Exhibit 10.4
"LGA" STANDARD FORM
MANAGEMENT AGREEMENT
(9/13/96)
MANAGEMENT AGREEMENT
between
HMC RETIREMENT PROPERTIES, INC.
("Owner")
and
MARRIOTT HOTEL SERVICES, INC.
("Management Company")
TABLE OF CONTENTS
Page
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ARTICLE I - DEFINITION OF TERMS
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1.01 Definition of Terms
ARTICLE II - APPOINTMENT OF MANAGEMENT COMPANY
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2.01 Appointment
2.02 Delegation of Authority
2.03 Operational Standards
2.04 Limitations on Authority
2.05 Covenants, Conditions or Restrictions
2.06 Licenses and Permits
ARTICLE III - HOTEL
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3.01 Ownership of Hotel
ARTICLE IV - TERM
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4.01 Term
4.02 Actions to be Taken Upon Termination
4.03 Performance Termination
ARTICLE V - COMPENSATION OF MANAGEMENT COMPANY; DISTRIBUTIONS
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5.01 Management Fees
5.02 Accounting and Interim Payments
ARTICLE VI - FINANCING OF THE HOTEL
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6.01 Amendments of Management Agreement
6.02 Notice and Opportunity to Cure
6.03 Assignment of Management Agreement
6.04 Subordination of Management Agreement
6.05 Non-Disturbance Agreement
6.06 Attornment
6.07 No Modification or Termination of Agreement
6.08 Owner's Right to Finance the Hotel
6.09 Sale/Leaseback Transactions
ARTICLE VII - WORKING CAPITAL AND FIXED ASSET SUPPLIES
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7.01 Working Capital
7.02 Fixed Asset Supplies
ARTICLE VIII - REPAIRS, MAINTENANCE AND REPLACEMENTS
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8.01 Routine Repairs and Maintenance
8.02 FF&E Reserve
8.03 Building Alterations, Improvements, Renewals,
and Replacements
8.04 Liens
8.05 Ownership of Replacements, Etc.
ARTICLE IX - BOOKKEEPING AND BANK ACCOUNTS
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9.01 Books and Records
9.02 Hotel Accounts, Expenditures
9.03 Annual Operating Budget
9.04 Operating Losses; Credit
ARTICLE X - PROPRIETARY MARKS; INTELLECTUAL PROPERTY
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10.01 Proprietary Marks
10.02 Purchase of Inventories and Fixed Asset Supplies
10.03 Computer Software and Equipment
10.04 Intellectual Property
10.05 Breach of Covenant
ARTICLE XI - POSSESSION AND USE OF HOTEL
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11.01 Quiet Enjoyment
11.02 Use
11.03 Chain Services
11.04 Owner's Right to Inspect
11.05 Indemnity
ARTICLE XII - INSURANCE
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12.01 Interim Insurance
12.02 Property and Operational Insurance
12.03 General Insurance Provisions
12.04 Cost and Expense
12.05 Owner's Option to Obtain Certain Insurance
ARTICLE XIII - TAXES
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13.01 Real Estate and Personal Property Taxes
ARTICLE XIV - HOTEL EMPLOYEES
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14.01 Employees
ARTICLE XV - DAMAGE, CONDEMNATION AND FORCE MAJEURE
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15.01 Damage and Repair
15.02 Condemnation
15.03 Force Majeure
ARTICLE XVI - DEFAULTS
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16.01 Definition of "Default"
16.02 Definition of "Event of Default"
16.03 Remedies Upon an Event of Default
16.04 Owner's Estate
ARTICLE XVII - WAIVER AND PARTIAL INVALIDITY
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17.01 Waiver
17.02 Partial Invalidity
ARTICLE XVIII - ASSIGNMENT
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18.01 Assignment
ARTICLE XIX - SALE OF THE HOTEL
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19.01 Sale of the Hotel
ARTICLE XX - MISCELLANEOUS
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20.01 Right to Make Agreement
20.02 Consents
20.03 Agency
20.04 Confidentiality
20.05 Equity and Debt Offerings
20.06 Applicable Law
20.07 Recordation
20.08 Headings
20.09 Notices
20.10 Environmental Matters
20.11 Estoppel Certificates
20.12 Trade Area Restriction
20.13 Arbitration
20.14 Affiliates.......................
20.15 Entire Agreement
Exhibit "A" - Location of Hotel; Legal Description
Exhibit "A-1" - Owner's Initial Cost; Chain Services Cap;
Contributions to FF&E Reserve pursuant to
Section 8.02 B; Initial Working Capital
Exhibit "B" - Form of Accounting Period Statement
Exhibit "C" - [Intentionally Deleted.]
Exhibit "D" - Narrative Description of Restricted Area
Exhibit "D-1" - Map of Restricted Area
Exhibit "E" - Existing Ground Lease (if applicable); Existing
Mortgages (if any)
Exhibit "F" - Proprietary Marks owned by Owner (if any)
Exhibit "G" - Title Insurance Policy
MANAGEMENT AGREEMENT
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This Management Agreement ("Agreement") is executed as of the _____
day of___________________, 199__ ("Effective Date"), by HMC RETIREMENT
PROPERTIES, INC. ("Owner"), a Delaware corporation, with a mailing address at
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and MARRIOTT HOTEL SERVICES, INC.
("Management Company"), a Delaware corporation, with a mailing address at ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
R E C I T A L S :
A. Owner intends to purchase from ____________________ (the "Prior
Owner") the Hotel (as defined and more fully described in Section 1.01) which is
located as set forth on Exhibit "A" hereto; and
B. Owner desires to have Management Company manage and operate the
Hotel from and after the date on which the Hotel is purchased by Owner (or the
"Opening Date", as defined in Section 1.01, if later), and Management Company is
willing to perform such services for the account of Owner on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITION OF TERMS
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1.01 Definition of Terms
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The following terms when used in this Agreement shall have the
meanings indicated:
"Accounting Period" shall mean each of the four (4) week accounting
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periods which are used in Management Company's accounting system, except that an
Accounting Period may occasionally contain five (5) weeks when necessary to
conform Management Company's accounting system to the calendar.
"Accounting Period Statement" shall have the meaning set forth in
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Section 5.02.
"Additional Invested Capital" shall mean the cumulative total, as of
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any given date during the Term, of the following: (i) any contribution made by
Owner pursuant to Section 7.01 B (provided that Owner's Investment shall be
decreased by any return to Owner of excess Working Capital pursuant to Section
7.01 C); (ii) any expenditures made by Owner, pursuant to Section 8.03, and any
expenditures by Owner pursuant to Section 20.10 C; (iii) any contributions by
Owner to the FF&E Reserve (beyond the funding described in Section 8.02 B),
other than those contributions which are reimbursed to Owner under Section 8.02
E; (iv) any payments by Owner with regard to special assessments or impact fees,
pursuant to Section 13.01 B(2) or (3); and (v) any expenditures by Owner under
clauses (v) or (vi) of Section 5.02 D which are made prior to one hundred eighty
(180) days after the Opening Date.
"Adjusted Owner's Investment" shall mean the amount, as of any given
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date (the "Adjustment Date") during the Term, of Owner's Investment, after
adjustment thereof as follows: each separate expenditure by Owner which
comprises Owner's Investment shall be adjusted for inflation by using an amount
equal to seventy-five percent (75%) of the percentage change in the GDP Deflator
between the date of each such separate expenditure and the date in question.
"Adjustment Date" shall have the meaning set forth in the definition
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of "Adjusted Owner's Investment".
"Affiliate" shall mean any individual or entity directly or indirectly
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through one or more intermediaries, controlling, controlled by or under common
control with a party. The term "control," as used in the immediately preceding
sentence, means, with respect to a corporation, the right to exercise, directly
or indirectly, fifty percent (50%) or more of the voting rights attributable to
the shares of the controlled corporation, and, with respect to an entity that is
not a corporation, the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of the controlled
entity.
"Agreement" shall have the meaning set forth in the Preamble.
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"Annual Operating Budget" shall have the meaning set forth in Section
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9.03.
"Annual Operating Statement" shall have the meaning set forth in
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Section 9.01.
"Available Cash Flow" shall mean an amount, with respect to each
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Fiscal Year or portion thereof, equal to the excess (if any) of the Operating
Profit for such Fiscal Year over the applicable Owner's Priority.
"Base Management Fee" shall mean an amount equal to three percent (3%)
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of Gross Revenues, which shall be paid to Management Company as compensation (in
addition to the Incentive Management Fee) for the services performed pursuant to
this Agreement.
"Building Estimate" shall have the meaning set forth in Section 8.03
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A.
"Capital Expenditures" shall have the meaning set forth in Section
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8.03 A.
"Capitalization Multiple" shall mean the number ten (10).
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"Case Goods" shall mean furniture and furnishings used in the Hotel,
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including, without limitation: chairs, beds, chests, headboards, desks, lamps,
tables, television sets, mirrors, pictures, wall decorations and similar items.
"CC&R's" shall have the meaning set forth in Section 2.05.
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"Central Office Services" shall mean certain services which are
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provided to the Hotel by personnel who are employees of Management Company or
one of its Affiliates and who are not normally located at the Hotel, including
the following: executive supervision; planning and policy making; corporate
finance; corporate personnel and employee relations; in-house legal services;
trademark protection relating to Proprietary Marks which are used generally by
the Marriott chain; certain product research and development; and the services
of Management Company's technical and operational experts making routine
periodic inspection and consultation visits to the Hotel (but not the services
of the personnel of the Architecture and Construction Division of Management
Company (or any of its Affiliates) providing architectural, technical or
procurement services for the Hotel, the costs and expenses of which shall be
paid pursuant to paragraph 6 of the definition of Operating Profit). Any service
which is defined as being included within the term "Chain Services" shall not
also be included within "Central Office Services". The Central Office Services
which are provided to the Hotel shall be generally consistent with those Central
Office Services which are provided to other comparable full-service hotels
within the Marriott Hotel System.
"Chain Services" shall have the meaning set forth in Section 11.03.
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"Chain Services Cap" shall mean the percentage of Gross Revenues set
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forth on Exhibit "A-1" hereto.
"Coverage Ratio" shall mean the number one and three-tenths (1.3).
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"Cure Notice" shall have the meaning set forth in Section 4.03 B.
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"Cure Period" shall have the meaning set forth in Section 4.03 B.
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"Deductions" shall have the meaning set forth in the definition of
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Operating Profit.
"Default" shall have the meaning set forth in Section 16.01.
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"Effective Date" shall have the meaning set forth in the Preamble.
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"Employee Claims" shall mean any and all claims (including all fines,
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judgments, penalties, costs, Litigation and/or arbitration expenses, attorneys'
fees and expenses, and costs of settlement with respect to any such claim) by
any employee or employees of Management Company against Owner or Management
Company with respect to the employment at the Hotel
of such employee or employees. "Employee Claims" shall include, without
limitation, the following: (i) claims which are eventually resolved by
arbitration, by Litigation or by settlement; (ii) claims which also involve
allegations that any applicable employment-related contracts affecting the
employees at the Hotel have been breached; and (iii) claims which involve
allegations that one or more of the Employment Laws has been violated; provided,
however, that "Employee Claims" shall not include claims for worker compensation
benefits (which shall be governed by Article XII hereof) or for unemployment
benefits.
"Employment Laws" shall mean any federal, state or local law
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(including the common law), statute, ordinance, rule, regulation, order or
directive with respect to employment, conditions of employment, benefits,
compensation, or termination of employment that currently exists or may exist at
any time during the Term of this Agreement, including, but not limited to, Title
VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act,
the Workers Adjustment and Retraining Act, the Occupational Safety and Health
Act, the Immigration Reform and Control Act of 1986, the Polygraph Protection
Act of 1988 and the Americans With Disabilities Act of 1990.
"Environmental Laws" shall mean any federal, state or local law, rule
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or regulation (both present and future) dealing with the use, generation,
treatment, storage, disposal or abatement of Hazardous Materials, including, but
not limited to, (i) the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601 et seq., as amended, and
-- ---
(ii) the regulations promulgated thereunder, from time to time.
"Event of Default" shall have the meaning set forth in Section 16.02.
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"Existing CC&R's" shall have the meaning set forth in Section 2.05 A.
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"Existing Ground Leases" shall mean the ground leases which are listed
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on Exhibit "E", but, for purposes of this Agreement, shall not include any
amendments or modifications thereof after the Effective Date, unless Management
Company consents to any such amendment or modification (which consent shall not
be unreasonably withheld, provided that (i) the proposed amendment or
modification would not materially affect the rights and/or obligations of
Management Company in a manner adverse to Management Company, and (ii) in any
event, such amendment or modification would have no adverse impact on the amount
of the Management Fees).
"Existing Mortgages" shall mean the Mortgages (if any) which are
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listed on Exhibit "E", but, for purposes of this Agreement, shall not include
any amendments or modifications thereof after the Effective Date.
"Extension Threshold" shall mean, with respect to the most recent
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three (3) full Fiscal Years prior to the date in question, a dollar amount equal
to ten and seventy-five hundredths percent (10.75%) of the average balance of
the Adjusted Owner's Investment during such period
of time.
"FF&E" shall mean furniture, furnishings, fixtures, Soft Goods, Case
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Goods, signage and equipment at the Hotel (including, without limitation,
facsimile machines, communication systems, audio-visual equipment, and all
computer and other equipment needed for the reservation system and the property
management system, and all other electronic systems needed for the Hotel, from
time to time, as well as similar systems based on other technologies which may
be developed in the future.
"FF&E Estimate" shall have the meaning set forth in Section 8.02 C.
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"FF&E Reserve" shall have the meaning set forth in Section 8.02 A.
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"First Notice" shall have the meaning set forth in Section 6.02.
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"Fiscal Year" shall mean Management Company's Fiscal Year which now
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ends at midnight on the Friday closest to December 31 in each calendar year; the
new Fiscal Year begins on the Saturday immediately following said Friday. Any
partial Fiscal Year between the Effective Date and the commencement of the first
full Fiscal Year, and any partial Fiscal Year between the end of the last full
Fiscal Year and the Termination of this Agreement, shall constitute a separate
Fiscal Year. If Management Company's Fiscal Year is changed in the future,
appropriate adjustment to this Agreement's reporting and accounting procedures
shall be made; provided, however, that no such change or adjustment shall alter
the Term of this Agreement, or in any way reduce the distributions of Operating
Profit or other payments due to Owner hereunder, or otherwise significantly and
adversely affect Owner's rights or obligations under this Agreement.
"Fixed Asset Supplies" shall mean supply items included within
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"Property and Equipment" under the Uniform System of Accounts, including linen,
china, glassware, silver, uniforms, and similar items.
"Force Majeure" shall mean acts of God, acts of war, civil
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disturbance, governmental action (including the revocation or refusal to grant
licenses or permits, where such revocation or refusal is not due to the fault of
the party whose performance is to be excused for reasons of Force Majeure),
strikes, fire, unavoidable casualties or any other causes beyond the reasonable
control of either party (excluding, however, (i) lack of financing, or (ii)
general economic and/or market factors).
"Foreclosure" shall mean any exercise of the remedies available to a
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Holder, upon a default under the Secured Loan held by such Holder, which results
in a transfer of title to or possession of the Hotel. The term "Foreclosure"
shall include, without limitation, any one or more of the following events, if
they occur in connection with a default under a Secured Loan: (i) a transfer by
judicial foreclosure; (ii) a transfer by deed in lieu of foreclosure; (iii) the
appointment by a court of a receiver to assume possession of the Hotel; (iv) a
transfer of either ownership or control of the Owner, by exercise of a stock
pledge or otherwise; (v) if title to the Hotel is held by a tenant under a
ground lease, an assignment of the tenant's interest in such ground lease; or
(vi) any similar judicial or non-judicial exercise of the remedies held by the
Holder.
"Foreclosure Date" shall mean the date on which title to or possession
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of the Hotel is transferred by means of a Foreclosure.
"Future CC&R's" shall have the meaning set forth in Section 2.05 B.
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"GDP Deflator" shall mean the "Gross Domestic Product Implicit Price
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Deflator" issued from time to time by the United States Bureau of Economic
Analysis of the Department of Commerce, or if the aforesaid GDP Deflator is not
at such time so prepared and published, any comparable index selected by Owner
and reasonably satisfactory to Management Company (a "Substitute Index") then
prepared and published by an agency of the Government of the United States,
appropriately adjusted for changes in the manner in which such index is prepared
and/or year upon which such index is based. Any dispute regarding the selection
of the Substitute Index or the adjustments to be made thereto shall be settled
by arbitration in accordance with Section 20.13. Except as otherwise expressly
stated herein, whenever a number or amount is required to be "adjusted by the
GDP Deflator", or similar terminology, such adjustment shall be equal to the
percentage increase or decrease (except that, for purposes of this Agreement,
the GDP Deflator shall not be decreased below its level as of the Effective
Date) in the GDP Deflator which is issued for the month in which such adjustment
is to be made (or, if the GDP Deflator for such month is not yet publicly
available, the GDP Deflator for the most recent month for which the GDP Deflator
is publicly available) as compared to the GDP Deflator which was issued for the
month in which the Effective Date occurred.
"Gross Revenues" shall mean all revenues and receipts of every kind
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derived from operating the Hotel and parts thereof, including, but not limited
to: income (from both cash and credit transactions), before commissions and
discounts for prompt or cash payments, from rental of rooms, stores, offices,
meeting, exhibit or sales space of every kind; license, lease and concession
fees and rentals (not including gross receipts of licensees, lessees and
concessionaires); income from vending machines; health club membership fees;
food and beverage sales; sales of merchandise (other than proceeds from the sale
of FF&E no longer necessary to the operation of the Hotel, which shall be
deposited in the FF&E Reserve as set forth in Section 8.02 D hereof); service
charges, to the extent not distributed to the employees at the Hotel as, or in
lieu of, gratuities; and proceeds, if any, from business interruption or other
loss of income insurance; provided, however, that Gross Revenues shall not
include the following: gratuities to Hotel employees; federal, state or
municipal excise, sales, use or similar taxes collected directly from patrons or
guests or included as part of the sales price of any goods or services;
insurance proceeds (other than proceeds from business interruption or other loss
of income insurance); condemnation proceeds (other than for a temporary taking);
any proceeds
from any Sale of the Hotel or from the refinancing of any debt encumbering the
Hotel; proceeds from the disposition of FF&E no longer necessary for the
operation of the Hotel; interest which accrues on amounts deposited in either
the FF&E Reserve or any escrow accounts which are established in accordance with
Section 13.01 C; or Cure Payments.
"Ground Lease Rental" shall mean the annual rental, as of the
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Effective Date, under the Existing Ground Lease.
"Ground Lessor" shall mean the landlord under the Existing Ground
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Lease.
"Hazardous Materials" shall mean any substance or material containing
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one or more of any of the following: "hazardous material", "hazardous waste",
"hazardous substance", "regulated substance", "petroleum", "pollutant",
"contaminant", or "asbestos", as such terms are defined in any applicable
Environmental Law, in such concentration(s) or amount(s) as may impose clean-up,
removal, monitoring or other responsibility under any applicable Environmental
Law, or which may present a significant risk of harm to guests, invitees or
employees of the Hotel.
"Holder" shall mean any holder, from time to time, of any Secured
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Loan.
"Hotel" shall mean the hotel, containing approximately the number of
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guestrooms which is set forth on Exhibit "A-1" hereto, which Owner owns at the
location specified in Exhibit "A"; the term "Hotel" shall include the Site, the
improvements built thereon, and all FF&E, Fixed Asset Supplies and Inventories
installed therein.
"Hotel Retention" shall have the meaning set forth in Section 12.03
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hereof.
"Impositions" shall mean all real estate and personal property taxes,
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levies, assessments and similar charges (other than those which are specifically
excluded pursuant to Section 13.01 B) including, without limitation, the
following: all water, sewer or similar fees, rates, charges, excises or levies;
license fees; permit fees; inspection fees and other authorization fees and
other governmental charges of any kind or nature whatsoever, whether general or
special, ordinary or extraordinary, foreseen or unforeseen, or hereinafter
levied or assessed of every character (including all interest and penalties
thereon), which at any time during or in respect of the Term of this Agreement
may be assessed, levied, confirmed or imposed on Owner with respect to the Hotel
or otherwise in respect of or be a lien upon the Hotel. Impositions shall not
include any income or franchise taxes payable by Owner or Management Company.
Impositions shall include any taxes, levies, assessments and similar charges
which may be enacted by the applicable governmental authority in lieu of, or in
complete or partial substitution for, Impositions.
"Incentive Management Fee" shall mean the payments which shall be made
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to Management Company, as compensation (in addition to the Base Management Fee)
to Management Company for its services under this Agreement, in the amount of
twenty percent (20%) of the Available Cash Flow in each Fiscal Year (or portion
thereof).
"Initial Term" shall have the meaning set forth in Section 4.01.
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"Intellectual Property" shall mean: (i) all Software; and (ii) all
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manuals, brochures and directives issued by Management Company to its employees
at the Hotel regarding the procedures and techniques to be used in operating the
Hotel.
"Interest Rate" shall mean an annual rate of interest equal to the
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Prime Rate (as adjusted from time to time) plus three hundred (300) basis
points; provided, however, that in no event shall the Interest Rate exceed the
maximum rate which is permitted under applicable Legal Requirements.
"Inventories" shall mean "Inventories" as defined in the Uniform
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System of Accounts, such as provisions in storerooms, refrigerators, pantries
and kitchens; beverages in wine cellars and bars; other merchandise intended for
sale; fuel; mechanical supplies; stationery; and other expensed supplies and
similar items.
"Legal Requirement" shall mean any federal, state or local law, code,
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rule, ordinance, regulation or order of any governmental authority or agency
having jurisdiction over the business or operation of the Hotel or the matters
which are the subject of this Agreement, including, without limitation, the
following: (i) any building, zoning or use laws, ordinances, regulations or
orders; and (ii) Environmental Laws.
"License" shall mean any license, permit, decree, act, order,
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authorization or other approval or instrument which is necessary in order to
operate the Hotel in accordance with Legal Requirements and pursuant to the
Marriott Standards and otherwise in accordance with this Agreement.
"Litigation" shall mean: (i) any cause of action commenced in a
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federal, state or local court; or (ii) any claim brought before an
administrative agency or body (for example, without limitation, employment
discrimination claims).
"Management Analysis Report" shall mean a narrative report on the
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state of business and affairs of the Hotel, prepared on an annual basis by
Management Company and delivered to Owner at the time of the delivery of the
Annual Operating Statement, which shall include a narrative description
regarding the preceding Fiscal Year, of: (i) the Hotel's operating performance,
including significant variations from the Annual Operating Budget; (ii) an
analysis of any significant variation of the actual average daily rate and
occupancy from what was set forth in the Annual Operating Budget; (iii) a review
of the competitive hotel market; (iv) a description of any significant
promotional or other marketing programs in which the Hotel participated, which
were not included as part of the Annual Operating Budget for the preceding
Fiscal Year; and (v) such other supplementary information as Owner or Management
Company shall reasonably deem necessary to an understanding of the operation of
the Hotel.
