EXHIBIT 10.j
AMENDED AND RESTATED MANAGEMENT AGREEMENT
-----------------------------------------
by and between
MARRIOTT INTERNATIONAL, INC.
----------------------------
as "Management Company"
and
MARRIOTT DIVERSIFIED AMERICAN HOTELS, L.P.
------------------------------------------
as "Owner"
Dated as of June 30, 1993
OWNER HAS ASSIGNED ALL OF ITS RIGHTS UNDER THIS AGREEMENT PURSUANT TO, AND THE
TERMS AND CONDITIONS OF THIS AGREEMENT ARE SUBJECT TO AND HAVE BEEN MODIFIED BY,
THAT CERTAIN AMENDED AND RESTATED ASSIGNMENT OF MANAGEMENT AGREEMENT DATED AS OF
JUNE 30, 1993 BY AND AMONG THE PARTIES HERETO AND NATIONSBANK OF GEORGIA,
NATIONAL ASSOCIATION.
TABLE OF CONTENTS
-----------------
Article I - Definition of Terms
-------------------------------
1.01 Definition of Terms...................................... 2
Article II - Appointment of Management Company
----------------------------------------------
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 Hotels
-------------------------------------
3.01 Ownership of Hotels...................................... 18
3.02 Compliance with Ground Lease............................. 18
Article IV - Term
-----------------
4.01 Term..................................................... 20
4.02 Performance Termination.................................. 21
4.03 Actions to be Taken on Termination....................... 22
Article V - Compensation of Management Company
----------------------------------------------
5.01 Base Management Fee...................................... 24
5.02 Incentive Management Fee................................. 24
5.03 Payment of Incentive Management Fee and Contingent
Incentive Management Fees from Operating Profit.......... 24
5.04 Payment of Incentive Management Fee and Contingent
Incentive Management Fees from Capital Proceeds.......... 26
5.05 Accounting and Interim Payment........................... 27
Article VI - Working Capital and Fixed Asset Supplies
-----------------------------------------------------
6.01 Working Capital and Inventories.......................... 29
6.02 Fixed Asset Supplies..................................... 29
i
Article VII - Repairs, Maintenance and Replacements
---------------------------------------------------
7.01 Routine Repairs and Maintenance.......................... 30
7.02 FF&E Reserves............................................ 30
7.03 Building Alterations, Improvements, Renewals, and
Replacements............................................. 34
7.04 Liens.................................................... 36
7.05 Ownership of Replacements................................ 36
Article VIII - Bookkeeping and Bank Accounts
--------------------------------------------
8.01 Books and Records........................................ 37
8.02 Accounts, Expenditures................................... 38
8.03 Annual Operating Projection.............................. 39
8.04 Operating Losses; Credit................................. 39
Article IX - Trademarks, Trade Names and Service Marks
------------------------------------------------------
9.01 Trademarks, Trade Names and Service Marks................ 41
9.02 Purchase of Inventories and Fixed Asset Supplies......... 42
9.03 Breach of Covenant....................................... 42
Article X - Possession and Use of the Hotels
--------------------------------------------
10.01 Ground Lease............................................. 43
10.02 Management of the Hotels................................. 43
10.03 Chain Services........................................... 44
10.04 Owner's Right to Inspect................................. 45
Article XI - Insurance
----------------------
11.01 Property and Operational Insurance....................... 46
11.02 General Insurance Provisions............................. 47
11.03 Cost and Expense......................................... 48
11.04 Owner Provided Coverage.................................. 49
Article XII - Taxes
--------------------
12.01 Real Estate and Personal Property Taxes.................. 50
Article XIII - Hotel Employees
-------------------------------
13.01 Employees................................................ 51
ii
Article XIV - Damage, Condemnation and Force Majeure
----------------------------------------------------
14.01 Damage and Repair........................................ 53
14.02 Condemnation............................................. 54
14.03 Force Majeure............................................ 54
Article XV - Defaults
---------------------
15.01 Events of Default........................................ 56
15.02 Remedies................................................. 57
Article XVI - Waiver, Partial Invalidity and Other Matters
----------------------------------------------------------
16.01 Waiver................................................... 60
16.02 Partial Invalidity....................................... 60
16.03 Estoppel Certificate..................................... 60
Article XVII - Assignment
-------------------------
17.01 Assignment............................................... 61
17.02 Mortgages and Collateral Assignments..................... 62
Article XVIII - Sale of Hotel or Hotels
---------------------------------------
18.01 Right of First Negotiation or First Refusal.............. 63
18.02 Effect of Sale or Refinancing of a Hotel................. 64
Article XIX - Miscellaneous
---------------------------
19.01 Right to Make Agreement.................................. 67
19.02 Consents................................................. 67
19.03 Agency................................................... 67
19.04 Applicable Law........................................... 68
19.05 Recordation.............................................. 68
19.06 Headings................................................. 68
19.07 Notices.................................................. 68
19.08 Limited Liability........................................ 69
19.09 Entire Agreement......................................... 69
19.10 Binding Effect........................................... 70
19.11 Compliance with Loan Documents........................... 70
19.12 Effective Date........................................... 70
EXHIBIT A............................................................... 72
iii
AMENDED AND RESTATED MANAGEMENT AGREEMENT
-----------------------------------------
This Amended and Restated Management Agreement ("Agreement") is executed as
of the 30th day of June, 1993, by MARRIOTT DIVERSIFIED AMERICAN HOTELS, L.P.
