Exhibit 10.11


 


GROUND
LEASE


 


BY AND BETWEEN


 


GEARY
HOTEL HOLDINGS, LLC,  

a Delaware limited liability company


 


AS LESSOR


 


And


 


CLIFT
HOLDINGS, LLC,

a Delaware limited liability company


 


AS LESSEE


 


DATED October 14,
2004


 





















 


TABLE OF CONTENTS


 


	
  1.

  	
  Definitions

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  Lease of Premises

  	
   

  
	
   

  	
  2.1

  	
  Lease of Premises

  	
   

  
	
   

  	
  2.2

  	
  Assignment of Acquired Interests

  	
   

  
	
   

  	
  2.3

  	
  Acceptance of the Premises

  	
   

  
	
   

  	
  2.4

  	
  Purchase Agreement

  	
   

  
	
   

  	
  2.5

  	
  Hotel Operations

  	
   

  
	
   

  	
  2.6

  	
  Quiet Enjoyment

  	
   

  
	
   

  	
  2.7

  	
  Materiality Provisions

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  Lease Term

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.1

  	
  Lease Term

  	
   

  
	
   

  	
  3.2

  	
  Possession

  	
   

  
	
   

  	
  3.3

  	
  Memorandum of Lease

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  Rent

  	
   

  
	
   

  	
  4.1

  	
  Annual Base Rent

  	
   

  
	
   

  	
  4.2

  	
  Rent and Additional Rent
  Defined

  	
   

  
	
   

  	
  4.3

  	
  Payment of Rent

  	
   

  
	
   

  	
  4.4

  	
  Lessee’s Obligations
  Unconditional

  	
   

  
	
   

  	
  4.5

  	
  Late Charge

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  Net
  Lease; Taxes and Assessments

  	
   

  
	
   

  	
  5.1

  	
  Net Lease

  	
   

  
	
   

  	
  5.2

  	
  Project Costs

  	
   

  
	
   

  	
  5.3

  	
  Payment of Taxes and
  Assessments

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  Use of Premises

  	
   

  
	
   

  	
  6.1

  	
  Permitted Use

  	
   

  
	
   

  	
  6.2

  	
  No Nuisance

  	
   

  
	
   

  	
  6.3

  	
  Applicable Requirements

  	
   

  
	
   

  	
  6.4

  	
  Utility Easements Over
  Premises

  	
   

  



 


i





















 


	
   

  	
  6.5

  	
  Lessor’s Right of Entry

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  Operation of
  Hotel

  	
   

  
	
   

  	
  7.1

  	
  Hotel Business

  	
   

  
	
   

  	
  7.2

  	
  Escrow Accounts

  	
   

  
	
   

  	
  7.3

  	
  FF&E Reserve Account

  	
   

  
	
   

  	
  7.4

  	
  Improvements and
  Alterations

  	
   

  
	
   

  	
  7.5

  	
  Operating and Financial
  Reports for Hotel

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  Surrender

  	
   

  
	
   

  	
  8.1

  	
  Surrender of Premises and
  Assigned Acquired Interests

  	
   

  
	
   

  	
  8.2

  	
  Surrender

  	
   

  
	
   

  	
  8.3

  	
  Holding Over

  	
   

  
	
   

  	
  8.4

  	
  Survival

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  Management of
  Hotel

  	
   

  
	
   

  	
  9.1

  	
  Operator and Food and
  Beverage Operators

  	
   

  
	
   

  	
  9.2

  	
  Management Agreement; Food
  and Beverage Operator Agreements

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  Insurance
  and Indemnity

  	
   

  
	
   

  	
  10.1

  	
  Required Insurance

  	
   

  
	
   

  	
  10.2

  	
  Policy Form and General
  Requirements

  	
   

  
	
   

  	
  10.3

  	
  Lessee’s Indemnity

  	
   

  
	
   

  	
  10.4

  	
  Lessee’s Assumption of
  Risk and Waiver

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  Alterations

  	
   

  
	
   

  	
  11.1

  	
  Permitted Alterations

  	
   

  
	
   

  	
  11.2

  	
  Designated Alterations

  	
   

  
	
   

  	
  11.3

  	
  Required Alterations

  	
   

  
	
   

  	
  11.4

  	
  Design of Alterations

  	
   

  
	
   

  	
  11.5

  	
  Construction of
  Alterations

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
  Hazardous
  Materials

  	
   

  
	
   

  	
  12.1

  	
  Use of Hazardous
  Materials; Compliance with Environmental Laws

  	
   

  
	
   

  	
  12.2

  	
  Releases

  	
   

  
	
   

  	
  12.3

  	
  Remediation

  	
   

  
	
   

  	
  12.4

  	
  Lessee’s Environmental
  Indemnity

  	
   

  



 


ii





















 


	
   

  	
  12.5

  	
  Waiver and Release

  	
   

  
	
   

  	
  12.6

  	
  Survival

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  13.

  	
  Assignment
  and Subletting

  	
   

  
	
   

  	
  13.1

  	
  Lessor’s Consent

  	
   

  
	
   

  	
  13.2

  	
  Approval of Transfer
  Documentation

  	
   

  
	
   

  	
  13.3

  	
  Administrative Costs

  	
   

  
	
   

  	
  13.4

  	
  Continuing Responsibility

  	
   

  
	
   

  	
  13.5

  	
  Successors

  	
   

  
	
   

  	
  13.6

  	
  Right to Collect Rent

  	
   

  
	
   

  	
  13.7

  	
  Lessor’s Right to Mortgage
  or Encumber

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  14.

  	
  Events
  of Default; Lessor’s Remedies

  	
   

  
	
   

  	
  14.1

  	
  Events of Default

  	
   

  
	
   

  	
  14.2

  	
  Lessor’s Remedies

  	
   

  
	
   

  	
  14.3

  	
  Survival of Obligations

  	
   

  
	
   

  	
  14.4

  	
  Reentry No Acceptance of
  Surrender

  	
   

  
	
   

  	
  14.5

  	
  Application of Payments

  	
   

  
	
   

  	
  14.6

  	
  Waiver of Notice and Right
  of Redemption

  	
   

  
	
   

  	
  14.7

  	
  Rights Cumulative

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  15.

  	
  Impairment
  of Lessor’s Title; Leasehold Mortgage

  	
   

  
	
   

  	
  15.1

  	
  No Encumbrance on Lessor’s
  Title

  	
   

  
	
   

  	
  15.2

  	
  Adverse Claims

  	
   

  
	
   

  	
  15.3

  	
  Lessor’s Notice of
  Nonresponsibility

  	
   

  
	
   

  	
  15.4

  	
  Liens

  	
   

  
	
   

  	
  15.5

  	
  Leasehold Financing

  	
   

  
	
   

  	
  15.6

  	
  Equipment Financing

  	
   

  
	
   

  	
  15.7

  	
  Lender Protections

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  16.

  	
  Representations,
  Warranties and Covenants

  	
   

  
	
   

  	
  16.1

  	
  Lessee’s Representations,
  Warranties and Covenants

  	
   

  
	
   

  	
  16.2

  	
  Lessor’s Representations,
  Warranties and Covenants

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  17.

  	
  Casualty
  or Appropriation

  	
   

  
	
   

  	
  17.1

  	
  No Termination; No Effect
  on Rental Obligation

  	
   

  



 


iii





















 


	
   

  	
  17.2

  	
  Evaluation of Extent and
  Effect of Casualty or Appropriation

  	
   

  
	
   

  	
  17.3

  	
  Effect of Casualty

  	
   

  
	
   

  	
  17.4

  	
  Effect of Appropriation

  	
   

  
	
   

  	
  17.5

  	
  Allocation of Award

  	
   

  
	
   

  	
  17.6

  	
  Restoration Work;
  Disbursement of Proceeds

  	
   

  
	
   

  	
  17.7

  	
  Termination

  	
   

  
	
   

  	
  17.8

  	
  Emergency Repairs

  	
   

  
	
   

  	
  17.9

  	
  No Extension of Term; Rent
  Obligations Continue

  	
   

  
	
   

  	
  17.10

  	
  Right to Participate in
  Settlement

  	
   

  
	
   

  	
  17.11

  	
  Disputes

  	
   

  
	
   

  	
  17.12

  	
  Survival

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  18.

  	
  Arbitration
  of Specified Disputes

  	
   

  
	
   

  	
   

  	
   

  
	
  19.

  	
  Financial
  Information

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  20.

  	
  General
  Provisions

  	
   

  
	
   

  	
  20.1

  	
  Notices

  	
   

  
	
   

  	
  20.2

  	
  Estoppel Certificates

  	
   

  
	
   

  	
  20.3

  	
  Nonrecourse to Lessor

  	
   

  
	
   

  	
  20.4

  	
  Attorneys’ Fees

  	
   

  
	
   

  	
  20.5

  	
  No Waiver

  	
   

  
	
   

  	
  20.6

  	
  Amendment

  	
   

  
	
   

  	
  20.7

  	
  Successors and Assigns

  	
   

  
	
   

  	
  20.8

  	
  No Joint Venture or Loan
  Transaction

  	
   

  
	
   

  	
  20.9

  	
  Severability

  	
   

  
	
   

  	
  20.10

  	
  No Recordation; Quitclaim

  	
   

  
	
   

  	
  20.11

  	
  Interpretation

  	
   

  
	
   

  	
  20.12

  	
  Entire Agreement

  	
   

  
	
   

  	
  20.13

  	
  Governing Law and Forum

  	
   

  
	
   

  	
  20.14

  	
  Brokers

  	
   

  
	
   

  	
  20.15

  	
  No Dedication

  	
   

  
	
   

  	
  20.16

  	
  No Third Party
  Beneficiaries

  	
   

  
	
   

  	
  20.17

  	
  Limitation on Effect of
  Approvals

  	
   

  
	
   

  	
  20.18

  	
  Time of the Essence

  	
   

  



 


iv





















 


	
   

  	
  20.19

  	
  Termination Not Merger

  	
   

  
	
   

  	
  20.20

  	
  Waiver of Limitation on
  Releases

  	
   

  



 


	
   

  	
  Exhibit

  	
   

  	
   

  
	
   

  	
  A

  	
  Description of Premises

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  B

  	
  Existing Hotel Operating
  Agreements

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  C

  	
  Memorandum of Lease

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  D

  	
  Outline of Liquor License
  Entity Operating Agreement Terms

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  E-1

  	
  Form of Account Control
  Agreement (Bank Accounts)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  E-2

  	
  Form of Account Control
  Agreement (Escrow Accounts)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  F

  	
  Approved Designated Alterations

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  G

  	
  Approved Asbestos O&M Plan

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Schedule

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1

  	
  List of Initial Disqualified
  Expenses

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2

  	
  Schedule of Unsecured
  Creditors

  	
   

  



 


v





















 


GROUND LEASE


 


THIS GROUND LEASE (“Lease”)
is made and entered into as of October 14, 2004 (the “Effective Date”), by and
between GEARY HOTEL HOLDINGS, LLC, a Delaware
limited liability company (“Lessor”), and
CLIFT HOLDINGS, LLC, a Delaware
limited liability company (“Lessee”).


 


RECITALS


 


A.                  Lessor,
as purchaser (in such capacity, “Purchaser”),
and Lessee, as seller (in such capacity, “Seller”),
are parties to that certain Purchase and Sale Agreement, dated as of June 29,
2004 (as amended from time to time, the “Purchase
Agreement”), providing for, among other things, the sale by
Seller and the purchase by Purchaser of the Land (as defined in the Purchase
Agreement), commonly known as 495 Geary Street, located in the City and
County of San Francisco, California, and more particularly described in Exhibit A
attached hereto, together with all Appurtenances,
Improvements (including the Hotel, as defined hereinbelow), Personal Property,
Intangible Property (including without limitation all rights to the use of the
name “Clift Hotel” and all derivatives thereof), and Licenses and Approvals, as
such capitalized terms are defined in, but only to the extent intended to be
acquired by Purchaser under, the Purchase Agreement (collectively, the “Acquired Interests”).  The Improvements presently consist of a
luxury hotel facility commonly known as the Clift Hotel, containing 363 keyed
furnished guest rooms and suites, together with banquet, meeting and conference
rooms, food and beverage facilities, gift and sundry shops, fitness center, and
other amenities (the “Hotel”).


 


B.                    Pursuant
to the Purchase Agreement, upon the Closing (as such term is defined in the
Purchase Agreement) of the purchase and sale transaction described therein, and
as contemplated therein, Seller (in its capacity as Lessee hereunder) will
continue to hold various Contracts (as such term is defined in the Purchase
Agreement), rights and other interests that were held by Seller immediately
prior to the Closing in and to the Hotel and the Hotel Business (for the
purpose of this Recital B, as such
term is defined in the Purchase Agreement), which Lessee shall use and employ
in and for the operation of the Hotel pursuant to the requirements of this
Lease (collectively, the “Retained Interests”).  In addition, following the Closing, the Hotel
will continue to be operated and managed pursuant to the provisions of the
Hotel Operating Agreements (as defined herein).


 


C.                    As
used herein, the term “Premises”
shall mean and include the Land and the Improvements and any Alterations thereof
hereafter constructed or installed in accordance with the provisions of this
Lease.  All Acquired Interests other than
the Land and Improvements will be assigned herein by Lessor to Lessee for use
and enjoyment by Lessee exclusively for and in connection with the operation of
the Hotel during the Term of this Lease, as more specifically provided
hereinbelow.


 


D.                   Lessee
desires to lease the Premises from Lessor and to take an assignment of the
other Acquired Interests from Lessor for Lessee’s use and enjoyment exclusively
for and in connection with the operation of the Hotel and the Hotel Business
(as defined in this Lease) during the Term of this Lease, and Lessor desires to
lease the Premises to Lessee and to assign such other


 


1





















 


Acquired Interests
to Lessee for the above-stated use and purpose, in each instance subject to and
in accordance with each and all of the terms and conditions set forth in this
Lease.


 


NOW THEREFORE, in consideration of the foregoing and
the agreements, covenants and conditions contained herein, and for other
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:


 


1.                      DEFINITIONS


 


The following terms, as used in this Lease and the
Exhibits hereto, shall have the respective meanings set forth below, whether
used in the singular or plural.  Certain
other terms not specifically defined in this Section 1 shall have the
meanings set forth elsewhere in this Lease or in the Exhibits hereto.


 


“AAA” means the office of the American Arbitration
Association (or any successor, or any alternative organization mutually
acceptable to Lessor and Lessee) situated in the City and County of
San Francisco, California.


 


“Accounting Standards”
means the hotel accounting system set forth in the Uniform System of Accounts
for Hotels (9th Rev. Ed.), as the same may hereafter be revised
or amended, as adopted by the American Hotel and Motel Association; provided,
however, that in the event and to the extent of any inconsistency between GAAP,
and the Uniform System of Accounts for Hotels, GAAP shall control.


 


“Acquired Interests”
is defined in Recital A.


 


“Actual
Knowledge” (together with the
term “actually known,” or equivalent phrasings) means, at any given time, with
respect to Lessor or Lessee, the then-current actual knowledge, without any
duty of inqury or investigation, of (i) in the case of Lessor, the
principal executive officer of Lessor, having primary responsibility within
Lessor’s organization or business structure for the administration and/or
monitoring of Lessor’s investment in the Premises, or (ii) in the
case of Lessee, (A) the principal executive officer within each of Lessee’s
and Operator’s respective organizations or business structures for the
administration and/or monitoring of the performance by Lessee of its
obligations under this Lease or by Operator of its obligations under the
Management Agreement, or for the oversight by Lessee or Operator of the
operation of the Hotel and the Hotel Business, and (B) the general manager
of the Hotel.


 


“Additional
Rent” is defined in Section 4.2.


 


“Adjustment Date” is defined in Section 4.1(c).


 


“Affiliate” means, with respect to any Person:  (i) any constituent partner or member at
any ownership level holding a ten percent (10%) or greater equity or profits
interest, voting power (whether direct or indirect), or other beneficial
interest in such Person; (ii) any officer, director or shareholder holding
a ten percent (10%) or greater equity or


 


2





















 


profits interest, voting power (whether direct or
indirect), or other beneficial interest in such Person; (iii) any
partnership, limited liability company, corporation, or other entity in which
such Person is a partner, member, shareholder, or equity owner, as applicable,
holding a ten percent (10%) or greater equity or profits interest, voting power
(whether direct or indirect), or other beneficial interest; (iv) any
Person that is under the control of any Person described in clauses (i)–(iii) above;
(v) any Person that controls any Person described in clauses (i)–(iii) above;
and (vi) any Person that is under common control with any Person described
in clauses (i)–(iii) above. 
For purposes of this definition, “control”
means the direct or indirect ownership of fifty percent (50%) or more of the
beneficial interest in a Person, or the direct or indirect power to control the
management policies of such Person, whether through ownership, by contract or
otherwise.


 


“Alcoholic Beverage Service Operations”
is defined in Section 14.2(h).


 


“Alterations” means any alterations, renovations,
reconstructions, replacements, upgrades, or modifications of any Improvements.


 


“Annual
Base Rent” is defined in Section 4.1.


 


“Applicable
Laws” means all present
and future laws, statutes, ordinances, resolutions, Entitlements, codes,
orders, rules, regulations and requirements of all federal, state, and
municipal governments, and the departments, commissions, boards and offices
thereof, that are applicable at any time between the Term Commencement Date and
the Surrender Date to Lessee or the Premises, as the context may require.


 


“Applicable Requirements”
is defined in Section 6.3(a).


 


“Appropriation” (and derivatives thereof) means (i) any
taking by exercise of the power of condemnation (direct or inverse) or eminent
domain; (ii) any requisitioning by military or other public authority
under power of eminent domain for any purpose arising out of a temporary
emergency or other temporary circumstance; or (iii) any conveyance under
threat of any such taking or requisitioning under power of eminent domain.  As used herein, the effective date of any “Appropriation”
shall be the first to occur of (x) the date of entry of the final order of
condemnation pursuant to which title is vested in the condemning authority,
(y) the date a deed or other instrument given under threat of eminent
domain is recorded, or (z) the date that the condemning authority takes
possession of the Premises.


 


“Appropriation
Report” is defined in Section 17.2.


 


“Assessment District”
is defined in Section 5.3(d).


 


“Assigned Acquired Interests”
is defined in Section 2.2.


 


“Assumed Obligations”
is defined in Section 2.4.


 


“Attornment
Agreement” is defined in Section 13.7.


 


“Award” means any and all awards and other
compensation paid by the Appropriating authority as a result of an
Appropriation, including any award for “just compensation” or other damages,
interest, and fees and costs (including attorneys’ fees and costs).


 


“Base Rent Escrow Account”
is defined in Section 7.2(a).


 


3





















 


“Base Rent Escrow Payments”
is defined in Section 7.2(b).


 


“Building” means any structure that is now or hereafter
constructed or situated on the Premises in accordance with this Lease and is
intended to be used or operated by Lessee pursuant to this Lease.


 


“Business
Day” means any day which is
not a Saturday, Sunday, or official holiday declared by the United States of
America or the State.


 


“Capital Event Proceeds” means, without duplication of any items, all payments
and proceeds received by or for the account of Lessee for or in respect of (i) any
Casualty (excluding the proceeds from any business interruption insurance
coverage), (ii) any Appropriation (except to the extent representing an
Award for loss of revenues or income during the period of any temporary
Appropriation), (iii) any sale, transfer or other disposition of all or
substantially all of Lessee’s leasehold interest in the Premises or this Lease,
(iv) any sale, transfer or other disposition of any capital assets or
other items, other than in the ordinary course of the business of operation of
the Hotel; (v) any recovery under any policy of insurance maintained by
Lessee with respect to the Premises (excluding the proceeds from any business
interruption insurance coverage), or (vi) any Lessee Loan or any Equipment
Financing.  Subject to compliance by
Lessee with the provisions of Section 17 with respect to any Casualty
Proceeds or Award, the requirements of this Lease that the Hotel be operated at
all times as a Luxury Hotel, and any other express provisions of this Lease,
Lessee shall have the exclusive right to use and apply any Capital Event
Proceeds in Lessee’s sole discretion.


 


“Capital
Reserve Accounts” is defined
in Section 7.1(e).


 


“Casualty” is defined in Section 17.2.


 


“Casualty
Proceeds” means any and all
insurance payments and proceeds of insurance payable on account of any Casualty
under any insurance provided for in Section 10.


 


“Casualty
Report” is defined in Section 17.2.


 


“City”
means San Francisco, California.


 


“Claims” is defined in Section 12.4.


 


“Conditions
of Title” is defined in Section 2.1.


 


“CPI”
means the Consumer Price Index published by the U.S. Department of Labor Bureau
of Labor Statistics (San Francisco-Oakland-San Jose, All Urban
Consumers, All Items) (1982-84=100), or if such index is discontinued, such
successor index measuring the average rate of inflation in the
San Francisco Bay Area as may be published by an agency of the United
States, and if there is none, then such other index measuring the average rate
of inflation in the San Francisco Bay Area as Lessor and Lessee may
mutually agree, or if the parties cannot so agree, then as may be determined by
arbitration pursuant to Section 18. 
If the base year of the CPI (e.g., 1982-84=100
on the Effective Date) is changed at any time or times during the Term,


 


4





















 


the CPI shall be converted in accordance with the
conversion factor published by the United States Department of Labor, Bureau of
Labor Statistics, or any official successor thereto.


 


“Debt Service”
means the sum of the maximum principal and interest payments, reserve deposits
and other periodic charges that are payable during any applicable period for or
in connection with any borrowed indebtedness.


 


“Debt Service Coverage Ratio”
or “DSCR” means, for any
specified period, the ratio of: (i) the NOI for such period, minus the
Annual Base Rent payable for such period, to (ii) all Debt Service payable
for such period with respect to any Lessee Loan.


 


“Default
Rate” means four hundred (400)
basis points in excess of the Interest Rate, but in no event higher than the
maximum rate permitted by applicable law.


 


“Demolition
Notice” is defined in Section 17.7.


 


“Designated Alteration” is defined in Section 11.2.


 


“Designated Alterations Escrow Account” is defined in Section 7.1(a).


 


“Designated Alterations Escrow Payments” is defined in Section 7.2(b).


 


“Deposit Month” is defined in Section 7.2(f).


 


“Disqualified Expenses” means any management fees, expense
reimbursements, or other consideration paid or payable to an Operator which is
an Affiliate of Lessee, to a Food and Beverage Operator which is an Affiliate of
Lessee or the Operator, or to any other Person providing goods or services for
the Premises, the Hotel or any part of the Hotel Business, which is an
Affiliate of Lessee, the Operator, or any Food and Beverage Operator, if and to
the extent that such fees or other consideration shall be, for the period in
question, in excess of the management fee, expense reimbursement, or other
consideration that would be payable under the same terms and conditions of
management or operation of the Premises, the Hotel, or the pertinent part of
the Hotel Business, or for the provision of such goods or services, to a
qualified and experienced hotel management company, food and beverage operator,
or provider of such goods and services, which is not affiliated with Lessee, the
Operator, or any such Food and Beverage Operator, as applicable; provided
that, (i) with respect to the Hotel Operating Agreements that are in
existence on the Term Commencement Date, Disqualified Expenses shall be limited
to those fees, expense reimbursements, and other consideration payable under
the Hotel Operating Agreements listed in part A of Schedule 1
attached hereto and made a part hereof which are expressly identified as
Disqualified Expenses in part B of  Schedule 1,
and all other fees, expense reimbursements and other consideration payable
under the Hotel Operating Agreements that are in existence on the Term
Commencement Date shall constitute Ordinary Operating Expenses, and (ii) payments
made by Lessee or the Operator to an Affiliate of Lessee or the Operator in
payment of the cost of goods or services that are supplied to or performed for
the benefit of the Hotel by third parties who are not Affiliates of Lessee or
the Operator, and which are used by such Affiliate of Lessee or Operator solely
to pay such third parties for such goods or services, without markup or
retention of any portion of such payments by such Affiliate of Lessee or
Operator, shall not be Disqualified Expenses. 
Prior to or at any time after entering


 


5





















 


into any agreement, lease or contract for which the
payment of any fee, expense reimbursement, or other consideration thereunder
could qualify as a Disqualified Expense, Lessee may submit a written request to
Lessor (accompanied by a true and correct copy of the subject agreement, lease
or contract, and a summary of the nature of the Affiliate relationship of the
other party to such agreement, lease or contract) for a determination of
whether or to what extent any fee, expense reimbursement, or other
consideration proposed to be paid thereunder would constitute a Disqualified
Expense in the opinion of Lessor.  Such
request may, at Lessee’s election, be submitted in connection with Lessee’s
approval of the annual budget for the Hotel for any Operating Year.  Lessor shall respond to such request within a
commercially reasonable period of time, and shall advise Lessee in writing
whether and to what extent Lessor would consider, in the exercise of Lessor’s
reasonable discretion, any such fee, expense reimbursement, or other
consideration to be a Disqualified Expense. 
If and to the extent that Lessor’s response indicates that any fees,
expense reimbursements, or other consideration will not be considered to
constitute a Disqualified Expense, such response shall be binding upon Lessor
for the purpose of applying this definition of Disqualified Expenses with
respect to the agreement, lease or contract which is the subject of such
determination, except to the extent of any subsequent modification or amendment
of or to such agreement, lease or contract which relates to or affects any fees
or other consideration payable thereunder. 
Solely for the purposes of this definition of Disqualified Expenses and
for Section 15.5(b) below, the term “Affiliate” as used in this
definition and in Section 15.5(b) below shall include any and all of
the following:  (A) any Affiliate as
defined above in this Section 1; and (B) any Person which has a
substantial business relationship with Lessee, the Operator, or a Food and
Beverage Operator, other than in connection with the Hotel or the Hotel
Business, which could reasonably enable the parties to the subject agreement,
lease or contract to agree upon terms or conditions of payment or performance
of the obligations of Lessee, the Operator, or such Food and Beverage Operator
thereunder that would be in excess of the reasonable commercial value of the
goods or services to be provided thereunder by such Person in return for
concessions or credits to be given or provided by such Person in connection
with such other business relationship.


 


“Effective
Date” is defined in the
introductory paragraph to this Lease.


 


“Eligible Costs” is defined in Section 11.2.


 


“Employment Obligations” is defined in Section 2.4(d).


 


“Employment Liabilities” is defined in Section 8.2.


 


“Engineer” is defined in Section 17.2.


 


“Entitlements” means all present and future approvals,
permits, licenses and other entitlements, including all development approvals,
mitigation measures, and conditions of development, that have been issued or
may hereafter be issued by any federal, state, regional or municipal government
or authority, and that are required at any time between the Effective Date and
the Surrender Date in connection with the development, construction, use,
ownership, management, operation, occupancy or Alteration of the Premises.


 


“Entitlements Change” is defined in Section 7.1(c).


 


6





















 


“Environmental
Laws” means all
federal, state and local laws, statutes, ordinances, regulations, rules, final
and enforceable judicial and administrative orders and decrees, including any rules or
principles of common law, permits, licenses, approvals, and authorizations, of
all federal, state, regional and municipal governmental agencies, bodies or
officials, or other governmental entities with legal authority, pertaining to
the protection of the health and safety of persons, animals, or the
environment, and which are in effect at the time as of which any reference to
Environmental Laws is applicable or pertinent under this Lease, including any
such laws, statutes, ordinances, regulations, rules, final and enforceable
judicial and administrative orders and decrees, permits, licenses, approvals,
authorizations and similar requirements regulating or relating to Hazardous
Materials or to the generation, use, storage, release, presence, disposal,
transport, or handling of any other substance or material which has the
potential to pollute, contaminate, or harm any land, subsurface area, water
source or watercourse, air or other natural resource.


 


“Equipment Financing” is defined in Section 15.6.


 


“Equipment Lenders” is defined in Section 15.6.


 


“Escrow Accounts”
is defined in Section 7.2(a).


 


“Estimated Costs”
is defined in Section 11.2.


 


“Event
of Default” is defined in Section 14.1.


 


“Excess Costs” is defined in Section 11.2.


 


“Expiration
Date” shall be the day
immediately preceding the ninety-ninth (99th) anniversary of the Term
Commencement Date.


 


“Fee
Lender” means any Person (and
its successors and assigns) which may, on or after the date hereof, make a loan
to Lessor that is secured, in whole or in part, by Lessor’s fee interest in the
Premises.


 


“Fee
Mortgage” means any mortgage,
deed of trust or other security instrument held by a Fee Lender and encumbering
all or any part of Lessor’s fee interest in the Premises.


 


“FF&E” means all furniture, fixtures and equipment
located in or used in connection with the operation of the Hotel, including,
without limitation, lobby, corridor, and guest room furniture and furnishings;
carpeting; flooring; wall coverings; window coverings; artwork; kitchen, bar
and laundry equipment; audio-visual equipment; telephone, computer and
telecommunications equipment; bathroom equipment; cleaning equipment;
chinaware, glassware, flatware, linens, bedding, uniforms, utensils, and items
of a like nature used in the operation of the Hotel; vehicles; and fittings and
fixtures (excluding fixtures which, when attached to the Building and Appurtenances,
become part of the real property pursuant to Applicable Laws), together with
any and all replacements thereof and additions
thereto during the Term.


 


7





















 


“FF&E Reserve Account” means a reserve account established by Lessee for the
Hotel, and administered by either Lessee or the Operator, into which Monthly
Cash Flow is to be deposited from time to time for the purpose of defraying the
future costs of acquisition or replacement of any FF&E, as may be required
by any Management Agreement or by this Lease.


 


“Food and Beverage Agreement” means any agreement, contract or lease (other
than a Management Agreement) entered into by Lessee or Operator, or any
Affiliate of either, with any Food and Beverage Operator for or relating to the
operation or management of any food and/or beverage (including alcoholic
beverages) facilities, services or premises at, within or from the Hotel,
including mini-bar service and/or room service, and such term shall include,
without limitation, each food and beverage management or operating agreement
which is shown on Exhibit B attached hereto as one of the
Hotel Operating Agreements.  Except as
otherwise provided in Sections 1.3 and 10.3(b)(xxii) of the Purchase
Agreement with respect to the agreements identified on Exhibit B
as items (4), (5) and (6) (herein the “SC
Geary Related Agreements”), each Food and Beverage Agreement
shall contain provisions which comply with the requirements of Section 9.2
of this Lease or shall be subject to a subordination agreement imposing such
requirements.


 


“Food and Beverage Operator”
means any entity from time to time retained by Lessee or the Operator, or any
Affiliate of either, to manage and/or operate any food and/or beverage
(including alcoholic beverages) facilities, services or premises at, within or
from the Hotel, including mini-bar service and/or room service, which is a
party to a Food and Beverage Agreement.


 


“Force
Majeure Events” means
fire, earthquake, flooding, acts of God, wars, riots, legal challenges not
instituted by the Person claiming the benefit of a Force Majeure Delay,
unanticipated delays caused by the City or any other public agency with
jurisdiction (but only to the extent that any such delay caused by the City or
any other public agency is not attributable to the failure of the Person
claiming the benefit of a Force Majeure Delay to conform to submission or other
timing requirements imposed by the City or such other public agency in
connection with approvals or permits being sought by such Person), delays
caused by the other party’s failure to comply with its obligations under this
Lease, and other events or circumstances outside the reasonable control,
prevention and foreseeability of the Person claiming the benefit of a Force
Majeure Delay; excluding, however, lack of funds or other financial inability
to perform on the part of the Person claiming the benefit of a Force Majeure
Delay.  In no event shall any Force
Majeure Event cause the Term of this Lease to be extended beyond the Expiration
Date.


 


“Full
Insurable Replacement Value”
is defined in Section 10.1.


 


“GAAP” means generally accepted accounting principles,
consistently applied.


 


“Gross Receipts Taxes” means applicable goods and services taxes,
excise, sales, occupancy and use taxes, or similar government taxes, duties,
levies or charges collected directly from patrons or guests of the Hotel, or as
a part of the sales price of any goods, services, or displays, such as gross
receipts, admission, cabaret or similar or equivalent taxes, including, but not
limited to, any transaction tax, resale of electricity tax, soft drink tax,
head tax, occupancy tax, amusement tax, parking tax, beverage tax, sales tax
and public utility tax.


 


8





















 


“Group Sales Charges” is
defined in Schedule 1.


 


“Hazardous
Materials” means any
substance which is or at any time becomes: 
(i) regulated under or otherwise subject to any Environmental Law
as a hazardous substance, hazardous waste, hazardous material, pollutant or
contaminant; (ii) a petroleum hydrocarbon, including crude oil or any
fraction thereof; (iii) a hazardous, toxic, corrosive, flammable,
explosive, infectious, radioactive, carcinogenic, or reproductive toxicant; (iv) radon
gas or any similar gas or substance, or (v) otherwise regulated pursuant
to any Environmental Law.


 


“Hotel Business”
means the hospitality and related business operations from time to time carried
on at, within or from the Hotel during the Term of this Lease, including,
without limitation, the rental or sale of rooms, suites and other
accommodations for transient occupancy by Hotel guests, patrons and customers,
the provision of meeting, conference, banquet and other facilities and services
for use by Hotel guests, patrons and customers, the subleasing of retail,
office, and other usable space in the Hotel for the provision of various
business, retail, and personal services and concessions for the use and
enjoyment of Hotel guests, patrons and customers, and the operation of all
amenities available at or associated with the Hotel, including food and
beverage facilities and services (including the sale and serving of alcoholic
beverages at, within and from the Hotel, mini-bar, and room service), parking
services, spa and health facilities, and any and all other features, services
and amenities from time to time provided at or by the Hotel for the use or
enjoyment of the Hotel guests, patrons and customers or the public at large.


 


“Hotel Employees”
means all individuals who, at any time during the Term of this Lease, are
employed by Lessee, the Operator, any Food and Beverage Operator, or any
Affiliate of any of such entities, solely or primarily in connection with the
operation of the Hotel or the Hotel Business, including, without limitation,
any management personnel who are employed generally or primarily at the Hotel
or whose primary employment functions relate to the Hotel or any part of the
Hotel Business. Persons who are hired or retained solely as independent contractors
for the purpose of providing goods or services to or for the Hotel, including,
without limitation, outside design professionals and construction contractors,
catering services or parking services, and who are not Affiliates of Lessee,
the Operator or any Food and Beverage Operator, shall not be considered to be
Hotel Employees so long as under Applicable Laws Lessee, the Operator or any
Food and Beverage Operator would not be recognized or treated as the employer
of such Persons and would not incur vicarious liability for the acts or
omissions of such Persons under Applicable Laws.


 


“Hotel
Investment Experience” means
the prior or current ownership, operation, or direct management oversight of
one or more Luxury Hotel properties containing not less than an aggregate of 1,000 keyed guest rooms or suites.


 


“Hotel Operating Accounts” is defined in Section 7.1(f).


 


“Hotel Operating Agreements” means the management agreements for the
operation of the Hotel, and any contracts, leases or other agreements for the management
and operation of the food and beverage facilities, services and premises at the
Hotel, which are listed on Exhibit B attached hereto.


 


9





















 


“Impositions” means all real property taxes and assessments;
personal property taxes; use and occupancy taxes; privilege taxes; business and
occupation taxes; gross sales taxes; occupational license taxes; water and
sewer charges; charges for public utilities; excises; levies; license and
permit fees; transit taxes; and all other governmental impositions and charges
of every name, kind and nature whatsoever, whether or not now customary or
within the contemplation of Lessor or Lessee, and regardless of whether the
same shall be extraordinary or ordinary, general or special, unforeseen or
foreseen, or similar or dissimilar to any of the foregoing, which, at any time
during the Term may be levied, assessed, charged or imposed or become due and
payable upon or in connection with the ownership, development, construction,
marketing, use, operation or occupancy of the Premises or any part thereof; or
upon the rent or income of Lessee; or upon the transaction through which Lessor
acquired the Premises from Lessee, this transaction, this Lease or any document
creating or transferring an estate or interest of Lessee in the Premises
(including any documentary transfer taxes); or upon any Improvements,
Alterations, FF&E, or Personal Property; or upon the leasehold of Lessee or
upon the estate hereby created; or upon Lessor by reason of its ownership of
the fee underlying this Lease.  If at any
time during the Term, the present method of taxation or assessment shall be
changed such that there shall be substituted for the whole or any part of the
Impositions now or hereafter levied, assessed and/or imposed any capital levy
or other tax or assessment, including any benefit assessment or other fee,
charge, tax or imposition that is imposed or administered by any governmental
entity for a public purpose or for the funding of any public or private
facilities, improvements or amenities, then the term “Impositions” also shall
mean and include such capital levy or other tax or assessment.  The term “Impositions” shall not include any
municipal, state or federal income taxes levied against Lessor, any income,
profits or revenues tax, assessment or charge imposed upon the Rent received by
Lessor under this Lease (other than a gross receipts or gross rentals tax or
charge), any estate, gift, succession, inheritance or transfer taxes of Lessor,
or any business or occupational tax attributed and imposed upon Lessor for (and
limited to the extent of) work, business or income not related or attributable
to the Premises.


 


“Impound Account” is defined in Section 5.3.


 


“Improvements” means the Hotel and all other Buildings,
utilities, monuments, fences, walls, driveways, landscaping and other
structures and facilities that are at any time constructed, planted or
installed on, under or within the Premises, including as part of any
Alterations.


 


“Increase” is defined in Section 4.1.


 


“Interest
Rate” means two percent (2%)
in excess of the rate published in the Wall Street Journal for the period in
question as the “prime rate,” or, if there is no such rate published, the
rate publicly announced by Citibank or its successors for the period in
question as the rate (however denominated) given to its best commercial
customers for unsecured commercial loans, or, if there is no such rate
announced, the rate of ten percent (10%) per
annum (calculated on the basis of a 365/366-day year), or, if less, the maximum
rate of interest permitted to be charged under applicable law by the payee of
such interest.


 


“Intervening Lease” is
defined in Section 13.7(c).


 


“Land” is
defined in Recital A.


 


10





















 


“Lease” is defined in the introductory paragraph to this
Lease, and includes all Exhibits attached hereto.


 


“Leasehold
Mortgage” means any
deed of trust, mortgage, assignment, security interest, lien or other
encumbrance of, in or against Lessee’s leasehold estate created by this Lease
or Lessee’s leasehold interest in the Premises or any part thereof (excluding
any lien, pledge or security interest relating to any Equipment Financing).


 


“Lender” is defined in Section 15.5.


 


“Lender Affiliate” means any Lender which is an Affiliate of Lessee or
the Operator.


 


“Lessee” is defined in
the introductory paragraph to this Lease.


 


“Lessee Loan” is defined in Section 15.5.


 


“Lessee Representatives”
means Lessee’s agents, officers, directors, members, employees, contractors,
and invitees.


 


“Lessee Retained Obligations”
is defined in Section 8.1.


 


“Lessee’s Interest Notice”
is defined in Section 13.7(b).


 


“Lessor” is defined in the introductory paragraph to this
Lease.


 


“Lessor Exceptions” means (i) the lien of and any security
interest created by any Fee Mortgage; and (ii) any liens, exceptions and
restrictions on, against or relating to the Premises which have been created
by, or have resulted solely from acts of, Lessor or Lessor Representatives
occurring on or after the Effective Date and in violation of the terms of this
Lease, unless the same were created with the written concurrence of Lessee or
as a direct or indirect result of a default by Lessee under this Lease.


 


“Lessor
Indemnitees” means (i) Lessor;
(ii) all Affiliates of Lessor; and (iii) all trustees, directors,
officers, members, employees and agents of any of them.


 


“Lessor Representatives”
means Lessor’s agents, officers, directors, members, employees, and
contractors.


 


“Lessor’s
Share” is defined in Section 17.5(c).


 


“Lessor
Transfer” is defined in Section 13.7.


 


“Lessor Transfer Obligations” is defined in Section 5.1.


 


“Liens” is defined in Section 15.4.


 


“Liquor Licensee” is defined in Section 2.5(c).


 


11





















 


“Luxury Hotel” means a hotel facility whose standards of operation
and physical characteristics are substantially equal to or higher than the
average standard of operation and physical characteristics of the five (5) hotels
located in the City which reflect a quality standard of hotel operation at
least equal to the higher of (i) the operation of the Hotel as managed and
operated on the Effective Date, and (ii) the top tier of recognition as a
so-called four (4) star hotel or equivalent rating (based on the
criteria employed by the primary national hospitality industry rating services,
including the Mobil Travel Guide, Conde Nast Traveler, and the American
Automobile Association) (the “Luxury Hotel Competitive Set”).  As of the
Effective Date, the following hotels located in the City are considered to be
included within the Luxury Hotel Competitive Set:  the Park Hyatt Hotel; the Campton Place
Hotel; the Huntington Hotel; the Fairmont Hotel; the Westin St. Francis
Hotel.  It
is recognized that not all services and facilities available in each Luxury
Hotel will necessarily be provided by all Luxury Hotels, but that the composite
of services, facilities, and amenities provided by each Luxury Hotel will cause
such hotel to be deemed to constitute a Luxury Hotel.  It is also recognized that during the
Term of this Lease:  (A) the list of
the hotels comprising the Luxury Hotel Competitive Set may require modification
as one or more existing hotels in the City is taken out of operation or suffers
a decline or benefits from an improvement in its quality ratings and/or as new
or remodeled hotels are added to the hotel market in the City and are operated
in a manner that would qualify them for inclusion as part of the Luxury Hotel
Competitive Set; and (B) the four-star quality rating for hotels in the
City, as currently determined by the existing primary national hospitality
rating services, includes a variety of hotels of different sizes, types,
geographic locations and operations that fall within a quality range which
varies from slightly less than five-star (or absolute top quality) status and
slightly better than three-star (or somewhat lower quality) status.  As used in this definition of Luxury Hotels, the
term “top tier” hotels, when used to refer to hotels within the four-star or
equivalent rating, shall refer to those hotels within the four-star or
equivalent rating which occupy the top level of recognition within such
four-star category (i.e., that are
closest in ranking to five-star hotels). 
The parties acknowledge that the Luxury Hotel Competitive Set may be
revised from time to time during the Term of this Lease, but not more
frequently than at five (5) year intervals, to reflect current
conditions and quality ratings of hotels in the City at a four-star or
equivalent rating (based on rating standards and criteria at the time being
employed by the companies or firms which are then generally recognized as the
primary national hospitality rating services), provided that at all times the Luxury
Hotel Competitive Set shall consist only of hotels in the City that occupy the
top tier of recognition within such four-star rating range or its equivalent.  In the event
that any dispute arises between Lessor and Lessee as to which five (5) hotels in San Francisco reflect a quality
standard of hotel operation which satisfies the above-stated requirements, such
dispute shall, upon the request of either party, be resolved by arbitration
pursuant to Section 18.


 


“Major
Alteration” is defined in Section 11.1.


 


“Major
Casualty” is defined in Section 17.2.


 


“Management Agreement” means any agreement, contract or lease (other than a
Food and Beverage Agreement) entered into by Lessee from time to time with any
Operator relating to the management or operation of the Hotel or any other
Improvements, including the property management agreement which is
described on Exhibit B
attached hereto as one of the Hotel Operating Agreements, and also includes any franchise, license or similar agreement, whether


 


12





















 


entered into with the Operator, any
affiliate of the Operator, or any third party, relating to the use of any trade
names, trademarks, central or corporate services, or other rights or facilities
in connection with the operation of the Hotel or any other Improvements.  Each Management Agreement shall
contain provisions which comply with the requirements of Section 9.2 of
this Lease or shall be subject to a subordination agreement imposing such
requirements.