"Management Company" shall have the meaning set forth in the Preamble.
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"Management Fees" shall mean the Base Management Fee plus the
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Incentive Management Fee.
"Marriott" shall mean Marriott International, Inc., a Delaware
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corporation having an address at ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
"Marriott Hotel System" shall mean the full-service hotel system
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managed by Marriott (or one or more of its Affiliates) which is, as of the
Effective Date, operated under the trade name "Marriott Hotels, Resorts and
Suites".
"Marriott Standards" shall mean both the operational standards (for
------------------
example, staffing, amenities offered to guests, advertising, etc.) and the
physical standards (for example, the quality, condition, utility and age of the
FF&E, etc.) of comparable full-service hotels in the Marriott Hotel System, as
such operational and physical standards may fluctuate from time to time
(provided, however, that the Marriott Standards shall in no event be lower than
the operational and physical standards, as of the date in question, of
comparable "quality segment" (as such term was being used as of the Effective
Date) full-service hotels in other full-service hotel systems).
"Mortgage" shall mean any security instrument which encumbers the Site
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and/or the Hotel, including, without limitation, mortgages, deeds of trust,
security deeds and similar instruments.
"Non-Disturbance Agreement" shall mean an agreement, in recordable
-------------------------
form in the jurisdiction in which the Hotel is located, executed and delivered
by a Holder (which agreement shall by its terms be binding upon all assignees of
such Holder and upon all Subsequent Owners), for the benefit of Management
Company, pursuant to which, in the event such Holder (or its assignee) or any
Subsequent Owner comes into possession of or acquires title to the Hotel either
at or following a Foreclosure, such Holder (and its assignees) and all
Subsequent Owners shall (x) recognize Management Company's rights under this
Agreement, and (y) shall not name Management Company as a party in any
Foreclosure action or proceeding, and (z) shall not disturb Management Company
in its right to continue to manage the Hotel pursuant to this Agreement;
provided, however, that at such time, (i) this Agreement has not expired or
otherwise been earlier terminated in accordance with its terms, and (ii) there
are no outstanding Events of Default by Management Company, and (iii) no
material event has occurred and no material condition exists which, after notice
or the passage of time or both, would entitle Owner to terminate this Agreement
(excluding events which would constitute an Event of Default, which are to be
governed exclusively by clause (ii) hereof).
"Opening Date" shall mean the earliest date on which both of the
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following have occurred: (1) the Hotel is a member of the Marriott Hotel
System; and (ii) Management
Company first allows paying guests to enter the Hotel.
"Operating Accounts" shall have the meaning set forth in Section 9.02.
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"Operating Loss" shall mean a negative Operating Profit.
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"Operating Profit" shall mean the excess of Gross Revenues over the
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following deductions ("Deductions") incurred by Management Company in operating
the Hotel:
1. The cost of sales including salaries, wages, employee
benefits, Employee Claims (except to the extent specifically set forth to the
contrary in Section 14.01 C or D), payroll taxes and other costs related to
Hotel employees;
2. Departmental expenses; administrative and general expenses;
the cost of Hotel advertising and business promotion; the cost of heat, light,
power and water; and the cost of routine repairs, maintenance and minor
alterations which are treated as Deductions under Section 8.01;
3. The cost of Inventories and Fixed Asset Supplies consumed in
the operation of the Hotel;
4. A reasonable reserve for uncollectible accounts receivable as
determined by Management Company;
5. All reasonable costs and fees of independent professionals or
other third parties who are retained by Management Company to perform services
required or permitted hereunder; provided that Management Company will notify
Owner at least thirty (30) days in advance of any proposed expenditure under
this paragraph 5 which is in excess of Fifty Thousand Dollars ($50,000) (to be
adjusted by the GDP Deflator) and which was not specifically identified in the
Annual Operating Budget, and Management Company shall consider in good faith any
comments which Owner may have with respect to such proposed expenditure; and
provided, further, that if such expenditure involves immediately-needed repair
work to the Hotel or if immediate action is otherwise required, the above-
described requirement regarding thirty (30) days' prior notice shall be modified
to require whatever notice period is reasonable under the circumstances;
6. The reasonable cost and expense of technical consultants and
operational experts who are employees of Management Company or one of its
Affiliates, and who perform specialized services in connection with non-routine
Hotel work; provided, however, that the costs and expenses so incurred shall
only be Deductions to the extent such costs and expenses are reasonable and
competitively priced, as compared to similar work done by outside consultants or
experts; and provided, further, that Management Company will notify Owner at
least thirty (30) days in advance of any proposed expenditure under this
paragraph 6 which is in excess of Fifty Thousand Dollars ($50,000) (to be
adjusted by the GDP Deflator) and which was not specifically
identified in the Annual Operating Budget, and Management Company shall consider
in good faith any comments which Owner may have with respect to such proposed
expenditure; and provided, further, that if such expenditure involves
immediately-needed repair work to the Hotel or if immediate action is otherwise
required, the above-described requirement regarding thirty (30) days' prior
notice shall be modified to require whatever notice period is reasonable under
the circumstances;
7. The Base Management Fee (unless, and to the extent that,
Management Company has elected to waive its Base Management Fee in accordance
with Section 4.03 B);
8. The Hotel's pro rata share of costs and expenses incurred by
Management Company (or its Affiliates) in providing Chain Services, subject to
the Chain Services Cap;
9. The Hotel's pro rata share of costs and expenses incurred in
connection with sales, advertising and/or promotional programs developed for or
within the Marriott Hotel System, such as (without limitation) the Honored Guest
Award Program, where such costs and expenses are not deducted as either
departmental expenses under paragraph 2 above or as Chain Services under
paragraph 8 above;
10. Insurance costs and expenses as provided in Section 12.04 B;
11. Taxes, if any, payable by or assessed against Management
Company related to this Agreement or to Management Company's operation of the
Hotel (exclusive of Management Company's income taxes or franchise taxes) and
all Impositions assessed against the Hotel;
12. Amounts which are transferred into the FF&E Reserve in
accordance with the provisions of Section 8.02;
13. Lease payments pursuant to leases of Telephones and
Miscellaneous Equipment;
14. The reimbursement to Owner of the amount of any Owner
Deductions; and
15. Such other costs and expenses incurred by Management Company
or its Affiliates (not including the costs and expenses of providing the Central
Office Services) as are specifically provided for elsewhere in this Agreement or
are otherwise reasonably necessary for the proper and efficient operation of the
Hotel (including, without limitation, the costs and expenses of all functions
described in Section 2.03, to the extent such costs and expenses are not already
treated as Deductions elsewhere in this definition of Operating Profit, unless,
and to the extent that, any such costs and expenses are specifically stated not
to be Deductions under any provision of this Agreement).
The term "Deductions" shall not include (i) debt service payments
pursuant to any Secured Loan, nor (ii) Ground Lease Rental or rental payments
pursuant to any ground lease of
the Site, nor (iii) any expenditures which are included within the definition of
"Owner's Initial Cost"; all of which shall be paid by Owner from its own funds,
and not from Gross Revenues nor from the FF&E Reserve. In no event shall the
costs or expenses of providing the Central Office Services be treated as
Deductions, or otherwise be reimbursed out of Gross Revenues; it being the
intent of the parties that all such costs and expenses are to be paid by
Management Company (or its Affiliates) from its own funds.
"Owner" shall have the meaning set forth in the Preamble. Subject to
-----
compliance with Articles XVIII and XIX of this Agreement, the term "Owner" shall
include all successors and assigns of the entity identified as the "Owner" in
the Preamble.
"Owner Deductions" shall mean amounts paid by Owner with respect to:
----------------
(i) premiums for the insurance policies described in Section 12.05; (ii)
reasonable costs of any negotiations or Litigation with respect to any contest
of Impositions, as described in Section 13.01 A; (iii) fees and expenses of
technical consultants and operational experts which are retained by Owner, with
the approval of Management Company, to give advice with respect to the operation
of the Hotel; and (iv) any expenditures by Owner under clauses (i), (iii) or
(iv) of Section 5.02 D which are made prior to one hundred eighty (180) days
after the Opening Date; provided, however, that expenditures by Owner which have
been included within the definition of "Owner's Initial Cost" shall not be
treated as Owner Deductions. The amount of any Owner Deductions paid by Owner
shall be reimbursed to Owner (as a Deduction) in the Fiscal Year in which they
were paid.
"Owner's Distribution" shall mean, with respect to each Fiscal Year or
--------------------
portion thereof during the Term, Operating Profit less any Incentive Management
Fee due to Management Company.
"Owner's Initial Cost" shall mean the dollar amount set forth on
--------------------
Exhibit "A-1" hereto which amount shall include: (i) the purchase price paid by
Owner for the Hotel; (ii) Owner's initial contribution to Working Capital
pursuant to Section 7.01 A; (iii) Pre-Opening Expenses; (iv) Transaction Costs
relating to the purchase by Owner of the Hotel(which shall be subject to post-
closing adjustments to reflect actual costs incurred provided that such
adjustments are made no later than ninety (90) days after the Opening Date); and
(v) such other amounts as are requested by Management Company to bring the Hotel
up to Marriott Standards.
"Owner's Investment" shall mean the sum total, as of any given point
------------------
in time during the Term, of: (i) the Owner's Initial Cost; plus (ii) any
Additional Invested Capital expended by Owner; provided that each expenditure of
Additional Invested Capital shall be added to the Owner's Investment (with
respect to the Fiscal Year or Fiscal Years during which such expenditure(s)
occurred) on a pro rata basis, beginning with the first full Accounting Period
after such expenditures occurred, and thereafter over the remainder of the
current Fiscal Year.
"Owner's Priority" shall mean, with respect to each Fiscal Year
----------------
(prorated for any partial Fiscal Years) during the Term of this Agreement, a
dollar amount equal to ten and seventy-five
hundredths percent (10.75%) of the Owner's Investment for that Fiscal Year. If
the Hotel has an Existing Ground Lease, the annual rental for such Fiscal Year
pursuant to such Existing Ground Lease shall be added to the Owner's Priority
(provided that such annual rental shall not include any payments made to the
Ground Lessor which are in excess of the rent owed to the Ground Lessor for the
use of the land comprising the Site).
"Performance Termination Threshold" shall mean, with respect to each
---------------------------------
full Fiscal Year during the Term of this Agreement, a dollar amount equal to
eight percent (8%) of Owner's Investment.
"Post-Foreclosure Decision Date" shall have the meaning set forth in
------------------------------
Section 6.06.
"Pre-Opening Activities" shall mean the following activities which
----------------------
shall be performed by Management Company prior to (or immediately after) the
Opening Date; (1) recruiting, training and employing the staff required for the
Hotel; (2) negotiating concession contracts (if any); (3) undertaking pre-
opening promotion and advertising, including opening celebrations; (4) testing
the operations of the Hotel; (5) providing, for a period to end not later than
sixty (60) days after the Opening Date, a task force of experts and personnel to
supervise and assist with certain pre-opening and opening operations; (6)
assisting Owner in applying for the Licenses (including transfers of Licenses
from Prior Manager to Management Company), where required for the operation of
the Hotel as contemplated by this Agreement; (7) in general, rendering such
other miscellaneous services incidental to the preparation and organization of
the Hotel's operations as may be required for the Hotel to be adequately staffed
and capable of operating on the Opening Date and thereafter.
"Pre-Opening Expenses" shall mean the expenses relating to Pre-Opening
--------------------
activities, which shall include, but not be limited to, salaries and wages
(including those of personnel of Management Company and its Affiliates), costs
of interim office space, professional fees, telephone expenses, staff hiring and
training costs, travel and moving expenses, costs of opening celebrations,
advertising and promotion expense, and miscellaneous expenses.
"Prime Rate" shall mean the "prime rate" as published in the "Money
----------
Rates" section of The Wall Street Journal; however, if such rate is, at any
--- ---- ------ -------
time during the Term, no longer so published, the term "Prime Rate" shall mean
the average of the prime interest rates which are announced, from time to time,
by the three (3) largest banks (by assets) headquartered in the United States
which publish a "prime rate."
"Prior Franchisor" shall mean the franchising company (if any) under
----------------
whose trademark and/or trade name the Hotel was operated immediately prior to
the Opening Date.
"Prior Manager" shall mean the management company (if any) which
-------------
managed the Hotel, on behalf of Prior Owner, immediately prior to the Opening
Date.
"Prior Owner" shall have the meaning set forth in the Recitals.
-----------
"Proprietary Marks" shall mean all trademarks, trade names, symbols,
-----------------
logos, slogans, designs, insignia, emblems, devices, service marks and
distinctive designs of buildings and signs, or combinations thereof, which are
used to identify hotels in the Marriott Hotel System. The term "Proprietary
Marks" shall also include all trade names, trademarks, symbols, logos, designs,
etc. which are used in connection with the operation of the Hotel during the
Term (such as, without limitation, the names of the restaurants and lounges).
The term "Proprietary Marks" shall include all present and future Proprietary
Marks, whether they are now or hereafter owned by Management Company or one of
its Affiliates, and whether or not they are registered under the laws of the
United States or any other country. The names "Marriott", "Marriott Hotels" and
"Marriott Resorts", and any of the foregoing used in conjunction with other
words or names, are examples of Proprietary Marks. Notwithstanding the
foregoing, those trade names, trademarks, symbols, logos, designs, etc., which
are specifically set forth on Exhibit "F" hereto shall be deemed to be
"Proprietary Marks" only for so long as this Agreement is in effect, and such
Proprietary Marks shall revert to the exclusive control of Owner as of the date
of Termination.
"Proprietary Signage" shall mean any signage used in connection with
-------------------
the Hotel (including both interior and exterior signage, and including
billboards and other signage not located on the Site) which contains one or more
Proprietary Marks; any signage which contains the word "Marriott" shall
automatically be deemed to be Proprietary Signage.
"Prospectus" shall have the meaning set forth in Section 20.05.
----------
"Qualified Lender" shall mean any Holder, from time to time, of any
----------------
Qualified Loan with respect to which Management Company has received a written
notice (pursuant to Section 20.09 of this Agreement) stating: (i) the name and
address of such Holder; and (ii) that such Holder is a "Qualified Lender"
pursuant to the terms of this Agreement.
"Qualified Loan" shall mean any Secured Loan in which the initial
--------------
principal amount, as of the date such Secured Loan is incurred, when added to
the current principal balance of all existing Secured Loans as of that date, is
less than or equal to the greater of the following:
(i) Seventy percent (70%) of Owner's Investment; or
(ii) the result obtained by (a) dividing the Operating Profit for the
thirteen (13) most recent full Accounting Periods by the Coverage
Ratio; then, (b) multiplying the result of clause (a) by the
Capitalization Multiple; or
(iii) the existing balance of any Secured Loans encumbering the Hotel
immediately prior to the date of the incurrence of such Qualified
Loan, plus commercially reasonable Transaction Costs associated with
such refinancing up to an amount equal to four percent (4%) of the
principal amount of such Qualified Loan.
In addition, regardless of whether or not the above test set forth in clauses
(i), (ii) and (iii) is
satisfied, (a) the existing (as of the Effective Date) balance of any Secured
Loan which is secured by an Existing Mortgage shall be deemed to be a "Qualified
Loan"; and (b) any Secured Loan which is secured by a Mortgage and with respect
to which Management Company, in it sole discretion, shall have given its written
approval shall be deemed to be a "Qualified Loan" (provided that an approval by
Management Company that a given Secured Loan shall be deemed to be a Qualified
Loan hereunder shall only apply to the specific hotel or hotels which are
described in such approval, and shall not be deemed to be an approval with
respect to other hotels, regardless of whether such Secured Loan by its terms
permits the substitution or addition of such other hotels as security for such
Secured Loan).
"Renewal Term" shall have the meaning set forth in Section 4.01 A.
------------
"Required Capital Expenditures" shall have the meaning set forth in
-----------------------------
Section 8.03 A.
"Restricted Area" shall mean that area which is described in the
---------------
narrative which is set forth in Exhibit "D" and which is shown on the map
attached hereto as Exhibit "D-1"; if there are conflicts between the narrative
description in Exhibit "D" and the map shown on Exhibit "D-1", the narrative
description shall govern.
"Restricted Hotel" shall mean any hotel whose size, facilities and
----------------
market positioning are such that, if such hotel had been operated by Management
Company or one of its Affiliates as of the Effective Date, it would have been
operated as a member of the Marriott Hotel System (that is, as a "full-service"
hotel, as opposed to one of the limited service brands also operated by
Affiliates of Marriott). The term "Restricted Hotel" shall not include any one
or more of the following: (i) any existing (as of the Effective Date) member of
the Marriott Hotel System which is within the Restricted Area; (ii) any
Courtyard by Marriott (or other similar moderate-price lodging product) or any
Residence Inn by Marriott (or other similar extended-stay lodging product) or
any Fairfield Inn (or other similar economy-price lodging product); (iii) any
hotel or hotels which are members of a chain of hotels (provided that such chain
has a minimum of four (4) or more hotels in operation), all or substantially all
(but in no event less than four (4) hotels) of which is acquired by, or merged
with, or franchised by or joined through marketing agreement with, Management
Company or one of its Affiliates (or the operation of which is transferred to
Management Company or one of its Affiliates); (iv) any hotel or hotels which are
members of a group of hotels which is (in a single transaction with a single
seller or transferor) acquired by, or merged with, or franchised by or joined
through marketing agreement with, Management Company or one of its Affiliates
(or the operation of which is transferred to Management Company or one of its
Affiliates), provided that such group of hotels contains no fewer than four (4)
hotels; (v) any future lodging product developed by Management Company or one of
its Affiliates which is not a lodging product which would have been included
within the Marriott Hotel System, as such system existed as of the Effective
Date; or (vi) any existing non-Marriott hotel within the Restricted Area which
is specifically designated on Exhibit "D" as not being a Restricted Hotel.
"Revenue Data Publication" shall mean ▇▇▇▇▇'▇ STAR Report, a monthly
------------------------
publication distributed by ▇▇▇▇▇ Travel Research, Inc. of Gallatin, Tennessee,
or an alternative source, reasonably satisfactory to both parties, of data
regarding the Revenue Per Room of hotels in the general trade area of the Hotel.
The "competitive set" for the Hotel shall be determined (with periodic
adjustments) by Management Company, subject to Owner's approval (such approval
not to be unreasonably withheld). If such ▇▇▇▇▇'▇ STAR Report is discontinued in
the future, or ceases (in the reasonable opinion of either Owner or Management
Company) to be a satisfactory source of data regarding the Revenue Per Room of
various hotels in the general trade area of the Hotel, Management Company shall
select an alternative source, subject to Owner's approval (such approval not to
be unreasonably withheld). If the parties fail to agree on either such
competitive set or such alternative source, as the case may be, within a
reasonable period of time, the matter shall be resolved by arbitration pursuant
to Section 20.13.
"Revenue Index" shall mean that fraction which is equal to (a) the
-------------
Revenue Per Room for the Hotel, divided by (b) the average Revenue Per Room for
the hotels in the Hotel's competitive set (including the Hotel), as set forth in
the Revenue Data Publication. Appropriate adjustments shall be made in the event
of a major renovation of the Hotel.
"Revenue Index Threshold" shall mean the fraction equal to ninety-five
-----------------------
(95) divided by one hundred (100), or .95 as a decimal. However, if the entry of
a new hotel into the Hotel's competitive set (or the removal of a hotel from
such competitive set) causes significant variations in the Revenue Index which
do not reflect the Hotel's true position in the relevant market, appropriate
adjustments shall be made to the Revenue Index Threshold by mutual consent of
Owner and Management Company (neither such consent to be unreasonably withheld).
"Revenue Per Room" shall mean (i) the term "revenue per room" as
----------------
defined by the Revenue Data Publication; or (ii) if the Revenue Data Publication
is no longer being used (as more particularly set forth in the definition of
"Revenue Data Publication"), the aggregate gross room revenues of the hotel in
question for a given period of time divided by the total room nights for such
period. If clause (ii) of the preceding sentence is being used, a "room" shall
be a hotel guestroom which is keyed as a single unit, and shall include rooms
which are temporarily unavailable due to (i) maintenance, or (ii) ongoing
renovation work.
"ROI Capital Expenditures" shall mean such Capital Expenditures as are
------------------------
required, in Management Company's reasonable judgment, to keep the Hotel in a
competitive, efficient and economical operating condition (which Management
Company shall substantiate by demonstrating a reasonable return on the proposed
investment to be made by Owner), in accordance with the Marriott Standards;
provided that the term "ROI Capital Expenditures" shall in no event include
expenditures which are within the definition of Required Capital Expenditures.
"Sale of the Hotel" shall mean any sale, assignment, transfer or other
-----------------
disposition, for value or otherwise, voluntary or involuntary, of Owner's title
to the Hotel or the Site (either fee or
leasehold title, as the case may be), but shall not include a collateral
assignment intended to provide security for a loan. For purposes of this
Agreement, a "Sale of the Hotel" shall also include a lease (or sublease) of the
entire Hotel or Site. The phrase "Sale of the Hotel" shall also include any
sale, transfer, or other disposition, for value or otherwise, in a single
transaction or a series of related transactions, of the controlling interest in
Owner. If Owner is a corporation, the phrase "controlling interest" shall mean
the right to exercise, directly or indirectly, fifty percent (50%) or more of
the voting rights attributable to the shares of Owner (through ownership of such
shares or by contract). If Owner is not a corporation, the phrase "controlling
interest" shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of Owner.
Notwithstanding the foregoing, the term "Sale of the Hotel" shall not include
any sale, assignment, transfer or other disposition of the Hotel or the Site by
Owner to an Affiliate of Owner.
"Sale/leaseback Transaction" shall have the meaning set forth in
--------------------------
Section 6.09.
"Second Notice" shall have the meaning set forth in Section 6.02.
-------------
"Secured Loan" shall mean and include (a) any indebtedness secured by
------------
a Mortgage encumbering the Hotel or all or any part of Owner's interest therein;
and (b) all amendments, modifications, supplements and extensions of any such
Mortgage.
"Secured Loan Acceleration" shall mean the acceleration of the
-------------------------
indebtedness incurred pursuant to any Secured Loan, as a result of a default
under the terms and conditions of such Secured Loan.
"Seller" shall have the meaning set forth in Section 6.09.