("Owner"), a Delaware limited partnership with a mailing address at ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and MARRIOTT INTERNATIONAL, INC.,
formerly known as Marriott Hotels, Inc. ("Management Company"), a Delaware
corporation, with a mailing address at ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇.
RECITALS:
A. Owner entered into an agreement (the "Purchase Agreement") to acquire
six (6) Marriott full-service hotel properties (collectively, the "Hotels" or
individually, a "Hotel," as more particularly described in Section 1.01 hereof)
which are being operated as Marriott full-service hotel properties. Pursuant to
the Purchase Agreement, Owner acquired fee title to five (5) parcels of real
property and a leasehold interest in another parcel of real property
(collectively, the "Sites" or individually, a "Site") described on Exhibit A
attached to this Agreement and incorporated herein. Each Site is improved with a
Marriott full-service hotel property. Each respective Site and the Hotel thereon
are collectively referred to as a "Hotel," as more particularly described in
Section 1.01 hereof.
B. Owner and Management Company entered into that certain Management
Agreement dated as of February 7, 1990 (the "Prior Management Agreement")
pursuant to which Management Company agreed to manage and operate the Hotels on
the terms and conditions set forth therein.
C. Owner and Management Company desire to amend and restate the Prior
Management Agreement to set forth the terms and conditions on which Owner
desires to have Management Company manage and operate the Hotels and Management
Company is
willing to perform such services for the account of Owner on the terms and
conditions as so amended and restated.
D. Management Company has represented that it possesses the resources
necessary to fulfill its obligations under this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree that the Prior Management
Agreement is hereby amended and restated as follows:
ARTICLE I
DEFINITION OF TERMS
1.01 Definition of Terms
-------------------
The following terms when used in this Agreement shall have the meanings
indicated:
"Accounting Period" shall mean the four (4) week accounting periods having
-----------------
the same beginning and ending dates as Management Company's four (4) week
accounting periods, the first of which during any full Fiscal Year shall begin
on the first Saturday of the Fiscal Year and shall end on the fourth following
Friday. There shall be thirteen (13) consecutive four-week Accounting Periods in
each full Fiscal Year, except that the last Accounting Period in a Fiscal Year
may occasionally contain five (5) weeks when necessary to conform the accounting
system to the calendar.
"Additional Hotel Investments" shall mean any amounts expended by Owner,
----------------------------
after the purchase of the Hotels by Owner pursuant to the Purchase Agreement,
for the following purposes:
a) to fund the cost of any expansion or improvements, previously consented
to by Management Company, of any Hotel;
b) to fund the cost of any repairs or replacements under Section 14.01,
with respect to any Hotel, which are not covered by insurance proceeds under
Section 11.01 A;
- 2 -
c) to fund under Section 7.03A2 the cost of any building alterations and
related expenses requested by Management Company; and,
d) to fund any reasonable business needs (not including amounts funded
under Section 7.02E) of Owner relating to the operation of one or more of the
Hotels, as requested by or otherwise approved by Management Company (which
approval shall not be unreasonably withheld.)
