LEASE AGREEMENT

 

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                                                                    EXHIBIT 10.3

 

                                 LEASE AGREEMENT

 

            THIS LEASE AGREEMENT (this "Lease") is dated as of February 14,

1997, and is entered into by and between LONG BEACH HOTEL ASSOCIATES, L.P., as

lessor (hereinafter called "Lessor"), and SLC OPERATING LIMITED PARTNERSHIP, a

Delaware limited partnership, as lessee (hereinafter called "Lessee"). As

parties hereto, Lessor and Lessee agree as follows:

 

                                    ARTICLE I

 

                          DEFINITIONS AND CONSTRUCTION

 

      Section 1. Definitions: "Shall" or "will" means "covenants to" whenever

the context permits. "According to law" means in strict compliance with

applicable statutes, ordinances and regulations of any governmental authority

having jurisdiction.

 

      Section 2. Construction: This lease shall be governed by and construed in

accordance with the laws of the State of Arizona. The validity or

unenforceability of any provision hereof shall not affect any other provision,

and any invalid or unenforceable provision shall be limited only to the extent

necessary to conform to law and so as most closely to carry out the intent of

the parties hereto as expressed herein. Whenever provision is made for either

party to secure the consent or approval of the other, such consent or approval

shall not be unreasonably withheld.

 

      Section 3. Captions: The headings of the articles and sections of this

Lease are for convenience only and do not define or limit, and shall not be used

to construe, such articles or sections.

 

                                   ARTICLE II

 

                               PREMISES AND TERM

 

      Section 1. Leased Premises: Lessor hereby leases to Lessee, and Lessee

hereby leases from Lessor, on the terms and conditions contained in this Lease,

Lessor's interest in (a) the real property commonly known as the Sheraton Long

Beach Hotel and located at 333 East Ocean Boulevard, Long Beach, California

90802, and more fully described on Exhibit "A" attached hereto (the "Land"), (b)

all buildings and improvements now or in the future located on the Land, and all

appurtenances thereto (the "Improvements"), (c) all easements, licenses, permits

and other rights or privileges appurtenant to or necessary for the intended use

of the Land or Improvements (the "Appurtenances") (the Land, Improvements and

Appurtenances are collectively referred to herein as the "Real Property"), and

(d) all equipment, furniture and other personal property owned by Lessor and

located in or on the Real Property, or associated therewith, or that may in the

future be installed therein or thereon by Lessor (the "Personal Property"). The

Real Property and the Personal Property are sometimes hereinafter collectively

referred to as the "Premises."

 

            Lessee hereby acknowledges that Lessor has delivered possession of

the Premises to Lessee, and that Lessee accepts the Premises in an "as is"

condition as of the Commencement Date (as defined below). Lessee further

acknowledges that Lessor shall not have any obligation to make any improvements

or repairs in or to the Premises except as may be expressly set forth in this

Lease.

 

      Section 2. Lease Term: The term of this Lease (the "Lease Term") shall

commence on February 14, 1997 (the "Commencement Date") and shall end on

February 13, 2000, unless sooner terminated as set forth in this Lease.

 

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            Section 3. Lease Year: As used in this Lease, the term "Lease Year"

means the full calendar year, except that the first Lease Year shall commence on

the Commencement Date, and shall end on December 31 of the same calendar year,

and the last Lease Year shall end at the same time as the Lease Term shall end,

even if less than a full calendar year.

 

            Section 4. Recording: Neither this Lease nor a copy thereof shall be

recorded by either party hereto in any public record. Upon request of either

party after the Commencement Date, Lessor and Lessee shall execute a memorandum

of lease in recordable form containing the terms and provisions required by

applicable law. The memorandum may be recorded by either party in the county

where the Premises are located.

 

                                  ARTICLE III

 

                    IMPROVEMENTS, FURNISHINGS AND INVENTORY

 

            Section 1. Furnishings: Lessee shall keep all of the furnishings,

fixtures and equipment (the "Furnishings") installed in or furnished to the

Premises, whether installed or furnished by Lessee, Lessor or a third party, in

good condition and repair (ordinary wear and tear excepted) and keep the same

free of all liens, claims, encumbrances and rights of others, and shall replace

the same when needed at all times during the Lease Term at Lessee's sole cost

and expense.

 

            Section 2. Improvements: Any property permanently installed, affixed

or embedded in the Premises such as could not be removed without damage to the

Premises, and any and all alterations or repairs thereto or replacements

thereof, shall at once become a part of Lessor's estate in the realty and belong

to Lessor, without any obligation of Lessor to compensate Lessee therefor other

than as expressly set forth in this Lease.

