22 RESIDENCE INNS Exhibit 10.1
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AMENDED AND RESTATED MANAGEMENT AGREEMENT
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by and between
RESIDENCE INN BY MARRIOTT, INC.
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as "MANAGER"
and
MARRIOTT RESIDENCE INN II LIMITED PARTNERSHIP
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as "OWNER"
Dated as of March 22, 1996
TABLE OF CONTENTS
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Article I - Definition of Terms
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1.01 Definition of Terms.......................................2
Article II - Appointment of Manager
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2.01 Appointment..............................................15
2.02 Delegation of Authority..................................15
2.03 Licenses and Permits.....................................16
2.04 Non-Discrimination.......................................16
Article III - Ownership of the Inns
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3.01 Ownership of the Inns....................................17
Article IV - Term
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4.01 Term.....................................................18
4.02 Performance Termination..................................18
4.03 Actions to be Taken on Termination.......................19
Article V - Compensation of Manager
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5.01 Management Fee...........................................21
5.02 Distributions of Operating Profit........................21
5.03 Application of Net Sales Proceeds
and Net Refinancing Proceeds.............................22
5.04 Accounting and Interim Payment...........................23
5.05 Manager Loans............................................24
Article VI - Working Capital and Fixed Asset Supplies
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6.01 Working Capital..........................................26
6.02 Fixed Asset Supplies.....................................26
Article VII - Repairs, Maintenance and Replacements
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7.01 Routine Repairs and Maintenance..........................27
7.02 Repairs and Equipment Reserve............................27
7.03 Building Alterations, Improvements,
Renewals, and Replacements...............................31
7.04 Liens....................................................32
7.05 Ownership of Replacements................................32
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Article VIII - Bookkeeping and Bank Accounts
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8.01 Books and Records........................................33
8.02 Accounts, Expenditures...................................34
8.03 Annual Operating Projection..............................34
8.04 Operating Losses; Credit.................................35
Article IX - Trademarks, Trade Names and Service Marks
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9.01 Trademarks, Trade Names and Service Marks................36
9.02 Purchase of Inventories and Fixed Asset Supplies.........37
9.03 Breach of Covenant.......................................37
Article X - Management and Use of the Inns
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10.01 Management of the Inns...................................38
10.02 Chain Services...........................................38
10.03 Owner's Right to Inspect.................................38
Article XI - Insurance
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11.01 Property Insurance.......................................39
11.02 Operational Insurance....................................40
11.03 Coverage.................................................41
11.04 Cost and Expense.........................................41
11.05 Policies and Endorsements................................41
Article XII - Taxes
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12.01 Real Estate and Personal Property Taxes..................43
Article XIII - Inn Employees
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13.01 Employees................................................44
Article XIV - Damage, Condemnation and Force Majeure
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14.01 Damage and Repair........................................45
14.02 Condemnation.............................................45
14.03 Force Majeure............................................46
Article XV - Defaults
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15.01 Events of Default........................................47
15.02 Remedies.................................................48
Article XVI - Waiver and Partial Invalidity
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16.01 Waiver...................................................49
16.02 Partial Invalidity.......................................49
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Article XVII - Assignment
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17.01 Assignment...................................................50
17.02 Mortgages and Collateral Assignments.........................50
Article XVIII - Sale of an Inn or Inns
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18.01 Right of First Refusal.......................................52
18.02 Effect of Sale of Inn........................................53
Article XIX - Miscellaneous
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19.01 Right to Make Agreement......................................55
19.02 Consents.....................................................55
19.03 Agency.......................................................55
19.04 Applicable Law...............................................56
19.05 Recordation..................................................56
19.06 Headings.....................................................56
19.07 Notices......................................................56
19.08 Limited Liability............................................57
19.09 Confidentiality..............................................57
19.10 Offerings....................................................58
19.11 Entire Agreement.............................................59
EXHIBIT A - Locations of the Inn
EXHIBIT A-1 through A-22 - Legal Descriptions of Sites
EXHIBIT B - Percentages Used for Reductions
EXHIBIT C -
Schedule of Principal and Interest Payments
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AMENDED AND RESTATED MANAGEMENT AGREEMENT
This Amended and Restated Management Agreement ("Management Agreement"
or "Agreement") is executed as of the 22nd day of March, 1996 ("Amendment
Date"), by MARRIOTT RESIDENCE INN II LIMITED PARTNERSHIP ("Owner"), a Delaware
limited partnership with a mailing address at c/o Host Marriott Corporation,
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and RESIDENCE INN BY MARRIOTT,
INC. ("Manager"), a Delaware corporation, with a mailing address at ▇/▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇.,▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
R E C I T A L S :
A. Owner and Manager entered into a certain Management Agreement with
an execution date of November 23, 1988 (the "Original Management Agreement")
pursuant to which Manager manages the twenty-two (22) Residence Inn by Marriott
Hotels listed in Exhibit "A", the legal descriptions for which are as set forth
in Exhibits A-1 through A-22 (the "Inns"), and one (1) other Residence Inn by
Marriott Hotel located in Shreveport/Bossier City, Louisiana (the "Bossier City
Inn"); and
B. Immediately prior to the Amendment Date, Owner transferred and
conveyed all of its right, title and interest in and to the Bossier City Inn to
an affiliate of Owner in connection with a refinancing of all of the secured
indebtedness affecting the Inns and the Bossier City Inn; and
C. As a condition of such refinancing the Bossier City Inn must be
managed pursuant to the terms of a separate management agreement; and
D. Owner and Manager have each requested that the Original Management
Agreement be amended in connection with such refinancing;
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement and other good and valuable consideration, the receipt of which
is hereby acknowledged, Owner and Manager agree that the Original Management
Agreement shall be amended and restated in its entirety 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 the Agreement shall have the meanings
indicated:
"Accounting Period" shall mean the four (4) week accounting periods
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having the same beginning and ending dates as Manager's four (4) week accounting
periods, except that an Accounting Period may occasionally contain five (5)
weeks when necessary to conform Manager's accounting system to the calendar.
"Actual Debt Service" shall mean during each Fiscal Year (prorated for
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portions thereof) (a) during the term of the Term Loan, the total annual
payments of principal and interest under the Loan Agreement as set forth on
Exhibit "C" attached hereto, and (b) during the term of any loan obtained by
Owner to finance the Refinanced Principal Amount, the lesser of (i) an amount
equal to 10.5% times the Refinanced Principal Amount per Fiscal Year plus
amortization of principal in the Fiscal Year on the Refinanced Principal Amount
pursuant to a 25 year amortization schedule; or (ii) the actual interest paid or
accrued in that Fiscal Year (provided that the rate is a commercially reasonable
market interest rate), plus the actual amortization of principal in that Fiscal
Year (provided that the amortization rate is a commercially reasonable market
rate) on the Refinanced Principal Amount; provided, however, that upon the
Termination of this Agreement with respect to a given Inn or Inns (whether in
connection with the Sale of the Inn or Inns, or pursuant to other applicable
provisions of this Agreement), the Actual Debt Service shall, notwithstanding
anything to the contrary in the Loan Agreement or any document related thereto,
be reduced by the applicable percentage attributable to such Inn or Inns, as set
forth on Exhibit "B" hereto.
"Additional Inn Investment" shall mean any amounts expended by Owner,
after the purchase of the Inns by Owner, for the following purposes:
a) to fund the cost of any expansion, previously consented to by
Manager, of any Inn;
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b) to fund the cost of any repairs or replacements, with respect to
any Inn, which are not covered by insurance proceeds under
Section 14.01.A;
c) to fund the cost of any building alterations and related
expenses, requested by Manager, under Section 7.03.A.2; and
d) to fund any reasonable business needs (not including amounts
funded under Section 7.02.E) of Owner relating to operation of
one or more of the Inns, as requested by or otherwise approved by
Manager.
"Additional Inn Investment Loan" shall mean any indebtedness incurred
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by Owner to fund an Additional Inn Investment or any refinancing thereof.
"Adjusted Capital Contribution" shall mean the balance, from time to
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time, of:
(i) the Capital Contributions contributed by the partners of Owner;
plus
(ii) any Additional Inn Investments, other than any Additional Inn
Investment funded by an Additional Inn Investment Loan on which
debt service constitutes Qualifying Debt Service; less
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(iii) cumulative distributions to the partners of Owner of Net Sales
Proceeds and Net Refinancing Proceeds pursuant to Section 4.07
(ii) and Section 4.08(A)(ii) of the Partnership Agreement;
provided, however, that upon the Termination of this Agreement with respect to a
given Inn or Inns (whether in connection with the Sale of the Inn or Inns or
pursuant to other applicable provisions in this Agreement), the Adjusted Capital
Contributions shall be reduced by the amount of any Additional Inn Investment
attributable to such Inn or Inns.
"Administrative Expenses" shall mean, with respect to any Fiscal Year,
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an annual amount equal to the lesser of (i) the aggregate amount of payments
for, or reserves created for payment for, administrative expenses of Owner with
respect to such Fiscal Year; or (ii) an amount equal to $350,000 for Fiscal Year
1996, which amount will be increased by the CPI Percentage for each Fiscal Year
thereafter.
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"Agreement" shall mean this Amended and Restated Management Agreement
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between Owner and Manager with respect to the 22 Inns listed on Exhibit "A"
hereto.
"Annual Operating Projection" shall have the meaning ascribed to it in
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Section 8.03.
"Base Management Fee" shall mean an amount payable to Manager, subject
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to the provisions of Article V hereof, for the following services hereunder:
corporate planning and policy services, financial planning and corporate
financial services, risk planning and insurance services, corporate executive
management, legislative and governmental representation, in-house legal services
and protection of the "Marriott" trade name and trademarks. Such amount shall be
equal, during any given Fiscal Year (or portion thereof), to two percent (2%) of
Gross Revenues.
"Bossier City Inn" shall have the meaning ascribed to it in the
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Recitals.
"Building" shall mean the improvements on each site, which includes
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buildings containing guest suites, a GATEHOUSE (a registered trademark of
Manager) building containing a common area lobby, meeting rooms and
administrative offices, and certain other amenities and related facilities.
"Building Estimate" shall have the meaning ascribed to it in Section
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7.03.A.
"Capital Contributions" shall mean Sixty-nine Million Two Hundred
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Forty-three Thousand Dollars ($69,243,000); provided, however, that upon the
Termination of this Agreement with respect to a given Inn or Inns (whether in
connection with the Sale of the Inn or Inns or pursuant to other applicable
provisions in this Agreement), the amount of Capital Contributions shall be
reduced by the applicable percentage attributable to such Inn or Inns as set
forth on Exhibit "B" hereto.
"Chain Services" shall have the meaning ascribed to it in Section
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10.02.
"Computer Lease" means a lease or other agreement under which computer
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equipment located in one or more Inns is leased to
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Owner or to Manager, as agent for Owner (including the license, if any, of
operating software therefor).
"Contingent Management Fees (Base)" shall mean the remaining unpaid
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balance (which shall not bear interest) of those portions of the Base Management
Fees for Fiscal Years 1988, 1989, 1990 and 1991 which were not paid to Manager
in those Fiscal Years pursuant to the provisions of the Original Management
Agreement, the balance of which as of the end of Fiscal Year 1995, after
reduction for the portion allocated to the Bossier City Inn, was Seven Hundred
Fifty-Seven Thousand Dollars ($757,000).
"Contingent Management Fees (IMF)" shall mean the cumulative total
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(which shall not bear interest) of those portions of any Incentive Management
Fees for each Fiscal Year (or portion thereof) which are not paid to Manager in
such Fiscal Year owing to the limitations set forth in Section 5.02 hereof, plus
the remaining unpaid balance (which shall not bear interest) of those portions
of the Contingent Management Fees (IMF) allocable to the Inns which were not
paid to Manager pursuant to the provisions of the Original Management Agreement,
the balance of which as of the end of Fiscal Year 1995, after reduction for the
portion allocated to the Bossier City Inn, was Twelve Million Seventy Thousand
Dollars ($12,070,000).
"CPI Percentage" shall mean the percentage by which the "Consumer Price
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Index for All Urban Consumer (CPI-U); U.S. City Average, 1982-84=100, All Items"
(or appropriate substitute index if such index is no longer published) (the
"CPI") for November of the previous Fiscal Year exceeds the CPI for November
1988.
"Debt Service Reserve Account" shall have the meaning ascribed to it in
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the exhibit entitled ACash Management Procedures", which is an exhibit to that
certain Modification, Subordination and Non-Disturbance Agreement, Estoppel,
Assignment and Consent Among Manager, Owner, and Lender dated as of the
Amendment Date.
"Deductions" shall have the meaning ascribed to it in the definition of
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Operating Profit.
"Defeasance Deposits" shall have the meaning ascribed to it in the Loan
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Agreement.
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"Effective Date" shall mean December 29, 1988, which is the date on
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which Owner first acquired fee title to one or more of the Inns.
"Equipment Leases" shall mean all or any FF&E Leases, Telephone Leases,
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Computer Leases, TV System Leases and motor vehicle leases.
"Execution Date" shall mean November 23, 1988, which is the date of
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execution of the Original Management Agreement.
"FF&E" shall mean furniture, furnishings, fixtures, vehicles, carpeting
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and equipment, but shall not include Fixed Asset Supplies.
"FF&E Lease" means a lease of any FF&E located in one or more Inns
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other than a TV System Lease, a Telephone Lease, a Computer Lease, or a lease of
a motor vehicle used primarily for transporting Inn guests.