-----
"Settlement Threshold Amount" shall mean the greater of (i) One
---------------------------
Hundred Thousand Dollars ($100,000) (as adjusted by the GDP Deflator); or (ii) a
dollar amount (to be re-determined whenever reasonably necessary) equal to the
highest amount paid in a representative sampling of Employee Claims which have
been settled within the preceding twelve (12) months, where each of such
settlements can be reasonably characterized as being (i) within the normal
course of business at the Hotel, and (ii) within the range of similar
settlements at other hotels comparable to the Hotel. Any dispute between the
parties as to the appropriate amount under clause (ii) of the preceding sentence
shall be submitted to arbitration under Section 20.13.
"Site" shall mean the parcel or parcels of land described in Exhibit
----
"A" attached hereto.
"Soft Goods" shall mean all fabric, textile and flexible plastic
----------
products (not including items which are classified as "Fixed Asset Supplies"
under the Uniform System of Accounts) which are used in furnishing the Hotel,
including, without limitation: carpeting, drapes, bedspreads, wall and floor
coverings, mats, shower curtains and similar items.
"Software" shall mean all computer software and accompanying
--------
documentation (including all future upgrades, enhancements, additions,
substitutions and modifications thereof), other than computer software which is
commercially available, which are used by Management Company in connection with
the property management system, the reservation system and all future electronic
systems developed by Management Company for use in the Hotel.
"Subsequent Owner" shall mean any individual or entity which acquires
----------------
title to or possession of the Hotel at or through a Foreclosure.
"Telephones and Miscellaneous Equipment" shall mean the following
--------------------------------------
equipment used in the Hotel and all ancillary equipment: (i) telephones; (ii)
miscellaneous office equipment such as copiers, postage meters, etc.; (iii)
television sets; and (iv) audio-visual equipment.
"Term" shall mean the Initial Term plus all Renewal Terms.
----
"Termination" shall mean the expiration or sooner cessation of this
-----------
Agreement.
"Transaction Costs" shall mean, with respect to either (x) the
-----------------
incurring of any Secured Loan, or (y) the computation of Owner's Initial Cost,
as the case may be, all normal transaction costs (to the extent actually
incurred) including, without limitation, the following: state and local transfer
taxes; escrow fees; recording costs; Mortgage recording taxes; costs of any
survey; reasonable fees of the Holder's outside attorneys and accountants;
appraisal fees; title insurance premiums; financing costs (including "points");
reasonable attorneys' fees of Owner in connection with such Secured Loan or
Owner's Initial Cost, as the case may be; environmental inspection, testing and
reporting fees; and brokerage commissions (provided that no such brokerage
commissions shall be recognized as "Transaction Costs" hereunder if they are
made to a person or entity affiliated with Owner, to the extent (if any) that
such payments exceed the normal customary amounts).
"Uniform System of Accounts" shall mean the Uniform System of Accounts
--------------------------
for Hotels, Eighth Revised Edition, 1986, as published by the Hotel Association
of New York City, Inc.
"Working Capital" shall mean assets which are used in the day-to-day
---------------
operation of the Hotel's business, including, without limitation, amounts kept
in ▇▇▇▇▇ cash funds, amounts deposited in operating bank accounts, receivables,
prepaid expenses and funds expended to purchase Inventories, less accounts
payable and accrued current liabilities.
END OF ARTICLE I
ARTICLE II
APPOINTMENT OF MANAGEMENT COMPANY
---------------------------------
2.01 Appointment
-----------
Owner hereby appoints and employs Management Company as Owner's
exclusive agent to supervise, direct and control the management and operation of
the Hotel for the Term provided in Article IV. Management Company accepts said
appointment and agrees to manage the Hotel during the Term of this Agreement in
accordance with the terms and conditions hereinafter set forth. The performance
of all activities by Management Company hereunder shall be for the account of
Owner.
2.02 Delegation of Authority
-----------------------
Except as otherwise specifically set forth in this Agreement, Hotel
operations shall be under the exclusive supervision and control of Management
Company which, except as otherwise specifically provided in this Agreement,
shall be responsible for the proper and efficient operation of the Hotel.
Management Company shall have discretion and control, free from interference,
interruption or disturbance, but in all respects subject to the provisions of
this Agreement, in all matters relating to management and operation of the
Hotel, including, without limitation, the following: charges for rooms and
commercial space; credit policies; food and beverage services; employment
policies; granting of leases, licenses and concessions for shops and agencies
within the Hotel (provided that the term of any such lease, license or
concession shall not exceed the Term of this Agreement; and provided further
that Owner's consent shall be required prior to the execution by Management
Company of any such lease, license or concession which (i) has a term of more
than five (5) years, or (ii) involves more than one thousand (1,000) square feet
of space within the Hotel); receipt, holding and disbursement of funds;
maintenance of bank accounts; procurement of Inventories, supplies and services;
promotion and publicity; and, generally, all activities necessary for operation
of the Hotel.
2.03 Operational Standards
---------------------
In accordance with the Marriott Standards and the other terms of this
Agreement, Management Company shall, in connection with the Hotel, perform each
of the following functions (provided that in all cases, except as otherwise
specifically set forth in this Agreement, the costs and expenses of performing
such functions shall be Deductions):
A. Cooperate with Owner with respect to Owner's efforts to obtain the
initial Licenses necessary to commence operating the Hotel as of the Opening
Date; thereafter, Management Company shall obtain and keep in full force and
effect, either in its own name on behalf of Owner or in Owner's name, as may be
required by the Legal Requirements, any and all Licenses necessary for the
operation of the Hotel, to the extent the same is within the control of
Management Company (or, if same is not within the control of Management Company,
Management Company shall use all due diligence and reasonable efforts to obtain
and keep same in full force and effect).
B. Recruit, employ, supervise, direct and (when appropriate)
discharge all of the employees at the Hotel.
C. Establish and revise, as necessary, administrative policies and
procedures, including policies and procedures for the control of revenue and
expenditures, for the purchasing of supplies and services, for the control of
credit, and for the scheduling of maintenance, and verify that the foregoing
procedures are operating in a sound manner.
D. Plan, execute, and supervise repairs and maintenance at the Hotel.
E. Procure (as agent for Owner) all Fixed Asset Supplies and
Inventories.
F. Maintain the Operating Accounts.
G. Prepare and deliver Accounting Period Statements, Annual Operating
Statements, Annual Operating Budgets, Building Estimates, FF&E Estimates, and
such other budgets and reports as are required by this Agreement.
H. Establish prices, rates and charges for services provided in the
Hotel, including room rates.
I. As agent for Owner, negotiate and enter into leases, concessions
and licenses for shops and other facilities within the Hotel; provided, however,
that notwithstanding any provision in this Agreement to the contrary, Management
Company shall not enter into any leases, licenses or concessions for shops or
other facilities or agencies at the Hotel for any "non-hotel use" (which shall
be defined as any use which is not ultimately for the benefit of the hotel
guest; permitting third parties to install cellular telephone and/or other
telecommunications antennas at the Hotel (other than to service Hotel equipment)
or entering into any lease, license or concession relating to conducting time-
share activities are examples of "non-hotel uses") without the prior written
consent of Owner, which consent may be withheld in Owner's sole discretion.
J. Administer the leases, concessions and licenses for shops and
other facilities within the Hotel (whether entered into pursuant to subsection
I, above, or otherwise).
K. Provide the Central Office Services and the
Chain Services.
L. Provide, or cause to be provided, risk management services
relating to the types of insurance required to be obtained or provided by
Management Company under this Agreement, provided that the costs and expenses of
providing such services are to be paid as described in Section 12.04 B.
M. Reasonably cooperate with Owner concerning (i) disputes with any
Holder regarding the Hotel, (ii) contests of Impositions and Legal Requirements,
and (iii) adjustments of insurance claims and condemnation awards involving the
Hotel.
N. Reasonably cooperate (provided that Management Company shall not,
except as otherwise specifically set forth in Section 6.01, be obligated to
enter into any amendments of this Agreement) with Owner in any attempt(s) by
Owner to effectuate a Sale of the Hotel (provided that nothing herein shall
affect the provisions of Section 20.05), or to obtain any Secured Loan. Such
cooperation shall include, without limitation: (i) answering any reasonable
questions by prospective purchasers and Holders; (ii) preparing lists and
schedules of leases, concessions, FF&E, Fixed Asset Supplies, Inventories, and
similar items; and (iii) making such certifications and representations to
Owner, to such purchasers and to such Holders, regarding the Hotel and the
operation thereof, as Owner may reasonably request (taking into account the
extent of Management Company's control and responsibility provided for
hereunder). Owner shall promptly reimburse Management Company, from its own
funds and not as a Deduction, for the reasonable costs and expenses incurred by
Management Company in connection with any actions necessary to comply with the
requirements of this Section 2.03 N, provided that such actions are not
otherwise required under other provisions of this Agreement.
O. Arrange for and supervise public relations and advertising, and
prepare annual marketing plans.
P. Endeavor to manage the timing of expenditures to replenish
Inventories, Fixed Asset Supplies, payments on accounts payable and collections
of accounts receivable, so as to avoid or minimize any cash deficits with
respect to Hotel operations, which deficits would otherwise require additional
funding of Working Capital by Owner.
Q. Comply with all provisions in the Existing Ground Lease and in any
Existing Mortgages which are by their terms applicable to the operation of the
Hotel; provided, however, that all practices and procedures used by Management
Company in the operation of the Hotel as of the Effective Date shall be deemed
to be in compliance with the Existing Ground Lease and all Existing Mortgages;
but provided further, that if either the Ground Lessor or any Holder under an
Existing Mortgage shall, from time to time, notify Management Company that it
has determined that certain practices and procedures which are used by
Management Company in the operation of the Hotel are not in compliance with the
provisions of the Existing Ground Lease or such Existing Mortgage (as the case
may be), Management Company shall promptly alter such practices and procedures
to ensure such compliance; and provided further, that if such compliance would
require work by Management Company which is beyond the normal course of Hotel
operations, or would impose additional financial burdens on the Hotel which are
beyond the normal course of Hotel operations, Owner (from its own funds, not as
a Deduction) shall compensate Management Company for such work and such
additional burdens.
2.04 Limitations on Authority
------------------------
Notwithstanding anything in Section 2.02 or elsewhere in this
Agreement to the contrary (unless otherwise stated in this Section 2.04), and in
addition to the various other provisions of this Agreement which prohibit
Management Company from taking certain actions or which allow certain actions
only if Owner's consent thereto has been obtained, Management Company shall not,
without the prior written approval of Owner, which approval Owner may withhold
in its sole discretion, perform any of the following actions in connection with
the Hotel and on behalf of or burdening Owner:
1. Acquiring any land or interest therein;
2. Acquiring any capital assets or interest therein except (i)
items in the approved Building Estimate, and (ii) FF&E, Fixed Asset Supplies and
Inventories (to the extent the same constitute capital assets) in the ordinary
course of business as expressly provided for in this Agreement;
3. Financing, refinancing or mortgaging of any portion of the
Hotel or the revenue due to Owner therefrom;
4. Selling (other than dispositions of FF&E, Fixed Asset
Supplies and Inventories in the ordinary course of business as expressly
provided for in this Agreement), leasing (other than as expressly provided for
in this Agreement), or other transferring of, or the pledging or placing of any
lien or encumbrance on, any part of the Hotel;
5. In the event of a total or partial condemnation, consenting
to any award or participating in any condemnation proceeding, except as
expressly provided for in this Agreement;
6. Entering into, modifying or terminating any lease, concession
or license, except to the extent permitted under Section 2.02;
7. Adjusting any claim or settling any Litigation which (a) is
not covered by any of the insurance policies described in Article XII and is not
an Employee Claim, and which would result in a Deduction or payment in excess of
Five Hundred Thousand Dollars ($500,000) in any Fiscal Year, as adjusted by the
GDP Deflator, or (b) would impose on Owner any material liability or obligation
other than the payment of money, or would require Owner to make any material
admission; or
8. Adjusting any claim, under the applicable property insurance
policies, regarding injury or damage to the Hotel or its contents, where the
estimated cost of restoration is in excess of One Million Dollars ($1,000,000),
as adjusted by the GDP Deflator.
2.05 Covenants, Conditions or Restrictions
-------------------------------------
A. As of the Effective Date, there are existing covenants,
conditions, restrictions and/or agreements, including reciprocal easements or
cost-sharing arrangements (all of the foregoing types of encumbrances on the
Hotel, or agreements relating to the Hotel, whether existing as of the Effective
Date or not, shall be collectively referred to as "CC&R's"; those CC&R's which
are in existence as of the Effective Date, and which are referenced in the title
insurance policy, a copy
of which is attached hereto as Exhibit "G", shall be referred to in this
Agreement as "Existing CC&R's"). Management Company hereby gives its consent to
all Existing CC&R's. All costs, expenses and charges which are imposed on the
Hotel under the Existing CC&R's shall be paid from Gross Revenues as Deductions;
provided, however, that any such costs, expenses or changes which are treated
under generally-accepted accounting principles as "capital expenditures" (for
example, building a common roadway) shall be treated as expenditures under
Section 8.03 for purposes of this Agreement.
B. CC&R's which are entered into, or become encumbrances on the Hotel
and/or the Site, after the Effective Date shall be referred to in this Agreement
as "Future CC&R's." Owner agrees that it will give Management Company written
notice of its intention to execute any Future CC&R's, such notice to be
reasonably in advance of the execution thereof. Owner covenants that, during the
Term of this Agreement, there will not be (unless Management Company has given
its prior written consent thereto) any Future CC&R's affecting the Site or the
Hotel: (i) which purport to impose any material financial obligations on the
Hotel; (ii) which would prohibit or limit Management Company from operating the
Hotel, including cocktail lounges, restaurants and other facilities customarily
a part of or related to a first-class hotel, in accordance with the Marriott
Standards; or (iii) which would allow Hotel facilities (for example, parking
spaces) to be used by persons other than guests, invitees or employees of the
Hotel.
C. All financial obligations imposed on Owner or on Management
Company or on the Hotel pursuant to any Future CC&R's shall be paid by Owner
from its own funds, and not from Gross Revenues or from the FF&E Reserve, unless
Management Company has given its prior written consent to such Future CC&R's.
Management Company agrees that it will not unreasonably withhold its consent to
any such Future CC&R's; provided, however, that Management Company shall be
entitled to withhold its consent in its discretion if a proposed Future CC&R
would have a material impact on the operation of the Hotel, as described in
clauses (i), (ii) or (iii) of Section 2.05 B.
2.06 Licenses and Permits
--------------------
Owner agrees that, upon request by Management Company, it will sign
promptly and without charge applications for Licenses necessary for operation of
the Hotel.
END OF ARTICLE II
ARTICLE III
HOTEL
-----
3.01 Ownership of Hotel
------------------
A. Owner hereby represents that: (i) it has no reason to believe
that title to the Site and the Hotel is other than as set forth in the title
policy, a copy of which is attached as Exhibit "G" hereto; and (ii) that it has
purchased title insurance with regard to such title, as described in said
Exhibit "G". If, notwithstanding the foregoing, the title to the Site and/or the
Hotel is other than as set forth in Exhibit "G", and, as a result, this
Agreement is terminated prior to the tenth (10th) anniversary of the Opening
Date, Owner shall (as of the date of such Termination) pay Management Company a
termination fee equal to twice the amount of the Base Management Fees and
Incentive Management Fees payable to Management Company with respect to the most
recent full Fiscal Year. Owner hereby covenants that, throughout the Term of
this Agreement, it will not change the status of title to the Site from that
which is in existence as of the Effective Date (as described on Exhibit "G"
hereto), except that Owner shall have the right either (i) to effectuate a Sale
of the Hotel in accordance with Article XIX, or (ii) to encumber the Site and
the Hotel with the following:
1. Mortgages which are given to secure any one or more
Qualified Loans;
2. Liens for Impositions or other public charges not yet due
or which are being contested in good faith; and
3. Easements or other encumbrances (not including those
described in subsection 1 or 2 above) which do not adversely affect the
operation of the Hotel by Management Company and which are not prohibited
pursuant to Section 2.05 B of this Agreement.
END OF ARTICLE III
ARTICLE IV
TERM
----
4.01 Term
----
A. The initial term ("Initial Term") of this Agreement shall commence with
the Effective Date and, unless sooner terminated as herein provided, shall
continue until the expiration of the twentieth (20th) full Fiscal Year after the
Effective Date. The Term shall thereafter be automatically renewed for one
period of eleven (11) full Fiscal Years ("Renewal Term"), unless either: (i)
Management Company, at its option, notifies Owner, in accordance with Section
20.09, at any time within the period of eighteen (18) months prior to the
expiration of the Initial Term of its intention not to renew; or (ii) Management
Company has committed an Event of Default, and has been notified by Owner of
such Event of Default, under Article XVI of this Agreement, as of the date of
such renewal; or (iii) the average annual Operating Profit, computed with
respect to the most recent three (3) full Fiscal Years prior to the date of such
renewal, does not equal or exceed the Extension Threshold calculated for the
same period of time.
B. If Management Company so notifies Owner of its intention not to renew
pursuant to Section 4.01 A, Management Company shall continue to manage the
Hotel pursuant to this Agreement until the termination date set forth in such
notice, provided that such termination date shall be: (i) no less than twelve
(12) months after the date of such notice, and (ii) in no event earlier than the
expiration date of the Initial Term. Such termination date may be after the
expiration of the Initial Term, provided that the requirements of the preceding
sentence are satisfied. However, if Management Company has so notified Owner of
its intention not to renew, Owner may, at its option, by written notice to
Management Company at least ninety (90) days prior to the date on which Owner
desires Termination to occur, reduce the period of time prior to Termination to
any shorter period of time which Owner desires, provided that such shorter
period of time shall be at least the greater of: (a) ninety (90) days (beginning
as of the date of such notice from Owner), or (b) the minimum period (the
"Minimum Period") of time which Management Company reasonably decides is
prudent, given the requirements of the applicable Employment Laws regarding
employee discharges. If the Term of this Agreement is not renewed pursuant to
clause (iii) of Section 4.01 A (as opposed to clause (i) or (ii) thereof), the
Term shall be automatically extended for the Minimum Period (despite such non-
renewal). In no event shall the fact that Management Company may, pursuant to
either of the two (2) preceding sentences, be managing the Hotel after the
expiration of the Initial Term be construed as an election by Management Company
to renew the Term, if Management Company has elected (in accordance with this
Section 4.01) not to so renew.
C. If Owner has the right, under the provisions of the Existing Ground
Lease, to elect to renew or extend the term of the Existing Ground Lease, Owner
shall so notify Management Company at least one hundred eighty (180) days (but
no more than one (1) year) prior to the expiration of the period within which
Owner is obligated to notify the Ground Lessor of its election to renew or
extend the term of the Existing Ground Lease. Such notice from Owner shall
contain all of the relevant facts about the impending election to renew or
extend, including the length of the period of renewal or extension. Unless
Management Company notifies Owner, within a period of ninety (90) days after
receipt of the foregoing notice from Owner, that Management Company disapproves
the renewal or extension of the term of the Existing Ground Lease, Owner will,
by proper notice to the Ground Lessor, within the applicable time period under
the Existing Ground Lease, elect to renew or extend the term of the Existing
Ground Lease.
D. If, after proper notice from Owner in accordance with Section 4.01 C,
Management Company fails to disapprove the renewal or extension of the term of
the Existing Ground Lease, the Term of this Agreement shall be deemed to be
automatically extended to the later of: (i) the expiration of the term of the
Existing Ground Lease, as renewed or extended in accordance with Section 4.01 C;
or (ii) the date on which the Term of this Agreement would otherwise have
expired absent this sentence. If, in order to comply with the preceding
sentence, it is necessary for Management Company to waive its option not to
renew with respect to one or more Renewal Terms, such waiver shall be deemed to
have been given; however, Management Company shall retain the right not to renew
(as more particularly described in Section 4.01 A) as to any portion of such
Renewal Term which would occur after the expiration of the term of the Existing
Ground Lease, as renewed or extended in accordance with Section 4.01 C.
E. If, after proper notice from Owner in accordance with Section 4.01 C,
Management Company disapproves the renewal or extension of the term of the
Existing Ground Lease, the Term of this Agreement shall be deemed to be
automatically reduced to the earlier of: (i) the expiration of the term of the
Existing Ground Lease; or (ii) the date on which the Term of this Agreement
would otherwise have expired absent this sentence.
4.02 Actions to be Taken Upon Termination
------------------------------------
Upon a Termination of this Agreement, the following shall be applicable:
A. Management Company shall, within sixty (60) days after Termination of
this Agreement, prepare and deliver to Owner a final accounting statement with
respect to the Hotel, as more particularly described in Section 9.01 hereof,
along with a statement of any sums due from Owner to Management Company pursuant
hereto, dated as of the date of Termination. Within thirty (30) days after the
receipt by Owner of such final accounting statement, the parties will make
whatever cash adjustments are necessary pursuant to such final statement. The
cost of preparing such final accounting statement shall be a Deduction, unless
the Termination occurs as a result of an Event of Default by either party, in
which case the defaulting party shall pay such cost. Management Company and
Owner acknowledge that there may be certain adjustments for which the necessary
information will not be available at the time of such final accounting, and the
parties agree to readjust such amounts and make the necessary cash adjustments
when such information becomes available; provided, however, that (unless there
are ongoing disputes of which each party has received notice) all accounts shall
be deemed final as of one hundred eighty (180) days after such Termination.
B. As of the date of the final accounting referred to in subsection A
above, Management Company shall release and transfer to Owner any of Owner's
funds which are held or controlled by Management Company with respect to the
Hotel, with the exception of funds to be held in escrow pursuant to Section
12.04 and Section 14.01 F. During the period between the date of Termination and
the date of such final accounting, Management Company shall pay (or reserve
against) all Deductions which accrued (but were not paid) prior to the date of
Termination, using for such purpose any Gross Revenues which accrued prior to
the date of Termination.
C. Management Company shall make available to Owner such books and records
respecting the Hotel (including those from prior years, subject to Management
Company's reasonable records retention policies) as will be needed by Owner to
prepare the accounting statements, in accordance with the Uniform System of
Accounts, for the Hotel for the year in which the Termination occurs and for any
subsequent year. Such books and records shall not include: (i) employee records
which must remain confidential either under Legal Requirements or under
reasonable chain-wide corporate policies of Management Company; or (ii) any
Intellectual Property.
D. Management Company shall (to the extent permitted by Legal
Requirements) assign to Owner, or to any other manager employed by Owner to
operate and manage the Hotel, all operating Licenses for the Hotel which have
been issued in Management Company's name; provided that if Management Company
has expended any of its own funds in the acquisition of any of such Licenses,
Owner shall reimburse Management Company therefor if it has not done so already.