"Additional Hotel Investment Loan" shall mean (i) any indebtedness incurred
--------------------------------
by Owner to fund an Additional Hotel Investment or any refinancing thereof,
provided that the terms of any such loan are commercially reasonable, plus (ii)
expenses of up to one (1) percentage point of principal amount of any
refinancing thereof
"Agreement" shall have the meaning ascribed to it in the Preamble.
---------
"Annual Operating Projection" shall have the meaning ascribed to it in
---------------------------
Section 8.03.
"Assignment" shall have the meaning given that term on the signature page
----------
hereof.
"Base Management Fee" shall mean the fee payable to Management Company as
-------------------
provided in Section 5.01.
"Building Estimate" shall have the meaning ascribed to it in Section 7.03A.
-----------------
"Capital Proceeds" shall mean Net Refinancing Proceeds and/or Net Sales
----------------
Proceeds.
"Cash Flow Available for Incentive Management Fee" shall have the meaning
------------------------------------------------
ascribed to it in Section 5.03G.
"Chain Services" shall have the meaning ascribed to it in Section 10.03.
--------------
"Consumer Price Index Adjustment" shall mean an increase by the percentage
-------------------------------
by which the "Consumer Price Index for All Urban Consumers (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 January of the Fiscal Year in question
exceeds the CPI for January 1990.
- 3 -
"Contingent Incentive Management Fees" shall have the meaning ascribed to
------------------------------------
it in Article V hereof.
"Deductions" shall mean, for all Accounting Periods to date in each Fiscal
----------
Year, the total of the following Hotel-level expenses incurred by Management
Company in operating Hotels:
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 Hotel employees;
2. Departmental expenses, administrative and general expenses and the cost
of Hotel marketing, advertising and business promotion expenses, heat, light and
power, and routine repairs, maintenance and minor alterations (to the extent
neither required to be, nor actually funded out of, FF&E Reserves) treated as
Deductions under Section 7.01;
3. Credit card and travel agent commissions;
4. The cost of Inventories and Fixed Asset Supplies consumed in the
operation of the Hotels;
5. Bad debt expense (or reasonable reserves) for uncollectable accounts
receivable as reasonably determined by Management Company;
6. All reasonable costs and fees of independent accountants or other
third parties who perform services required or permitted hereunder;
7. The reasonable cost and expense of technical consultants and
operational experts, including Affiliates of Management Company, retained by
Management Company (or retained by Owner and approved by Management Company) for
specialized services in connection with non-routine Hotel work or other
specialized services not covered by the Base Management Fee;
8. The Base Management Fee provided by Section 5.01;
9. The Hotel's pro rata share of costs and expenses incurred by Management
Company in providing Chain Services;
- 4 -
10. Insurance costs and expenses (including Hotel Retention or other
deductibles) as provided in Article XI;
11. Any amounts transferred into the FF&E Reserve as provided in Section
7.02B;
12. Taxes, if any, payable by or assessed against Management Company
related to this Agreement or to Management Company's operation of the Hotels
(exclusive of Management Company's income taxes) and all Impositions;
13. Rent payable under any telephone or equipment leases neither required
to be funded nor actually funded out of an FF&E Reserve;
14. Rent and other amounts payable under the parking garage lease with
respect to the Fairview Park Hotel and all Ground Rent; and
15. Such other costs and expenses as (a) are specifically provided for as
Deductions elsewhere in this Agreement or (b) are otherwise reasonably necessary
for the proper and efficient operation of the Hotels and which are customary and
usual costs and expenses of the other Marriott full-service hotels owned, leased
or managed by Management Company or another Marriott Affiliate in the United
States.
"Effective Date" shall mean February 8, 1990.
--------------
"FF&E" shall mean furniture, furnishings, fixtures, vehicles, carpeting
----
and equipment (including communications and computer systems), but shall not
include Fixed Asset Supplies.
"FF&E Replacements" shall have the meaning ascribed to it in Section 7.02A.
-----------------
"FF&E Replacement Estimate" shall have the meaning ascribed to it in
-------------------------
Section 8.02D.
"FF&E Reserves" shall have the meaning ascribed to it in Section 7.02A.