"First Priority Return" shall mean an annual non-cumulative amount
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retained by Owner out of certain portions of Operating Profit, as set forth in
Section 5.02 hereof, equal to ten percent (10%) of the Capital Contributions for
each Fiscal Year.
"Fiscal Year" shall mean Manager's Fiscal Year which now ends at
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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 shall constitute a separate Fiscal Year. A partial Fiscal Year
between the end of the last full Fiscal Year and the Termination of this
Agreement shall also constitute a separate Fiscal Year. If Manager=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 the payments due hereunder.
"Fixed Asset Supplies" shall mean items included within "Property and
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Equipment" under the Uniform System of Accounts including, but not limited to,
linen, china, glassware,
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tableware, uniforms, and similar items, whether used in connection with public
space or suites.
"Force Majeure" shall have the meaning ascribed to it in Section 14.03
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hereof.
"Gross Revenues" shall mean all revenues and receipts of every kind
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derived from operating the Inns and all departments and parts thereof,
including, but not limited to: income (from both cash and credit transactions)
from rental of rooms, stores, offices, 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; wholesale and retail sales of
merchandise (except as otherwise provided in Section 7.02.C hereof with respect
to the sale of FF&E), service charges, and proceeds, if any, from business
interruption or other loss of income insurance; provided, however, that Gross
Revenues shall not include: (i) gratuities to employees of any of the Inns; (ii)
federal, state or municipal excise, sales or use taxes or similar Impositions
collected directly from patrons or guests or included as part of the sales price
of any goods or services; (iii) Net Refinancing Proceeds or Net Sales Proceeds;
(iv) proceeds from the sale of FF&E; (v) interest received or accrued with
respect to the funds in the Reserve or the other operating accounts of the Inns;
or (vi) any refunds, rebates, discounts and credits of a similar nature, given,
paid or returned in the course of obtaining Gross Revenues or components
thereof.
"Impositions" shall have the meaning ascribed to it in Section 12.01.
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"Incentive Management Fee" shall mean an amount which equals fifteen
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percent (15%) of Operating Profit in any Fiscal Year in which the total
Operating Profit is less than the Operating Profit Objective, and twenty-three
and one-half percent (23.5%) of Operating Profit in any Fiscal Year in which the
total Operating Profit equals or exceeds the Operating Profit Objective,
provided that cumulative Incentive Management Fees shall not exceed twenty
percent (20%) of cumulative Operating Profit during the period in which the Inns
are owned by the Partnership. Payment of the Incentive Management Fee to Manager
shall be subject to the provisions of Article V hereof.
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"Initial Term" shall have the meaning ascribed to it in Section 4.01.
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"Inn" or "Inns" shall refer individually or collectively to the twenty
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two (22) inns located on the twenty two (22) Sites described on Exhibit "A"
hereto. The term "Inn" or "Inns" shall incorporate not only the Site or Sites
but also all easement or other appurtenant rights thereto, together with the
Buildings and all other improvements constructed or to be constructed thereon,
and all FF&E and Fixed Asset Supplies installed or located therein.
"Inn Term" shall have the meaning ascribed to it in Section 4.01.
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"Inventories" shall mean "Inventories" as defined in the Uniform System
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of Accounts, such as, but not limited to, provision 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.
"Lender" shall mean Nomura Asset Capital Corporation, or its successors
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or assigns.
"Loan Agreement" shall mean that certain Loan Agreement entered into
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between Owner and Lender regarding the Term Loan.
"Management Agreement" shall have the same meaning as "Agreement".
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"Manager" shall have the meaning ascribed to it in the Preamble hereto.
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"Manager Loans" shall have the meaning ascribed to it in Section 5.05.
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"Marketing Fund" shall mean that certain fund (or any successor to such
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fund) maintained by Manager, in its capacity as franchisor of the System, to pay
for the following System costs: all costs associated with developing, preparing,
producing, directing, administering, conducting, maintaining and disseminating
advertising, marketing, promotional and public relations materials, programs,
campaigns, sales and marketing
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seminars and training programs, and similar activities of every kind and nature,
including the Residence Inn directory; conducting market research; and paying
the central operational costs of the Residence Inn reservation system.
"Marriott" shall mean Marriott International, Inc., the corporate
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parent of Manager.
"Marriott Affiliate" shall mean any corporation of which Marriott,
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either directly or indirectly through one or more intermediary corporations,
owns fifty-one percent (51%) or more of the voting stock. Notwithstanding the
foregoing and for purposes of this Agreement, in no event shall Host Marriott
Corporation or any entity directly or indirectly controlled by Host Marriott
Corporation (including, without limitation, Owner) constitute a Marriott
Affiliate.
"Maturity Date" shall mean March 11, 2022, which is the original stated
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maturity date of the indebtedness incurred by Owner pursuant to the Term Loan,
or, if earlier, the date of any refinancing or prepayment of such indebtedness.
"Net Refinancing Proceeds" shall mean the cumulative full amount
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disbursed (in one or more advances) under any loan or loans obtained by Owner,
from time to time, to the extent such disbursement or disbursements are not used
for the following purposes: (i) simultaneous repayment of other indebtedness of
Owner; (ii) commercially reasonable transaction costs; and (iii) the payment of,
or creation of reserves deemed necessary in the reasonable discretion of Owner
for, Administrative Expenses.
"Net Sales Proceeds" shall mean the cumulative net proceeds received by
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Owner, from time to time, from any one or more of the following: (i) any Sale of
an Inn; (ii) the exchange, condemnation, eminent domain taking, casualty or
other disposition of any of (or any portion of) the Inns or the Sites; or (iii)
the liquidation of Owner=s property interest in the Inns in connection with a
dissolution of Owner. The phrase "net proceeds," as used in the foregoing
sentence, shall mean the gross proceeds received from any of the foregoing to
the extent such gross proceeds are not used for the following purposes: (i)
simultaneous repayment of indebtedness secured by the Inn or Inns being sold (or
the pro rata portion of indebtedness secured by all the Inns) or restoration of
the Inn in the case of a
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condemnation, eminent domain proceeding, or casualty; (ii) commercially
reasonable transaction costs; and (iii) the payment of, or creation of reserves
deemed necessary in the reasonable discretion of Owner for, Administrative
Expenses of Owner. The term "Net Sales Proceeds" shall not include proceeds from
dispositions of FF&E described in Section 7.02.C hereof.
"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 Manager, on behalf of Owner, in
operating the Inns:
1. The cost of sales including salaries, wages (including accruals
for year-end bonuses to key management employees), fringe benefits, payroll
taxes and other costs related to employees of each Inn (the foregoing costs
shall not include salaries and other employee costs of executive personnel of
Manager who do not work at one of the Inns on a regular basis; except that the
foregoing costs shall include the allocable portion of the salary and other
employee costs of any general manager or other supervisory personnel (not
including regional vice-presidents or regional salespeople) assigned to a
"cluster" of hotels and inns which includes one or more of the Inns);
2. Departmental expenses, administrative and general expenses and the
cost of marketing, advertising and business promotion, heat, light and power,
and routine repairs, maintenance and minor alterations treated as Deductions
under Section 7.01;
3. The cost of Inventories and Fixed Asset Supplies consumed in the
operation of each Inn;
4. A reasonable reserve for uncollectible accounts receivable as
determined by Manager;
5. All costs and fees of independent accountants or other third
parties who perform services required or permitted hereunder;
6. All costs and fees of technical consultants and operational
experts for specialized services;
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7. The Residence Inn System Fee;
8. The Base Management Fee;
9. The Inns' pro rata share of costs and expenses incurred by Manager
in providing Chain Services;
10. Insurance costs and expenses as provided in Article XI;
11. Taxes, if any, payable by or assessed against Manager related to
this Agreement or to Manager's operation of the Inns (exclusive of Manager's
income taxes) and all Impositions;
12. The contributions to the Repairs and Equipment Reserve which are
required pursuant to Section 7.02;
13. The contributions required to be made, as they may change from
time to time, to the Marketing Fund in order for the Inns to remain members of
the System (such contributions are presently two and one-half percent (2.5%) of
Suite Revenues); and
14. Such other costs and expenses as are specifically provided for
elsewhere in this Agreement or are otherwise reasonably necessary for the proper
and efficient operation of the Inns.
"Operating Profit Objective" shall mean the amount of Twenty-four
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Million Seven Hundred Seventy-six Thousand Dollars ($24,776,000) provided,
however, that upon the Termination of this Agreement with respect to a given Inn
or Inns (whether in connection with the Sale of the Inn or Inns, or pursuant to
other applicable provisions of this Agreement), the Operating Profit Objective
shall be reduced by the applicable percentage attributable to such Inn or Inns,
as set forth on Exhibit "B" hereto.
"Operative Principal Amount" shall mean the principal amount
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outstanding under the Loan Agreement as of the Maturity Date, which amount shall
be deemed to have been reduced if not actually reduced by the amount of all
Defeasance Deposits.
"Original Management Agreement" shall have the meaning ascribed to it
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in the Recitals.
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"Owner" shall have the meaning ascribed to it in the Preamble.
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"Owner's Capital Return" shall mean the sum of: (a) an amount which,
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when added to all previous or simultaneous retentions or receipts by Owner of
Operating Profit (less the aggregate amount of Qualifying Debt Service
(including that portion of Qualifying Debt Service paid by Owner pursuant to the
Original Management Agreement allocable to the 22 Inns based on the allocation
of the purchase price paid by Owner for the purchase of the 22 Inns and the
Bossier City Inn) and administrative expenses paid or repaid by Owner (or
reserved for) out of such Operating Profit), Net Sales Proceeds and Net
Refinancing Proceeds, equals a cumulative return on the weighted average
Adjusted Capital Contributions, from time to time, of twelve percent (12%) per
annum from the Effective Date through the date such Net Sales Proceeds or Net
Refinancing Proceeds are realized; plus (b) an amount which equals the Adjusted
Capital Contributions as of the date on which such Net Sales Proceeds or Net
Refinancing Proceeds are realized by Owner.
"Partnership Agreement" shall mean that certain partnership agreement,
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dated as of the Execution Date, among the partners of Owner.
"Partnership Filing Period" shall mean such period of time (not to
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exceed seventy-five (75) days) after the close of each Fiscal Year within which
the Owner must receive final accounting statements from Manager with respect to
such Fiscal Year in order for Owner to have a reasonable period of time within
which to prepare and make all required filings with the Securities and Exchange
Commission and other applicable governmental agencies.
"Prime Rate" shall mean the base rate of interest announced from time
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to time by Bankers Trust Company, New York, New York.
"Prospectus" shall have the meaning ascribed to it in Section 19.11.
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"Qualifying Debt Service" shall mean:
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1. As to any Fiscal Year (prorated for portions thereof) during the
term of this Agreement, the Actual Debt Service; plus
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2. The interest and principal actually paid or accrued (provided that
the terms of each such loan are commercially reasonable) pursuant to Additional
Inn Investment Loans. In no event, however, shall "Qualifying Debt Service"
include, with respect to any indebtedness incurred to fund any Additional Inn
Investment: (i) any balloon payments; or (ii) that portion of any such
indebtedness which is incurred for the purpose of distributing the same to the
partners of Owner; provided, however, that upon the Termination of this
Agreement with respect to a given Inn or Inns (whether in connection with a Sale
of the Inn or Inns, or pursuant to other applicable provisions of this
Agreement), Qualifying Debt Service shall be reduced by interest and principal
on any (or any portion of any) Additional Inn Investment Loans attributable to
such Inn or Inns. The term "balloon payments," as used in this Agreement, shall
mean any repayments or prepayments of principal in any given Fiscal Year
(regardless of whether the borrower is permitted or obligated to make same) to
the extent that such repayments or prepayments exceed five percent (5%) per year
of the outstanding principal amount of such indebtedness as of the date of full
disbursement thereof to the borrower thereunder.
"Refinanced Principal Amount" shall mean that portion of the principal
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amount of indebtedness incurred by Owner to refinance the debt outstanding under
the Loan Agreement and all Additional Inn Investment Loans attributable to the
Inns then subject to this Agreement being refinanced concurrently therewith as
shall be equal to the sum of: (a) the Operative Principal Amount, plus (b) the
outstanding principal balances of Additional Inn Investment Loans being
refinanced, plus (c) commercially reasonable transaction costs and loan
origination fees relating to such refinancing, but only to the extent such costs
and fees do not exceed, in the aggregate, one and one-half percent (12%) of the
aggregate of the Operative Principal Amount plus the outstanding principal
balances of Additional Inn Investment Loans begin refinanced.
"Renewal Term" or "Renewal Terms" shall have the meaning ascribed to it
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in Section 4.01.
"Repairs and Equipment Reserve" shall have the meaning ascribed to it
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in Section 7.02.A.
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"Repairs and Equipment Estimate" shall have the meaning ascribed to it
------------------------------
in Section 7.02.D.
"Replacement FF&E" shall mean the items enumerated in paragraphs (1)
----------------
and (2) of Section 7.02.A.
"Reserve" shall have the meaning ascribed to it in Section 7.02.A.
-------
"Residence Inn System Fee" shall mean an amount paid to Manager for the
------------------------
following services hereunder: divisional financial services; product planning
and development; employee planning; protection of the "Marriott Residence Inn"
"Residence Inn by Marriott," and "Residence Inn" trade names, trademarks, logos
and servicemarks; and the services of Manager's technical and operational
experts making periodic inspection and consultation visits to the Inns (but not
the services of the personnel of the Architecture and Construction Division of
Marriott providing architectural, technical or procurement services for any Inn,
which shall be treated as a Deduction described in subsection 6 of the
definition of "Operating Profit"). Such amount shall be equal, during any given
Fiscal Year (or portion thereof), to four percent (4%) of Suite Revenues.