 


“Memorandum
of Lease” means the Memorandum
of Lease, in the form attached hereto as Exhibit C, to be recorded by Lessee, at Lessee’s cost and
expense, promptly following the execution and delivery of this Lease by the
parties.


 


“Monetary
Obligations” means (i) Rent
and all other sums payable by Lessee under this Lease to Lessor or to any
Lessor Indemnitee, (ii) Impositions, (iii) premiums for insurance
required to be maintained by Lessee under this Lease, and (iv) all sums
payable by Lessee under this Lease to any Person other than Lessor or any
Lessor Indemnitee, which sums, if not timely paid, could result in the
imposition of a lien or charge against the Premises.


 


“Monthly Cash Flow”
means, for each calendar month during the Term, the actual gross receipts of revenue
and income from the operation of the Premises, the Hotel, and/or the Hotel
Business for such month, as determined in accordance with the cash receipts
method of accounting.  Monthly Cash Flow
shall not include any Capital Event Proceeds.


 


“Morgans” means
Morgans Hotel Group, LLC, a Delaware limited liability company.


 


“Net Operating Income”
or “NOI” means, for any
Operating Year or, in the case of the provisions of Section 7.2(f) for any period of twelve (12)
consecutive calendar months, the Total Revenues for such Operating Year or 12-month
period, as applicable, less the sum of
(for the applicable period) (i) Ordinary Operating Expenses, (ii) amounts
deposited into the FF&E Reserve, but not in excess of an aggregate deposit
equal to four percent (4%) of Total Revenues, and (iii) Debt Service
payable on any Equipment Financing.


 


“Notice of Election to Terminate”
is defined in Section 17.7.


 


“Notices” is
defined in Section 20.1.


 


“Operating Contract”
is defined in Section 13.1.


 


“Operating Year”
means each consecutive calendar year during the Term, commencing with the
calendar year in which the Effective Date occurs and ending with the calendar
year in which this Lease shall expire or terminate.  In the event that the Term of this Lease
shall commence on a date other than January 1 of a calendar year, or shall
terminate on a date other than December 31 of a calendar year, that
portion of any such calendar year in which the Term of this Lease shall be in
effect shall be considered to be an Operating Year for purposes of this
Lease.  Without limiting the foregoing,
the parties acknowledge and agree that the initial Operating Year shall
commence upon the Bankruptcy Court Approval Date, as defined in the Purchase
Agreement and shall end on December 31, 2004.


 


“Operator”
means the management company or other entity (excluding any Food and Beverage
Operator) retained by Lessee from time to time to manage and operate the Hotel
and/or


 


13





















 


any other Improvements on the Premises.  Each Operator shall be subject to the
approval of Lessor as and to the extent provided in Section 9.1 of this
Lease.


 


“Ordinary Operating Expenses”
means, for any specified period, without duplication of any item, all costs,
expenses, debts, liabilities and/or obligations arising from the operation of
the Hotel which are paid or incurred by Lessee or by Operator as agent for
Lessee and which are treated as expenses under both GAAP and the Accounting
Standards, but excluding:


 


(a)                  depreciation
of any Improvements, FF&E, and capitalized operating equipment;


 


(b)                 amortization
of assets held under capital leases and costs of acquiring leaseholds and
leasehold improvements;


 


(c)                  all
Disqualified Expenses;


 


(d)                 capital
expenses (meaning any item of expense that, according to GAAP, is not properly
treated as a current expense on the books of the Hotel, but rather should be
capitalized);


 


(e)                  Debt
Service on any Lessee Loans or Equipment Financing, or any other payments made
in respect of any Lessee Loans or Equipment Financing;


 


(f)                    any
payment on account of dividends or other return on the equity investment of the
owners of Lessee;


 


(g)                 Rent
payable under this Lease;


 


(h)                 amounts
deposited into any Reserve Account, including the FF&E Reserve Account.; and


 


(i)                     any
other sums which any other provision of this Lease expressly states shall not
constitute Ordinary Operating Expenses.


 


Notwithstanding
the foregoing, amounts which are funded by Lessee to SC Geary LLC from time to
time for the purpose of covering or defraying any operating deficits
arising from the operation of the restaurant and bar facilities at the Hotel
(whether such funding is made by Lessee directly or indirectly to SC Geary LLC,
and whether made in the form of equity contributions or otherwise), including
any such amounts funded for payment of any shortfall in the payment of
management fees owed to ZM SF Ventures LLC, shall, but in each such case only
to the extent funded pursuant to the provisions of the Hotel Operating
Agreement listed as item (4) in Exhibit B hereto,
be included as Ordinary Operating Expenses even if, under the Accounting
Standards and/or GAAP, such amounts would not otherwise qualify as expenses.


 


“Owner’s Policy”
means the ALTA Owner’s Policy of Title Insurance issued by Title Company to
Lessor concurrently with Lessor’s acquisition of fee ownership of the Premises
pursuant to the Purchase Agreement.


 


“Permitted Alterations” is defined in Section 11.1.


 


14





















 


“Permitted Exceptions”
means any liens, exceptions and restrictions on, against or relating to the
Premises which (A) exist on the Effective Date (excluding only matters
which are actually known to Lessee but have not been disclosed in writing to
Lessor prior to the Effective Date, whether by Lessee or the Title Company, and
are not otherwise actually known to Lessor on the Effective Date), or (B) are
expressly permitted under the terms of this Lease to be created by Lessee for a
period that could extend beyond the Termination Date, or (C) will
terminate by their express provisions on or before the Termination Date, or (D) are
unconditionally subordinate to this Lease and Landlord’s rights hereunder, and
expressly provide that they will not remain in effect following any termination
of this Lease by Landlord upon an Event of Default, or (E) are hereafter
consented to in writing by Lessor as liens, exceptions or restrictions which
would be binding on Lessor or the Premises following the Termination Date, but
specifically excluding any Leasehold Mortgage unless such Leasehold Mortgage is
fully released and reconveyed prior to the Termination Date.


 


“Permitted
Materials” is defined in Section 12.1.


 


“Permitted Transferee” is defined in Section 13.1.


 


“Permitted
Uses” means the use, occupancy, operation, maintenance,
repair, improvement, replacement and Alteration of the Improvements as a Luxury
Hotel (including the roof of the Improvements), and uses customarily ancillary
thereto (excluding any gaming casino or similar facility, and excluding any
condominium, cooperative or other residential development which is offered to
the public for sale), or such other or additional use as may hereafter be
expressly consented to in writing by Lessor, which consent may be given or
withheld, and shall be subject to such conditions as are required by Lessor
(including, without limitation, an increase in the Rent payable hereunder
and/or a restructuring of all or part of the Rent as participating rent), in
Lessor’s sole and absolute discretion.


 


“Person” means any individual, trust, partnership,
corporation, limited liability company, or other entity, including any
governmental body, agency, authority or official.


 


“Personal Property” is defined in Section 15.6.


 


“Potential Default”
means a condition or event which, with the giving of notice or the passage of
time, or both, would constitute an Event of Default hereunder.


 


“Premises” is defined in Recital C of this Lease.


 


“Proceeds” is defined in Section 17.6.


 


“Project Costs” is fined in Section 5.2.


 


“Public Accommodations Laws” means all applicable laws, ordinances, rules and
regulations of all duly constituted federal, state or municipal authorities,
including, without limitation, Title III of the Americans with
Disabilities Act of 1990, 42 U.S.C. Sections 12181-12183, 12186(b)-12189,
the ADA Accessibility Guidelines promulgated by the Architectural and
Transportation Barriers Compliance Board, the public accommodations title of
the Civil Rights Act of 1964, 42 U.S.C. 2000a et seq.,
the Architectural Barriers Act of Rehabilitation Act of


 


15





















 


1968, 42 U.S.C. 4151 et seq., Title V of the Rehabilitation Act of 1973,
29 U.S.C. 790 et seq.,
the Minimum Guidelines and Requirements for Accessible Design, 36 C.F.R. Part 1190,
and the Uniform Federal Accessibility Standards, and any and all similar state
and municipal laws, ordinances, rules and regulations now or hereafter
adopted, published or promulgated, or otherwise in force, all as the same are
in effect on the Term Commencement Date or as may be hereafter modified,
amended or supplemented.


 


“Purchase
Agreement” is defined in Recital A to this Lease.


 


“Purchaser” is defined in Recital A to this Lease.


 


“Qualified Transferee”
is defined in Section 13.1.


 


“Qualifying Amount”
is defined in Section 7.2(f).


 


“Receiving Party” is defined in Section 20.2.


 


“Recipient Agencies”
means the City, the State, and any other federal, state or municipal
governmental bodies, or public or private utility companies.


 


“Related
Instruments” is defined in Section 16.1.


 


“Release” means any spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, leaching, migrating,
dumping or disposing into the air, land, surface water, ground water or the
environment of any Hazardous Materials (including the abandonment or discarding
of receptacles containing any Hazardous Materials).


 


“Release Requirement”
is defined in Section 7.2(f).


 


“Rent” is defined in Section 4.2.


 


“Replacement Operator” is defined in Section 9.2.


 


“Requesting Party” is defined in Section 20.2.


 


“Required Alterations” is
defined in Section 11.3.


 


“Required Alterations Escrow Account”
is defined in Section 7.2(a).


 


“Required Alterations Escrow Payments”
is defined in Section 7.2(b).


 


“Restoration
Work” is defined in Section 17.2.


 


“Retained Interests” is defined in Recital B.


 


“Seasonal Rent Reserve” is defined in Section 7.2(a).


 


“Seasonal Rent Reserve Escrow Payments” is defined in Section 7.2(b).


 


16





















 


“State” means the State of California, and all of its
agencies, departments and divisions.


 


“Substantial Completion”
or “Substantially Completed”
means, with respect to any Improvements or Alterations, the completion of work
on such Improvements or Alterations to a condition in which they are usable for
their intended purposes, subject only to completion of minor punch list items,
in accordance with and without material deviation from approved plans,
applicable construction contract requirements and the terms and conditions of
this Lease, and provided that all inspection signoffs required from any City
officials or inspectors under applicable City building codes and ordinances for
lawful occupancy and operation of the Hotel in accordance with this Lease have
been obtained.


 


“Surrender
Date” means the later
of:  (i) the Termination Date; or (ii) the
date Lessee fully quits and surrenders the Premises to Lessor in accordance
with the applicable requirements of this Lease.


 


“Surviving
Obligations” means any
obligations of Lessee or Lessor under this Lease, actual or contingent, which
arise on or prior to the Termination Date and which by their express terms, or
pursuant to any other provisions of this Lease, survive the Termination Date.


 


“Term” is defined in Section 3.1.


 


“Term
Commencement Date” is defined
in Section 3.1.


 


“Termination
Date” means the Expiration
Date, or such earlier date as this Lease may be terminated in accordance with
its terms.


 


“Title
Company” means Chicago Title
Insurance Company.


 


“Total
Appropriation” is defined in Section 17.4.


 


“Total Revenues” means, without duplication of any item, all
revenue, sales, proceeds and income of any kind or character earned by or paid
to Lessee which are treated as revenue under GAAP and the Accounting Standards
in respect of the Premises or the operation of the Hotel, including without
limitation the proceeds of any business interruption insurance relating to the
loss of revenues from the operation of the Hotel, except that the following
shall not be included in determining Total Revenues:


 


(a)                  Gross
Receipts Taxes;


 


(b)                 Capital
Event Proceeds;


 


(c)                  rebates,
discounts, or credits of a similar nature with respect to purchases, except
(other than for purposes of calculating the required amount of deposits to the
FF&E Reserve Account) to the extent that the amount of such rebates,
discounts or credits has been or is to be included in the calculation of
Ordinary Operating Expenses;


 


(d)                 other
income or proceeds derived from business operations or investments outside of
the Hotel and resulting other than from (i) the use or occupancy of the
Hotel, or any part


 


17





















 


thereof, including income derived from securities or
other property acquired and held for investment, or (ii) the sale of
goods, services, room accommodations, food and beverage, or other items sold on
or provided from the Hotel in the ordinary course of business;


 


(e)                  interest
earned on funds held in any Reserve Account;


 


(f)                    the
value of any complimentary rooms, goods or services;


 


(g)                 gratuities,
to the extent the same are collected for the benefit of and paid over to any
Hotel Employees;


 


(h)                 charges
or payments collected from patrons or guests for telephone, telegraph,
facsimile transmission, computer access services, and other communications
systems access or toll charges;


 


(i)                     any
rent, license fee, concession charge, or other fees or charges in lieu of rent
paid by any sublessee, concessionaire, or licensee whose revenues are otherwise
included in the calculation of Total Revenues;


 


(j)                     refunds
to Hotel guests or credits to any Hotel customers for lost or damaged items;
and


 


(k)                  refunds
to parking customers or any credits to any parking customers for lost or
damaged items.


 


Notwithstanding the foregoing,
amounts which are paid or distributed to Lessee from time to time on account of
or arising from any income, profits or other earnings from the restaurant
and/or bar operations at the Hotel, whether such payments or distributions are
made in respect of Lessee’s ownership interest in 495 Geary LLC or otherwise,
including without limitation any rent payments made to Lessee pursuant to the
Operating Lease (Food and Beverage Premises) listed as item (2) in Exhibit B
hereto, shall, but only to the extent made pursuant to the provisions of the
Hotel Operating Agreements listed as item(s) (2), (3), (4), (5) and (6) in Exhibit B
hereto, be included as Total Revenues even if, under the Accounting Standards
and/or GAAP, such amounts would not otherwise qualify as revenues from the
operation of the Hotel.  All such
payments or distributions to Lessee shall also be included in determining
Monthly Cash Flow.


 


“Transfer” means any sublease, sale, assignment,
conveyance, exchange, encumbrance, hypothecation or other transfer, voluntary
or involuntary, by operation of law or otherwise, of all or any portion of
Lessee’s estate or interest in the Premises or this Lease, other than a
Leasehold Mortgage or an Equipment Financing complying with the requirements of
Section 15.5 or Section 15.6, respectively.  “Transfer” also shall mean and include any of
the following transactions:  (i) if
Lessee is a corporation with fewer than 500 shareholders and is not listed
on a recognized exchange or other public trading system regulated by the United
States or any foreign government, an assignment, sale, conveyance, exchange or


 


18





















 


other transfer, directly or indirectly, whether
through a single transaction or multiple transactions, of the lesser of (A) fifty
percent (50%) or more of the stock or voting rights of Lessee or (B) a
controlling interest (as defined below) in such corporation, (ii) if
Lessee is a trust, an assignment, sale, conveyance, exchange or other transfer,
directly or indirectly, whether through a single transaction or multiple
transactions, of fifty percent (50%) or more of the beneficial interest of
Lessee from that existing on the date that Lessee became Lessee under this
Lease; (iii) if Lessee is a limited liability company, any assignment,
sale, conveyance, exchange or other transfer, directly or indirectly, whether
through a single transaction or multiple transactions, of (A) such portion
of the interest of any member which is designated as a manager of such limited
liability company in the operating agreement for such company which would
result in such member no longer having a controlling interest in such company,
or (B) either (1) fifty percent (50%) or more of the beneficial
ownership of the membership interests of Lessee from that existing on the date
that Lessee became Lessee under this Lease or (2) a controlling interest
in such limited liability company; (iv) if Lessee is a partnership, any
assignment, sale, conveyance, exchange or other transfer, directly or indirectly,
whether through a single transaction or multiple transactions, of (x) any
general partnership interest of Lessee or (y) fifty percent (50%) or more
of the beneficial ownership of the limited partnership interests of Lessee from
that existing on the date that Lessee became Lessee under this Lease; or (v) if
Lessee is a joint venture other than a partnership, trust, or limited liability
company, any assignment, sale, conveyance, exchange or other transfer, directly
or indirectly, whether through a single transaction or multiple transactions,
of (A) fifty percent (50%) or more of the beneficial ownership of the
joint venture interests of Lessee from that existing on the date that Lessee
became Lessee under this Lease, or (B) a controlling interest in such
joint venture.  As used herein, the term “controlling
interest” shall mean the ownership of stock or voting rights in a corporation,
or membership interests in a limited liability company, which by reason of the
articles or by-laws of the corporation, the operating agreement of the limited
liability company, or any voting trust or other contract or agreement among the
stockholders of the corporation or the members of the limited liability
company, authorizes, enables or permits the holder of such stock, voting
rights, or membership interests to effectively control the management and/or
policies of such corporation or limited liability company.


 


“Transfer
Notice” is defined in Section 13.2.


 


“Transferee” means and includes any sublessee (other than
pursuant to a minor sublease, as defined in Section 13.1(b), where
permitted hereunder), purchaser, assignee or other transferee or recipient of
all or any portion of Lessee’s estate or interest in the Premises or this
Lease, pursuant to a Transfer which is permitted hereunder.


 


“Transition Period”
is defined in Section 9.2.


 


“Unsecured Debt”
means the indebtedness owed by Lessee to any nonaffiliated unsecured creditors
of Lessee, to the extent such indebtedness was in existence prior to the Term
Commencement Date and qualifies as an allowed claim in that certain bankruptcy
proceeding of Lessee, pending as Case No. 03-41984-brl, in the United
States Bankruptcy Court for the Southern District of New York, filed August 15,
2003.


 


“Withdrawal Month”
is defined in Section 7.2(f).


 


“Work” is
defined in Section 7.1(b).


 


19





















 


2.                      LEASE OF PREMISES


 


2.1                       Lease of Premises


 


Lessor hereby leases the Premises to Lessee, and
Lessee hereby leases the Premises from Lessor, subject to each and all of the
terms, conditions and reservations contained in this Lease, all Entitlements
and other Applicable Laws, and all liens (including the lien for any
Impositions), easements, encumbrances, restrictions, exceptions, rights and
conditions now or hereafter affecting the Premises, but excluding any Lessor
Exceptions (collectively, “Conditions of Title”).


 


2.2                       Assignment of Acquired
Interests


 


Lessor hereby assigns to Lessee, without any warranty
or representation, express or implied, for the use and enjoyment of Lessee
exclusively for and in connection with the operation of the Hotel, but solely
for and during the Term of this Lease, and without the payment of any
consideration by Lessee to Lessor other than the Rent payable hereunder, all Acquired
Interests other than the Premises (the “Assigned
Acquired Interests”), and Lessee hereby accepts such
assignment and agrees to use and employ the Assigned Acquired Interests solely
and exclusively for the use, benefit and operation of the Hotel for and during
the Term of this Lease in accordance with and subject to the provisions of this
Lease.  Upon any termination of this
Lease, whether upon or prior to the Expiration Date, all Assigned Acquired
Interests shall automatically and without further action by the parties revert
and be deemed reassigned to Lessor, without the payment of any additional
consideration by Lessor, and upon request by Lessor, Lessee shall promptly
execute and deliver to Lessor such instruments of assignment as shall be
reasonably required by Lessor to evidence such reversion and reassignment to
Lessor.  Without limiting any other
provisions of this Lease relating to the indemnification of Lessor, including
Sections 10.3 and 12.4 hereof, Lessee shall indemnify, defend and
hold Lessor harmless from and against any and all damages, losses, claims,
liabilities, costs and expenses (including reasonable attorneys’ fees and
costs) arising with respect to the Assigned Acquired Interests and accruing at
any time prior to the Termination Date (or if Lessee holds over, the Surrender
Date).  The obligations of Lessee set
forth in this Section 2.2 shall survive the expiration or any earlier
termination of this Lease.


 


2.3                       Acceptance
of the Premises


 


Lessee accepts the lease of the Premises and the
assignment of each of the Assigned Acquired Interests “AS IS, WITH ALL FAULTS,”
in their respective condition, and Lessee assumes the risk of any and all
latent or patent defects in the condition of the Premises or any of the
Assigned Acquired Interests.  Lessor
makes no representations or warranties of any kind regarding title, condition,
adequacy or suitability, the presence or absence of any defects, deficiencies,
limitations or restrictions thereon or relating thereto, or the validity or
enforceability of any rights or interests acquired by Lessee under this Lease
relating to any of the Assigned Acquired Interests.  Without limiting the foregoing, Lessee
expressly acknowledges and agrees that Lessor has not made any express or
implied representations or warranties of any kind or nature with respect to the
Premises or the Assigned Acquired Interests, and that Lessor has disclaimed any
warranties that otherwise may be implied by law, as to any matters relating to
the Premises or the Assigned Acquired Interests, including the suitability of
the soils or subsoils; the


 


20





















 


presence, absence, location or character of any
archaeological, architectural, cultural, or historical resources or
improvements; the characteristics of the Premises or any Improvements thereon
or of any of the Assigned Acquired Interests; the suitability of the Premises
or the use of any Assigned Acquired Interests for or in connection with the
operation of the Hotel or for any other use; the validity or enforceability of
any currently-existing Entitlements; the economic feasibility of the Hotel or
the Premises or any of the Assigned Acquired Interests; any matter relating to
or any aspect of the Conditions of Title to the Premises; and/or the presence,
absence, location, character, condition or nature of any Hazardous Materials
on, under, about or in the vicinity of the Premises.  Lessee acknowledges that in determining to
enter into this Lease, Lessee is fully familiar with the Premises and the
Assigned Acquired Interests based both on the possession and operation of the
Premises and the use and enjoyment of the Assigned Acquired Interests by Lessee
for a substantial period immediately prior to the Effective Date and also on
the performance by Lessee of all investigations of the Premises and the
Assigned Acquired Interests that Lessee has deemed to be necessary or
appropriate for use as a Luxury Hotel or any other use, including soils and
environmental studies; zoning, utilities and drainage studies; physical site
inspections and investigations; a thorough review of the Entitlements and any
related zoning, land use, cultural, historical, architectural, design,
construction, or environmental requirements; appraisals; market and economic
feasibility studies; and discussions with the City, State and all other public
agencies with jurisdiction over the Premises, and Lessee has fully satisfied
itself as to suitability, feasibility and all other matters relating to the
Premises and the Assigned Acquired Interests based solely on Lessee’s
pre-existing familiarity with the Premises and the Assigned Acquired Interests
and on Lessee’s investigations and analyses and not in reliance on the accuracy
or completeness of any information provided by Lessor or any of its directors,
officers, members, employees, agents, consultants or contractors.  Without limiting the generality of the
foregoing, Lessee assumes the risk of any and all liens, easements,
encumbrances and other restrictions, rights or conditions affecting the
Premises and/or the Assigned Acquired Interests (excluding solely any Lessor
Exceptions), regardless of whether the same would materially and adversely
affect the development, construction, financing, marketing, operation,
management, repair, Alteration, use or occupancy of the Premises or the
operation of a Luxury Hotel on the Premises.


 


2.4                       Purchase
Agreement


 


(a)                 Assumption and Performance of Obligations.  As part of the consideration for this Lease,
Lessee hereby unconditionally agrees to assume, as of and from and after the
Effective Date, and to pay or perform, as applicable, (i) any and all
covenants, obligations and liabilities of the Lessor arising under, in
connection with, or relating to the Premises or the Assigned Acquired
Interests, which either (A) become performable, accrue or arise on or
following the Effective Date (other than Lessor Transfer Obligations), or (B) became
performable, accrued or arose prior to the Effective Date to the extent that
the same relate in any manner to the use, occupancy or condition of the
Premises or the Hotel Business conducted therein; and (ii) any and all
covenants, obligations and liabilities of the Seller under the Purchase
Agreement which by their terms survive the Closing of the purchase and sale transaction
contemplated therein (but only to the extent and during the period of such
survival), including, without limitation, any such covenants, obligations and
liabilities set forth in Section 4.3 of the Purchase Agreement
(collectively, the “Assumed Obligations”).  Lessee shall indemnify, defend and hold all
Lessor Indemnities harmless from and against any and all claims, liabilities,
losses, damages, injuries,


 


21





















 


and costs and expenses (including, without limitation,
attorneys’ fees and expenses) arising directly or indirectly, in whole or in
part, from or in connection with any failure of performance under or with
respect to, or any breach of, any Assumed Obligations.


 


(b)                Certain Insurance and Condemnation Proceeds.  Lessor shall pay over or assign to Lessee, as
applicable, for deposit into the Hotel Operating Accounts, a sum equal to such
amount, if any, as may be paid or assigned to the Purchaser on account of the
proceeds of any business interruption insurance carried by or for Seller to the
extent that such proceeds relate to any period on or following the Term
Commencement Date and have been actually paid over or assigned to Purchaser by
Seller at the Closing pursuant to the provisions of Section 7.1 of the
Purchase Agreement.  In addition, to the
extent that the Seller has assigned to Purchaser at the Closing under the
Purchase Agreement any insurance or condemnation proceeds, or right to receive
the same, that were paid or are payable on account of damage to or loss or
appropriation of any Improvements or Personal Property (as such terms are
defined in the Purchase Agreement), Lessor agrees to cause Purchaser to deposit
such proceeds, as and when received, in the appropriate Capital Reserve Account
to be used by Lessee for the repair and reconstruction of the Improvements or
the replacement of such Personal Property.


 


(c)                 Closing Costs.  As Additional Rent, Lessee agrees to pay, or
to reimburse Lessor upon demand for the payment of, as applicable, all stamp
and documentary transfer taxes, sales and use taxes, personal property taxes,
utility or other deposits for goods or services provided or to be provided to
the Premises, permit or license transfer fees or charges, and any escrow fees
and charges, to the extent relating to or incurred in connection with the
creation of this Lease or Lessee’s leasehold interest in the Premises, the
assignment of the Assigned Acquired Interests, or the recordation of any
Memorandum of Lease or other instrument evidencing or relating to the leasehold
estate of Lessee.


 


(d)                Employees.  Lessee agrees that effective upon and
following the Closing, Lessee shall continue to employ or cause to be employed
a sufficient number of the employees who are employed at the Hotel or in
connection with the Hotel Business (for the purpose of this clause (d), as such term is defined in the Purchase
Agreement) immediately prior to the Closing so that Lessor (in its capacity as
Purchaser or otherwise) shall have no obligation under any Applicable Law to
give any layoff, closing or other termination notices, or otherwise incur any
liability with respect to any Hotel Employees in connection with the
acquisition of the Property by Purchaser pursuant to the Purchase Agreement,
including, without limitation, pursuant to the provisions of the Federal Worker
Adjustment and Retraining Notification Act, 29 U.S.C. 2101-2109, and/or
the California Worker Notification Law, Cal. Labor Code 1400 et seq.  In
addition, following the Closing, neither Lessee, nor any Operator or Food and
Beverage Operator, shall terminate the employment of any Hotel Employees if
such termination would, under Applicable Law (including the statutes noted
above), in any manner impose any obligations or liabilities on Lessor (in its
capacity as Purchaser or otherwise) under or with respect to any requirements
of the aforesaid statutes.  In no event
shall Lessor (in its capacity as Purchaser or otherwise incur, assume, or be
deemed to have assumed any liability or responsibility for payment or
performance of the salaries, benefits and/or all other payments and obligations
owing at any time for or with respect to any Hotel Employees who are, were or
will be employed at the Hotel, whether by Seller, Lessee, the Operator, any
Food and Beverage Operator, or any Affiliate of any of such entities (“Employment Obligations”),
and as between


 


22





















 


Lessor and Lessee, Lessee shall be responsible for all
such Employment Obligations.  Lessee
shall deliver to Lessor within thirty (30) days after the Term
Commencement Date a true and complete list of all Hotel Employees, identifying
their positions and date of hire, and shall update such list from time to time
upon Lessor’s reasonable request, but in any event not less frequently than
once each Operating Year, and further, at Lessor’s request from time to time,
Lessee shall deliver to Lessor a true and complete copy of any employment
agreements in effect with respect to any one or more Hotel Employees, including
any contracts or collective bargaining agreements entered into with any labor
organization or union representing any Hotel Employees.  Except as otherwise expressly provided in
this Lease or as Lessor may hereafter agree otherwise in writing, and except as
may be required under the provisions of any collective bargaining agreements
now in existence (including any renegotiation thereof) applicable to union
employees performing services for or at the Hotel, all employment agreements
relating to or affecting any Hotel Employees shall be subject and subordinate
to the right, title and interest of Lessor under this Lease, and shall not
survive the expiration or any earlier termination of this Lease or otherwise be
binding on Lessor in any respect, regardless of whether Lessor shall exercise
any of its rights under Section 14.2(h) relating to the hiring of any
Hotel Employees following the termination of this Lease by reason of an Event
of Default; provided that nothing herein shall be construed to obligate Lessor
under or to make Lessor a party to any collective bargaining agreement covering
any Hotel Employees, either during the Term of this Lease or following the
termination of this Lease with respect to any Hotel Employees who are not
actually hired by Lessor upon or following such termination.


 


(e)                 Retained Interests and Assigned Acquired Interests.  Lessee agrees to use and employ the Retained
Interests and any Assigned Acquired Interests solely for and in connection with
the operation of the Hotel and the Hotel Business, all in accordance with and
subject to the requirements of this Lease.


 


2.5                       Hotel
Operations


 


(a)                 Lessor
acknowledges that it has approved the Hotel Operating Agreements, as the same
are in effect on the Term Commencement Date. 
No material modification of or amendment to such Hotel Operating
Agreements shall be effective unless and until such modification or amendment
has been approved by Lessor, which approval shall not be unreasonably withheld
or delayed.  In addition, Lessee shall
not enter into any new or replacement Management Agreement, or enter into or
permit the Operator or any Affiliate thereof to enter into a new or replacement
Food and Beverage Agreement, without the prior written approval of Lessor as
and to the extent provided in Section 9 of this Lease.


 


(b)                Subject to the
provisions of Sections 11.5(h) and 17, Lessee shall take all actions
reasonably required to ensure that all operations at the Hotel, including all
guest and meeting room facilities, all restaurant and bar premises, mini-bar
facilities, and any other areas in which alcoholic or other beverages and/or
food will be served or made available to guests and customers of the Hotel
(including room service and banquet facilities), will be fully serviceable and
in full operation on and following the Term Commencement Date.  In addition, except to the extent provided
below or as Lessor may hereafter agree otherwise in writing, all contracts and
agreements for or relating to the provision of goods or services to or for the
Hotel (i) shall not be binding upon or enforceable against Lessor, (ii) shall
be fully subordinate to the rights and


 


23





















 


interests of Lessor under this Lease, and (iii) except
as otherwise expressly provided in Section 8.1, Section 8.2(b), Section 9.2,
or Section 14.2(h) hereof, shall terminate and be of no further force
or effect on the Termination Date; provided that the foregoing requirements
shall not apply with respect to (A) any such contracts or agreements that
are entered into with a Person who is not an Affiliate of Lessee, the Operator,
or any Food and Beverage Operator, where the contract or agreement is
terminable at the election of the Lessee, the Operator, or any Food and
Beverage Operator, upon not more than sixty (60) days notice and without the
payment of any fee, penalty or other consideration on account of such
termination, and (B) any such contracts or agreements that were in effect
and actually known to the Purchaser on the Approval Date (as such term is
defined in the Purchase Agreement).


 


(c)                 Without limiting
the foregoing provisions of this Section 2.5, Lessee shall ensure that at
all times during the Term (i) any and all liquor licenses required for the
lawful sale and service of alcoholic beverages at or within the Hotel, whether
in or from any restaurant, bar or lounge areas, or mini-bar facilities, and
including room service operations, shall have been issued and shall be in full
force in effect, and (ii) the holder of any liquor license(s) relating to
the sale or serving of alcoholic beverages at, within or from the Hotel (“Liquor Licensee”), and the
terms of any contract or agreement with the Liquor Licensee relating to the
sale or serving of alcoholic beverages at, within or from the Hotel, shall be
in compliance with the requirements of Section 14.2(h) of this
Lease.  The parties contemplate that upon
or as soon as reasonably practicable following the Term Commencement Date, the
existing liquor licenses for the Hotel will be transferred to a limited
liability company or other joint venture entity in which Lessor or an Affiliate
of Lessor holds an equity interest without operating management rights and
without an interest in profits, losses or distributions, and Lessee, the
Operator, or an Affiliate of Lessee or the Operator holds an equity interest
together with operating management rights and all interest in profits, losses
and distributions, which entity shall be governed by an operating agreement substantially
in the form attached hereto as Exhibit D.  In the event that the Liquor Licensee is an
entity in which Lessor or any Affiliate of Lessor holds any equity interest,
and Lessee, Operator, or any Affiliate of Lessee or Operator, holds any equity
interest together with operating management rights and all interest in profits,
losses and distributions, Lessor and Lessee agree to cooperate, and cause any
Affiliate of the respective party (including in the case of Lessee the Operator
and any Affiliate of the Operator) to cooperate, in causing the Liquor Licensee
to become a party to any existing Hotel Operating Agreement which provides for
the sale or serving of alcoholic beverages at, from or within the Hotel, or
otherwise to enter into such operating agreements or operating leases with
Lessee, the Operator, or any Food and Beverage Operator, as may be required
from time to time to permit the lawful sale and serving of alcoholic beverages
pursuant to the applicable liquor license. 
Any such operating agreement or operating lease shall be in form and
substance permitted by Applicable Laws and otherwise reasonably acceptable to
Lessor and Lessee, including, without limitation, indemnification of Lessor or
such Affiliate of Lessor from and against any liability (civil, statutory,
regulatory or criminal) relating to the sale or serving of alcoholic beverages
pursuant to such liquor license (excluding solely any liability which results
from the gross negligence or willful misconduct of Lessor or any Affiliate of
Lessor which has an equity interest in the Liquor


 


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Licensee), but shall not impose any fees on the
operator thereunder in consideration of the creation of such operating
agreement or lease.  In the event that at
any time only a temporary liquor license has been issued for the sale or
serving of alcoholic beverages in any area of the Hotel, Lessee and Lessor (to
the extent that Lessee, Lessor or any Affiliate of Lessee or Lessor holds an
equity or management interest in the Liquor Licensee) shall cooperate in taking
or causing to be taken all actions as shall be reasonably required (A) to
ensure that the Liquor Licensee holding such temporary license shall not make
or permit any change in the ownership or control of such Liquor Licensee if
such change would in any way obstruct or delay the issuance of a permanent
liquor license in replacement of such temporary liquor license, and (B) to
cause the Liquor Licensee which holds such temporary liquor license to
diligently pursue the issuance of a permanent liquor license in replacement of
such temporary liquor license as quickly as is permitted under Applicable Law.


 


2.6                       Quiet
Enjoyment


 


So long as this Lease has not been terminated as the
result of any Event of Default or the occurrence of any other event of
termination hereof expressly provided herein, Lessee shall have the right to
lawfully and quietly hold, occupy and enjoy the Premises during the Term,
subject to the terms, conditions and reservations contained in this Lease,
without hindrance, interruption, disturbance or molestation by Lessor or anyone
claiming by, through or under Lessor. 
Lessee’s sole remedies for a breach of the covenant contained in this Section 2.6
shall be (i) a suit for damages instituted against Lessor, provided that
any recovery against Lessor shall be limited as provided in Section 20.3,
and/or (ii) a proceeding in equity for injunctive or other equitable
relief for the purpose of eliminating or mitigating the cause of the breach of
the covenant of quiet enjoyment.  By its
execution of this Lease, Lessee expressly waives any and all rights at law or
in equity to terminate this Lease or to withhold, setoff, abate or otherwise
reduce or defer the payment of Rent or any other sums or charges payable by
Lessee hereunder, or to exercise any other remedy against Lessor except as
expressly provided above, as a result of the breach by Lessor of the covenant
of quiet enjoyment contained herein.


 


2.7                       Materiality
Provisions


 


Without limiting the circumstances under which a particular
matter may be considered to be material or to have a substantial impact, the
parties agree that any provisions of this Lease which, with respect to any
obligation of or performance by Lessee under this Lease, or with respect to any
rights or obligations of Lessor under this Lease, refer to the materiality of
any actions or conditions, or to whether there may be a material effect, change
or impact, or to whether an item or matter is in material or substantial
compliance with a requirement of this Lease, shall be construed so that it
shall be a material action or condition, a material effect, change or impact,
or a lack of material or substantial compliance, if such action, condition,
effect or impact, or lack of compliance, would have a reasonable potential to
result in (i) any failure to maintain and continuously operate the Hotel
as a Luxury Hotel within the meaning of this Lease, or (ii) any
interference which is more than de minimis with
the right or practical ability of the Lessee to use the Premises for any
Permitted Uses, or (iii) any violation of or non-compliance with any
Applicable Requirements, if such violation or non-compliance would, subject to
Lessee’s right to contest any such Applicable Requirements as expressly set
forth in Section 6.3(b), expose Lessor to any liability (civil, criminal,
regulatory or statutory) to any governmental body or third party which (in the
case of any civil liability) would be more than de minimis,
or would in the case of a violation of Applicable Laws survive a termination of
this Lease and impose on the fee owner of the Land and Improvements any cost
which is more than de minimis for
the correction, removal or remediation of such violation, or (iv) any
reduction in the fair market value of the Property or the value of the Lessor’s
interest under this Lease which is more than de minimis,
or (v) any


 


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impairment of or restriction on the rights and
remedies of Lessor upon the occurrence of an Event of Default.


 


3.                      Lease Term


 


3.1                       Lease Term


 


The term of this Lease (the “Term”)
shall commence on the Effective Date of this Lease, as set forth on the opening
page hereof (the “Term Commencement Date”)
and shall end at 11:59 p.m. on the Expiration Date, or such earlier date
as this Lease may be terminated in accordance with its terms.


 


3.2                       Possession


 


Commencing on the Term Commencement Date, Lessee shall
have possession of the Premises, subject to each and all of the terms,
conditions and reservations contained in this Lease.


 


3.3                       Memorandum
of Lease


 


Concurrently with the execution and delivery of this
Lease, Lessor and Lessee shall execute, acknowledge and record (at Lessee’s
sole cost) a Memorandum of Lease in the form attached as Exhibit C
(the “Memorandum of Lease”).  In the event of any termination of this
Lease, whether occurring on the Expiration Date or on or as of any earlier date
in accordance with the terms hereof, Lessee shall, upon request by Lessor,
promptly execute, acknowledge and deliver to Lessor a recordable instrument
sufficient to remove this Lease, and any and all rights and interests of Lessee
in and to the Premises, as an encumbrance on or other exception to Lessor’s fee
title to the Premises, and upon any failure of Lessee to provide such
recordable instrument to Lessor as provided above, Lessor shall be entitled to take all action that may be reasonably
necessary to cause the Memorandum of Lease to be released of record (and for
such purpose, Lessee, for itself and its successors-in-interest as the tenant
under this Lease, hereby irrevocably appoints and constitutes Lessor as Lessee’s
true and lawful attorney-in-fact, which appointment is coupled with an interest
in the Land and Improvements, for the purpose of executing, acknowledging and
recording all such documents, on behalf of and in the name of Lessee or its
then successor-in-interest as the tenant under this Lease, as applicable), and
Lessee shall be obligated to reimburse Lessor for all reasonable costs and
expenses, including reasonable attorneys’ fees and costs, incurred by Lessor in
causing such Memorandum of Lease to be released of record.  The provisions of this Section 3.3 shall
survive the expiration or earlier termination of this Lease.  In the event of any failure by Lessee to
perform its obligations under this Section 3.3, Lessee shall be liable to
Lessor for any and all losses, damages and liabilities suffered or incurred by
Lessor on account of such failure, including, without limitation, any
consequential damages suffered by Lessor with respect to its business, its
investments, its credit standing, or any economic or financial penalty or
burden.


 


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4.                      Rent


 


4.1                       Annual Base
Rent


 


(a)                 During the period
commencing on the Term Commencement Date and continuing thereafter until the
Expiration Date, Lessee shall pay Lessor annual base rent as provided in this Section 4.1 (“Annual
Base Rent”):


 


(i)                           For the
period from the Term Commencement Date up to the second (2nd) anniversary
of the Term Commencement Date, the annual sum of Two Million Eight Hundred
Forty Thousand and Four Dollars ($2,840,004.00), payable in equal monthly installments,
in advance as provided below, of Two Hundred Thirty-Six Thousand Six Hundred
Sixty-Seven Dollars ($236,667.00).


 


(ii)                        For the
period from the second anniversary of the Term Commencement Date up to the
tenth (10th) anniversary of the Term Commencement Date, the annual sum of
Five Million Nine Hundred Fifty-Six Thousand One Hundred Fifty-Two Dollars
($5,956,152.00), payable in equal monthly installments, in advance as provided
below, of Four Hundred Ninety-Six Thousand Three Hundred Forty-Six Dollars
($496,346.00).


 


(iii)                     For all
subsequent periods during the Term, the Annual Base Rent shall be adjusted and
shall be payable as provided in subparagraph (c) of this Section 4.1.


 


The portion of the Annual Base Rent allocable to the lease of the
tangible personal property included as part of the Premises shall be equal to
ten percent (10%) of the Annual Base Rent per annum for the period commencing
on the Term Commencement Date and continuing thereafter until the seventh (7th)
anniversary of the Term Commencement Date. 
Following the seventh (7th) anniversary of the Term
Commencement Date, no portion of the Annual Base Rent payable under this Lease
shall be allocated to the lease of the tangible personal property in
recognition that the maximum useful life of the tangible personal property
included in the Premises is no more than seven (7) years.  For the avoidance of doubt, the portion of
the Annual Base Rent allocated to the lease of tangible personal property under
this paragraph is solely for the purpose of allocating a portion of the Annual
Base Rent otherwise payable hereunder and shall not increase, decrease or
otherwise affect the amount of the Rent payable hereunder.


 


(b)                Lessee shall pay
Annual Base Rent in advance in equal monthly installments, in the respective
amounts set forth in Section 4.1(a) above, with the first such
monthly installment to be paid on the Term Commencement Date (prorated on the
basis of the actual number of days remaining until the end of the calendar
month in which the Term Commencement Date occurs), and each subsequent monthly
installment to be due and payable on the first day of each succeeding calendar
month during the Term; provided that the monthly installment of the Annual Base
Rent payable for any partial month in which the Term of this Lease shall expire
or shall otherwise be terminated in accordance with the provisions of this
Lease shall be prorated on the basis of the actual number of days in such
month.


 


(c)                 Annual Base Rent
shall be adjusted on the tenth (10th) anniversary of the Term Commencement
Date and every five (5) years thereafter during the Term (each, an “Adjustment Date”), by
multiplying the then-current Annual Base Rent by the Annual Base Rent
Adjustment


 


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Percentage, and the Annual Base Rent, as so adjusted,
shall be payable, monthly in advance as provided above, until the next
Adjustment Date.  For example, if the
then-current Annual Base Rent were Ten Million Dollars ($10,000,000.00) and the
Annual Base Rent Adjustment Percentage were one hundred six and one-half
percent (106.5%), the new Annual Base Rent would be Ten Million Six Hundred
Fifty Thousand Dollars ($10,650,000.00). 
Lessor shall provide Lessee with notice of the adjusted Annual Base Rent
not less than ten (10) Business Days prior to the date on which such
adjusted amount is due and payable; provided that any failure of Lessor to
provide such notice shall not invalidate any adjustment of the Base Rent
provided for hereunder or defer the effective date of the accrual of such
adjusted Annual Base Rent, but in such event Lessee shall not be deemed to be
in default under this Lease in the payment of the accrued and adjusted Annual
Base Rent unless and until the expiration of ten (10) Business Days
after Lessor has provided such notice to Lessee.  For purposes of this Section 4.1(c), the
following terms shall have the following meanings:


 


(i)                           The “Annual Base Rent Adjustment Percentage”
shall be the sum of one hundred percent (100%) plus
the increase (if any) (“Increase”) in
the Ending Index over the Beginning Index, expressed as a percentage; provided
that the Increase calculated for the first Adjustment Date shall not be greater
than forty percent (40%) nor less than twenty percent (20%), and the Increase
calculated for any subsequent Adjustment Date following the first Adjustment
Date shall not be greater than twenty percent (20%) nor less than ten percent
(10%).  Lessee expressly understands and
agrees that the Annual Base Rent payable hereunder shall not
be subject to reduction if on any Adjustment Date the Ending Index is lower
than the Beginning Index, so that for any period following any Adjustment Date
in no event shall the Annual Base Rent as adjusted be less than the Annual Base
Rent that was payable for the annual period immediately preceding such
Adjustment Date.