-------------
"Fiscal Year" shall mean Management Company's Fiscal Year which now
-----------
ends at midnight on the Friday closest to December 31 in each calendar year; the
new Fiscal Year begins on the Saturday immediately following said Friday. A
partial Fiscal Year between
- 5 -
the end of the last full Fiscal Year and the Termination of this Agreement
shall, for purposes of this Agreement, constitute a separate Fiscal Year. If
Management Company's Fiscal Year is changed in the future, appropriate
adjustment to this Agreement's reporting and accounting procedures shall be
made; provided, however, that no such change or adjustment shall alter the term
of this Agreement or in any way reduce the applications of Operating Profit or
other payments due hereunder.
"Fixed Asset Supplies" shall mean supply items included within "Property
--------------------
and Equipment" under the Uniform System of Accounts, including, but not limited
to, linen, china, glassware, tableware, uniforms, and similar items, whether
used in connection with public space or rooms.
"Force Majeure" shall have the meaning ascribed to it in Section 14.03.
-------------
"Gross Revenues" shall mean, for all Accounting Periods to date in each
--------------
Fiscal Year, all revenues and receipts of every kind derived from operating the
Hotels and all departments and parts thereof (but not to include Purchase Price
Adjustments (as defined in the Purchase Agreement)), including, but not limited
to: income (from both cash and credit transactions), before commissions and
discounts for prompt or cash payments, from rental of rooms, meeting rooms and
space of every kind; license, lease and concession fees and rentals (not
including gross receipts of any licensees, lessees and concessionaires); income
from food and beverage, and catering sales; income from vending, facsimile and
copy machines; wholesale and retail sales of merchandise (except as otherwise
provided in Section 7.02C hereof with respect to the sale of FF&E and except for
wholesale sales of merchandise not generally related to the business of the
Hotels), service charges, and proceeds, if any, from business interruption or
other loss of income insurance, all determined in accordance with generally
accepted accounting principles; provided, however, that Gross Revenues shall not
include (i) gratuities to Hotel employees; (ii) federal, state or municipal
excise, sales or use taxes or similar assessments or Impositions collected
directly from patrons or guests or included as part of the sales price of any
goods
- 6 -
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 FF&E reserves, the other operating accounts of the Hotels or any
accounts of Owner; or (vi) any cash refunds, cash rebates, cash discounts and
credits of a similar nature, given, paid or returned in the course of obtaining
Gross Revenues or components thereof
"Ground Lease" shall have the meaning ascribed to it in the definition of
------------
Ground Rent.
"Ground Rent" shall mean, for all Accounting Periods to date in each Fiscal
-----------
Year, the total rent and other amounts paid or accrued to the landlord by Owner
pursuant to that certain Sublease entered into between The Redevelopment Agency
of the City of Fullerton, California and Marriott dated as of March 19, 1987, as
amended by that certain First Amendment to Sublease dated as of May 27, 1987, as
assigned to Owner (the "Ground Lease"), for leasing of the land on which the
Fullerton Hotel is located, as amended, renewed or replaced from time to time.
"Hotel" or "Hotels" shall refer individually or collectively to the Hotel
----- ------
properties listed in Exhibit A hereto. The terms "Hotel" and/or "Hotels"
incorporate not only the Site or Sites but also all easement or other
appurtenant rights thereto, together with the buildings and all other
improvements now or hereafter constructed thereon, and all FF&E and Fixed Asset
Supplies installed or located therein.
"Hotel Retention" shall mean the amount of any loss or reserve under
---------------
Management Company's, Marriott's or a Marriott Affiliate's blanket insurance or
self-insurance programs which is allocated to a hotel, not to exceed the higher
of (a) the maximum per occurrence limit reasonably established for similar
hotels participating in such programs, or (b) if applicable, the insurance
policy deductible on any loss which may fall within high hazard classifications
as mandated by the insurer (e.g., earthquake, flood, windstorm on coastal
properties). If the Hotel is not a participant under Management Company's,
Marriott's or a Marriott Affiliate's blanket insurance or self-insurance
programs, "Hotel
- 7 -
Retention" shall mean the amount of any loss or reserve allocated to the Hotel,
not to exceed the insurance policy deductible.
"Hotel Term" shall have the meaning ascribed to it in Section 4.01.
----------
"Impositions" shall have the meaning ascribed to it in Section 12.01.
-----------
"Incentive Management Fee" shall mean an annual amount which equals twenty
------------------------
percent (20%) of Operating Profit in any Fiscal Year. Payment of the Incentive
Management Fee to Management Company shall be subject to the provisions of
Article V hereof.