"Sale of an Inn" or "Sale of the Inns" shall mean any sale, assignment,
-------------- ----------------
transfer or other disposition, for value or otherwise, voluntary or involuntary,
of the fee simple title to one or more of the Sites and/or the Inns.
"Second Priority Return" shall mean an annual non-cumulative amount
----------------------
retained by Owner out of certain portions of Operating Profit, as set forth in
Section 5.02 hereof, equal to five percent (5%) of the Adjusted Capital
Contributions.
"Site" or "Sites" refer individually or collectively to the parcels of
---- -----
land whose addresses are set forth on Exhibit "A" attached hereto and
incorporated herein.
"Suite Revenues" shall mean that portion of the Gross Revenues of any
--------------
Inn, or of all of the Inns, which is attributable to the rental of guest suites.
14
"System" shall mean all inns which are operated under the "Residence
------
Inn by Marriott," "Residence Inn" or "Marriott Residence Inn" trade names.
"Telephone Lease" means any lease of the telephones and/or other
---------------
telecommunication systems and equipment located in one or more Inns.
"Term Loan" shall mean the term loan in the principal amount of One
---------
Hundred Forty Million Dollars ($140,000,000) provided to Owner by Lender to
refinance the Inns.
"Termination" shall mean the expiration or sooner cessation of the
-----------
Agreement with respect to a given Inn or Inns.
"Total Original Cost" shall mean the amount of One Hundred Eighty-six
-------------------
Million Nine Hundred Thirty-two Thousand Dollars ($186,932,000); provided,
however, that upon the Termination of this Agreement with respect to a given Inn
or Inns (whether in connection with a Sale of the Inn or Inns or pursuant to
other applicable provisions of this agreement), the Total Original Cost, as used
thereafter, shall be reduced by the applicable percentage attributable to such
Inn or Inns, as set forth on Exhibit "B"
"Trade Names" shall have the meaning ascribed in Section 9.01.
-----------
"TV System Lease" means a lease or other agreement under which
---------------
equipment (excluding television sets) for the transmission into Inn suites or
televised programming is leased or otherwise provided, regardless of whether
such lease or other agreement contains a right or option to purchase such
equipment.
"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 funds which are reasonably necessary for
---------------
the day-to-day operation of the business of the Inns, including, without
limitation, amounts sufficient for the maintenance of change and ▇▇▇▇▇ cash
funds, operating bank accounts, receivables, payrolls, prepaid expenses and
funds required to maintain Inventories, less accounts payable and accrued
current liabilities.
15
required to maintain Inventories, less accounts payable and accrued current
liabilities.
END OF ARTICLE I
16
ARTICLE II
APPOINTMENT OF MANAGER
----------------------
2.01 Appointment
-----------
Owner hereby appoints and employs Manager as Owner's exclusive agent to
supervise, direct and control the management an operation of the Inns for the
term provided in Article IV. Manager accepts said appointment and agrees to
manage the Inns during their respective Inn Terms in accordance with the terms
and conditions hereinafter set forth. The performance of all activities by
Manager hereunder shall be for the account of Owner. Manager may not delegate
its duties hereunder except to Marriott or a Marriott Affiliate which satisfies
the requirements of Section 17.01.A.1 hereof. As of the Amendment Date, the
Bossier City Inn shall no longer be one of the Inns but shall continue to be
managed by Manager pursuant to a separate management agreement.
2.02 Delegation of Authority
-----------------------
The operations of the Inns shall be under the exclusive supervision and
control of Manager which, except as otherwise specifically provided in the
Agreement, shall be responsible for the proper and efficient operation of the
Inns. Manager shall have discretion and control, free from interference,
interruption or disturbance, in all matters relating to management and operation
of each Inn, including, without limitation, charges for rooms and commercial
space, credit policies, food and beverage services, employment policies,
granting of concessions or leasing of shops and agencies within each Inn,
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 Inns.
2.03 Licenses and Permits
--------------------
A. Owner agrees upon request by Manager to sign promptly and
without charge applications for licenses, permits or other instruments necessary
for operation of each Inn.
17
B. Manager shall have the option to terminate the Agreement with
respect to a given Inn, at any time, upon one hundred twenty (120) days' written
notice to Owner, in the event of a withdrawal or revocation, by any lawful
governing body having jurisdiction thereof, of any license or permit that
materially affects the operation of the Inn provided: (i) such withdrawal or
revocation is not the fault of Manager, but rather is due to circumstances
beyond Manager's reasonable control; (ii) all applicable appeals to higher
governmental authorities regarding such withdrawal or revocation have been
exhausted; and (iii) Manager has made every reasonable effort to obtain a
substitute license or permit that would allow for the continued operation of
such Inn as a first-class facility in accordance with Manager's standards for
Residence Inn by Marriott hotels.
2.04 Non-Discrimination
------------------
The parties recognize that Manager, Marriott and Marriott Affiliates
either own or manage other hotels and inns. Certain of these hotels and inns,
now or in the future, may be located within the general geographical area of one
or more of the Inns. Manager shall institute reasonable internal controls and
procedures to ensure that no favoritism shall be accorded to such other hotels
or inns on the basis of the ownership thereof and that, at all times during the
term of this Agreement, Manager will operate the various hotels or inns under
its management, including the Inns, in a non-discriminatory manner.
END OF ARTICLE II
18
ARTICLE III
OWNERSHIP OF THE INNS
---------------------
3.01 Ownership of the Inns
---------------------
A. Owner hereby covenants that it holds and will keep and
maintain fee title to the Site of each Inn and such Inn free and clear of any
and all liens, encumbrances or other charges, except as follows:
1. Easements or other encumbrances (other than those
described in subsections 2, 3 and 4 hereof) that do not materially adversely
affect the operation of any Inn by Manager, including, without limitation, any
encumbrances or other defects of title subject to which title was conveyed to
Owner;
2. Mortgages, deeds of trust or similar security
instruments which: (i) contain a provision reasonably acceptable to Manager's
counsel that this Agreement will not be subject to forfeiture or Termination
other than in accordance with the terms hereof, notwithstanding a default under
such mortgage, deed of trust, or security instrument; and either (ii) secure
either (x) any indebtedness on which all or a portion of the payments constitute
Qualifying Debt Service, or (y) debt incurred for distribution to the partners
of Owner; or (iii) secure any amount due under the Loan Agreement;
3. Liens for taxes, assessments, levies or other public
charges not yet due or that are being contested in good faith; and
4. Liens, encumbrances, or other charges resulting from
Manager's acts.
B. Provided Manager is not in monetary default under this
Agreement, Owner shall pay and discharge, on or before the due date, any and all
installments of principal and interest due and payable upon any mortgage, deed
of trust or like instrument described in this Section (including, without
limitation, any amounts owed under the Loan Agreement) and shall indemnify
Manager from and against all claims, litigation and damages (other than damages
representing Manager's lost profits) arising from the failure to make such
payments as and when required.
19
END OF ARTICLE III
20
ARTICLE IV
TERM
----
4.01 Term
----
A. The term of this Agreement shall be from the Effective Date to
the expiration of the Inn Term (as defined in subsection B below) for the last
Inn to which this Agreement applies.
B. With respect to each Inn, the "Inn Term" shall consist of an
"Initial Term" and the "Renewal Term(s)". The "Initial Term" shall begin on the
Effective Date, or such later date as Owner assumed title to such Inn, and shall
continue until 11:59 p.m. on the last day of Fiscal Year 2012. Each Inn Term may
thereafter be renewed by Manager, at its option, as to any or all of the Inns
(on the same terms and conditions contained herein, except as set forth in the
final sentence of this Section 4.01.B), for one (1) period of five (5) Fiscal
Years followed by each of four (4) successive periods of ten (10) Fiscal Years
each ("Renewal Terms"), provided that an "event of default" by Manager has not
occurred under Section 15.01 hereof (or, if such an "event of default" has
occurred, that it is being cured in accordance with the provisions of Section
15.01 or 15.02 hereof). If Manager elects to exercise such option to renew as to
any or all of the Inns, it shall give Owner notice to that effect at least
eighteen (18) months prior to the expiration of the then current Inn Term with
respect to such Inn or Inns. If Manager does not elect to renew the term of this
Agreement, as to one or more of the Inns, on the expiration of the then current
Inn Term with respect to such Inn or Inns, Manager shall continue to manage such
Inn or Inns during the final eighteen (18) months of their respective Inn Terms,
unless, during such eighteen (18) month period, Owner effects a sale of such Inn
or Inns or secures a new manager therefor, in which case the respective Inn
Terms of such affected Inns shall be prematurely terminated, as of the date of
such sale or the effective date of such new management contract so long as Owner
has given Manager at least seventy-five (75) days prior written notice of such
sale date. In the event Manager elects to renew as to some, but not all, of the
Inns, the adjustment described in subsections B through E of Section 18.02 shall
be made to this Agreement.
4.02 Performance Termination
-----------------------
21
A. Subject to the provisions of Section 4.02.B below, Owner shall
have the option to terminate this Agreement with respect to all of the Inns if
the average of the Operating Profit (computed, for purposes of this Section
4.02.A only, without deducting any Impositions) for all of the Inns during any
three (3) consecutive Fiscal Years during the term of this Agreement does not
equal or exceed eight percent (8%) of the sum total of (i) the Total Original
Cost, and (ii) any Additional Inn Investments previously made with respect to
the Inns that were subject to this Agreement during the relevant periods. Such
option to terminate shall be exercised by serving written notice thereof on
Manager no later than sixty (60) days after the receipt by Owner of the annual
accounting under Section 8.01 hereof for such third consecutive Fiscal Year.
Such notice shall state the basis on which Owner asserts the right of
termination and shall show all mathematical calculations constituting the basis
therefor. If Manager does not elect to avoid termination pursuant to Section
4.02.B below, this Agreement shall terminate as of the end of the second full
Accounting Period following the date on which Manager receives Owner's written
notice of its intent to terminate this Agreement. Owner's failure to exercise
its right to terminate this Agreement pursuant to Section 4.02.A during any
given Fiscal Year shall not be deemed an estoppel or waiver of Owner's right to
terminate this Agreement as to subsequent Fiscal Years to which this Section may
apply.
B. Upon receipt of Owner's written notice of termination under
Section 4.02.A, Manager shall have the option, to be exercised within sixty (60)
days after receipt of said notice, to avoid such termination by advancing to
Owner the amount of any deficiency described in Section 4.02.A. If Manager
exercises such option, then the foregoing Owner's election to terminate this
Agreement under Section 4.02.A shall be canceled and of no force or effect and
this Agreement shall not terminate. Such cancellation, however, shall not affect
the right of Owner, as to each subsequent Fiscal Year to which Section 4.02.A
applies, to again elect to terminate this Agreement pursuant to the provisions
of Section 4.02.A (which subsequent election shall again be subject to Manager's
rights under this Section 4.02.B). If Manager does not exercise its option to
make the advance permitted by this Section 4.02.B, then this Agreement shall be
terminated as of the date set forth in Section 4.02.A. Any amounts advanced by
Manager pursuant to this Section 4.02.B shall
22
be recovered by Manager, without interest, in subsequent Fiscal Years, in the
same manner and with the same priority as Contingent Management Fees (IMF).
4.03 Actions to be Taken on Termination
----------------------------------
Upon a Termination of this Agreement with respect to any one or more of
the Inns, the following shall be applicable:
A. Manager shall prepare a final accounting statement with
respect to such Inn or Inns, as more particularly described in Section 8.01
hereof, dated as of the date of Termination. Within thirty (30) days of 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 a default by either party, in which the
case defaulting party shall pay such cost.
B. Manager shall release and transfer to Owner any of Owner's
funds which are held or controlled by Manager with respect to such Inn or Inns.
C. Manager shall make available to Owner such books and records
respecting such Inn or Inns (including those from prior years, subject to
Manager'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 such Inn or Inns for the year in which the Termination occurs and
for any subsequent year.
D. Manager shall (to the extent permitted by law) assign to Owner
or to the new manager all operating licenses and permits for such Inn or Inns
which have been issued in Manager's name (including liquor and restaurant
licenses, if any); provided that if Manager has expended any of its own funds in
the acquisition of any of such licenses or permits, Owner shall reimburse
Manager therefor if it has not done so already.
E. Appropriate adjustments shall be made regarding the
application of this Agreement to any remaining Inns, such as, but not limited
to, those adjustments described in Section 18.02 and 7.02.F, and the re-
computation of Actual Debt Service, Operating
23
Profit Objective, Total Original Cost and other amounts as described in the
definitions of those terms in Article I hereof.
F. Various other actions shall be taken, as described in this
Agreement, including, but not limited to, the actions described in Sections
5.05, 6.01, 13.01.C, 9.02 and 11.04.
G. Manager shall peacefully vacate and surrender such Inn or Inns
to Owner.
END OF ARTICLE IV
24
ARTICLE V
COMPENSATION OF MANAGER
-----------------------
5.01 Management Fee
--------------
In consideration of services to be performed during the term of this
Agreement, Manager shall, subject to the provisions of Section 5.02 hereof, be
paid the sum of the following as its management fee:
(a) the Base Management Fee; plus
(b) the Residence Inn System Fee; plus
(c) the Incentive Management Fee.
The Incentive Management Fee, Contingent Management Fee (Base) and Contingent
Management Fee (IMF) will be payable based on Operating Profit as provided in
Sections 5.02 and 5.03 hereof. The Base Management Fee and the Residence Inn
System Fee shall be payable based on Gross Revenues, and shall not be subject to
limitations based on the amount of Operating Profit.