 

            Section 3. Inventories: Lessee shall be obligated to provide, at its

sole cost and expense, all food, beverage, supplies and other inventories (the

"Inventories") necessary to the operation of the Premises as a high-quality

hotel facility, and to maintain or replace such Inventories in the ordinary

course of business. Lessor shall have no obligations with respect to the

Inventories.

 

                                   ARTICLE IV

 

                                      RENT

 

      Section 1. Amount of Rent:

 

            (a) At such place or places as Lessor shall designate from time to

time in writing, Lessee shall pay to Lessor when due, without prior demand

therefor and without any deduction or offset whatsoever, rent as follows:

 

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            (i) A "Basic Rent" equal to Thirty-Three Thousand Three Hundred

      Thirty-Three and 33/100 Dollars ($33,333.33) per month (partial months, if

      any, being prorated on the basis of a 30-day month). The Basic Rent shall

      be payable in advance on or before the first day of each month (in the

      event that the first Lease Year commences on a day other than the first

      day of a month, said rent for the first month of the Lease Term shall be

      paid on a prorated basis on the Commencement Date) beginning with the

      start of the first Lease Year and continuing until the end of the Lease

      Term, and shall constitute the minimum monthly rental hereunder.

 

            (ii) A quarterly percentage rent, cumulated and adjusted quarterly

      (the "Percentage Rent"), equal to the sum of Forty-two percent (42%) of

      Lessee's "Gross Receipts" (as hereinafter defined) from the operation of

      Lessee's business in the hotel portion of the Premises (the "Rooms

      Percentage") during each Lease Year, plus Five percent (5%) of the "Gross

      Sales" (as hereinafter defined) of the business in the restaurant and

      lounge portions of the Premises during each Lease Year. Said sums shall be

      monthly and shall be accompanied by a detailed statement (certified by the

      chief accounting officer of Lessee) of Gross Receipts and Gross Sales.

      Lessee shall be entitled to a deduction, from the Percentage Rent, of all

      Basic Rent actually paid.

 

            (b) Within 45 days after the end of each Lease Year during the term

hereof, a Percentage Rent computation for such prior Lease Year shall be

delivered by Lessee to Lessor. If requested in writing, by either party, such

Percentage Rent calculation shall be certified by a nationally recognized

certified public accountant reasonably acceptable to Lessor, and shall set forth

a detailed statement of the Gross Receipts of the hotel portion of the Premises

and the Gross Sales of the restaurant and lounge portions of the Premises. If

the aggregate Percentage Rent paid during any Lease Year is less than the

Percentage Rent payable hereunder computed with respect to such Lease Year, the

deficit shall forthwith be paid over to Lessor by Lessee. If the aggregate

Percentage Rent paid during such Lease Year exceeds the Percentage Rent payable

hereunder with respect to such Lease Year, the excess Percentage Rent amount

shall be carried over as a credit against the Percentage Rent payable with

respect to the following one or more subsequent Lease Year quarterly periods

until such credit shall have been used up completely.

 

            Section 2. Gross Receipts and Gross Sales: As used in this Lease:

 

              (a) "Gross Receipts" means the total revenue received from the

       rental of guest rooms and meeting rooms in the hotel portion of the

      Premises, without deduction. Gross Receipts shall not include revenue of

      Lessee derived from or in respect of vending machines, telephones, laundry

      or dry cleaning. Gross Receipts also shall not include sales, rooms or

      other excise taxes, if any, required to be collected by Lessee to the

      extent such taxes are actually paid to the proper tax receiving

      authorities.

 

               (b) "Gross Sales" means the gross sales price of all food and

      beverages sold by Lessee, or any subtenant, agent, licensee, or

      concessionaire of Lessee at, in or from the restaurant, bar and banquet

      portions of the Premises; provided, however, that "Gross Sales" shall

      exclude any and all rebates and/or refunds to customers, proceeds from

      vending machines, meals charged to or paid for by employees and deducted

      for tax accounting purposes or minimum wage requirements during hours of

      employment, the amount of all sales tax receipts or other taxes that are

      required by law to be and are in fact accounted for and paid by Lessee, or

      such subtenant, agent, licensee or concessionaire of Lessee, to any

      government or governmental agency.

