affiliate of Lessee,
as well as any agreement relating to the
management or operation of the Facility (a
"Management Agreement") by a Manager which is
not an Affiliate of Lessee and Lessee will
provide Lessor with an executed copy of any
Management Agreement so approved by Lessor.
Any Management Agreement (whether with a
Manager which is an Affiliate or is not an
Affiliate of Lessee) must provide that (i) upon
termination of this Lease or termination of
Lessor's or Lessee's right to possession of the
Leased Property for any reason, the Management
Agreement may be terminated by Lessor without
liability for any payment due or to become due
to the Manager thereunder; (ii) any management
fees shall be subordinated to payments of Rent
to Lessor hereunder; and (iii) in the event
Lessee is in default, the Manager shall, at the
election of Lessor and provided the Manager
continues to be paid, continue to perform under
the terms of the Management Agreement for a
period not to exceed ninety (90) days. No fees
or other amounts payable by Lessee to any
Manager shall excuse Lessee from its
obligations to pay Rent and other amounts
payable by Lessee to Lessor hereunder. No
Management Agreement may be amended or modified
in any manner which materially affects the
subordination of the management fees without
the prior written consent of Lessor.
17. Article XXII is hereby amended by adding the
following paragraphs thereto:
Add immediately following the first paragraph:
Without limiting the generality of the
foregoing paragraph, Lessee shall indemnify,
save harmless and defend Lessor Indemnified
Parties (including, but not limited to, any
Lessor Indemnified Party that is a guarantor of
the Franchise Agreement pursuant to which the
Leased Property is currently operated)
("Current Franchise Agreement") from and
against all liabilities,
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obligations, claims, damages, penalties, causes
of action, costs and expenses (including, but not
limited to, transfer fees and termination fees)
imposed upon or incurred by or asserted against Lessor
Indemnified Parties under or with respect to
the Current Franchise Agreement which arises as
a result of (a) any default by Lessee under the
terms of this Lease; or (b) any default by
Lessee under the Current Franchise Agreement.
Add immediately following the second paragraph:
Without limiting the generality of the
foregoing paragraph, Lessor shall indemnify,
save harmless and defend Lessee Indemnified
Parties (including, but not limited to, any
Lessee Indemnified Party that is a guarantor of
the Current Franchise Agreement) from and
against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and
expenses (including, but not limited to,
transfer fees and termination fees) imposed
upon or incurred by or asserted against Lessee
Indemnified Parties under or with respect to
the Current Franchise Agreement which arises as
a result of (a) any default by Lessor under the
terms of this Lease; (b) the sale by Lessor of
the Leased Property or any interest of Lessor
in the Leased Property; or (c) any act or
omission of any person that acquires the Leased
Property or any interest of Lesser in the
Leased Property.
18. Section 23.1 is hereby modified by adding the following to the
end of Section 23.1:
Notwithstanding the foregoing, Lessor's prior
consent is not required for assignments of this
Lease in connection with a "change of control"
transaction involving CapStar or CapStar Corp.
(i.e., a merger, consolidation, sale or
exchange of greater than 50% of the stock or
other equity interest in either entity or a
sale of all or substantially all of the assets
of either entity.
19. Article XXIV is hereby modified by (i) substituting "an
accounting firm acceptable to Lessor in its reasonable
discretion" in lieu of "the same certified independent
accounting firm that prepares the returns for Lessor or such
other accounting firm as may be approved by Lessor" on the
third through fifth line of subsection (b) thereof and (ii)
deleting subsection (d) thereof.
20. Article XXXII is hereby amended by inserting "1010 ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇, Attention: Chief
Executive Officer, with a copy to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.,
▇▇▇▇▇▇▇, Diamond & Ash, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇" as Lessee's address for purposes of notices.
21. Articles XXXVIII, XXXIX and XL are hereby deleted and the
following is substituted in lieu thereof:
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ARTICLE XXXVIII
Compliance with Franchise Agreement. Lessee
shall comply in every respect with the
provisions of the Franchise Agreement so as to
avoid any default thereunder during the term of
this Agreement, except to the extent such
compliance is an obligation of Lessor pursuant
to the terms of this Lease. Lessee shall not
terminate, extend, modify or enter into any
Franchise Agreement without in each instance
first obtaining Lessor's prior written consent.
Lessor and Lessee agree to cooperate fully with
each other in the event it becomes necessary to
obtain a Franchise Agreement extension or
modification or a new franchise for the Leased
Property. If the Franchise Agreement expires
prior to the expiration of the Lease Term,
Lessee, with the prior approval of Lessor,
shall use its good faith efforts to obtain a
new franchise license for the Leased Property,
together with a comfort letter in favor of
Lessor in form acceptable to Lessor.