5.02 Distributions of Operating Profit
---------------------------------
In each Fiscal Year (and with respect to each Accounting Period within
each such Fiscal Year, as more particularly described in Section 5.04 hereof),
Operating Profit shall be retained or paid, as applicable and to the extent
available, in accordance with the following order of priority:
A. First, an amount equal to Qualifying Debt Service (which shall
be prorated among the Accounting Periods within any given Fiscal Year) shall be
retained by Owner;
B. Second, the amount needed to pay, or to create reserves deemed
necessary in the reasonable discretion of Owner for, Administrative Expenses
shall be retained by Owner.
C. Third, an amount shall be retained by Owner equal to the First
Priority Return (which shall be prorated among the Accounting Periods within any
given Fiscal Year) less the amount of any outstanding Manager Loans, which
amount shall be paid to Manager for repayment of such loans out of the amount
otherwise being retained by Owner pursuant to this subsection C;
25
D. Fourth, an amount equal to the outstanding balance of the
Contingent Management Fees (Base) shall be paid to Manager;
E. Fifth, the remaining balance of Operating Profit shall be
divided into two (2) equal halves, one-half to be retained by Owner and the
other half to be paid to Manager, to the extent that the one-half retained by
Owner and the one-half paid to Manager are each (separately) equal to the Second
Priority Return (which shall be prorated among the Accounting Periods within any
given Fiscal Year) at which point payments under this subsection E shall cease
and any remaining balance of Operating Profit shall be applied to the payment of
unpaid fees in accordance with subsection F below. The one-half paid to Manager
under this subsection E shall be applied to the payment (in sequence) of the
Incentive Management Fee for the current Fiscal Year and any Contingent
Management Fee (IMF). Notwithstanding any other provisions hereof, the amount
paid to Manager under this subsection E shall in no event exceed the Incentive
Management Fee for the current Fiscal Year and any Contingent Management Fees
(IMF).
F. Sixth, the remaining balance of Operating Profit (after
retention by the Owner of an amount equal to the Second Priority Return in
accordance with Subsection E, shall be divided into two portions: (i) seventy-
five percent (75%) of such balance shall be paid to Manager subject to the last
sentence of this subsection F, and (ii) twenty-five percent (25%) shall be
retained by Owner. The 75% portion paid to Manager under this subsection F shall
be applied to the payment (in sequence) of the balance of the Incentive
Management Fee for the current Fiscal Year and the balance of any Contingent
Management Fees (IMF). Notwithstanding any other provisions hereof, the amount
paid to Manager under this subsection F, when added to the amount paid to
Manager under subsection E above, shall in no event exceed the balance of the
Incentive Management Fees for the current Fiscal Year and the balance of any
Contingent Management Fees (IMF).
G. Seventh, the remaining balance of Operating Profit shall be
retained by Owner.
5.03 Application of Net Sales Proceeds and Net Refinancing Proceeds
--------------------------------------------------------------
26
In the event that Owner, from time to time during the term of this
Agreement, realizes Net Sales Proceeds or Net Refinancing Proceeds and, at that
time, there exist any unpaid (i) Manager Loans, (ii) Contingent Management Fees
(Base), (iii) Incentive Management Fees, or (iv) Contingent Management Fees
(IMF), such Net Sales Proceeds or Net Refinancing Proceeds, as applicable, shall
be retained or paid out by Owner, to the maximum extent possible, in the
following order of priority:
A. First, an amount equal to the Owner's Capital Return as of the
date on which such Net Sales Proceeds or Net Refinancing Proceeds are realized
by Owner shall be retained by Owner less the amount of any outstanding Manager
Loans, which amount shall be paid by Owner to Manager out of the amount
otherwise being retained by Owner pursuant to this subsection A;
B. Second, an amount equal to any unpaid Contingent Management
Fees (Base), Incentive Management Fees, and Contingent Management Fees (IMF)
shall be paid in such order of priority to Manager; and
C. Third, all remaining Net Sales Proceeds and Net Refinancing
Proceeds shall be retained by Owner.
5.04 Accounting and Interim Payment
------------------------------
A. Within twenty (20) days after the close of each Accounting
Period, Manager shall submit an interim accounting to Owner showing Gross
Revenues, Deductions, Operating Profit, and applications thereof with respect to
the Inns. Manager shall transfer with each accounting any interim amounts due
Owner and shall retain any interim amounts due Manager (as described in Section
5.01 hereof). Each accounting will be prepared on a consolidated basis rather
than on an individual inn basis.
B. Calculations and payments of the Incentive Management Fee, the
Base Management Fee, the Residence Inn System Fee, and applications of Operating
Profit made with respect to each Accounting Period within a Fiscal Year shall be
accounted for cumulatively. Within the Partnership Filing Period, Manager shall
submit an accounting to Owner, as more fully described in Section 8.01, for the
immediately preceding Fiscal Year, which accounting shall be controlling over
the interim accounts. Any adjustments required by the Fiscal Year accounting
shall be made
27
by cash payments within five (5) business days of the receipt by Owner of such
final accounting. No adjustment shall be made for any Operating Loss in a
preceding or subsequent Fiscal Year.
C. If the Operating Profit for any Fiscal Year exceeds the
Operating Profit Objective, Manager shall be entitled to an Incentive Management
Fee of twenty-three and a half percent (23.5%) of Operating Profit for that
entire Fiscal Year, and appropriate year-end adjustments shall be made if the
interim cumulative accountings for that Fiscal Year were based on the Incentive
Management Fee being fifteen percent (15%) of Operating Profit. Beginning with
the first Accounting Period in the next succeeding Fiscal Year, and continuing
during all Accounting Periods for the remainder of such next succeeding Fiscal
Year, Manager shall be entitled to perform the above-described interim
cumulative accountings on the assumption that the Incentive Management Fee for
that entire Fiscal Year will be twenty-three and a half percent (23.5%) of
Operating Profit; subject, however, to appropriate year-end adjustments if the
final accounting pursuant to Section 8.01 hereof for any such Fiscal Year shows
that in fact the Operating Profit Objective was not exceeded during such Fiscal
Year, and that therefore the Incentive Management Fee for that Fiscal Year is
fifteen percent (15%) of Operating Profit. In all subsequent Fiscal Years,
Manager shall be entitled to perform the above-described interim cumulative
accountings on the assumption that the Incentive Management Fee will be twenty-
three and a half percent (23.5%) of Operating Profit if, and only if, the
Incentive Management Fee for the immediately preceding Fiscal Year was in fact
twenty-three and a half percent (23.5%) of Operating Profit; otherwise, such
interim cumulative accountings will be performed on the assumption that the
Incentive Management Fee will be fifteen percent (15%) of Operating Profit;
regardless of which assumption is used, appropriate year-end adjustments will be
made if such assumption proves to be incorrect. Notwithstanding anything in this
subsection C to the contrary, cumulative Incentive Management Fees shall at no
time exceed twenty percent (20%) of cumulative Operating Profit during the
period in which the Inns are owned by the Owner, provided, however, that for
purposes of calculating such cumulative Incentive Management Fees, there shall
not be counted that portion, if any, of the Incentive Management Fee for Fiscal
Years 1988, 1989, 1990 and 1991 that would have been paid for such year but was
not paid due to the limitations of Section
28
5.02 pursuant to the provisions of the Original Management Agreement.
5.05 Manager Loans
-------------
Manager shall have the right, but not the obligation, at any time and
from time to time, to advance funds reasonably needed for additional Working
Capital and to fund any shortfalls in the Debt Service Reserve Account in an
amount which when added to the outstanding balance of previous such advances
shall not exceed the average amount of the Deductions for each Accounting Period
during the preceding full thirteen (13) Accounting Periods. Any such advances
shall be deemed a loan by Manager to Owner in such amount (each, a "Manager
Loan"), shall bear interest at one percent (1%) above the Prime Rate, and shall
be repayable by Owner out of, including, without limitation, Operating Profit in
the priority set forth in Section 5.02, and Net Sales Proceeds and Net
Refinancing Proceeds in the priority set forth in Section 5.03, and as required
by Section 18.02.G. Owner shall evidence any such loan by executing a promissory
note payable to Manager in the principal amount of each such loan and bearing
interest as aforesaid. Each such note shall be payable upon the earlier of (i)
ten (10) years from the date of such advance, or (ii) the sale of substantially
all of the Inns; and, during the term of this Agreement, shall be payable out of
Operating Profit, Net Sales Proceeds and Net Refinancing Proceeds, and as
required by Section 18.02.G.
END OF ARTICLE V
29
ARTICLE VI
WORKING CAPITAL AND FIXED ASSET SUPPLIES
----------------------------------------
6.01 Working Capital
---------------
Owner has, prior to the Amendment Date, provided to Manager funds for
Working Capital. Owner and Manager agree that, immediately prior to the
Amendment Date, a portion of such Working Capital funds in the amount of Fifty
Thousand Dollars ($50,000) was deemed to be held by Manager pursuant to the new
separate management agreement for the Bossier City Inn, and the balance of the
Working Capital funds supplied by Owner shall continue to be held by Manager
pursuant to the terms hereof. Owner shall from time to time hereafter advance
within fifteen (15) days after receipt of Manager's written request any
additional funds necessary to maintain Working Capital at levels determined by
Manager to be necessary to satisfy the needs of each Inn as its operation may
from time to time require. In the event Owner fails to advance additional
Working Capital within said fifteen (15) day period, Manager may, in addition to
any other rights or remedies available to it at law or in equity: (i) retain the
required amounts from any portion of Operating Profit otherwise to be retained
by Owner, (ii) make a Manager Loan to Owner in accordance with Section 5.05, and
(iii) terminate this Agreement upon not less than thirty (30) days written
notice to Owner. Funds so advanced for Working Capital shall be utilized by
Manager on behalf of Owner for the purposes of this Agreement pursuant to cash-
management policies established for the System. With the exception of the
outstanding balance of all Working Capital advances by Manager made as Manager
Loans, Owner shall be the beneficial owner of all such funds throughout the term
of this Agreement. Upon Termination with respect to any Inn or Inns, Manager
shall return to Owner any unused Working Capital, except for Inventories
purchased by Manager pursuant to Section 9.02 and except for the outstanding
balance of all Working Capital advances by Manager made as Manager Loans.
6.02 Fixed Asset Supplies
--------------------
As of the Amendment Date, Owner has supplied Fixed Asset Supplies or
funds required therefor for all of the Inns. Owner shall from time to time
hereafter promptly advance, upon request of Manager, any additional funds
necessary to maintain Fixed Asset Supplies at levels determined by Manager to be
necessary to
30
satisfy the needs of each Inn as its operation may from time to time require.
Fixed Asset Supplies shall remain the property of Owner throughout the term of
the Agreement except for Fixed Asset Supplies purchased by Manager pursuant to
Section 9.02.
END OF ARTICLE VI
ARTICLE VII
REPAIRS, MAINTENANCE AND REPLACEMENTS
-------------------------------------
7.01 Routine Repairs and Maintenance
-------------------------------
Manager shall maintain each Inn in good repair and condition and in
conformity with applicable laws and regulations and shall make or cause to be
made such routine maintenance, repairs and minor alterations, the cost of which
can be expended under generally accepted accounting principles, as it, from time
to time, deems 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.
7.02 Repairs and Equipment Reserve
-----------------------------
A. Manager shall establish, on a consolidated basis (or on such other
basis as may be reasonably required by lenders providing financing to Owner with
respect to the Inns), an escrow reserve account ("Repairs and Equipment Reserve"
or the "Reserve"), in a bank or similar institution reasonably acceptable to
both Manager and Owner, to cover the cost of:
1. Replacements and renewals related solely to the FF&E of the
Inns; and
2. Certain routine repairs and maintenance to each Inn's
Building which are normally capitalized under generally accepted accounting
principles, such as exterior and interior repainting; resurfacing building
walls, floors, roofs and parking areas; buying or leasing replacement vehicles;
and replacing folding walls and the like, but which are not major repairs,
alterations, improvements, renewals or replacements to such Building's structure
or to its mechanical, electrical, heating, ventilating, air conditioning,
plumbing or vertical transportation systems, the cost of which are to be paid by
Owner under Section 7.03, rather than from the Reserve.
31
B. No portion of funds held in the Reserve prior to the Amendment Date
shall be allocated to the new, separate management agreement for the Bossier
City Inn. As of the Amendment Date, Manager holds the balance of funds
contributed to the Reserve under the Management Agreement. For each Fiscal Year
during the term of this Agreement, subject to the provisions of subsection E
below, Manager shall transfer into the Reserve an amount equal to five percent
(5%) of Gross Revenues. Transfers into the Reserve shall be made at the time of
each interim accounting described in Section 5.04.A hereof. Commencing with
Fiscal Year 2001, Manager shall have the right, but not the obligation, to
increase the amount it transfers into the Reserve to any amount greater than
five percent (5%) but not exceeding six percent (6%) of Gross Revenues for such
Fiscal Year and successive Fiscal Year thereafter if, based upon a review of
Replacement FF&E requirements for the Inns, such increase is necessary in
Manager's reasonable judgment to fund future Replacement FF&E that would be
necessary to maintain the Inns in accordance with Manager's standards for
Residence Inns. Any amounts held in the Reserve may be applied, as between the
Inns, without regard to the source of such amounts, provided that such
application satisfies the requirements of this Article VII. All amounts
transferred to the Reserve shall be deducted from Gross Revenues in determining
Operating Profit and shall be deposited in the special Reserve account described
in Section 7.02.A hereof.