 

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            Section 3. Additional Rent: In addition to the rental provided for

in Section 1 of this Article IV, Lessee shall pay, as additional rent, each and

all of the payments called for by all equipment leases, if any, to which Lessor

is a party and that relate to equipment currently utilized on the Premises,

whether in effect as of the date hereof or entered into subsequent to the

Commencement Date of this Lease (the "Equipment Leases"), as such payments may

be adjusted from time to time in accordance with the terms of the Equipment

Leases. Such payments shall be made by Lessee directly to the lessor under each

of the Equipment Leases. Such payments by Lessee under the Equipment Leases

shall be wholly separate from, and shall not affect, Lessee's obligations to

make all other payments provided for in this Lease, including, without

limitation, payments of any type of rental provided for by Section 1 of this

Article IV, and shall not be included in, or affect in any fashion, the

calculation of any Basic Rent or Percentage Rent owed or payable thereunder.

Lessor shall retain all rights under the Equipment Leases, and Lessee shall have

no right, title or interest in or with respect to the Equipment Leases, or the

equipment covered by the Equipment Leases, other than the right to use such

equipment for so long as it may be located on the Premises.

 

            Section 4. Net: Lessee acknowledges that this Lease is a "net"

lease. Accordingly, in addition to the rental provided for in Sections 1 and 3

of this Article IV, Lessee shall pay, as additional rent hereunder, all

insurance, taxes, water, heat, gas, electricity, rubbish removal, landscape,

parking lot maintenance and all other utilities and services supplied to the

Premises, and all other charges, costs and expenses relating to the Premises or

the use and occupancy of the same by Lessee or any other person or entity.

Anything herein contained to the contrary notwithstanding, Lessee shall not

engage for the account of Lessor the services of any consultant (including,

without limitation, legal counsel, management consultants, appraisers and

accountants) for the Premises without Lessor's prior written consent.

 

             Section 5. Reports and Records: Lessee shall keep, at the Premises

or at Lessee's corporate offices, permanent and accurate records of all Gross

Receipts and Gross Sales, which records shall be open to inspection by Lessor or

its agents during ordinary business hours. Lessee will preserve, or cause to be

preserved, all such records for at least five years after the expiration of each

Lease Year. In addition, Lessee shall give Lessor, (i) on the 10th, 20th and

last day of each calendar month, Gross Receipts, Gross Sales and occupancy

reports, (ii) on a monthly basis, on or before the 20th day following the end of

each month, a complete set of financial statements, including a balance sheet

and a detailed monthly profit and loss statement, and (iii) on an annual basis,

within 45 days after the end of each Lease Year, a complete set of financial

statements, including a balance sheet and profit and loss statement certified by

a nationally recognized independent certified public accountant reasonably

acceptable to Lessor.

                                            

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            Section 6. Special Audit of Annual Reports: At any time, upon

reasonable notice to Lessee, Lessor may make a special audit of any of Lessee's

books and records in respect of business operations on the Premises; provided,

however, that Lessor shall give Lessee a copy of any audit report. If such audit

discloses a deficiency in Percentage Rent for any Lease Year, the amount

thereof, together with interest thereon at a floating rate five percentage

points (5%) above Wells Fargo Bank's announced "prime rate" from the date that

the Percentage Rent should have been paid to the date of payment, shall be paid

to Lessor no later than the first day of the next calendar month. If such audit

shows the Percentage Rent to have been overpaid, the amount thereof shall be

deducted from the next Percentage Rent payments thereafter becoming due. If such

audit discloses a deficiency in the payment of the Percentage Rent of more than

three percent (3%) of the amount that should have been paid, Lessee shall pay

for the special audit. Otherwise, such audit shall be at Lessor's expense. The

auditor shall be a reputable firm of national standing chosen by Lessor, and

whose rates shall be comparable to rates charged by accounting firms of similar

size and reputation.

 

            Section 7. Financial Plan: Lessee shall provide to Lessor, within 30

days prior to the beginning of each Lease Year, an annual financial and

operating plan (the "Financial Plan") for Lessor's approval, which approval will

not be unreasonably withheld. The Financial Plan shall include a month-to-month

forecast of all revenues expected to be generated at the Premises, and operating

expenses associated therewith, including a schedule of proposed capital

improvements and refurbishment, and cost estimates thereof, for the next

succeeding Lease Year. The Financial Plan shall be updated within 15 days after

the end of each calendar quarter of each Lease Year, if Gross Receipts or Gross

Sales vary by more than ten percent (10%) from amounts set forth on the

Financial Plan, or if gross operating profit, as that term is generally

understood, varies by more than twenty percent (20%) from amounts set forth on

the Financial Plan.