"Initial Term" shall have the meaning ascribed to it in Section 4.01.
------------
"Inventories" shall mean "Inventories" as defined in the Uniform System of
-----------
Accounts, such as, but not limited to, provisions in storerooms, refrigerators,
pantries and kitchens; beverages in wine cellars and bars; other merchandise
intended for sale; fuel; mechanical supplies; stationery, and other expensed
supplies and similar items.
"Lender" shall mean NationsBank of Georgia, National Association, formerly
------
known as The Citizens and Southern National Bank, and any successor thereto.
"Loan Agreement" shall mean that certain agreement entered into between
--------------
Owner and Lender regarding the Permanent Loan, as the same may be amended,
restated, supplemented or otherwise modified from time to time in accordance
with the terms thereof
"Management Company" shall have the meaning ascribed to it in the Preamble.
------------------
"Marriott" shall mean Marriott Corporation, the corporate parent of
--------
Management Company.
"Marriott Affiliate" shall mean Marriott and any corporation of which
------------------
Marriott, either directly or indirectly through one or more intermediary
corporations, owns over fifty percent (50%) of the voting stock or any
partnership wherein Marriott, either directly or indirectly, through one or more
intermediary corporations or other entities, owns or
- 8 -
controls the general partnership interests and over fifty percent (50%) of the
voting and economic partnership interests of such partnership.
"Net Administrative Expenses" shall mean, with respect to any Fiscal
---------------------------
Year, an amount equal to the lesser of (i) the excess, if any, of (a) the
aggregate amount of payments for, or reserves created for payment for,
administrative expenses of Owner with respect to such Fiscal Year over (b) the
actual amount of interest income received by Owner on funds held by Owner for
working capital purposes (excluding interest on any funds held by Management
Company, such as the FF&E Reserve and Working Capital hereunder) with respect to
such Fiscal Year; or (ii) an amount equal to $50,000 for 1990 or, for each
Fiscal Year after 1990, an amount equal to $50,000 increased by the CPI.
"Net Refinancing Proceeds" shall mean the cumulative full amount
------------------------
disbursed (in one or more advances) under any loan or loans obtained by Owner
(other than Additional Hotel Investment Loans), from time to time, to the extent
and in the amount such disbursement or disbursements are not used for the
following purposes: (i) the simultaneous repayment of other indebtedness of
Owner, (ii) commercially reasonable transaction costs, and (iii) the payment of,
or creation of reserves in the reasonable discretion of Owner for, reasonable
and necessary expenditures of Owner, including (but not limited to) Owner's
administrative expenses (such amount not to exceed $50,000 for 1990 or, for each
Fiscal Year after 1990, such amount not to exceed $50,000 increased by the CPI)
and Working Capital needs related to the Hotels.
"Net Sales Proceeds" shall mean the cumulative net proceeds received by
------------------
Owner, from time to time, from any one or more of the following: (i) any Sale of
a Hotel; (ii) the condemnation, eminent domain taking, casualty or other
disposition of any of (or any portion of) the Hotels or the Sites; or (iii) the
liquidation of Owner's property interest in the Hotels 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 and in the amount such gross proceeds are not used for the
- 9 -
following purposes: (i) simultaneous repayment of any indebtedness secured by
the Hotel or Hotels being sold (or the pro rata portion (according to allocation
of the loan amount to such Hotel) of indebtedness secured by all of the Hotels)
and all other indebtedness required to be repaid therefrom; (ii) commercially
reasonable transaction costs and, in the case of a condemnation, eminent domain
taking or casualty, all costs of repairing, restoring, replacing, and
reconstructing a Hotel or any portion thereof; and (iii) the payment of, or
creation of reserves in the reasonable discretion of Owner for, Owner s
administrative expenses (such amount not to exceed $50,000 for 1990 or, for each
Fiscal Year after 1990, such amount not to exceed $50,000 increased by the CPI)
and Working Capital needs related to the remaining Hotels. The term "Net Sales
Proceeds" shall not include proceeds from disposition of FF&E described in
Section 7.02C hereof
"Operating Loss" shall mean, for all Accounting Periods to date in each
--------------
Fiscal Year, the excess, if any, of Deductions over Gross Revenues.