 


(ii)                        The “Ending Index” shall be the
CPI for the second calendar month preceding the Adjustment Date.  For example, if the Adjustment Date were July 21,
2014, the Ending Index would be the CPI for May, 2014.


 


(iii)                     The “Beginning Index” shall be
the same as the Ending Index used to calculate the previous adjustment (for
example, if the Adjustment Date were July 21, 2019, the Beginning Index
would be the CPI for May, 2014); except that, for purposes of calculating the
first adjustment to the Annual Base Rent, the Beginning Index shall be the CPI
for the second calendar month preceding the month in which the Term
Commencement Date shall occur.


 


4.2                       Rent and
Additional Rent Defined


 


For purposes of this Lease:  (a) ”Annual
Base Rent” shall have the meaning assigned in Section 4.1 above; (b) ”Rent” shall mean and include any and all amounts and
charges Lessee is obligated to pay to Lessor or to any Lessor Indemnitee
pursuant to this Lease, including Annual Base Rent and Additional Rent; and (c) ”Additional Rent” shall mean and include any Impositions,
Project Costs, and other amounts and charges, except Annual Base Rent, which
are payable to Lessor or at the direction of Lessor or are reimbursable by
Lessee to Lessor pursuant to this Lease (including without limitation any
reimbursement due to Lessor on account of Lessor’s election to perform or pay
any obligation of Lessee hereunder as and to the extent


 


28





















 


provided for in this Lease).  Unless otherwise expressly provided in this
Lease, Lessee shall pay Lessor any Additional Rent within thirty (30) days
after delivery of Lessor’s invoice therefor.


 


4.3                       Payment of
Rent


 


Lessee shall pay Rent to Lessor at the prescribed
times by wire transfer of immediately available and lawful funds of the United
States to such account or accounts located in the United States of America as
Lessor may designate to Lessee in writing from time to time.  If Lessor fails to so designate an account
for receipt of wire transfers of Rent, Lessee shall pay Rent to Lessor at the
address provided in Section 20.1, or to such other person and/or at such
other address as Lessor may designate in writing from time to time.


 


4.4                       Lessee’s
Obligations Unconditional


 


To the maximum extent permissible under Applicable
Laws, this Lease shall continue in full force and effect, and Lessee’s
obligations (including Lessee’s obligation to pay Rent) shall not be released,
discharged, abated, or otherwise affected by reason of:  (a) any Casualty or Appropriation
affecting all or any portion of the Premises or the Improvements, except and
solely to the extent expressly provided in Section 17 below; (b) any
restriction on, prevention of, or interference with any use or operation of all
or any portion of the Premises, the Improvements, the FF&E, any Personal
Property, or any revenues or income received from or relating to the Premises; (c) any
bankruptcy, insolvency, reorganization, composition, adjustment, dissolution,
liquidation or other proceeding relating to Lessor or Lessee, or any action
taken with respect to this Lease by any court, trustee, debtor in possession,
or receiver in any such proceeding; (d) any claim of any type or nature which
Lessee or any other Person has or might have against Lessor or any Lessor
Indemnitee; (e) any failure by Lessor to comply with any of its
obligations under this Lease or any other agreement between Lessor and Lessee; (f) the
failure of any Person using, occupying or otherwise present on the Premises to
perform or comply with any of the terms of any agreement with Lessee; or (g) the
termination of any or all of the Entitlements, any Management Agreement, or any
sublease or other agreement relating to or affecting the Premises or any
Improvements, whether voluntarily or by operation of law.  The obligations of Lessee under this Lease
shall be separate and independent covenants; and Lessee hereby waives, to the
maximum extent permitted by Applicable Laws, any rights that it may now or in
the future have to quit or surrender the Premises, to terminate this Lease, or
to any abatement (subject only to the provisions of Section 17 below),
diminution, offset, reduction or suspension of Rent on account of any event or
circumstance whatsoever, whether or not foreseeable.


 


4.5                       Late Charge


 


Notwithstanding any other provision of this Lease,
Lessee hereby acknowledges that late payment to Lessor of Rent will cause
Lessor to incur costs not contemplated by this Lease, the exact amount of which
will be extremely difficult to ascertain. 
If Lessee fails to pay any Rent owed to Lessor within five (5) days
after the date any such payment is required to be made hereunder and fails to
cure such default within two (2) days after receipt of notice from
Lessor (it being agreed that the requirement for receipt of any such notice
from Lessor shall apply only to imposition of the late charge provided for in
this Section 4.5, and shall not be construed to require Lessor to deliver
any notice to Lessee in order for an Event of Default to occur, except


 


29





















 


solely as may be expressly provided in Section 14.1), then Lessee shall pay to Lessor a late
charge equal to five percent (5%) of such overdue amount, plus all reasonable
attorneys’ fees and costs incurred by Lessor by reason of Lessee’s failure to
pay such Rent when due hereunder.  Lessor
and Lessee hereby agree that such late charge represents a fair and reasonable
estimate of the costs that Lessor will incur by reason of Lessee’s late payment
and shall not be construed as a penalty. 
Lessor’s acceptance of any such late charge shall not constitute a
waiver of Lessee’s default with respect to such overdue amount or preclude
Lessor from exercising any of the other rights and remedies granted under this
Lease on account of such default.


 


	
   

  	
  Initials:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Lessor

  	
   

  	
  Lessee

  	
   

  



 


5.                      Net Lease; Taxes and Assessments


 


5.1                       Net Lease


 


Without limiting the provisions of Section 4.4 of
this Lease, the Annual Base Rent and any Additional Rent payable to Lessor
hereunder shall be absolutely net to Lessor and shall be paid without assertion
of any counterclaim, setoff, deduction or defense and without any abatement,
suspension, deferment or reduction, except only as otherwise expressly provided
in Section 17 of this Lease.  Except
as specifically provided otherwise in this Lease, under no circumstances or
conditions, whether now existing or hereafter arising, and whether within or
beyond the present contemplation of the parties, shall Lessor be expected or
required to make any payment of any kind or incur any obligation whatsoever
with respect to the Premises, or otherwise have any obligation or liability
with respect to the Premises; provided that the foregoing shall not be
construed to require Lessee (i) to perform any obligations of Lessor under
any contract or agreement entered into by Lessor with any third party to which
Lessee or any Affiliate of Lessee is not a party, or (ii) to pay or
reimburse Lessor for any costs or expenses incurred by Lessor in connection
with the making of any Lessor Transfer, or (iii) require Lessee to assume
any liability for any obligations of Lessor arising under any Lessor Transfer
or otherwise incurred by Lessor under or in connection with such Lessor
Transfer, including payment of debt service on any obligation secured by any
Fee Mortgage (the items referred to in clauses (i), (ii) and (iii) above
shall be referred to collectively herein as the “Lessor
Transfer Obligations”), provided that (A) the foregoing
shall not be construed to relieve Lessee from complying with and performing any
express obligations of Lessee under this Lease that may also constitute
covenants or obligations of Lessor under any such contract or agreement entered
into by Lessor with any third party or under any Lessor Transfer, and (B) Lessee
agrees to comply with any other requirements imposed on Lessor under any such
contract or agreement entered into by Lessor with any third party or under any
Lessor Transfer with respect to the operation or condition of the Hotel so long
as such requirements are not in any manner or to any degree inconsistent with
Lessee’s rights or obligations under this Lease, cause no additional cost or
expense to Lessee, and do not expose Lessee to any additional liability.  Without limiting the generality of the Lessee
obligations referred to in the preceding sentence, Lessee shall be obligated to
pay any real property tax increases and assessments that may result from any
Lessor Transfer.


 


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5.2                       Project
Costs


 


In addition to Annual Base Rent, Lessee shall pay or
fund when due all Impositions (but subject to Lessee’s right to contest
pursuant to Section 5.3(c) below), insurance premiums, Debt Service
on any Lessee Loan or Equipment Financing, reserves provided for or required
hereunder including the FF&E Reserve Account, the Escrow Account (to the
extent provided in Section 7.2), permit and license fees, costs of
utilities, design, construction, maintenance, repair, replacement, remediation,
rebuilding, restoration, management, marketing, services, operations, and other
costs and expenses of any type, character or nature whatsoever accruing at any
time during the Term or any holdover period in connection with the development,
ownership, marketing, leasing, operation, management, maintenance, repair,
replacement, restoration, renovation, improvement, upgrading, use, occupancy or
enjoyment of the Premises, excluding solely any Lessor Transfer Obligations
(collectively, “Project Costs”).  Lessee shall pay all Project Costs directly,
and shall contract directly for all required services, utilities and other
items described herein; provided, however, that Lessor shall have the right to
contract for any such services, utilities or other items if Lessee has failed
to do so, or has failed to make any payment of Project Costs which is due and
owing, provided that (a) such failure constitutes an uncured Event of
Default; or (b) there is an imminent threat to the health or safety of
persons or property on or about the Premises and Lessee has failed to act
promptly following written notice from Lessor. 
Lessee shall provide Lessor, from time to time upon written request,
with copies of invoices, receipts, canceled checks and/or other documentation
reasonably substantiating Lessee’s payment of all Project Costs.


 


5.3                       Payment of
Taxes and Assessments


 


(a)                 Lessee’s Obligation to Pay.  Without limiting the generality of
Sections 5.1 and 5.2, but subject to Section 5.3(c) below,
Lessee shall pay all Impositions allocable to the Premises during the Term or
any holdover period on or before the date due, and in any event before
delinquency and before any fine, interest or penalty may become due or be
imposed by operation of law for nonpayment; provided, however, that:  (i) Lessor shall pay or, if paid by
Lessee, shall reimburse Lessee for any Impositions to the extent that the same
are allocable to periods after the Expiration Date (or, if Lessee holds over following
the Expiration Date, to periods after the Surrender Date); and (ii) if any
assessment is permitted by law to be paid in installments without additional
charge or penalty, Lessee may pay such assessments in installments, but in no
event later than the actual due date for such installments.


 


(b)                Direct Payment.  Lessee shall pay all Impositions directly to
the applicable taxing authority, and shall deliver to Lessor, within ten (10) days
after request therefor, true and correct copies of the receipted bills or other
reasonable evidence showing such payment of all Impositions required to have
been paid as of such date.  Lessor shall
cooperate with Lessee to cause all bills for Impositions to be sent directly to
Lessee, but if the tax collection agency will not so agree, then Lessor shall
tender all bills to Lessee promptly upon Lessor’s receipt, and in such event,
if Lessor fails to tender any such bill to Lessee within the later of (i) ten (10) Business
Days following the date of Lessor’s receipt of such bill from the taxing
authority or (ii) twenty (20) Business Days prior to the date on
which the tax, or installment thereof, represented by such bill shall become
delinquent, then (A) Lessee shall not be in default hereunder for failure
to make timely payment of such Imposition until the expiration of


 


31





















 


twenty (20) business days following the date on
which Lessee shall receive a copy of such bill from Lessor or the taxing
authority, and (B) if Lessee has not received any tax bill from Lessor or
the taxing authority prior to the twentieth (20th) Business Day
before the date on which the applicable tax payment shall become delinquent,
Lessee may deliver written notice to Lessor requesting Lessor to promptly forward
any tax bill that may have been delivered to Lessor for the tax period in
question, and if Lessor fails to deliver any such tax bill that has actually
been received by Lessor from the taxing authority prior to the receipt of
Lessee’s notice within ten (10) days following Lessor’s receipt of such
notice from Lessee, Lessor shall be obligated to pay any penalties incurred by
Lessee for late payment of such tax bill which are not reasonably avoidable by
Lessee.  Notwithstanding the foregoing terms
of this Section 5.3(b), (i) if any Fee Lender or Leasehold Mortgagee
shall at any time require that Impositions be paid to such Fee Lender or
Leasehold Mortgagee or to an escrowee designated by such Fee Lender or
Leasehold Mortgagee in monthly or other installments or otherwise deposited
into an “impound account” (an “Impound Account”)
maintained by or for the benefit of such Fee Lender or Leasehold Mortgagee,
then Lessee shall comply with all such requirements of such Fee Lender
(provided that such requirements are commercially reasonable) or Leasehold
Mortgagee and shall provide evidence of such compliance to Lessor from time to
time upon request, and (ii) if Lessee shall at any time fail to pay any
Impositions when due and shall fail to cure such default within the applicable
period provided under Section 14.1(b) below, then Lessor shall have
the right at any time thereafter to require that Lessee pay monthly
installments of Impositions into an Impound Account maintained by Lessor or an
escrowee designated by Lessor.  Lessee
shall not be entitled to receive any interest or other return on any funds on
deposit in any Impound Account, unless otherwise agreed by the Fee Mortgagee or
Leasehold Mortgagee requiring such Impound Account, and any funds so held in
any Impound Account may be commingled with other funds of the Fee Lender, the
Leasehold Mortgagee, Lessor or Lessor’s escrowee, or other parties depositing
funds in such Impound Account, as applicable; provided that, except as
otherwise provided upon the occurrence of an Event of Default, any funds held
in an Impound Account maintained by Lessor or an escrowee designated by Lessor
shall be used and disbursed by Lessor or such escrowee (subject to reduction
for payment of customary account charges) for payment of the Impositions in
respect of which such deposits have been made, and for no other purpose unless
an Event of Default has occurred and is continuing.  Nothing in this Section 5.3(b) shall
be deemed to relieve Lessee from its obligation to keep and maintain at all
times during the Term of this Lease a reserve account in an amount sufficient
to pay all Impositions and insurance premiums as provided in Section 7.1(e) hereof;
provided that if an Impound Account is created hereunder pursuant to the
foregoing provisions, then the amounts on deposit in such Impound Account for
the payment of Impositions shall be credited against any amounts that would
otherwise be required to be deposited into the reserve account created pursuant
to Section 7.1(e) for the payment of Impositions.


 


(c)                 Right to Contest.  Lessee shall have the right, at its sole cost
and expense, to contest the full or partial amount or validity of any
Imposition by appropriate administrative and legal proceedings, either in its
own name or jointly with Lessor if Lessor so elects.  Lessor shall cooperate with Lessee in any
reasonable manner requested by Lessee, provided that (i) Lessee shall
reimburse Lessor as Additional Rent hereunder for Lessor’s actual out-of-pocket
costs incurred in connection with any such contest, (ii) no action by
Lessee in connection with such contest shall expose Lessor to personal
liability for the payment of any Impositions, (iii) Lessee shall not be
authorized to settle any such action if an Event of Default has occurred and is


 


32





















 


continuing, and (iv) Lessee shall not settle any
such contest in any manner that would provide for or consent to an increase in
the amount of the Impositions payable with respect to the Premises after the
Expiration Date over and above the Impositions payable by Lessee during the
five (5) year period immediately preceding the Expiration Date.  Lessee may postpone payment of any contested
Imposition pending prompt and diligent prosecution of any such proceedings and
appeals, but only if Lessee shall post a bond or other assurance of payment or
performance with Lessor, an escrow designated by Lessor, or the court or
administrative agency or other legal authority having jurisdiction over the
contest, to ensure payment of all sums ultimately determined to be due by
Lessee.  Lessee shall indemnify, defend
and hold Lessor harmless from and against any and all claims, damages,
liabilities and costs and expenses, including penalties, interest, and
reasonable attorneys’ fees and costs, arising from or related to any such
contest, noncompliance or postponed compliance.


 


(d)                Assessment Proceedings.  If at any time during the Term any public or
quasi-public authority proposes to create an improvement, special assessment,
benefit, or other like district which would or could impose assessments or
other Impositions on the Premises (an “Assessment
District”), the boundaries of which would or could include
the Premises, Lessor shall not cast any votes allocable to the Premises in
favor of creation of such Assessment District (as distinguished from votes
allocable solely to other property of Lessor, which Lessor may cast in any
manner it deems appropriate in its sole discretion) without Lessee’s prior
written consent.  In the event Lessee
requests that Lessor vote in favor of creation of an Assessment District which
would include the Premises, Lessor shall be obligated to cast those votes that
are allocable to the Premises in favor of creation of such Assessment District (as
distinguished from those votes that are allocable solely to other property of
Lessor, which Lessor may cast in any manner it deems appropriate in its sole
discretion), but only in the event that there is no Event of Default, or
Potential Default which would be a Material Default, then existing and the
creation of the proposed Assessment District would not result in Impositions
being assessed against the Premises following the Expiration Date.  Lessor shall cooperate with Lessee in taking
all reasonable steps necessary to create any such Assessment District, provided
Lessee shall reimburse Lessor as Additional Rent for Lessor’s actual
out-of-pocket costs in connection therewith. 
Lessee shall have the right (but not the obligation), regardless of
Lessor’s position, to participate in any proceeding relating to the creation of
an Assessment District which would result in additional Impositions being
assessed against the Premises and seek to have the Premises excluded from or
included in any proposed Assessment District. 
The party receiving any notice or other information relating to the
proposed creation of any Assessment District the proposed boundaries of which
would or could include the Premises shall promptly provide the other party with
copies of all such notices and other information.


 


6.                      Use of Premises


 


6.1                       Permitted
Use


 


The Premises shall be used at all times during the
Term solely for the Permitted Uses, all in accordance with and subject to the
terms and conditions of this Lease. 
Lessee shall not use or permit the Premises to be used for any other
purpose without the prior written consent of Lessor, which Lessor may grant,
condition or withhold in its sole and absolute discretion.


 


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6.2                       No Nuisance


 


Without limiting the applicability of Section 6.1
or any other provision of this Lease, Lessee shall not use or allow the
Premises or the Project to be used for any unlawful purpose, nor shall Lessee
cause, maintain or permit any nuisance, waste or dangerous condition in, on or
about the Premises or the Project.


 


6.3                       Applicable
Requirements


 


(a)                 Compliance with Applicable Requirements.  Lessee shall comply in all material respects
with the following (collectively, “Applicable Requirements”),
including, without limitation, in connection with any construction, use,
occupancy, operation, maintenance, repair, reconstruction, replacement,
remediation, restoration, upgrading, marketing and management of the
Premises:  (i) all Applicable Laws,
including the Entitlements, all Environmental Laws, and all Public
Accommodations Laws; (ii) all contracts and other agreements, whether with
individuals or pursuant to any collective bargaining arrangements or
agreements, relating to or governing the employment of any persons on or at the
Premises in connection with the operation of the Hotel; (iii) all
requirements of this Lease relating to the operation of the Hotel as a Luxury
Hotel; (iv) the requirements of any insurer or insurance authority now or
hereafter constituted to the extent required to obtain and maintain the
insurance coverage required pursuant to the terms of this Lease; and (v) the
requirements of any liens, easements, encumbrances, restrictions, rights and
conditions to which the Premises or any part thereof may at any time be subject
(other than any Lessor Exceptions, unless otherwise expressly provided
herein).  Lessee shall provide Lessor
promptly with copies of any notices of violation or deficiency Lessee may
receive respecting the Premises from any public agency with jurisdiction or
insurance authority, and subject to Lessee’s right to contest provided in Section 6.3(b) below,
Lessee shall promptly and fully cure and correct at its sole cost and expense
any such violation or deficiency.


 


(b)                Right to Contest.  Lessee shall have the right, at its sole cost
and expense, to contest the application to the Premises of any law or legal
requirement or other matter referred to in Section 6.3(a) above, by
appropriate administrative and legal proceedings, either in its own name or
jointly with Lessor if Lessor so elects. 
Lessee may postpone compliance with any contested law or legal
requirement or other such matter pending prompt and diligent prosecution of any
such proceedings and appeals, provided that, if required in order to suspend
the application of the contested law or legal requirement or such other matter
to the Premises or if Lessee’s failure to pay or perform any contested law,
legal requirement or other matter could impose any lien or charge against the Premises,
Lessee shall post a bond or other assurance of payment or performance with
Lessor, an escrow designated by Lessor, or, the court or administrative agency
or other legal authority having jurisdiction over the contest, which is
sufficient to suspend the application of the contested law or legal requirement
or other such matter to the Premises and to ensure payment of all sums and
performance of all obligations ultimately determined to be due by Lessee.  Lessee shall indemnify, defend and hold
Lessor harmless from and against any and all claims, damages, liabilities and
costs, including penalties, interest, and reasonable attorneys’ fees and costs,
arising from or related to any such contest, noncompliance or postponed
compliance.


 


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6.4                       Utility
Easements Over Premises


 


Lessor shall cooperate with Lessee at no expense to
Lessor in granting licenses, permits or easements over, across or under the
Premises to Recipient Agencies, to the extent such licenses, permits or
easements are reasonably necessary to enable Lessee to operate the Premises as
a Luxury Hotel, or for the purpose of constructing, maintaining and (as
necessary) replacing such sub-surface utilities or other sub-surface
utility-related facilities (e.g., storm
drainage and sanitary sewer facilities) as are necessary for the proper
operation of the Premises, provided that such licenses, permits and easements
shall not be inconsistent with any of the provisions of this Lease.  Notwithstanding anything herein to the
contrary, Lessee shall not, without the prior written consent of Lessor, which
consent may be given or withheld in Lessor’s sole and absolute discretion,
grant or purport to grant any licenses, permits or easements over, across or
under the Premises to Recipient Agencies for any non-utility-related facilities
such as (but without limitation) open space, walkways, driveways, parking areas
or public access, unless and only to the extent that the same expressly provide
for their cancellation, without payment of any cancellation charge or penalty,
immediately upon the expiration or earlier termination of this Lease.


 


6.5                       Lessor’s
Right of Entry


 


Lessor reserves (for itself and any Lessor
Representatives) the right to enter the Premises at any and all reasonable
times during the Term of this Lease and, except in cases of emergency, after
giving Lessee and the Operator reasonable advance notice, for the purpose of:
inspecting the Premises, the physical condition thereof, and the operation of
the Hotel; ascertaining whether Lessee is complying with its obligations under
this Lease, including without limitation the operation of the Hotel as a Luxury
Hotel; showing the Premises to prospective purchasers or Fee Lenders; showing
the Premises to prospective tenants (during the final three (3) years
of the Term); posting notices of nonresponsibility; inspecting any Alterations
under construction; reviewing, inspecting and auditing the books, files and
records of Lessee, the Operator, and any Food and Beverage Operator, relating
to the Hotel or the Hotel Business (to the extent reasonably necessary to
enable Lessor to confirm Lessee’s compliance with the provisions of Section 7
or any other provisions of this Lease, and provided that Lessor agrees, as a
condition of the inspection, review or audit of any such books, files and
records, to enter into a reasonable and customary written confidentiality
agreement providing for the confidential treatment of any proprietary or other
confidential books, files and records of Lessee, the Operator, or any Food and
Beverage Operator); and otherwise for any other purpose which is not
inconsistent with the rights and obligations of Lessee under this Lease;
provided that Lessor shall use commercially reasonable efforts during the
course of any such entry to minimize any disruption of or interference with the
operation of the Hotel or the Hotel Business and shall not take any action in
connection with any such entry which would be inconsistent with the operation
or reputation of a Luxury Hotel.  Lessor
shall have the right to use any and all lawful means it deems necessary or
appropriate under the circumstances in order to obtain entry to the Premises
upon or following an Event of Default, or in case of an imminent threat or danger
to persons or property if Lessee shall have failed to take prompt action to
mitigate such threat or danger.  No entry
by Lessor pursuant to the foregoing provisions shall be deemed to be an
unlawful or forcible entry into, or a detainer of, the Premises, or constitute
a constructive or other eviction of Lessee, or entitle Lessee to any abatement
of Rent, or create any limitation on the performance by Lessee of its
obligations under


 


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this Lease.  Nor
shall Lessor or any Lessor Representative incur any liability to Lessee,
Operator, any Food and Beverage Operator, any Hotel guest or customer, or any
Hotel Employee, or any other Person, for or on account of such entry or any
activity on the Premises by Lessor or such Lessor Representative in the course
of such entry, except to the extent of any damage, loss, injury or liability
that is attributable to the gross negligence or willful misconduct of Lessor or
such Lessor Representative, as applicable.


 


7.                      Operation of Hotel


 


7.1                       Hotel
Business


 


(a)                 Continuation of Hotel Operations.  On and as of the Term Commencement Date,
Lessee shall assume full responsibility for and thereafter carry on with
diligence and continuity the operation of the Hotel pursuant to and in
accordance with the requirements of this Lease. 
Lessee shall use and apply the Assigned Acquired Interests solely for
the benefit and operation of the Hotel.


 


(b)                Covenant to Operate.  Each day during the Term, commencing upon and
at all times from and after the Term Commencement Date, Lessee shall operate
and have open for business, or cause to be operated and kept open for business,
the Hotel as a Luxury Hotel; provided that the foregoing covenant (i) shall
be subject to interruptions due to Force Majeure Events and any disruptions
pursuant to any Casualty or Appropriation referred to in Section 17
(provided that Lessee shall use all commercially reasonable efforts to mitigate
and minimize the impact of any Force Majeure Event, Casualty or Appropriation
on the Hotel and the Hotel Business); and (ii) shall be subject to the
provisions of Section 11.5(g) with respect to limited temporary
closures of certain portions of the Hotel to the extent expressly permitted by Section 11.5(h).  In the event that any dispute arises between
Lessee and Lessor as to whether the Hotel is being operated at any given time
as a Luxury Hotel, such dispute shall, upon the request of either party, be
resolved by arbitration pursuant to Section 18.


 


(c)                 Utilities, Services, Maintenance and Repairs.  At all times during the Term and any holdover
period, Lessee shall:  (i) procure
all utilities and other services which may be necessary or desirable in
connection with the operation of the Hotel as a Luxury Hotel (including water, gas,
electricity, telephone, communications, cable, janitorial, trash removal,
security and landscaping); (ii) keep, maintain, operate, preserve and
protect the Premises in substantial compliance with all Applicable
Requirements, and in a first class, attractive and safe condition and repair
fully consistent with a Luxury Hotel; (iii) obtain and maintain in full
force and effect any and all licenses and permits required or appropriate for
the operation of the Hotel as a Luxury Hotel, including liquor licenses,
catering licenses, food and beverage service permits, entertainment and cabaret
permits, elevator, boiler and machinery permits, environmental permits, and all
other City, State and federal permits or authorizations required or appropriate
for the normal and lawful operation of the Hotel, and (iv) undertake and
complete in a diligent manner all necessary repairs, replacements, remediation,
renovations, upgrades and Alterations to both the structure and contents
(including FF&E) of all Buildings (whether structural or nonstructural,
foreseen or unforeseen, ordinary or extraordinary) in order to maintain and
operate the Premises in accordance with the requirements of this Lease and in
substantial compliance with all Applicable Laws, including, without limitation,
all Public Accommodations Laws.


 


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Lessor shall not be obligated to undertake or complete
any repairs, replacements, remediation, renovations, upgrades or Alterations of
any kind, nature or description whatsoever, and Lessee hereby expressly waives
any right to terminate this Lease (except as otherwise expressly provided in Section 17
below) or to make repairs or perform any other action relating to the Premises
at Lessor’s expense pursuant to any Applicable Laws, including, without
limitation, Sections 1932(1) and (2), 1933(4), 1941 and 1942 of the
California Civil Code.  If Lessee fails
to comply with any of the foregoing provisions of this Section or with any
other provision of this Lease relating to the repair, replacement, remediation,
renovation, upgrade or Alteration of the Premises as required by this Lease (“Work”), and if such failure
is not cured within the applicable time period set forth in Section 14
after notice from Lessor, then Lessor shall have the right, but not the
obligation, to enter onto the Premises and perform any such Work for the
account of Lessee, and in such event Lessor shall have no liability to Lessee
for any loss or damage to the Premises, any FF&E or any Personal Property,
or for any interference with the operation of the Premises (unless due to the
gross negligence or willful misconduct of Lessor or Lessor
Representatives).  If Lessor performs any
such Work, Lessee shall pay to Lessor all costs thereof reasonably incurred by
Lessor on demand as Additional Rent.


 


(d)                Entitlements.  Lessee shall not, at any time during the
Term, apply to the City or other governmental entity with jurisdiction over the
Premises for any zoning or general plan classification or modification or
variance thereof, development permit, conditional use permit, environmental
clearance, or other permit, approval or other Entitlement (collectively, “Entitlements Change”) which would permit a material alteration of
the interior or exterior appearance of the Hotel or otherwise permit any change
which would make the Hotel less likely to continue to receive at least a top
tier four-star rating (as contemplated in the definition of Luxury Hotel), or
would adversely affect the value of the Premises or the use of the Premises for
any Permitted Uses in any material respect, or change any of the Permitted
Uses, or would impose any personal liability or obligation on Lessor, or would
impose any material increased cost on the Hotel or the owner thereof with respect
to Hotel operations or the physical condition of the Hotel, or would be
inconsistent with and/or disallowed by the provisions of any Fee Mortgage
and/or any Leasehold Mortgage.  Without
limiting the foregoing, Lessor hereby covenants that it will, upon the request
of Lessee, reasonably cooperate with Lessee in the prosecution of any
application for an Entitlements Change which is not precluded pursuant to the
preceding sentence; provided, however, that any application for an Entitlements
Change shall be pursued at Lessee’s sole cost and expense and Lessee shall
promptly reimburse Lessor for all actual out-of-pocket expenses reasonably
incurred by Lessor in connection with such cooperation.  In connection with the foregoing, Lessee shall
provide Lessor with not less than thirty (30) days’ prior written notice
of any requested Entitlements Change and, concurrently with the delivery of
such notice, shall furnish Lessor with copies of all applications, plans,
drawings, and other materials relating thereto.


 


(e)                 Reserve Accounts.  In addition to the FF&E Reserve Account
and the Escrow Account, Lessee shall establish and maintain, or shall cause the
Operator to establish and maintain in the name of and for the benefit of the
Hotel, adequate reserve accounts for the payment of all Impositions, insurance
premiums, deferred maintenance, and capital repairs, replacements and
improvements as shall be required to ensure the continued operation of the
Hotel as a Luxury Hotel for the full Term of this Lease.  The amounts to be funded into such accounts,
whether from Hotel revenues or income or from direct contributions from Lessee,
shall


 


37





















 


be sufficient to defray the reasonably anticipated or
projected expenditures for such items, for such periods of time, as shall be
consistent with the then current practices of other Luxury Hotels, and in any
event Lessee shall comply with all applicable requirements of any Management
Agreement with respect to the establishment and funding of any such reserve
accounts.  Lessee hereby grants Lessor,
for the purpose of securing the performance by Lessee of its obligations under
this Lease, a first priority security interest in and to the FF&E Reserve
Account and in and to all other reserve accounts at any time maintained by or
in the name of Lessee or the Operator for the purpose of funding capital
repairs, replacements or improvements to the Premises (collectively, together
with the FF&E Reserve Account, the “Capital
Reserve Accounts”). 
Lessee shall also cause the Operator to grant to Lessor, for such
purpose, a first priority security interest in and to any Capital Reserve
Accounts at any time maintained by or in the name of the Operator.  Lessee shall from time to time execute and
deliver, or cause the Operator to execute and deliver, as applicable, any and
all financing statements, account control agreements (which shall be
substantially in the form attached hereto as Exhibit E-1,
in the case of the FF&E Reserve Account, and substantially in the form
attached hereto as Exhibit E-2 in the case
of any other Capital Reserve Account), and other instruments as may be required
under Applicable Law to perfect and maintain the perfection of such security
interest at all times during the Term of this Lease.  Notwithstanding the foregoing, so long as no
Event of Default shall have occurred and be continuing, Lessee and the Operator
shall be entitled to withdraw funds from any Capital Reserve Account to pay any
costs incurred for the purpose for which such funds were deposited in the
applicable account.


 


(f)                   Hotel Operating Accounts.  Throughout the Term of this Lease, Lessee
shall deposit, or cause the Operator to deposit, into one or more operating
accounts established and maintained by Lessee or the Operator with a federally
insured banking institution in the City which is reasonably acceptable to
Lessor (“Hotel Operating Accounts”),
all income, revenues, proceeds and other receipts received by Lessee or the
Operator from or with respect to the Hotel or the Hotel Business (excluding
only any amounts referred to in clauses (b) and (d) of the
definition of Total Revenues).  Lessee
hereby grants Lessor, and shall cause Operator to grant to Lessor where the
applicable account is maintained by or in the name of the Operator, a first
priority security interest in and to all Hotel Operating Accounts for the
purpose of securing the performance by Lessee of its obligations under this
Lease.  Lessee shall from time to time execute
and deliver, or cause the Operator to execute and deliver, as applicable, all
financing statements, account control agreements (which shall be substantially
in the form attached hereto as Exhibit E-1),
and other instruments as may be required under Applicable Law to perfect and
maintain the perfection of such security interest at all times during the Term
of this Lease, or as may otherwise be required pursuant to Section 7.1(g) below.  The funds from time to time held or deposited
in any Hotel Operating Accounts shall be used and withdrawn by Lessee or
Operator solely for the purposes provided or contemplated by this Lease, and in
a manner consistent with the requirements of Section 7.2(d), unless
otherwise approved in writing by Lessor in Lessor’s reasonable discretion;
provided that upon the occurrence and during the continuance of an Event of
Default, Lessor shall have the sole and unilateral right to control and direct
the withdrawal or use of any and all funds in the Hotel Operating Accounts.


 


(g)                Initial Bank Control Agreements.  Concurrently with the execution of this
Lease, Lessor and Lessee shall execute and deliver bank account control
agreements covering each Hotel Operating Account and each Capital Reserve
Account, substantially in the form attached


 


38





















 


hereto as Exhibit E-1 (in the
case of each Hotel Operating Account and the FF&E Reserve Account) and
substantially in the form attached hereto as Exhibit E-2 (in the
case of each Capital Reserve Account other than the FF&E Reserve Account),
and shall obtain the written acknowledgement and consent of the applicable
banking institution to such agreements as provided therein.  Thereafter, and without limiting the
provisions of subparagraphs (e) and (f) of this Section 7.1,
as and when any additional Hotel Operating Accounts or Capital Reserve Accounts
are established, Lessor and Lessee shall execute and deliver substantially
comparable bank account control agreements sufficient under Applicable Law to
provide Lessor with the rights and benefits with respect to such accounts as
are contemplated in the forms of agreements attached hereto as Exhibit E-1 (in the
case of each Hotel Operating Account and the FF&E Reserve Account) and
substantially in the form attached hereto as Exhibit E-2 (in the
case of each Capital Reserve Account other than the FF&E Reserve Account).


 


7.2                       Escrow
Accounts


 


(a)                 Establishment and Initial Funding of Accounts.  On or before the Effective Date, Lessor and
Lessee shall establish four (4) escrow accounts (each an “Escrow Account”) with the
branch office of a reputable banking institution located in the City selected
by Lessee and reasonably approved by Lessor, as follows: (i) an escrow
account for the payment of Annual Base Rent owing from time to time by Lessee
under this Lease (the “Base Rent Escrow Account”);
(ii) an escrow account for the payment of all Required Alterations which
Lessee is from time to time obligated under this Lease to carry out (the “Required Alterations Escrow Account”);
(iii) an escrow account for any Designated Alterations (the “Designated Alterations Escrow Account”);
and (iv) an additional escrow account for certain payments of Annual Base
Rent (the “Seasonal Rent Reserve”) as
provided in Section 7.2(b) below . 
Lessor is hereby granted, for the purpose of securing the performance by
Lessee of its obligations under this Lease, a first priority security interest
in each such Escrow Account, and Lessor and Lessee shall execute and deliver
from time to time such control agreements and other account instructions as
Lessor may reasonably require to perfect and maintain the perfection of Lessor’s
security interest in each Escrow Account, including, without limitation, an
Account Control Agreement (Escrow Accounts) in the form attached hereto as Exhibit E-2.  The Escrow Accounts shall be held in the name
of Lessee, and Lessee’s and Lessor’s respective rights therein shall be subject
to and governed by the terms of this Section 7.2 and the applicable
Account Control Agreement (Escrow Accounts) for each Escrow Account.  On the Effective Date, the Escrow Agent under
the Purchase Agreement will deposit into the Base Rent Escrow Account the
amount of the Property Reserves Deposit (as defined in the Purchase Agreement),
if any.  In addition, Lessee shall deposit
“Seller’s Compliance Contribution” and “Seller’s Property Enhancement
Contribution” (as such terms are defined in the Purchase Agreement), if any,
into the Required Alterations Escrow Account concurrently with the
Closing.  Thereafter, all deposits into the
Escrow Accounts and disbursements therefrom shall be made in strict compliance
with the provisions of this Section 7.2. 
In no event shall Lessor have any obligation whatsoever to pay for any
costs of any Property Enhancements, or any Hazardous Materials remediation,
removal or restoration work, required to be undertaken or completed by Lessee
pursuant to the provisions of the Purchase Agreement following the “Closing”
(as defined in the Purchase Agreement), including any obligation to make any
deposits into the Required Alterations Escrow Account or any other Escrow
Account for any such purpose, except solely for Lessor’s obligation, if
any, in its capacity as the Purchaser under the Purchase Agreement, to fund or
concurrently with the


 


39





















 


Closing deposit into the Required Alterations Escrow
Account, as applicable (i) any “Reinstatement Amount” (as defined in the
Purchase Agreement), plus (ii) such additional sums, if any, that are in
excess of the sum of the Reinstatement Amount plus the Excessive Compliance
Threshold (as defined in the Purchase Agreement) as Lessor, in its capacity as
the Purchaser under the Purchase Agreement, shall be obligated to pay pursuant
to the express provisions of Section 3.1(e)(ii)(A) and/or Section 4.1(b)(ii)(A) of
the Purchase Agreement.  The parties contemplate that, to
the extent permitted by applicable banking regulations and the rules and
account procedures established by the banking institution which holds the
applicable Escrow Account, the funds from time to time held in each Escrow
Account shall be invested in United States Government treasury securities,
federally insured interest bearing bank accounts, or any other readily
marketable liquid investments from time to time reasonably approved by both
Lessor and Lessee, and any interest or other return earned on such securities,
accounts and investments shall be considered to be additional Escrow Account
funds; provided that the maturity dates of any such securities, accounts and
investments shall be scheduled so as to enable Lessee or Operator to make
withdrawal of the applicable Escrow Account funds in a timely manner for the
purposes set forth in Section 7.2(c) below without the imposition of
early withdrawal, termination or breakage fees or charges that may be
applicable to such securities, accounts or investments.


 


(b)                Purposes of Accounts.  Funds in the Escrow Accounts shall be
disbursed from time to time in strict accordance with, and as limited by, the
provisions of this Section 7.2 for the following purposes only:  (i) with respect to the Base Rent Escrow
Account, payment of the monthly installments of Annual Base Rent (including the
monthly installment of the Annual Base Rent owing for the next succeeding
month), if and to the extent that the NOI for the immediately preceding month
is not sufficient to make such payment (“Base
Rent Escrow Payments”) and there are no remaining funds in
the Seasonal Rent Reserve; provided that no disbursement of funds from the Base
Rent Escrow Account shall be made if, after such disbursement, the balance
remaining in such account shall be (A) at any time prior to the second
anniversary of the Term Commencement Date, less than the sum of One Million
Dollars ($1,000,000.00), or (B) at any time on or following the second
anniversary of the Term Commencement Date until the fourth anniversary of the
Term Commencement Date, less than an amount equal to the Annual Base Rent
payable under this Lease for the next succeeding four (4) months, or (C) at
any time thereafter, less than an amount equal to the Annual Base Rent payable
under this Lease for the next succeeding six (6) months; (ii) with
respect to the Required Alterations Escrow Account, payment of the Eligible
Costs of such Required Alterations or any Excess Costs of such Required
Alterations (using only funds which have been deposited by Lessee in such
Escrow Account for the purpose of funding such Excess Costs and not previously
disbursed) (“Required Alterations Escrow Payments”);
(iii) with respect to the Designated Alterations Escrow Account, payment
of the Eligible Costs of such Designated Alterations or any Excess Costs of
such Designated Alterations (using only funds which have been deposited by
Lessee in such Escrow Account for the purpose of funding such Excess Costs and
not previously disbursed) (“Designated Alterations Escrow
Payments”); and (iv) with respect to the Seasonal Rent
Reserve, payment of the monthly installments of Annual Base Rent (including the
monthly installment of the Annual Base Rent owing for the next succeeding
month), if and to the extent that the NOI for the immediately preceding month
is not sufficient to make such payment (“Seasonal
Rent Reserve Escrow Payments”).


 


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(c)                 Disbursements from the Accounts.  Disbursements from the Escrow Accounts shall
be made by the escrow holder as follows:


 


(i)                           for the
purpose of making any payment of Annual Base Rent described in clause (iv) of
Section 7.2(b) from funds on deposit in the Seasonal Rent Reserve,
either (A) upon the written direction of Lessee given not sooner than two (2) Business
Days following delivery to Lessor of a written statement from Lessee showing
that the Monthly Cash Flow for the then current month, after the application
thereof in accordance with the requirements of Section 7.2(d)(i), will be
insufficient to permit Lessee to pay the full amount of the Annual Base Rent
installment owing for the next succeeding month, which statement shall contain
reasonably sufficient detail and supporting information to enable Lessor to
confirm such insufficiency; or (B) at Lessor’s sole and absolute
discretion at any time following and during the continuation of an Event of
Default, in which event amounts shall be disbursed from the Seasonal Rent
Reserve under this subsection (c)(i) upon written direction from
Lessor given in its sole and absolute discretion;


 


(ii)                        for the
purpose of making any of the payments of Annual Base Rent described in,  and as limited by, clause (i) of Section 7.2(b) from
funds on deposit in the Base Rent Escrow Account, either (A) upon the
written direction of Lessee given not sooner than two (2) Business
Days following delivery to Lessor of a written statement from Lessee showing
that the Monthly Cash Flow for the then current month, after the application
thereof in accordance with the requirements of Section 7.2(d)(d)(i), will
be insufficient to permit Lessee to pay the full amount of the Annual Base Rent
installment owing for the next succeeding month, which statement shall contain
reasonably sufficient detail and supporting information to enable Lessor to
confirm such insufficiency; or (B) at Lessor’s sole and absolute
discretion at any time following and during the continuation of an Event of Default,
in which event amounts shall be disbursed from the Base Rent Escrow Account
under this subsection (c)(ii) upon written direction from Lessor
given in its sole and absolute discretion; and


 


(iii)                     for the
purpose of making a Required Alterations Escrow Payment or a Designated
Alterations Escrow Payment, upon the written direction of Lessee given not
sooner than ten (10) business days following delivery to Lessor of a
written statement from Lessee (containing reasonably sufficient detail and
supporting information) that (A) the amount of funds on deposit in the
Required Alterations Escrow Account or the Designated Alterations Escrow
Account, as applicable, will be sufficient to pay for the Eligible Costs of the
Required Alteration or Designated Alteration for which a disbursement is
requested, and (B) the sums to be disbursed (1) are required for the
payment of the Eligible Costs of construction or installation of such Required
Alteration or Designated Alteration, as applicable (or for payment of any Excess
Costs therefor, using only funds which have been deposited by Lessee in the
applicable Escrow Account for such purpose and not previously disbursed) which
is being constructed or installed in substantial compliance with plans and
specifications approved by Lessor pursuant to the provisions of Section 11,
and without any changes therein except as have previously been approved in
writing by Lessor to the extent such approval is required pursuant to Section 11,
and (2) are limited to the amounts
then payable to the contractor, subcontractor or materials supplier for work or
services actually completed at the Premises or for materials to be incorporated
into the Premises (provided that if payment is made for any materials prior to
their incorporation into the Premises and such materials have not been
delivered to and stored on the Premises, Lessee


 


41





















 


shall have obtained a first priority perfected
security interest in such materials), subject to a reasonable retainage not
less than ten percent (10%) with respect to such work or services and provided
that all lien releases and waivers that can at such time lawfully be obtained
under Applicable Laws for all work previously performed in respect of such
Required Alteration or Designated Alteration, as applicable, have been obtained
from each such contractor, subcontractor, and materials supplier; and (3) do not exceed the sum of the Eligible Costs for
such Required Alteration or Designated Alteration, as applicable, remaining on
deposit in the applicable Escrow Account plus the amount, if any, of funds
deposited into such Escrow Account by Lessee on account of any Excess Costs for
such Required Alteration or Designated Alteration, as applicable, pursuant to
the provisions of Section 11.2 or 11.3;
provided that no disbursement from the Required Alterations Escrow Account or
the Designated Alterations Escrow Account shall be made on account of a
Required Alterations Escrow Payment or a Designated Alterations Escrow Payment
if an Event of Default has occurred and is then continuing or if a Potential
Default exists.