 

                                    ARTICLE V

 

                   USE, REPAIR, REPLACEMENTS AND ALTERATIONS

 

            Section 1. Business Use: The Premises may be used solely for the

purpose of operating a hotel, together with (i) such ancillary uses as are

commonly associated therewith or incidental thereto; and (ii) to the extent not

covered by the foregoing, such uses as are, as of the date of execution of this

Lease, being made of the Premises by Lessee or its subtenants, agents, licensees

or concessionaires. Lessee agrees to operate its business on the Premises

continuously during the Lease Term, and to keep the Premises open for business

during usual business hours each and every day as is customary for such

businesses in the metropolitan area in which the Premises are located, subject

only to such periodic closures as may be necessary to complete required repairs,

restoration, replacements, refurbishment or construction. Lessee shall conduct

its business according to law and as a high grade and reputable concern.

 

            Lessee shall not permit the Premises or any part thereof to be

vacated or abandoned at any time during the Lease Term nor remove from service

any of the guest rooms of the hotel portion of the Premises or any of the

seating capacity in the restaurant or lounge portions of the Premises, without

Lessor's prior written consent; provided, however, that if a fire, flood,

explosion, earthquake, act of God or other accident or contingency beyond the

control of Lessee and not caused by the action or inaction of Lessee (an

"Unusual Circumstance") shall occur on the Premises, Lessee shall be permitted

to vacate or abandon that part of the Premises directly affected by such Unusual

Circumstance for such period of time as the same remains untenantable; and

provided, further, that if any law, ordinance, regulation, ruling or order (a

"Governmental Order") shall be enacted or otherwise properly put into effect by

any governmental authority mandating vacation or abandonment of any part or all

of the

 

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Premises, Lessee shall be permitted to vacate or abandon that part of the

Premises directly affected by such Governmental Order for such period of time as

the Governmental Order remains in effect with respect to the Premises. Lessee

shall give Lessor written notice within two days after any portion of the

Premises is abandoned or any guest room or any of the seating capacity of the

restaurant or lounge portions of the Premises are taken out of service because

of an Unusual Circumstance or Governmental Order. Lessee's right to vacate or

abandon the Premises shall cease, and Lessee shall reoccupy the vacated or

abandoned portion of the Premises, within 30 days after the Premises become

tenantable or the Governmental Order ceases to affect such Premises, as the case

may be. If the Premises (whether in whole or in part) shall be abandoned,

vacated or surrendered for any reason other than due to an Unusual Circumstance

or Governmental Order, or if Lessee shall be dispossessed therefrom by process

of law or otherwise, any personal property left in or upon the Premises shall be

deemed to have been abandoned and shall become the property of Lessor.

 

            Lessee shall use and operate the Premises in strict compliance with

(i) all applicable laws, statutes, ordinances, rules and regulations of any

governmental body with jurisdiction over the Premises ("Applicable Laws")

including, without limitation, all environmental laws and all laws prohibiting

discrimination or segregation by reason of race, color, religion, disability,

sex, natural origin or otherwise; (ii) all orders or decrees affecting the

Premises ("Applicable Decrees"); and (iii) all conditions and restrictions

contained in recorded covenants, conditions and restrictions affecting the

Premises, if any ("Applicable Restrictions"). Lessee shall not take any action,

or permit the Premises to be used or operated in any manner, that would violate

any Applicable Law, Applicable Decree or Applicable Restriction. Lessee or its

assignee shall obtain and maintain, at its sole cost and expense, such licenses

as are necessary in connection with operation of the restaurant and lounge.

 

            Section 2. Repairs and Replacements: Lessee, at its sole cost and

expense, shall keep the Premises, or cause them to be kept, in good order and

repair, in a clean and sanitary condition, and shall comply with all laws,

statutes, rules and regulations of all governmental authorities having

jurisdiction over the Premises. Lessee, at no cost or expense to Lessor, shall

make or cause to be made such ordinary and necessary repairs to the Premises as

are caused or made necessary by Lessee's use or occupation of the Premises or

the conduct of Lessee or its agents, employees or invitees upon the Premises.

 

            Sections 3. Operating Expenses and Working Capital: Except as

otherwise provided in this Lease, Lessee shall pay all expenses and costs

associated with the operation of the Premises and shall provide all working

capital therefor whether from funds originating from the operation of the

property or otherwise.

 

            Section 4. Alterations: Lessee may make, at its sole cost and

expense, reasonable alterations or additions to the Premises, but alterations

estimated to cost in excess of Ten Thousand Dollars ($10,000) may only be made

with Lessor's prior written consent, which consent shall not be unreasonably

withheld. Lessor shall be deemed to have given its consent if Lessor fails to

respond to any notice of such alterations within 15 business days of the giving

of notice thereof by Lessee.