E. All Proprietary Signage shall be removed by Management Company from the
Hotel and from the Site (and from any locations other than the Site). The cost
of such removal shall be a Deduction, unless the Termination occurs either: (i)
as a result of an Event of Default by either party, in which case the defaulting
party shall pay the cost of such removal from its own funds, and not as a
Deduction; or (ii) as a result of Management Company's election not to renew the
Term, as of the expiration of either the Initial Term or any Renewal Term (as
the case may be), in which case Management Company shall pay the cost of such
removal from its own funds, and not as a Deduction.
F. Various other actions shall be taken, as described in this Agreement,
including, but not limited to, the actions described in Sections 7.01, 10.02,
10.03, 10.04, 12.04 B, and 14.01 F.
G. Management Company shall cooperate with the new operator of the Hotel
as to effect a smooth transition and shall peacefully vacate and surrender the
Hotel to Owner.
The provisions of this Section 4.02 shall survive any Termination.
4.03 Performance Termination
-----------------------
A. Subject to the provisions of Section 4.03 B below, Owner shall have the
option to terminate this Agreement if:
1. With respect to any two (2) consecutive Fiscal Years (not
including any period of time prior to the third (3rd) anniversary of the
Effective Date), Operating Profit, less the amount of Ground Lease Rental, for
each of such two (2) Fiscal Years is less than the Performance Termination
Threshold; and
2. The Revenue Index of the Hotel during each of such two (2)
consecutive Fiscal Years is less than the Revenue Index Threshold (provided,
however, that if Management Company elects under Section 4.03 B to avoid
Termination by making a Cure Payment, this subclause (2) of Section 4.03 A shall
be deemed to be deleted from this Agreement with respect to any subsequent
election by Owner to terminate this Agreement pursuant to Section 4.03 A); and
3. The fact that the Hotel is not meeting the test set forth in
Section 4.03 A(1) is not the result of either (x) Force Majeure or (y) any major
renovation of the Hotel.
Such option to terminate shall be exercised by serving written notice thereof on
Management Company no later than sixty (60) days after the receipt by Owner of
the annual accounting under Section 9.01 hereof for the second (2nd) of the two
(2) Fiscal Years referred to in Section 4.03 A(1). If Management Company does
not elect to avoid such Termination pursuant to Section 4.03 B below, this
Agreement shall terminate as of the end of the fourth (4th) full Accounting
Period following the date on which Management Company receives Owner's written
notice of its intent to terminate this Agreement; provided that such period of
time shall be extended as required by applicable Legal Requirements pertaining
to the termination of the employment of the employees at the Hotel. Owner's
failure to exercise its right to terminate this Agreement pursuant to Section
4.03 A with respect to any given Fiscal Year shall not be deemed an estoppel or
waiver of Owner's right to terminate this Agreement with respect to subsequent
Fiscal Years to which this Section 4.03 A may apply.
B. Upon receipt of a written notice of Termination sent by Owner to
Management Company pursuant to Section 4.03 A, Management Company shall have the
option, subject to Section 4.03 C below, to be exercised by written notice (the
"Cure Notice") to Owner within sixty (60) days after receipt of said notice from
Owner, to avoid such Termination by making a Cure Payment (as defined below).
The term "Cure Payment" shall mean: (i) with respect to the first (1st) occasion
on which Owner elects to terminate this Agreement pursuant to Section 4.03A,
either of the following two (2) choices (whichever Management Company shall
elect): (x) the payment to Owner of the aggregate amount, with respect to each
of the two (2) consecutive Fiscal Years described in Section 4.03 A (1), by
which Operating Profit was less than the Performance Termination Threshold; or
(y) the waiver by Management Company of receipt of the Base Management Fees
during the Cure Period (as defined below); and (ii) with respect to the second
(2nd) occasion on which Owner elects to terminate this Agreement pursuant to
Section 4.03A, the
waiver by Management Company of receipt of the Base Management Fees during the
Cure Period. The term "Cure Period" shall mean the period of two (2) consecutive
calendar years, beginning with the first full Accounting Period after the date
of the Cure Notice. In the event Management Company elects to avoid such
Termination pursuant to this Section 4.03 B, the two consecutive Fiscal Years
referred to in Section 4.03 A(1) with respect to which such election was made
shall thereafter not be treated, for purposes of subsequent elections by Owner
pursuant to Section 4.03 A, as Fiscal Years in which the circumstances described
in Section 4.03 A(1) have occurred. If Management Company exercises such option
to make a Cure Payment, then (i) the foregoing Owner's election to terminate
this Agreement under Section 4.03 A shall be canceled and of no force or effect
and this Agreement shall not terminate. In the event Management Company elects
to waive the Base Management Fee for the Cure Period, then Owner shall not be
entitled to send any subsequent written notice of Termination pursuant to
Section 4.03 until the expiration of the Cure Period. Management Company's
election to avoid a Termination (pursuant to this Section 4.03 B) shall not
affect the right of Owner, as to each subsequent Fiscal Year to which Section
4.03 A applies, to again elect to terminate this Agreement, pursuant to the
provisions of Section 4.03 A (provided that, in the case of an election by
Management Company to waive receipt of the Base Management Fee during the Cure
Period, such election by Owner to terminate shall be made only after the
expiration of the Cure Period). If Management Company does not exercise its
option to make a Cure Payment pursuant to this Section 4.03 B, then this
Agreement shall be terminated as of the date set forth in Section 4.03 A. An
election by Management Company to avoid a Termination pursuant to this Section
4.03 B shall only operate to cancel Owner's election to terminate this Agreement
under Section 4.03 A, and shall not operate to cure any outstanding Defaults by
Management Company under Article XVI.
C. Management Company shall be entitled to avoid Termination by exercise
of its rights pursuant to Section 4.03 B on only two (2) occasions during the
Term of this Agreement. In the event of a subsequent election by Owner to
terminate this Agreement pursuant to Section 4.03 A, after the expiration of the
Cure Period which follows the second (2nd) exercise by Management Company of its
right to avoid Termination pursuant to Section 4.03 B, Management Company shall
not again be entitled to avoid Termination under Section 4.03 B.
END OF ARTICLE IV
ARTICLE V
COMPENSATION OF MANAGEMENT COMPANY; DISTRIBUTIONS
-------------------------------------------------
5.01 Management Fees
---------------
In consideration of services to be performed during the Term of this
Agreement, Management Company shall retain the Management Fees.
5.02 Accounting and Interim Payments
-------------------------------
A. On or before the twentieth (20th) day after the close of each
Accounting Period, Management Company shall deliver to Owner a reasonably
detailed accounting statement (the "Accounting Period Statement") in
substantially the form set forth in Exhibit "B" hereto. Upon Owner's written
request therefor, Management Company shall forward copies of any such Accounting
Period Statement to any Holders or Ground Lessors, at the addresses specified by
Owner. Such Accounting Period Statement shall set forth the results of the
operations (by department) of the Hotel for the preceding Accounting Period and
for the Fiscal Year-to-date, all in accordance with generally accepted
accounting principles applied on a consistent basis. Each Accounting Period
Statement shall be accompanied by a statement, by either the controller of the
Hotel or Management Company's regional controller, that, to the best of his or
her knowledge and belief, and subject to routine year-end audit and adjustment,
such Accounting Period Statement is true and correct in all material respects.
Each Accounting Period Statement shall include: (i) calculations of Gross
Revenues, Deductions, Operating Profit, the Management Fees; and (ii)
comparisons with the applicable Annual Operating Budget. With each such
Accounting Period Statement, Management Company shall transfer any interim
Owner's Distribution due to Owner, and shall retain any interim Management Fees
due to Management Company.
B. Calculations and payments of the Management Fees and the Owner's
Distribution with respect to each Accounting Period within a Fiscal Year shall
be accounted for cumulatively. Within seventy-five (75) days after the close of
each Fiscal Year, Management Company shall submit an Annual Operating Statement,
as more fully described in Section 9.01, for such Fiscal Year to Owner, which
Annual Operating Statement shall be controlling over the interim Accounting
Period Statements. Any adjustments or payments required by any such Annual
Operating Statement shall be made promptly by the parties. Operating Losses
shall not be carried forward or backward to subsequent or prior Fiscal Years.
C. For purposes of calculating the Management Fees for any given Fiscal
Year, Operating Profit shall not include adjustments for either refunds or
additional payments of Impositions relating to any prior Fiscal Years. In the
event such refunds or additional payments occur, the Operating Profit with
respect to the prior Fiscal Years in which such Impositions accrued shall be
recalculated to show such refund or additional payment; if the Management Fees
with respect to such prior Fiscal Years are either increased or decreased as a
result of such recalculation of Operating Profit, the party which owes money to
the other party shall promptly pay the amount owed.
D. All liabilities which accrued (or which stem from events which
occurred) prior to the Opening Date shall (as between Owner and Management
Company) be paid, or caused to be paid, by Owner (not from Gross Revenues nor
from the FF&E Reserve) and shall not be treated as Deductions. Owner shall
indemnify, defend and hold harmless Management Company (and its officers,
directors, employees and agents) against claims or demands relating to such
liabilities. Such liabilities shall include, without limitation, the following:
(i) payables which accrued prior to the Opening Date, or which are allocated to
the period prior to the Opening Date under generally-accepted accounting
principles; (ii) outstanding litigation as of the Opening Date (including
litigation commenced after the Opening Date which stems from events prior to the
Opening Date); (iii) claims relating to the termination of service contracts,
equipment leases or space leases entered into by Prior Owner (or one of its
agents), where Management Company has notified Owner prior to the Effective Date
that such service contract, equipment lease or space lease will not be a part of
the operation of the Hotel after the Opening Date; (iv) employment-related
claims (including, without limitation, accrued vacation, sick leave and other
benefits) stemming from periods of time prior to the Opening Date; such claims
shall include claims relating to wrongful termination, severance pay or
compliance with Legal Requirements regarding termination of employees (such as
the WARN Act), where such claims stem from the termination of any employee by
Prior Owner (or one of its agents); (v) costs relating to both remediation and
payment of fines, etc., stemming from any violation of any Legal Requirement
(including building codes or local fire codes) prior to the Opening Date
(including on-going violations which are in existence as of the Opening Date);
and (vi) any claims made by Prior Manager or Prior Franchisor involving the
termination of their contracts with the Prior Owner with respect to the Hotel,
or the operation of the Hotel pursuant to such contracts; and (vii) any
expenditures which are included within the definition of "Owner Investment".
With respect to clause (iv) above, if Owner assumes responsibility for the
payment after the Opening Date of deferred compensation which is owed with
respect to work performed prior to the Opening Date, and if such work has
created a direct benefit to the operation of the Hotel after the Opening Date
(e.g., commissions owed to sales staff for bookings after the Opening Date), the
payment of such deferred compensation as a Deduction shall be permitted if
treatment as a Deduction is in accordance with generally-accepted accounting
principles.
END OF ARTICLE V
ARTICLE VI
FINANCING OF THE HOTEL
----------------------
6.01 Amendments of Management Agreement
----------------------------------
A. If requested by any Qualified Lender or prospective Qualified Lender,
Management Company agrees to execute and deliver any amendment of this Agreement
which is reasonably required by such Qualified Lender or prospective Qualified
Lender, provided that Management Company shall be under no obligation to amend
this Agreement if the result of such amendment would be: (i) to reduce, defer or
delay the amount of any payment to be made to Management Company hereunder; (ii)
to materially increase Management Company's obligations under this Agreement;
(iii) to change the Term of this Agreement; (iv) to cause the Hotel to be
operated other than pursuant to the Marriott Standards; (v) to amend materially
either Section 8.02 or Section 14.01; or (vi) to otherwise materially affect
Management Company's rights under this Agreement. Any such amendment shall take
effect as of the funding of such Qualified Loan.
B. In addition to the provisions of Section 6.01 A, if a Qualified Lender
or prospective Qualified Lender requests that Management Company enter into an
amendment of this Agreement, and if such amendment would impose additional
duties (for example, an increase in the reporting requirements or in the record-
keeping requirements, or adding the obligation to prepare parallel accounting
statements using a different fiscal year) on Management Company or would
otherwise adversely affect Management Company's rights under this Agreement, but
not to the degree described in clauses (i) through (vi) of Section 6.01 A,
Management Company hereby agrees that it will execute and deliver such requested
amendment of this Agreement, provided that Owner compensates Management Company
for the additional burden imposed by such amendment. It is understood that the
word "burden", as used in the preceding sentence, shall encompass not only
additional work to be performed by Management Company, but also the adverse
effect on the Incentive Management Fee which would be caused by requiring
increased services by third parties. Any dispute as to whether Management
Company is entitled to any compensation pursuant to this Section 6.01 B, or as
to the amount of such compensation, shall be resolved by arbitration pursuant to
Section 20.13.
C. Proposed amendments to this Agreement which are requested by any
Qualified Lender or prospective Qualified Lender, and which would affect the
insurance provisions set forth in Article XII, shall be governed exclusively by
Article XII.
6.02 Notice and Opportunity to Cure
------------------------------
A. In the event of (i) a Default by Owner in the performance or observance
of any of the terms and conditions of this Agreement, or (ii) any other
occurrence which entitles Management Company to terminate this Agreement, and in
the event that Management Company gives written notice thereof to Owner pursuant
to Article XVI of this Agreement, Management Company shall also give a duplicate
copy (herein referred to as the "First Notice") of such notice to each
Qualified Lender, at the address previously provided to Management Company. Any
such notice will be sent in the manner described in Section 20.09 hereof. In
addition, in the event that such Default is not cured within the applicable cure
period under Article XVI of this Agreement, and Management Company intends to
exercise its remedy of terminating this Agreement, Management Company shall send
a second notice (the "Second Notice") to each Qualified Lender, to the same
address and in the same manner applicable to the First Notice, stating
Management Company's intention to terminate this Agreement. Management Company
shall forbear from taking any action to terminate this Agreement for a period of
thirty (30) days after the service of the First Notice, and for an additional
period of thirty (30) days after the service of the Second Notice (if such
Second Notice is required, as set forth above).
B. In the event of a Default by Owner under the provisions of this
Agreement, Management Company agrees to accept performance by any Qualified
Lender with the same force and effect as if same were performed by Owner, in
accordance with the provisions and within the cure periods prescribed in this
Agreement (except that each Qualified Lender shall have such additional cure
periods, not available to Owner, as are set forth in this Section 6.02).
C. No notice given by Management Company to Owner shall be effective as a
notice under Article XVI of this Agreement unless the applicable duplicate
notice to each Qualified Lender which is required under Section 6.02 A (either
the First Notice or the Second Notice, as the case may be) has been given. It is
understood that any failure by Management Company to give such a duplicate
notice (either the First Notice or the Second Notice, as the case may be) to any
Qualified Lender shall not itself be a Default by Management Company under this
Agreement, but rather shall operate only to void the effectiveness of any such
notice by Management Company to Owner under Article XVI of this Agreement.
D. Except as specifically limited by this Section 6.02, nothing herein
shall preclude Management Company from exercising any of its rights or remedies
against Owner with respect to any Default by Owner under this Agreement.
6.03 Assignment of Management Agreement
----------------------------------
Owner shall have the right to collaterally assign to any Qualified Lender,
as additional security for the indebtedness evidenced by a Qualified Loan, all
of Owner's right, title and interest in and to this Agreement, including the
right to distributions payable to Owner pursuant to Article V thereof. If,
pursuant to any such assignment (or subsequent loan documentation entered into
between Owner and a Qualified Lender with a similar purpose), and provided that
Management Company has previously received a copy of such assignment and such
subsequent documentation, Management Company may receive (from time to time) a
notice or notices from such Qualified Lender directing Management Company to pay
to such Qualified Lender subsequent distributions under Article V of this
Agreement which would otherwise be payable to Owner, Management Company shall
comply with any such notice. Management Company shall continue to make payments
in compliance with any such notice from such Qualified Lender until Management
Company receives written instructions to the contrary from such Qualified
Lender. Owner hereby gives its consent to any such payments by Management
Company to such Qualified Lender which are in compliance with any such notice.
The foregoing consent by Owner shall be deemed to be irrevocable until the
entire Qualified Loan has been discharged, as evidenced either by the
recordation of a satisfaction or release executed by such Qualified Lender, or
by the delivery of a written statement to that effect from such Qualified Lender
to Management Company. Management Company shall comply with the direction set
forth in any such notice without any necessity to investigate why such Qualified
Lender sent such notice, or to confirm whether or not Owner is in fact in
default under the terms of such Qualified Loan. If Management Company receives
such notices from more than one Qualified Lender, Management Company shall (at
its option) either (i) comply with the provisions of the notice sent by the
Qualified Lender whose Qualified Loan has the senior lien priority, or (ii)
institute Litigation for a declaratory judgment to determine to whom payments
under this Agreement shall be made (in which case, the costs and expenses of
such Litigation, including attorneys' fees, shall be Deductions).
6.04 Subordination of Management Agreement
-------------------------------------
A. This Agreement, and Management Company's right to continue to manage
and operate the Hotel pursuant to this Agreement, are and shall be subject and
subordinate to the lien of any Qualified Loan (i.e., upon a Foreclosure of any
such Qualified Loan, such Qualified Lender, at its option, unless it has
otherwise agreed to the contrary in a Non-Disturbance Agreement, shall have the
right to terminate this Agreement). Notwithstanding the foregoing, during the
Term of this Agreement, all debt service (including increased or accelerated
payments after a default) payable with respect to any Qualified Loan shall be
paid exclusively from Owner's Distribution.
B. Section 6.04 A is intended to be, and is, fully effective and binding,
as between Management Company and any such Qualified Lender; however, Management
Company agrees to execute such confirmatory documentation (in recordable form in
the jurisdiction in which the Hotel is located) as such Qualified Lender shall
reasonably request.
C. Notwithstanding the possible termination of this Agreement which is set
forth in the foregoing provisions of this Section 6.04, it is understood that,
until such time as this Agreement is validly terminated either (i) pursuant to
the applicable provision of this Agreement, or (ii) pursuant to a court order in
connection with the Foreclosure of a Qualified Loan (assuming that such
termination does not breach any binding Non-Disturbance Agreement), the Holder
of each Qualified Loan will honor and recognize the right of Management Company
to operate the Hotel in accordance with this Agreement (including the right of
Management Company to collect all Gross Revenues and to make expenditures in
accordance with this Agreement).
6.05 Non-Disturbance Agreement
-------------------------
A. Owner agrees that, in connection with the obtaining by Owner of any
Secured Loan or Secured Loans, from time to time, Owner will use good faith
reasonable efforts to obtain a
Non-Disturbance Agreement from each Holder or Holders. The phrase "good faith
reasonable efforts" shall be determined by reference to the following: (i)
normal loan underwriting procedures and practices (including those practices
relating to non-disturbance agreements) which are generally being implemented by
entities which are making loans similar to such Secured Loan, as of that point
in time; and (ii) the concessions which Management Company is, as of that point
in time, reasonably prepared to make in order to satisfy the objectives of
lenders in connection with the lender-manager relationship after a Foreclosure.
In no event, however, shall the failure of Owner to obtain such a Non-
Disturbance Agreement affect or modify any of the responsibilities of Management
Company toward Qualified Lenders which are contained elsewhere in this Article
VI.
B. Notwithstanding Section 6.05 A, Owner agrees that, prior to obtaining
any Qualified Loan, it will obtain from each prospective Holder or Holders
thereof a Non-Disturbance Agreement pursuant to which Management Company's
rights under this Agreement will not be disturbed as a result of a loan default
stemming from non-monetary factors which (i) relate to Owner and do not relate
solely to the Hotel, and (ii) are not Defaults by Management Company under
Article XVI of this Agreement. If Owner desires to obtain a Qualified Loan,
Management Company, on written request from Owner, shall promptly identify those
provisions in the proposed loan documents which fall within the categories
described in clauses (i) and (ii) above, and Management Company shall otherwise
assist in expediting the preparation of an agreement between the prospective
Holder and Management Company which will implement the provisions of this
Section 6.05 B.
6.06 Attornment
----------
A. Management Company agrees that, subject to the provisions of Section
6.06 B, upon a Foreclosure of any Qualified Loan, provided that this Agreement
has not expired or otherwise been earlier terminated in accordance with its
terms, Management Company shall attorn to any Subsequent Owner and shall remain
bound by all of the terms, covenants and conditions of this Agreement for the
balance of the remaining Term (including any Renewal Terms) with the same force
and effect as if such Subsequent Owner were the "Owner" under this Agreement;
provided, however, that Management Company shall be under no such obligation to
so attorn, and, to the contrary, shall thereupon have the right to terminate
this Agreement on thirty (30) days' prior written notice to both Owner and such
Subsequent Owner: (i) if such Subsequent Owner would not qualify as a permitted
transferee under Section 19.01 A of this Agreement; or (ii) unless such
Subsequent Owner, within twenty (20) days after the Foreclosure Date (or, in the
event such Subsequent Owner acquires title to the Hotel after the Foreclosure
Date, within twenty (20) days after the date of such acquisition of title to the
Hotel), assumes all of the obligations of the "Owner" under this Agreement which
arise from and after the Foreclosure Date (or such later date of acquisition of
title to the Hotel), pursuant to a written assumption agreement which shall be
delivered to Management Company. Upon the written request of any Qualified
Lender, Management Company shall periodically execute and deliver a statement,
in a form reasonably satisfactory to such Qualified Lender, reaffirming
Management Company's obligation to attorn as
set forth in this Section 6.06 A.
B. It is understood by the parties that, in view of the fact that a
Qualified Lender will have the right to terminate this Agreement on a
Foreclosure under the provisions of Section 6.04, Management Company has an
interest in being informed, within a reasonable period of time after a Secured
Loan Acceleration, of whether or not such Qualified Lender intends to exercise
such right of termination. Accordingly, if, by no later than that date (the
"Post-Foreclosure Decision Date") which is ninety (90) days after the date of
any Secured Loan Acceleration, Management Company has not received a Non-
Disturbance Agreement executed by the Holder of such Secured Loan, Management
Company shall, as of the Post-Foreclosure Decision Date and thereafter, no
longer be under any obligation to attorn (pursuant to the provisions of Section
6.06 A) with respect to any Foreclosure of that Secured Loan, and Management
Company shall have the option to terminate this Agreement, by written notice to
both Owner and the Holder of each existing Qualified Loan, at any time within
the sixty (60) day period immediately following the Post-Foreclosure Decision
Date.
6.07 No Modification or Termination of Agreement
-------------------------------------------
If the documents evidencing and securing a Qualified Loan require the
consent of the Qualified Lender to any amendment or modification of this
Agreement which materially affects such Qualified Lender, no such amendment or
modification of this Agreement shall be binding or effective unless such
Qualified Lender shall have consented in writing thereto.
6.08 Owner's Right to Finance the Hotel
----------------------------------
Owner shall have the right, from time to time, without Management Company's
prior consent or approval, to obtain Qualified Loans, and to encumber the Hotel
with Mortgages securing such Qualified Loans. Owner shall not, without the
prior consent of Management Company, have the right to obtain Secured Loans
which are not Qualified Loans.