 


In the event that any
condition of a disbursement from any Escrow Account is not satisfied as
provided above, Lessor shall have the right to deliver a written notice to the
escrow holder instructing the escrow holder not to comply with any direction it
may receive from Lessee with regard to making a disbursement from the
applicable Escrow Account, or otherwise limiting the amount which may be
disbursed by escrow holder from the applicable Escrow Account pursuant to
Lessee’s direction, which instruction from Lessor shall supercede and prevail
over any contrary direction or instruction from Lessee.


 


(d)                Application of Monthly Cash Flow from the Premises.  Lessee agrees that the Monthly Cash Flow
shall be applied in the following manner and order of priority:


 


(i)                           First,
to the payment of all Ordinary Operating Expenses then due and owing;


 


(ii)                        Second, to
the payment of the monthly installment of Annual Base Rent and any Additional
Rent then due and owing;


 


(iii)                     Third, to the
funding of the FF&E Reserve Account in an amount equal to four percent (4%)
of the Total Revenues for the immediately preceding month, plus such additional
amount, if any, as shall be required to make up for any shortfall in the
required four percent (4%) deposit that has occurred in any prior month(s);


 


(iv)                    Fourth, to the
Base Rent Escrow Account, whenever the amount on deposit in the Base Rent
Escrow Account (including any interest or other cash return earned thereon) is
less than the sum of One Million Dollars ($1,000,000.00);


 


(v)                       Fifth, to
the funding of the Seasonal Rent Reserve, whenever the amount on deposit in the
Seasonal Rent Reserve (including any interest or other cash return earned
thereon) is less than the sum of One Million Dollars ($1,000,000);


 


(vi)                    Sixth, to the
funding of the Required Alterations Escrow Account, whenever the amount on
deposit in the Required Alterations Escrow Account (including any interest or
other cash return earned thereon) is less than an amount equal to the Eligible
Costs which are then required for the completion of all Required Alterations
which have not been funded through any


 


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Lessee Loans permitted under this Lease, as such costs
have been approved by Lessor pursuant to Section 11.3; provided that in
determining the amount so required to be deposited into the Required
Alterations Escrow Account pursuant to this clause (v), the amount of any
Excess Costs deposited therein by Lessee shall not be taken into account;


 


(vii)                 Seventh, to the
Base Rent Escrow Account, whenever the amount on deposit in the Base Rent
Escrow Account (including any interest or other cash return earned thereon) is
less than the sum of Three Million Dollars ($3,000,000.00);


 


(viii)              Eighth, to repay the
Unsecured Debt (not exceeding a payment of Three Million Six Hundred Thousand
Dollars ($3,600,000.00) in the aggregate, inclusive of both principal and
interest payments), provided that (A) such payments shall be made only to
unsecured creditors identified in the Schedule of Unsecured Creditors
attached hereto as Schedule 2 and not in excess of the
principal amounts (plus interest thereon) scheduled to be paid to each such
unsecured creditor as set forth in Schedule 2; and (B) no
more than One Hundred Thousand Dollars ($100,000.00) of Monthly Cash Flow for
any month during the Term shall be applied for the purpose of paying the
Unsecured Debt, provided that if there is insufficient Monthly Cash Flow to
fund the payment of Unsecured Debt in accordance with the priorities set forth
in this Section 7.2(d) for any month up to, but not exceeding, the
sum of $100,000 for such month, then the amount of such insufficiency shall
accrue and be added to the maximum permitted amount to be paid from future
Monthly Cash Flow for the payment of the Unsecured Debt in any one or more of
the next succeeding eleven (11) months, but in no event shall the maximum
permitted amount of Monthly Cash Flow to be used for the payment of the
Unsecured Debt exceed a total of One Million Two Hundred Thousand Dollars
($1,200,000.00) in the aggregate for any period of twelve (12) consecutive
months;


 


(ix)                      Ninth, to
the Base Rent Escrow Account as and to the extent required pursuant to the
provisions of Section 7.2(f);


 


(x)                         Tenth, to
the funding of the Designated Alterations Escrow Account, whenever the amount
on deposit in the Designated Alterations Escrow Account (including any interest
or other cash return earned thereon) is less than an amount equal to the
Eligible Costs which are then required for the completion of all Designated
Alterations which have not been funded through any Lessee Loans permitted under
this Lease, as such costs have been approved by Lessor pursuant to Section 11.2;
provided that in determining the amount so required to be deposited into the
Designated Alterations Escrow Account pursuant to this clause (ix), the
amount of any Excess Costs deposited therein by Lessee shall not be taken into
account;


 


(xi)                      Eleventh, to
repay any remaining Unsecured Debt in excess of the limitations set forth in
clause (viii) above;


 


(xii)                   Twelfth, to the
payment of any Disqualified Expenses; and


 


(xiii)                Thirteenth,
provided that no Event of Default has occurred and is continuing, and that no
Potential Default exists, the remaining balance of any Monthly Cash Flow shall
be applied for such purposes as Lessee may direct.


 


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(e)                 Deposits into the Account.  Lessee agrees to make deposits of Monthly
Cash Flow into the Escrow Accounts from time to time in accordance with the
provisions of Section 7.2(d).  When
any such deposit is required to be made, Lessee agrees not to use or divert any
of the Monthly Cash Flow for any other purpose without first obtaining the
prior written approval of Lessor, which may be given or withheld in Lessor’s
sole and absolute discretion.  All
monthly deposits required to be made by Lessee into the Escrow Accounts as
provided in Section 7.2(d) shall be made in respect of any month not
later than ten (10) days after the commencement of the next
succeeding month during the Term.


 


(f)                   Minimum Account Balance; Release of Funds from
Account.


 


(i)                           Lessee
and Lessor have agreed that additional deposits into the Base Rent Escrow
Account pursuant to clause (ix) of Section 7.2(d) shall be
made by Lessee each month (a “Deposit Month”)
whenever and for so long as either (A) the NOI for the twelve (12)
calendar month period immediately preceding the applicable Deposit Month is
less than the following aggregate amount (the “Qualifying
Amount”):  (1) at
all times prior to the first Adjustment Date, Seven Million Four Hundred
Forty-Five Thousand One Hundred Ninety Dollars ($7,445,190.00), or (2) following
the first Adjustment Date, an amount equal to one hundred twenty-five percent
(125%) of the then applicable Annual Base Rent; or (B) the Qualifying
Amount has not been achieved for each of the six (6) calendar months
immediately preceding the applicable Deposit Month; provided that no
monthly deposit into the Base Rent Escrow Account pursuant to clause (ix) of
Section 7.2(d) shall be required to be made during any Deposit Month if
the amounts then projected to be on deposit in the Base Rent Escrow Account and
the Seasonal Rent Reserve as of the end of such Deposit Month (including any
interest or other cash return earned on the funds in the Base Rent Escrow
Account and the Seasonal Rent Reserve, but taking into account any funds
reasonably anticipated to be disbursed from the Base Rent Escrow Account and/or
the Seasonal Rent Reserve during such Deposit Month pursuant to the provisions
of Section 7.2(c) of this Lease) equals or exceeds the Qualifying
Amount.


 


(ii)                        Without
limiting the provisions of clause (i) of this Section 7.2(f), during any calendar month (a “Withdrawal Month”) in which
the Release Requirement is satisfied and has also been satisfied for each month
during the immediately preceding six (6) months, and provided that no
Event of Default then exists or has existed during the immediately preceding
six (6) months, Lessee shall be entitled to withdraw from the Base
Rent Escrow Account the amount, if any, by which the funds projected to be on
deposit in the Base Rent Escrow Account and the Seasonal Rent Reserve as of the
end of such Withdrawal Month (including any interest or other cash return
earned on the funds in the Base Rent Escrow Account and the Seasonal Rent
Reserve, but taking into account any funds reasonably anticipated to be
disbursed from the Base Rent Escrow Account and/or the Seasonal Rent Reserve
during the Withdrawal Month pursuant to the provisions of Section 7.2(c) of
this Lease) exceed an amount equal to six (6) months of the monthly
installments of the then applicable Annual Base Rent.  As used herein, the “Release
Requirement” shall mean that the NOI for the immediately
preceding twelve (12) calendar months exceeds (A) until the first
Adjustment Date, the amount of Eight Million Three Hundred Thirty-Eight
Thousand Six Hundred Thirteen Dollars ($8,338,613.00), or (B) following
the first Adjustment Date, an amount equal to one hundred forty percent (140%)
of the then applicable Annual Base Rent.


 


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7.3                       FF&E
Reserve Account


 


Lessee shall establish and maintain at all times
during the Term a reserve account for the acquisition and replacement of
FF&E.  Lessee shall deposit into the
FF&E Reserve Account such amounts as may be required from time to time to
ensure the operation of the Hotel as a Luxury Hotel, but in any event an amount
not less than four percent (4%) of Total Revenues, such FF&E Reserve
Account to be funded on a monthly basis as provided in Section 7.2(d).  Lessee shall obtain Lessor’s prior written
approval, which shall not be unreasonably withheld or delayed, for the
acquisition or installation of any new or replacement FF&E which will be
funded from the FF&E Reserve Account, including the quality and quantity of
such FF&E and the cost thereof, and Lessee shall submit to Lessor with any
such request for approval (which request may be made, at Lessee’s option, in
connection with the delivery to Lessor of the annual budget for any Operating
Year) a description in reasonable detail of the FF&E proposed to be
acquired and the terms and conditions of such acquisition, including a
statement of whether the provider or seller of such FF&E is an Affiliate of
Lessee, the Operator, or any Food and Beverage Operator.  Notwithstanding the foregoing, Lessee shall
be permitted to expend funds from the FF&E Reserve Account for the
acquisition of FF&E for the Hotel in an amount not in excess of Ten
Thousand Dollars ($10,000.00) per month (non-cumulative) without the approval
of Lessor, and Lessee shall report such expenditures in the monthly reports
submitted to Lessor pursuant to Section 7.5(c) hereof.  Except as provided in the immediately
preceding sentence, Lessee shall not be permitted to withdraw any funds from
the FF&E Reserve Account unless, and then only to the extent that, such
funds are required to pay for the acquisition or installation of any FF&E
that has been approved by Lessor in an amount which is not in excess of the
cost therefor so approved by Lessor.


 


7.4                       Improvements
and Alterations


 


(a)                 Alterations.  Alterations shall be designed, approved, and
constructed in accordance with the terms and conditions set forth in Section 11
of this Lease.


 


(b)                Title to Improvements and Alterations.  Fee title to the Premises (excluding
Alterations owned by Lessee as provided herein), including the Improvements as
the same exist on and as of the Effective Date, shall at all times during the
Term of this Lease be and remain in Lessor, and Lessee shall have a leasehold
interest in the Premises, including such Improvements, for the Term of and
subject to the provisions of this Lease. 
Title to any Alterations that are paid for by Lessee shall be and remain
in Lessee until the Termination Date, even if such Alterations shall be
considered to constitute real property, at which time title to such Alterations
shall automatically pass to Lessor as provided in Section 8.2(a) below
free from any claim or interest of Lessee or any Person claiming by, through or
under Lessee and without the payment of any additional consideration or other
compensation by Lessor.  Lessee may not
demolish any of the Improvements, or any Alterations, or remove all or any
portion of the Improvements or any Alterations from the Premises, except in
accordance with Sections 11 and 17, nor may Lessee transfer its interest
in the Improvements or any Alterations separate and apart from a Transfer of
Lessee’s leasehold interest in the Premises.


 


(c)                 Depreciation of Improvements.  Lessee acknowledges and agrees that Lessor is
the fee owner of the Improvements during the Term of this Lease, and that Lessee
shall not be entitled to


 


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have or claim any depreciation deductions with respect
to the Improvements, other than for any Alterations which are paid for and will
be owned by Lessee as provided herein.


 


7.5                       Operating
and Financial Reports for Hotel


 


Lessee will, and will cause the Operator and the Food
and Beverage Operator to, keep books of account and records relating to or
reflecting the results of the operation of the Hotel substantially in accordance
with the Accounting Standards.  Upon any
termination of this Lease, Lessor shall have the right to review, copy, audit
and inspect all such books of account and records as reasonably required to
enable Lessor to provide for the orderly continued operation of the Hotel.  The originals or true and complete copies of
all such books of account and records shall be kept at the Hotel.  In addition, Lessee agrees to provide to
Lessor true and correct copies of the following operating, financial and other
information and reports from time to time prepared by or for Lessor, Operator,
and/or any Food and Beverage Operator with respect to the Premises, the Hotel
and/or the operation of the Hotel Business, such items to be provided to Lessor
at the time and in the manner set forth below:


 


(a)                 Copies of the
annual operating and capital budgets for the Hotel, the annual sales and
marketing plan for the Hotel and the annual capital improvement budget for the
Hotel for each Operating Year, and all updates of or revisions to such annual
operating and capital budgets, marketing plan and/or capital improvements
budget, to be delivered to Lessor on or before December 31 of the year
preceding the applicable Operating Year to which such budgets or plans apply,
or in the case of any update or revision to any such budgets or plans, as and
when such update or revision is approved by Lessee and the Operator (if
required).


 


(b)                On a monthly
basis, promptly following the preparation thereof, copies of the profit and
loss statement for the Hotel operations for such month, showing the actual year
to date performance versus the budgeted performance targets for such month, as
well as, a comparison showing the actual monthly performance and year to date
performance for the Hotel versus the performance during the same period of the
prior year, together with any budget adjustments proposed to be made relating
to such operations.


 


(c)                 On a monthly
basis, copies of all reports relating to Hotel operations, revenue projections,
bookings (including group booking reports), FF&E Reserve Account
expenditures, and similar matters, prepared by or for Lessee, the Operator or
any Food and Beverage Operator (including any monthly operational report that
the general manager may produce for the Lessee that provides a summary of
salient activities during the prior month of the Hotel operations), to be
delivered to Lessor within ten (10) Business Days after such items
become available to Lessee.


 


(d)                On a quarterly and
annual basis, copies of the balance sheet for the Hotel and the financial
statements for the Hotel for the applicable period (audited by a reputable
independent public accounting firm in the case of the annual financial
statements), to be delivered to Lessor within ten (10) Business Days
after such items become available to Lessee in their final form.


 


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(e)                 Copies of the
monthly Smith Travel Research (STR) reports showing the performance of the
Hotel as compared to other hotels in the City considered
to be included within the Luxury Hotel Competitive Set.


 


(f)                   Copies of any
written report relating to the physical condition of the Hotel or the
compliance of the Hotel or any Hotel operations with Applicable Laws), to be
delivered to Lessor within ten (10) Business Days after such report
or statement becomes available to Lessee.


 


(g)                Copies of (i) any
material claim made by any third party (including any governmental agency or
authority) against the Hotel, Lessee, the Operator or any Food and Beverage Operator,
relating to the Hotel or the Hotel Business, or the performance of the
Management Agreement, any Food and Beverage Agreement, or any Operating
Contract, or relating to any employment agreement covering any Hotel Employee
or the terms or conditions of employment of any Hotel Employee or to any
alleged discrimination against or disciplinary action involving any Hotel
Employee (provided that any such employment claims shall be treated by Lessor
as confidential); (ii) any written notices received from any governmental
agency or authority, or from any insurance company or insuring authority,
relating to an alleged violation of Applicable Law or to any condition on or
affecting the Land or Improvements that could adversely affect the availability
or cost of any insurance coverage required under this Lease; and (iii) any
action or proceeding filed or commenced in any court, or by or before any
mediator or arbitrator, or pursuant to any judicial reference, alleging any
material liability on the part of the Hotel, Lessee, the Operator, or any Food
and Beverage Operator in connection with the Land, the Improvements, the Hotel
or the Hotel Business (unless such action occurs in the ordinary course of
business of the Hotel and is covered by insurance).


 


Lessor shall have the right to meet periodically at
reasonable times (but not more frequently than quarterly), upon written request
to Lessee, with the senior executive personnel of Lessee, the Operator, and any
Food and Beverage Operators, including without limitation the general manager
of the Hotel and the persons holding senior executive or management positions
at the Hotel, to discuss, on a confidential basis, Hotel operations, the
financial performance of the Hotel, and any other matters relating to the Hotel
Business.  In addition, Lessor shall have
the right to meet periodically at reasonable times, upon written request to
Lessee, with the senior sales and marketing staff at the Hotel, to discuss, on
a confidential basis, Hotel sales and marketing plans and marketing budgets for
the Hotel, and any other matters relating to the Hotel Business.  In addition, Lessee will, and will cause the
Operator and the Food and Beverage Operator to, reasonably cooperate (at no
material cost to Lessee, the Operator, or the Food and Beverage Operator, as
applicable) with the due diligence inquiries and requests submitted by any
prospective Fee Lender or prospective purchaser of or investor in Lessor’s
interest in the Premises, including, without limitation, providing such parties
access to, on a confidential basis, the information to be delivered to Lessor
pursuant to this Section 7.5 and permitting such parties to meet with the
senior executive personnel of Lessee, the Operator and any Food and Beverage
Operators to discuss, on a confidential basis, Hotel operations, the financial
performance of the Hotel, and any other matters related to the Hotel Business.


 


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8.                      Surrender


 


8.1                       Surrender
of Premises and Assigned Acquired Interests


 


On the Termination Date, Lessee shall surrender the
Premises to Lessor, in the manner and condition required by this Section 8,
free and clear of all tenancies, occupancies and other rights or interests of
any third parties, whether pursuant to written or oral agreements of any nature
or otherwise (including, without limitation, any Management Agreement and Food
and Beverage Agreement), and the rights of any public agencies with
jurisdiction, any Leasehold Mortgagees, equipment lessors, service providers,
materials providers, or other third parties, except
solely (i) such agreements, rights and obligations as may be contained in
or created by the Permitted Exceptions, or arise under Applicable Laws, or are
Lessor Exceptions, or (ii) as Lessor may otherwise request by written
notice to Lessee delivered not less than ten (10) days prior to the
Termination Date (provided that (A) Lessee shall be required to use only
commercially reasonable efforts to comply with such request of Lessor, and
Lessee shall not be in default hereunder if Lessee, despite using such
commercially reasonable efforts, is unable to comply with Lessor’s request, and
(B) such request shall not impose any material additional cost or burden
on Lessee, but such proviso shall not be construed to limit any right of Lessor
to recover damages from Lessee on account of an Event of Default as permitted
under Applicable Laws).  In addition,
following the Surrender Date, Lessee shall have no further right, title or
interest in or to the Assigned Acquired Interests, and the Assigned Acquired
Interests shall automatically and without further action by the parties revert
to Lessor on and as of the Surrender Date; provided that
Lessor shall not be bound by or be deemed to have assumed any covenants, obligations
or liabilities contained in, arising under, or related to any of the Assigned
Acquired Interests to the extent that the same accrue or arise on or prior to
the Surrender Date, unless and until Lessor, in its sole and absolute
discretion, shall affirmatively elect in writing to assume all or any (as may
be designated by Lessor) of such covenants, obligations or liabilities.  Lessee shall be and remain liable following
the Surrender Date for the payment and performance of all such covenants,
obligations and liabilities to the extent that Lessor does not affirmatively
elect to assume the same (“Lessee-Retained Obligations”),
and Lessee shall indemnify, defend and hold Lessor harmless from and against
any and all losses, claims, damages, liabilities, and costs and expenses
(including reasonable attorneys’ fees and costs) arising from or relating to
any Lessee-Retained Obligations.  In the
event that this Lease terminates for any reason other than an Event of Default
by Lessee, including termination on the Expiration Date of this Lease: (i) Lessee
shall be entitled to retain all revenues and receivables arising from or
attributable to the Hotel Business prior to the Termination Date, and to
recover any security deposits posted by Lessee with third parties in connection
with the operation of the Hotel, and (ii) without limiting any other
provision of this Lease, Lessee shall be obligated to pay all Impositions,
accounts payable, and other costs and expenses relating to the Hotel Business
which are attributable to any period prior to, or which accrue prior to, the
Termination Date, provided that Lessee shall receive a credit to the extent of
any prepayments made by Lessee prior to the Termination Date for (A) Impositions
that are allocable to any period following the Termination Date or (B) any
costs and expenses that are allocable to any period following the Termination
Date on account of any contract, agreement or purchase order which will be
binding upon Lessor following the Termination Date as expressly provided in
this Lease.


 


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8.2                       Surrender


 


(a)                 Condition of Premises on Surrender.  On the Termination Date, Lessee shall
peaceably quit and surrender the Premises to Lessor.  Lessee shall leave the Premises, including
all Improvements thereon, in first-class and serviceable condition and repair
consistent with the operation of a Luxury Hotel, except for reasonable wear and
tear, and except as otherwise expressly provided in Section 17.  Lessee shall deliver the Premises and
Improvements to Lessor free and clear of all liens created or suffered by,
under or through Lessee, excepting only the Permitted Exceptions.  On the Termination Date, all of Lessee’s
rights and interests under this Lease in and to the Premises, including all
Improvements and Alterations, shall automatically terminate, and any title held
by Lessee in and to any portion of the Premises, including any Alterations,
shall, to the extent not then owned by Lessor, automatically be deemed
transferred to and shall vest in Lessor, without payment of any additional
consideration or other compensation therefor by Lessor, and free of any right,
title, claim or interest therein on the part of Lessee or any other Person
claiming by, through or under Lessee.


 


(b)                Delivery of Documents, Etc.  Lessee shall deliver to Lessor on the
Termination Date:


 


(i)                           Such
documents, assignments, instruments and conveyances as Lessor may request to
confirm and implement the termination of all of Lessee’s right, title and
interest in and to the Premises, and the transfer, as provided herein, of full,
lien-free title to Lessor with respect to any Alterations and any other
portions of the Premises (subject to the Permitted Exceptions and any Lessor
Exceptions);


 


(ii)                        All
Entitlements, plans, surveys and other documents, all keys and other items of
Personal Property in Lessee’s possession or control, and all transferable
licenses, permits and other governmental authorizations that relate to or are
necessary or appropriate for the lawful or proper operation or occupancy of the
Premises and its use as a Luxury Hotel;


 


(iii)                     An amount
equal to any unpaid Impositions and other Project Costs which have accrued as
of the Termination Date (but only to the extent that funds to pay such Project
Costs have not otherwise been reserved and paid over to Lessor), prorated to
the Termination Date, but subject to the provisions of the final sentence of Section 8.1
in the case of a termination of this Lease other than on account of an Event of
Default; and


 


(iv)                    All funds then
on deposit in all Capital Reserve Accounts, and the Designated Alterations
Escrow Account and the Required Alterations Escrow Account (but only to the
extent of any Eligible Costs and Excess Costs not theretofore disbursed from
the Designated Alterations Escrow Account and the Required Alterations Escrow
Account), and, in the case of any termination of this Lease on account of an
Event of Default, all funds then on deposit in the Hotel Operating Accounts and
all other amounts on deposit in the Base Rent Escrow Account and the Seasonal
Rent Reserve.


 


If this Lease is terminated prior to the Expiration
Date due to an Event of Default, Lessee also shall deliver, if and to the
extent requested by Lessor in a written notice delivered to Lessee not less
than ten (10) days prior to the Termination Date, any or all of the
following, as and to the extent designated by Lessor:  An assignment of Lessee’s interest in (i) any
Management


 


49





















 


Agreement and/or any Food and Beverage Agreement, (ii) any
subleases entered into in compliance with Section 13 hereof, (iii) any
contracts entered into by Lessee or any Affiliate of Lessee for the provision
of parking or other services at or for the Hotel or the Hotel Business, (iv) any
equipment leases or other equipment contracts, including data processing
equipment, entered into by Lessee or any Affiliate of Lessee and reasonably
required for the lawful and proper continued operation of the Hotel as a Luxury
Hotel, to the extent that the same relate exclusively to the Premises, (v) any
other assignable contracts, property rights or claims (including utility and
other deposits) of Lessee or any Affiliate of Lessee to the extent that the
same relate exclusively to the Premises or the ownership, operation,
management, maintenance, alteration, construction, repair, or leasing of the
Premises or any part thereof, (vi) all inventories, supplies, equipment,
and other personal property, tangible and intangible, owned or leased by Lessee
or any Affiliate of Lessee to the extent used exclusively in connection with
the operation of the Hotel, (vii) all transferable and assignable licenses
and permits that relate exclusively to the operation of the Hotel and/or the
Hotel Business, and in addition Lessee shall cooperate with Lessor, and shall
cause any Affiliate of Lessee, Operator or any Affiliate of Operator to
cooperate with Lessor (at no material cost to Lessee, Operator, or any such
Affiliate; provided that the foregoing restriction shall not be construed to
limit any right of Lessor to recover damages from Lessee on account of an Event
of Default as permitted under Applicable Laws), in the filing and processing of
any applications by Lessor, any Affiliate of Lessor, or any Replacement
Operator (as defined in Section 9.2 hereof) for the issuance of any new,
replacement or modified licenses and permits that may be necessary or
appropriate for the operation of the Hotel and the Hotel Business as a Luxury
Hotel; and (viii) any and all advance reservations and bookings and other
assets relating to the operation of a Luxury Hotel on the Premises
(collectively, the “Termination Assignments”).  Any Termination Assignments shall be made
without the payment of any additional consideration or other compensation by
Lessor to Lessee or any Affiliate of Lessee, and shall include:  (A) Lessor’s assumption of all
obligations of Lessee or any such Affiliate of Lessee under all such
Termination Assignments to the extent accruing on and after the Termination
Date (or, if Lessee holds over, the Surrender Date); and (B) Lessee’s
indemnification of Lessor for the performance and payment of any obligations of
Lessee or any Affiliate of Lessee under or with respect to any rights,
interests or other matters covered by such Termination Assignments and accruing
prior to the Termination Date (or, if Lessee holds over, the Surrender Date).


 


(c)                 Lessor as Lessee’s Attorney in Fact.  Lessee hereby constitutes and appoints Lessor
as its true and lawful attorney-in-fact, with full power of substitution, and
with full power and authority to execute, acknowledge and deliver any
instruments referred to in this Section 8.2
in the name and on behalf of Lessee which said attorney-in-fact shall deem
necessary to transfer and convey to Lessor all of Lessee’s right, title and
interest in and to the Premises and/or any Assigned Acquired Interests or the
subject matter of any Termination Assignments in accordance with this Section 8.2, including any agreements, rights, accounts,
documents or other items that are to be assigned to Lessor as provided in Section 8.2(b),
and Lessee hereby further authorizes said attorney-in-fact to take any further
action which said attorney-in-fact may consider necessary or advisable in
connection with the foregoing.  The power
of attorney granted pursuant to the immediately preceding sentence is a special
power of attorney, coupled with an interest, and shall be irrevocable.  All parties dealing with the
attorney-in-fact, including any title company insuring title to the Premises
and any bank, depository, trustee or other financial institution holding
deposits, rents, accounting or other funds described in, or connected with any


 


50





















 


contracts or agreements described in, this Section 8.2, may fully rely on the power and authority
of the attorney-in-fact to do any and all things described in this power of
attorney.


 


(d)                Lessee Indemnity.  Lessee shall indemnify, defend and hold
Lessor harmless from and against any and all claims, damages, losses,
liabilities, and costs and expenses (including reasonable attorneys’ fees and
costs) arising directly or indirectly, in whole or in part, out of any failure
by Lessee to surrender the Premises to Lessor on the Termination Date as
provided in this Section 8.  Except
for any agreements to which Lessor is a party or which Lessor expressly elects
in writing to assume in accordance with this Lease, as of the Termination Date,
neither Lessor nor the Premises shall be bound by or have any obligations or
liabilities with respect to (i) any contracts, agreements or other
obligations of Lessee or anyone claiming under Lessee, including, without
limitation, any Management Agreement, except solely as and to the extent required
to be assigned by Lessee to Lessor pursuant to Section 8.1 or the final
paragraph of Section 8.2(b), and Lessee shall have the obligation to
terminate or settle, at Lessee’s sole cost and expense, any and all such
contracts, agreements or other obligations that are not so assigned; or (ii) the
employment, retention, hiring, terms or conditions of employment, or
termination of employment of any Hotel Employees, or any claims or liabilities
relating thereto, whether held or asserted by or owing to any individual or any
labor union or collective bargaining unit or organization, including any claims
or liabilities for salary, benefits, contributions, or other compensation, and
any claims or liabilities relating to any determination not to employ, any terms
or conditions of employment, or any termination of employment, or relating to
any acts or omissions of the employer or any other Person with respect to any
Hotel Employees (collectively, “Employment Liabilities”),
and Lessee shall indemnify, defend and hold Lessor and all Lessor Indemnitees
harmless from and against any and all claims, damages, losses, liabilities,
governmental enforcement actions, fines, penalties, and costs and expenses
(including reasonable attorneys’ fees and costs), arising directly or
indirectly, in whole or in part, out of or in connection with, or otherwise
relating to any Employment Liabilities.


 


8.3                       Holding
Over


 


If Lessee remains in possession of all or any part of
the Premises after the Termination Date with Lessor’s
prior written consent:  (a) Lessee’s
occupancy of the Premises shall be deemed a month-to-month tenancy (not a
renewal or extension of the Term), which shall be terminable by either party
upon thirty (30) days’ written notice to the other; (b) unless
otherwise hereafter agreed in writing by Lessor and Lessee, the Annual Base
Rent during the holdover period shall be one hundred fifty percent (150%) of
the Annual Base Rent in effect during the final month of the Term (and Lessor’s
acceptance of any Rent without all or any part of such fifty percent (50%)
increase shall not be deemed or construed as a waiver by Lessor of its right to
collect the entire fifty percent (50%) increase in Annual Base Rent); and (c) Lessee’s
use of the Premises otherwise shall be subject to all applicable terms and
conditions of this Lease, including, without limitation, timely payment of all
Additional Rent, as if the Term had not expired or this Lease had not been
terminated, as the case may be.  Nothing
in this Section 8.3 shall be deemed or construed as a consent by Lessor to
any holding over by Lessee.  If Lessee
remains in possession of all or any part of the Premises or the Project after
the Termination Date without
Lessor’s prior written consent:  (i) the
Annual Base Rent during such holdover period shall be two hundred percent
(200%) of the Annual Base Rent in effect during the final month of the Term
(and Lessor’s acceptance of any Rent without all or any part of such one
hundred percent (100%)


 


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increase shall not be deemed or construed as a waiver
by Lessor of its right to collect the entire one hundred percent (100%)
increase in Annual Base Rent); (ii) Lessee’s occupancy of the Premises
shall be solely as a tenant at sufferance and no notice of termination shall be
necessary in order to recover possession; (iii) Lessee’s use of the
Premises otherwise shall be subject to all applicable terms and conditions of
this Lease, including, without limitation, timely payment of all Additional Rent;
and (iv) in addition to such other remedies as may be available to Lessor
at law or in equity, Lessee shall indemnify, defend and hold Lessor harmless
from and against any and all claims, damages, losses, liabilities and costs
arising from or in connection with, or related to, Lessee’s continued
possession, including reasonable attorneys’, brokers’ and consultants’ fees,
costs and expenses, and damages, including consequential damages, arising from
Lender’s inability to sell, assign or finance the Premises or relet or deliver
the Premises to a succeeding tenant.


 


8.4                       Survival


 


The provisions of this Section 8 shall survive
the expiration or any earlier termination of this Lease.


 


9.                      Management of Hotel


 


9.1                       Operator
and Food and Beverage Operators


 


The initial Operator (i.e. Morgans Hotel Group
Management LLC, a Delaware limited liability company), and the initial Food and
Beverage Operator(s) (i.e. 495 Geary LLC, a Delaware limited liability
company, SC Geary LLC, a Delaware limited liability company, and China Grill
Management BD, Inc., a Florida corporation), each as identified in Exhibit B
attached hereto, have been approved by Lessor. 
Each successor Operator, and each successor Food and Beverage Operator
which is an Affiliate of Lessee or Operator, shall be subject to the prior
written approval of Lessor, which approval shall not be unreasonably withheld
or delayed.  No replacement of or change
in any Operator, or any Food and Beverage Operator for which Lessor’s approval
is required as provided herein, shall be made or permitted without obtaining
Lessor’s prior written consent, which consent shall not be unreasonably
withheld or delayed.  Prior to giving or
withholding approval of an Operator or any Food and Beverage Operator, Lessor
shall have received from Lessee such information concerning the Operator or
Food and Beverage Operator, as applicable, as Lessor shall reasonably require,
including, without limitation, (i) evidence that the Operator has a
demonstrated history of successfully operating Luxury Hotels, or that the Food
and Beverage Operator has a demonstrated history of successfully operating food
and beverage services in Luxury Hotels, in either case whether in the City or
other areas of the United States, (ii) evidence that the Operator or Food
and Beverage Operator, as applicable, or any corporate family of which the
Operator or Food and Beverage Operator, as applicable, is a member, has
sufficient financial resources to ensure the faithful and timely performance of
the Operator or Food and Beverage Operator, as applicable, under the Management
Agreement or the Food and Beverage Agreement, as applicable, and (iii) the
absence of any litigation or other proceedings to which the Operator or Food
and Beverage Operator, as applicable, is a party that would create a reasonable
concern regarding the reputation or management skills of the Operator or Food
and Beverage Operator, as applicable. 
Without limiting the circumstances in which Lessor may be deemed to be
reasonable in


 


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withholding approval of any Operator, or Food and
Beverage Operator for which Lessor’s approval is required hereunder, Lessor
shall be deemed to be reasonable in withholding its approval of any Operator or
Food and Beverage Operator which does not have the qualifications referred to
in clauses (ii), (iii) and/or (iv) above.  Notwithstanding the foregoing, Lessor agrees
that Lessor will approve a new or replacement Operator so long as such new or
replacement Operator (A) has a tangible net worth (determined in
accordance with GAAP) not less than the then tangible net worth of the Operator
to be replaced, and (B) is a national hotel operations company for which
one or more of David Hamamoto, Edward Scheetz, or Ian Schrager (or any
successor individuals who have been expressly approved in writing by Lessor for
the purposes of this provision) are senior managers or senior executives with
primary responsibility for overseeing day-to-day operations; provided, however,
that the Management Agreement entered into with such Operator shall comply with
the requirements of Section 9.2 below. 
In the event that Lessee desires to retain a new or replacement Operator
which Lessee believes complies with the requirements set forth in the
immediately preceding sentence, Lessee shall deliver to Lessor reasonable
evidence of such compliance together with a copy of the Management Agreement
that is to govern the respective rights and obligations of Operator and Lessee.


 


9.2                       Management
Agreement; Food and Beverage Operator Agreements


 


Lessor shall not be bound by or incur any obligations
under any Management Agreement or Food and Beverage Agreement (including
without limitation any of the foregoing which constitute Hotel Operating
Agreements) entered into by Lessee with any Operator, or by Lessee or Operator
with any Food and Beverage Operator, relating to the operation or management of
the Hotel or any portion thereof, or any goods or services provided at or by
the Hotel, regardless of whether Lessor has approved or is required to approve
the Operator or the Food and Beverage Operator or any such Management Agreement
or Food and Beverage Agreement.  Lessor
shall be entitled to approve any and all Management Agreements, and all Food
and Beverage Agreements that are entered into with any Affiliate of Lessee or
any Affiliate of the Operator, which approval shall not be unreasonably
withheld or delayed.  Except as otherwise
provided in Sections 1.3 and 10.3(b)(xxii) of the Purchase Agreement with
respect to the SC Geary Related Agreements, each Management Agreement, and each
Food and Beverage Agreement whether or not requiring Lessor’s approval, shall
contain an express provision (or be subject to a subordination agreement
containing such a provision) in which the Operator or the Food and Beverage
Operator shall agree, for the benefit of Lessor, that (i) Lessor shall
have no obligation or liability under the Management Agreement or Food and
Beverage Agreement; (ii) the Management Agreement or Food and Beverage Agreement
shall be subject and subordinate to this Lease and to the rights of Lessor
hereunder, and except to the extent otherwise provided in clause (iv) below
shall terminate immediately upon the Termination Date of this Lease, without
any liability on the part of Lessor for the payment of any termination fee,
penalty or other sum; (iii) upon or in connection with the termination of
the Management Agreement or Food and Beverage Agreement, the Operator or the
Food and Beverage Operator shall not contact any Hotel guests or customers who
have booked rooms or facilities at the Hotel for the purpose of soliciting or
encouraging such guests or customers to cancel their previously booked rooms or
facilities or to transfer their business to any other transient lodging
facility or any other food or beverage facility, and (iv) in the case of
any termination of this Lease on account of an Event of Default, at the written
request of Lessor delivered to the Operator and/or any Food and Beverage
Operator not less than ten (10) days prior to the Termination Date,
the Operator and/or such


 


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Food and Beverage Operator shall remain at the
Premises, and continue to perform its obligations under the Management
Agreement or the Food and Beverage Agreement, as applicable, for a transition
period (“Transition Period”) not
exceeding one hundred twenty (120) days from the Termination Date.  In the event that Lessor delivers the written
request described in clause (iv) above to Operator and/or any Food
and Beverage Operator, and for so long as the Operator and/or any such Food and
Beverage Operator shall continue to perform its obligations under the
Management Agreement or Food and Beverage Agreement, as applicable, pursuant to
such request, the Operator and/or any such Food and Beverage Operator shall be
entitled to receive its management fee or other equivalent compensation for
such services, and to be reimbursed for its costs and expenses, as provided in,
and as would be applicable under the Management Agreement or the Food and
Beverage Agreement, as applicable, if the Termination Date had not occurred;
provided that (A) in the event that any Operator or Food and Beverage
Operator shall be an Affiliate of Lessee, such Operator or Food and Beverage
Operator shall not be entitled to receive as payment for its management or
other services under the applicable Management Agreement or Food and Beverage
Agreement during the Transition Period any payments or reimbursements for hotel
or restaurant chain services which are in excess of an annual charge of two and
one-half percent (2-1/2%) of Total Revenues (in the case of the Operator) or of
the gross revenues of the restaurant business at the Hotel (in the case of any
Food and Beverage Operator); (B) Lessor shall not be obligated to perform
any obligation of Lessee under the Management Agreement or any obligation of
Lessee or the Operator under the Food and Beverage Agreement, as applicable,
that arose or accrued prior to the Termination Date (but the Operator or the
Food and Beverage Operator shall retain any rights or claims against Lessee on
account of any default of Lessee), and (C) except only to the extent as
may hereafter be expressly agreed by Lessor in a separate written agreement
with the Operator or the Food and Beverage Operator, as applicable, Lessor
shall not be deemed to have assumed any obligations of Lessee under the
Management Agreement or the Food and Beverage Agreement, as applicable, with
respect to any period following the Termination Date, including without
limitation any obligation of Lessee to fund any capital or operating expenses,
and any Operator or Food and Beverage Operator that is an Affiliate of Lessee
or the Operator, as applicable, shall look solely to the revenues and income of
and from the Hotel (in the case of such Operator) or the food and beverage
operations at the Hotel (in the case of such Food and Beverage Operator) for
payment of its management fee and reimbursement of its costs and expenses and
for recovery of any other indebtedness or liability owing under the Management
Agreement or the Food and Beverage Agreement, as applicable, for or with
respect to any period of time following the Termination Date (provided that
nothing herein shall be deemed to grant to any Operator or any Food and
Beverage Operator, as applicable, any title to, or security interest in, any
revenues, income or receivables of the Hotel or the food and beverage
operations at the Hotel, and provided further that the foregoing shall
not be construed to obligate the Operator or any Food and Beverage Operator to
fund any capital or operating expenses that are required to be funded by Lessee
under the applicable Management Agreement or Food and Beverage Agreement if
Lessor shall fail to provide such funds); and (D) Operator or the Food and
Beverage Operator, as applicable, shall reasonably cooperate with Lessor (at no
material cost to the Operator or the Food and Beverage Operator, as applicable,
provided that such restriction shall not be construed to limit any right of
Lessor to recover damages from Lessee on account of an Event of Default as
permitted under Applicable Laws) to ensure a smooth transition of the
management of the Hotel or the food and beverage services at the Hotel, as
applicable, from Operator or the Food and


 


54





















 


Beverage Operator, as applicable, to such new
management company, franchise company, and/or other entity as shall be
designated by Lessor (each a “Replacement Operator”),
including, without limitation, assisting the Replacement Operator in
identifying any Hotel Employees who should be considered for retention,
facilitating the transfer or assignment of all licenses and permits specific to
and required for the lawful operation of the Hotel or the food and beverage
operations at the Hotel, as applicable (including, without limitation, any
liquor licenses to the extent permitted by Applicable Laws) and all third party
operating agreements, leases or contracts (as and to the extent designated by
Lessor) relating to or reasonably required for the proper operation of the
Hotel or the food and beverage operations at the Hotel, as applicable,
providing a final accounting to Lessor of all operations of the Hotel or the
food and beverage operations at the Hotel, as applicable, through the
Termination Date and thereafter for the Transition Period, and permitting the
continued use during the Transition Period of all tradenames, trademarks,
central or corporate services, proprietary computer software and programs, and
such other rights held or controlled by Operator or the Food and Beverage
Operator, as applicable, or otherwise provided for in the Management Agreement
or the Food and Beverage Agreement, as applicable, as are reasonably required
to continue the operation of the Hotel or the food and beverage services at the
Hotel, as applicable, in conformance with the standards of a Luxury Hotel
during the Transition Period and to which Lessee would have been entitled under
the Management Agreement or to which Lessee or Operator would have been
entitled under the Food and Beverage Agreement, as applicable, had the
Termination Date not occurred.