 

            Section 5. Construction in Accordance with all Laws: All

improvements constructed by Lessee on or about the Premises, if any, shall be

constructed in strict compliance with the plans as approved by Lessor and in

strict compliance with all applicable laws and governmental regulations. Lessee

agrees to procure and deliver to Lessor at Lessee's expense evidence of

compliance with all applicable codes, ordinances, regulations and requirements

for permits and approvals, including, but not limited to, building permits,

zoning and planning requirements, and approvals from various governmental

agencies having jurisdiction over the Premises. Lessor shall have

 

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the right to post and maintain on the Premises any notice of non-responsibility

provided for under applicable law, and to inspect the Premises in relation to

the construction at all reasonable times.

 

            Section 6. Mechanics' Liens: Lessee shall neither cause nor permit

any claim of lien to be filed against the Premises for labor done or materials

furnished to or contracted for by Lessee or alleged to have been so done or

furnished, and in the event that any such claim shall nevertheless be so filed,

Lessee shall discharge or adequately bond the same within 10 days after the

filing thereof; provided, however, that Lessee shall not be in default of this

Section 6, and shall not be required to provide any such discharge or bond, if

any such claim is filed against the Premises due to the fault of Lessor.

 

            Section 7. Capital Expenditures by Lessor: Lessor shall pay for

those capital expenditures set forth in the Financial Plan that are approved by

Lessor. Within 10 days after receiving the Financial Plan, Lessor shall advise

Lessee as to which capital expenditures in the Financial Plan Lessor approves.

Such approval shall be in Lessor's absolute discretion. If Lessee disagrees with

such decision made by Lessor, Lessee's sole remedy shall be to terminate the

Lease upon not less than 90 days written notice to Lessor. If the capital

expenditure agreed to by Lessor is greater than four percent (4%) of the Gross

Receipts, then, and in that event, the Basic Rent payable hereunder shall be

renegotiated, at the option of Lessor. If the parties are unable to reach

agreement on a new Basic Rent amount, Lessor shall have the option of reducing

the amount of its capital expenditure so that such expenditure is not greater

than said 4% of Gross Receipts.

 

                                   ARTICLE VI

 

                              ADDITIONAL COVENANTS

 

            Section 1. Additional Obligations: Lessee agrees:

 

                  (a) To purchase all Inventories for the Premises, and to

      maintain such Inventories at levels necessary for the ongoing operation of

      the Premises;

 

                  (b) To provide all working capital reasonably necessary to

      operate the Premises efficiently and effectively; and

 

                  (c) To pay all costs and expenses in connection with obtaining

      and maintaining liquor licenses utilized in the restaurant and bar portion

      of the Premises.

 

            Section 2. Liquor License:

 

            (a) To the extent permitted by law, Lessee hereby grants to Lessor,

to secure each and all of Lessee's obligations hereunder, a security interest in

each liquor license for the restaurant and bar portions of the Premises. Lessee

warrants that upon its acquisition of said liquor license(s), Lessee will have

title to such license(s) free and clear of all liens, claims, encumbrances and

rights of third parties except as may have been approved by Lessor. Lessee

further warrants that the grant of the foregoing security interest is not and

will not be in violation of the terms, conditions or covenants of any agreement,

arrangement or understanding, whether oral or written, between Lessee and any

third party. Lessee shall not sell, contract to sell, lease, encumber or

otherwise dispose of any such license without the prior written consent of

Lessor.

 

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            (b) Lessee shall pay when due all fees, assessments, charges, liens

or encumbrances, if any, that might at any time, either in accordance with or in

violation of the terms of this Lease, affect the liquor license(s). Lessee shall

take no action in connection with the operation of Lessee's business on the

Premises that would jeopardize Lessee's possession of such license(s), and shall

immediately notify Lessor in writing about any communication received from any

party, public or private, relating to Lessee's possession of said license(s).

Lessee, at Lessor's request, shall execute and deliver to Lessor any and all

financing statements, deeds of trust and other documents or instruments deemed

necessary by Lessor in connection with or for the perfection of Lessor's

security interest hereunder. In the event of any default under this Lease,

Lessor may exercise all rights and remedies of a secured party, all of which

rights and remedies shall be cumulative. Lessee hereby waives any right to

require Lessor to proceed against any other person or entity or to exhaust

Lessor's rights against any collateral or to pursue any other remedy in Lessor's

power in the event of a default under this Lease. Each of Lessor and Lessee

acknowledges that, under local law, the liquor license(s) may not be

transferable.

 

                                                                       

            (c) Lessor acknowledges that Lessee plans to take title to each of

the above-described liquor licenses, to the extent permissible by law, in

Lessee's own name, in the name of a subsidiary or affiliate of Lessee or in the

name of the manager of the Premises and hereby consents to such vesting,

provided that if and to the extent requested by L