C. Manager shall from time to time make such (1) replacements and
renewals to the FF&E of the Inns, and (2) repairs to each Inn Building of the
nature described in Section 7.02.A.2, as it deems necessary, up to the balance
in the Repairs and Equipment Reserve. No expenditures will be made in excess of
said balance without the approval of Owner. Withdrawals from the Reserve shall
be made only by representatives of Manager whose signatures have been
authorized. At the end of each Fiscal Year, any amounts remaining in the Repairs
and Equipment Reserve shall be carried forward to the next Fiscal Year. Proceeds
from the sale of FF&E no longer necessary to the operation of each Inn shall be
added to the Reserve. The Reserve will be kept in an interest-bearing account,
and any interest which accrues thereon shall be retained in the Reserve. Neither
(i) proceeds from the disposition of FF&E, nor (ii) interest which accrues on
amounts held in the Reserve, shall (a) result in any reduction in the required
contributions to the Reserve set forth in subsection B above, nor (b) be
included in Gross Revenues. Manager, in its
32
reasonable discretion, and subject to the exceptions stated below, shall decide
whether to purchase or lease any Replacement FF&E or motor vehicles used in
transporting Inn guests. If Manager enters into any lease of Replacement FF&E or
motor vehicles used in transporting Inn guests, it shall do so on Owner's behalf
and as Owner's agent; or, upon Manager's recommendation and request, Owner shall
directly enter into such leases. Notwithstanding the foregoing, Manager shall
not and shall not require Owner to enter into any lease other than (i) Telephone
Leases, (ii) Computer Leases, (iii) TV System Leases, (iv) FF&E Leases, and (v)
leases of vehicles used in transporting Inn guests. With respect to FF&E Leases
only, Manager shall be required to obtain Owner's prior written approval before
entering into or requesting that Owner enter into any FF&E Lease, if (a) the
fair market value of the FF&E with respect to all FF&E Leases relating to each
Inn (including those being entered into) would exceed at any time Two Hundred
Thousand Dollars ($200,000) (as increased each Fiscal Year after Fiscal Year
1996 by the CPI Percentage) in respect of such Inn, (b) the FF&E to be covered
by such FF&E Lease is FF&E that is not customarily leased in the hotel industry
in the United States, or (c) such FF&E Lease is on payment terms (including the
amounts and schedule of payments) that would be materially more favorable to the
lessor thereof than payment terms customary in the hotel industry in the United
States for similar leases. With respect to TV System Leases only, Manager shall
be required to obtain Owner's prior written approval before entering into or
requesting the Owner enter into any TV System Lease, if (a) the equipment to be
covered by such TV System Lease is not customarily leased in the hotel industry
in the United States or (b) such TV System Lease is on payment terms (including
the amounts and schedule of payments) that would be materially more favorable to
the lessor thereof than payment terms customary in the hotel industry in the
United States for similar leases. In cases described in the preceding two
sentences, Owner's approval shall not be unreasonably withheld; provided,
however, that the failure of any Lender to approve such leasing proposal shall
justify Owner in withholding its approval.
D. Manager shall prepare an estimate ("Repairs and Equipment Estimate")
of the expenditures necessary for (1) replacements and renewals to the FF&E of
the Inns, and (2) repairs to each Inn building of the nature described in
Section 7.02.A.2, during the ensuing Fiscal Year and shall submit such Repairs
and Equipment Estimate to Owner at the same time it
33
submits the Annual Operating Projection described in Section 8.03. The Repairs
and Equipment Estimate shall be prepared on a consolidating basis showing
proposed expenditures as to each Inn. It shall also indicate the time schedule
for making such replacements and renewals.
E. The percentage contributions for the Repairs and Equipment Reserve
described in Section 7.02.B are estimates based upon Manager's prior experience.
As each Inn ages, these percentages either (i) may not be sufficient to keep the
Reserve at the levels necessary to make the replacements and renewals to the
FF&E of such Inn, or to make the repairs to such Inn building of the nature
described in Section 7.02.A.2, which are required to maintain such inn as a
first-class facility in accordance with Manager's standards for Residence Inns,
or (ii) may be in excess of those amounts necessary to maintain such Inn as a
first-class facility in accordance with Manager's standards for Residence Inns.
If the Manager reasonably determines that the percentages contained in Section
7.02.B are in excess of the amounts sufficient to maintain the Inns as
first-class facilities in accordance with Manager's standards for Residence
Inns, the Manager may reduce the percentages.
If the Repairs and Equipment Estimate prepared in good faith by Manager
exceeds the available funds in the Repairs and Equipment Reserve, Owner will:
1. Agree to increase the annual percentage in Section 7.02.B
to provide the additional funds required, or
2. Arrange to obtain outside financing for the additional
funds required, in which event the principal and interest payments on such
financing shall constitute Deductions in determining Operating Profit, or
3. Provide the additional funds required; in which case, such
amounts (plus interest at the Prime Rate plus one percent (1%) per annum) shall
be repaid to Owner from Gross Revenues in equal installments over the period of
the next sixty-five (65) Accounting Periods, and such installment repayments
shall be Deductions.
A failure or refusal by Owner to agree in writing to either 1, 2 or 3
above within a sixty (60) day period after Manager's request therefor shall
entitle Manager, within sixty (60) days
34
after such failure or refusal, to notify Owner that it will terminate this
Agreement, as to those Inns as to which agreement was not reached, as of a date
six (6) months after the date of Manager's notice. If Manager does not so notify
Owner, it shall continue to manage the Inns in question, as provided under this
Agreement, without the aforesaid increase in the percentage contribution to the
Reserve. If Owner agrees to obtain outside financing or provide additional
funding as described in Subsection 2 or 3 above but fails to deposit such funds
into the Reserve within sixty (60) days after such agreement, then, in addition
to any other remedies to which it is entitled, Manager shall be entitled to (i)
notify Owner that it will terminate this Agreement as to those Inns for which
funds were not deposited as of a date three (3) months after the date of
Manager's notice, or (ii) continue to manage the Inn or Inns without making such
alterations, improvements, renewals, or replacements.
F. Upon Termination of this Agreement with respect to any one or more
of the Inns, whether pursuant to Section 7.02.E above or pursuant to other
provisions of this Agreement, that portion of the Reserve properly allocable to
said Inn or Inns shall be released from the Reserve and paid to Owner unless
Manager will continue operating some or all of the Inns being terminated from
this Management Agreement, in which case Manager shall transfer all amounts held
in the Reserve properly allocable to the Inns Manager will continue operating to
one or more new accounts for the benefit of the new owner or owners of such
Inns.
7.03 Building Alterations, Improvements, Renewals, and Replacements
--------------------------------------------------------------
A. Manager shall prepare an annual estimate of the expenses necessary
for major repairs, alterations, improvements, renewals and replacements (which
repairs, alterations, improvements, renewals and replacements are not among
those referred to Section 7.02.A.2) to the structural, mechanical, electrical,
heating, ventilating, air conditioning, plumbing or vertical transportation
elements of each of the Buildings ("Building Estimate") and shall submit such
Building Estimate to Owner for its approval at the same time the Annual
Operating Projection is submitted. The Building Estimate and shall be prepared
on a consolidating basis showing proposed expenditures as to each Inn. Manager
shall not make any expenditures for such purposes without the prior written
consent of Owner. However, if
35
major repairs, alterations, improvements, renewals or replacements to any Inn
are required by reason of any law, ordinance, regulation or order of a competent
government authority, or are otherwise required for the continued safe and
orderly operation of such Inn, Manager shall immediately give Owner notice
thereof and shall be authorized (but not obligated) to take appropriate remedial
action without such approval if Owner does not act; provided that Manager shall
in no event act without obtaining Owner's prior consent if the cost of such
remedial action exceeds, for any given Inn, four percent (4%) of such Inn's
annual Gross Revenues for the immediately preceding full Fiscal Year. Owner
shall bear the cost of all such alterations, improvements, renewals or
replacements by either:
1. Providing outside financing for the additional funds
required, in which event the principal and interest payments on such financing
shall constitute Qualifying Debt Service, or
2. Providing the additional funds required, which amounts
shall be treated as Additional Inn Investments hereunder.
B. If Owner does not approve the Building Estimate as to one or more or
all of the Inns within sixty (60) days after it has been submitted, Manager may,
within sixty (60) days after the end of said sixty-day period, notify Owner that
it will terminate this Agreement as to those Inns as to which agreement was not
reached as of a date six (6) months after the date of Manager's notice. If
Manager does not so notify Owner, it shall continue to manage the Inns in
question, as provided under this Agreement, without making any expenditures in
the Building Estimate that were not approved. If Owner approves the Building
Estimate as to one or more or all of the Inns but fails to deliver funds
required by such Building Estimate as to one or more Inns within sixty (60) days
after such approval, then Manager may, at its option and in addition to any
other remedies available to it, (i) notify Owner that it will terminate this
Agreement as to those Inns for which funds were not deposited as of a date three
(3) months after the date of Manager's notice, (ii) use funds from the Reserve
to pay for the expenditures in the approved Building Estimate, or (iii) continue
to manage the Inn or Inns without making such alterations, improvements,
renewals or replacements.
36
7.04 Liens
-----
Manager and Owner shall use their best efforts to prevent any liens
from being filed against any Inn which arise from any maintenance, repairs,
alterations, improvements, renewals or replacements in or to such Inn. Manager
and Owner 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.
7.05 Ownership of Replacements
-------------------------
All repairs, alterations, improvements, renewals or replacements made
pursuant to Article VII, and all amounts kept in the Reserve, shall be the
property of Owner.
END OF ARTICLE VII
37
ARTICLE VIII
BOOKKEEPING AND BANK ACCOUNTS
-----------------------------
8.01 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 the Agreement. Owner may at reasonable intervals during
Manager's normal business hours examine such records. Within the Partnership
Filing Period, Manager shall furnish Owner a statement in reasonable detail
summarizing the operations of the Inns for the immediately preceding Fiscal Year
and a certificate of Manager's chief accounting officer certifying that such
year-end statement is true and correct. The parties shall, within five (5)
business days after the receipt of such statement, make any adjustments, by cash
payment, in the amounts paid or retained for such Fiscal Year as are needed
because of the final figures set forth in such statement. If Owner desires, at
its own expense, to audit such statement and supporting records, Owner shall
begin such audit within ninety (90) days following its receipt of such statement
and shall complete such audit within ninety (90) days thereafter. If Owner does
not make such an audit, then such statement shall be deemed to be conclusively
accepted by Owner as being correct, and Owner shall have no right thereafter,
except in the event of fraud by Manager, to question or examine the same. If any
audit by Owner discloses an understatement of any amounts due Owner, Manager
shall promptly pay Owner such amounts found to be due, plus interest thereon (at
the Prime Rate plus one percent (1%) per annum) from the date such amounts
should originally have been paid. If, however, the audit discloses that Manager
has not received any amounts due it, Owner shall pay Manager such amounts, plus
interest thereon (at the Prime Rate plus one percent (1%) per annum) from the
date such amounts should originally have been paid. Any dispute concerning the
correctness of an audit shall be settled by arbitration, in accordance with the
then current rules of the American Arbitration Association.
B. If Owner's audit discloses an error in the total payment of amounts
due Owner, for any Fiscal Year so audited, that is in excess of five percent
(5%), Manager shall pay for the cost of Owner's audit. In addition, in such
event, Owner may
38
audit the statements of Inn operations and supporting records for the two (2)
preceding Fiscal Years. Owner shall bear the cost of such audit, except for the
cost thereof relating to any Fiscal Year in which the audit discloses an error
in excess of five percent (5%) in the payment of amounts due Owner.
C. All statements shall be prepared on consolidated basis rather than
on an individual Inn basis; however, to the extent Manager prepares them for its
own internal purposes, Manager shall, on Owner's written request, furnish Owner
with copies of unaudited statements prepared for each Inn separately.
8.02 Accounts, Expenditures
----------------------
A. All funds derived from operation of the Inns shall be deposited by
Manager in a bank account in a bank designated by Manager. Withdrawals from said
accounts shall be made only by representatives of Manager whose signatures have
been authorized. Reasonable ▇▇▇▇▇ cash funds shall be maintained at each Inn.
B. All payments made by Manager hereunder shall be made from authorized
bank accounts, ▇▇▇▇▇ cash funds, or from Working Capital provided pursuant to
Section 6.01. Manager shall not be required to make any advance or payment to or
for the account of Owner except out of such funds, and Manager 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 Manager as a result of its operation
and management of the Inns 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 for that purpose from the operation of the Inns.
8.03 Annual Operating Projection
---------------------------
A. Manager shall submit to Owner for its review, thirty (30) days prior
to the beginning of each Fiscal Year, an "Annual Operating Projection." Such
projection shall project, on a consolidated basis, the estimated Gross Revenues,
departmental profits, Deductions, and Operating Profit for the forthcoming
Fiscal Year for the Inns, taking into account each Inn's market area. Manager
shall use its best efforts to adhere to the Annual Operating Projection. It is
understood, however, that the Annual Operating Projection is an estimate only
and that unforeseen
39
circumstances such as, but not limited to, the costs of labor, material,
services and supplies, casualty, operation of law, or economic and market
conditions may make adherence to the Annual Operating Projection impracticable,
and Manager shall be entitled to depart therefrom due to causes of the foregoing
nature.
B. If Owner intends to sell or refinance any one or more of the Inns,
Manager agrees to cooperate in providing information to facilitate such sale or
refinancing.