 


10.               Insurance and Indemnity


 


10.1                Required Insurance


 


At all times during the Term and any holdover period,
at its sole cost and expense, Lessee shall obtain and keep in force for the
benefit of Lessee and Lessor as their respective interests may appear insurance
against such risks and in such amounts as Lessor or any Fee Lender may
reasonably require from time to time, or such greater amounts or additional
risks as are required under any Leasehold Mortgage, subject to the provisions
of Section 10.1(i) below. 
Without limiting the generality of the foregoing, Lessee shall obtain
and keep in force the following minimum levels of insurance:


 


(a)                 Property Insurance.  Lessee shall maintain, or cause to be
maintained, property insurance for the perils covered by a standard fire
insurance policy, extended coverage perils, smoke damage, vandalism, flood,
malicious mischief, sprinkler leakage, boiler, machinery and pressure vessel,
lightning, windstorm, hail, explosion, riot, riot attending a strike, civil
commotion, aircraft, vehicles, smoke and earthquake, at all times during the
Term, in an amount equal to the then-applicable Full Insurable Replacement
Value, but in no event less that the sum of Seventy-One Million Dollars
($71,000,000), or, in the case of earthquake insurance only, in an amount which
is not less than the “probable maximum loss” (or the equivalent standard at the
time customarily used by the insurance industry in determining the maximum
likely exposure of property to risk of damage from earthquakes), based on the
full replacement cost of the Improvements, as determined by a seismic
engineering firm selected by Lessee and reasonably acceptable to Lessor.  All such policies shall specify that proceeds
shall be payable whether or not any Improvements are actually rebuilt, and
shall include a “guaranteed amount” or “stipulated amount” endorsement of
coverage in lieu of a coinsurance provision under the policy.


 


55





















 


“Full Insurable Replacement
Value” means one hundred percent (100%) of the actual cost to
replace the Improvements (without deduction for depreciation but with standard
exclusions such as foundations, excavations, paving and landscaping, as
applicable to specific perils), including the costs of demolition and debris
removal, an increased cost of construction endorsement and, in the case of builders
risk or course of construction insurance, materials and equipment not in place
but in transit to or delivered to the Premises. 
The Full Insurable Replacement Value initially shall be determined at
Lessee’s expense by an appraiser selected by Lessee and reasonably approved by
the insurer(s) and Lessor.  Lessor may
require the Full Insurable Replacement Value to be redetermined, at Lessee’s
expense, not more frequently than once in any three (3) year period,
by an appraiser selected by Lessee and reasonably approved by the insurer(s)
and Lessor.


 


(b)                Business Interruption Insurance.  Lessee shall maintain, or cause to be
maintained, insurance against loss of income, including loss of revenues and
earnings from the Hotel, under a business interruption and extra expense policy
covering risk of loss due to the perils insured against under Section 10.1(a) above,
in an amount sufficient to cover at least twelve (12) months of Annual
Base Rent that would be payable to Lessor pursuant to Section 4.


 


(c)                 Worker’s Compensation and Employer’s Liability
Insurance.  Lessee shall
maintain, or cause to be maintained, worker’s compensation insurance in the
amounts and coverages required under worker’s compensation, disability and
similar employee benefit laws applicable to Lessee or the Premises, and
employer’s liability insurance, with limits of not less than One Million
Dollars ($1,000,000.00) for bodily injury by accident and One Million Dollars
($1,000,000.00) for bodily injury by disease, or such higher amounts as may be
required by law.


 


(d)                General Liability.  Lessee shall maintain, or cause to be
maintained, comprehensive or commercial general liability insurance, through
one or more primary and umbrella or excess coverage liability policies as
determined by Lessee, insuring against claims for bodily injury, personal
injury, and property damage occurring on or about the Premises or the streets,
curbs or sidewalks adjoining the Premises, or otherwise in connection with the
operation of the Hotel, with coverage limits of not less than Ten Million
Dollars ($10,000,000.00), combined single limit and annual aggregate for the
Project.


 


The general liability insurance shall:  (i) be written on an “occurrence” basis,
(ii) delete any employee exclusion on personal injury coverage; (iii) include
the Operator and its management personnel engaged at or for the Hotel, any
employees of Lessee, and the Hotel Employees, as additional insureds; (iv) provide
for broad form blanket contractual coverage, including coverage for Lessee’s indemnification
obligations under this Lease for bodily injury, personal injury, death and/or
property damage (provided that Lessee’s liability under any such
indemnification obligations shall not be limited to the amount of insurance so
carried by Lessee); (v) provide Products and Completed Operations and
Independent Contractors coverage; (vi) provide liquor law liability and
advertising liability coverage; and (vii) provide insurance against loss
or damage from an accident to and/or caused by boilers, heating apparatus,
pressure vessels, pressure pipes, electrical or air conditioning
equipment.  The general liability
insurance coverage shall insure against any and all claims for bodily injury,
including death resulting therefrom, personal injury, and damage to or
destruction of property of any kind whatsoever and to whomever belonging and
arising from any operations on or at the Premises, including the


 


56





















 


operation of the Hotel, and whether arising from acts
or omissions of Lessee, any of Lessee’s officers, directors, partners, members,
agents or employees, contractors, subcontractors, any other person or entity
for whom Lessee may be responsible, or any additional insureds.


 


(e)                 Automobile Liability.  Lessee shall maintain, or cause to be
maintained, automobile liability insurance, through one or more primary and
umbrella policies, providing aircraft liability coverage, if applicable, and
automobile liability coverage for owned, non-owned and hired vehicles used in
connection with the operation of the Premises, with coverage limits of not less
than Five Million Dollars ($5,000,000.00), combined single limit and annual
aggregate (inclusive of the base automobile liability policy plus umbrella
policy coverage).


 


(f)                   Builder’s Risk.  During the course of construction of any
Alterations, Lessee shall maintain, or cause to be maintained, comprehensive “all
risk” builder’s risk insurance, if available, and otherwise course of
construction coverage, including vandalism and malicious mischief, covering all
Improvements in place on the Premises in the case of all risk builder’s risk
insurance, all Alterations under construction at the Premises, materials and
equipment stored at the Premises or an off-site storage facility and furnished
under contract, and all materials and equipment that are in the process of
fabrication at the premises of any third party or that have been placed in due
course of transit to the Premises or an off-site storage facility when such
fabrication or transit is at the risk of, or when title to or an insurable
interest in such materials or equipment has passed to, Lessee or its
construction manager, contractors or subcontractors (excluding any construction
managers’, contractors’ and subcontractors’ tools and equipment, and property
owned by the employees of the construction manager, any contractor or any
subcontractor), such insurance to be written on a completed value basis in an
amount not less than the full estimated replacement value of the Alterations.


 


(g)                Fidelity Insurance.  Lessee shall maintain, or cause to be
maintained, fidelity insurance covering the Operator and all Hotel Employees
who have access to or are responsible for the handling of any funds,
securities, or other valuables at or relating to the Hotel, all in reasonable
amounts consistent with the practice of other Luxury Hotels.


 


(h)                Required Coverage.  Lessee shall maintain, or cause to be
maintained, all other insurance that Lessee is required to maintain under
Applicable Laws or the terms of any Leasehold Mortgage.


 


(i)                    Adjustments to Coverage Amounts.  If either Lessee or Lessor shall at any time
believe that the limits or extent of coverage or deductibles with respect to
any of the insurance required in this Section 10 then carried are either
excessive or insufficient for a prudent operator of a Luxury Hotel, Lessee and
Lessor shall endeavor to agree upon the proper and commercially reasonable
limits and extent of coverage and deductibles for such insurance, and upon
reaching agreement shall execute a letter agreement or other writing
memorializing such agreement; provided that in no event shall the insurance
coverage required to be maintained by Lessee under this Lease be less
protective of the interests of Lessee and Lessor than the comparable coverage
maintained by owners and operators of other Luxury Hotels in the City.  If Lessee and Lessor are at any time unable
to agree upon the proper and commercially reasonable limits and extent of
coverage and deductibles for any insurance, the matter(s) in dispute shall be
resolved pursuant to the arbitration provisions of Section 18 by an
arbitrator having at least ten (10) years of


 


57





















 


experience in insurance coverage matters for the hospitality
industry.  Notwithstanding any of the
foregoing to the contrary:  (i) the
limits of property insurance coverage shall be determined as provided in Section 10.1(a);
and (ii) the limits of liability insurance required under Sections 10.1(d) and
10.1(e) shall not be reduced under any circumstances, and shall be
increased on each Adjustment Date by a percentage at least equal to the
percentage increase in the CPI occurring since the last preceding Adjustment
Date.


 


10.2                Policy Form and
General Requirements


 


(a)                 All of the
insurance required under this Lease, and all renewals thereof, shall be issued
by one or more companies of recognized responsibility admitted to sell
insurance in the State with a financial rating of at least A-:X (or its
equivalent successor) in the most recent edition of Best’s
Insurance Reports (or its equivalent successor, or, if there is no
equivalent successor, an insurance rating service otherwise reasonably
acceptable to Lessor).  The proceeds of
property damage and builder’s risk policies of insurance required hereunder
shall be payable in accordance with and subject to the terms of Section 17
below, and any loss adjustment or disposition of insurance proceeds by the
insurer shall require the written consent of Lessor (and any Fee Lender whose
Fee Mortgage so requires).  All property
insurance hereunder shall name Lessor as a loss payee, as its interests may
appear, and all liability insurance policies shall name as additional insureds,
with respect to any liability arising out of or relating to the ownership,
maintenance, operation, occupancy or use of the Premises, all Lessor
Indemnitees and such other parties as Lessor may reasonably request.  Any deductibles or self-insurance retentions
for insurance required to be carried by Lessee pursuant to this Section 10
shall be reasonable in amount, and in any event shall be consistent with
amounts which from time to time are considered to be a prudent deductible or
assumed or retained risk for the owners of comparable Hotel properties in the
City.  All deductibles and self-insurance
retentions (i) shall be paid by Lessee, and (ii) shall constitute
Ordinary Operating Expenses, except for deductibles and self-insurance
retentions applicable to the insurance coverage provided for in Section 10.1(a) which
shall not constitute Ordinary Operating Expenses. All insurance of Lessee shall
be primary coverage, and shall be excess and non-contributory with any
insurance carried by Lessor.


 


(b)                All policies
provided for herein shall provide expressly that such policies shall not be
canceled, terminated or altered without ten (10) days’ prior written
notice to Lessor and any Fee Lender. 
Each policy, or a certificate of the policy executed by a properly
qualified representative of the insurance company evidencing that the required
insurance coverage is in full force and effect, shall be deposited with Lessor
on or before the Term Commencement Date, shall be maintained throughout the
Term and any holdover period, and shall be renewed at least ten (10) days
before the expiration of the term of the policy.  Except for specific provisions described
herein, no exclusion shall be permitted in any policy if it conflicts with any
coverage required hereby, and, in addition, no policy shall contain any
exclusion from liability for personal injury or sickness, disease or death or
which in any way impairs coverage under the contractual liability coverage
described above.


 


(c)                 Lessee hereby
waives all rights of subrogation and recovery against all Lessor Indemnitees on
account of any loss or damage arising from any cause to the extent covered by
any insurance required to be carried by Lessee pursuant to this Section 10.  Lessee shall give notice to its insurance
carrier or carriers that the foregoing waiver is contained in this Lease, and


 


58










 










 


shall procure waiver of subrogation endorsements to
all policies described in Section 10.1
if not already incorporated into or a part of such policies.


 


The parties acknowledge that Lessor has no obligation
under this Lease to carry or provide any insurance.  If Lessor otherwise elects in its sole
discretion to carry any insurance coverage through an independent third party
commercial insurer and such insurance is applicable to the Premises, such
insurance shall be excess and non-contributory with the insurance required to
be carried by Lessee under this Section 10.  If such insurance is carried, Lessor waives
all rights of subrogation and recovery against Lessee on account of any loss or
damage arising from any cause to the extent actually covered by such insurance.


 


(d)                On or before the
Term Commencement Date, and on each anniversary of the Term Commencement Date
thereafter during the Term, Lessee shall provide Lessor with the certificate of
a person knowledgeable in insurance matters (who may be an officer or employee
of Lessee) stating that all insurance policies required by this Lease are in
full force and effect and that such policies, and the insurance provided
thereby, comply with the requirements of Sections 10.1 and 10.2.


 


(e)                 No approval by
Lessor of any insurer, the terms or conditions of any policy, or any coverage
or amount of insurance or any deductible amount, shall be construed as a
representation by Lessor of the solvency of the insurer or the sufficiency of
any policy or any coverage or amount of insurance or deductible, and Lessee
assumes full risk and responsibility for any inadequacy of insurance coverage
or any failure of insurers.  Lessor’s
approval shall only constitute Lessor’s acknowledgment that, as to Lessor, the
item or matter so approved satisfies the requirements of this Lease.


 


(f)                   Lessee shall be
permitted to carry insurance required by this Section 10 under a so-called
blanket policy or policies of insurance which also cover other properties owned
or operated by Lessee or its Affiliates in addition to the Premises, provided
that the Premises shall be individually scheduled for coverage under such
blanket policy or policies for not less than the amounts and scope of coverage
required under this Section 10 and that a recovery under any such blanket
policy for or with respect to any other properties will not reduce or limit the
amount or scope of coverage available for or with respect to the Premises under
such blanket policy.


 


(g)                Lessee may elect,
from time to time, to require the Operator to obtain and maintain any or all of
the insurance coverages and policies required under this Section 10,
provided that any and all such coverages and policies shall in any event comply
fully with the provisions of this Section 10.


 


10.3                Lessee’s Indemnity


 


Lessee shall indemnify, defend and hold Lessor and all
other Lessor Indemnitees harmless from and against any and all claims, damages,
losses, liabilities, and costs and expenses (including reasonable attorneys’
fees and costs) arising from or relating to in any manner, directly or
indirectly, in whole or in part:  (a) any
failure by Lessee to timely and properly perform each of its obligations under
this Lease; (b) any acts or omissions of Lessee, any Affiliate of Lessee,
or any officers, directors, members, employees, guests, invitees, agents or


 


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contractors of any of them, or any Hotel Employees, on
or relating to the Premises; (c) the financing, design, construction,
marketing, operation, management, use, occupancy, maintenance, repair,
remediation, renovation and improvement of the Premises, or any part thereof,
at any time during the Term or any holdover period (including the design,
construction, maintenance and repair of any Improvements or Alterations, and
any liability to any federal, state or local governmental authority relating
thereto); (d) other than during the Transition Period, any act or omission
of the Operator or any Food and Beverage Operator relating to the operation or
management of the Hotel or any food and beverage operations at the Hotel, or of
any Hotel Employee while on the Premises or otherwise engaged in the
performance of such employee’s duties, or any employee of any independent
contractor working at or performing services for the Hotel, including any
parking operator or parking management company; and (e) any accident
occurring or other circumstance or condition existing on or about the Premises
at any time during the Term or any holdover period due to any cause whatsoever.  The foregoing shall not require Lessee to
indemnify, defend, protect or hold harmless Lessor or any Lessor Indemnitee to
the extent of any claims, damages, losses, liabilities, and costs and expenses
that arise from the gross negligence or willful misconduct of Lessor or any
Lessor Representatives, except to the
extent that such claims, damages, losses, liabilities, and costs and expenses
are covered by any insurance required to be carried by Lessee pursuant to this Section 10.


 


Lessee shall promptly assume its defense and
indemnification obligations upon written notice from any Lessor
Indemnitee.  Any Lessor Indemnitee may
also participate in the defense of any such claim at its own expense, unless
such participation is required because of Lessee’s failure to provide a
reasonable and consistent defense of such Lessor Indemnitee’s interests, in
which event such additional participation shall be at Lessee’s expense.  Lessee shall not settle any claim without the
consent of all Lessor Indemnitees who would incur any liability for such claim
under or following such a settlement. 
The provisions of this Section 10.3 shall survive the expiration or
earlier termination of this Lease.  The
provisions of Section 10.1 shall not
limit in any way Lessee’s obligations under this Section 10.3.


 


10.4                Lessee’s
Assumption of Risk and Waiver


 


As a material part of the consideration to Lessor for
entering into this Lease, Lessee agrees that no Lessor Indemnitee shall be
liable to Lessee for, and Lessee expressly assumes the risk of and waives,
releases and discharges all Lessor Indemnitees from, any and all claims,
damages, losses, liabilities, costs and expenses of any kind or nature, whether
or not foreseeable, arising from or relating to in any manner, directly or
indirectly, in whole or in part, the Premises or this Lease prior to or during
the Term or any holdover period, whether resulting from any act or omission of
Lessor or from any other cause, including, without limitation:  (a) the performance of any public or
quasi-public works on or near the Premises; (b) any injury to or death of
any person, or loss or damage of any property, occurring on or about the
Premises; (c) any and all matters described or referred to in Section 2.2
or 4.4 above; and (d) any act or omission of any Recipient Agency, or any
member of the public accessing the Premises through any right of public access
or pursuant to any easement or right of entry. 
The provisions of this Section 10.4 shall survive the expiration or
earlier termination of this Lease.  The
foregoing shall not require Lessee to waive or release any claims for damages,
losses, liabilities, or costs and expenses to the extent arising from the gross
negligence or willful misconduct of Lessor or any Lessor Representative, except to the extent that such claims, damages, losses,
liabilities, and costs and


 


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expenses are covered by any insurance required to be
carried by Lessee pursuant to this Section 10.


 


11.               Alterations


 


11.1                Permitted
Alterations


 


Lessee may make from time to time any Alterations (“Permitted Alterations”)
which will not (a) violate, or cause or
require a modification in (i) the Permitted Uses, (ii) any other
provision of this Lease, or (iii) any Entitlements; (b) materially
adversely affect the value or use of any Improvements; (c) adversely
affect in any material manner the operation of the Hotel as a Luxury Hotel; (d) modify
in any material respect the exterior appearance of any Building or any
structural element of any Building, or materially modify the mechanical,
electrical, plumbing or life safety system of any Building, or (e) impose
any liability or obligation on Lessor under Applicable Laws with respect to the
condition of the Premises; or (f) have a total estimated cost per
Alteration in excess of $200,000.00 (such amount to be increased as of each
Adjustment Date by an amount equal to the percentage increase in the CPI
occurring since the immediately preceding Adjustment Date, or since the Term
Commencement Date in the case of the first Adjustment Date).  If Lessee desires to make any Alterations
which could have any of the effects described in any of clauses (a) through (f) of
the immediately preceding sentence (any such Alteration being herein referred
to as a “Major Alteration”), Lessee
shall first obtain Lessor’s prior written consent, which consent shall not be
unreasonably withheld, except that Lessor shall have the right to approve or
disapprove, in its sole and absolute discretion, any Alterations which could
have any of the effects described in clause (a), (b), (c) or (e) above.  All Alterations shall be constructed and
installed at the sole cost and expense of Lessee, and Lessor shall not be
obligated to pay or contribute toward payment of the costs of any Alterations,
including any Designated Alterations. 
Lessor acknowledges that Lessee may desire to propose one or more
Alterations that individually or collectively will reduce the number of keyed
guest rooms or suites at the Hotel, and Lessor agrees not to unreasonably
withhold its consent to any such proposed Alterations, provided that (A) following
the completion of such Alterations the keyed guest rooms and suites at the
Hotel will number in the aggregate not less than ninety-five percent (95%) of
the total keyed guest rooms and suites at the Hotel on the Term Commencement
Date, and (B) Lessee can establish that the net operating revenues of the
Hotel will not be decreased by reason of such Alterations.


 


11.2                Designated
Alterations


 


From time to time Lessee may request Lessor to approve
certain Alterations to be funded from monies on deposit in the Designated
Alterations Escrow Account (“Designated Alterations”).  The projected costs approved by Lessor for
completion of any proposed Designated Alterations submitted to and approved by
Lessor shall be “Eligible Costs” in respect
of such Designated Alterations.  Lessee
shall be entitled to receive disbursements of funds from the Designated
Alterations Escrow Account for the purpose of paying the costs of any
Designated Alterations hereafter approved by Lessor, up to but not exceeding
the Eligible Costs for such Designated Alterations together with any Excess
Costs (as defined below) of any such Designated Alterations (provided, that,
disbursements for Excess Costs shall only permitted from funds which have been
deposited by Lessee in the Designated Alterations Escrow Account for the


 


 


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purpose of funding such Excess Costs and not
previously disbursed in accordance with the provisions hereof), and in any
event subject to and upon the terms and conditions set forth in Section 7.2(c).  Without limiting the foregoing, in the event
that the actual costs of construction or installation of any Designated Alterations
will exceed the Eligible Costs for such Designated Alterations, Lessee shall be
obligated to pay all such excess costs, and in such event as a condition to the
making of any further disbursements from the Designated Alterations Escrow
Account for such Designated Alterations, Lessor may require that Lessee deposit
into the Designated Alterations Escrow Account the full amount of the
additional costs required to complete such Designated Alterations, as
reasonably approved by Lessor, to the extent such costs are in excess of the
Eligible Costs (“Excess Costs”), provided
that, in the event Lessor requires that Lessee deposit the amount of any such
Excess Costs into the Designated Alterations Escrow Account, then Lessee shall
permit the disbursement of such Excess Costs for the purpose of paying the
costs of the Designated Alterations in accordance with the preceding
sentence.  Lessee shall not commence the
construction or installation of any Designated Alteration unless and until
there are sufficient funds available on deposit in the Designated Alterations
Escrow Account for completion of such Designated Alteration.


 


11.3                Required
Alterations


 


(a)                 Initial Required
Alterations.  Concurrently with the execution of this Lease,
Lessor has approved the Alterations described in Exhibit F attached
hereto (which, together with any Hazardous Materials remediation, removal or
restoration work or Property Enhancements referred to in Section 11.3(b) below,
are herein referred to as the “Required Alterations”).  The projected costs approved by Lessor for
completion of the Required Alterations described in Exhibit F,
and the projected costs approved by Lessor for completion of any additional
Required Alterations described in Section 11.3(b) below, shall be “Eligible Costs” in respect
of such Required Alterations.  For the
purposes of this Lease, in addition to any Required Alterations that constitute
Major Alterations pursuant to the provisions of Section 11.1, all Required
Alterations for which Lessor has an obligation to pay or deposit any
Reinstatement Amount shall be deemed to be Major Alterations and shall be
subject to all provisions of this Section 11 relating to Major
Alterations.  Except as otherwise
expressly provided in the following provisions of this Section 11.3(a),
Lessee shall not commence the construction or installation of any Required
Alteration, whether described in Exhibit F or in Section 11.3(b) hereof,
unless and until there are sufficient funds available on deposit in the
Required Alterations Escrow Account for completion of such Required Alteration
as well as any then uncompleted Required Alteration for which work is either
then currently in progress or for which Lessee has previously deposited funds
within the Required Alterations Escrow Account but has not yet commenced
performance of the work required to complete such Required Alteration; provided
that the amount required to be on deposit in the Required Alterations Escrow
Account with respect to the completion of certain Property Enhancements shall
be subject to the provisions of Section 4.1(c) of the Purchase
Agreement.  Lessee hereby agrees to
commence construction and installation of each Required Alteration described in
Exhibit F
(in such priority of construction and installation as shall be reasonably
approved by Lessor) as soon as the funds on deposit in the Required Alterations
Escrow Account are sufficient to pay the Eligible Costs therefor, provided that
in the event that upon the second anniversary of the Term Commencement Date
there are not sufficient funds on deposit in the Required Alterations Escrow
Account to pay the Eligible Costs of all such Required Alterations described in
Exhibit F,
Lessee shall nevertheless be obligated to


 


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commence (within thirty (30) days following the second
anniversary of the Term Commencement Date) construction and installation of all
Required Alterations described in Exhibit F for
which construction or installation has not yet commenced and shall complete the
same (subject to Force Majeure Events) within not more than six (6) months
after commencement of construction and installation, and in addition Lessee
shall either (i) deposit into the Required Alterations Escrow Account,
from sources other than Monthly Cash Flow, an amount equal to the Eligible
Costs for all Required Alterations for which construction or installation has
not yet commenced, or (ii) cause Morgans to deliver to Lessor a completion
guaranty, in form and substance reasonably acceptable to Lessor, assuring
Lessee and Lessor that the Eligible Costs and any Excess Costs of the
construction and installation of all such Required Alterations will be paid in
a timely manner and in full compliance with all applicable requirements of this
Lease, in which event Lessee shall undertake to pay such costs as the same
become due and owing under the applicable contracts for such construction and
installation.


 


(b)                Additional Required
Alterations.  In
the event that, pursuant to the provisions of the Purchase Agreement, the
Seller delivers a Hazardous Materials Remediation Notice or a Code Compliance
Notice that contemplates deferring the completion of any Hazardous Materials
remediation, removal or restoration work or Property Enhancements until after
the Closing of the purchase of the Property by Purchaser (as such capitalized
terms are defined in the Purchase Agreement), Lessee shall be obligated
following the Term Commencement Date to diligently undertake and complete as
quickly as practicable, but in any event not later than six (6) months
following the Term Commencement Date (subject to extension of such six (6) month
period upon approval by Lessor, which approval shall not be unreasonably
withheld or delayed), the Hazardous Materials remediation, removal or
restoration work referred to in the Hazardous Materials Remediation Notice in
compliance with the provisions of this Section 11 and Section 12.3 of
this Lease and/or such Property Enhancements referred to in the Code Compliance
Notice in compliance with the provisions of this Section 11, and for such
purpose, such Hazardous Materials remediation, removal or restoration work.


 


(c)                 Additional Costs.  Without limiting the foregoing provisions of
this Section 11.3, in the event that the actual costs of construction or
installation of any Required Alterations will exceed the Eligible Costs for
such Required Alterations, Lessee shall be obligated to pay all such excess
costs, and in such event as a condition to the making of any further
disbursements from the Required Alterations Escrow Account for such Required
Alterations, Lessor may require that Lessee deposit into the Required
Alterations Escrow Account the full amount of the additional costs required to
complete such Required Alterations, as reasonably approved by Lessor, to the
extent such costs are in excess of the Eligible Costs (“Excess Costs”).


 


11.4                Design of
Alterations


 


The following provisions shall apply to all
Alterations, except to the extent such provisions are expressly limited to
Major Alterations or Designated Alterations:


 


(a)                 General Requirements.  The design of all Alterations shall:  (i) provide for the construction of
Improvements that are first class in quality and appearance; and (ii) satisfy
the requirements of the Entitlements applicable to the Premises and all
Applicable Laws.


 


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(b)                Architects’ Qualifications.  Lessee shall engage only design professionals
who are licensed, reputable, financially capable, experienced in the design of projects
similar to the proposed Alterations and, if applicable, experienced in making
effective public presentations for similar projects.  Any design professional engaged by Lessee for
any Major Alteration or any Designated Alteration shall be subject to Lessor’s
prior written approval, which shall not be unreasonably withheld or delayed,
and Lessee shall provide Lessor with copies of all contracts with such design
professional upon execution.


 


(c)                 Lessor’s Review and Approval.  Prior to making any application or submittal
to the City, State or any other public agency with jurisdiction for any
architectural review, design or site review, building permit or any other
governmental approval for any Major Alterations or Designated Alterations,
Lessee shall submit to Lessor for Lessor’s information:  (i) two duplicate sets of all plans,
drawings, specifications, studies, renderings and related design documents that
are required by the public agency as a part of such application or submittal (“Design Documents”); and (ii) copies
of the application and any other items to be submitted to the public agency in
connection with the application.  The
Design Documents for any Major Alteration or Designated Alteration shall be
subject to Lessor’s written approval, which approval shall not be unreasonably
withheld or delayed, and in such instances Lessee shall not submit the
application until after obtaining Lessor’s written approval of the Design
Documents.


 


Copies of all submittals to the City, State or any
other public agency with jurisdiction concerning the design of any Major
Alteration or Designated Alteration shall be submitted concurrently to Lessor
for its information.  Subsequent Design
Documents shall be submitted to Lessor in two duplicate sets upon which any
material change from design elements previously required to be approved by
Lessor (including any material design element not shown in previously approved
documents) shall be indicated, and Lessor shall have the right to review and
approve or disapprove such modified Design Documents, which shall not be
unreasonably withheld or delayed.


 


If Lessor disapproves any aspect of the Design
Documents or related submittals for which Lessor’s consent is required, Lessor
shall specify in reasonable detail the reasons for such disapproval and Lessee
shall take such steps as may reasonably be necessary to correct any objections
by Lessor made in accordance with the applicable standards set forth in this
Lease.


 


Lessee shall pay all third party costs incurred by
Lessor in reviewing any request for approval of a proposed Alteration or the
Design Documents for any Alteration for which Lessor’s approval is required
pursuant to this Lease.  Lessor shall use
commercially reasonable efforts to review and respond to any request for approval
of a proposed Alteration or the Design Documents for an Alteration within
ten (10) Business Days of request. 
Lessor’s failure to respond to such request within ten (10) Business
Days shall not be deemed to constitute approval by Lessor of the request;
provided that Lessee shall have the right to deliver a second notice to Lessor
following the expiration of such ten (10) Business Day period that
expressly states that such notice is being provided on account of Lessor’s
failure to respond to the original request for approval and expressly advises
Lessor that Lessor’s subsequent failure to respond by either approving or
disapproving such request within a further period of five (5) Business
Days from the date of Lessor’s receipt of such second notice shall be deemed to
constitute approval by Lessor of such request, and if Lessor thereafter fails
to respond to such second notice within such


 


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five (5) Business Day period, the original
request shall be deemed to have been approved by Seller.  No approval or deemed approval by Lessor
shall be interpreted as a representation of any sort with respect to the
quality or suitability of the design, or a waiver of any rights Lessor may have
under this Lease other than with respect to Lessee’s obligation to seek
approval of the Alteration.


 


11.5                Construction of
Alterations


 


The following provisions shall apply to all
Alterations, except to the extent such provisions are expressly limited to
Major Alterations or Designated Alterations:


 


(a)                 Preconditions.  Before commencing construction of any
Alteration, Lessee shall:  (i) procure
all Entitlements that may be required by Applicable Laws as a condition to the
start of construction; (ii) obtain the consent of the City, State and any
other public agencies with jurisdiction from whom consent is required, if any;
and (iii) provide Lessor with certified copies of all insurance policies
required by Section 11.5(d) below and, in the case of any Major
Alteration or Designated Alteration, with evidence satisfactory to Lessor of
the availability of financing to pay in full the construction costs of such
Alteration (to the extent such costs are not Eligible Costs for Designated
Alterations to be funded from the Escrow Account).  Lessee shall provide Lessor with at least
fifteen (15) days’ written notice before commencing construction of any
Alteration so that Lessor may post and record one or more notices of
non-responsibility, and Lessee shall maintain the notice(s) in the location(s)
reasonably designated by Lessor.


 


(b)                General Requirements.  All Alterations shall be constructed in a
first class manner, substantially in accordance with and without material
deviation from, the approved Design Documents (where applicable), and subject
to the requirements of all Entitlements applicable to the Premises and all
other requirements of Applicable Laws and this Lease, using workmanship and
materials of a quality consistent with the first class nature of the Premises
and the operation of the Hotel as a Luxury Hotel, all at no cost or liability
to Lessor.  Once construction is
commenced, Lessee shall prosecute the work diligently and continuously to
Substantial Completion, subject to delays attributable to Force Majeure
Events.  Lessee shall at no cost to
Lessor correct, or cause its contractor to correct, any defects in any
construction work performed in connection with any Alterations.


 


(c)                 Selection of Contractor and Contracts.  Lessee shall engage only general contractors
and construction or project managers who are licensed, reputable, have strong
financial capability and are experienced in the construction of projects
similar to the Alterations.  All such
general contractors and construction or project managers, as well as the terms
and conditions of the construction contract or construction management
agreement, as applicable, shall be subject to Lessor’s prior written approval
(not to be unreasonably withheld or delayed) in the case of any Major
Alteration or Designated Alteration.  All
general contractors and construction managers shall be required to:  (i) carry worker’s compensation
insurance, commercial general liability insurance naming Lessee and all Lessor
Indemnitees as additional insureds with minimum coverage limits of at least Five
Million Dollars ($5,000,000.00), and automobile and employer’s liability
insurance; and (ii) comply with all applicable requirements of the
approved Design Documents, Entitlements and Applicable Laws.  Lessee shall provide Lessor with copies of
all contracts upon execution.


 


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(d)                Insurance and Bonds.  Without limiting any of the provisions of Section 10
above, Lessee shall maintain or cause to be maintained the construction-related
insurance described in Section 10.1(f) above at all times during the
construction of any Alterations.  For any
Major Alterations or Designated Alterations, all contractors with contracts in
excess of $500,000 (such amount to be increased as of each Adjustment Date by
an amount equal to the percentage increase in the CPI occurring since the
immediately preceding Adjustment Date, or since the Term Commencement Date in
the case of the first Adjustment Date) shall be bondable, and if Lessee or any
Leasehold Mortgagee requires performance and/or payment bonds from any
contractor, such bonds shall name Lessor and any Fee Lender as additional
obligees.


 


(e)                 Observation.  For any Major Alterations or Designated
Alterations, Lessee shall provide Lessor with copies of all contractors’ regular
progress reports, by facsimile, e-mail or other similarly timely means,
promptly upon receipt.  Lessee may
satisfy this obligation by contractually requiring its contractors to provide
Lessor with such reports at the same time and in the same manner as such
reports are provided to Lessee, and by taking reasonable steps to enforce such
contractual requirements if Lessee becomes aware that any contractor is not
complying with such requirements.  If any
Leasehold Mortgagee requires independent third party construction oversight,
Lessee shall request that the construction monitor provide Lessor with copies
of all reports and other materials he or she generates.  If no such independent oversight is
implemented by a Leasehold Mortgagee, or if the Leasehold Mortgagee refuses to
provide copies of its oversight reports, Lessor shall have the right (but not
the obligation) in the case of any Major Alterations or Designated Alterations
to engage at Lessee’s cost an independent third party construction monitor to
provide periodic observation of any construction-related activities.  In addition, Lessor shall have the right, but
not the obligation, upon reasonable advance notice to Lessee, to be present at
the Premises and observe all aspects of construction at any reasonable time
during construction of any Alterations. 
No observation by a third party at Lessor’s request or by Lessor,
whether performed or not performed, shall: 
(i) impose upon or be deemed to impose upon Lessor any
responsibility or liability with respect to the design or construction of the
Alterations; (ii) be construed as an approval or acceptance of the design
or construction of the Alterations; or (iii) constitute or be deemed to
constitute a waiver of any rights Lessor may have.


 


(f)                   Changes.  In the case of any Major Alteration or
Designated Alteration, once such Alteration has been approved by Lessor, Lessee
shall not make or permit to be made any changes in or modifications to the
plans and specifications for such Alteration which would change the aesthetic
quality of the Alteration in any material respect, or which would be material
in relation to the nature or type of construction or the quality thereof,
quality or quantity of materials used, location, cost, method of construction,
effect on adjoining areas of the Hotel, or completion time, without first
obtaining Lessor’s approval of such changes or modifications, which approval
shall not be unreasonably withheld or delayed. 
In the case of any Alteration other than a Major Alteration or Designated
Alteration, Lessee shall not make or permit to be made any changes in or
modifications to the plans and specifications for such Alteration if such
Alteration, as so changed or modified, would have required Lessor’s approval
had such changes or modifications been part of the original proposed
Alteration.


 


(g)                Completion Requirements.  Upon Substantial Completion of any
Alterations which are Major Alterations or Designated Alterations, Lessee
shall:  (i) record a notice of
completion in the Official Records of the County in which the City is located; (ii) provide
Lessor with


 


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reasonable evidence (e.g.,
copies of lien releases) that no Liens have resulted from the construction
work, subject to Lessee’s right to contest such Liens pursuant to Section 15.4 below; (iii) as soon as available,
provide Lessor with a new or modified certificate of occupancy for the
Alterations, if required for the lawful use or occupancy thereof; and (iv) upon
request from Lessor, provide Lessor with a complete set of as-built drawings
for any Major Alterations or Designated Alterations showing (to the extent
customarily included in as-built drawings for comparable projects) field
changes, substitutions and other deviations from and/or approved Design
Documents, on a CAD electronic file and/or mylar or another high quality
reproducible medium.


 


(h)                Temporary Closure of Hotel Areas.  In the event that the construction of any
Alteration requires, in the prudent business judgment of Lessee, the temporary
closure of, or erection of a temporary barrier affecting access to, any portion
or area of the Hotel and there is no commercially reasonable alternative
available to Lessee to avoid such closure or barrier, Lessee may implement such
closure or erect such barrier, provided that the Hotel Business may not cease
or be substantially reduced due to any such barrier or closure and that Lessee
shall use all reasonable efforts to conduct the relevant construction activity
in such a way, and to complete such construction activity as quickly as
reasonably possible, so as to limit, to the maximum extent feasible, the impact
of such closure or barrier on the Hotel Business and the comfort of Hotel
guests, patrons and customers as well as Hotel Employees.


 


12.               Hazardous Materials


 


12.1                Use of Hazardous
Materials; Compliance with Environmental Laws


 


Lessee may use and store, or permit the use and
storage of Hazardous Materials at the Premises to the extent that (i) such
Hazardous Materials are commonly used and employed in the operation,
maintenance, repair and servicing of a Luxury Hotel (“Permitted
Materials”), and (ii) are used, stored, and disposed of
in compliance with the requirements of all Applicable Laws.  Upon demand by Lessor, Lessee shall immediately
cease, or cause to be ceased, the use and storage on the Premises of any
Hazardous Materials which are not being used or stored in full compliance with
all Applicable Laws.  Lessee shall at all
times during the Term and any holdover period substantially comply with all
applicable Environmental Laws applicable to the Premises.  Lessee shall promptly provide Lessor with
copies of any notices that Lessor or the Operator receives from governmental
agencies with jurisdiction over the Premises or pursuant to any Environmental
Law, concerning the presence or Release of any Hazardous Materials on, under,
about or beneath the Premises.  In
addition, from time to time upon written request by Lessor made not more frequently
than once per year, Lessee shall provide to Lessor, or cause the Operator to
provide to Lessor, a complete list of all Hazardous Materials known to Lessee
or Operator and then being used or stored on the Premises, or contained in any
products or materials then being used by Lessee or Operator, or any of their
respective agents, employees or contractors on the Premises, which list shall
contain the common name of each product or material and, if requested by
Lessor, and known to Lessee or Operator, both the scientific name and the CAS
number of all chemical substances contained in such product or material, and
shall indicate the quantities thereof at the time known by Lessee or Operator
to be used or stored on the Premises.


 


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12.2                Releases


 


Lessee shall use its best efforts to not cause or
permit to occur at any time during the Term or any holdover period any Release
of a Hazardous Material in violation of any Environmental Laws or that would
require remediation, expose Lessor to any liability, or expose the Property to
any restriction on use or occupancy under any Environmental Laws.  Lessee shall remove or cause to be removed,
at no cost to Lessor as between Lessor and Lessee, from the Premises any Hazardous
Materials existing on, under, or (if caused by Lessee, the Operator, any Food
and Beverage Operator, any Hotel Employee, or any employee of any independent
contractor working at or performing services for the Hotel, including any
parking operator or parking management company) about the Premises, to the
extent such removal is required by any governmental agency with jurisdiction
over the Premises or pursuant to any Environmental Laws, and Lessee shall
commence and complete such removal with all diligence and within such period of
time as shall be required by such governmental agency or under any
Environmental Laws.  In addition, Lessee
shall comply with any additional reasonable requirements of Lessor that are
reasonably necessary to protect the value of the Premises or the Improvements,
provided that the costs of such compliance shall, to the extent of any
expenditures that are attributable solely to Lessor’s additional requirements
which are beyond what would otherwise be required by Environmental Laws, be
funded as Designated Alterations pursuant to Section 11.2 of this Lease.  Without limiting the foregoing, Lessor and
Lessee acknowledge that asbestos containing materials are currently located
within portions of the Hotel which Lessee will be required to remove and
remediate.  In connection therewith,
Lessee has prepared, and Lessor has approved, the O&M Plan (“Approved O&M Plan”)
attached hereto as Exhibit G, which outlines procedures for the
containment, maintenance and ultimate removal of such asbestos containing
materials.  Lessee shall, at all times,
substantially comply with the provisions of the Approved O&M Plan and,
periodically as reasonably necessary, update the Approved O&M Plan with a
response plan complying with the provisions of Section 12.3(c) below.  Additionally, in the event that there are
located on the Premises any underground or above-ground storage tanks or
facilities in which any Hazardous Materials are kept, Lessee shall obtain and
maintain, and substantially comply with all requirements and conditions of, all
governmental permits and approvals required under Applicable Laws for the use
or maintenance of such tanks or facilities and, on or prior to the Surrender
Date, Lessee shall, at the request of Lessor and at Lessee’s sole cost and
expense, remove all such tanks and facilities from the Premises in accordance
with removal procedures prescribed or authorized by Environmental Laws and
remediate and remove all contamination or other spillage or leakage that may
have emanated from or been released from such tanks or facilities at any time
prior to the Surrender Date in accordance with all Environmental Laws.  Lessee shall promptly undertake, in
accordance with the provisions set forth in Section 12.3 below, all
remedial measures reasonably required by Lessor or required by any governmental
agency with jurisdiction over the Premises or pursuant to any Environmental
Laws to investigate, monitor, clean up, abate or otherwise respond to any
Release of a Hazardous Material on, under or about the Premises or in
connection with the operation of the Hotel, regardless of the source or cause
of origination, at no cost to Lessor and in compliance with all applicable
Environmental Laws.  Nothing herein shall
preclude or prevent Lessee from pursuing any remedy, recourse, claim or liability
against any third party for any remedial measures undertaken pursuant to this Section 12.


 


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12.3                Remediation


 


If Lessee is obligated pursuant to Section 11.3
or Section 12.2 above to remediate any Hazardous Materials, the following
additional provisions shall apply:


 


(a)                 There shall be no
cost to Lessor in connection with the remediation.


 


(b)                Lessee shall
proceed with reasonable diligence and continuity to develop and carry out an
appropriate response plan consistent with the requirements of this Section 12
(including obtaining approval of such response plan from all governmental
agencies with jurisdiction over the Premises).


 


(c)                 The response
plan:  (i) shall be prepared by a
licensed environmental consultant engaged by Lessee and reasonably approved in
writing by Lessor; (ii) shall satisfy the requirements of all applicable
Environmental Laws; (iii) shall, to the maximum extent feasible, achieve a
long-term solution for the Premises that will permit the use of the Premises
for the Permitted Uses without the imposition of restrictive covenants or other
provisions that would materially restrict or limit the use of any material
portion of the Premises; and (iv) shall not (A) require the retention
of any monitoring or other facilities on the Premises past the end of the Term
(unless no other alternative is both commercially feasible and permitted by
Environmental Law), in which event such monitoring and other facilities shall
be maintained and operated at Lessee’s sole cost and expense (as between Lessor
and Lessee) for the shortest period that is commercially reasonable and
thereafter (unless prohibited by applicable Environmental Laws or governmental
agencies with jurisdiction over the Premises) shall be removed and the Premises
restored to its original condition as expeditiously as is feasible, at Lessee’s
sole cost and expense (as between Lessor and Lessee), which obligations shall
survive the termination of this Lease, or (B) cause the imposition of any
material restriction on the use or occupancy of any Improvements on the
Premises following completion of the remediation, or impose any material
obligation or liability on Lessor.