6.09 Sale/Leaseback Transactions
---------------------------
Any single transaction or related series of transactions in which (i)
Owner's interest in the Hotel is sold or transferred by the then Owner
("Seller") to a buyer ("Buyer"), and (ii) the Buyer (as "landlord") leases the
Hotel to the Seller (as "tenant"), is hereby defined as a "Sale/leaseback
Transaction". With respect to each Sale/leaseback Transaction during the Term of
this Agreement, the following provisions will apply: (a) the sale or transfer of
the Hotel will be considered a Sale of the Hotel; however, the Seller (as tenant
under the aforesaid lease), not the Buyer, shall thereafter be treated as the
"Owner" for purposes of this Agreement; (b) the purchase price will not be a
Secured Loan, but any mortgage financing placed (either at the time of the
transaction or later) on the Buyer's interest in the Hotel will be treated as a
Secured Loan, and the proceeds of each such Secured Loan will be aggregated with
all outstanding Secured Loans, which encumber either the Buyer's interest in the
Hotel or the Seller's leasehold interest in the
Hotel, for purposes of determining whether a given Secured Loan qualifies as a
Qualified Loan; (c) payments pursuant to such lease shall not be treated as
Deductions, except for Impositions and similar items which would have been
treated as Deductions in the absence of such Sale/leaseback Transaction; and (d)
all subsequent sales, transfers or assignments of either Buyer's interest in the
Hotel or Seller's interest in the Hotel will be treated as Sales of the Hotel.
Owner will not enter into any Sale/leaseback Transaction unless Management
Company and the proposed Buyer have previously executed a mutually satisfactory
attornment agreement pursuant to which, as of the date of the termination of
Seller's leasehold interest, the provisions of this Agreement will (unless there
has been an Event of Default or other event entitling either party to terminate
this Agreement) be binding both on Management Company and on Buyer (as the
successor "Owner"); such attornment agreement will also contain an immediately-
effective provision which will incorporate the terms of Section 6.08 of this
Agreement, binding both on Management Company and on Buyer.
END OF ARTICLE VI
ARTICLE VII
WORKING CAPITAL AND FIXED ASSET SUPPLIES
----------------------------------------
7.01 Working Capital
---------------
A. At or prior to the Opening Date, Owner shall provide Management Company
with the initial Working Capital for the Hotel in the amount set forth on
Exhibit "A-1". Owner shall have the right to satisfy all or a portion of the
obligation described in the preceding sentence through Owner's purchase of the
working capital (including receivables) of the Hotel from Prior Owner. The fair
market value (as reasonably determined by Management Company) of all Inventories
which are delivered into Management Company's control as of the Opening Date
shall be credited against Owner's obligation set forth in the preceding
sentence.
B. Owner shall, from time to time thereafter during the Term of this
Agreement, provide Management Company, within thirty (30) days after Owner's
receipt of written request therefor by Management Company, with the funds
necessary to maintain Working Capital at levels determined by Management Company
to be reasonably necessary to operate the Hotel in accordance with the Marriott
Standards. Any such request by Management Company shall be accompanied by a
detailed explanation of the reasons for the request. If Owner fails to respond
to any such request within thirty (30) days after Owner's receipt thereof,
Management Company shall be entitled, at its option, without affecting other
remedies which may be available pursuant to Article XVI, to lend Owner the
necessary additional Working Capital from Management Company's own funds, which
loan will bear interest at the Interest Rate (compounded annually), and will be
secured by a security interest (subordinated to any Qualified Loan) encumbering
all Working Capital previously or thereafter provided by either Owner or
Management Company, and will be repaid in accordance with such terms and
conditions as Management Company shall at that time reasonably determine.
C. Management Company will manage the Working Capital of the Hotel
prudently and in accordance with the Marriott Standards. Management Company
shall review and analyze the Working Capital needs of the Hotel on an annual
basis. If Management Company reasonably determines that there is excess Working
Capital, such excess shall be returned to Owner.
D. Working Capital provided by Owner pursuant to this Section 7.01 shall
remain the property of Owner throughout the Term of this Agreement. Upon
Termination, Owner shall retain any of its unused Working Capital, except for
Inventories purchased by Management Company pursuant to Section 10.02.
7.02 Fixed Asset Supplies
--------------------
At or prior to the Opening Date, Owner shall provide the Hotel with the
Fixed Asset Supplies which are necessary to operate the Hotel in accordance with
the Marriott Standards. Owner shall, from time to time thereafter during the
Term of this Agreement, provide
Management Company, within thirty (30) days after Owner's receipt of written
request therefor by Management Company, with any additional funds necessary to
maintain Fixed Asset Supplies at levels determined by Management Company to be
necessary to operate the Hotel in accordance with the Marriott Standards. Fixed
Asset Supplies shall remain the property of Owner throughout the Term of this
Agreement, except for Fixed Asset Supplies purchased by Management Company
pursuant to Section 10.02.
END OF ARTICLE VII
ARTICLE VIII
REPAIRS, MAINTENANCE AND REPLACEMENTS
-------------------------------------
8.01 Routine Repairs and Maintenance
-------------------------------
A. From and after the Opening Date, Management Company shall maintain the
Hotel in good repair and condition, and in conformity with applicable Legal
Requirements and the Marriott Standards, and shall make or cause to be made such
routine and preventative maintenance, repairs and minor alterations, the cost of
which can be expensed under generally accepted accounting principles, as it,
from time to time, deems reasonably necessary for such purposes. The cost of
such maintenance, repairs and alterations shall be paid from Gross Revenues and
shall be treated as a Deduction in determining Operating Profit.
B. Management Company shall (pursuant to a schedule which shall be subject
to the reasonable approval of both Owner and Management Company) arrange for and
coordinate routine and other appropriate inspections of the structure and
exterior facade of the Hotel, and of the mechanical, electrical, heating,
ventilating, air conditioning, plumbing, and vertical transportation elements of
the Hotel. The costs of such inspections shall be treated as Deductions.
C. Management Company shall submit to Owner (at the same time as the
submission of the Annual Operating Projection) a signed copy of an annual report
summarizing all preventative maintenance activities (including repairs,
alterations and inspections conducted at the Hotel) on all building components
of the Hotel during the previous twelve (12) calendar months.
8.02 FF&E Reserve
------------
A. Management Company shall establish a reserve account (the "FF&E
Reserve") in a bank designated by Management Company (and approved by Owner,
such approval not to be unreasonably withheld) to cover the cost of:
1. Replacements and renewals to the Hotel's FF&E and
2. Certain routine Capital Expenditures such as exterior and
interior repainting, resurfacing building walls, floors, roofs and parking
areas, and replacing folding walls and the like .
Management Company agrees that it will, from time to time, execute such
reasonable documentation as may be requested by any Qualified Lender to assist
such Qualified Lender in establishing or perfecting its security interest in the
funds which are in the FF&E Reserve; provided, however, that no such
documentation shall contain any amendment or modification of any of the
provisions of this Agreement, including this Section 8.02.
B. During the period of time from the Opening Date through the Termination
of this Agreement, subject to the provisions of Sections 8.02 E, Management
Company shall transfer (as
of the end of each Accounting Period) into the FF&E Reserve an amount equal to
the applicable percentages of Gross Revenues which are set forth on Exhibit A-1
hereto. All such amounts transferred into the FF&E Reserve after the Opening
Date shall be paid from Gross Revenues and shall constitute Deductions in
determining Operating Profit.
C. Each year, at the same time as Management Company submits the Annual
Operating Budget described in Section 9.03, Management Company shall prepare an
estimate (the "FF&E Estimate") of the expenditures necessary for (i)
replacements and renewals to the Hotel's FF&E, and (ii) repairs to the Hotel
building of the nature described in Section 8.02 A 2, during the ensuing Fiscal
Year, and shall submit such FF&E Estimate to Owner for its review. Management
Company shall also, if Owner so elects, prepare tentative forecasts of such
expenditures with regard to the four (4) subsequent Fiscal Years. Management
Company will at all times give good faith consideration to Owner's suggestions
regarding any FF&E Estimate. In the event that Owner requests forecasts covering
the aforesaid subsequent Fiscal Years, and such forecasts project a deficit in
the FF&E Reserve at some point during the current Fiscal Year or during such
four (4) subsequent Fiscal Years, Owner and Management Company will work
together in good faith to prepare alternative forecasts for such Fiscal Years
which will reduce or eliminate such deficit, but also take into account the
needs of the Hotel during such periods of time. All expenditures from the FF&E
Reserve will be (as to both the amount of each such expenditure and the timing
thereof) both reasonable and necessary, given the objective that the Hotel will
be maintained and operated in accordance with the Marriott Standards.
D. Management Company shall from time to time make such (1) replacements
and renewals to the Hotel's FF&E, and (2) repairs to the Hotel building of the
nature described in Section 8.02 A 2, as it deems necessary, provided that
Management Company shall not expend more than the balance in the FF&E Reserve
without the prior approval of Owner. Management Company will endeavor to follow
the applicable FF&E Estimate, but shall be entitled to depart therefrom, in its
reasonable discretion, provided that: (A) such departures from the applicable
FF&E Estimate result from circumstances which could not reasonably have been
foreseen at the time of the submission of such FF&E Estimate; and (B) such
departures from the applicable FF&E Estimate result from circumstances which
require prompt repair and/or replacement; and (C) Management Company has
submitted to Owner a revised FF&E Estimate setting forth and explaining such
departures. At the end of each Fiscal Year, any amounts remaining in the FF&E
Reserve shall be retained in the FF&E Reserve, and shall be carried forward to
the next Fiscal Year. Upon a Sale of the Hotel, funds in the FF&E Reserve will
not be affected (or, if withdrawn, will be replaced as set forth in Section
19.01 D), and all dispositions of such funds (both before and after such Sale of
the Hotel) will continue to be made exclusively pursuant to the provisions of
this Agreement. Proceeds from the sale of FF&E no longer necessary to the
operation of the Hotel shall be deposited in the FF&E Reserve, as shall any
interest which accrues on amounts placed in the FF&E Reserve. Neither (i)
proceeds from the disposition of FF&E, nor (ii) interest which accrues on
amounts held in the FF&E Reserve, shall either (x) result in any reduction in
the required contributions to the FF&E Reserve set forth in subsection B above,
or (y) be included in
Gross Revenues. The only items of FF&E which Management Company is authorized to
lease (rather than purchase) shall be (a) Telephones and Miscellaneous
Equipment; and (b) shuttle vans. If Management Company enters into a lease
described in the preceding sentence, Management Company shall give Owner notice
of such lease either prior to or promptly after entering into such lease. Lease
payments with respect to Telephones and Miscellaneous Equipment shall be
Deductions, as set forth in paragraph 13 of the definition of "Operating Profit"
in Section 1.01; lease payments with respect to shuttle vans shall be paid from
the FF&E Reserve. If Management Company proposes that items of FF&E other than
Telephones and Miscellaneous Equipment or shuttle vans should be leased rather
than purchased, Management Company shall submit such proposal (which proposal
shall include, without limitation, an indication as to whether the rental which
is owed under such lease will be treated as a Deduction or paid from the FF&E
Reserve) to Owner for Owner's approval (not to be unreasonably withheld). In
connection with the foregoing, it is understood that the failure of a Qualified
Lender to approve such leasing proposal shall justify Owner in withholding its
approval thereof, regardless of whether withholding such approval would
otherwise be deemed to be unreasonable.
E. The percentage contribution for the FF&E Reserve which is described in
Section 8.02 B is an estimate based upon Management Company's prior experience
with other comparable hotels. As the Hotel ages, this percentage may not be
sufficient to keep the FF&E Reserve at the levels necessary to make the
replacements and renewals to the Hotel's FF&E, or to make the repairs to the
Hotel building of the nature described in Section 8.02 A 2, which are required
to maintain the Hotel in accordance with the Marriott Standards. If any FF&E
Estimate which is prepared in accordance with Section 8.02 C would require
funding in excess of the applicable percentage of Gross Revenues which is set
forth on Exhibit A-1, Owner may either:
1. Agree to increase the percentages of Gross Revenues set forth
in Section 8.02 B up to the level set forth in such FF&E Estimate, in order to
provide the additional funds required, such increases to be treated as
Deductions under paragraph 12 of the definition of "Operating Profit", or
2. Make a lump-sum contribution to the FF&E Reserve in the
necessary amount (in which case such lump-sum contribution plus interest (at the
Prime Rate plus one percentage point (1%) per annum), shall be reimbursed to
Owner from Gross Revenues in equal installments over the period of the next five
(5) calendar years beginning as of the date of such contribution, and such
installment repayments shall be Deductions).
If Owner elects not to agree to either option 1 or option 2 above (or Owner
does not respond with respect to either option) within thirty (30) days after
the submission of such FF&E Estimate (or, if Owner has elected option 2, if
Owner fails to fund the required amount within a sixty (60) day period after the
date of such election), Management Company shall be entitled, at its option, to
terminate this Agreement upon ninety (90) days' written notice to Owner (with a
copy to each Qualified Lender); however, such failure by Owner shall not be
deemed a Default by Owner under Article XVI, and Management Company shall not be
entitled to any remedies with respect to such failure other than such
termination of this Agreement. If Management Company
so elects to terminate this Agreement, it shall notify Owner of such election
within the sixty (60) day period following either: (x) the date of receipt of
Owner's election not to agree to either option 1 or option 2 above, or the
expiration of the aforesaid thirty (30) day period without Owner making an
election with respect to either option; or (y) if Owner has elected option 2,
the date of the expiration of the aforesaid sixty (60) day period without Owner
funding the required amount.
8.03 Building Alterations, Improvements, Renewals, and Replacements
--------------------------------------------------------------
A. Management Company shall prepare an annual estimate (the "Building
Estimate") of the expenditures necessary for major repairs, alterations,
improvements, renewals and replacements to the structure or exterior facade of
the Hotel, or to the mechanical, electrical, heating, ventilating, air
conditioning, plumbing, or vertical transportation elements of the Hotel
building (the foregoing expenditures, together with all other repair and
maintenance expenditures which are classified as capital expenditures under
generally-accepted accounting principles, shall be collectively referred to as
"Capital Expenditures"). Management Company shall submit each such Building
Estimate to Owner for its approval at the same time the Annual Operating Budget
is submitted. Except with respect to the items described in Section 8.02 A (2),
Management Company shall not make any Capital Expenditures without the prior
written consent of Owner. Owner shall not unreasonably withhold its consent with
respect to Capital Expenditures which are required by reason of any Legal
Requirement, or required under Management Company's current life-safety
standards (provided that, in order for any such life-safety standards to be
"required" within the meaning of this Section 8.03 A, such standards must be
both required and in the process of being implemented at a majority of the
hotels within the Marriott Hotel System which are comparable to the Hotel), or
otherwise required for the continued safety of guests or prevention of material
damage to property, including the removal of Hazardous Materials in compliance
with all Environmental Laws pursuant to Section 20.10. All Capital Expenditures
which are described in the preceding sentence shall be referred to in this
Agreement as "Required Capital Expenditures".
B. In the event of (x) an emergency threatening the Hotel, its guests,
invitees or employees, or (y) the receipt by Management Company of a
governmental order or other Legal Requirement regarding any Required Capital
Expenditures, Management Company shall give Owner notice thereof within five (5)
business days thereafter or sooner if circumstances reasonably warrant.
Management Company shall then be authorized (but not obligated) to take
appropriate remedial action without receiving Owner's prior consent as follows:
(i) in an emergency threatening the Hotel, its guests, invitees or employees; or
(ii) if the continuation of the given condition could (in Management Company's
reasonable judgment) subject Management Company and/or Owner to either criminal
or more than de minimis civil liability, and Owner has either failed to remedy
-- -------
the situation or has failed to take appropriate legal action to stay the
effectiveness of any applicable Legal Requirement. Management Company shall
cooperate with Owner in the pursuit of any such action and shall have the right
to participate therein. Owner shall reimburse Management Company for any costs
incurred by Management Company in
connection with any such remedial action within thirty (30) days after Owner's
receipt of notice from Management Company of the amount of such costs.
C. The cost of all Capital Expenditures (including the expenses incurred
by either Owner or Management Company in connection with any civil or criminal
proceeding described above, but not including costs of those Capital
Expenditures which are described in Section 8.02 A(2) hereof) shall be borne
solely by Owner, and shall not be paid from Gross Revenues or from the FF&E
Reserve.
D. The failure of Owner to either (i) approve and provide funding for any
proposed Required Capital Expenditure, within seventy-five (75) days after
Management Company's request therefor, or (ii) in the case of any Legal
Requirement which is described in Section 8.03 B, to either comply therewith or
to stay the effectiveness of such Legal Requirement during the period of any
contesting thereof, shall be a Default by Owner. In such event, Management
Company shall be entitled (without affecting its other remedies under Article
XVI) to terminate this Agreement upon ninety (90) days' written notice to Owner
(with a copy to each Qualified Lender); provided, however, that Management
Company shall have the right to stipulate such shorter period of time as may be
appropriate, given the time periods which are mandated by Legal Requirements, as
described in Section 8.03 A or B, or given Management Company's good faith
concerns about its own civil and/or criminal liability.
E. Management Company shall have the right, from time to time, to set
forth in any Building Estimate the recommendations of Management Company
regarding proposed ROI Capital Expenditures. Notwithstanding the provisions of
Section 8.03 C to the contrary, the cost of all ROI Capital Expenditures shall
be paid, to the extent reasonably possible (given the requirement, set forth in
Section 8.02, that the balance in the FF&E Reserve be maintained in accordance
with the Marriott Standards) from the FF&E Reserve, and Owner shall pay such
costs from its own funds only to the extent there are not adequate funds for
such purpose in the FF&E Reserve. Expenditures which are, pursuant to the
preceding sentence, made from the FF&E Reserve shall not be treated as
Additional Invested Capital. Any failure of Owner to approve and provide funding
for any ROI Capital Expenditures, or any other Capital Expenditures (not
including those Capital Expenditures which are described in Section 8.02 A(2)
hereof) which are not Required Capital Expenditures, within sixty (60) days
after Management Company's request therefor, shall not be a Default by Owner but
shall entitle Management Company to terminate this Agreement. Such Termination
shall be evidenced by a written notice to Owner (with a copy to each Qualified
Lender), which notice shall be delivered to Owner no later than ninety (90) days
after the expiration of the sixty (60) day period described in the preceding
sentence. The effective date of such Termination shall be the date stated by
Management Company in such notice, provided that such effective date shall be no
less than one hundred eighty (180) days, and no more than three hundred sixty
(360) days, after the date of such notice.
F. It is understood that "alterations" and "improvements" which either (a)
increase or
decrease the number of guestrooms in the Hotel, or (b) involve changing the
architectural footprint of the Hotel or involve other significant changes in the
structural design of the Hotel, in any case by more than a de minimis amount,
-- -------
are beyond the scope of this Article VIII, and would require an amendment of
this Agreement prior to implementation by either party.
8.04 Liens
-----
Management Company and Owner shall use their best efforts to prevent any
liens from being filed against the Hotel which arise from any maintenance,
repairs, alterations, improvements, renewals or replacements in or to the Hotel.
They shall cooperate fully in obtaining the release of any such liens, and the
cost thereof, if the lien was not occasioned by the fault of either party, shall
be treated the same as the cost of the matter to which it relates. If the lien
arises as a result of the fault of either party, then the party at fault shall
bear the cost of obtaining the lien release.
8.05 Ownership of Replacements, Etc.
-------------------------------
All repairs, alterations, improvements, renewals or replacements of the
Hotel which are made pursuant to Article VIII or otherwise shall be the property
of Owner. Subject to the provisions of Section 8.02, the funds in the FF&E
Reserve shall be the property of Owner.
END OF ARTICLE VIII
ARTICLE IX
BOOKKEEPING AND BANK ACCOUNTS
-----------------------------
9.01 Books and Records
-----------------
A. Books of control and account shall be kept on the accrual basis and in
material respects in accordance with the Uniform System of Accounts, with the
exceptions provided in this Agreement. Owner may at reasonable intervals during
Management Company's normal business hours examine such records. Within seventy-
five (75) days following the close of each Fiscal Year, Management Company shall
furnish Owner a statement (the "Annual Operating Statement") in reasonable
detail summarizing the Hotel operations for such Fiscal Year and a certificate
of Management Company's chief accounting officer (or its controller or any vice-
president), certifying that such year-end Annual Operating Statement is true and
correct. Owner shall have sixty (60) days after receipt to examine or review (at
Owner's sole expense, and not as a Deduction) said Annual Operating Statement.
If Owner raises no objections within said sixty (60) day period, the Annual
Operating Statement shall be deemed to have been accepted by Owner as true and
correct, and Owner shall have no further right to question its accuracy. If
Owner does raise such an objection, by notice to Management Company, Owner shall
arrange for an independent audit to be commenced within sixty (60) days after
the date of such objection, and shall diligently cause such audit to be
completed within a reasonable period of time. Owner shall pay all costs and
expenses of such audit at its sole expense (and not as a Deduction); however, if
such audit establishes that Management Company has understated the Operating
Profit for that Fiscal Year by five percent (5%) or more, the reasonable costs
and expenses of such audit shall be paid as a Deduction.
B. Management Company shall, on an annual basis, at the time of the
delivery of the Annual Operating Statement, prepare and deliver to Owner the
Management Analysis Report. In addition, Management Company shall, in connection
with an impending Sale of the Hotel or commitment by a Qualified Lender to make
a Qualified Loan, within thirty (30) days after written request therefor from
Owner, prepare and deliver to Owner an updated Management Analysis Report
describing significant changes since the effective date of the most recent
Management Analysis Report. The costs and expenses of preparing the Management
Analysis Report shall be paid as Deductions.
C. Owner shall have the right to require that any given Annual Operating
Statement will include a reasonably detailed report setting forth the components
of Chain Services, the amounts billed for each such component during the Fiscal
Year in question and the method of allocation for each such component; provided,
however, that Owner must request Management Company to prepare such report by no
later than thirty (30) days prior to the date on which such Annual Operating
Statement is to be delivered to Owner.
9.02 Hotel Accounts, Expenditures
----------------------------
A. All funds derived from operation of the Hotel shall be deposited by
Management Company in Hotel bank accounts (the "Operating Accounts") in a bank
or banks designated by Management Company and approved by Owner, which approval
shall not be unreasonably withheld. Withdrawals from said accounts shall be made
only by representatives of Management Company whose signatures have been
authorized. Reasonable ▇▇▇▇▇ cash funds shall be maintained at the Hotel.