ARTICLE XXXIX
Capital Expenditures and Reserves. Lessor
agrees to establish a reserve account together
with all interest earned thereon for each
Facility (the "Capital Expenditure Reserve
Account") to fund Capital Expenditures in an
amount equal to five percent (5%) of annual
Room Revenues from each Facility (or such
greater amount necessary to fund capital
improvements required to comply with applicable
Legal Requirements or any requirements imposed
by the franchisor in accordance with the
Franchise Agreement or necessary to maintain
the safety or structural soundness of the
Leased Property), net of amounts actually
expended for Capital Expenditures for such
Facility during any Fiscal Year. Any funds
escrowed pursuant to a Franchise Agreement or
Mortgage and designated for Capital
Expenditures shall be deemed to be part of the
Capital Expenditure Reserve Account for the
applicable Leased Property. Any funds escrowed
pursuant to a Mortgage may be pledged as
security for such Mortgage, which pledge may
provide that, in the event of a default by
Lessor under the Mortgage, the escrowed funds
may be applied to the balance of the loan
secured by the Mortgage; provided, however,
that in the event the holder of the Mortgage
exercises such remedy, Lessor shall be
obligated immediately to deposit into the
Capital Expenditure Reserve Account any amount
which may then be necessary to bring the funds
in such account (together with any funds
remaining in any other accounts of Lessor
dedicated for such purpose) up to the aggregate
level required by this Article XXXIX . Lessor
shall make such proceeds available for Capital
Expenditures on the same terms and conditions
set forth in such Mortgage provided the same
are comparable to the terms of this Lease. The
Capital Expenditure Reserve Account for each
Facility may be commingled by Lessor with
similar accounts of Lessor with respect to
other hotel properties leased by Lessor to
Lessee. The Capital Expenditures disbursed for
a
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particular Facility shall be made pursuant to
a Capital Budget and such expenditures may be
more or less than the five percent (5%) of
annual Room Revenues reserved by Lessor for
such Facility in the Capital Expenditure
Reserve Account. Upon request by Lessee not
more frequently than twice a year, Lessor shall
provide Lessee a written report stating the
amounts held in such Capital Expenditure
Reserve Account with respect to each Leased
Property and amounts disbursed out of said
account with respect to each Leased Property
during the prior Fiscal Year. Upon written
request by Lessee to Lessor stating the
specific use to be made and the reasonable
approval thereof by Lessor, the funds in the
Capital Expenditure Reserve Account shall be
made available by Lessor for use by Lessee for
Capital Expenditures in connection with the
Primary Intended Use; provided, however, that
no amounts made available under this Article
shall be used to purchase property (other than
"real property" within the meaning of Treasury
Regulations Section 1.856-3(d)), to the extent
that doing so would cause the Lessor to
recognize income other than "rents from real
property" as defined in Section 856(d) of the
Code. All amounts in the Capital Expenditure
Reserve Account are the property of Lessor.
Lessee shall have no interest in the Capital
Expenditure Reserve Account other than with
respect to the funding of amounts in a Capital
Budget approved by Lessor.
ARTICLE XL
Arbitration. Except as otherwise expressly
provided, in the event a dispute should arise
concerning the interpretation or application of
any of the provisions of this Lease, the
parties agree that the dispute shall be
submitted to arbitration of the American
Arbitration Association under its then
prevailing rules, except as modified by this
Article XL. The Arbitration Tribunal shall be
formed of three (3) Arbitrators each of which
shall have at least five (5) years' experience
in hotel operation, management or ownership,
one (1) to be appointed by each of Lessor and
Lessee and the third (3rd) to be appointed by
the American Arbitration Association. The
arbitration shall take place in the county in
which the Leased Property is located and shall
be conducted in the English language. The
arbitration award shall be final and binding
upon the parties hereto and subject to no
appeal, and shall deal with the question of
costs of arbitration and all matters related
thereto. Judgment upon the award rendered may
be entered into any court having jurisdiction,
or applications may be made to such court for
an order of enforcement. Any arbitration under
this Article XL shall be submitted within three
(3) months following the notice which triggers
the arbitration, and shall be concluded within
one (1) year thereafter. In the event either
of the foregoing deadlines are missed, either
party may proceed to commence a court
proceeding to resolve the dispute.
Page 13
ARTICLE XLI
Sale and Termination of Lease. In the event
Lessor enters into a contract to sell its
interest in the Leased Property, Lessor may
terminate the Lease by giving thirty (30) days
prior Notice to Lessee, and then, as of the
closing of such sale, the Lease shall terminate
and be of no further force and effect except as
to any obligations existing as of such date
that survive termination of the Lease, and all
Rent shall be adjusted as of such date. As
compensation for the early termination of
Lessee's leasehold estate hereunder, Lessor
shall, at Lessor's election either (a) pay to
Lessee an amount equal to the Net Present Value
(as hereinafter defined), as of the closing of
the sale, of the cash flow to Lessee from the
operations of the Leased Property being sold
(after payment of all Rent hereunder) (the
"Termination Payment") or (b) within sixty (60)
days after termination of the Lease pursuant to
this Article offer to lease to the Lessee one
or more substitute hotel facilities comparable
to the Leased Property (i.e., comparable market
and substantially similar class, quality and
condition of property) pursuant to one or more
leases ("Substitute Leases") that would create
for Lessee leasehold estates that have an
aggregate Fair Market Value of no less than the
Fair Market Value of the then remaining term of
the Lease with respect to the Leased Property.