 


(d)                The remediation
work shall be performed by a licensed environmental contractor (such contractor
to be subject to Lessor’s reasonable approval) under the supervision of the
environmental consultant, and shall be conducted and completed in accordance
with all applicable Environmental Laws and substantially in accordance with the
approved response plan.


 


(e)                 Lessor may engage
an independent environmental consultant to observe the remediation work at
reasonable intervals, and Lessee shall pay such consultant’s reasonable fees
and charges.


 


(f)                   As between
Lessor and Lessee, Lessee shall be responsible for complying with, and Lessor
shall not be named under, any and all manifest and disposal requirements
relating to any Hazardous Materials to be disposed of off-site, except solely
to the extent otherwise required by Environmental Laws.


 


12.4                Lessee’s
Environmental Indemnity


 


Without limiting the generality of the indemnity
provided by Lessee pursuant to Section 10.3 above, Lessee shall indemnify,
defend, and hold Lessor and all other Lessor


 


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Indemnitees harmless from and against any and all
claims, suits, causes of action, demands, losses, damages, liabilities, fines,
penalties, costs, taxes, charges, administrative and judicial proceedings,
orders, judgments, remedial actions and compliance requirements, including
enforcement and clean-up actions, third-party tort and property claims, and
other costs and expenses (including reasonable attorneys’ and consultants’ and
experts’ fees and costs of defense) (collectively, “Claims”)
arising, directly or indirectly, in whole or in part, out of:  (a) any non-compliance with any
Environmental Laws by Lessee, its Affiliates, any Operator, any Food and
Beverage Operator, or any of their respective officers, directors, members,
employees, guests, invitees, agents or contractors, any Hotel Employee, or any
employee of any independent contractor working at or performing services for
the Hotel, including any parking operator or parking management company, and in
the case of Lessee, any non-compliance with any of Lessee’s other obligations
under this Section 12; (b) any use, storage, generation, production,
Release, disposal or transportation by Lessee, its Affiliates, any Operator, or
any of their respective officers, directors, members, employees, guests,
invitees, agents or contractors, any Hotel Employee, or any employee of any
independent contractor working at or performing services for the Hotel,
including any parking operator or parking management company of any Hazardous
Materials at, on, in, about or under the Premises at any time during the Term
or any holdover period; (c) any remediation or removal actions taken or
permitted by Lessee or any Affiliate of Lessee on or about the Premises with
respect to any Hazardous Materials, whether or not conducted in accordance with
the requirements of Section 12.3 above; (d) any liability or
obligation that may be imposed on or applicable to Lessor by reason of Lessor
being named in or included under any manifest or other disposal requirement
referred to in Section 12.3(f) above; and/or (e) the presence of
any Hazardous Materials on, under or about the Premises at any time during the
Term or any holdover period, regardless of the source or cause of origination
and irrespective of whether such Hazardous Materials first became present on,
under or about the Premises prior to or during the Term.


 


Lessee shall promptly assume its defense and
indemnification obligations upon written notice from any Lessor
Indemnitee.  Any Lessor Indemnitee may
also participate in the defense of any such claim at its own expense, unless
such participation is required because of Lessee’s failure to provide a
reasonable and consistent defense of such Lessor Indemnitee’s interests, in
which event such additional participation shall be at Lessee’s expense.  Lessee shall not settle any claim without the
consent of all Lessor Indemnitees who would incur any liability for such claim
under or following such a settlement.  The
provisions of this Section 12.4 shall survive any termination of this Lease.  The provisions of Section 10.1 shall not limit in any way Lessee’s
obligations under this Section 12.4. 
The indemnification set forth in this Section 12.4 is in addition
to, and shall not diminish, modify or substitute for, any common law, statutory
or other rights that Lessor or any other Lessor Indemnitee may have against
Lessee regarding environmental matters. 
The provisions of this Section 12.4 shall not require Lessee to
indemnify, defend, protect or hold harmless Lessor or any Lessor Indemnitee to
the extent of any Claims arising from the gross negligence or willful
misconduct of Lessor or any Lessor Representative.  Nothing herein shall preclude or prevent
Lessee from pursuing any remedy, recourse, claim or liability against any third
party for any matter for which Lessee is obligated to indemnify any Lessor
Indemnitee hereunder.


 


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12.5                Waiver and Release


 


Without limiting the provisions of Section 2.2 or
4.4 above, Lessee on behalf of itself and its successors and assigns
unconditionally waives and releases Lessor, and its successors and assigns,
from any and all demands, claims, legal or administrative proceedings, losses,
liabilities, damages, penalties, fines, liens, judgments, costs or expenses
whatsoever (including reasonable attorneys’ fees and costs), whether direct or
indirect, known or unknown, foreseen or unforeseen, arising from or relating to
the presence, or alleged presence, at any time of any Hazardous Materials in,
on, under or about the Premises, including any claims arising under or on
account of (i) the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as the same may have been or may be amended from time to
time, and similar state statutes, and any regulations promulgated thereunder, (ii) any
other federal, state or local law, ordinance, rule or regulation, now or
hereafter in effect, that deals with or otherwise in any manner relates to,
environmental matters of any kind, or (iii) this Lease or the common law.


 


The foregoing release shall not apply with respect to
any claims arising from or relating to any Release of Hazardous Materials to
the extent that such Release was directly caused by Lessor, any Lessor
Indemnitee or any Lessor Representative.


 


12.6                Survival


 


The terms and provisions of this Section 12 shall
survive the expiration or earlier termination of this Lease.


 


13.               Assignment and Subletting


 


13.1                Lessor’s Consent


 


(a)                 Lessee shall not
effect a Transfer, or enter into any contract or commitment to effect a
Transfer (unless such contract or commitment is expressly conditioned upon such
Transfer complying fully with the requirements of this Lease), without Lessor’s
prior written consent, which consent shall not be unreasonably withheld or delayed,
provided that (i) no Event of Default or Potential Default shall exist
hereunder either on the date Lessee delivers the applicable Transfer Notice (as
hereinafter defined) to Lessor or on the effective date of such Transfer, (ii) there
would be no change in the Permitted Uses of the Premises following such
Transfer, and (iii) such Transfer is to a Person (a “Qualified Transferee”)
having both (A) Hotel Investment Experience or who has retained a Person
with Hotel Investment Experience to oversee the operation and management of the
Hotel, and (B) the financial ability to fully perform the obligations of
Lessee under this Lease over the Term (including the payment of all Monetary
Obligations); and in determining whether a Person is a Qualified Transferee,
Lessor shall be entitled to consider all reasonable criteria including the
level of experience of the proposed Transferee in the ownership, management,
and operation of Luxury Hotel properties that are similar in character and
quality to the Hotel, and the creditworthiness and financial stability of the
proposed Transferee in light of the responsibilities involved.  For any proposed Transfer that would be made
to a Person which is not a Qualified Transferee, Lessor may give or withhold
its consent in Lessor’s sole and absolute discretion, and may impose in
connection therewith any conditions or requirements as Lessor shall determine
are necessary or appropriate to preserve and


 


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protect the value of the Premises.  Any Transfer made without Lessor’s prior
written consent in accordance with the foregoing provisions of this Section 13.1
shall be void at Lessor’s sole option, which may be exercised by Lessor at any
time within one (1) year after Lessor obtains Actual Knowledge of the
consummation of such Transfer. 
Notwithstanding the foregoing, and provided that no Event of Default or
Potential Default is in existence on the effective date of such Transfer, the
consent of Lessor shall not be required for a Transfer (a “Permitted Transfer”) to any
Person which (1) has a tangible net worth (determined in accordance with
GAAP) which is not less than the tangible net worth of the then current Lessee,
and (2) is a national hotel
investment or operating company or firm for which, at all times following the
Transfer during which such Person is the Lessee hereunder, any one or more of
David Hamamoto, Edward Scheetz, or Ian Schrager (or any successor individuals
who have been expressly approved in writing by Lessor for the purposes of this
provision) will be senior managers or senior executives with primary
responsibility for overseeing the day-to-day operations of such company or firm
relating to the Hotel; provided that (a) in the event that at any time
within the three (3) year period immediately following such Transfer
the requirements of clause (2) above are not satisfied, the failure
to satisfy such requirements shall be deemed to constitute a Transfer which
shall require Lessor’s approval as provided above in this Section 13.1,
and Lessee’s failure to request such approval within ten  10) Business
Days following the date on which the requirements of clause (2) above
are not satisfied, or the subsequent failure of Lessee to obtain Lessor’s
approval of such deemed Transfer described in this clause (a) in
accordance with the foregoing provisions of this Section 13.1(a), shall
constitute an Event of Default by Lessee hereunder, and (b) the Lessee
shall nevertheless, as a condition to the effectiveness of any such Permitted
Transfer, provide Lessor with written notice of the proposed Transfer not less
than ten (10) Business Days prior to the effective date thereof,
accompanied by reasonably detailed information demonstrating compliance with
the foregoing requirements.


 


(b)                Notwithstanding
the provisions of Section 13.1(a) above, Lessee shall have the right
from time to time to:  (i) enter
into, or permit the Operator or any Food and Beverage Operator to enter into,
minor subleases or concessions of space within the Improvements (as used
herein, a “minor sublease or concession” shall mean a sublease or concession
arrangement with a retail merchant or other service provider which is
compatible with a Luxury Hotel, is of reasonable size in relation to the areas
of the Hotel suitable for such retail or other service uses, and (unless
approved by Lessor in its reasonable discretion upon request from Lessee, which
request shall include evidence reasonably satisfactory to Lessor that (A) such
minor sublease or concession will not reduce the total keyed guest rooms and
suites at the Hotel to less than ninety-five percent (95%) of the total keyed
guest rooms and suites at the Hotel on the Term Commencement Date, and (B) the
net operating revenues of the Hotel will not be decreased by reason of such
minor sublease or concession) does not reduce the size or number of keyed guest
rooms and suites in the Hotel); (ii) engage, or permit the Operator to
engage, a qualified parking operator to be responsible for all garage and valet
parking of vehicles at the Hotel for guests and other customers, which
engagement may be in the form of a parking agreement or a garage sublease, in
either instance on customary terms and conditions for a Luxury Hotel; (iii) subject
to the provisions of Section 9 hereof, enter into, or permit the Operator
to enter into, one or more food and beverage operating agreements or leases for
the operation of the food and beverage services at the Hotel, on customary
terms and conditions for a Luxury Hotel, provided that the same shall comply
with the provisions of Section 14.2(h); and (iv) enter into, or
permit the Operator to enter into, any other ordinary and customary agreements
reasonably required for the proper and


 


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efficient operation of the Hotel as a Luxury Hotel
which do not involve the creation of any subleasehold estate or other interest
in the Premises on the part of the contracting party.  None of the foregoing subleases, concession
agreements, parking agreements or garage leases, food or beverage operating
agreements or leases, or other ordinary and customary agreements (collectively,
an “Operating Contract”), shall
be considered to constitute a “Transfer” within the meaning of this Lease;
provided that (A) Lessee shall deliver to Lessor within thirty (30)
days after the Term Commencement Date a true and complete list of all Operating
Contracts for the Hotel, and shall update such list from time to time upon
Lessor’s reasonable request, but in any event not less frequently than once
each Operating Year, and further, at Lessor’s request from time to time, Lessee
shall deliver to Lessor a true and complete copy of each such Operating
Contract then in existence, and (B) except as otherwise expressly provided
in this Lease or as Lessor may hereafter agree otherwise in writing, each
Operating Contract shall be subject and subordinate to the right, title and
interest of Lessor under this Lease and no Operating Contract shall survive the
expiration or any earlier termination of this Lease or otherwise be binding on
Lessor in any respect.


 


13.2                Approval of
Transfer Documentation


 


Lessee shall provide Lessor, at least thirty (30)
days prior to the purposed effective date of any Transfer other than a
Permitted Transfer (which shall comply with the provisions of Section 13.1(a) hereof),
with:  (a) written notice of such
proposed Transfer (a “Transfer Notice”);
(b) reasonably detailed documentation regarding the proposed Transferee’s
experience and background, financial condition, reputation, references and
capability; (c) the economic and other material terms of the proposed
Transfer; and (d) such other information as Lessor may reasonably request
in order to permit Lessor to make an informed judgment regarding satisfaction
of the conditions of approval for such proposed Transfer set forth in Section 13.1.  Lessor’s consent to any proposed Transfer
shall be conditioned upon Lessor’s review and approval (not to be unreasonably
withheld or delayed) of both the qualifications of the proposed Transferee and
the form of Transfer documentation (which shall, if required by Lessor, contain
an assumption of all the obligations of the Lessee under this Lease with
respect to the portion of the Premises affected by such Transfer, provided that
Lessor shall not be deemed to be a party to such Transfer or Transfer
documentation or to have assumed any obligations or liabilities to the
Transferee or under such Transfer documentation), and Lessor’s subsequent
receipt of a fully executed copy thereof. 
Lessor’s consent to one Transfer shall not waive the requirement of its
consent to any subsequent Transfer.


 


13.3                Administrative
Costs


 


If Lessee requests Lessor’s consent to a Transfer,
Lessee shall pay, as Additional Rent, all reasonable attorneys’ fees and other
reasonable out-of-pocket costs actually incurred by Lessor in connection with
its review of, and response to, Lessee’s proposed Transfer.


 


13.4                Continuing
Responsibility


 


Except as expressly provided below, and except to the
extent that Lessor may hereafter agree in writing, in Lessor’s sole and
absolute discretion, to release Lessee from its obligations under this Lease
from and after the date of a Transfer, no Transfer shall release Lessee from
any


 


73





















 


of its obligations under this Lease, and Lessee and
the Transferee shall be and remain jointly and severally liable for the payment
of Rent with respect to the portion of the Premises which is the subject of
such Transfer and due performance of all other obligations of the Lessee under
this Lease relating to such portion of the Premises, regardless of whether this
Lease is subsequently terminated; provided, however, that (i) the Lessee
making a Transfer shall be released from liability under this Lease with
respect to all obligations of the Lessee first accruing or arising following
the effective date of such Transfer in the case of any Permitted Transfer or
any Transfer to a Qualified Transferee, and (ii) upon an assignment of
this Lease in accordance with the terms hereof by any Leasehold Mortgagee that
has acquired its interest in this Lease through foreclosure or a deed or
assignment in lieu thereof, the Leasehold Mortgagee shall be relieved from any
further liability hereunder with respect to all obligations first accruing or
arising on or after the date of such assignment by such Leasehold Mortgagee so
long as such assignment is made in compliance with the provisions of Section 15.7.


 


13.5                Successors


 


Each and every successor to the Lessee herein named
with respect to the interest of the tenant under this Lease, including any
purchaser of Lessee’s leasehold interest pursuant to a foreclosure of any
Leasehold Mortgage (who also shall be deemed a Transferee), but subject to the
provisions of Section 13.4 above and Section 15.7 below, shall be
liable for the payment of Rent and due performance of all other obligations of
the Lessee under this Lease from and after the date of the Transfer with the
same force and effect as though such Transferee were the Lessee named in this
Lease.


 


13.6                Right to Collect
Rent


 


If a Transfer of this Lease is effected without first
procuring Lessor’s consent in accordance with Section 13.1, Lessor may, at
its option to be exercised within one (1) year after Lessor obtains Actual
Knowledge of such Transfer, declare such Transfer to be null and void or
proceed to collect any of the Rent provided for in this Lease from the
Transferee.  If Lessor elects to collect
any Rent from the Transferee, Lessor shall apply the amount received by it to
the Rent due hereunder, but no such collection or application of proceeds shall
be deemed:  (a) a waiver of the
restriction against Transfer; (b) Lessor’s consent to the purported
Transfer or acceptance or recognition of the purported Transferee as Lessee
under this Lease or as otherwise being entitled to any of the benefits of this
Lease or any rights of Lessee hereunder; (c) a release of Lessee from any
of its obligations under this Lease; or (d) a cure of any Event of Default
resulting from such Transfer.


 


13.7                Lessor’s Right to
Mortgage or Encumber


 


(a)                 General.  Lessor may at any time and from time to time
pledge, assign, sell, convey, transfer, mortgage or encumber its interest in
this Lease, the Rent, and/or its fee estate in the Premises (individually and
collectively, a “Lessor Transfer”);
provided, however, that:  (a) any
such transaction shall be made subject to this Lease and Lessee’s leasehold
estate in the Premises, and any loan, indebtedness or other obligation secured
by Lessor’s interest in this Lease, the Rent, and/or fee interest in the
Premises shall be and remain subordinate to this Lease and Lessee’s leasehold
estate in the Premises; (b) the lien of any Fee Mortgage shall not attach
to


 


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the Lessee’s interest in the Premises, and Lessee’s
right of quiet possession of the Premises and other rights arising out of this
Lease shall not be materially and adversely affected thereby so long as this
Lease has not been terminated following the occurrence of an Event of Default; (c) any
party acquiring Lessor’s entire fee interest in the Premises pursuant to a
transfer from Lessor, or in the case of a Fee Mortgage pursuant to the
foreclosure of such Fee Mortgage or any conveyance in lieu of such foreclosure,
shall be required to recognize Lessee’s interests hereunder and shall be deemed
to have assumed and agreed to perform Lessor’s obligations under this Lease
arising on and after the date such party acquires Lessor’s fee interest in the
Premises (provided that the holder of any Fee Mortgage or any Affiliate of such
holder shall be liable for the performance of the Lessor’s obligations only to
the extent that the same arise and are performable during the period of such
Fee Lender’s or Affiliate’s ownership of the Land and Improvements), in which
event the Lessor making such transfer shall thereupon be released from any
further liability under this Lease with respect to all obligations and
liabilities accruing or arising after the effective date of such transfer; and (d) Lessor
shall promptly deliver to Lessee written notice of the consummation of any such
Lessor Transfer, and until Lessee receives such notice Lessee shall be fully
protected in making all payments and tendering all performance required of
Lessee under this Lease to Lessor and not to Lessor’s transferee, and in
relying on all consents and approvals given by Lessor pursuant to this
Lease.  If requested by any Fee Lender,
Lessee shall promptly execute and deliver to such Fee Lender a commercially
reasonable attornment agreement (an “Attornment
Agreement”) providing for, among other things, the delivery
to Fee Lender of notices of default provided to Lessor hereunder concurrently
with the delivery of such notices to Lessor, and the agreement of Lessee to
attorn to Fee Lender or any purchaser of the interest of Lessor hereunder upon
the exercise by such Fee Lender of its remedies under a Fee Mortgage, including
a foreclosure of such Fee Mortgage or a conveyance in lieu of foreclosure.  Except as provided in the immediately
preceding sentence with respect to the furnishing of notices, no Attornment
Agreement shall increase the obligations or decrease the rights of Lessee under
this Lease in any material respect.


 


(b)                Notice of Intent to
Dispose of Entire Fee Interest.  In the event that Lessor shall decide to
dispose of Lessor’s entire fee interest in the Land and Improvements, and
provided that no Event of Default has occurred and is continuing, Lessor agrees
to provide, on a one-time basis only, written notice of such intention to
Lessee, and within ten (10) Business Days following Lessee’s receipt
of such notice Lessee may elect to notify Lessor that Lessee may have an
interest in acquiring Lessor’s entire fee interest (“Lessee’s
Interest Notice”).  In
the event that Lessee delivers a Lessee’s Interest Notice to Lessor within such
ten (10) Business Day period, Lessor and Lessee agree to meet to
discuss in good faith whether and upon what terms and conditions Lessor might
be prepared to dispose of its entire fee interest and Lessee might be willing
to acquire such entire fee interest, but such discussions shall not impose any
obligation whatsoever on the part of either Lessor or Lessee to reach agreement
on the sale or other transfer of Lessor’s fee interest in the Land and
Improvements to Lessee or on any terms or conditions of any such disposition or
acquisition, and unless (and then only to the extent that) Lessee and Lessor,
each acting in its sole and absolute discretion, shall within a period of
thirty (30) days following Lessor’s receipt of Lessee’s Interest Notice reach
agreement on the terms and conditions of any such disposition or acquisition or
on the terms of an extension of such thirty (30) day period to permit such
discussions to continue, Lessor shall have no further obligation under this
Lease to continue any discussions with Lessee relating to Lessor’s decision to
dispose of its entire fee interest in the Land and Improvements.  In such event, or in the event that Lessee


 


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fails to deliver to Lessor a Lessee’s Interest Notice
within the aforesaid ten (10) Business Day period provided for the
delivery of a Lessee’s Interest Notice, it shall be conclusively presumed that
Lessee has no interest in discussing with Lessor the possible acquisition of
Lessor’s entire fee interest in the Land and Improvements, either pursuant to
Lessor’s notice of intention to Lessee provided for above or in the event of
any later decision by Lessor to dispose of Lessor’s entire fee interest in the
Land and Improvements, and Lessor may thereupon proceed to market and dispose
of its entire fee interest in the Land and Improvements without further notice
to Lessee and without any right or option of Lessee to negotiate with Lessor
for the possible acquisition of such fee interest.  In no event shall the provisions of this Section 13.7(b) (i) be
deemed or construed to provide to Lessee any right of first offer, right of
first refusal, right of first negotiation, or similar or equivalent right or
option to acquire or negotiate for the acquisition of any interest of Lessor in
the Land and/or Improvements, or (ii) be deemed to apply to the creation
or enforcement of any Fee Mortgage, or any direct or indirect Transfer by
Lessor of only a portion of its fee interest in the Land and/or Improvements,
or any sale, encumbrance, transfer or other disposition by any Person which is
a constituent partner, member, or equity or capital holder of any entity which
is the Lessor or which holds any direct or indirect interest in Lessor, or any
restructuring or reorganization of any entity comprising Lessor.  Without limiting the foregoing, this Section 13.7(b) shall
automatically terminate upon, and shall have no further force or effect
following, any foreclosure of a Fee Mortgage or any conveyance in lieu of such
foreclosure.


 


(c)                 Creation of Intervening
Lease.  Lessor
reserves the right to create a so-called “sandwich” or intervening leasehold
estate (“Intervening Lease”) so
that this Lease will thereupon be and become a direct lease between the lessee
under such Intervening Lease and Lessee, and Lessee shall attorn to and
recognize the lessee under such Intervening Lease as Lessor hereunder pursuant
to an attornment agreement reasonably acceptable to Lessee, Lessor and the
lessee under the Intervening Lease; provided, however, that (i) the
Intervening Lease shall clearly provide that either the Lessor under this Lease
or the lessee under the Intervening Lease shall be the sole and only Person
with whom Lessee shall be obligated to deal with respect to any and all matters
relating to this Lease, including without limitation obtaining any approvals or
consents from Lessor that are provided for or required herein or the giving of
any notices by Lessee to Lessor; (ii) upon the creation of such
Intervening Lease, the lessee under the Intervening Lease shall assume and
agree to comply with all obligations of the Lessor under this Lease arising on
and after the effective date of the Intervening Lease, and either (A) such
lessee shall be an Affiliate of Divco West Properties, LLC, Lubert-Adler
Management, Inc., or the Korr Group, or (B) the value of such lessee’s
leasehold estate created by the Intervening Lease shall equal not less than
fifteen percent (15%) of the aggregate value of the Lessor’s fee interest in
the Premises immediately prior to the effective date of the Intervening Lease; (iii) Lessor
or the lessee under the Intervening Lease shall pay all reasonable
out-of-pocket costs and expenses of Lessee, including without limitation
reasonable attorneys’ fees and costs, incurred by Lessee in connection with the
creation of the Intervening Lease or the negotiation or documentation thereof
(including without limitation any attornment agreement to be entered into by
Lessee as provided above); (iv) in the event of any termination of the
Intervening Lease for any reason whatsoever, such termination shall not affect
this Lease or the rights and interests of Lessee hereunder, and Lessee’s use
and occupancy of the Premises shall not be impaired or adversely affected in
any manner by any such termination of the Intervening Lease; (v) Lessee
shall not incur by reason of the Intervening Lease any additional obligation
under this Lease or with


 


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respect to the Premises or suffer any loss, impairment
or diminishment of, or limitation on, any rights or interests of Lessee under
this Lease; and (vi) Lessee shall deliver to Lessor upon request, for the
benefit of Lessor and the lessee under the Intervening Lease, an estoppel
certificate confirming that all requirements of this Section 13.7(c) have
been met or stating in what particulars Lessee claims such requirements have
not been met, which estoppel certificate shall be conclusive and binding on
Lessee.  Notwithstanding anything to the
contrary in this Section 13.7(c), upon the termination or expiration of
any Intervening Lease, this Lease shall once again automatically, and without
any further action of the parties, be and become a direct lease by and between
Lessor and Lessee, and shall thereupon be and remain in full force and effect
unless and until Lessor shall elect to create a new Intervening Lease in
accordance with the provisions of this Section 13.7(c).


 


14.               Events of Default; Lessor’s
Remedies


 


14.1                Events of Default


 


The occurrence of any one or more of the following
shall constitute an event of default (“Event
of Default”) and breach of this Lease by Lessee:


 


(a)                 If Lessee fails
to pay any installment of Annual Base Rent when due;


 


(b)                If Lessee fails to
make any payment of Rent or any other Monetary Obligation (other than any
installment of Annual Base Rent), if such failure continues for five (5) Business
Days after notice from Lessor;


 


(c)                 If Lessee effects
a Transfer without first obtaining the written consent of Lessor where such
consent is required pursuant to Section 13 of this Lease;


 


(d)                If Lessee fails to
timely and properly perform any of its obligations under this Lease, other than
as described in Sections 14.1(a), (b) and (c), including, without
limitation, any failure to perform any Assumed Obligations and any failure to
cause the Hotel to be operated as a Luxury Hotel, and such failure continues
for twenty (20) days after Lessor gives written notice to Lessee of such
non-performance; provided, however, that if the nature of the obligation is
such that more than twenty (20) days is reasonably required for its proper
performance, Lessee shall not be deemed in default if it commences performance
within the twenty (20) day period and thereafter diligently prosecutes
such cure to completion within a reasonable time, and in any event within not
more than one hundred eighty (180) days. 
No such notice shall be deemed a forfeiture or a termination of this
Lease unless Lessor expressly so elects in the notice;


 


(e)                 If any material
representation or warranty made by Lessee in or pursuant to this Lease is
knowingly false or knowingly misleading in any material respect;


 


(f)                   If any petition
is filed against Lessee in any court, whether or not under any statute of the
United States of America or of any state, in any bankruptcy, reorganization,
composition, extension, arrangement, insolvency or other debtor-relief
proceeding, and Lessee is thereafter adjudicated bankrupt or insolvent, or if
such proceeding is not finally dismissed within sixty (60) days after the
institution of same, or if any such petition is so filed by Lessee or a
liquidator;


 


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(g)                If, in any
proceedings, a receiver, manager, trustee or liquidator is appointed for all or
substantially all of Lessee’s property, and such receiver, manager, trustee or
liquidator is not finally discharged within sixty (60) days after the
appointment of such receiver, manager, trustee or liquidator; and/or


 


(h)                If Lessee shall
admit in writing its inability to pay its debts generally as they become due,
file a petition in bankruptcy, insolvency, reorganization, readjustment of
debt, dissolution or liquidation under any law or statute of any government or
any subdivision thereof either now or hereafter in effect, make any assignment
for the benefit of its creditors, or consent to or acquiesce in the appointment
of a receiver of itself or of the whole or any substantial part of the
Premises.


 


14.2                Lessor’s Remedies


 


In addition to such other remedies as may be available
to Lessor under this Lease, at law or in equity (including the right to enforce
indemnities and recover damages), but subject to the provisions of Section 15.7
below, Lessor shall have right, upon the occurrence of an Event of Default, to
exercise any or all of the following remedies:


 


(a)                 Termination.  Lessor may elect to terminate this Lease
immediately, or at any time thereafter while the Event of Default remains
uncured.  If Lessor terminates this
Lease, Lessor shall have the right to recover from Lessee:


 


(i)                           The
worth at the time of award of any unpaid Rent which had been earned at the time
of such termination; plus


 


(ii)                        The worth
at the time of award of the amount by which the unpaid Rent which would have
been earned after termination until the time of award exceeds the amount of
such unpaid Rent which Lessee proves reasonably could have been avoided; plus


 


(iii)                     The worth at
the time of award of the amount by which the unpaid Rent for the balance of the
Term after the time of award exceeds the amount of such unpaid Rent which
Lessee proves reasonably could be avoided; plus


 


(iv)                    Any other
amount necessary to compensate Lessor for all detriment proximately caused by
Lessee’s failure to perform its obligations under this Lease or which, in the
ordinary course of things, would be likely to result therefrom, including,
without limitation, attorneys’ fees and costs, brokers’ commissions, the costs
of refurbishment, alterations, renovation and repair of the Premises, removal
(including the repair of any damage caused by such removal) and storage (or
disposal) of any personal property of Lessee, and removal from the Premises of
any and all third parties claiming any rights of use or occupancy with respect
to the Premises by, through or under Lessee, or any rights to manage, operate,
or perform any services for or with respect to the Premises pursuant to any
contractual or other arrangement with Lessee (excluding only Persons who are
Hotel guests and Hotel customers in the ordinary course).


 


As used in Sections 14.2(a)(i) and (ii), the
“worth at the time of award” shall be computed by allowing interest at the
Interest Rate.  As used in Section 14.2(a)(iii),
the “worth at the time of


 


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award” shall be computed by discounting such amount at
a rate equal to the sum of the discount rate of the Federal Reserve Bank of
San Francisco at the time of award plus one percent (1%).


 


In the event that in connection with any termination
of this Lease on account of an Event of Default, Lessor shall receive (i) any
funds from any Capital Reserve Account, the Designated Alterations Escrow
Account, and/or the Required Alterations Escrow Account, as provided in Section 8.2(b)(iv),
Lessee shall receive a credit against any damages otherwise recoverable by
Lessor from Lessee pursuant to the provisions of clause (iv) of this Section 14.2(a) equal
to the amount, if any, of the funds in any such account which Lessor does not
apply for the purpose for which such account was created; or (ii) any
funds from the Base Rent Escrow Account and/or the Seasonal Rent Reserve, as
provided in Section 8.2(b)(iv), such funds shall be applied in reduction
of any claim of Lessor for recovery of accrued or future Rent pursuant to the
provisions of clauses (i) through (iii) of this Section 14.2(a).


 


(b)                Re-Entry.  Lessor may re-enter the Premises, with or
without terminating this Lease, and remove any or all persons and property from
the Premises, subject only to any provisions of this Lease which expressly
require Lessor to recognize the occupancy rights of such persons.  Lessor shall have the right to use or permit
the use at the Premises of any personal property of Lessee and any FF&E, or
Lessor may remove the same and store the same in a public warehouse or
elsewhere, and may dispose of any such personal property or FF&E at Lessee’s
cost in accordance with any procedures permitted by law.  No re-entry or taking possession of the
Premises by Lessor pursuant to this Section 14.2(b) shall be
construed as an election to terminate this Lease unless Lessor delivers a
written notice of such termination to Lessee. 
Acts of maintenance or preservation, efforts to relet the Premises or
the appointment of a receiver at Lessor’s initiative to protect its interest
under this Lease shall not constitute a termination of Lessee’s right to
possession.  Lessee shall reimburse
Lessor for all costs and expenses incurred in connection with such actions,
including, without limitation, reasonable consultants’, contractors’ and
attorneys’ fees and costs, within ten (10) days after receipt of
Lessor’s invoice.


 


(c)                 Re-Letting.  Lessor shall have the right, without
terminating this Lease, to either recover all Rent from Lessee as it becomes
due or relet the Premises or any part thereof to third parties for the account
and at the expense of Lessee for all or any part of the Term, and in connection
therewith Lessor may retain the then existing Operator or contract with a new
Operator to manage and operate the Hotel, in either instance under such terms
and conditions as Lessor may determine in its sole and absolute
discretion.  Without limiting the
generality of the foregoing, Lessor shall have the remedy described in Civil
Code Section 1951.4 and any amended, similar or successor laws.  Lessor may re-let the Premises on such terms
and conditions as Lessor in its sole and absolute discretion may deem
advisable, and Lessor shall have the right, but not the obligation, at the cost
and expense of Lessee, to make any necessary or appropriate (as determined by
Lessor in good faith) alterations and repairs to the Premises.  If Lessor elects to so relet, rents received
by Lessor from such reletting shall be applied as follows:  (i) first, to the payment of any
indebtedness, other than Rent due hereunder, from Lessee to Lessor; (ii) second,
to the payment of any costs of such reletting; (iii) third, to the payment
of the costs of any alterations and repairs to the Premises; (iv) fourth,
to the payment of Rent due and unpaid hereunder; and (v) the residue, if
any, shall be held by Lessor and applied to payment of future Rent as the same
may become due and payable.  Should that
portion of the rents received from any reletting and applied to the payment of
Rent be less than the Rent then due and payable


 


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by Lessee, Lessee shall pay the deficiency to Lessor
within ten (10) days after receipt of Lessor’s invoice.  Lessee also shall reimburse Lessor for any
costs and expenses incurred by Lessor in such reletting or in making any
alterations and repairs not covered by the rents received from such reletting,
including, without limitation, reasonable consultants’, contractors’ and
attorneys’ fees and costs, within ten (10) days after receipt of
Lessor’s invoice.


 


(d)                Performance for Lessee.  To the extent permitted by Applicable Laws,
Lessor shall have the right, without waiving or releasing Lessee from any of
its obligations, to make any payment or perform any other obligation on Lessee’s
behalf and at Lessee’s expense whenever and for so long as an Event of Default
exists.  Without limiting the generality
of the foregoing, upon and during the continuance of an Event of Default,
Lessor may, but shall not be required to, pay any Imposition payable by Lessee
hereunder, discharge any Lien, take out, pay for and maintain any insurance
required under Section 10, take any and all actions necessary or
appropriate in the good faith judgment of Lessor to carry on the business of
Lessee at the Premises relating to the operation of the Hotel as a Luxury
Hotel, and/or do or perform or cause to be done or performed any other act or
thing (entering upon the Premises for such purposes, if Lessor shall so elect)
intended to protect and preserve the rights and interests of Lessor with
respect to the Premises, and Lessor shall not be or be held liable or in any
way responsible for any loss, claim, liability, disturbance, inconvenience,
annoyance or damage resulting to Lessee or any other Person on account
thereof.  Lessor may act without notice
to Lessee if necessary in Lessor’s reasonable judgment to respond to an
emergency situation or governmental or municipal time limitation or otherwise
to protect Lessor’s interest in the Premises. 
Lessor shall not be required to inquire into the correctness of the
amount or validity of any Imposition or Lien or other amount which may be paid
by Lessor, and Lessor shall be duly protected in paying the amount of any such
Imposition or Lien claimed, and in such event Lessor shall also have the full
authority, in Lessor’s sole and absolute judgment and discretion and without
prior notice to or approval by Lessee, to settle or compromise any such Lien or
Imposition.  Any act or thing done by
Lessor pursuant to the provisions of this Section 14.2(d) shall not
be or be construed as a waiver of any Event of Default by Lessee, or as a
waiver of any term, covenant, agreement or condition herein contained or of the
performance thereof.  If Lessor cures a
failure to perform on behalf of Lessee, Lessee shall reimburse Lessor for all
costs incurred in connection with such cure, including, without limitation,
reasonable consultants’, contractors’ and attorneys’ fees and costs, within
ten (10) days after receipt of Lessor’s invoice.


 


(e)                 Security.  Lessor shall have the right, but not the
obligation, to draw on and apply any funds in the Escrow Account against any
Rents, damages or other amounts that Lessor would be entitled to expend or
recover pursuant to this Lease, and further to use the funds in the FF&E
Reserve Account and any other reserve account maintained for the Hotel for the
purposes for which such funds were reserved.


 


(f)                   Receivership.  Lessor may have a receiver appointed, upon
application, to take possession of the Premises and to collect the rents or
profits therefrom and to exercise all other rights and remedies available to
Lessor pursuant to this Section 14.


 


(g)                Injunctive Relief.  Lessor may seek to enjoin any breach of this
Lease, seek specific performance of any obligation under this Lease, or pursue
any other remedy or right now or


 


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hereafter available to a lessor against a defaulting
lessee under the laws of the State of California or the equitable powers of its
courts, and not otherwise specifically reserved herein.


 


(h)                Continued Operation of Hotel.


 


(i)                           Lessee
acknowledges and agrees that in the event of the termination of this Lease upon
or following an Event of Default, it is critical that Hotel operations,
including all food and beverage services, will proceed uninterrupted and
unimpaired.  To that end, Lessee agrees
that Lessee shall cause each Liquor Licensee (other than a Liquor Licensee in
which Lessor or an Affiliate of Lessor and Lessee, Operator or an Affiliate of
Lessee or Operator, have a capital interest as contemplated in Section 2.52.5(c) hereof)
to agree (and if Lessee at any time is the Liquor Licensee, Lessee hereby so
agrees), in each contract or agreement entered into with any Liquor Licensee
for or relating to the sale or serving of any alcoholic beverages at, within or
from the Hotel pursuant to the liquor license held by such Liquor Licensee to (A) at
the request of Lessor, stay on the Premises following any Event of Default and
also following any exercise by Lessor of its right to terminate this Lease on
account of such Event of Default, and continue to perform its services and
obligations under such contract or agreement, including the operation of any
restaurant and/or bar or lounge facilities within the Hotel which require the
holding of a liquor license under Applicable Laws for the lawful sale and
serving of alcoholic beverages at, from or within the Hotel, including room
service and mini-bar service (collectively, “Alcoholic
Beverage Service Operations”), such performance to be on the
same terms and conditions as in effect immediately prior to such Event of
Default or on such other terms and conditions as shall hereafter be agreed in
writing between Lessor and the Liquor Licensee; or (B) at the option of
Lessor, quit and surrender the Alcoholic Beverage Service Operations and any
premises within the Hotel occupied by such Liquor Licensee for the purposes of
such operations, and if and to the extent permitted by Applicable Laws, sell,
transfer and assign to Lessor or Lessor’s designee, all alcoholic beverage
inventory (whether opened or unopened), and all liquor license(s) held by the
Liquor Licensee relating to the Hotel, and all other transferable licenses or
permits used in connection with the Alcoholic Beverage Service Operations (with
such inventory to be sold at cost, and such liquor license(s) and other
licenses to be sold at the total price of Thirty-Five Thousand Dollars
($35,000.00), such amount to be escalated by the percentage increase in the CPI
occurring between the Term Commencement Date and the date on which Lessor shall
declare that an Event of Default exists), and the Liquor Licensee shall
reasonably cooperate with Lessor in the submittal and processing of all
applications for approval by the California Department of Alcoholic Beverage
Control (or its successor) of the transfer of the liquor license(s) to Lessor
or Lessor’s designee, it being agreed that such agreement to sell and transfer
such liquor license(s) to Lessor or Lessor’s designee shall not be construed to
give Lessor or Lessor’s designee the lawful right to sell or serve alcoholic
beverages at, from or within the Hotel unless and until the approval of the
Department of Alcoholic Beverage Control (or its successor) has been obtained,
to the extent then required by Applicable Laws.


 


(ii)                        Further,
in order to facilitate the ongoing operation of the Hotel and the Hotel Business
following any termination of this Lease by reason of an Event of Default,
Lessee agrees that Lessor shall have the right to elect, in Lessor’s sole and
absolute discretion, to attempt to hire, or cause any Affiliate of Lessor or
any replacement Hotel management company to attempt to hire, any or all of the
Hotel Employees (excluding only the General Manager of the Hotel) who are
employed by Lessee, the Operator or any Food and Beverage Operator, on such
terms


 


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and conditions as Lessor, such Affiliate of Lessor, or
such Hotel management company shall determine and the applicable Hotel
Employee(s) may accept, and upon request by Lessor, Lessee shall cooperate with
Lessor in all reasonable respects, at no material cost or expense to Lessee
(provided that the foregoing restriction shall not be construed to limit any
right of Lessor to recover damages from Lessee on account of an Event of
Default as permitted under Applicable Laws), in connection with any such hiring
effort undertaken by Lessor, such Affiliate of Lessor, or such Hotel management
Company.  Except as otherwise provided in
Sections 1.3 and 10.3(b)(xxii) of the Purchase Agreement with respect to
the SC Geary Related Agreements, each Management Agreement and Food and
Beverage Agreement shall include provisions (or shall be subject to a
subordination agreement imposing such provisions) that give to Lessor
substantially equivalent rights, and provide for such cooperation of the
Operator or Food and Beverage Operator, as applicable, with respect to any
Hotel Employees employed by such Operator or Food and Beverage Operator.


 


(i)                    Past Due Rent Obligations.  If Lessee fails to make any payment of Rent
or any other Monetary obligation within thirty (30) days following the date on
which such payment shall be due under this Lease, the amount owing shall
automatically thereafter bear interest at the Default Rate until paid, without
the requirement for the delivery of any notice or demand by Lessor.  Payment of interest at the Default Rate shall
be in addition to any other sums that Lessee may owe pursuant to Section 4.5
hereof, and shall in no event be deemed to cure or remedy any Event of Default
arising on account of such nonpayment of Rent or other Monetary obligation.


 


14.3                Survival of
Obligations


 


Lessor’s rights pursuant to this Section 14,
including Lessor’s rights to collect Annual Base Rent and Additional Rent,
shall survive the expiration or any earlier termination of this Lease, whether
such termination is effected pursuant to Section 14.2 of this Lease or
otherwise.


 


14.4                Reentry No
Acceptance of Surrender


 


Notwithstanding anything to the contrary contained
herein, except only to the extent required by Applicable Laws and not subject
to waiver under such laws, Lessor and Lessee hereby expressly agree that any
reentry by Lessor onto the Premises shall not be deemed an acceptance of Lessee’s
surrender.


 


14.5                Application of
Payments


 


Any payment by Lessee of a sum of money less than the
entire amount due Lessor at the time of such payment shall be applied to the
obligations of Lessee then furthest in arrears. 
No endorsement or statement on any check or accompanying any payment
shall be deemed an accord and satisfaction, and any payment accepted by Lessor
shall be without prejudice to Lessor’s right to obtain the balance due or
pursue any other remedy available to Lessor both in law and in equity.


 


14.6                Waiver of Notice
and Right of Redemption


 


Except as otherwise expressly provided in Section 14.1, Lessee hereby expressly waives, to the
maximum extent permitted by law, the service of any notice of intention to
enter or re-enter


 


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provided for in any statute, or of the institution of
legal proceedings to that end, and Lessee, for and on behalf of itself and all
persons claiming through or under Lessee, also waives any right of redemption
if Lessee is evicted or Lessor takes possession of the Premises by reason of
any Event of Default.


 


14.7                Rights Cumulative


 


The various rights and remedies reserved to Lessor and
Lessee, including those not specifically described herein, shall be cumulative
and shall be in addition to every other right or remedy provided for in this
Lease or now or hereafter existing at law or in equity.  The exercise of the rights or remedies
provided for in this Lease or now or hereafter existing at law or in equity
shall not preclude the simultaneous or later exercise by Lessor of any or all
other rights or remedies.