B. All payments made by Management Company hereunder shall be made from
authorized bank accounts, ▇▇▇▇▇ cash funds, or from Working Capital provided by
Owner pursuant to Section 7.01. Management Company shall not be required to make
any advance or payment to or for the account of Owner except out of such funds,
and Management Company shall not be obligated to incur any liability or
obligation for Owner's account without assurances that necessary funds for the
discharge thereof will be provided by Owner. Debts and liabilities incurred by
Management Company as a result of its operation and management of the Hotel
pursuant to the terms hereof, whether asserted before or after the Termination
of this Agreement, will be paid by Owner to the extent funds are not available
to Management Company for that purpose from Gross Revenues.
9.03 Annual Operating Budget
-----------------------
A. Management Company shall submit to Owner for its approval (which shall
not be unreasonably withheld or delayed), at least thirty (30) days prior to the
beginning of each Fiscal Year which begins after the Effective Date, a
preliminary draft of the budget (the "Annual Operating Budget") of the estimated
financial results of the operation of the Hotel during the next Fiscal Year.
Owner's approval shall be deemed to have been given if Management Company has
received no notice from Owner to the contrary within thirty (30) days after
Owner's receipt of such preliminary draft of the Annual Operating Budget. Such
Annual Operating Budget shall project the estimated Gross Revenues, departmental
profits, Deductions, and Operating Profit for the forthcoming Fiscal Year for
the Hotel. In preparing the Annual Operating Budget for each Fiscal Year,
Management Company's goal will be the maximization of the long-term Operating
Profit of the Hotel, in keeping with the Marriott Standards and the general
standards of the hotel industry for similar properties. If there are material
items in any given Annual Operating Budget which have been budgeted at
significantly different amounts from the amounts actually experienced (or
projected) for the same items in the preceding Fiscal Year, Management Company
agrees to take reasonable steps to ensure that, at Owner's request, qualified
personnel from Management Company's staff are available to explain these
differences to Owner. A meeting (or meetings) for such purpose shall be held, at
Owner's request, within a reasonable period of time after the submission to
Owner of the preliminary draft of the Annual Operating Budget. Management
Company will at all times give good faith consideration to Owner's suggestions
regarding any Annual Operating Budget Management Company shall thereafter submit
to Owner, by no later than thirty (30) days after the beginning of such Fiscal
Year, the final Annual Operating Budget.
B. Owner shall not be entitled to withhold its approval of any Annual
Operating Budget
based on its objection to: (i) Management Company's reasonable projections of
either Gross Revenues or the components thereof; (ii) projected costs and
expenses which are "system charges" ( that is, costs and expenses which are
generally uniform throughout the Marriott Hotel System, such as: the charges for
Chain Services; the costs of the Honored Guest Award Program and other chain-
wide marketing programs; employee benefits and other compensation programs);
(iii) costs and expenses which are not within the control of either Owner or
Management Company, such as Impositions and the cost of utilities; or (iv)
increases in projected costs and expenses of operating the Hotel, which
increases are primarily caused by projected increases in Gross Revenues. The
approval of Owner (as set forth in the first sentence of Section 9.03 A) shall
not be required if, and to the extent that, the proposed Annual Operating Budget
for a given Fiscal Year is, in all material respects, the same as the Annual
Operating Budget for the preceding Fiscal Year with adjustments for inflation.
If Owner and Management Company fail to mutually agree on the Annual Operating
Budget within forty-five (45) days after the submission to Owner of the
preliminary draft described in the first sentence of 9.01 A, either party shall
have the right to submit to arbitration (in accordance with Section 20.13) the
issue of whether or not Management Company's proposed Annual Operating Budget is
unreasonable, given the goals which are set forth in the fourth sentence of
Section 9.03 A. While such arbitration proceedings are pending, Management
Company shall operate the Hotel, in all material respects, based on the Annual
Operating Budget for the preceding Fiscal Year, with adjustments for inflation.
C. Each Annual Operating Budget will constitute a standard to which
Management Company shall use its reasonable best efforts to adhere. It is
understood, however, that the Annual Operating Budget is an estimate only and
that unforeseen circumstances such as, but not limited to, the costs of labor,
materials, services and supplies, casualty, operation of law, or economic and
market conditions may make adherence to the Annual Operating Budget
impracticable, and Management Company shall be entitled to depart therefrom for
such reasons; provided, however, that nothing herein shall be deemed to
authorize Management Company to take any action prohibited by this Agreement nor
to reduce Management Company's other rights or obligations hereunder.
D. Management Company shall notify Owner of any significant variations
from the Annual Operating Budget promptly after Management Company learns of the
same, but in no event later than the date on which Management Company is
required to give Owner the Accounting Period Statement covering the period in
which such variation occurs. Any such notice shall set forth in reasonable
detail the nature, extent and, if known by Management Company, the cause of such
variation, and recommendations of appropriate actions, either to correct the
variation or to prevent or minimize its occurrence or effect. Owner and
Management Company shall, at Owner's request, meet to review such variations and
to take appropriate action with respect thereto.
9.04 Operating Losses; Credit
------------------------
A. To the extent there is an Operating Loss, additional funds in the
amount of any such
Operating Loss shall be provided by Owner within thirty (30) days after
Management Company has given written notice thereof to Owner; provided, however,
that if Owner has already received a request from Management Company for
additional Working Capital pursuant to Section 7.01 A, and if such request under
Section 7.01 A reflects fundamentally the same cash shortage which resulted in a
request under this Section 9.04 A, Owner and Management Company shall mutually
discuss the extent to which the requests under Section 7.01 A and Section 9.04 A
may overlap, and such requests shall be modified accordingly.
B. In no event shall either party borrow money in the name of or pledge
the credit of the other.
END OF ARTICLE IX
ARTICLE X
PROPRIETARY MARKS; INTELLECTUAL PROPERTY
----------------------------------------
10.01 Proprietary Marks
-----------------
A. During the Term of this Agreement, the Hotel shall be known as a
Marriott Hotel, with such additional identification as may be agreed to by Owner
and Management Company to provide local identification. If the name of the
Marriott Hotel System is changed, Management Company shall have the right to
change the name of the Hotel to conform thereto.
B. The name "Marriott," whether used alone or in connection with another
word or words, and all other Proprietary Marks shall in all events remain the
exclusive property of Management Company and its Affiliates. Owner shall have no
right to use the Marriott name or any other Proprietary ▇▇▇▇; provided, however,
that Owner shall have the right, during the Term of this Agreement, to have
Proprietary Signage installed (in strict conformance with the specifications
provided by Management Company prior to the Effective Date, or subsequent
specifications provided by Management Company from time to time during the Term)
in the Hotel and on the Site.
C. Except as provided in Section 10.02, upon Termination, any use of or
right to use the Marriott name or any other Proprietary ▇▇▇▇ by Owner under this
Agreement shall immediately cease. As of the date of Termination, Management
Company shall remove all Proprietary Signage from the Hotel and from the Site
(and from any locations other than the Site). The cost of such removal shall be
paid as set forth in Section 4.02 E.
D. Notwithstanding the foregoing, those trademarks, trade names, symbols,
logos and designs which are specifically listed on Exhibit "F" shall be deemed
"Proprietary Marks" only during the Term of this Agreement; upon a Termination,
the exclusive control of such Proprietary Marks shall revert to Owner.
10.02 Purchase of Inventories and Fixed Asset Supplies
------------------------------------------------
Upon Termination, Management Company shall have the option, to be exercised
by no later than thirty (30) days prior to Termination, to purchase, at their
then book value, any items of the Hotel's Inventories and Fixed Asset Supplies
as may be marked with the Marriott name or any other Proprietary ▇▇▇▇. In the
event Management Company does not exercise such option, Owner agrees that it
will use any such items not so purchased exclusively in connection with the
Hotel until they are consumed.
10.03 Computer Software and Equipment
-------------------------------
A. All Software is and shall remain the exclusive property of Management
Company or one of its Affiliates (or the licensor of such Software, as the case
may be), and Owner shall have
no right to use, or to copy, any Software.
B. Upon Termination, Management Company shall have the right to remove
from the Hotel, without compensation to Owner, all Software. Furthermore, upon
Termination, Management Company shall be entitled to remove from the Hotel any
computer equipment which is utilized as part of a centralized reservation or
property management system or is otherwise considered proprietary by Management
Company. If any of such removed computer equipment is owned by Owner, Management
Company shall reimburse Owner for all previous expenditures made by Owner for
the purchase of such equipment, subject to a reasonable allowance for
depreciation.
10.04 Intellectual Property
---------------------
All Intellectual Property shall at all times be proprietary to Management
Company or its Affiliates, and shall be the exclusive property of Management
Company or its Affiliates. During the Term of this Agreement, Management Company
shall be entitled to take all reasonable steps to ensure that the Intellectual
Property remains confidential and is not disclosed to anyone other than
Management Company's employees at the Hotel. Upon Termination, all Intellectual
Property shall be removed from the Hotel by Management Company, without
compensation to Owner.
10.05 Breach of Covenant
------------------
Management Company and/or its Affiliates shall be entitled, in case of any
breach of the covenants of Article X by Owner or others claiming through it, to
injunctive relief and to any other right or remedy available at law. Article X
shall survive Termination.
END OF ARTICLE X
ARTICLE XI
POSSESSION AND USE OF HOTEL
---------------------------
11.01 Quiet Enjoyment
---------------
Owner covenants that, so long as (i) an Event of Default by Management
Company has not occurred under Article XVI of this Agreement, and (ii) Owner
does not have the right to terminate this Agreement under any other Section of
this Agreement, Management Company shall quietly hold, occupy and enjoy the
Hotel throughout the Term hereof free from hindrance or ejection by Owner or
other party claiming under, through or by right of Owner (except as may be
otherwise set forth in Section 6.04). Owner agrees to pay and discharge any
payments and charges and, at its expense, to prosecute all appropriate actions,
judicial or otherwise, necessary to assure such free and quiet occupation.
Nothing set forth in the preceding sentence, however, shall be deemed to create
a recourse obligation by Owner to pay any payment or charge pursuant to a
contract which is non-recourse to Owner.
11.02 Use
---
A. Management Company shall use the Hotel solely for the operation of a
hotel pursuant to the Marriott Standards, and for all activities in connection
therewith which are customary and usual to such an operation.
B. Management Company shall comply with and abide by all Legal
Requirements pertaining to the operation of the Hotel, provided that: (i) all
costs and expenses (other than those which are specifically described in clauses
(ii) or (iii) of this Section 11.02 B) of such compliance shall be paid from
Gross Revenues as Deductions in the computation of Operating Profit; (ii) all
costs and expenses of compliance with Environmental Laws shall be paid as set
forth in Section 20.10; (iii) all costs and expenses of compliance with the
Legal Requirements which are described in Section 8.03 A shall be paid as set
forth in Section 8.03; and (iv) Management Company shall have the right, but not
the obligation, in its reasonable discretion, to contest or oppose, by
appropriate proceedings, any such Legal Requirements (provided that the consent
of Owner, not to be unreasonably withheld, shall be obtained prior to initiating
any such proceedings which involve Owner's ownership interest in the Hotel in a
material manner). The reasonable expenses of any such contest shall be paid
from Gross Revenues as Deductions.
11.03 Chain Services
--------------
A. Management Company shall, beginning with the Effective Date and
thereafter during the Term of this Agreement, cause to be furnished to the Hotel
certain services ("Chain Services") which are furnished generally on a central
or regional basis to other full service hotels in the Marriott chain. Chain
Services shall include: (i) national sales office services; central training
services; career development and relocation of management personnel; central
advertising and promotion (including direct and image media and advertising
administration); the Marriott
national reservations system and the Marriott computer payroll and accounting
services; and (ii) such additional central or regional services as are or may
be, from time to time, furnished for the benefit of hotels in the Marriott chain
or in substitution for services now performed at individual hotels which may be
more efficiently performed on a group basis; provided, however, that services
shall only be added to "Chain Services" pursuant to clause (ii) above if, and to
the extent that, such services: (a) are not Central Office Services; (b) are not
services relating to non-routine work (it being understood that the cost and
expense of such non-routine services shall be Deductions as set forth in
paragraph 6 of the definition of Operating Profit); and (c) are either (x) new
services (i.e., not previously performed at or for the Hotel) or (y) services
which theretofore had been performed at the Hotel, but which can be performed
more efficiently and economically on a centralized or regional basis.
B. Costs and expenses incurred in the providing of Chain Services shall be
allocated on a fair and equitable basis among all Marriott hotels owned, leased
or managed by Management Company in the United States. Such allocation shall be
made without regard to any "caps" or other limitations on the amount which
Management Company or its Affiliates may charge to a given hotel, pursuant to
agreements which Management Company (or its Affiliates) may have with the owner
of such hotel. Any excess of that portion of such costs and expenses which is
fairly allocated to a given hotel over the "cap" which may be in effect with
regard to that hotel shall be paid by Management Company from its own funds.
Management Company shall make no profit from Chain Services. Upon Owner's
written request, an explanation of the current Chain Services will be given to
Owner, and the basis for the allocation of the charge for each Chain Service
will be explained to Owner, in reasonable detail, at the time of the submission
of the Annual Operating Statement (as more particularly set forth in Section
9.01). In no event will the total charge for all of the Chain Services which are
described in clause (i) of Section 11.03 A (exclusive of reservations), for any
given Fiscal Year, exceed the Chain Services Cap. The parties hereby stipulate
that the limitation set forth in the preceding sentence is intended to apply
only to the services which are currently listed (as of the Effective Date) in
Section 11.03 A(i); accordingly, if there are types of expenditures which were
originally treated as Deductions (other than pursuant to paragraph 8 of the
definition of "Operating Profit" in Section 1.01), but which are later
determined to be more properly treated as Chain Services, such expenditures
shall be treated as Deductions pursuant to said paragraph 8 of the definition of
"Operating Profit" without regard to the aforesaid limitation.
11.04 Owner's Right to Inspect
------------------------
Owner or its agents shall have access to the Hotel at any and all
reasonable times for the purpose of inspection or showing the Hotel to
prospective purchasers, tenants or Holders.
11.05 Indemnity
---------
A. Management Company shall indemnify and hold harmless Owner (and any
officer, director, employee, advisor, partner or shareholder of Owner) in
respect of, and, at Owner's
request, shall defend any action, cause of action, suit, debt, cost, expense
(including, without limitation, reasonable attorneys' fees), claim or demand
whatsoever brought or asserted by any third person whomsoever, at law or in
equity, arising by reason of: (i) liabilities stemming from general corporate
matters of Management Company or its Affiliates, to the extent the same are not
directly and primarily related to the Hotel; (ii) infringement and other claims
relating to the Proprietary Marks; (iii) if Management Company fails to maintain
insurance coverage that it is required to maintain pursuant to this Agreement,
the excess of the amount of any liability or loss that would have been covered
over the amount of any applicable deductible; and (iv) the bad faith or willful
misconduct of Management Company or its Affiliates, or any of their employees,
servants or agents or other persons for whom they are responsible, resulting in
a claim for bodily injury, death or property damage occurring on, in or in
conjunction with the business of the Hotel, to the extent that such claim
exceeds the insurance proceeds (including Hotel Retentions) which are available
to pay such claim.
B. If any claim, action or proceeding is made or brought against Owner,
against which claim, action or proceeding Management Company shall be obligated
to indemnify pursuant to the terms of this Agreement, then, upon demand by
Owner, Management Company, at its sole cost and expense, shall resist or defend
such claim, action or proceeding (in Owner's name, if necessary), using such
attorneys as Owner shall approve, which approval shall not be unreasonably
withheld. If, in Owner's reasonable opinion, (i) there exists a conflict of
interest which would make it inadvisable to be represented by counsel for
Management Company, or (ii) there are legal defenses available to Management
Company that are different from or inconsistent with those available to Owner,
or (iii) there are claims at issue which are not covered by Management Company's
insurance, Owner shall be entitled to retain its own attorneys, and Management
Company shall pay the reasonable fees and disbursements of such attorneys.
C. Matters with respect to which Management Company has specifically
agreed to indemnify Owner under other provisions of this Agreement (for example,
Section 14.01 regarding "Employee Claims", and Section 20.11 regarding
environmental matters) are to be treated exclusively under such other provisions
and not under this Section 11.05.
END OF ARTICLE XI
ARTICLE XII
INSURANCE
---------
12.01 Interim Insurance
-----------------
[Intentionally omitted]
12.02 Property and Operational Insurance
----------------------------------
Management Company shall, commencing with the Effective Date and thereafter
during the Term of this Agreement, procure and maintain, either with insurance
companies of recognized responsibility or by legally qualifying itself as a self
insurer, a minimum of the following insurance:
A. Property insurance on the Hotel building(s) and contents against loss
or damage by fire, lightning and all other risks covered by the usual extended
coverage endorsement, all in an amount not less than one hundred percent (100%)
of the replacement cost thereof (excluding the cost of foundations and
excavations);
B. Boiler and machinery insurance against loss or damage from explosion of
boilers or pressure vessels to the extent applicable to the Hotel;
C. Business interruption insurance covering loss of profits and necessary
continuing expenses for interruptions caused by any occurrence covered by the
insurance referred to in Section 12.02 A and B, which shall be of a type and in
such amounts (but such coverage shall in no event be for less than one (1) year)
as are generally established by Management Company at similar hotels it owns,
leases or manages under the Marriott name in the United States;
D. General liability insurance against claims for bodily injury, death or
property damage occurring on, in, or in conjunction with the business of the
Hotel, and automobile liability insurance on vehicles operated in conjunction
with the Hotel, with a combined single limit for each occurrence of not less
than One Hundred Million Dollars ($100,000,000); representatives of Management
Company and Owner shall meet, at Owner's request, at intervals of approximately
once every five (5) years, to review the adequacy of such limit;
E. Workers' compensation and employer's liability insurance as may be
required under applicable laws covering all of Management Company's employees at
the Hotel;
F. Fidelity bonds, with reasonable limits to be determined by Management
Company, covering its employees in job classifications normally bonded in other
similar hotels it leases or manages under the Marriott name in the United States
or as otherwise required by law, and comprehensive crime insurance to the extent
Management Company and Owner mutually agree it is necessary for the Hotel; and
G. Such other insurance in amounts as Management Company and Owner, in
their reasonable judgment, mutually deem advisable for protection against
claims, liabilities and losses arising out of or connected with the operation of
the Hotel.
12.03 General Insurance Provisions
----------------------------
A. All insurance described in Section 12.02 may be obtained by Management
Company by endorsement or equivalent means under its blanket insurance policies,
provided that such blanket policies substantially fulfill the requirements
specified herein. Upon the request of either Owner or any Qualified Lender,
representatives of the requesting party shall be entitled to examine, at
Management Company's corporate headquarters, all insurance policies maintained
by Management Company regarding the Hotel.
B. Management Company may self insure or otherwise retain such risks or
portions thereof as it does with respect to other similar hotels it owns, leases
or manages under the Marriott name in the United States.
C. All policies of insurance required under Section 12.02 shall be carried
in the name of Management Company. The policies required under Sections 12.02 A,
B, C and D shall include the Owner as an additional insured. Upon notice by the
Owner, Management Company shall also have the policies required under Sections
12.02 A, B, C and D include any Qualified Lender as an additional insured. Any
property losses thereunder shall be payable to the respective parties as their
interests may appear. Any Mortgage on the Hotel shall contain provisions to the
effect that proceeds of the insurance policies required to be carried under
Section 12.02 A and B shall, with respect to any casualty involving less than
twenty-five percent (25%) of the replacement cost of the Hotel, be available for
repair and restoration of the Hotel.
D. Management Company shall deliver to the Owner certificates of insurance
with respect to all policies so procured and, in the case of insurance policies
about to expire, shall deliver certificates with respect to the renewal thereof.
E. All certificates of insurance provided for under Article XII shall, to
the extent obtainable, state that the insurance shall not be cancelled or
materially changed without at least thirty (30) days' prior written notice to
Owner.
F. The term "Hotel Retention" shall mean the amount of any loss or reserve
under Management Company's blanket insurance or self-insurance programs which is
allocated to the Hotel, not to exceed the higher of (a) the maximum per
occurrence limit established for similar hotels participating in such programs,
or (b) the insurance policy deductible on any loss which may fall within high
hazard classifications as mandated by the insurer (e.g., earthquake, flood,
windstorm on coastal properties, etc.). If the Hotel is not a participant under
Management Company's blanket insurance or self-insurance programs, "Hotel
Retention" shall mean the amount of any loss or reserve allocated to the Hotel,
not to exceed the insurance policy deductible.
12.04 Cost and Expense
----------------
A. [Intentionally omitted]
B. Insurance premiums and any other costs or expenses with respect to the
insurance or self-insurance required under Section 12.02, including any Hotel
Retention, shall be paid from Gross Revenues as Deductions. To the extent that
such costs or expenses include reimbursement by Management Company of its own
costs or expenses, or those of one of its Affiliates, such costs or expenses
shall be generally competitive (as calculated over the Term of this Agreement)
with costs and expenses of non-affiliated entities providing similar services.
Such premiums and costs shall be allocated on an equitable basis to the hotels
participating under Management Company's blanket insurance or self-insurance
programs. Any reserves, losses, costs or expenses which are uninsured shall be
treated as a cost of insurance and shall be Deductions. Upon Termination, an
escrow fund in an amount reasonably acceptable to Management Company shall be
established from Gross Revenues (or, if Gross Revenues are not sufficient, with
funds provided by Owner) to cover the amount of any Hotel Retention and all
other costs which will eventually have to be paid by either Owner or Management
Company with respect to pending or contingent claims, including those which
arise after Termination for causes arising during the Term of this Agreement.
Upon the final disposition of all such pending or contingent claims, any
unexpended funds remaining in such escrow shall be paid to Owner.
12.05 Owner's Option to Obtain Certain Insurance
------------------------------------------
Owner may, at its option, by written notice to Management Company which
shall be delivered no later than ninety (90) days prior to the natural
expiration of the insurance policies which Management Company has obtained
pursuant to Section 12.02 A, B and C, procure and maintain the insurance
specified in Section 12.02 A, B and C (in which case Management Company shall
allow such policies obtained by it under Section 12.02 A, B, and C to expire),
subject to the following terms and conditions:
A. All such policies of insurance shall be carried in the name of Owner,
with Management Company as an additional insured. Any property losses thereunder
shall be payable to the respective parties as their interests may appear. The
documentation with respect to each Secured Loan shall contain provisions to the
effect that proceeds of the insurance policies required to be carried under
Section 12.01 A and B shall be available for repair and restoration of the
Hotel, to the extent required pursuant to Section 12.03 C. However, any Holder
of such Secured Loan shall be entitled to impose reasonable conditions on the
disbursement of insurance proceeds for the repair and/or restoration of the
Hotel, including a demonstration by Owner and/or Management Company that the
amount of such proceeds (together with other funds Owner agrees to make
available) is sufficient for such purpose.