"Operating Profit" shall mean, for all Accounting Periods to date in
----------------
each Fiscal Year, the excess of Gross Revenues over Deductions and in no event
less than zero.
"Other Qualifying Debt" shall mean the sum of, without duplication, (i)
---------------------
Additional Hotel Investment Loans; (ii) indebtedness incurred to pay the
Incentive Management Fee or any Contingent Incentive Management Fees and (iii)
Replacement Debt with respect to each of the foregoing.
"Other Qualifying Debt Service" shall mean, for all Accounting Periods
-----------------------------
to date in each Fiscal Year, all interest and principal actually paid, accrued
or payable with respect to outstanding Other Qualifying Debt plus all fees
related thereto and all penalties related thereto and which are attributable to
acts or omissions of Management Company.
"Owner" shall mean Marriott Diversified American Hotels, L.P., and its
-----
successors and assigns.
"Owner's Contributed Capital" shall mean the sum of(a) the amount of
---------------------------
equity capital allocated to the Hotels, which amount is equal to $41,818,182,
plus (b) the amount
- 10 -
of Additional Hotel Investments (excluding those funded by an Additional Hotel
Investment Loan) from time to time with respect to the Hotels.
"Owner's Net Contributed Capital" shall mean the excess of(a) Owner's
-------------------------------
Contributed Capital, over (b) cumulative retentions by Owner from Net
Refinancing Proceeds and Net Sales Proceeds of the Owner's 15% Priority and
Capital Return pursuant to Section 5.04(2), excluding retentions necessary to
satisfy clause (a) of the definition of "Owner's 15% Priority and Capital
Return".
"Owner's 10% Priority Return" shall mean, for all Accounting Periods to
---------------------------
date in each Fiscal Year, an amount equal to an annual non-cumulative amount
retained by Owner out of Operating Profit, as set forth in Section 5.03C hereof;
equal to ten percent (10%) of the average daily balance outstanding of Owner's
Contributed Capital for such Fiscal Year, subject to reduction upon sale of a
Hotel and upon any Termination.
"Owner's 15% Priority and Capital Return" shall mean, for all
---------------------------------------
Accounting Periods to date in each Fiscal Year, an amount equal to (a) the
portion not yet retained by Owner from Operating Profit, Net Refinancing
Proceeds or Net Sales Proceeds of a fifteen percent (15%) per annum cumulative
non-compounded return on the average daily balance outstanding of Owner's Net
Contributed Capital plus (b) one hundred percent (100%) of Owner's Net
Contributed Capital.
"Partner" or "Partners" shall mean a partner or partners in Owner.
------- --------
"Partnership Agreement" shall mean the Amended and Restated Agreement
---------------------
of Limited Partnership of Owner dated February 7, 1990.
"Permanent Loan" shall mean the loan in the original principal amount
--------------
of One Hundred Twenty-Eight Million Dollars ($128,000,000) provided to Owner by
Lender to finance a portion of the purchase price of the Hotels pursuant to the
Purchase Agreement and to pay certain other amounts pursuant to the Loan
Agreement, such as Lender's fees, title insurance, and mortgage and transfer
taxes, as such loan may be restructured or otherwise modified from time to time.
- 11 -
"Prime Rate" shall mean the prime rate of interest announced from time
----------
to time by Bankers Trust Company, New York, New York.
"Purchase Agreement" shall have the meaning ascribed to it in the
------------------
Recitals.
"Qualifying Debt Service" shall mean Qualifying Mortgage Debt Service
-----------------------
and Other Qualifying Debt Service.
"Qualifying Mortgage Debt" shall mean the sum of; without duplication,
------------------------
(i) the Permanent Loan, and (ii) Replacement Debt with respect thereto.