 


15.               Impairment of Lessor’s Title;
Leasehold Mortgage


 


15.1                No Encumbrance on
Lessor’s Title


 


Lessor and Lessee expressly agree that in no event
shall Lessor’s fee title to the Premises or its interest as Lessor under this
Lease (including its right to receive Rents), be encumbered, impaired or
subordinated for the benefit of Lessee or any Lender, and Lessee shall not
enter into (and Lessor shall have no obligation to approve or consent to) any
agreement or transaction that would, could or might deprive Lessor of its fee
title to the Premises, or impose any conditions or restrictions on Lessor’s fee
title, or otherwise affect or limit Lessor’s right to receive Rents, or impair
any of Lessor’s rights and remedies under this Lease.  Nothing contained in this Lease, and no
action or inaction by Lessor (other than a separate agreement in writing
hereafter signed by Lessor), shall be deemed or construed to mean that Lessor
has granted to Lessee any right, power or permission to do any act or to make
any agreement which may create, give rise to, or be the foundation for, any
right, title, interest, lien, charge or other encumbrance upon the estate of
Lessor in the Premises or its interest in this Lease.


 


15.2                Adverse Claims


 


In amplification and not in limitation of the
provisions of Section 15.1 above, Lessee shall not permit any portion of
the Premises to be used by any person or persons, or by the public, as such, at
any time or times during the Term or any holdover period in such manner as may
give rise to the creation of prescriptive rights or adverse possession,
dedication, or other similar claims of, in, to or with respect to the Premises
or any part thereof.


 


15.3                Lessor’s Notice of
Nonresponsibility


 


Notice is hereby given that Lessor shall not be liable
for any labor or materials furnished or to be furnished to Lessee, the
Operator, or any occupant or user of the Premises, and that no mechanic’s,
materialmen’s or other liens, stop notices or encumbrances for any such labor
or materials shall attach to or affect the estate or interest of Lessor in and
to the Premises.  Nothing in this Lease
shall be deemed or construed in any way as constituting the consent or request
of Lessor, express or implied, by inference or otherwise, to any contractor, subcontractor,
laborer or materialman for the performance of any labor or furnishing of any
materials in connection with


 


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the construction, repair or replacement of the
Improvements or any Alterations, or as giving Lessee any right, power or authority
to contract for or to permit, on Lessor’s behalf or as to Lessor’s interest,
the rendering of any services or the furnishing of any materials.  Lessor shall have no obligation to Lessee or
to any contractor, subcontractor, supplier, materialman, worker or other Person
who engages in or participates in any construction of any work unless Lessor
expressly undertakes such obligation in writing.


 


15.4                Liens


 


Lessee shall not permit or suffer any mechanic’s,
materialmen’s or other liens or encumbrances of any nature, including any
environmental lien (collectively, “Liens”), to
exist or attach against all or any part of the Premises, excluding only
Leasehold Mortgages and security interests securing Equipment Financing that
are created in full compliance with Sections 15.5 or 15.6, as applicable,
and liens for real estate taxes and assessments that are not delinquent or that
are being contested in full compliance with Section 5.3(c).  If any claim or notice of Lien is filed,
Lessee shall have the right to contest the Lien in accordance with Applicable
Laws, provided that at Lessor’s written request, Lessee shall promptly cause
the Lien to be bonded over, at no cost to Lessor.  If Lessee fails to bond over the Lien within
ten (10) days after receiving Lessor’s written request, Lessor shall
have the right, but not the obligation, without waiving any other rights and
remedies it may have against Lessee and without further notice to Lessee, to
cause the Lien to be removed from record by any means Lessor deems proper in
its sole and absolute discretion, including making full payment to the Lien
claimant without regard to the validity of its claim.  In the event Lessor causes a Lien to be
removed from record, Lessee shall pay Lessor on demand, as Additional Rent, all
the cost of such removal and all other costs and expenses incurred in
connection therewith, including reasonable attorneys’ fees and costs.  The provisions of this Section shall
survive the expiration or earlier termination of this Lease.


 


15.5                Leasehold Financing


 


Lessee shall obtain Lessor’s written consent, which
may be given or withheld in Lessor’s sole and absolute discretion, before
procuring any loan and/or entering into any other arrangement (singly or
collectively, a “Lessee Loan”) which would
have the effect of creating a Leasehold Mortgage, except for a Lessee
Loan which meets each of the following requirements (in which case Lessor’s
consent shall not be required):


 


(a)                 The proceeds of
the Lessee Loan shall be used by Lessee to pay the cost of any Alterations to
be made by Lessee, or to provide permanent or mini-permanent financing for
Lessee’s leasehold estate created by this Lease;


 


(b)                The Lessee Loan
shall be with a commercial bank or other institutional or private lender (“Lender”) which has assets
of over Five Hundred Million Dollars ($500,000,000.00) (which amount shall
escalate on each Adjustment Date in an amount equal to the percentage increase
in the CPI occurring since the last Adjustment Date, or in the case of the
first such adjustment the Term Commencement Date);


 


(c)                 The Lessee Loan
shall be for a maximum aggregate principal amount (including any optional or
mandatory advances, and including any prior Lessee Loan that will not be fully


 


84





















 


repaid concurrently with the closing of such Lessee
Loan) that does not exceed seventy-five percent (75%) of the value of Lessee’s
leasehold estate created by this Lease at the time of loan closing (inclusive
of Lessee’s leasehold interest in the Improvements), and the DSCR (following
the closing of such Lessee Loan) shall not be less than 1.4;


 


(d)                The Leasehold
Mortgage securing the Lessee Loan shall encumber Lessee’s entire leasehold
interest in the Premises, including Lessee’s leasehold interest in the
Improvements, and the Lender shall expressly agree for the benefit of Lessor
that the Premises is a single integrated project and there shall be no partial
foreclosure, partial deed in lieu, or other Transfer of anything less than
Lessee’s entire leasehold interest in the Premises, including Lessee’s entire
leasehold interest in the Improvements; and


 


(e)                 The Lessee Loan
shall not be cross-defaulted or cross-collateralized with any other obligations
of Lessee to Lender or any Affiliate of Lender not arising with respect to the
Lessee Loan, or with the obligations of any Affiliate of Lessee or any other
Person, except for any guaranty or other credit enhancement that may be
provided by an Affiliate of Lessee to the Lender in consideration of the Lessee
Loan.


 


Lessee may encumber its leasehold interest in this
Lease, including its leasehold interest in the Improvements, only in accordance
with this Section 15.5.  Lessee shall provide to Lessor, within not
more than thirty (30) days following the recordation of any Leasehold
Mortgage, a true and correct copy thereof, together with a summary in
reasonable detail of the payment terms and other material monetary obligations
of the Lessee under the loan documents secured by such Leasehold Mortgage to
the extent not expressly set forth in the copy of the Leasehold Mortgage
provided by Lessee to Lessor.  No Lessee
Loan shall contain any provisions that would be inconsistent with or impair in
any manner the rights and interests of Lessor under this Lease, provided that
the exercise of the Lessor’s rights and remedies under this Lease on account of
an Event of Default shall be subject to the provisions of Section 15.7
hereof.  There shall be no modification
of a Lessee Loan or Leasehold Mortgage that would be inconsistent with any of
the requirements of this Lease without Lessor’s prior written consent, which
may be granted or withheld in Lessor’s sole and absolute discretion.


 


Lessor shall execute and deliver to Lessee, within
ten (10) Business Days following Lessee’s request, for the benefit of
any Lender, and provided that the pertinent particulars of the applicable
Lessee Loan are described in such request from Lessee, a certificate stating
whether a Lessee Loan which is proposed to be, or has been, funded by such Lender
will satisfy the requirements of this Section 15.5 and entitle the Lender
to the benefits contained in Section 15.7 of this Lease or in any other
provision hereof which expressly runs in favor of a Lender.


 


15.6                Equipment
Financing


 


In addition to Leasehold Mortgages obtained by Lessee
in accordance with Section 15.5 above, Lessee shall have the right to
obtain financing (“Equipment Financing”) for
the acquisition of items of equipment and other tangible personal property for
use in the Hotel (collectively, “Personal Property”),
with vendors or third party lenders (“Equipment
Lenders”) so long as (i) the aggregate principal amount
of such financing, whether structured as a loan or a lease, shall not exceed at
any time the sum of Seven Hundred Fifty Thousand Dollars ($750,000.00) (which


 


85





















 


amount shall be escalated by the percentage increase
in the CPI occurring between the Term Commencement Date and the date of such
Equipment Financing); (ii) the security interest provided to such
Equipment Lenders, whether in the form of a loan or a lease, is limited to the
Personal Property so financed and does not constitute a Leasehold Mortgage or
any other lien on the leasehold estate of Lessee, including Lessee’s leasehold
interest in the Improvements, and any other purported encumbrance shall be void
and of no effect; (iii) the actual or imputed interest rate on such
equipment financing shall be at the then current market rate for such type of
financing; and (iv) Lessee shall promptly provide to Lessor a true and
correct copy of the financing documents entered into by Lessee in connection
with such Equipment Financing.  In the
event that Lessee wishes to use Equipment Financing to acquire any Personal
Property other than as expressly permitted pursuant to the foregoing provisions
of this Section 15.6, such Equipment Financing shall comply with the
requirements of clauses (ii) and (iii) above and in
addition Lessee shall first obtain Lessor’s prior written approval of such
equipment financing and the amount to be financed in relation to the cost of
the equipment, which approval shall not be unreasonably withheld or delayed, provided
that, without limiting the grounds on which Lessor shall be entitled to
reasonably withhold such consent, it shall be reasonable for Lessor to withhold
its consent to any such proposed equipment financing if Lessor reasonably
determines that the lack of ownership of such equipment by Lessee could
materially adversely affect the continued operation of the Hotel or the Hotel
Business following the termination of this Lease on account of an Event of
Default or could materially increase the cost of operation of the Hotel
following such termination.  In connection
with any Equipment Financing which is permitted under this Section 15.7,
Lessor shall execute such agreements reasonably required by the Equipment
Lenders pursuant to which, among other things, (a) Lessor shall disclaim
any title to or interest in the Personal Property being financed, (b) the
Equipment Lenders shall have reasonable rights of entry upon the Premises and
the Improvements for a reasonable period of time and upon reasonable prior
written notice to Lessor for purposes of inspecting, evaluating, removing and
disposing of the Personal Property (provided that the Equipment Lenders agree
not to interfere with or disrupt the operation of the Hotel as a Luxury Hotel,
to restore any damage to the Improvements occasioned by such removal, and to
indemnify Lessor from and against any claims arising out of or resulting from
such damage or removal), and (c) in the event of a termination of this
Lease, the Equipment Lenders agree to remove the Personal Property from the
Premises within ten (10) days after receipt of written request from
Lessor.


 


15.7                Lender Protections


 


Lessor and Lessee expressly agree that any Lender
making a Lessee Loan secured by a Leasehold Mortgage, other than a Lender
Affiliate, shall have the rights and protections set forth in the following
paragraphs of this Section 15.7.  No
Lender Affiliate shall have or be entitled to exercise any of such rights and
protections, except only to the extent otherwise hereafter expressly agreed in
writing by Lessor in Lessor’s sole and absolute discretion.


 


(a)                 Lessor shall send
to the Lender a duplicate copy of any and all notices Lessor may from time to
time give to or serve on Lessee pursuant to this Lease to the extent such
notices relate to a threatened or claimed Event of Default, to any purported
modification or amendment of this Lease, or to any material dispute between
Lessor and Lessee.  Such duplicate copy
shall be sent to the Lender concurrently with the notice given to or served on
Lessee, but only if and for so long as Lessee or the Lender shall keep Lessor
informed, in writing, of the name and


 


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mailing address of the Lender and any changes in the
Lender’s mailing address.  As between
Lessor and Lender only, no notice of default shall be effective as to Lender
unless and until Lessor gives to Lender a copy of its notice to Lessee at the
most recent address for Lender as provided to Lessor by Lessee; and without
limiting the foregoing, Lessee shall have no defense to the exercise of any
right or remedy by Lessor under this Lease, including on account of an Event of
Default, by reason of any failure of Lessor to deliver a copy of any notice to
any Lender, nor shall Lessee or Lender have any other claim against Lessor on
account of such failure, but rather the only effect of such failure shall be to
toll for the benefit of the Lender only the applicable time period within which
such Lender is required to act or respond pursuant to the provisions of
Sections 15.7(d) and 15.7(e). 
Any notices or other communications required or permitted by this or any
other provision of this Lease or by law to be served on or given to the Lender
by Lessor may be delivered in the manner specified in Section 20.1.  Lessee shall deliver to Lessor, promptly
after execution, true and complete copies of the Leasehold Mortgage and all
other documents given to evidence or secure the Lessee Loan, and any subsequent
amendments, modifications or extensions thereof.


 


(b)                If the terms of
the applicable loan documents so provide, Lessee and Lessor shall not modify or
consensually terminate this Lease without the prior written consent of the
Lender and any such modification or consensual termination of this Lease
without the Lender’s consent shall not be binding upon the Lender, provided
that, if the proposed modification of this Lease will not limit or impair the
rights or security of the Lender, then the Lender shall not arbitrarily or
unreasonably withhold its consent to such modification.  No voluntary termination or surrender of this
Lease by Lessee shall be effective without the written consent of the
Lender.  No merger of this Lease and the
fee estate in the Premises shall occur on account of the acquisition by the
same or related parties of the leasehold estate created by this Lease and the
fee estate in the Premises without the prior written consent of the Lender.


 


(c)                 Lessor agrees
that, but only to the extent agreed by Lessee and the Lender (as evidenced by a
writing delivered to Lessor), the Lender shall have the right at any time
during the Term to:


 


(i)                           do any
act or thing required of Lessee under this Lease, including any act or thing
which, if not timely performed, could constitute an Event of Default, and any
such act or thing done and performed by such Lender shall be as effective to
prevent a termination of this Lease and a forfeiture of Lessee’s rights under
this Lease as if done by Lessee itself; and/or


 


(ii)                        realize on
the security afforded by the leasehold estate by exercising foreclosure
proceedings or power of sale or other remedy afforded at law or in equity, or
under any Leasehold Mortgage, and pursuant to such proceedings to:  (A) transfer, convey or assign Lessee’s
leasehold interest to an Affiliate of the Lender or to any Qualified Transferee
at any foreclosure sale, whether the foreclosure sale is conducted pursuant to
court order or pursuant to a power of sale contained in the Leasehold Mortgage;
or (B) acquire and succeed, in its own name or that of an Affiliate of the
Lender, to the interest of Lessee under this Lease by virtue of any foreclosure
sale, whether the foreclosure sale is conducted pursuant to court order or
pursuant to a power of sale contained in the Leasehold Mortgage, or by
assignment or other conveyance in lieu of foreclosure.


 


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Foreclosure of a Leasehold Mortgage or any sale
thereunder to Lender, an Affiliate of Lender, or any Qualified Transferee,
whether by judicial proceedings or pursuant to any power of sale contained
therein, or any assignment or other conveyance to Lender, an Affiliate of
Lender, or any Qualified Transferee in lieu of foreclosure, shall not require
the consent of Lessor or constitute an Event of Default under this Lease.  Upon any such foreclosure, sale, assignment
or other conveyance, Lessor shall recognize Lender, such Affiliate of Lender,
or any grantee of a conveyance in lieu of foreclosure who is a Qualified
Transferee, or any foreclosure sale purchaser who is a Qualified Transferee, as
the Lessee hereunder.  Notwithstanding
anything in the foregoing to the contrary, any Operator and any Food and
Beverage Operator (whether or not an Affiliate of Lessee) will be subject to
Lessor’s approval as described in Section 9.1 above.


 


(d)                Before Lessor may
terminate this Lease because of any Event of Default, Lessor shall give written
notice of the Event of Default to the Lender (which notice of default may be
given at the same time as the notice of default given to Lessee) and afford the
Lender the opportunity after service of the notice to:  (i) cure any Event of Default involving
nonpayment of Rent or any other sum to be paid hereunder within
fifteen (15) days after receipt of notice of default from Lessor; or (ii) cure
any non-monetary Event of Default under this Lease within thirty (30) days
after receipt of Lessor’s notice of default, or within such longer period of
time as may be reasonably required to cure such Event of Default (including
such period as may be required to foreclose the lien of the Leasehold Mortgage
in accordance with and to the extent provided in Section 15.7(e) below),
provided that Lender commences such cure within thirty (30) days after
receipt of notice from Lessor and thereafter diligently prosecutes such cure to
completion within a reasonable time.


 


(e)                 Lessor agrees
that, to the extent agreed by Lessee and the Lender (as evidenced by a writing
delivered to Lessor), the Lender may forestall termination of this Lease by
Lessor by complying with subsections (d) above and (m) below and by
commencing foreclosure proceedings (whether judicially or by exercise of a
power of sale) within forty-five (45) days after Lessor gives Lender a
notice of default, so long as:  (i) Lender,
following commencement of such foreclosure proceedings, diligently pursues such
proceedings to completion within a reasonable time (taking into account any
bankruptcy filings by Lessee or any other actions by Lessee in any insolvency
proceedings which may, as a matter of law, and despite the exercise of all
diligence by Lender, delay or postpone Lender’s foreclosure proceedings); and (ii) Lender
or a receiver appointed by a court of competent jurisdiction upon the
application of Lender performs all of the terms and conditions of this Lease
requiring payment or expenditure of money by Lessee, including the payment of all
unpaid Rent due hereunder, and all other terms and conditions of this Lease
which may be performed by Lender or such receiver, until the foreclosure
proceedings are complete or are discharged by redemption, satisfaction, payment
or conveyance of the leasehold estate to Lender or to any other person or
party.


 


(f)                   Neither Lender
nor an Affiliate of Lender shall be liable to Lessor as Transferee of Lessee’s
interest under this Lease unless and until such time as Lender or such
Affiliate acquires the rights of Lessee under this Lease through foreclosure or
other proceedings in the nature of foreclosure, by deed or voluntary assignment
in lieu thereof, or as a result of some other action or remedy provided by law
or by any Leasehold Mortgage.  At no time
shall the Lender or such Affiliate be liable for any breach of default by
Lessee arising or occurring prior to the time that the Lender or such Affiliate
acquires the leasehold estate of Lessee under this Lease; provided,


 


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however, that the Lender or such Affiliate shall be
liable for its acts or omissions once it, or any receiver obtained by the
Lender or such Affiliate, takes possession of the Hotel, and provided further
that Lessor shall have the right to exercise all remedies available as the
result of any breach or default under this Lease, including termination hereof,
unless Lender or such Affiliate cures or causes all such breaches and defaults
to be cured in accordance with clauses (i) and (ii) of subsection (d) above
and complies with clause (ii) of subsection (e) above.  Subject to compliance with the provisions of Section 13.1
relating to a subsequent Transfer by the Lender or such Affiliate, in its
capacity as a successor Lessee, of its interest in this Lease, the Lender or
such Affiliate shall remain liable to Lessor for the obligations of the Lessee
under this Lease only for and with respect to obligations arising under this
Lease while the Lender or such Affiliate remains the owner of the leasehold
estate.  In the event that Lender or such
Affiliate subsequently Transfers its interest under this Lease in accordance
with the terms hereof after acquiring all rights of Lessee hereunder and in
connection with any such Transfer Lender or such Affiliate takes back a
mortgage, deed of trust, security agreement, lien or other encumbrance in or
against the Lessee’s leasehold interest in this Lease, including Lessee’s
leasehold interest in the Improvements to secure a portion of the purchase
price payable to Lender or such Affiliate for such Transfer, which loan meets
the requirements of a Lessee Loan described in Sections 15.7(a) through
15.5(e) above, then such mortgage, deed of trust, security agreement, lien
or other encumbrance shall also constitute a Leasehold Mortgage and the Lender
or such Affiliate shall be entitled to the benefits of this Lease intended for
the benefit of the holder of a Leasehold Mortgage.


 


(g)                If this Lease is
terminated prior to the Expiration Date for any reason other than a termination
pursuant to Section 17, including the termination by Lessor on account of
an Event of Default or the rejection by a trustee of Lessee in bankruptcy or by
Lessee as a debtor-in-possession, or if Lessee’s interest under this Lease
shall be sold, assigned or transferred pursuant to the exercise of any remedy
of the Lender, or pursuant to foreclosure, or deed or assignment in lieu
thereof, then Lessor shall execute a new lease for the Premises with the Lender
or an Affiliate of Lender as Lessee, if so requested by the Lender within
ten (10) days following the date Lessor gives the Lender notice of
the termination, subject to the following:


 


(i)                           the new
lease shall:  (A) be for a term
beginning on the date this Lease was so terminated and ending on the same date
the Term of this Lease would have ended had not this Lease been terminated; (B) provide
for the payment of Rent at the same rate that would have been payable under
this Lease during the remaining Term of this Lease had this Lease not been
terminated; (C) provide for the Premises to be used solely for the
Permitted Uses; and (D) otherwise contain the same terms and conditions as
are contained in this Lease (except for any requirements or conditions which
have been fully satisfied by Lessee prior to the termination);


 


(ii)                        upon, and
as a condition to execution of the new lease by Lessor, Lender or such
Affiliate of Lender shall pay to Lessor any and all Rent and other sums that
would, at the time of the execution of the new lease, be due under this Lease
if this Lease had not been terminated, and shall also pay all sums and remedy,
or agree in writing to commence to remedy any other defaults under this Lease
committed by the former Lessee that can possibly be remedied by a party other
than the former Lessee, and to diligently prosecute such cure to completion,
with such cure to be completed within a reasonable period of time thereafter;


 


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(iii)                     upon, and as
a condition to execution of the new lease, Lender or such Affiliate of Lender
shall pay all costs and expenses, including reasonable attorneys’ fees and
court costs, incurred by Lessor in connection with the prior defaults under
this Lease and in preparing the new lease, and shall pay any and all other fees,
costs, taxes (including transfer taxes) and impositions that may be payable as
a result of the parties entering into the new lease;


 


(iv)                    as between
Lessor, Lessee and Lender or such Affiliate of Lender, and with respect to all
third parties having actual or constructive notice of the terms of this Lease,
the new lease shall have the same priority as this Lease, and shall be
transferable by Lender or such Affiliate of Lender to the extent expressly
provided in this Lease;


 


(v)                       The
ownership of the Improvements now or hereafter located on the Premises,
excluding any Alterations paid for by Lessee, shall at all times be and remain
vested in Lessor throughout the Term of the new lease, and as to any such
Alterations paid for by Lessee, Lessor shall relinquish any title thereto which
Lessor may have acquired by virtue of the termination of this Lease in favor or
Lender or such Affiliate of Lender pursuant to such new lease, but only for the
remaining term of such new lease;


 


(vi)                    Upon the
execution and delivery of such new lease, the Lender or such Affiliate of
Lender, in its own name or in the name of Lessor (under the conditions provided
herein) and at Lender’s or such Affiliate’s cost and expense, may take all
appropriate steps as may be necessary to remove Lessee, or any other Person
claiming by, through or under Lessee, from the Premises.  Lender or such Affiliate of Lender shall be
solely responsible for bringing such actions and proceedings as shall be
required to obtain possession of the Premises, including possession of the
Improvements, from any third parties which are not lawfully occupying the
Premises, and if Lessor shall be required by applicable law to be or become a
party to any such action or proceeding, Lessor agrees to cooperate with Lender or
such Affiliate in all reasonable respects in any such action or proceeding,
provided that Lender or such Affiliate shall pay all costs and expenses of
Lessor, including reasonable attorneys’ fees and costs, incurred in connection
therewith and indemnify Lessor against any and all claims and liabilities
arising by reason of such action or proceeding;


 


(vii)                 Together with the
execution and delivery of the new lease, Lessor shall confirm and acknowledge,
by such means as is customary or may be reasonably required by a reputable
title insurance company to insure the leasehold estate of Lender or such
Affiliate of Lender created by the new lease for the term of the new lease,
that as between the Lender or such Affiliate and Lessor, and all Persons
claiming by, through or under Lessor (including any Fee Lender), Lender or such
Affiliate has a leasehold estate in and to the Premises, including the
Improvements for the term of the new lease and subject to the terms and
conditions of the new lease; provided, however, that such confirmation and
acknowledgment of title shall not negate or otherwise adversely affect Lessor’s
reversionary interest in the Premises; and


 


(viii)              In the event that
there is more than one Leasehold Mortgage at the time such new lease is to be
executed and delivered, the Lender which provides to Lessor evidence (as
provided in subparagraph (h) below) that it is first in lien priority
shall be entitled to such new lease.


 


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The provisions of this Section 15.7(g) shall
survive any termination of this Lease prior to the Expiration Date for any
reason (other than a termination pursuant to Section 17) for a period of
ten (10) days following the date Lessor gives the Lender notice of
the termination, and shall constitute a separate agreement by Lessor for the
benefit of and enforceable by the Lender. 
If the Lender delivers notice to Lessor, within such ten (10) day
period, of such Lender’s election to execute a new lease with Lessor as
contemplated by this subparagraph (g), then Lessor and Lender shall be
obligated to proceed with diligence and continuity to prepare and execute such
new lease as rapidly as feasible, provided that in any event such new lease
shall be fully executed and become effective no later than thirty (30)
days following the date of delivery by Lessor to the Lender of a comprehensive
draft of the proposed new lease, and if such new lease is not fully executed
and effective within such thirty (30) day period, Lender shall have no
further right to enter into a new lease with Lessor and all rights of Lender
provided for in this Section 15.7 shall terminate, provided that such
thirty (30) day period shall be subject to extension for and during the
continuance of any Force Majeure Event and, in addition, for such period of
time, if any, as Lessor shall unreasonably fail or refuse to cooperate with
Lender in preparing, negotiating, or executing such new lease.


 


(h)                The Lender whose
Leasehold Mortgage would be senior in priority if there were a foreclosure
shall prevail if two or more Lenders exercise their rights hereunder, and there
is a conflict which renders it impossible to comply with all such
requests.  The Lender who claims such
priority shall provide to Lessor reasonable evidence, which may include a
non-appealable court order or assurance from a reputable title insurance
company, in form and substance reasonably satisfactory to Lessor, on which
Lessor shall have the right to rely in determining the relative priority among
multiple Leasehold Mortgages.  Any Lender
who pays any rent or other sums due hereunder which relate to periods other
than during its actual ownership of the leasehold estate shall be subrogated to
any and all rights which may be asserted against Lessee by Lessor with respect
to such period of time.


 


(i)                    As used in
this Lease, the term “Lender” shall include the entity that loaned money to
Lessee under a Lessee Loan that meets the requirements of Section 15.5
above and is named as beneficiary, mortgagee, assignee, secured party or
security holder in any Leasehold Mortgage, and also all subsequent assignees
and holders of the security interest created by such instrument; provided,
however, that any such subsequent assignees and holders must satisfy the
requirements of Section 15.5(b) above.  As used in this Section 15.7, the term “Lender”
shall not be deemed to include any Fee Lender.


 


(j)                    Any Leasehold
Mortgage shall by its terms provide that all proceeds of any property insurance
covering the Premises and/or the Improvements, and all Awards, shall be paid,
held and applied in a manner consistent with the provisions of this Lease, and
that the holder of the Leasehold Mortgage shall give Lessor written notice of
any default of Lessee under such Leasehold Mortgage contemporaneously with the
giving of such notice to Lessee; provided, however, that no failure by the
Lender to give such notice shall deprive it of any rights or benefits provided
by this Section 15.7 or elsewhere in this Lease.  Lessee shall give Lessor a copy of any notice
of default received from any Lender promptly after receipt thereof.


 


(k)                 If Lessor
receives a notice of default from a Lender based on Lessee’s failure to make
payment when due on a Lessee Loan, and Lessee fails to cause the Lender to
rescind the notice


 


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of default within ten (10) Business Days
after the date Lessor gives Lessee a copy of the notice of default, then Lessor
shall have the right, but not the obligation, to cure such default of Lessee on
the Lessee Loan by payment to the Lender of the amount in default, and in such
event Lessee shall repay such amount to Lessor on demand, and until repayment
is made the amount owing to Lessor shall bear interest at the Default Rate;
provided, however, that the failure by Lessee to make such repayment shall not
entitle Lessor to terminate this Lease or exercise any other remedy that would
require the Lender to return or otherwise pay over such amount to Lessor,
provided that (i) Lessor shall have all other remedies available at law or
in equity in order to enforce Lessee’s obligation to make such repayment to
Lessor, including the right (but not the obligation) to draw on and apply any
funds in any of the Escrow Accounts for such purpose, and (ii) the
foregoing provisions shall not be construed to preclude Lessor from exercising
its right to terminate this Lease for or on account of the existence of any
other Event of Default.


 


(l)                    Within
ten (10) days after receipt of a written request from time to time,
Lessor shall execute and deliver to any Lender a written statement
certifying:  (i) the Expiration
Date; (ii) that this Lease is unmodified and in full force and effect (or,
if there have been modifications, that this Lease is in full force and effect,
and stating the date and nature of such modifications); (iii) the date to
which Rent has been paid; (iv) that, to the Actual Knowledge of Lessor,
there are no current defaults under this Lease by either Lessor or Lessee (or,
if defaults are asserted, so describing with reasonable specificity); and (v) such
other matters as may be reasonably requested by the Lender.  Lessor intends that any statement delivered
pursuant to this Section may be relied upon by any auditor, Lender,
prospective Lender, or prospective purchaser of or investor in the leasehold
estate in the Premises created by this Lease.


 


(m)              Notwithstanding any
other provisions to the contrary in this Section 15.7 or in any other Section of
this Lease, in no event and under no circumstances shall Lessor be forestalled
from terminating this Lease if, except as otherwise expressly permitted by this
Lease, any Hotel operations or the active conduct of the Hotel Business as a
Luxury Hotel is suspended at any time during the Term, whether in connection
with the exercise by such Lender of any rights or remedies under its Leasehold
Mortgage, or under this Section 15.7, or otherwise.  In the event that the Lender is unable to
enter the Hotel on a voluntary basis to continue any operations following any
default under any Leasehold Mortgage, Lessor shall not terminate this Lease so
long as the Lender shall diligently seek the appointment of a receiver to
operate the Hotel and the Hotel Business in accordance with the requirements of
this Lease, and (without limiting the provisions of Section 15.7(e) hereof)
shall continue to make or provide for the payment of all Rent owing under this
Lease for and during any period in which Lender is seeking the appointment of a
receiver or otherwise pursuing the foreclosure of its Leasehold Mortgage.  Notwithstanding the foregoing, in the event
that Lessor reasonably determines that the continued operation of the Hotel in
accordance with this Lease following an Event of Default has ceased, regardless
of the cause of such failure, then notwithstanding any other provisions of this
Section 15.7 to the contrary, Lessor shall be entitled, upon ten (10) Business
Days’ prior written notice to such Lender, to immediately terminate this Lease,
and upon such termination Lender’s only remaining right under this Section 15.7
shall be to request and enter into a new lease pursuant to the provisions of
subparagraph (g) of this Section 15.7.


 


(n)                Lessor and Lessee
shall cooperate in including in this Lease by suitable amendment, or by
execution of a supplement to this Lease, any provision which may be reasonably
requested by


 


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a Lender in order to implement the provisions and
intent of Section 15.5 and this Section 15.7; provided, however, that
any such amendment or supplement shall not increase the obligations or decrease
the rights of Lessor under this Lease in any material respect.


 


16.               Representations, Warranties and
Covenants


 


16.1                Lessee’s
Representations, Warranties and Covenants


 


Lessee hereby represents, warrants and covenants to
Lessor as follows:


 


(a)                 Lessee is a
limited liability company, duly organized, validly existing and in good
standing under the laws of the State of Delaware, and is duly qualified to
transact business in the State of California.


 


(b)                Subject to Lessee
obtaining the approval of the Bankruptcy Court of the Purchase Agreement and
this Lease as contemplated in Section 10.3(b)(viii) of the Purchase
Agreement, Lessee has taken all necessary action to authorize the execution,
delivery and performance of this Lease and all other agreements and instruments
relating to the transactions contemplated by this Lease (collectively, the “Related Instruments”).  This Lease and the Related Instruments
constitute the legal, valid and binding obligations of Lessee.


 


(c)                 Subject to Lessee
obtaining the approval of the Bankruptcy Court of the Purchase Agreement and
this Lease as contemplated in Section 10.3(b)(viii) of the Purchase
Agreement, Lessee has the right, power, legal capacity and authority to enter
into and perform its obligations under this Lease and the Related Instruments,
and no approval or consent of any Person is required in connection with Lessee’s
execution and performance of this Lease and the Related Instruments which has
not been obtained (other than any Entitlements required to be obtained to
construct any Improvements).  Subject to
Lessee obtaining the approval of the Bankruptcy Court of the Purchase Agreement
and this Lease as contemplated in Section 10.3(b)(viii) of the
Purchase Agreement, the execution and performance of this Lease and the Related
Instruments will not result in or constitute any default or event that would
be, or with notice or lapse of time or both would be, a default, breach or
violation of the organizational instruments governing Lessee or any agreement
or any deed restriction or order or decree of any court or other governmental
authority to which Lessee is a party or to which it is subject.


 


(d)                Lessee at all
times during the Term expects to be:  (i) adequately
capitalized to conduct its business and affairs as a going concern, considering
the size and nature of its business and intended purposes, and to pay in a
timely manner all Monetary Obligations; (ii) solvent; (iii) able to
pay its debts as they come due; and (iv) able to conduct its business as a
stand-alone entity.


 


(e)                 On and as of the
Effective Date, neither Lessee nor any Affiliate of Lessee has any ownership or
other economic interest in ZM SF Ventures LLC or China Grill Management, Inc.


 


Lessee shall take all actions necessary to ensure that
each of the representations, warranties and covenants contained in this Section 16.1 remain true and correct in all material
respects at all times during the period between the Effective Date and the
expiration of the Term and any holdover period.


 


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16.2                Lessor’s
Representations, Warranties and Covenants


 


Lessor represents, warrants and covenants to Lessee as
follows:


 


(a)                 Lessor is a limited
liability company organized, validly existing and in good standing under the
laws of the State of Delaware, and is duly qualified to transact business in
the State of California.


 


(b)                Lessor has taken
all necessary action to authorize the execution, delivery and performance of
this Lease and the Related Instruments.  This Lease and the Related Instruments
constitute the legal, valid and binding obligations of Lessor.


 


(c)                 Lessor has the
right, power, legal capacity and authority to enter into and perform its
obligations under this Lease and the Related Instruments, and no approval or
consent of any Person is required in connection with Lessor’s execution and
performance of this Lease and the Related Instruments which has not been
obtained.  The execution and performance
of this Lease and the Related Instruments will not result in or constitute any
default or event that would be, or with notice or lapse of time or both would
be, a default, breach or violation of the organizational instruments governing
Lessor or any agreement or any deed restriction or order or decree of any court
or other governmental authority to which Lessor is a party or to which it is a
subject.


 


17.               Casualty or Appropriation


 


17.1                No Termination; No
Effect on Rental Obligation


 


Except to the extent expressly provided in this Section 17,
no Appropriation, Casualty, or other loss, damage or destruction to or of the
Premises, the Improvements, or any other aspect of the Hotel or its operations,
shall cause a termination of this Lease, or relieve or discharge Lessee from
the full and timely payment of Rent or performance of any of Lessee’s other
obligations under this Lease.


 


17.2                Evaluation of
Extent and Effect of Casualty or Appropriation


 


(a)                 Casualty.  Upon the occurrence of any fire, flood,
earthquake or other event or casualty adversely affecting the physical
condition of the Premises and/or the Improvements in any material respect (a “Casualty”), Lessee shall
promptly engage an independent architect or engineer reasonably acceptable to
Lessor (the “Engineer”), and Lessee and
the Engineer shall prepare a detailed written report (the “Casualty Report”)
describing and addressing:  (i) the
extent of any damage or destruction to the Premises and Improvements; (ii) the
legal right, and the estimated cost and time required, to repair, replace,
reconstruct and/or restore the Premises and Improvements to a physical and
operating condition consistent with the requirements of this Lease
(collectively, “Restoration Work”); and (iii) the
likely extent and availability of insurance proceeds.  Lessee shall provide Lessor with the Casualty
Report as soon as reasonably practicable, but not later than sixty (60)
days after the occurrence of the Casualty.


 


(b)                Appropriation.  Upon receipt of written notice that any
Appropriation of less than the entire Premises is pending or contemplated,
Lessee shall promptly engage an Engineer, and Lessee and the Engineer shall
prepare a detailed written report (the “Appropriation
Report”)


 


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describing and addressing:  (i) the effect of such pending or
contemplated Appropriation on the remaining portion of the Premises and the
occupancy and operation of the Improvements; (ii) the legal right, and the
estimated cost and time required, to perform all Restoration Work that may be
necessary in order for the Improvements to be operated and occupied in
accordance with the requirements of this Lease; and (iii) the likely
extent and availability of an Award. 
Lessee shall provide Lessor with the Appropriation Report as soon as
reasonably practicable, but not later than sixty (60) days after receipt
of written notice that the Appropriation is pending or contemplated.


 


17.3                Effect of Casualty


 


(a)                 Obligation to Perform Restoration Work.  Except as expressly provided in
Sections 17.3(b) and 17.3(c) below, if all or any portion of the
Premises or the Improvements shall be damaged or destroyed at any time during
the Term, Lessee shall perform, at Lessee’s cost and expense, all Restoration
Work that may be necessary to restore the Premises and Improvements as nearly
as possible to a first-class condition suitable for operation as a Luxury
Hotel, regardless of whether any insurance proceeds are available or the amount
of any such insurance proceeds, as promptly as reasonably practicable and with
all commercially reasonable diligence; provided that (i) any sums so
expended by Lessee for or in connection with any Restoration Work shall not
constitute Ordinary Operating Expenses, and (ii) neither Lessee nor
Operator nor any Affiliate of Lessee or Operator shall charge or receive any
project management, project supervision, or comparable fee or payment in
connection with any Restoration Work which would be in excess of the fee or
payment that would be customarily charged by a non-affiliated project
management company or firm for comparable work or services.  Except as expressly provided in
Sections 17.3(b) or 17.3(c) below, any insurance proceeds
payable on account of any Casualty shall be applied to completion of the
Restoration Work and shall be paid, held and disbursed in accordance with the
provisions of Section 17.6.


 


(b)                Major Casualty.  If all or substantially all of the
Improvements are damaged or destroyed due to a Casualty such that the estimated
cost of the Restoration Work that is not covered by insurance proceeds shall
exceed fifty percent (50%) of the replacement cost of the Improvements (a “Major Casualty”), then
Lessee shall have the right to terminate this Lease, but only in strict
accordance with the requirements and procedures set forth in Section 17.7.  In
the event Lessee exercises such right to terminate, Lessee shall vacate and
surrender the Premises to Lessor in the manner required by Section 17.7.  In the event this Lease is terminated by
Lessee pursuant to this Section 17.3(b), any Casualty Proceeds shall be
divided between Lessor and Lessee in the manner provided in Section 17.5(d) below.  If Lessee shall not elect to terminate this
Lease due to such Major Casualty, then this Lease shall continue in full force
and effect and the provisions of Section 17.3(a) shall apply.


 


(c)                 Major Casualty During Last Five Years of Term.  If a Major Casualty shall occur during the
final five (5) years of the Term, and Lessee does not elect to
terminate this Lease as provided in Section 17.3(b) above, then this
Lease shall continue to the end of the Term, and Lessee shall have the right,
but not the obligation, to perform the Restoration Work, and if Lessee elects
to perform the Restoration Work, any insurance proceeds payable on account of
the


 


95





















 


Casualty shall be paid, held and disbursed in
accordance with Section 17.6.  If Lessee elects not to perform the
Restoration Work, then any insurance proceeds payable on account of the
Casualty shall be paid as provided in Section 17.5(d), and in addition,
and without regard to the amount, if any, of any insurance proceeds received by
Lessee, Lessee shall (i) promptly demolish and remove, at Lessee’s sole
cost and expense, all damaged or destroyed Improvements from the Premises,
together with all other Improvements which Lessor requires to be so demolished
and removed, and restore the portion of the Premises where such Improvements
have been removed to a clean, level and useable condition, and (ii) continue
to pay the full Rent due hereunder (without setoff, reduction or abatement) for
the remainder of the Term.


 


(d)                No Right to Terminate Lease.  Under no circumstances shall Lessee be
entitled to terminate this Lease, except as specifically provided in this Section 17.3,
or to any abatement of Rent for or in respect of any Casualty.


 


17.4                Effect of
Appropriation


 


(a)                 Total Appropriation.  If the entire Premises is Appropriated at any
time during the Term (a “Total Appropriation”),
this Lease shall terminate as provided in Section 17.7 effective on the earlier of the date that title to the
Premises is obtained by the Appropriating authority or the date that the
Appropriating authority takes possession of the Premises, and the Award shall
be divided between Lessor and Lessee in the manner provided in Section 17.5(a) below.


 


(b)                Major Appropriation.  If at any time during the Term a substantial
portion of the Premises or the Improvements is Appropriated, and either (i) there
are fewer than five (5) years remaining in the Term of this Lease, or
(ii) then-existing laws would not permit the repair, replacement,
reconstruction and/or restoration of the Premises and Improvements to
substantially the same condition and use as at the time immediately preceding
the Appropriation, or otherwise to a condition that would permit an
economically feasible Luxury Hotel to be operated on the Premises consistent
with the requirements of this Lease (a “Major
Appropriation”), then Lessee shall have the right to
terminate this Lease, but only in strict accordance with the requirements and
procedures set forth in Section 17.7.  In the event Lessee exercises such right to
terminate, then this Lease shall terminate and Lessee shall vacate and
surrender the Premises to Lessor in the manner required by Section 17.7.  The effective date of any such termination
shall be the earlier of the date that the Appropriating authority obtains title
to the Appropriated portion of the Premises or Improvements or the date that
the Appropriating authority takes possession of the Appropriated portion of the
Premises or Improvements.  In the event
this Lease is terminated by Lessee pursuant to this Section 17.4(b), any
Award shall be divided between Lessor and Lessee in the manner provided in Section 17.5(a) below.


 


(c)                 Partial Appropriation.  If less than the entire Premises or
Improvements are Appropriated and this Lease is not terminated pursuant to Section 17.4(b) above:  (A) this Lease shall be deemed amended,
effective as of the earlier of the date that the Appropriating authority
obtains title to the Appropriated portion of the Premises or Improvements or
the date that the Appropriating authority takes possession of the Appropriated
portion of the Premises or Improvements, such that the definition of the term “Premises”
shall include only that portion of the Land described in Exhibit A
attached that is not Appropriated and the definition of the term “Improvements”
shall include only those portions of the Improvements that are not
appropriated; (B) Lessee, as promptly as reasonably practicable and with
all commercially reasonable diligence, shall perform all Restoration Work as
may be necessary to restore the Premises


 


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consistent with the requirements of this Lease, to the
maximum extent feasible for operation as a Luxury Hotel; (C) Annual Base
Rent shall be equitably reduced in the proportion that the gross square footage
of the Improvements which are Appropriated bears to the aggregate gross square
footage of the Improvements immediately prior to the Appropriation, and (D) any
Award shall be divided between Lessor and Lessee in the manner provided in Section 17.5(b) below.


 


(d)                Temporary Appropriation.  If the Premises or any portion thereof or any
Improvements are Appropriated for a limited period ending no later than
five (5) years before the Expiration Date, this Lease shall not
terminate and Lessee shall continue to perform and observe all of its
obligations hereunder as though such Appropriation had not occurred, including,
without limitation, the payment of all Monetary Obligations owing to Lessor for
the period of such Appropriation as the same shall become due and payable under
this Lease, except only to the extent Lessee may be prevented or substantially
impeded from performing any obligations (other than Monetary Obligations) by
reason of such Appropriation.  In the
event of such a temporary Appropriation, the respective rights of Lessor and
Lessee in and to any Award shall be as set forth in Section 17.6(c).  In the event that any temporary Appropriation
would end later than the five (5) years before the Expiration Date,
then the Appropriation shall be deemed a Total Appropriation and all of the
provisions of this Section 17 that are applicable to a Total Appropriation
shall apply.