8.04 Operating Losses; Credit
------------------------
A. To the extent there is an Operating Loss for any Accounting Period,
additional funds in the amount of any such deficiency shall be provided by Owner
within twenty (20) days after Manager has given written notice to Owner of such
Operating Loss. If Manager elects not to so notify Owner or if Owner does not so
fund such deficiency on Manager's request (but, in such latter case, without
affecting Manager's other remedies under this Agreement), Manager shall have the
right to withhold an amount equal to such deficiency from future disbursements
of funds otherwise due to Owner.
B. In no event shall either party borrow money in the name of or pledge
the credit of the other.
END OF ARTICLE VIII
40
ARTICLE IX
TRADEMARKS, TRADE NAMES AND SERVICE MARKS
-----------------------------------------
9.01 Trademarks, Trade Names and Service Marks
-----------------------------------------
A. During the term of the Agreement, each Inn shall be known as a
"Residence Inn" or "Residence Inn by Marriott" or "Marriott Residence Inn", with
such additional identification as may be necessary to provide local
identification. If the name of the "Residence Inn by Marriott" System is
changed, Manager will change the name of each Inn to conform thereto. The names
"Marriott," "Residence Inn," "Residence Inn by Marriott" and "Marriott Residence
Inn" (each of the foregoing names, together with any combination thereof, shall
herein be collectively referred to as the "Trade Names") when used alone or in
connection with another word or words, and the Marriott or Residence Inn
trademarks, service marks, other trade names, symbols, logos and designs shall
in all events remain the exclusive property of Manager or Marriott, and nothing
contained herein shall confer on Owner the right to use any of the Trade Names,
or the Marriott or Residence Inn trademarks, service marks, other trade names,
symbols, logos or designs otherwise than in strict accordance with the terms of
this Agreement. Except as provided in Section 9.02, upon Termination with
respect to any one or more of the Inns, any use of or right to use any of the
Trade Names, or any of the Marriott or Residence Inn trademarks, service marks,
other trade names, symbols, logos or designs by Owner shall cease forthwith and
Owner shall promptly remove from each such Inn any signs or similar items which
contain any of said Trade Names, trademarks, service marks, other trade names,
symbols, logos or designs. If Owner has not removed such signs or similar items
promptly upon Termination, Manager shall have the right to remain at such Inn as
long as is necessary for it to do so.
B. Included under the terms of this Section are all trademarks, service
marks, trade names, symbols, logos or designs used in conjunction with the Inns,
including but not limited to restaurant names, lounge names, etc., whether or
not the marks contain the "Marriott" name or the "Residence Inn" name. The right
to use such trademarks, service marks, trade names, symbols, logos or designs
belongs exclusively to Manager or Marriott, and the use thereof inures to the
benefit of Manager or
41
Marriott whether or not the same are registered and regardless of the source of
the same.
42
9.02 Purchase of Inventories and Fixed Asset Supplies
------------------------------------------------
Upon Termination, either of this entire Agreement or with respect to a
given Inn, Manager shall have the option, to be exercised within thirty (30)
days after Termination, to purchase, at their then book value, any items of such
Inn's Inventories and Fixed Asset Supplies as may be marked with any Trade Name,
or any Marriott or Residence Inn trademark, other trade name, symbol, logo or
design. In the event Manager does not exercise such option, Owner agrees that it
will use any such items not so purchased exclusively in connection with such Inn
(or one of the other Inns) until they are consumed.
9.03 Breach of Covenant
------------------
Manager, Marriott and the Marriott Affiliates shall be entitled, in
case of any breach of the covenants of Article IX by Owner or others claiming
through it, to injunctive relief and to any other right or remedy available at
law. Article IX shall survive Termination.
END OF ARTICLE IX
43
ARTICLE X
MANAGEMENT AND USE OF THE INNS
10.01 Management of the Inns
----------------------
Manager shall manage each Inn under standards comparable to those
prevailing in other inns in the "Residence Inn by Marriott" System, including
all activities in connection therewith which are customary and usual to such an
operation.
10.02 Chain Services
--------------
Manager shall, commencing with the Effective Date and thereafter during
the term of this Agreement, cause to be furnished to each Inn certain services
("Chain Services") which are furnished generally on a central or regional basis
to other inns in the "Residence Inn by Marriott" System which are managed by
Manager, Marriott, or any Marriott Affiliate, and which benefit each Inn as a
participant in such System. Chain Services shall include: (i) divisional
executive management; (ii) sales office services; the development of programs
for training and manpower development; and computer payroll and accounting
services; and (iii) such additional central and regional services as may from
time to time be furnished for the benefit of inns in the "Residence Inn by
Marriott" System or in substitution for services now performed at individual
inns which may be more efficiently performed on a group basis. The services
described in this Section 10.02 shall not include services which are described
in the definitions of "Base Management Fee" and "Residence Inn System Fee."
Costs and expenses incurred in the providing of such services shall be allocated
on a fair and equitable basis, on a "per-suite" basis, among all "Residence Inn
by Marriott" inns managed by Manager in the United States receiving the same. To
the extent that services described in this Section 10.02 have been funded
through the Marketing Fund, there will be no allocation of the costs and
expenses thereof under this Section 10.02.
10.03 Owner's Right to Inspect
------------------------
Owner or its agents shall have access to any Inn at any and all
reasonable times for the purpose of protecting the same against fire or other
casualty, prevention of damage to the Inn,
44
inspection, making repairs, or showing such Inn to prospective purchasers,
tenants or mortgagees.
END OF ARTICLE X
45
ARTICLE XI
INSURANCE
---------
11.01 Property Insurance
------------------
A. Manager shall, commencing with the Effective Date and for the
duration of each Inn Term, procure and maintain, using funds deducted from Gross
Revenues in determining Operating Profit, with insurance companies approved by
Owner and licensed to do business in the state where the respective Inn is
located (unless coverage is not available from licensed companies or
non-licensed companies provide coverage which a reasonable insurance expert
would deem preferable), a minimum of the following insurance:
1. Insurance on each Inn (including contents) against loss or
damage by all perils included in "all risk" (as such term is commonly used in
the insurance industry) coverage, in an amount not less than one hundred percent
(100%) of the replacement cost thereof, except that if such 100% replacement
cost coverage is not available on reasonable rates and terms, then such
insurance shall be in an amount not less than ninety percent (90%) of the
replacement cost of each Inn;
2. Earthquake (except in California) and flood insurance, if
available on reasonable rates and terms, to be determined at the discretion of
Manager;
3. Insurance against loss or damage from explosion of boilers,
pressure vessels, pressure pipes and sprinklers, to the extent applicable,
installed in each Inn;
4. 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 11.01.A.1, 2 and 3, for a period
of not less than one (1) year after the occurrence, of a type and in amounts and
with such deductible limits as are generally established by Manager at the other
inns it owns or manages under the Marriott Residence Inn name in the United
States.
B. All policies of insurance required under Section 11.01. ▇. ▇, ▇, ▇
▇▇▇ ▇ ▇▇▇▇▇ ▇▇ carried in the name of Owner, Manager,
46
and the holder of the first-lien permanent mortgage on such Inn; subject to the
rights of any lender, any losses thereunder shall be payable to the parties as
and to the extent their respective interests, if any, may appear.
C. Any mortgage on any Inn shall contain provisions to the effect that
proceeds of the insurance policies required to be carried under Section 11.01
shall be available for repair and restoration of such Inn.
11.02 Operational Insurance
---------------------
Manager shall, commencing with the Effective Date and for the duration
of each Inn Term, procure and maintain, using funds deducted from Gross Revenues
in determining Operating Profit, either with insurance companies approved by
Owner and licensed to do business in the state where the respective Inn is
located (unless coverage is not available from licensed companies or
non-licensed companies provide coverage which a reasonable insurance expert
would deem preferable), or by Manager legally qualifying as a workers'
compensation self-insurer in the state where the particular Inn is located, the
following insurance:
A. Worker's compensation and employer's liability insurance as may be
required under applicable laws covering all of Manager's employees at each Inn,
with such deductible limits or self-insured retentions as are generally
established by Manager at the other inns it owns or manages under the "Residence
Inn by Marriott" name in the United States;
B. Fidelity bonds, with reasonable limits and deductibles to be
determined by Manager, covering its employees in job classifications normally
bonded in the other inns it owns or manages under the "Residence Inn by
Marriott" name in the United States or as otherwise required by law, and
comprehensive crime insurance to the extent Manager and Owner mutually agree it
is necessary for each Inn;
C. Comprehensive general public liability insurance against claims for
personal injury, death or property damage occurring on, in, or about each Inn,
and automobile insurance on vehicles operated in conjunction with such Inn, with
a combined single limit of not less than Twenty-five Million Dollars
($25,000,000) for each occurrence for personal injury, death and
47
property damage, with such deductible limits or self-insured retentions as are
generally established by Manager at the other inns it owns or manages under the
"Residence Inn by Marriott" name in the United States; if Manager feels in its
reasonable discretion that higher limits are appropriate, it will obtain them;
D. Such other insurance in amounts as Manager in its reasonable
judgment deems advisable for protection against claims, liabilities and losses
arising out of or connected with the operation of the Inns or as reasonably
required by Owner's lenders holding first mortgages on the Inns.
11.03 Coverage
--------
All insurance described in Sections 11.01 and 11.02 may be obtained by
Manager by endorsement or equivalent means under its blanket insurance policies,
provided that such blanket policies substantially fulfill the requirements
specified herein. Deductible limits and self-insured retentions shall be as
provided in the blanket policies covering the inns owned or managed by Manager
under the "Residence Inn by Marriott" name in the United States. In addition,
Manager may self-insure workers' compensation insurance (if it has legally
qualified to do so) or otherwise retain such risks or portions thereof as it
does with respect to other inns it owns or manages under the "Residence Inn by
Marriott" name in the United States.
11.04 Cost and Expense
----------------
Insurance premiums and any costs or expenses with respect to the
insurance described in this Article XI shall be Deductions in determining
Operating Profit. Premiums on policies for more than one year shall be charged
pro rata against Gross Revenues over the period of the policies. The expenses
incurred in maintaining Manager's self-insurance program shall be charged on an
equitable basis to the inns participating in such programs. Any reserves,
losses, costs, damages or expenses which are uninsured, or fall within
deductible limits, shall be treated as a cost of insurance and shall be
Deductions in determining Operating Profit. Upon Termination, either of this
entire Agreement or with respect to a given Inn, an escrow fund in an amount
reasonably acceptable to Manager (which amount, when funded, shall thereafter be
final as between Owner and Manager) shall be established from Gross
48
Revenues (or, if Gross Revenues are not sufficient, with funds provided by
Owner) to cover the amount of any deductible limits and all other costs which
will eventually have to be paid by Manager with respect to pending or contingent
claims, including those which arise after Termination for causes arising during
the term of the Agreement.
11.05 Policies and Endorsements
-------------------------
A. Where permitted, all insurance provided under Article XI shall name
Owner and any lender or mortgagee designated by Owner as additional insureds.
Manager shall deliver to such additional insureds certificates of insurance with
respect to all policies so procured, including existing, additional and renewal
policies and, in the case of insurance about to expire, shall deliver
certificates of insurance with respect to the renewal policies not less than ten
(10) days prior to the respective dates of expiration.
B. All policies of insurance provided for under Article XI shall, to
the extent obtainable, have attached thereto an endorsement that such policy
shall not be canceled or materially changed without at lease thirty (30) days'
prior written notice to the certificate holder.
END OF ARTICLE XI
49
ARTICLE XII
TAXES
-----
12.01 Real Estate and Personal Property Taxes
---------------------------------------
All real estate and personal property taxes, levies, assessments and
similar charges on or relating to each Inn ("Impositions") during each Inn Term
shall be paid by Manager from Gross Revenues, before any fine, penalty, or
interest is added thereto or lien placed upon any Inn or upon the Agreement,
unless payment thereof is in good faith being contested and enforcement thereof
is stayed. Any such payments shall be a Deduction in determining Operating
Profit. Owner shall, within five (5) days of receipt, furnish Manager with
copies of official tax bills and assessments which it may receive with respect
to any of the Inns. Either Owner or Manager (in which case Owner agrees to sign
the required applications and otherwise cooperate with Manager in expediting the
matter) may initiate proceedings to contest any Imposition, and all reasonable
costs of any such contest shall be paid from Gross Revenues and shall be a
Deduction in determining Operating Profit.
END OF ARTICLE XII
50
ARTICLE XIII
INN EMPLOYEES
-------------
13.01 Employees
---------
A. All personnel employed at each Inn shall at all times be the
employees of Manager. Manager shall have absolute discretion to hire, promote,
supervise, direct and train all employees at each Inn, to fix their compensation
and, generally, establish and maintain all policies relating to employment.
B. Manager shall decide whom, if any, of the employees of each Inn
shall reside at such Inn, and shall be permitted to provide free accommodations
and amenities to its employees and representatives living at or visiting each
Inn in connection with its management or operation. No person shall otherwise be
given gratuitous accommodations or services without prior joint approval of
Owner and Manager except in accordance with usual practices of the hotel and
travel industry.
C. At Termination with respect to a given Inn, other than a Termination
(i) by reason of a default of Manager hereunder or (ii) at Manager's option
(except as a result of a default by Owner), provided that the expiration of a
given Inn Term under Section 4.01 shall not be deemed "at Manager's option" for
purposes of this Section 13.01, an escrow fund shall be established from Gross
Revenues (or, if Gross Revenues are not sufficient, with funds provided by
Owner) to reimburse Manager for all costs and expenses incurred by Manager in
terminating its employees at the affected Inn, such as severance pay,
unemployment compensation and other employee liability costs arising out of the
termination of employment of Manager's employees at such Inn.