"Qualifying Mortgage Debt Service" shall mean, for all Accounting
--------------------------------
Periods to date in each Fiscal Year, all interest and principal actually paid,
accrued or payable with respect to outstanding Qualifying Mortgage Debt plus all
fees related thereto and all penalties attributable to acts or omissions of
Management Company. In no event, however, shall "Qualifying Mortgage Debt
Service" include, with respect to any such indebtedness: (i) any balloon
payments; or (ii) voluntary prepayments on the Permanent Loan; or (iii) any
payments or repayments of the portion of the principal or interest of any
indebtedness which is incurred for the purpose of distributing the same to
Partners of Owner; or (iv) in the case of Replacement Debt relating to the
Permanent Loan, any amortization of net principal to the extent such
amortization exceeds that which would have been amortized if a 20-year level
16-payment amortization schedule had been used (using as the constant a rate
based on the actual fixed interest rate in the case of a fixed rate loan or a
rate based on 300 basis points over the yield on Treasury notes with maturities
comparable to the term of such loan in the case of a floating rate loan). The
term "balloon payments," as used in this Agreement, shall mean any repayments or
prepayments (whether voluntary or involuntary) of principal in any given Fiscal
Year (regardless of whether the borrower is permitted or obligated to make the
same) to the extent that any such repayments or prepayments exceed the principal
amount, if any, that would have been payable during such Fiscal Year if the
terms of such indebtedness had provided for level payments of
- 12 -
principal and interest using a 20-year level payment amortization schedule
(using as the constant the rate determined in clause (iv) above).
"Renewal Terms " shall have the meaning ascribed to it in Section 4.01.
-------------
"Replacement Debt" shall mean that portion of any indebtedness Owner
----------------
incurs on commercially reasonable terms (i) to refinance part or all of the
original principal amount of the Permanent Loan or part or all of the then
outstanding balance of Other Qualifying Debt, plus (ii) to finance the
reasonable transactions costs and loan origination fees of any refinancings in
clause (i) above but not in excess of 1% of the principal amount of such
refinancing.
"Sale of a Hotel" or "Sale of the Hotels" shall mean any sale,
--------------- ------------------
assignment, transfer or other disposition, for value or otherwise, voluntary or
involuntary, of the fee simple title (or leasehold interest, as the case may be)
to one or more of the Hotels.
"Seller" shall mean Marriott and each other "Seller" under the Purchase
------
Agreement.
"Site" or "Sites" shall refer individually or collectively to the
---- -----
parcels of land whose addresses are set forth on Exhibit A attached hereto and
incorporated herein, including the land under the Fairview Park Hotel parking
garage, if acquired by Owner.
"Termination" shall mean the expiration or sooner cessation of this
-----------
Agreement with respect to a specific Hotel or all the Hotels.
"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-today operation of the Hotels' business, including, without limitation,
amounts sufficient for
- 13 -
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.
END OF ARTICLE I
- 14 -
ARTICLE II
APPOINTMENT OF MANAGEMENT COMPANY
---------------------------------
2.01 Appointment
-----------
Owner hereby appoints and employs Management Company as Owner's
exclusive agent to supervise, direct and control the management and operation of
the Hotels for the term provided in Article IV. Management Company accepts said
appointment and agrees to manage the Hotels as full-service Marriott hotels
during their respective Hotel Terms and in accordance with the terms and
conditions hereinafter set forth. The performance of all activities by
Management Company hereunder shall be for the account of Owner. Management
Company may not delegate its duties hereunder except to a Marriott Affiliate
which satisfies the requirements of Section 17.01A1 hereof. Management Company
represents and warrants that it possesses the resources necessary to fulfill its
obligations under this Agreement. Marriott covenants that it and/or Marriott
Affiliates will make available to Management Company any and all resources
possessed by Marriott and/or Marriott Affiliates, but not otherwise possessed by
Management Company, necessary for Management Company to fulfill its obligations
hereunder.
2.02 Delegation of Authority
-----------------------
The operations of the Hotels shall be under the exclusive supervision
and control of Management Company which, except as otherwise specifically
provided in this Agreement, shall be responsible for the proper and efficient
operation of the Hotels. Except as otherwise provided herein, Management Company
shall have discretion and control, free from interference, interruption or
disturbance, in all matters relating to management and operation of each Hotel,
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 the Hotels, receipt, holding
and disbursement of funds, maintenance of bank accounts, procurement of
- 15 -
Inventories, supplies and services, promotion and publicity and, generally, all
activities necessary for operation of the Hotels.
2.03 Licenses and Permits
--------------------
A. Management Company warrants to Owner that, to the best of its
knowledge, there are no covenants or restrictions that would prohibit or limit
Management Company from operating each Hotel as a Marriott full-service hotel,
including cocktail lounges, restaurants and other facilities customarily a part
of or related to a Marriott full-service hotel. Upon request by Management
Company, Owner shall not unreasonably withhold the prompt signing, without
charge, of any application for licenses, permits or other instruments necessary
for operation of each Hotel as a Marriott full-service hotel.