 


17.5                Allocation of
Award


 


(a)                 Total Appropriation; Major Appropriation.  In the event of any Appropriation which
results in the termination of this Lease pursuant to Sections 17.4(a) or
(b) above, any Award therefor shall be payable in the following order of
priority:


 


(i)                           First,
Lessee and Lessor shall first be entitled to payment for all out of pocket
third party costs and expenses, including attorneys’ fees and costs, reasonably
incurred in collecting the Award.


 


(ii)                        Second,
Lessee shall next be entitled to reimbursement for any out-of-pocket third
party costs reasonably incurred by Lessee for demolition, restoration and
removal work or emergency-related work undertaken pursuant to Section 17.7(b),
Section 17.7(c), or Section 17.8 below.


 


(iii)                     Third, Lessor
shall next be entitled to payment for the value of the Appropriated Land and
Improvements in an amount equal to (i) Seventy-One Million Dollars
($71,000,000.00), plus (ii) an amount equal to $71,000,000.00 multiplied
by the cumulative percentage increase in the CPI occurring between the Term
Commencement Date and the date as of which such Award is payable.


 


(iv)                    Fourth, Lessee
shall be entitled to the balance, if any, of the Award.


 


(b)                Partial Appropriation.  In the event of any Appropriation of the
nature covered by Section 17.4(c) above, all Awards therefor shall be
applied first to the restoration, repair and replacement by Lessee of the
Premises, Improvements and Personal Property that were not Appropriated, with
any severance award being applied in its entirety before any other portion of


 


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the Award is so applied, and the unexpended portion of
the Award, if any, shall be divided between Lessor and Lessee in the manner
provided by Section 17.5(a) above.


 


(c)                 Temporary Appropriation.  In the event of a temporary Appropriation of
the nature described in Section 17.4(d), and subject to the rights of any
Lender under a Leasehold Mortgage:  (i) Lessee
shall be entitled to receive the entire amount of any Award made for such
Appropriation; and (ii) Lessor hereby assigns any and all of its interest
in such Award to Lessee.  Lessee agrees
to use diligent commercially reasonable efforts to recover as part of the Award
payable by the Appropriating authority on account of such Appropriation all
Rent which under this Lease would be payable to Lessor for the period of such
Appropriation (herein, “Lessor’s Share”);
provided, however, (i) the failure of Lessee to recover from the
Appropriating authority all Rent payable under this Lease for the period of
such Appropriation shall not excuse or relieve Lessee from the obligation to
pay Lessor all Monetary Obligations owing for such period, and (ii) that
if for any reason the assignment by Lessor to Lessee of Lessor’s interest in
any Award made for such Appropriation is not fully effective or enforceable,
Lessor shall have the right, upon written notice to Lessee, to elect to recover
Lessor’s Share directly from the Appropriating authority, in which event the
assignment set forth in clause (ii) of this Section 17.5(c) shall be void and of no force or
effect with respect to Lessor’s interest in the Rent and Lessor shall have the
right to seek Lessor’s Share of any Award to be made for such Appropriation.


 


(d)                Major Casualty.  In the event of any Major Casualty which
either (1) is governed by Section 17.3(c) and Lessee does not
elect to perform the Restoration Work, or (2) results in the termination
of this Lease pursuant to Section 17.3(b), all Casualty Proceeds received
therefor shall be payable in the following order of priority:


 


(i)                           First,
to the payment of all out-of-pocket third party costs and expenses, including,
without limitation, reasonable attorneys’ fees, costs and disbursements,
reasonably incurred by Lessee and/or Lessor in collecting the Casualty
Proceeds;


 


(ii)                        Second,
Lessee shall next be entitled to reimbursement for any out-of-pocket third
party costs reasonably incurred by Lessee for demolition, restoration and
removal work or emergency-related work undertaken pursuant to Section 17.7(b),
Section 17.7(c), or Section 17.8 below.


 


(iii)                     Third, to
Lessor in an amount equal to the Full Insurable Replacement Value of the
Improvements.


 


(iv)                    Fourth, Lessee
shall receive the balance, if any, of the Casualty Proceeds.


 


17.6                Restoration Work;
Disbursement of Proceeds


 


The following provisions shall apply in the event of
any Casualty or Appropriation that does not give rise to a termination of this
Lease:


 


(a)                 All Restoration
Work shall be subject to and performed in accordance with the requirements of Section 11
of this Lease.


 


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(b)                Subject to the
provisions of any Leasehold Mortgage which may require that Casualty Proceeds
and Awards (collectively, “Proceeds”) be
held by the Lender or an insurance trustee for application in accordance with
the terms of this Lease, all Proceeds received by or payable to any party with
respect to any Casualty or Appropriation, less actual out of pocket third party
costs and expenses reasonably incurred in connection with the collection
thereof, shall be held by Lessor and, subject to the provisions of Section 17.5(b) above,
shall be applied to the costs of the Restoration Work (including the cost of
any emergency repairs made by Lessee pursuant to Section 17.8) in
accordance with the provisions of this Section 17.


 


(c)                 All Proceeds
shall be disbursed by Lessor in accordance with standard construction loan
practices as the Restoration Work progresses. 
If the Proceeds, less the costs and expenses incurred in connection with
the collection thereof, are insufficient to pay the entire cost of the
Restoration Work, Lessee shall pay the entire amount of the shortfall.  If at any time the amount of the Proceeds
held by Lessor, Lender or any insurance trustee pursuant to this Section 17.6
shall be less than the total remaining unpaid cost of the Restoration Work,
Lessee shall deposit the amount of the shortfall with Lessor, Lender or such
insurance trustee, as applicable, to ensure payment of the shortfall, and such
deposit shall be a condition to any subsequent disbursement of Proceeds to
Lessee.


 


17.7                Termination


 


The following provisions shall apply in the event of a
Casualty or Appropriation that causes a termination of this Lease or that gives
rise to a right of either Lessee or Lessor to terminate this Lease:


 


(a)                 Any party having
a right to terminate this Lease pursuant to this Section 17 shall exercise
such right, if at all, by giving written notice to the other party (“Notice of Election to Terminate”)
within sixty (60) days after completion and delivery to Lessor of the
Casualty Report or Appropriation Report (as the case may be) required by Section 17.2. 
Failure to give a Notice of Election to Terminate within such sixty (60)
day period shall be deemed an election not to terminate this Lease.


 


(b)                Lessor shall have
the right to require, by written notice (“Demolition
Notice”) given to Lessee within thirty (30) days after
the date a Notice of Election to Terminate is given, that Lessee demolish and
remove all damaged or destroyed Improvements designated by Lessor in such
Demolition Notice, and any rubble and related debris, leaving the Premises in a
safe, clean and orderly condition, all at Lessee’s cost and expense.  Such demolition and removal work shall be
completed by Lessee within ninety (90) days of Lessor’s delivery of the
Demolition Notice or, in the event such demolition and removal cannot
reasonably be completed within such ninety (90) day period, such later date
as may reasonably be required to complete such work.


 


(c)                 In addition,
Lessor may include in the Demolition Notice a requirement that Lessee restore
certain Improvements on the Premises to a usable condition in lieu of
demolishing and removing them, and in such event Lessee shall perform such
restoration work with respect to any such Improvements as specified by Lessor
that are reasonably susceptible to restoration within a period of
ninety (90) days (exclusive of the time required to obtain all governmental
permits and approvals required for such restoration); provided that Lessee
shall not be required to expend


 


99





















 


more funds for purposes of such restoration work than
Lessee would have spent on demolition and removal of the particular
Improvements.  Lessee shall use
commercially reasonable efforts to complete any such restoration work within
ninety (90) days (exclusive of the time required to obtain all governmental
permits and approvals required for such restoration) following Lessor’s
delivery of the Demolition Notice or, in the event such restoration cannot
reasonably be completed within said ninety (90) day period, such later
date as may reasonably be required to complete such work.


 


(d)                Except to the extent
modified by the provisions of Sections 17.7(b) or (c), if applicable,
the Premises shall be vacated and surrendered to Lessor in the condition
described in Section 8.2(a) above.


 


(e)                 Except as
otherwise provided in Sections 17.4(a), 17.4(b) and 17.4(c), the date
on which Lessee vacates and surrenders the Premises to Lessor in the condition
required by Sections 17.7(b) (if applicable), 17.7(c) (if
applicable), and 17.7(d) above shall be the Termination Date, and shall
fix the date after which Lessee shall no longer be obligated for the further
payment of Rent.


 


17.8                Emergency Repairs


 


Notwithstanding any other provision of this Section 17,
Lessee shall promptly undertake all such emergency repair work after a Casualty
as is necessary or appropriate under the circumstances to eliminate, or provide
adequate protection against loss, damage or injury due to defective or
dangerous conditions and to comply with Applicable Laws.


 


17.9                No Extension of
Term; Rent Obligations Continue


 


There shall be no extension of the Term on account of
any Casualty or Appropriation.  Except as
expressly provided in Section 17.4(c) above, following any Casualty
or Appropriation, Lessee shall continue to pay the Annual Base Rent to Lessor
in monthly installments at the same times and in the same amounts as would be
payable had there been no Casualty or Appropriation.


 


17.10         Right to Participate in
Settlement


 


Lessor and Lessee shall both have the right to
participate in the negotiation, settlement or compromise of any insurance claims
and in all Awards, except to the extent otherwise provided in Section 17.4(d) with
respect to temporary Appropriation Awards. 
Lessee shall have the sole right to negotiate, settle and compromise any
Award for a temporary Appropriation (subject to the provisions of Section 17.5(c), and otherwise so long as the temporary
Appropriation is not deemed a Total Appropriation pursuant to Section 17.4(d)).


 


17.11         Disputes


 


In the event the parties are unable to agree
upon:  (a) the equitable reduction
of Annual Base Rent pursuant to Section 17.4(c), (b) whether the
conditions provided in this Section 17 for the termination of this Lease
have been satisfied; or (c) the amount of Proceeds to be paid to either
party under this Section 17 (including any related element which may be
required to make such


 


100





















 


determination, such as the value of Lessor’s or Lessee’s
interest in the Improvements or respective Percentage Interests in the
Improvements), the matter(s) in dispute shall be decided through arbitration in
accordance with the provisions of Section 18 of this Lease.


 


17.12         Survival


 


Lessor’s, Lessee’s and any Lender’s rights and
obligations under this Section 17, including their rights to receive
Proceeds, shall survive any termination of this Lease.


 


18.               Arbitration of Specified Disputes


 


(a)                 Scope of Obligation to Arbitrate.  Those disputes which the parties are
expressly required or authorized to resolve through arbitration shall be
subject to the procedures prescribed in this Section 18.  This arbitration provision is expressly
limited to those matters as to which arbitration is expressly required or
authorized elsewhere in this Lease and no other matter shall be subject to
arbitration unless the parties, each in the exercise of its sole discretion,
mutually agree in writing.  The
arbitrator shall dismiss any matter submitted to it for determination if such
determination is not expressly required or authorized elsewhere in this Lease
or in another written agreement executed by both parties.


 


(b)                Arbitration Procedure.  A party shall initiate arbitration by written
notice to the other (the “Initiation Date”).  Such arbitration shall be held by the AAA in
San Francisco, California, according to its commercial arbitration rules except
as otherwise specified herein.  The
arbitration proceeding shall be conducted by a single neutral arbitrator
selected by Lessor and Lessee from a panel provided by the AAA in
San Francisco; provided that if Lessor and Lessee fail to agree on the
selection of an arbitrator within thirty (30) days after the Initiation
Date, the arbitrator shall be selected by the AAA in San Francisco, or in
the event of any failure or refusal of the AAA to so act, by the Presiding
Judge of the Superior Court in and for the County of San Francisco upon
application by either party.  Any
arbitrator appointed pursuant to this Section shall have at least ten
years of experience in commercial ground lease transactions and shall be
reasonably conversant with the hotel industry and hotel operations.  The arbitrator shall set the matter for
hearing within thirty (30) days of the selection of such arbitrator and
shall try all issues of law or fact that are the subject of the arbitration,
and report a statement of decision upon them as soon as practicable, but in no
event later than fifteen (15) days after the conclusion of the
hearings.  The judgment of the arbitrator
shall be final and binding on the parties, and such judgment and any award
rendered in the arbitration may be enforced by the parties in any manner
available under Applicable Law.


 


(c)                 The fees of the
arbitrator and the other costs and expenses of the procedure described in this Section 18
shall be borne equally by Lessor and Lessee, unless the arbitrator determines
that one party is fairly entitled to recover its attorneys’ fees and costs from
the other party due to the persuasiveness of such party’s position on the
matter in dispute, in which event the arbitrator may award to such party all or
any portion of such party’s fees and costs as shall be determined by the
arbitrator to be justified.


 


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19.               Financial Information


 


Throughout the Term of this Lease, Lessee shall
furnish or cause to be furnished to Lessor such information and data about the
financial condition and operations of the Hotel as Lessor may reasonably
request, including, but not limited to, all financial statements, proposed and
approved budgets, and reports of operations regarding the Hotel prepared by
Lessee or by the Operator and submitted to Lessee.


 


20.               General Provisions


 


20.1                Notices


 


All notices, requests, approvals and invoices (“Notices”) required or
permitted under this Lease:  (a) shall
be in writing; (b) shall be delivered, given or made to the following
addresses, or to such other addresses as the parties may designate in writing
from time to time; and (c) shall be deemed to have been duly delivered,
given or made:  (i) upon delivery;
or (ii) upon the date delivery was attempted, if delivery is prevented by
the refusal of the addressee to accept delivery or by the failure by the
addressee to be open for business at its address specified below during regular
business hours on Business Days.  Delivery
may be effected by any of the following means: 
(A) personal delivery; (B) certified or registered United
States mail, postage prepaid, return receipt requested; (C) delivery by
reputable courier, messenger or overnight delivery service; (D) facsimile
transmission, provided such transmission produces an electronic report
confirming receipt by the party to whom the notice is sent; and (E) electronic
mail delivered by a computer or other digital communications system for which
the sender has requested and received confirmation of the receipt of such
electronic mail by the recipient.


 


	
  If to
  Lessor:

  	
   

  	
  c/o Jacqueline
  Moore

  DIVCO West Properties

  400 Hamilton Avenue, Suite 400

  Palo Alto, CA 94301

  

  Phone: (650) 688-4133

  Fax: (650) 688-4233

  
	
   

  	
   

  	
   

  
	
  with a
  copy to:

  	
   

  	
  Carl “Kim”
  Seneker

  Morrison & Foerster LLP

  425 Market Street, 32nd Floor

  San Francisco, CA 94105

  

  Phone: (415) 268-6619

  Fax: (415) 268-7522

  



 


102





















 


	
  If to
  Lessee:

  	
   

  	
  Edward Scheetz

  Northstar Capital Investment Corporation

  527 Madison Avenue, 16th Floor

  New York, NY 10022

  

  Phone: (212) 319-2414

  Fax: (212) 319-4557

  
	
   

  	
   

  	
   

  
	
  with a
  copy to:

  	
   

  	
  Rand S. April

  Skadden, Arps, Slate, Meagher & Flom LLP

  300 South Grand Avenue, Suite 3400

  Los Angeles, CA 90071

  

  Phone: (213) 687-5060

  Fax: (213) 621-5060

  



 


20.2                Estoppel
Certificates


 


Within ten (10) days after receipt of a
written request from Lessee or Lessor, as the case may be (each, a “Requesting Party”), from
time to time, the party receiving such request (the “Receiving
Party”) shall execute and deliver to the Requesting Party a
written statement certifying:  (a) the
Expiration Date; (b) that this Lease is unmodified and in full force and
effect (or, if there have been modifications, that this Lease is in full force
and effect, and stating the date and nature of such modifications); (c) the
date to which Rent has been paid; (d) that there are no current defaults
under this Lease by either Lessor or Lessee (or, if defaults are asserted, so
describing with reasonable specificity); provided, however, that the statement
contained in this clause (d) shall be made to the Actual Knowledge of
the party making such statement with respect to any default of the other party;
and (e) such other matters as may be reasonably requested.  Each party intends that any statement delivered
by a Receiving Party pursuant to this Section 20.2 may be relied upon by any auditor, prospective Lender or Fee
Lender or prospective purchaser of or investor in the Premises or any interest
therein.


 


20.3                Nonrecourse to
Lessor


 


Lessee agrees that, in the event of any default or
breach by Lessor under this Lease or arising in connection herewith or
otherwise in connection with the Premises, Lessee’s remedies shall be limited
solely and exclusively to recovery of Lessee’s actual monetary damages in an
amount not exceeding the value of Lessor’s fee interest in the Premises (as
encumbered by this Lease); provided that in no event shall such right of
recovery extend to the proceeds of any sale or financing received by Lessor, or
to any insurance proceeds received by Lessor other than insurance proceeds paid
to compensate Lessor for damage or loss to the Improvements.  Lessor shall not have any personal liability
hereunder, and Lessee hereby expressly waives and releases such personal
liability on behalf of itself and all Persons claiming by, through or under
Lessee.  The limitation of liability
contained in this Section 20.3 shall inure to the benefit of Lessor and
Lessor’s present and future partners, members, beneficiaries, officers,
directors, trustees, shareholders, agents and employees, and their respective
partners, heirs, successors and assigns.


 


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Under no circumstances shall any present or future
officer, director or shareholder of Lessor (if Lessor is a corporation),
present or future partner of Lessor (if Lessor is a partnership), present or
future member in Lessor (if Lessor is a limited liability company), or present
or future trustee or beneficiary (if Lessor or any partner or member of Lessor
is a trust), have any liability for the performance of Lessor’s obligations
under this Lease beyond the limitations expressly set forth herein.  Notwithstanding any contrary provision
herein, Lessor shall not be liable under any circumstances for consequential,
punitive or other speculative damages, including damages for any injury or
damage to, or interference with Lessee’s business, including loss or profits,
loss of rents or other revenues, loss of business opportunity, loss of goodwill
or loss of use, in each case, however occurring.  The provisions of this Section shall
apply only to the Lessor and the Persons herein described, and shall not be for
the benefit of any insurer or any other third party.  The provisions of this Section 20.3
shall survive the expiration or any earlier termination of this Lease.


 


20.4                Attorneys’ Fees


 


In the event of any legal or equitable proceeding in
connection with this Lease, the prevailing party in such proceeding, or the
nondismissing party where the dismissal occurs other than by reason of a
settlement, shall be entitled to recover its reasonable costs and expenses,
including reasonable attorneys’ fees, costs and disbursements paid or incurred
in such proceeding and in enforcing any award or judgment granted pursuant
thereto.  Any award, judgment or order
entered in any such proceeding shall contain a specific provision providing for
the recovery of attorneys’ fees and costs incurred in enforcing such award or
judgment, including, without limitation: 
(a) post-award or post-judgment motions; (b) contempt
proceedings; (c) garnishment, levy, and debtor and third party
examinations; (d) discovery; and (e) bankruptcy litigation.  The “prevailing party,” for purposes of this
Agreement, shall be deemed to be that party which obtains substantially the
result sought, whether by dismissal, award or judgment.


 


20.5                No Waiver


 


No delay or omission by Lessor or Lessee in exercising
or enforcing any right, remedy, election or option accruing upon the
noncompliance or failure of performance by Lessee or Lessor, as applicable,
under the provisions of this Lease, and no acceptance of full or partial Rent
by Lessor during the period of any such non-compliance or failure of
performance by Lessee, shall constitute an impairment or waiver of any such
right, remedy, election or option.  No
alleged waiver shall be valid or effective unless it is set forth in a writing
executed by Lessor or Lessee, as applicable. 
A waiver by Lessor or Lessee of any of the covenants, conditions or
obligations to be performed by the other party shall not be construed as a
waiver of any subsequent breach of the same or any other covenants, conditions
or obligations.


 


20.6                Amendment


 


This Lease may not be amended by oral agreement.  It may be amended only by a written agreement
signed by both Lessor and Lessee.


 


104





















 


20.7                Successors and
Assigns


 


Subject to and without affecting the limitations
herein with respect to Transfers, this Lease shall be binding on and inure to
the benefit of the Lessor and Lessee and their respective successors and
assigns.


 


20.8                No Joint Venture
or Loan Transaction


 


The parties agree that this Lease is intended to
create only a landlord and tenant relationship, and therefore the parties agree
(i) that nothing contained herein shall be construed as creating a joint
venture, agency, lender-borrower, or any other relationship between the parties
hereto other than that of landlord and tenant, and (ii) to treat this
Lease as a lease for tax purposes and to take no tax position inconsistent
therewith.


 


20.9                Severability


 


If any term or condition of this Lease, or the
application thereof to any particular person or circumstance, is found by a
court of competent jurisdiction to be invalid or unenforceable, then all other
terms and conditions of this Lease, and the application of the term or
condition in question to persons or circumstances other than those as to which
it was held invalid or unenforceable, shall not be affected thereby, and shall
be valid and enforceable to the full extent permitted by law.


 


20.10         No Recordation; Quitclaim


 


Only the Memorandum of Lease, and not this Lease
itself, shall be recorded.


 


20.11         Interpretation


 


The provisions of this Lease shall be construed as a
whole, according to their common meaning, and not strictly for or against
either party.  The parties acknowledge
that each party and its counsel have reviewed and participated in the drafting
of this Lease, and therefore that the rule of construction that any
ambiguities are to be resolved against the drafting party shall not be employed
or applied in the interpretation of this Lease. 
The captions inserted in this Lease are for convenience only and shall
not in any way define, limit or otherwise describe the scope or intent of this
Lease, or any provision hereof, or in any way affect the interpretation of this
Lease.  The term “including,” wherever
used herein, shall be construed to mean “including, without limitation.”  The singular shall include the plural and
vice versa, and each gender shall be deemed to include any other gender.


 


20.12         Entire Agreement


 


This Lease, with exhibits, is a fully-integrated
agreement which contains all of the parties’ representations, warranties,
agreements and understandings with respect to the Premises.  All correspondence, memoranda, discussions,
negotiations, drafts and agreements originating before the Term Commencement
Date with respect to the Premises, whether written or oral, including that
certain letter of intent dated May 17, 2004, executed by Morgans Hotel
Group, LLC, a Delaware limited 


 


105





















 


liability company, and
Divco Properties West LLC, a Delaware limited liability company, are
superseded and replaced in their entirety by this Lease.  No prior drafts of this Lease shall be used
or referred to in resolving any questions arising as to the parties’ intent.


 


20.13         Governing Law and Forum


 


This Lease shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
any conflicts of laws principles that would cause the application of the laws
of any other jurisdiction.  Any action
brought by any party against the other arising out of this Lease shall be brought
in the California State Superior Court in and for the County of
San Francisco, or in the United States District Court for the Northern
District of California.  Lessor and
Lessee hereby consent to the jurisdiction of such courts, and waive any objection
to venue based on forum non conveniens or any other
grounds, provided that the right of either party to commence any action or
proceeding in any court of competent jurisdiction as provided above shall be
subject to the arbitration provisions of Section 18 where applicable.


 


20.14         Brokers


 


Each party represents and warrants for the benefit of
the other that it has not engaged the services of any broker, finder or other
person who may claim any commission, fee or other compensation in connection
with this Lease.  Each party shall
indemnify, defend and hold the other harmless from and against any claims,
damages, losses, liabilities, and costs and expenses (including reasonable
attorneys’ fees and costs) arising out of any agreement or action alleged on
the part of such first-mentioned party to entitle any broker, finder or other
person to a commission, fee or other compensation in connection with this
Lease.


 


20.15         No Dedication


 


This Lease shall not be, nor be deemed or construed to
be, a dedication to the public of all or any portion of the Premises, any
Improvements, or any areas in which the Premises are located.


 


20.16         No Third Party
Beneficiaries


 


Except for the rights of any Lender provided in Section 15.7
above and the rights of any Fee Lender, this Lease shall not be deemed or
construed to confer any rights, title or interest upon any person or entity
other than the parties hereto, including any third party beneficiary status or
right to enforce any provision of this Lease.


 


20.17         Limitation on Effect of
Approvals


 


All rights of Lessor to review, comment upon, approve,
inspect or take any other action with respect to the Premises are specifically
for the benefit of Lessor and no other party. 
No review, comment, approval or inspection, right or exercise of any
right to perform Lessee’s obligations, or similar actions required or permitted
by, of, or to Lessor hereunder, or actions or omissions of any Lessor
Representatives, or other circumstances, shall give or be deemed to give Lessor
any liability, responsibility or obligation for, in connection with, or with
respect to, the design, construction, maintenance or operation of the Premises
or any Improvements, nor shall


 


106





















 


any such approval, actions, information or
circumstances relieve or be deemed to relieve Lessee of any of its obligations
under this Lease, other than the matter so approved.


 


20.18         Time of the Essence


 


Subject to the provisions of this Lease relating to
Force Majeure Events, time is of the essence in the performance of each party’s
obligations under this Lease.


 


20.19         Termination Not Merger


 


The voluntary sale or other surrender of this Lease by
Lessee to Lessor, mutual cancellation of this Lease or termination of this
Lease by Lessor pursuant to any provision contained herein shall not work a
merger unless Lessor so elects in its sole discretion and each Lender and Fee
Lender has consented thereto in writing.


 


20.20         Waiver of Limitation on
Releases


 


In furtherance of the provisions of Sections 10.4
and 12.5 of this Lease, Lessee acknowledges that it is fully familiar with
Section 1542 of the California Civil Code, which provides as follows:


 


A general release does not extend
to claims which the creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him must have materially
affected his settlement with the debtor.


 


Lessee, on behalf of itself, each Affiliate of Lessee,
and each other Person now or hereafter claiming or acting by, through or under
Lessee or any Affiliate of Lessee, unconditionally and irrevocably waives and
relinquishes any right or benefit which it now has or may have under California
Civil Code Section 1542, or any similar provision of the statutory or
nonstatutory law of any other jurisdiction, pertaining to any of the matters
described or referred to in Section 10.4 and/or Section 12.5 of this
Lease.  Lessee acknowledges that in
connection with such waiver and relinquishment, it is aware that it or its
attorneys, accountants, consultants or other experts or representatives or
contractors may hereafter discover facts, conditions, liabilities, claims or
other matters in addition to or different from those which it now knows or
believes do or may exist with respect to such matters, but that it is Lessee’s
intention to hereby fully, finally and forever to release, for the benefit of
all Lessor Indemnitees, all of the matters described or referred to in Section 10.4
and/or Section 12.5 of this Lease; and all waivers and releases set forth
in Section 10.4 and/or Section 12.5 of this Lease shall be and remain
in force and effect as full and complete notwithstanding the discovery or
existence of any such additional or different fact, condition, liability, claim
or other matter.


 


The provisions of this Section 20.20 shall
survive the expiration or any earlier termination of this Lease.  


 




	
  Initials:

  	
   

  	
  W.E.S.

  	
   

  
	
   

  	
   

  	
  Lessee

  	
   

  






 


Remainder of Page Intentionally Bank


 


107





















 


In Witness Whereof,
Lessor and Lessee have executed this Lease by proper persons thereunto duly
authorized as of the date first above written.


 


	
  Lessor:

  	
  Geary Hotel Holdings, LLC,

  
	
   

  	
  a Delaware
  limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: PMP Geary,
  LLC,

  
	
   

  	
  a Delaware
  limited liability company,

  
	
   

  	
  Its Managing
  Member

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ David A.
  Taran

  	
   

  
	
   

  	
  Name: David A.
  Taran

  
	
   

  	
  Title: Chief
  Executive Officer

  
	
   

  	
   

  
	
  Lessee:

  	
  Clift Holdings, LLC,

  
	
   

  	
  a Delaware
  limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  Morgans Hotel Group LLC,

  
	
   

  	
   

  	
  a Delaware
  limited liability company

  
	
   

  	
  Its: 

  	
  Managing Member

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
  /s/ W. Edward
  Scheetz

  	
   

  
	
   

  	
   

  	
   

  	
  W. Edward Scheetz, Manager

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
  /s/ David
  Hamamoto

  	
   

  
	
   

  	
   

  	
   

  	
  David Hamamoto, Manager

  	
   

  
							



 


108





















 


Exhibit A


 


Description
of Premises


 


 


A-1





















 


Exhibit B


 


Existing
Hotel Operating Agreements


 


(1)                 Property Management Agreement, dated June 2,
1999, between Clift Holdings LLC, a Delaware limited liability company, and
Morgans Hotel Group Management LLC, a Delaware limited liability company
(f.k.a. Ian Schrager Hotel Management LLC).


 


(2)                 Operating Lease (Food And Beverage Premises), dated May 22,
2001, between Clift Holdings LLC, a Delaware limited liability company, and 495
Geary LLC, a Delaware limited liability company.


 


(3)                 Operating Agreement of 495 Geary LLC, dated May 16,
2001, as amended by that certain First Amendment To Operating Agreement of 495
Geary LLC, dated July 31st, 2001.


 


(4)                 Operating Agreement of SC Geary LLC, dated July 31st,
2001.


 


(5)                 Consulting Agreement, dated July 31st, 2001,
between 495 Geary LLC, a Delaware limited liability company, and China Grill
Management BD, Inc., a Florida corporation.


 


(6)                 Operating Covenants of Member B Attached to Operating
Agreement of 495 Geary LLC, dated July 31st, 2001.


 


B-1





















 


Exhibit C


 


Memorandum
of Lease


 


Form of
Memorandum of Ground Lease


 


	
  Recording Requested By and

  When Recorded Mail To:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  



(Space above this line for Recorder’s use)


 


Memorandum
of Ground Lease


 


This Memorandum of Ground Lease is made and entered
into as of this     day of 2004, by and between [Purchaser Name], a [Purchaser
Entity] (“Ground Lessor”)
and Clift
Holdings LLC, a Delaware limited
liability company (“Ground Lessee”).


 


1.       Terms and Premises.  Ground Lessor leases to Ground Lessee, and
Ground Lessee leases from Ground Lessor, that certain Premises consisting of
land and improvements thereon known by the street address of 495 Geary Street, San Francisco,
California and as legally described on Exhibit A attached hereto,
in accordance with the provisions of that certain Ground Lease, dated               ,
2004 between the parties hereto (the “Ground
Lease”).  The
provisions of the Ground Lease are incorporated herein.


 


2.       Term.  The initial term of the Ground Lease is for
ninety nine (99) years, commencing on          ,
2004.


 


3.       Purpose of Memorandum of Ground Lease.  This
Memorandum is prepared solely for purposes of notice and recordation, and in no
way modifies the provisions of the Ground Lease.


 


Remainder of Page Intentionally
Blank


 


C-1





















 


In Witness Whereof,
Ground Lessor and Ground Lessee have caused this Memorandum of Ground Lease to
be executed and delivered as of the date above written.


 


 


	
  Ground Lessor:

  	
  [Purchaser Name],

  
	
   

  	
  a
  [Purchaser Entity]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Ground Lessee:

  	
  Clift Holdings llc,

  
	
   

  	
  a Delaware
  limited liability company

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  Morgans Hotel Group LLC,

  
	
   

  	
   

  	
  a Delaware
  limited liability company

  
	
   

  	
  Its: 

  	
  Managing Member

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  W. Edward Scheetz, Manager

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  David Hamamoto, Manager

  	
   

  
									



 


C-2





















 


	
  STATE OF

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  COUNTY OF

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  On 

  	
   

  	
  before me,

  	
   

  	
  ,

  
	
   

  	
  Date

  	
   

  	
  Name, Title of Officer

  
	
   

  	
   

  
	
  personally
  appeared

  	
   

  	
  ,

  
	
   

  	
  Name(s) of Signer(s)

  	
   

  
	
   

  	
   

  
	
  o
  personally known to me

  	
  –OR–

  	
  o

  	
  proved to me on
  the basis of satisfactory evidence to be the person(s) whose name(s) is/are
  subscribed to the within instrument and acknowledged to me that he/she/they
  executed the same in his/her/their authorized capacity(ies), and that by
  his/her/their signature(s) on the instrument the person(s) or the entity upon
  behalf of which the person(s) acted, executed the instrument.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  WITNESS my hand
  and official seal.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Signature of Notary

  
															



 


C-3





















 


	
  STATE OF

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  COUNTY OF

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  On 

  	
   

  	
  before me,

  	
   

  	
  ,

  
	
   

  	
  Date

  	
   

  	
  Name, Title of Officer

  
	
   

  	
   

  
	
  personally
  appeared

  	
   

  	
  ,

  
	
   

  	
  Name(s) of Signer(s)

  	
   

  
	
   

  	
   

  
	
  o
  personally known to me

  	
  –OR–

  	
  o

  	
  proved to me on
  the basis of satisfactory evidence to be the person(s) whose name(s) is/are
  subscribed to the within instrument and acknowledged to me that he/she/they
  executed the same in his/her/their authorized capacity(ies), and that by
  his/her/their signature(s) on the instrument the person(s) or the entity upon
  behalf of which the person(s) acted, executed the instrument.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  WITNESS my hand
  and official seal.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Signature of Notary

  
															



 


C-4





















 


Exhibit D


 


Form of
Liquor License Entity Operating Agreement Terms


 


 


D-1





















 


Exhibit E-1


 


Form of
Account Control Agreement

(Bank Accounts)


 


This Account Control Agreement (Escrow Account)
dated as of June    , 2004 (this “Agreement”)
is made among Clift
Holdings LLC, a Delaware limited liability company
(“Pledgor”), [insert name of Lessor]
(“Lessor”) and [insert name of bank] (“Bank”).


 


The parties hereto refer to Account No.           
in the name of the Pledgor maintained at Bank (the “Account”)
and hereby agree as follows:


 


1.                       As collateral
security for Pledgor’s obligations to Lessor under that certain Ground Lease,
dated as of           , 2004,
Pledgor hereby grants to Lessor, for its own benefit, a present and continuing
security interest in the Account and all contract rights, claims and privileges
in respect of the Account, and all proceeds of the foregoing, and Bank
acknowledges that this Agreement constitutes notice of Lessor’s security
interest in such collateral and does hereby consent thereto.  Bank acknowledges being so notified and
confirms that it has no actual knowledge or notice of any restraint, security
interest, lien or other adverse claim in or to the Account or any funds
therein.


 


2.                       Bank shall comply
with all withdrawal, transfer, payment and other instructions (collectively, “orders”) received from
Lessor (without further consent from Pledgor) concerning the Account.  Bank shall also comply with orders received
from Pledgor (without further consent from Lessor) concerning the Account until
Bank has received a notice purporting to be signed and sent by the Lessor in
substantially the form attached as Exhibit A hereto (a “Notice of
Exclusive Control”).  After such
receipt, Bank shall not honor any orders from Pledgor.  Any Notice of Exclusive Control received by
Bank after 1:00 p.m. on any business day shall not be deemed effective
until the opening of business on the next succeeding business day.  Notwithstanding the foregoing:  (i) all transactions relating to the
Account or any items therein duly consummated or processed by Bank prior to its
receipt of a Notice of Exclusive Control (or duly commenced by Bank prior to
any such receipt and so consummated or processed thereafter) shall be deemed
not to constitute a violation of this Agreement; (ii) Bank may (at its
discretion and without any obligation to do so) commence honoring solely Lessor’s
orders concerning the Account at any time or from time to time after it becomes
aware that Lessor has sent to it a Notice of Exclusive Control (including,
without limitation, reversing or redirecting any transaction referred to in
clause (i) above) with no liability whatsoever to Pledgor or any
other party for doing so; and (iii) Bank shall not change the name or
account number of any Account without having received the Lessor’s prior
express written consent thereto.


 


3.                       Bank waives, releases
and agrees not to assert, exercise or claim any lien, encumbrance, right
(including setoff right, banker’s lien or chargeback right) or other claim
against the Account or any funds therein, except solely with respect to (i) payment
of customary fees and charges with respect to the routine maintenance and
operation of the Account or (ii) all “Items” (as defined in the California
Uniform Commercial Code) deposited to the Account and returned, whether for
insufficient funds or any other reason, in each case as provided for under any
agreements between the parties hereto relating to the Account.  Bank shall neither advance


 


1





















 


margin or other credit
against the Account, nor hypothecate any funds deposited in the Account,
without the prior written consent of Lessor. 
Except as required by law, Bank shall not agree with any other person or
entity that it will comply with any withdrawal, transfer, payment instructions,
or any other orders, from such person or entity concerning the Account or any
funds therein, without the prior written consent of Lessor and any such
agreement entered into without such consent shall be null and void.


 


4.                       Anything to the
contrary in this Agreement notwithstanding: 
(i) Bank shall have only the duties and responsibilities expressly
set forth in writing herein (and in its standard account documentation and
terms and conditions as in effect from time to time, all of which shall apply
to the Account to the extent not inconsistent with this Agreement) and shall
not be deemed to be a fiduciary for any party hereto; (ii) Bank shall be
fully protected in acting or refraining from acting in good faith on any
written notice, instruction or request purportedly furnished to it by Lessor in
accordance with the terms hereof, in which case the parties hereto agree that
Bank has no duty to make any further inquiry whatsoever; and (iii) Bank
shall not be liable to any party hereto or any other person for any action or
failure to act under or in connection with this Agreement except for its
failure to honor the instructions set forth herein, or its willful misconduct
or gross negligence.


 


5.                       Bank may terminate
this Agreement upon the sending of at least thirty (30) days’ advance
written notice to the other parties hereto. 
Any other termination or any amendment or waiver of this Agreement shall
be effected solely by an instrument in writing executed by all the parties
hereto.


 


6.                       All notices shall be
in writing and sent (including via facsimile with receipt confirmed by
telephone) to the parties hereto at their respective addresses or facsimile or
telephone numbers (or to such other address or facsimile and telephone numbers
as any such party shall designate in writing to the other parties from time to
time):


 


	
  Pledgor:

  	
   

  	
  Clift Holdings LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Attention:

  	
   

  
	
   

  	
   

  	
  Telephone:

  	
   

  
	
   

  	
   

  	
  Facsimile:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Bank:

  	
   

  	
  [insert name of bank]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Attention:

  	
   

  
	
   

  	
   

  	
  Telephone:

  	
   

  
	
   

  	
   

  	
  Facsimile:

  	
   

  



 


2





















 


	
  Lessor:

  	
   

  	
  [insert name of lessor]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Attention:

  	
   

  
	
   

  	
   

  	
  Telephone:

  	
   

  
	
   

  	
   

  	
  Facsimile:

  	
   

  



 


7.                       This Agreement:  (i) may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were
upon the same instrument; (ii) shall become effective when counterparts
hereof have been signed by the parties hereto; and (iii) shall be
governed by and construed in accordance with the laws of the State of
California.


 


8.                       The provisions of this Agreement shall be binding upon and
inure to the benefit of Bank, Lessor and Pledgor and their respective successors and assigns.


 


In
Witness Whereof, the parties hereto have duly executed this Agreement as
of the date first above written.


 


	
  Pledgor:

  	
   

  	
  Clift Holdings LLC,

  	
   

  
	
   

  	
   

  	
  a Delaware
  limited liability company

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Bank:

  	
   

  	
  [insert name of bank],

  	
   

  
	
   

  	
   

  	
  a

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Lessor:

  	
   

  	
  [Insert
  Name of Lessor]

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
									



 


3





















 


EXHIBIT A

(Attached to Exhibit E-1)


 


GEARY HOTEL HOLDINGS, LLC

a Delaware limited liability company


 


Notice
of Exclusive Control


 


          ,
     


 


[insert name of bank]


 


 


Attention:


 


Re:                 Account Control Agreement
(Escrow Account) dated as of June    ,
2004 (the “Agreement”) among Clift Holdings LLC, a Delaware
limited liability company, GEARY HOTEL HOLDINGS, LLC, a Delaware limited
liability company, and [insert name of bank]
relating to Account No.           


 


Ladies and Gentlemen:


 


This constitutes the Notice of Exclusive Control
referred to in paragraph 0 of the Agreement.


 


	
   

  	
  GEARY HOTEL
  HOLDINGS, LLC,

  
	
   

  	
  a Delaware
  limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
					



 


1





















 


Exhibit E-2


 


Form of Account Control Agreement (Bank
Accounts)


 


 


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Exhibit F


 


Approved
Required Alterations


 


1.                                       The
conversion of ten (10) Hotel guest rooms which are currently not in use
and not included in the aggregate total count of 363 keyed furnished guest
rooms and suites constituting the Hotel and are located on the second floor of
the Hotel, pursuant to a plan to be approved in accordance with the provisions
of this Lease, into meeting rooms for a total estimated cost of $600,000.


 


F-1





















 


Exhibit G


 


Approved
Asbestos O&M Plan


 


 


G-1





















 


Schedule 1


 


List
of Initial Disqualified Expenses


 


The following fees, charges, and expense
reimbursements provided for in the agreements described below shall be
Disqualified Expenses:


 


A.                 Pertinent
agreements are as follows:


 


1.                         Property
Management Agreement, dated as of June 2, 1999, between Clift Holdings
LLC, as Owner, and Ian Schrager Hotel Management LLC, as Operator, for the
Management of the Clift Hotel (the “Management Agreement”).


 


2.                         Exclusive
Services Agreement, dated as of February, 1988, between Ian Schrager
Hotels LLC, and Philippe Starck (the “Starck Agreement”).


 


B.                   Disqualified
Expenses:


 


1.               A
sum equal to the amount by which the aggregate of the Management Fee (as
defined in Section 10.1 of the Management Agreement), plus the Allocable
Chain Expenses (as defined in Section 1.1 of the Management Agreement, and
as payable pursuant to the provisions of Section 6.1(iii) of the
Management Agreement), plus any and all royalty fees or payments payable under
the Starck Agreement, payable for any Operating Year exceeds four and one-half
percent (4-1/2%) of the annual Gross Revenues (as defined in the Management
Agreement) of the Hotel for such Operating Year, shall constitute Disqualified
Expenses; provided, however, that amounts payable by Lessee to Morgans for the
provision of global sales services provided to all hotels operated by Morgans
Hotel Group Management LLC which amounts are not otherwise included within
Allocable Chain Expenses (“Group Sales Charges”)
shall be treated as Ordinary Operating Expenses and not as Disqualified
Expenses so long as and to the extent that (i) the amount of Group Sales
Charges allocable to the Hotel shall be in proportion to the number of keyed
guest rooms and suites in the Hotel relative to the number of keyed guest rooms
and suites in all other hotels operated by Morgans Hotel Group Management, Inc.
that also receive such global sales services (or such other allocation method
as may hereafter be reasonably approved in writing by Lessor upon Lessee’s
request), and (ii) the annual amount payable by Lessee for such Group
Sales Charges which are allocated to the Hotel and/or its operations for any
Operating Year shall not exceed One Hundred and Twenty-Five Thousand Dollars
($125,000.00), escalated by the percentage increase in the CPI occurring
between the Term Commencement Date and the last day of the calendar year
immediately preceding such Operating Year.


 


2.               Any
expense reimbursements payable to the Operator pursuant to Section 6.1(ii) and/or 6.1(iv) of
the Management Agreement shall constitute Disqualified Expenses, except to the
extent otherwise hereafter reasonably approved in writing by Lessor.


 


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Schedule 2


 


Schedule of
Unsecured Creditors


 


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