END OF ARTICLE XIII
51
ARTICLE XIV
DAMAGE, CONDEMNATION AND FORCE MAJEURE
--------------------------------------
14.01 Damage and Repair
-----------------
A. If, during the term hereof, any of the Inns is damaged or destroyed
by fire, casualty or other cause, Owner shall, at its cost and expense and with
all reasonable diligence, repair or replace the damaged or destroyed portion of
such Inn to the same condition as existed previously. To the extent available,
proceeds from the insurance described in Section 11.01 shall be applied to such
repairs or replacements. However, Owner shall not be obligated to so repair or
replace the damaged or destroyed portion of such Inn if one or more of the
following is true: (i) the Inn is so badly damaged or destroyed that it cannot
reasonably be repaired or replaced within one (1) year of the date on which the
construction work relating to the repair and/or replacement would begin; (ii)
the proceeds of insurance available for such repair or replacement are less than
ninety percent (90%) of the estimated repair and replacement costs; or (iii) the
remainder of the Inn Term with respect to such Inn is less than ten (10) years,
and Manager fails to agree to extend such Inn Term to a date which is at least
ten (10) years after the estimated date of the completion of such repair and/or
replacement. If Owner elects not to repair or replace said damaged portion of
such Inn for one or more of the foregoing reasons, it shall so notify Manager by
written notice within ninety (90) days after the date of the casualty.
B. In the event damage or destruction to any Inn from any cause
materially and adversely affects the operation of such Inn and (i) Owner fails
to promptly commence and complete the repairing, rebuilding or replacement of
the same so that such Inn shall be substantially the same as it was prior to
such damage or destruction, or (ii) Owner notifies Manager, pursuant to the
provisions of Section 14.01.A above, that Owner will not repair or replace such
damage for one or more of the reasons set forth in Section 14.01.A, Manager may,
at its option, terminate the Agreement with respect to such Inn upon sixty (60)
days' written notice.
14.02 Condemnation
------------
52
A. In the event all or substantially all of any Inn 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 such Inn shall be so taken, but the result is that it is
unreasonable to continue to operate such Inn, this Agreement shall terminate
with respect to such Inn. Owner and Manager shall each have the right to
initiate such proceedings as they deem advisable to recover any damages to which
they may be entitled.
B. In the event a portion of any Inn shall be taken by the events
described in Section 14.02.A, or an entire Inn is affected but on a temporary
basis, and the result is not to make it unreasonable to continue to operate such
Inn, this Agreement shall not terminate. However, so much of any award for any
such partial taking or condemnation as shall be necessary to render such Inn
equivalent to its condition prior to such event shall be used for such purpose.
Owner shall retain the balance of such award, subject to the provisions of any
mortgage of the Inn.
14.03 Force Majeure
-------------
A. If acts of God, acts of war, civil disturbance, or governmental
action (collectively herein referred to as "Force Majeure") make it impractical
for either Owner or Manager to perform any of its respective obligations
hereunder, such obligation shall be suspended until it is again possible for the
affected party to perform it. In addition, if such an event, in Manager's or
Owner's reasonable judgment, makes continued operation of an Inn impractical for
more than a reasonable temporary period, then Manager or Owner may terminate
this Agreement as to such Inn on sixty (60) day's written notice to Owner or
Manager, as the case may be.
B. The provisions of Section 14.03.A shall not apply to the specific
provisions of this Agreement regarding (i) damage or destruction, (ii)
condemnation, and (iii) withdrawal or revocation of licenses or permits.
END OF ARTICLE XIV
53
ARTICLE XV
DEFAULTS
--------
15.01 Events of Default
-----------------
The following shall constitute "events of default" to the extent
permitted by applicable law:
A. The failure of either party to make any payment required to be made
in accordance with the terms hereof within ten (10) days after written notice
that such payment has not been made; or
B. Unless Section 15.01.A is applicable, the breach by either party of
any material representation, warranty or covenant contained in this Agreement,
or the default by either party in the performance of any covenants,
undertakings, obligations or conditions set forth in this Agreement, which
breach or default shall not have been cured within thirty (30) days after notice
of such breach or default; provided that an "event of default" shall not exist
with regard thereto if such breach or default (i) is not attributable to a
failure to pay any sums due under this Agreement and (ii) such breach or default
is curable (but not within such thirty (30) day period) and the defaulting party
commences the cure of said breach or default within said thirty (30) day period
and thereafter proceeds diligently and in good faith to complete such cure; or
C. If a court of competent jurisdiction has entered a final,
non-appealable judgment finding Manager liable for fraud, gross negligence or
willful and wanton misconduct in its dealings with Owner hereunder; or
D. If Manager or Owner shall apply for or consent to the appointment of
a receiver, trustee or liquidator of all or a substantial part of its assets or
make a general assignment for the benefit of its creditors, or file a voluntary
petition in bankruptcy or a petition seeking reorganization, composition,
arrangement with creditors, liquidation or similar relief under any present or
future statute, law or regulation, or file any answer admitting the material
allegations of a petition filed against it in any such proceeding, or be
adjudicated a bankrupt or insolvent, or take any action looking toward
dissolution; or
54
E. If any final order, judgment or decree (that is, an order, judgment
or decree affirmed on appeal to a court of last resort or after the expiration
of any period to appeal) shall be entered without the application, approval or
consent of Manager or Owner by any court of competent jurisdiction, approving a
petition seeking reorganization, composition, arrangement with creditors,
liquidation or similar relief under any present or further statute, law or
regulation with respect to Manager or Owner, or appointing a receiver, trustee
or liquidator of all or a substantial part of Manager's or Owner's assets and
such order, judgment or decree shall continue unstayed and in effect for an
aggregate of sixty (60) days (whether or not consecutive).
15.02 Remedies
--------
A. If, at any time during the term of this Agreement, an "event of
default" (as defined in Section 15.01) shall occur, then the non-defaulting
party may, at its option, terminate this Agreement by giving notice to the other
party, specifying a date, not earlier than thirty (30) days after the receipt of
such notice, for Termination of this Agreement. If the default has not been
cured on or before the date specified in the aforesaid notice, this Agreement
shall terminate on such date.
B. The rights set forth in Section 15.02.A shall not be in substitution
for, but shall be in addition to, any and all rights and remedies available to
the non-defaulting party by reason of applicable law.
END OF ARTICLE XV
55
ARTICLE XVI
WAIVER AND PARTIAL INVALIDITY
-----------------------------
16.01 Waiver
------
The failure of either party to insist upon a strict performance of any
of the terms or provisions of the 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.
16.02 Partial Invalidity
------------------
If any portion of the Agreement shall be declared invalid by order,
decree or judgment of a court, the Agreement shall be construed as if such
portion had not been inserted herein except when such construction would operate
as an undue hardship on Manager or Owner or constitute a substantial deviation
from the general intent and purpose of said parties as reflected in the
Agreement.
END OF ARTICLE XVI
56
ARTICLE XVII
ASSIGNMENT
----------
17.01 Assignment
----------
A. Neither party shall assign or transfer or permit the assignment or
transfer of this Agreement without the prior written consent of the other;
provided, however, that Manager shall have the right, without such consent, to
(1) assign its interest in this Agreement to Marriott or any Marriott Affiliate
(other than one which is a partner of Owner) which (i) has adequate experience
in managing hotels and has adequate capital to conduct its business as Manager
under this Agreement, and (ii) agrees in writing to be bound by and comply with
the terms of this Agreement (such written agreement to be delivered to Owner);
and (2) lease shops or grant concessions at the Inns so long as the terms of any
such leases or concessions do not exceed the term of this Agreement. Nothing
contained herein shall prevent (i) the conditional assignment of this Agreement
by Owner as security for any mortgage on the Inns pursuant to Section 17.02;
(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 Marriott; or (iii) an
assignment of this Agreement in connection with an approved sale of one or more
of the Inns pursuant to Section 18.01.A.2.
B. 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. An assignment by
either Owner or Manager of its interest in this Agreement shall not relieve
Owner or Manager, as the case may be, from their respective obligations under
this Agreement, and shall inure to the benefit of, and be binding upon, their
respective successors, heirs, legal representatives, or assigns.
17.02 Mortgages and Collateral Assignments
------------------------------------
Owner may from time to time (i) grant mortgages, deeds of trust or
similar security instruments encumbering the Inns, and (ii) collaterally assign
its interest under this Agreement as additional security, provided that all such
mortgages, deeds of
57
trust, other security instruments and collateral assignments: (a) are granted or
entered into in connection with indebtedness that is described in Section
3.01.A.2 (ii) and (iii) hereof, and (b) each contain a non-disturbance provision
in the form described in Section 3.01.A.2(i) hereof. Provided that all of the
provisions of Section 3.01.A.2 are complied with, Manager agrees that (in
connection with Owner obtaining such secured loans) it will: (x) deliver to the
lender, upon Owner's written request therefor, a statement that this Agreement
is in full force and effect and that there are no outstanding defaults
hereunder, or, if there are outstanding defaults, describing what they are; (y)
subordinate Manager's interest in this Agreement to the rights of the lender
upon foreclosure of any such mortgage, deed of trust, security agreement or like
instrument, or upon the granting of a deed in lieu of foreclosure (provided that
such lender simultaneously agrees to a non-disturbance provision in the form
described in Section 3.01.A.2(i) hereof); and (z) attorn to and recognize such
lender or its assignee as being the "Owner" under this Agreement upon a
conveyance of title to the Inns to such lender or its assignee, whether such
conveyance is the result of a foreclosure of said mortgage, deed of trust,
security agreement or like instrument, or is the result of a deed in lieu of
foreclosure.
END OF ARTICLE XVII
58
ARTICLE XVIII
SALE OF AN INN OR INNS
----------------------
18.01 Right of First Refusal
----------------------
A. It is a principal inducement for Manager to enter into this
transaction that the twenty-two (22) Inns shall not, at any one time, ever be
owned by more than five (5) separate individuals or entities each of whom has a
management agreement with Manager with respect to its Inn or Inns. Accordingly,
Owner agrees that it will not have the right to sell or lease any one or more of
the Inns if such a transaction, when consummated, would result in the twenty-two
(22) Inns being owned by more than five (5) separate owners. Subject to the
foregoing, if Owner receives a bona fide written offer to purchase or lease any
one or more of the Inns, and desires to accept such offer, Owner shall give
written notice thereof to Manager stating the name of the prospective purchaser
or tenant, as the case may be, the price or rental and the terms and conditions
of such proposed sale or lease, together with all other information requested by
Manager and reasonably available to Owner. Within thirty (30) days after the
date of receipt of Owner's written notice and such other information, Manager
shall elect, by written notice to Owner, one of the following alternatives:
1. To purchase or lease such Inn or Inns at the same price or rental
and upon the same terms and conditions as those set forth in the written notice
from Owner to Manager or upon other terms acceptable to Owner, in which event
Owner and Manager shall promptly enter into an agreement for such sale or lease
and shall finalize the same within ninety (90) days.
2. To consent to such sale or lease and to agree to enter into a new
management agreement, with respect to such Inn or Inns, with such purchaser or
tenant, which new management agreement will be on all of the terms and
conditions of this Agreement, except that the Actual Debt Service and the
Operating Profit Objective shall be only the portion thereof allocable to such
Inn or Inns based on the percentages as set forth in Exhibit "B" hereof, and
except that, in preparing such new management agreement, appropriate adjustments
shall be made to all other terms and provisions of this Agreement which have
been agreed to and/or computed on the assumption that this Agreement will apply
59
to all twenty-two (22) Inns (and reciprocal adjustments shall likewise be made
to this Agreement itself, which will be applicable to the Inns not being sold
under this Section 18.01, as set forth in Section 18.02 hereof); provided,
however, that if Manager in good faith believes (and so states in writing to
Owner) that any one or more of the following is true: (i) that the proposed
purchaser is a competitor, in the lodging business, of Manager, Marriott or any
Marriott Affiliate; (ii) that the business character and reputation of the
proposed purchaser have not been firmly established; or (iii) that the financial
condition and prospects of the proposed purchaser are not adequate to discharge
the obligations of Owner under this Agreement, Manager shall have the right to
terminate this Agreement, by written notice to Owner, with respect to such Inn
or Inns, and Manager shall not be required to enter into such new management
agreement with respect thereto. The effective date of such Termination shall
coincide with the date of the finalization of the proposed sale or lease. Such
Termination shall not be effective if such sale or lease is not finalized.
B. If Manager shall fail to elect any of the above alternatives within
said thirty (30) day period, such failure shall be conclusively deemed to
constitute an election under subsection 2 above to enter into a new management
agreement, with respect to such Inn or Inns, with such purchaser or tenant, and
the provisions thereof shall prevail as if Manager had consented in writing
thereto. Any proposed sale or lease of which notice has been given by Owner to
Manager hereunder must be finalized within one hundred eighty (180) days
following the giving of such notice, unless Manager has exercised its option
under subsection 1 above to purchase or lease the Inns. Failing such
finalization, such notice, and any response thereto given by Manager, shall be
null and void and all of the provisions of Section 18.01.A must again be
complied with before Owner shall have the right to finalize a sale or lease of
the Inns upon the terms contained in said notice, or otherwise.