B. Owner shall deliver to Management Company certificates of insurance
with respect to
all policies so procured and, in the case of insurance policies about to expire,
shall deliver certificates with respect to the renewal thereof.
C. All such certificates of insurance shall, to the extent obtainable,
state that the insurance shall not be canceled or materially changed without at
least thirty (30) days' prior written notice to the certificate holder.
D. Premiums for such insurance coverage shall be treated as Deductions,
provided that if the cost of such insurance procured by Owner exceeds the cost
of Management Company's comparable coverage by more than ten percent (10%), all
such excess costs shall be the sole responsibility of Owner and shall not be a
Deduction.
E. Should Owner exercise its option to procure the insurance described in
this Section 12.05, Owner hereby waives its rights of recovery from Management
Company or any of its Affiliates (and their respective directors, officers,
shareholders, agents and employees) for loss or damage to the Hotel, and any
resultant interruption of business.
F. Should Owner exercise its right to obtain the insurance described in
this Section 12.05, Owner acknowledges that Management Company is under no
obligation to thereafter include the Hotel in its blanket insurance program
(with respect to the coverage described in Section 12.02 A, B and C) for the
balance of the Term of this Agreement. However, upon a Sale of the Hotel, a
successor Owner shall have the right, notwithstanding the fact that the previous
Owner may have obtained insurance in accordance with this Section 12.05, to have
the Hotel included in Management Company's blanket insurance program (provided
that the Hotel, as of that point in time, satisfies the applicable criteria for
admission to such program, as established by the program's insurance carriers)
by making a written request to Management Company for such inclusion not later
than thirty (30) days after the date on which such party becomes the Owner.
G. All insurance procured by Owner hereunder shall be obtained from
reputable insurance companies reasonably acceptable to Management Company.
END OF ARTICLE XII
ARTICLE XIII
TAXES
-----
13.01 Real Estate and Personal Property Taxes
---------------------------------------
A. Except as specifically set forth in subsection B below, all Impositions
which accrue during the Term of this Agreement (or are properly allocable to
such Term under generally accepted accounting principles) shall be paid by
Management Company from Gross Revenues, as a Deduction, before any fine,
penalty, or interest is added thereto or lien placed upon the Hotel or the
Agreement, unless payment thereof is stayed. Owner shall within five (5)
business days after the receipt of any invoice, ▇▇▇▇, assessment, notice or
other correspondence relating to any Imposition, furnish Management Company with
a copy thereof. Management Company shall, within the earlier of thirty (30) days
of payment or five (5) business days following written demand by Owner, furnish
Owner with copies of official tax bills and assessments which Management Company
has received, and evidence of payment or contest thereof. Either Owner or
Management Company (in which case each party agrees to sign the required
applications and otherwise cooperate with the other party in expediting the
matter) may initiate proceedings to contest any Imposition, and all reasonable
costs of any negotiations or proceedings with respect to any such contest shall
be paid from Gross Revenues and shall be a Deduction in determining Operating
Profit; provided, however, that neither party shall have the right to expend in
excess of Five Thousand Dollars ($5,000) (to be adjusted by the GDP Deflator)
with respect to any such negotiations or proceedings without the consent of the
other party.
B. The word "Impositions", as used in this Agreement, shall not include
the following, all of which shall be paid solely by Owner, not from Gross
Revenues nor from the FF&E Reserve:
1. Any franchise, corporate, estate, inheritance, succession, capital
levy or transfer tax imposed on Owner, or any income tax imposed on any income
of Owner (including distributions to Owner pursuant to Article V hereof);
2. Special assessments (regardless of when due or whether they are
paid as a lump sum or in installments over time) imposed because of facilities
which are constructed by or on behalf of the assessing jurisdiction (for
example, roads, sidewalks, sewers, culverts, etc.) which directly benefit the
Hotel (regardless of whether or not they also benefit other buildings), which
assessments shall not be treated as Deductions, but rather shall be added to the
Additional Invested Capital as of each payment by Owner with respect thereto;
3. "Impact Fees" (regardless of when due or whether they are paid as
a lump sum or in installments over time) which are required of Owner as a
condition to the issuance of site plan approval, zoning variances or building
permits, which impact fees shall not be treated as Deductions, but rather shall
be added to the Additional Invested Capital as of each payment by Owner with
respect thereto; and
4. "Tax-increment financing" or similar financing whereby the
municipality or other taxing authority has assisted in financing the
construction of the Hotel by temporarily reducing or abating normal Impositions
in return for substantially higher levels of Impositions at
later dates.
C. Owner shall have the right to require Management Company to establish
an escrow account (with either any Qualified Lender or another entity reasonably
acceptable to both Owner and Management Company) from which Impositions will be
paid. Payments into such escrow account will be Deductions. Any interest which
accrues on amounts deposited in such escrow account shall be added to the
balance in such escrow account and used to pay Impositions.
END OF ARTICLE XIII
ARTICLE XIV
HOTEL EMPLOYEES
---------------
14.01 Employees
---------
A. All personnel employed at the Hotel shall be the employees of
Management Company. Subject to the provisions of this Agreement, Management
Company shall have absolute discretion to hire, promote, supervise, direct,
train and discharge all employees at the Hotel, to fix their compensation and,
generally, establish and maintain all policies relating to employment; provided,
however, that (i) all of the foregoing shall be in accordance with the Marriott
Standards, and (ii) Management Company shall not enter into any written
employment agreements with any person which purport to bind the Owner and/or
purport to be effective regardless of a Termination, without obtaining Owner's
prior consent which may be withheld in Owner's sole discretion. Management
Company and Owner shall each comply with all Legal Requirements regarding labor
relations; if either Management Company or Owner shall be required, pursuant to
any such Legal Requirement, to recognize a labor union or to enter into
collective bargaining with a labor union, the party so required shall promptly
notify the other party pursuant to Section 20.09.
B. Management Company shall decide which, if any, of the Hotel's employees
shall reside at the Hotel (provided that Owner's prior approval shall be
obtained if more than two (2) such employees and their immediate families reside
at the Hotel), and shall be permitted to provide free accommodations and
amenities to its employees and representatives living at or visiting the Hotel
in connection with its management or operation. No person shall otherwise be
given gratuitous accommodations or services without prior joint approval of
Owner and Management Company except in accordance with usual practices of the
hotel and travel industry.
C. Any proposed settlement of any Employee Claim where the amount proposed
to be offered to the employee by Management Company is in excess of the
Settlement Threshold Amount shall be jointly approved by Management Company and
Owner. In addition, Management Company shall give Owner a written notice
(pursuant to Section 20.09) of any settlement of any Employee Claim where the
settlement amount is below the Settlement Threshold Amount, but is in excess of
Fifty Thousand Dollars ($50,000) (said dollar amount to be adjusted by the GDP
Deflator). Any dispute between Owner and Management Company as to whether
Management Company's settlement recommendation is reasonable, where such
proposed settlement is in excess of the Settlement Threshold Amount, shall be
resolved by arbitration under Section 20.13 hereof; provided that Management
Company shall have the right to settle any Employee Claim (prior to the
arbitration on the reasonableness of the settlement, as described in this
sentence) based on Management Company's recommendation, which shall be
Management Company's reasonable estimate, in good faith, by using: (i) funds
from Gross Revenues (as a Deduction) up to the amount of Owner's settlement
recommendation, which shall be Owner's reasonable estimate, in good faith, and
(ii) Management Company's own funds to the extent Management Company's
recommendation exceeds the amount described in subparagraph (i)
above. Following the settlement of such Employee Claim, the parties will
arbitrate under Section 20.13 the issue of whether Management Company's
settlement recommendation was reasonable under the circumstances. If the
arbitrators decide that Management Company's recommendation was reasonable,
Management Company shall be entitled to reimburse itself from Gross Revenues (as
a Deduction) in the amount of the funds advanced under subparagraph (ii) above,
together with accrued interest thereon at the Prime Rate. If the arbitrators
decide that Management Company's settlement recommendation was not reasonable,
then Management Company shall not be entitled to any reimbursement of the
amounts advanced by it under subparagraph (ii) above, nor to accrued interest
thereon.
D. Management Company shall pay from its own funds, and not from Gross
Revenues, any Employee Claim where the basis of such Employee Claim is conduct
by Management Company which: (i) is a substantial violation of the standards of
responsible labor relations as generally practiced by prudent owners or
operators of similar hotel properties in the general geographic area of the
Hotel; and (ii) is not the isolated act of individual employees, but rather is a
direct result of corporate policies of Management Company which either encourage
or fail to discourage such conduct. In addition, Management Company shall
indemnify, defend and hold harmless Owner from and against any fines or
judgments arising out of such conduct, and all Litigation expenses (including
reasonable attorneys' fees and expenses) incurred in connection therewith. Any
dispute between Owner and Management Company as to whether or not certain
conduct by Management Company is not in accordance with the aforesaid standards
shall be resolved by arbitration under Section 20.13 hereof. The arbitration
proceedings described in the preceding sentence shall be conducted independently
of any arbitration proceedings with respect to such Employee Claim pursuant to
the applicable employment-related contract and/or pursuant to Section 14.01 C of
this Agreement.
E. With respect to all Litigation or arbitration involving Employee Claims
in which both Management Company and Owner are involved as actual or potential
defendants, Management Company shall have exclusive and complete responsibility
(subject to the rights of Owner to approve certain settlements, as set forth in
Section 14.01 C) for the resolution of such Employee Claims. In the event that
any Employee Claim is made against Owner, but not against Management Company,
Owner shall give notice to Management Company of the Employee Claim in a timely
manner so as to avoid any prejudice to the defense of the Employee Claim,
provided that Management Company shall in all events be so notified within
twenty (20) days after the date such Employee Claim is made against Owner.
Management Company will thereafter assume exclusive and complete responsibility
for the resolution of such Employee Claim.
F. At Termination, other than by reason of an Event of Default of
Management Company hereunder, an escrow fund shall be established from Gross
Revenues (or, if Gross Revenues are not sufficient, with funds provided by
Owner) to reimburse Management Company for all costs and expenses incurred by
Management Company which arise out of either the transfer or the termination of
employment of Management Company's employees at the Hotel, such as
reasonable transfer costs, severance pay, unemployment compensation and other
employee liability costs.
G. Management Company (and not Owner) shall have the power to hire,
dismiss or transfer the general manager of the Hotel, provided, however, that
Management Company shall keep Owner reasonably informed and shall give Owner the
opportunity to participate in the process with respect to any such hiring,
dismissal or transfer, as follows:
1. Owner shall be given at least forty-five (45) days' prior notice of
any proposed hiring, dismissal or transfer of the general manager (except that
such notice period shall be appropriately shortened in the event that such
dismissal is the result of a violation of a Legal Requirement or of Management
Company's policies, or is the result of similar extraordinary circumstances
which, in the reasonable judgment of Management Company, necessitate such
shorter notice period).
2. Prior to any dismissal or transfer of the general manager, Owner
shall be notified and Owner shall be advised of the reason for such proposed
dismissal or transfer of the general manager and of the qualifications of any
proposed replacement manager. Owner shall be given a period of ten (10) days
within which to interview the proposed general manager. Owner shall be given the
opportunity to meet with the appropriate executive of Management Company to
discuss the advisability of effectuating any proposed hiring, dismissal or
transfer and any possible alternatives thereto. Management Company shall
consider in good faith the opinions and requests of Owner with respect to such
matters and, if Management Company elects not to implement any such request,
Management Company shall explain its decision to Owner in reasonable detail.
H. Management Company shall give Owner the opportunity to provide to
Management Company an evaluation of the performance of the general manager of
the Hotel, which shall be provided reasonably in advance of the date of
Management Company's annual review of the general manager. Management Company
shall consider such evaluation by Owner in good faith, and shall explain in
reasonable detail to Owner how Management Company's evaluation of the general
manager differs (if at all) from such evaluation by Owner.
END OF ARTICLE XIV
ARTICLE XV
DAMAGE, CONDEMNATION AND FORCE MAJEURE
--------------------------------------
15.01 Damage and Repair
-----------------
A. If, during the Term hereof, the Hotel is damaged or destroyed by fire,
casualty or other cause, Owner shall, with all reasonable diligence, to the
extent that proceeds from the insurance described in Section 12.02 are available
(subject to the provisions of any Mortgage encumbering the Hotel, but with the
limitations described in Section 12.03 C) for such purpose, repair or replace
the damaged or destroyed portion of the Hotel to the same condition as existed
previously.
B. In the event damage or destruction to the Hotel from any cause
materially and adversely affects the operation of the Hotel and Owner fails to
timely (subject to Force Majeure, and subject to unreasonable delays caused by
Management Company, including unreasonable delays in adjusting the insurance
claim with the carriers which participate in Management Company's blanket
insurance program) commence and complete the repairing, rebuilding or
replacement of the same so that the Hotel shall be substantially the same as it
was prior to such damage or destruction, Management Company may, at its option,
elect to terminate this Agreement upon one hundred twenty (120) days' written
notice.
15.02 Condemnation
------------
A. In the event all or substantially all of the Hotel shall be taken in
any eminent domain, condemnation, compulsory acquisition, or similar proceeding
by any competent authority for any public or quasi-public use or purpose, or in
the event a portion of the Hotel shall be so taken, but the result is that it is
unreasonable to continue to operate the Hotel, this Agreement shall terminate.
B. In the event a portion of the Hotel shall be taken by the events
described in Section 15.02 A, or the entire Hotel is affected but on a temporary
basis, and the result is not to make it unreasonable to continue to operate the
Hotel, this Agreement shall not terminate. However, so much of any award for
any such partial taking or condemnation as shall be necessary to render the
Hotel equivalent to its condition prior to such event shall be used for such
purpose; the balance of such award, if any, shall be fairly and equitably
apportioned between Owner and Management Company in accordance with their
respective interests. The Owner's Investment shall be reduced by that portion
of the total amount (if any) received by Owner pursuant to this Section 15.02 B
which is not used to restore the Hotel; in addition, the Performance Termination
Threshold shall be reduced by an amount equal to eight percent (8%) of such
total amount (if any) received by Owner pursuant to this Section 15.02 B which
is not used to restore the Hotel.
C. In the event of any proceeding described in Section 15.02 A or B, Owner
and Management Company shall each have the right to initiate such proceedings as
they deem
advisable to recover any damages to which they may be entitled; provided,
however, that Management Company shall be entitled to retain the award or
compensation it may obtain through proceedings which are conducted separately
from those of Owner only if such award or compensation does not reduce the award
or compensation otherwise available to Owner. For this purpose, any award or
compensation received by any Holder shall be deemed to be an award or
compensation received by Owner).
15.03 Force Majeure
-------------
A. The withdrawal or revocation of any License which is material to the
operation of the Hotel in accordance with the Marriott Standards, where such
withdrawal or revocation (i) is not due to the fault of either Management
Company or Owner, and (ii) is not otherwise within the reasonable control of
either Management Company or Owner, shall not be an Event of Default under
Article XVI of this Agreement. Management Company and Owner shall each, in good
faith, use all commercially reasonable efforts (including the diligent pursuit
of all available appeals), during the period of one hundred twenty (120) days
after the date of such withdrawal or revocation, to have such License
reinstated. If, notwithstanding such efforts, such License is not reinstated
prior to the expiration of the aforesaid period of one hundred twenty (120)
days, either Owner or Management Company shall have the right, at its option, to
terminate this Agreement upon no less than sixty (60) days' notice to the other
party; provided, however, that the terminating party must deliver such notice of
Termination to the other party by no later than ninety (90) days after the
expiration of such one hundred twenty (120) day period; and provided further,
that no such Termination shall be effective if, prior to the effective date of
such Termination, such License is reinstated or such withdrawal or revocation of
such License is stayed.
B. If an order, judgment or directive by a court or administrative body is
issued, in connection with any Litigation involving Owner, which restricts or
prevents Management Company, in a material adverse manner, from operating the
Hotel in accordance with the Marriott Standards, and which, in Management
Company's reasonable opinion, will have a significant adverse effect upon
operations of the Hotel, Management Company shall be entitled, at its option, to
terminate this Agreement upon sixty (60) days' written notice; provided,
however, that Management Company shall (if it so elects) deliver such notice of
Termination to Owner by no later than ninety (90) days after the issuance of
such order, judgment or directive (or, if such order, judgment or directive is
appealed, within ninety (90) days after the final disposition of such appeal).
END OF ARTICLE XV
ARTICLE XVI
DEFAULTS
--------
16.01 Definition of "Default"
-----------------------
Any one or more of the following shall constitute a "Default," to the
extent permitted by applicable law:
A. The filing of a voluntary petition in bankruptcy or insolvency or a
petition for reorganization under any bankruptcy law by either party, or the
admission by either party that it is unable to pay its debts as they become due;
B. The consent to an involuntary petition in bankruptcy or the failure to
vacate, within ninety (90) days from the date of entry thereof, any order
approving an involuntary petition by either party;
C. The entering of an order, judgment or decree by any court of competent
jurisdiction, on the application of a creditor, adjudicating either party as
bankrupt or insolvent or approving a petition seeking reorganization or
appointing a receiver, trustee, or liquidator of all or a substantial part of
such party's assets, and such order, judgment or decree's continuing unstayed
and in effect for any period of ninety (90) days;
D. The failure of either party to make any payment required to be made in
accordance with the terms of this Agreement, as of the due date which is
specified in this Agreement;
E. The failure of either party to perform, keep or fulfill any of the
other covenants, undertakings, obligations or conditions set forth in this
Agreement.
16.02 Definition of "Event of Default"
--------------------------------
A. Upon the occurrence of any Default by either party hereto (hereinafter
referred to as the "defaulting party") under Section 16.01 A, B or C, such
Default shall immediately and automatically, without the necessity of any notice
to the defaulting party, constitute an "Event of Default" under this Agreement.
B. Upon the occurrence of any Default by a defaulting party under Section
16.01 D, such Default shall constitute an "Event of Default" under this
Agreement if the defaulting party fails to cure such Default within ten (10)
days after written notice from the non-defaulting party specifying such Default
and demanding such cure.
C. Upon the occurrence of any Default by either party hereto under Section
16.01 E, such Default shall constitute an "Event of Default" under this
Agreement if the defaulting party fails to cure such Default within thirty (30)
days after written notice from the non-defaulting party specifying such Default
and demanding such cure, or, if the Default is such that it cannot
reasonably be cured within said thirty (30) day period of time, if the
defaulting party fails to commence the cure of such Default within said thirty
(30) day period of time or thereafter fails to diligently pursue such efforts to
completion.
16.03 Remedies Upon an Event of Default
---------------------------------
A. Upon the occurrence of an Event of Default under the provisions of
Section 16.02, the non-defaulting party shall have the right to pursue any one
or more of the following courses of action: (i) in the event of a material
breach by the defaulting party of its obligations under this Agreement, to
terminate this Agreement by written notice to the defaulting party, which
termination shall be effective as of the effective date which is set forth in
said notice, provided that said effective date shall be at least thirty (30)
days after the date of said notice; and provided further that, if the defaulting
party is the employer of all or a substantial portion of the employees at the
Hotel, the foregoing period of thirty (30) days shall be extended to seventy-
five (75) days (or such longer period of time as may be necessary under
applicable Legal Requirements pertaining to termination of employment); (ii) to
institute forthwith any and all proceedings permitted by law or equity,
including, without limitation, actions for specific performance and/or damages;
and (iii) to avail itself of any one or more of the other remedies described in
this Section 16.03.
B. Upon the occurrence of a Default by either party under the provisions
of Section 16.01 D, the amount owed to the non-defaulting party shall accrue
interest, at the Interest Rate, from and after the date on which such payment
was originally due to the non-defaulting party.
C. The rights granted hereunder are intended to be cumulative, and shall
not be in substitution for, but shall be in addition to, any and all rights and
remedies available to the non-defaulting party (including, without limitation,
injunctive relief and damages; provided that the satisfaction of damage awards
against Owner shall be limited by the provisions of Section 16.04) by reason of
applicable provisions of law or equity.
16.04 Owner's Estate
--------------
Notwithstanding any other provision of this Agreement, in the event of any
Event of Default by Owner pursuant to the terms of this Agreement, Management
Company shall look only to Owner's estate and interest in the Site and the Hotel
(which shall, for this purpose, include (i) amounts deposited in the Operating
Accounts and in the FF&E Reserve, and (ii) accounts receivable) for the
satisfaction of a money judgment against Owner resulting from such Event of
Default, and no other property or assets of Owner, or of its partners, officers,
directors, shareholders or principals, shall be subject to levy, execution or
other enforcement procedure for the satisfaction of such judgment. Management
Company's right to look to Owner's estate and interest in the Site and the Hotel
for satisfaction of such a money judgment against Owner shall survive
Termination and shall not be affected by any one or more Sales of the Hotel.
Nothing contained in this Section 16.04 shall be deemed to affect or diminish
Management Company's
remedies under this Article XVI other than money damages against Owner
(including, without limitation, Termination of this Agreement).
END OF ARTICLE XVI
ARTICLE XVII
WAIVER AND PARTIAL INVALIDITY
-----------------------------
17.01 Waiver
------
The failure of either party to insist upon a strict performance of any of
the terms or provisions of this Agreement, or to exercise any option, right or
remedy herein contained, shall not be construed as a waiver or as a
relinquishment for the future of such term, provision, option, right or remedy,
but the same shall continue and remain in full force and effect. No waiver by
either party of any term or provision hereof shall be deemed to have been made
unless expressed in writing and signed by such party.
17.02 Partial Invalidity
------------------
If any portion of this Agreement shall be declared invalid by order, decree
or judgment of a court, this Agreement shall be construed as if such portion had
not been inserted herein except when such construction would operate as an undue
hardship on Management Company or Owner, or constitute a substantial deviation
from the general intent and purpose of said parties as reflected in this
Agreement.
END OF ARTICLE XVII
ARTICLE XVIII
ASSIGNMENT
----------
18.01 Assignment
----------
A. Management Company shall not assign or transfer its management
responsibilities under this Agreement without the prior written consent of
Owner; provided, however, that Management Company shall have the right, without
such consent, to (1) assign its interest in this Agreement to any of its
Affiliates, and any such Affiliate shall be deemed to be the Management Company
for the purposes of this Agreement, and (2) sublease shops or grant licenses or
concessions at the Hotel so long as the terms of any such subleases, licenses or
concessions are consistent with the provisions of Section 2.02. In the event of
such an assignment by Management Company of its interest in this Agreement to an
Affiliate, the Management Company which is named in the Preamble to this
Agreement: (i) shall automatically be deemed to guarantee the performance of
such Affiliate under this Agreement; (ii) shall, at the request of Owner,
execute a guaranty, in form and substance reasonably satisfactory to both
parties, of the performance of such Affiliate under this Agreement (provided
that the failure of Owner to obtain an executed guaranty pursuant to this clause
(ii) shall not affect the validity or enforceability of the guaranty which is
automatically created pursuant to clause (i); and provided further, that, when
Owner does so receive an executed guaranty pursuant to this clause (ii), such
executed guaranty shall be deemed to have superseded the guaranty described in
clause (i) above); and (iii) shall make available to such Affiliate, in
connection with the performance by such Affiliate under this Agreement,
Management Company's skill, personnel, facilities and resources.