If Lessor elects and complies with the option
described in (b) above, regardless of whether
Lessee enters into any of the Substitute
Leases, Lessor shall have no further
obligations to Lessee with respect to
compensation for the early termination of this
Lease. In the event Lessor elects the option
to provide one or more Substitute Leases and
Lessor and Lessee are unable to agree within
three (3) months upon the Fair Market Value of
the then remaining term of this Lease or one or
more Substitute Leases, such value(s) shall be
determined by appraisal using the appraisal
procedure set forth in Article XL. The "Net
Present Value" of the cash flow to Lessee from
the operations of the Leased Property shall be
determined by aggregating the "Projected Annual
Discounted Cash Flows" for each fiscal year or
portion thereof remaining in the Lease Term.
To determine Projected Annual Discounted Cash
Flow for each fiscal year or portion thereof,
the "Projected EBITDA" for each such year shall
be discounted to the date the Termination
Payment is made at a discount rate equal to ten
percent (10%). "Projected EBITDA" for the
fiscal year in which the termination occurs
shall be the average annual "EBITDA" for the
three (3) Fiscal Years prior to the date of
termination (or, if three fiscal years have not
elapsed between the date of this First
Amendment to Lease and the date of termination,
the average annual EBITDA for such shorter
period). The Projected EBITDA for each
subsequent year shall be increased at a
compound rate equal to the average annual
percentage increase in the CPI for the three
(3) Fiscal Years prior to the date of
termination (or, if three fiscal years have not
elapsed between the date of this First
Page 14
Amendment to Lease and the date of termination,
the average annual percentage increase for such
shorter period). "EBITDA" shall mean net
earnings before interest, taxes, depreciation
and amortization.
ARTICLE XLII
Extension. Commencing on January 1, 2012,
Lessor agrees to negotiate in good faith for an
extension of the Term for a subsequent fifteen
(15) year period, the terms of which shall be
based on the fair market value of the leasehold
interest based on then prevailing rental rates
for similar properties owned by Real Estate
Investment Trusts and leased to unaffiliated
third parties; provided, however, that nothing
in this Article shall be deemed to obligate
Lessor to lease the Leased Property to Lessee
beyond the Term or seek any appraisal to
determine the fair market value of such
leasehold interest.
ARTICLE XLIII
Lessee Information for SEC Filings. To the
extent generally accepted accounting principles
or the rules and regulations of the Securities
and Exchange Commission ("SEC") require
financial or other information regarding the
Lessee to be included in any filings of Winston
Hotels, Inc. with the SEC, the Lessee hereby
agrees to provide to the Lessor and Winston
Hotels, Inc. such information promptly upon
request and to use its best efforts to respond
to any comments of the SEC or any other
governmental or regulatory body with respect
thereto. The information provided by Lessee
for inclusion in any SEC filing of Winston
Hotels, Inc. shall not contain any false or
misleading statement of a material fact or omit
to state any material fact necessary in order
to make the statements made, in light of the
circumstances under which they were made, not
misleading. Lessor shall pay for all third
party accounting costs incurred by Lessee in
complying with the requirements of this Article
for the calendar year 1997; thereafter, Lessor
and Lessee shall split any such third party
accounting costs.
All capitalized terms used herein and not otherwise defined
herein shall have the meanings ascribed to them in the Existing
Lease. Except as expressly amended and modified hereby, the
Existing Lease shall otherwise remain in full force and effect, the
parties hereto hereby ratifying and
confirming the same. To the extent of any inconsistency between
the Existing Lease and this First Amendment to Lease, the terms of
this First Amendment to Lease shall control.
Page 14
IN WITNESS WHEREOF, the parties have executed this First
Amendment to Lease by their duly authorized officers as of the date
first above written.
LESSOR
Signed and acknowledged ▇▇▇▇ LIMITED PARTNERSHIP, a
in the presence of: North Carolina limited partnership
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, III
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ -------------------------------
------------------- Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, III
Printed Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------
Printed Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Signed and acknowledged WINSTON HOTELS, INC., a
in the presence of: North Carolina corporation
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, III
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ --------------------------------
------------------- Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, III
Printed Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------
Printed Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
LESSEE
Signed and acknowledged CAPSTAR WINSTON COMPANY, L.L.C.,
in the presence of: a Delaware limited liability company
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇ ---------------------------------
------------------ Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Printed Name: ▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------
Printed Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