18.02 Effect of Sale of Inn
---------------------
Upon the consummation of the sale of an Inn, subject to the provisions
of Section 18.01, then:
A. This Agreement shall terminate with respect to such Inn, but not
with respect to the remaining Inns; as to such Inn,
60
the actions described in Section 4.03 shall be taken (except that, if Manager is
entering into a new management agreement with the purchaser or tenant, as the
case may be, of such Inn, then (i) the actions described in subsections D and G
of Section 4.03 shall not be necessary), and (ii) the actions described in
subsection C of Section 4.03 shall be complied with to the extent such books and
records are in Manager's control or possession and shall apply to those books
and records related only to the period prior to such termination;
B. The Actual Debt Service shall be reduced by the percentage thereof
allocable to such Inn as set forth in Exhibit "B" hereto;
C. The Operating Profit Objective shall be reduced by the percentage
thereof allocable to such Inn as set forth in Exhibit "B" hereto;
D. That portion of the Repairs and Equipment Reserve maintained
pursuant to Section 7.02 hereof that is properly allocable to such Inn shall be
transferred to a new account for the benefit of the purchaser of such Inn;
E. Appropriate adjustments shall be made to those other terms and
provisions of this Agreement (e.g., Working Capital, insurance) which have been
agreed on, computed or established on the assumption that this Agreement will
apply to all twenty-two (22) of the Inns;
F. Unless Manager has elected not to enter into a new management
agreement with the purchaser or tenant, as the case may be, of such Inn, for one
or more of the reasons set forth in subsections (i),(ii) and (iii) of Section
18.01.A.2 hereof, Manager and such purchaser or tenant shall execute the new
management agreement described in Section 18.01.A.2.; and
G. Owner shall pay Manager an amount equal to a portion of the
outstanding balance of all Manager Loans determined by multiplying the total
outstanding balance of all Manager Loans by a fraction, the numerator of which
is the amount of Operating Profit attributable to the Inn being sold for the
immediately preceding full Fiscal Year, and the denominator of which is the
amount of Operating Profit from all Inns for the immediately preceding full
Fiscal Year.
61
END OF ARTICLE XVIII
62
ARTICLE XIX
MISCELLANEOUS
-------------
19.01 Right to Make Agreement
-----------------------
Each party warrants, with respect to itself, that neither the execution
of the Agreement nor the finalization of the transactions contemplated hereby
shall violate any provision of law or judgment, writ, injunction, order or
decree of any court or governmental authority having jurisdiction over it;
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; or
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 the
Agreement and any extensions thereof, the full right to enter into the Agreement
and perform its obligations hereunder.
19.02 Consents
--------
Wherever in the Agreement the consent or approval of Owner or Manager
is required, such consent or approval shall 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 Manager 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 (except as
otherwise provided in this Agreement).
19.03 Agency
------
The relationship of Owner and Manager shall be that of principal and
agent, and nothing contained in the Agreement shall be construed to create a
partnership or joint venture between them or their successors in interest.
Manager's agency established by the Agreement is coupled with an interest and
may not be terminated by Owner until the expiration of the term of the
Agreement, except as provided in Section 4.02 or Article XV. Notwithstanding the
agency relationship created by the Agreement, nothing contained herein shall
prohibit, limit or restrict (except as specifically set forth in Section 2.04
hereof) Manager, Marriott, or any Marriott Affiliates from
63
developing, owning, operating, leasing, managing or franchising inns, hotels or
other lodging products in any of the market areas where any of the Inns are
located.
64
19.04 Applicable Law
--------------
The Agreement shall be construed under and shall be governed by the
laws of the State of Maryland.
19.05 Recordation
-----------
The terms and provisions of the Agreement shall run with the parcels of
land designated as the Sites, 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 sufficient copies of an appropriate memorandum of the
Agreement in recordable form and cause the same to be recorded in each of the
jurisdictions where the Inns are located. Any cost of such recordation shall be
initially borne by Owner, reimbursed to Owner from Gross Revenues, and treated
as a Deduction.
19.06 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.
19.07 Notices
-------
Notices, statements and other communications to be given under the
terms of the Agreement shall be in writing and delivered by hand against receipt
or sent by certified or registered mail or Express Mail service, postage
prepaid, return receipt requested:
To Owner:
--------
Marriott Residence Inn II Limited Partnership
c/o Host Marriott Corporation
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Assistant General Counsel, Asset Management
Law Department - 923
With copy to:
------------
65
Marriott Residence Inn II Limited Partnership
c/o Host Marriott Corporation
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Lodging Partnerships - Dept. 908
To Manager:
----------
Residence Inn by Marriott, Inc.
c/o Marriott International, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Assistant General Counsel - Dept. 52.923
(Lodging Operations)
With Copy to:
------------
Residence Inn by Marriott, Inc.
c/o Marriott International, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Lodging Finance - Dept. 51.911
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 shall be deemed
to have been served as of five (5) days after said posting for purposes of
establishing that the sending party complied with the applicable time
limitations set forth herein, but shall not be binding on the addressee until
actually received.
19.08 Limited Liability
-----------------
Manager agrees that no limited partner of Owner shall have any personal
liability hereunder in excess of such limited partner's contribution to the
capital of Owner.
19.09 Confidentiality
---------------
The parties agree that matters set forth in and all information,
budgets and reports generated as a result of this Agreement are strictly
confidential and each party will make every effort to ensure that the
information is not disclosed to any outside person or entities (including the
press), other than
66
such parties' lenders, equity holders, bona fide prospective investors or
purchasers, and their respective accountants, counsel and other consultants or
advisors, and other than the holders of any securities to be issued by Owner or
by any lender pursuant to a securitization of the note evidencing the obligation
of Owner (so long as all such information sent to such holders is marked with a
confidentiality notice that refers to the provisions of this Section 19.09 and
directs such holders to comply with the provisions hereof reasonably acceptable
to Manager), without the written consent of the other party except as may be
reasonably necessary (i) to obtain licenses, permits and other public approvals
necessary for the refurbishment or operation of the Inns, (ii) in connection
with Owner's financing of the Inns or any sale of any Inn (subject to the
limitations above with respect to a securitization), (iii) in connection with a
sale of a controlling interest in Owner, Manager, or Marriott, (iv) in
connection with an audit or other investigation conducted pursuant to this
Agreement or the Owner's or Manager's interest in any of the Inns, (v) in
connection with a foreclosure sale on Owner's interest in the Inns, or (vi) as
required by any law, rule, regulation or judicial process, or by any regulatory
or supervisory authority having jurisdiction over the parties or their
Affiliates.
19.10 Offerings
---------
No reference to Manager, Marriott, or to any Marriott Affiliate 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 or lenders, which is
designed to interest potential investors (debt or equity) in one or more or all
of the Inns, or securities secured by the Inns, unless Manager has previously
received a copy of all such references. However, regardless of whether Manager
does or does not so receive a copy of all such references, neither Manager,
Marriott, nor any Marriott Affiliate will be deemed an issuer or obligor or
guarantor in respect of any securities described in the Prospectus, nor will it
have any responsibility for the Prospectus, and Owner will not issue or approve
any Prospectus that does not so state. Unless Manager agrees in advance, the
Prospectus will not include: (i) any proprietary marks of Manager, Marriott, or
any Marriott Affiliate; or (ii) except as required by applicable securities
laws, the text of this
67
Agreement. Owner shall be entitled, however, to include in the Prospectus an
accurate summary of this Agreement. With respect to any offering not registered
under any federal or state securities law, 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 Manager, Marriott, and all Marriott 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 related thereto)
arising out of any Prospectus or the offering described therein for which Owner
or any of its affiliates is an issuer or sponsor. Owner shall, prior to
distribution of any Prospectus by any of its lenders, use commercially
reasonable best efforts to obtain such an indemnification for the benefit of
Manager, Marriott, and all Marriott Affiliates from such lender.
19.11 Entire Agreement
----------------
The Agreement, together with other writings signed by the parties
expressly stated to be supplemental hereto and together with any instruments to
be executed and delivered pursuant to the Agreement, constitutes the entire
agreement between the parties and supersedes all prior understandings and
writings, and may be changed only by a writing signed by the parties hereto.
END OF ARTICLE XIX
68
IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be
executed as of the day and year first written above.
MARRIOTT RESIDENCE INN II
LIMITED PARTNERSHIP, a Delaware
limited partnership ("Owner")
Attest: By: MARRIOTT RIBM TWO
CORPORATION, a
Delaware corporation,
General Partner
By:
--------------------- --------------------------
Assistant Secretary Vice President
Attest: RESIDENCE INN BY MARRIOTT, INC.,
a Delaware corporation
("Manager")
By:
--------------------- --------------------------
Assistant Secretary Vice President
69
EXHIBIT A
Locations of the Inns
---------------------
1) Birmingham, Alabama
-------------------
#▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ at U.S. Hwy. 280
Birmingham, Alabama 35243
2) Arcadia, California
-------------------
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ just off I-210
Arcadia, California
3) Irvine, California
------------------
▇▇▇▇▇ Pkwy and ▇▇▇▇▇▇ near I-5 and ▇-▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇) ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
---------------------
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
5) Boca Raton, Florida
-------------------
▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
6) Jacksonville, Florida
---------------------
Interstate 95 and Baymeadows Exit
▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
7) Pensacola, Florida
------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
8) ▇▇. ▇▇▇▇▇▇▇▇▇▇/▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
----------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
70
9) Chicago/Deerfield, Illinois
---------------------------
Corporate ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
10) Boston/Danvers, Massachusetts
-----------------------------
▇.▇. ▇▇▇▇▇ ▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇
11) Kalamazoo, Michigan
-------------------
I-94 and Portage Road
Kalamazoo, Michigan
12) Jackson, Mississippi
--------------------
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
13) Santa Fe, New Mexico
--------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
14) Charlotte North, North Carolina
-------------------------------
▇▇▇▇ ▇.▇. ▇▇▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
15) Greensboro, North Carolina
--------------------------
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
16) Las Vegas, Nevada
-----------------
Paradise Road and Convention Center Drive
Las Vegas, Nevada
17) Akron, Ohio
-----------
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
71
I-77 at ▇▇▇▇▇ ▇▇
▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
18) Philadelphia/Berwyn, Pennsylvania
---------------------------------
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
19) Columbia, South Carolina
------------------------
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
20) Spartanburg, South Carolina
---------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
21) Memphis East, Tennessee
-----------------------
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
22) Lubbock, Texas
--------------
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
72
EXHIBIT A-1
Legal Description
-----------------
Birmingham, Alabama
-------------------
73
EXHIBIT A-2
Legal Description
-----------------
Arcadia, California
-------------------
74
EXHIBIT A-3
Legal Description
-----------------
Irvine California
-----------------
75
EXHIBIT A-4
Legal Description
-----------------
Placentia, California
---------------------
76
EXHIBIT A-5
Legal Description
-----------------
Boca Raton, Florida
-------------------
77
EXHIBIT A-6
Legal Description
-----------------
Jacksonville, Florida
---------------------
78
EXHIBIT A-7
Legal Description
-----------------
Pensacola, Florida
------------------
79
EXHIBIT A-8
Legal Description
-----------------
▇▇. ▇▇▇▇▇▇▇▇▇▇/▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
----------------------------------
80
EXHIBIT A-9
Legal Description
-----------------
Chicago/Deerfield, Illinois
---------------------------
81
EXHIBIT A-10
Legal Description
-----------------
Boston/Danvers, Massachusetts
-----------------------------
82
EXHIBIT A-11
Legal Description
-----------------
Kalamazoo, Michigan
-------------------
83
EXHIBIT A-12
Legal Description
-----------------
Jackson, Mississippi
--------------------
84
EXHIBIT A-13
Legal Description
-----------------
Santa Fe, New Mexico
--------------------
85
EXHIBIT A-14
Legal Description
-----------------
Charlotte, North Carolina
-------------------------
86
EXHIBIT A-15
Legal Description
-----------------
Greensboro, North Carolina
--------------------------
87
EXHIBIT A-16
Legal Description
-----------------
Las Vegas, Nevada
-----------------
88
EXHIBIT A-17
Legal Description
-----------------
Akron, Ohio
-----------
89
EXHIBIT A-18
Legal Description
-----------------
Philadelphia/Berwyn, Pennsylvania
---------------------------------
90
EXHIBIT A-19
Legal Description
-----------------
Columbia, South Carolina
------------------------
91
EXHIBIT A-20
Legal Description
-----------------
Spartanburg, South Carolina
---------------------------
92
EXHIBIT A-21
Legal Description
-----------------
Memphis, Tennessee
------------------
93
EXHIBIT A-22
Legal Description
-----------------
Lubbock, Texas
--------------
94
EXHIBIT B
Percentages Used for Reductions
-------------------------------
Applicable Percentage
---------------------
1) Birmingham, Alabama 5.26%
2) Arcadia, California 6.55%
3) Irvine, California 5.19%
4) Placentia, California 3.40%
5) Boca Raton, Florida 5.30%
6) Jacksonville, Florida 4.25%
7) Pensacola, Florida 2.71%
8) ▇▇. ▇▇▇▇▇▇▇▇▇▇/▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ 3.78%
9) Chicago/Deerfield, Illinois 4.17%
10) Boston/Danvers, Massachusetts 4.59%
11) Kalamazoo, Michigan 3.45%
12) Jackson, Mississippi 4.95%
13) Santa Fe, New Mexico 5.08%
14) Charlotte North, North Carolina 2.94%
15) Greensboro, North Carolina 6.08%
16) Las Vegas, Nevada 11.95%
17) Akron, Ohio 3.88%
18) Philadelphia/Berwyn, Pennsylvania 5.09%
19) Columbia, South Carolina 3.71%
20) Spartanburg, South Carolina 2.62%
21) Memphis East, Tennessee 2.66%
▇▇
▇▇) ▇▇▇▇▇▇▇, ▇▇▇▇▇ 2.39%
-----
TOTAL 100.00%
=======
96
EXHIBIT C
Schedule of Principal and Interest Payments
-------------------------------------------
97