B. Owner shall not assign or transfer its interest in this Agreement other
than (i) in connection with a Sale of the Hotel which complies with the
provisions of Article XIX hereof, or (ii) as set forth in Section 18.01 C.
C. Nothing contained herein shall prevent (i) the collateral assignment of
this Agreement by Owner as security for any Mortgage which complies with the
provisions of Section 3.01; or (ii) the transfer of this Agreement in connection
with a merger or consolidation or a sale of all or substantially all of the
assets of either party, provided that (x) if such transfer is by Owner, the
provisions of Article XIX hereof shall be complied with, and (y) if such
transfer is by Management Company, such transfer is being done as a part of a
merger or consolidation or a sale of all or substantially all of the business
which consists of managing the Marriott Hotel System.
D. In the event either party consents to an assignment of this Agreement
by the other, no further assignment shall be made without the express consent in
writing of such party, unless such assignment may otherwise be made without such
consent pursuant to the terms of this Agreement.
E. An assignment (either voluntarily or by operation of law) by Owner of
its interest in this Agreement (in compliance with Article XVIII) shall not
relieve Owner from its obligations under this Agreement which accrued prior to
the date of such assignment, but shall relieve Owner of such obligations
accruing after such date, if the assignment complies with Section 18.01 B and
if Management Company has received an assumption agreement executed by the
assignee (in form and substance reasonably satisfactory to Management Company).
An assignment (either voluntarily or by operation of law) by Management Company
of its interest in this Agreement shall not relieve Management Company from its
obligations under this Agreement, unless Owner so agrees in writing.
F. Subject to the provisions of this Article XVIII, the terms and
conditions of this Agreement shall inure to the benefit of, and be binding upon,
the respective successors, heirs, legal representatives, or assigns of each of
the parties hereto.
END OF ARTICLE XVIII
ARTICLE XIX
SALE OF THE HOTEL
-----------------
19.01 Sale of the Hotel
-----------------
A. Owner shall not enter into any Sale of the Hotel to any individual or
entity which: (i) does not have sufficient financial resources and liquidity to
fulfill Owner's obligations under this Agreement; (ii) is in control of or
controlled by persons who have been convicted of felonies involving moral
turpitude in any state or federal court; or (iii) is engaged in the business of
operating (as distinguished from owning) a branded hotel chain having five
thousand (5,000) or more guestrooms in competition with Management Company. An
individual or entity shall not be deemed to be in the business of operating
hotels in competition with Management Company solely by virtue of (x) the
ownership of such hotels, either directly or indirectly through subsidiaries,
affiliates and partnerships, or (y) holding a Mortgage or Mortgages secured by
one or more hotels. Notwithstanding the foregoing, if Owner or an Affiliate of
Owner is a corporation whose shares are listed on a public stock exchange, and
if a Sale of the Hotel occurs as a result of purchases of such shares, through
such public stock exchange, in sufficient quantities to cause a transfer of the
"controlling interest" in Owner (as described in the definition of "Sale of the
Hotel"), and if such Sale of the Hotel is not in compliance with the provisions
of this Section 19.01 A, Management Company shall have the right, at its option,
to terminate this Agreement by written notice to Owner (as more particularly
described in Section 19.01 B), but such non-compliance with this Section 19.01 A
shall not be an Event of Default nor shall it subject Owner to claims for
damages by Management Company pursuant to Article XVI.
B. If Owner receives a bona fide written offer to enter into a Sale of the
Hotel, Owner shall give written notice thereof to Management Company, stating
the name of the prospective purchaser or tenant, as the case may be. Such
notice shall include appropriate information relating to such prospective
purchaser or tenant demonstrating compliance with the provisions of Section
19.01 A; if Management Company reasonably requests additional information, Owner
shall promptly furnish such information to Management Company. If Management
Company decides that a Sale of the Hotel to such prospective purchaser or tenant
would violate the provisions of Section 19.01 A, Management Company shall so
notify Owner by no later than thirty (30) days after receipt of such notice;
provided, however, that any decision by Management Company regarding any such
prospective purchaser or tenant shall not be binding if the information
furnished by Owner pursuant to the preceding sentence is inaccurate.
Concurrently with the finalization of such Sale of the Hotel, the purchaser or
tenant, as the case may be, shall, by appropriate instrument reasonably
satisfactory to Management Company, assume all of Owner's obligations hereunder.
An executed copy of such assumption agreement shall be delivered to Management
Company. If the proposed Sale of the Hotel would violate the provisions of
Section 19.01 A, Owner will not enter into any agreement relating to such Sale
of the Hotel. However, if Owner does enter into such an agreement, Management
Company shall have the right to terminate this Agreement by written notice to
Owner, which notice will set an effective date for such Termination not earlier
than thirty (30) days, nor more than one hundred
twenty (120) days, following the date of the giving of such notice. Management
Company shall have the right to change such effective date of Termination to
coincide with the date of the finalization of the proposed Sale of the Hotel. At
Management Company's election, said notice of Termination shall not be effective
if such Sale of the Hotel is not finalized. If such Termination by Management
Company results from a Default by Owner under Section 19.01 A, such Termination
shall not relieve Owner (except as otherwise set forth to the contrary in the
last sentence of Section 19.01 A) of liability to Management Company for such
Default.
C. In connection with the possibility of a Sale of the Hotel achieved by
means of a transfer of the controlling interest in Owner, Owner, upon written
request of Management Company, shall (unless Owner is a publicly-traded
corporation which is registered under Section 12 or Section 15 of the Securities
Act of 1934) furnish Management Company with a list of the names and addresses
of the owners of the capital stock (but only those owners which hold an
ownership interest of thirty percent (30%) or more), or the partnership
interests (both (i) general partner, and (ii) any limited partner holding an
ownership interest of thirty percent (30%) or more), or other ownership
interests in Owner. In addition, Owner shall notify Management Company of any
transaction or series of transactions in which Owner reduces its ownership
interest in the Hotel below fifty percent (50%) or in which the former
controlling interest in Owner is reduced below fifty percent (50%). Management
Company agrees that it will treat all such lists confidential in accordance with
the provisions of Section 20.04.
D. It is understood that no Sale of the Hotel (which is otherwise in
compliance with the provisions of this Article XIX) shall reduce or otherwise
affect: (i) the current level of Working Capital; (ii) the current amount
deposited in the FF&E Reserve; or (iii) any of the Operating Accounts maintained
by Management Company pursuant to this Agreement. If, in connection with any
Sale of the Hotel, the selling Owner intends to withdraw, for its own use, any
of the cash deposits described in the preceding sentence, the selling Owner must
obtain the contractual obligation of the buying Owner to replenish those
deposits (in the identical amounts) simultaneously with such withdrawal. The
selling Owner is hereby contractually obligated to Management Company to ensure
that such replenishment in fact occurs. The obligations described in this
Section 19.01 D shall survive such Sale of the Hotel and shall survive
Termination.
E. Management Company shall have the right to terminate this Agreement, on
thirty (30) days' written notice, if title to or possession of the Hotel is
transferred by judicial or administrative process (including, without
limitation, a Foreclosure, or a sale pursuant to an order of a bankruptcy court,
or a sale by a court-appointed receiver) to an individual or entity which would
not qualify as a permitted transferee under clause (i), (ii) or (iii) of Section
19.01 A, regardless of whether or not such transfer is the voluntary action of
the transferring Owner, or whether (under applicable law) the Owner is in fact
the transferor; provided, however, that Management Company shall not have the
right to so terminate this Agreement based on the assertion that a Qualified
Lender fails to so qualify as a permitted transferee under said clauses (i),
(ii) or (iii) of Section 19.01 A.
END OF ARTICLE XIX
ARTICLE XX
MISCELLANEOUS
-------------
20.01 Right to Make Agreement
-----------------------
A. Each party warrants, with respect to itself, that neither the execution
of this Agreement nor the finalization of the transactions contemplated hereby
shall: (i) violate any provision of law or any judgment, writ, injunction,
order or decree of any court or governmental authority having jurisdiction over
it; (ii) result in or constitute a breach or default under any indenture,
contract, other commitment or restriction to which it is a party or by which it
is bound, to the extent that the remedies for such breach or default would have
a material adverse effect on such party's ability to perform under this
Agreement; or (iii) require any consent, vote or approval which has not been
taken, or at the time of the transaction involved shall not have been given or
taken. Each party covenants that it has and will continue to have throughout
the Term of this Agreement and any extensions thereof, the full right to enter
into this Agreement and perform its obligations hereunder.
B. Each party agrees that it will, as of the Effective Date, provide the
other party with: (i) certified copies of the applicable resolutions of its
board of directors (if it is a corporation), or written authorization by all
general partners (if it is a partnership) or other appropriate documentation
establishing its authority to execute this Agreement; and (ii) such opinions of
counsel as the other party shall reasonably request regarding the matters
described in this Section 20.01.
20.02 Consents
--------
Wherever in this Agreement the consent or approval of Owner or Management
Company is required, such consent or approval shall (except to the extent that
such consent or approval is specifically designated as being "within the
discretion" of a party, or words to that effect, in the applicable provision)
not be unreasonably withheld, shall be in writing and shall be executed by a
duly authorized officer or agent of the party granting such consent or approval.
If either Owner or Management Company fails to respond within thirty (30) days
to a request by the other party for a consent or approval, such consent or
approval shall be deemed to have been given.
20.03 Agency
------
A. The relationship of Owner and Management Company shall be that of
principal and agent, and nothing contained in this Agreement shall be construed
to create a partnership or joint venture between them or their successors in
interest. Management Company's agency established by this Agreement is coupled
with an interest and may not be terminated by Owner until the expiration of the
Term of this Agreement, except as provided in Section 4.03 and in Articles XV or
XVI. Notwithstanding the agency relationship created by this Agreement, except
to the extent specifically set forth to the contrary in Section 20.12, nothing
contained herein shall prohibit,
limit or restrict Management Company or any of its Affiliates from developing,
owning, operating, leasing, managing or franchising hotels in the market area
where the Hotel is located, and Management Company and its Affiliates hereby
specifically reserve the right to do any of the foregoing.
B. The agency coupled with an interest herein was created by a complex,
single, integrated transaction. Among other considerations, Owner and Management
Company stipulate that their mutual decision to enter into this Agreement was
based on the following assumptions: (i) that one of the reasons why the Marriott
Hotel System has succeeded in gaining the loyalty of its customers is that
Marriott hotels are located in a large number of geographical markets; (ii) that
the success of many of Management Company's promotional efforts (such as the
Honored Guest Award program) depends on the expectation of its customers that
there will be a Marriott hotel in most destinations where they may choose to
travel; and (iii) by executing this Agreement, Management Company intends to
select this Hotel to represent the Marriott Hotel System in the Hotel's market
area, and, in so doing, Management Company has foregone the opportunity to
select other hotels in this market area. This agency is intended to provide
security for the covenants, promises and guarantees herein. The agency was
purchased for valuable consideration and is not terminable except as
specifically allowed by the express provisions of this Agreement. The parties
intend for this agency to be coupled with an interest, waive any right to claim
that it is terminable at will, and further agree to be equitably estopped from
asserting that the agency is not coupled with an interest.
20.04 Confidentiality
---------------
The parties hereto agree that the matters set forth in this Agreement are
strictly confidential and each party will make every effort to ensure that such
matters are not disclosed to any outside person or entities (including the
press) without the written consent of the other party; provided, however, that
such consent will not be required with respect to: (i) legally required filings
and other disclosures mandated by Legal Requirements; and (ii) in the case of
Owner, disclosure to any Qualified Lender or prospective Qualified Lender, or to
prospective purchasers of the Hotel (subject to the provisions of Section 20.05,
if applicable).
20.05 Equity and Debt Offerings
-------------------------
No reference to Management Company or to any of its Affiliates will be made
in any prospectus, private placement memorandum, offering circular or offering
documentation related thereto (herein collectively referred to as the
"Prospectus"), issued by Owner or one of its Affiliates, which is designed to
interest potential investors or lenders in the Hotel, unless Management Company
has previously received a copy of all such references. However, regardless of
whether Management Company does or does not so receive a copy of all such
references, neither Management Company nor any of its Affiliates will be deemed
a sponsor of the offering described in the Prospectus, nor will it have any
responsibility for the Prospectus, and the Prospectus will so state. Unless
Management Company agrees in advance, the Prospectus
will not include: (i) any Proprietary ▇▇▇▇; or (ii) except as required by
applicable securities laws, the text of this Agreement. Owner shall be entitled,
however, to include in the Prospectus an accurate summary of this Agreement. If
there are no Legal Requirements pursuant to which such information must be
publicly disclosed, appropriate measures shall be taken to ensure that entities
or individuals receiving such Prospectus shall acknowledge the confidentiality
of such information. Owner shall indemnify, defend and hold Management Company
and its Affiliates (and their respective directors, officers, shareholders,
employees and agents) harmless from and against all loss, costs, liability and
damage (including attorneys' fees and expenses, and the cost of Litigation)
arising out of any Prospectus or the offering described therein.
20.06 Applicable Law
--------------
This Agreement shall be construed under and shall be governed by the laws
of the state where the Hotel is located.
20.07 Recordation
-----------
The terms and provisions of this Agreement shall run with the land
designated as the Site, and with Owner's interest therein, and shall be binding
upon all successors to such interest. At the request of either party, the
parties shall execute an appropriate memorandum of this Agreement in recordable
form and cause the same to be recorded in the jurisdiction where the Hotel is
located. Any cost of such recordation shall be borne by Management Company.
20.08 Headings
--------
Headings of Articles and Sections are inserted only for convenience and are
in no way to be construed as a limitation on the scope of the particular
Articles or Sections to which they refer.
20.09 Notices
-------
Notices, statements and other communications to be given under the terms of
this Agreement shall be in writing, and shall be either (i) delivered by hand
against receipt, or (ii) sent by certified or registered mail, postage prepaid,
return receipt requested or (iii) sent by either Federal Express or by "fax"
machine (provided that, in either case, a confirmatory copy is thereafter sent
by certified or registered mail):
To Owner:
--------
HMC Retirement Properties, Inc.
c/o Host Marriott Corporation
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Law Department
with a copy to:
--------------
HMC Retirement Properties, Inc.
c/o Host Marriott Corporation
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Asset Management Department
72-924.68
To Management Company:
---------------------
Marriott Hotel Services, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Law Department
with a copy to:
--------------
Marriott Hotel Services, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Senior Vice President-Finance
Marriott Hotels, Resorts & Suites
or at such other address as is from time to time designated by the party
receiving the notice. Any such notice which is properly mailed, as described
above, shall be deemed to have been served as of three (3) business days after
said posting.
20.10 Environmental Matters
---------------------
A. Management Company shall indemnify, defend and hold Owner and its
Affiliates (and their respective directors, officers, shareholders, employees
and agents) harmless from and against all loss, cost, liability and damage
(including, without limitation, engineers' and attorneys' fees and expenses, and
the cost of Litigation) arising from the placing, discharge, leakage, use or
storage of Hazardous Materials, in violation of applicable Environmental Laws,
on the Site or in the Hotel by Management Company's employees, representatives
or agents during the Term of this Agreement. Regardless of whether or not a
given Hazardous Material is permitted on the Site under applicable Environmental
Law, Management Company shall only bring on the Site such Hazardous Materials as
are needed in the normal course of business of the Hotel.
B. In the event of the discovery of Hazardous Materials on any portion of
the Site or in
the Hotel during the Term of this Agreement, Owner shall (except to the extent
such removal is Management Company's responsibility pursuant to Section 20.10 A)
promptly remove (if required by applicable Environmental Law) such Hazardous
Materials, together with all contaminated soil and containers, and shall
otherwise remedy the problem in accordance with all Environmental Laws. Owner
shall (except to the extent that the removal of such Hazardous Materials is
Management Company's responsibility pursuant to Section 20.10 A) indemnify,
defend and hold Management Company and its Affiliates (and their respective
directors, officers, shareholders, employees and agents) harmless from and
against all loss, cost, liability and damage (including, without limitation,
engineers' and attorneys' fees and expenses, and the cost of Litigation) arising
from the presence of Hazardous Materials on the Site or in the Hotel.
C. All costs and expenses of the removal of Hazardous Materials from the
Site or the Hotel pursuant to Section 20.10 B, and of the aforesaid compliance
with all Environmental Laws, and any amounts paid to Management Company pursuant
to the indemnity set forth in the last sentence of Section 20.10 B, shall be
paid by Owner from its own funds, not as a Deduction nor from the FF&E Reserve,
and shall be treated as an expenditure by Owner pursuant to Section 8.03.
20.11 Estoppel Certificates
---------------------
Each party to this Agreement shall at any time and from time to time, upon
not less than thirty (30) days' prior notice from the other party, execute,
acknowledge and deliver to such other party, or to any third party specified by
such other party, a statement in writing: (a) certifying that this Agreement is
unmodified and in full force and effect (or if there have been modifications,
that the same, as modified, is in full force and effect and stating the
modifications); (b) stating whether or not to the best knowledge of the
certifying party (i) there is a continuing default by the non-certifying party
in the performance or observance of any covenant, agreement or condition
contained in this Agreement, or (ii) there shall have occurred any event which,
with the giving of notice or passage of time or both, would become such a
default, and, if so, specifying each such default or occurrence of which the
certifying party may have knowledge; and (c) stating such other information as
the non-certifying party may reasonably request. Such statement shall be binding
upon the certifying party and may be relied upon by the non-certifying party
and/or such third party specified by the non-certifying party as aforesaid. The
obligations set forth in this Section 21.11 shall survive Termination (that is,
each party shall, on request, within the time period described above, execute
and deliver to the non-certifying party and to any such third party a statement
certifying that this Agreement has been terminated).
20.12 Trade Area Restriction
----------------------
Neither Management Company nor any of its Affiliates shall own, build,
franchise, manage or operate any Restricted Hotel, under the "Marriott" brand
name, within the Restricted Area during the period from the Effective Date
through the seventh (7th) anniversary of the Effective Date.
20.13 Arbitration
-----------
A. In the event of a dispute between Owner and Management Company with
respect to any issue of fact specifically mentioned herein as a matter to be
decided by arbitration, such dispute shall be determined by arbitration as
provided in this Section 20.13.
B. Disputes shall be resolved in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then pertaining. The
decision of the arbitrators shall be binding, final and conclusive on the
parties.
C. Owner and Management Company shall each appoint and pay all fees of a
fit and impartial person as arbitrator who shall have had at least ten (10)
years' recent professional experience in the general subject matter of the
dispute. Notice of such appointment shall be sent in writing by each party to
the other, and the arbitrators so appointed, in the event of their failure to
agree within thirty (30) days after the appointment of the second arbitrator
upon the matter so submitted, shall appoint a third arbitrator. If either Owner
or Management Company shall fail to appoint an arbitrator, as aforesaid, for a
period of twenty (20) days after written notice from the other party to make
such appointment, then the arbitrator appointed by the party having made such
appointment shall appoint a second arbitrator and the two so appointed shall, in
the event of their failure to agree upon any decision within thirty (30) days
thereafter, appoint a third arbitrator. If such arbitrators fail to agree upon a
third arbitrator within forty-five (45) days after the appointment of the second
arbitrator, then such third arbitrator shall be appointed by the American
Arbitration Association from its qualified panel of arbitrators, and shall be a
person having at least ten (10) years' recent professional experience as to the
subject matter in question. The fees of the third arbitrator and the expenses
incident to the proceedings shall be borne equally between Owner and Management
Company, unless the arbitrators decide otherwise. The fees of respective counsel
engaged by the parties, and the fees of expert witnesses and other witnesses
called for the parties, shall be paid by the respective party engaging such
counsel or calling or engaging such witnesses.
D. The decision of the arbitrators shall be rendered within thirty (30)
days after appointment of the third arbitrator. Such decision shall be in
writing and in duplicate, one counterpart thereof to be delivered to Owner and
one to Management Company. A judgment of a court of competent jurisdiction may
be entered upon the award of the arbitrators in accordance with the rules and
statutes applicable thereto then obtaining.
20.14 Affiliates
----------
Except as otherwise specifically set forth in this Agreement, Management
Company shall be entitled to contract with one or more of its Affiliates to
provide goods and/or services to the Hotel only if the prices and/or fees paid
to any such Affiliate are competitive with the prices and/or fees currently
being paid to reputable and qualified parties which are not Affiliates of
Management Company. In determining, pursuant to the foregoing sentence, whether
such prices and/or fees are competitive, the goods and/or services which are
being purchased shall be grouped in reasonable categories, rather than being
compared item by item.
20.15 Entire Agreement
----------------
This Agreement, together with other writings signed by the parties which
are expressly stated to be supplemental hereto and together with any instruments
to be executed and delivered pursuant to this Agreement, constitutes the entire
agreement between the parties, and supersedes all prior written and oral
understandings. This Agreement may be amended only by a writing signed by both
parties hereto.
END OF ARTICLE XX
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
Attest: HMC RETIREMENT PROPERTIES, INC.
("Owner")
_________________________ By____________________________
Assistant Secretary Vice President
Attest: MARRIOTT HOTEL SERVICES, INC.
("Management Company")
_________________________ By____________________________
Secretary Assistant Vice President
EXHIBIT "A" TO MANAGEMENT AGREEMENT
Location of Hotel; Legal Description of the Site
------------------------------------------------
EXHIBIT "A-1" TO MANAGEMENT AGREEMENT
Owner's Initial Cost; Chain Services Cap;
-----------------------------------------
Contributions to FF&E Reserve pursuant to Section 8.02 B;
---------------------------------------------------------
Initial Working Capital
-----------------------
EXHIBIT "B" TO MANAGEMENT AGREEMENT
Form of Accounting Period Statement
-----------------------------------
EXHIBIT "C"
[Intentionally Deleted.]
EXHIBIT "D" TO MANAGEMENT AGREEMENT
Narrative Description of Restricted Area
----------------------------------------
EXHIBIT "D-1" TO MANAGEMENT AGREEMENT
Map of Restricted Area
----------------------
EXHIBIT "E" TO MANAGEMENT AGREEMENT
Existing Ground Lease (if applicable);
Existing Mortgage (if any)
EXHIBIT "F"
Proprietary Marks owned by Owner (if any)
EXHIBIT "G"
Copy of Title Insurance Policy
------------------------------