B. Management Company shall have the option to terminate this Agreement
with respect to a given Hotel, 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 material license or
permit that materially affects the operation of the Hotel provided: (i) such
withdrawal or revocation is not the fault of Management Company, but rather is
due to circumstances beyond Management Company's reasonable control; (ii) all
applicable appeals to higher governmental authorities regarding such withdrawal
or revocation have been exhausted; (iii) Management Company has made every good
faith, reasonable effort to obtain a substitute license or permit that would
allow for the continued operation of such Hotel as a Marriott full-service
hotel; and (iv) such revocation is not common with other full-service hotels in
the same market area.
2.04 Non-Discrimination
------------------
The parties recognize that Management Company, Marriott and Marriott
Affiliates either own or manage other hotels. Certain of these hotels, now or in
the future, may be located within the general geographical area of one or more
of the Hotels or otherwise may be competitive with one or more of the Hotels.
Management Company, Marriott and
- 16 -
Marriott Affiliates shall ensure that no favoritism shall be accorded to such
other hotels owned or managed by Management Company, Marriott, or a Marriott
Affiliate on the basis of the ownership or management thereof and that, at all
times during the term of this Agreement, Management Company, Marriott and
Marriott Affiliates will operate the various hotels under its management,
including the Hotels, in a non-discriminatory manner.
END OF ARTICLE II
- 17 -
ARTICLE III
OWNERSHIP OF THE HOTELS
-----------------------
3.01 Ownership of Hotels
-------------------
A. Owner hereby covenants that it holds and will keep and maintain good
and marketable title to the respective fee or leasehold interests in each Hotel,
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) which do not adversely affect the operation of
any Hotel by Management Company, including, without limitation, any encumbrances
or other defects of title subject to which title was conveyed to Owner under the
terms of the Purchase Agreement;
2. Mortgages, deeds of trust or similar security instruments
which contain a provision reasonably acceptable to Management Company'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 which either (i) secure one
of the following: (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 (ii) secure any amount due under the Loan Agreement.
3. Liens or taxes, assessments, levies or other public charges
not yet due or which are being contested in good faith;
4. Liens, encumbrances, or other charges resulting from
Management Company's acts; and
5. The terms and conditions of the Ground Lease.
B. Provided Management Company 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
- 18 -
like instrument described in this Section (including, without limitation, any
amounts owed under the Loan Agreement) and shall indemnify Management Company
from and against all claims, litigation and damages arising from the failure to
make such payments as and when required. Notwithstanding the foregoing, Owner
shall not be required to indemnify Management Company for lost profits if the
reason for failure to pay and discharge amounts due under any instrument
described in this section is due to insufficient Operating Profits to make such
payments.
3.02 Compliance with Ground Lease
----------------------------
A. Unless the contrary is otherwise permitted in this Agreement,
Management Company shall take such actions and refrain from taking such actions,
as shall be necessary for Owner to comply with the Ground Lease, and the Parking
Garage Lease applicable to the Fairview Park Hotel listed in Exhibit A hereto,
and shall make reasonable efforts to comply with other covenants, restrictions
and declarations affecting the Hotels.
END OF ARTICLE III
- 19 -
ARTICLE IV
TERM
----
4.01 Term
----
A. The term of this Agreement shall be from the Effective Date to the
expiration of the Hotel Term (as defined in subsection B below) for the last
Hotel to which this Agreement applies.
B. With respect to each Hotel, the "Hotel Term" shall consist of an
"Initial Term" and the "Renewal Term(s)". The "Initial Term" shall begin on the
Effective Date and shall continue until December 31, 2009. Each Hotel Term will
automatically be extended and renewed (on the same terms and conditions
contained herein, except as set forth in the final sentence of this Section
4.01B) for (i) each of four (4) successive periods of ten (10) Fiscal Years with
regard to the Fullerton Hotel and (ii) for each of five (5) successive periods
of ten (10) Fiscal Years with regard to the other five Hotels ("Renewal Terms"),
provided that an "event of default" by Management Company 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)
unless Management Company, at its option, elects to terminate this Agreement as
to any or all of the Hotels as set forth below. If Management Company elects to
exercise such option to terminate this Agreement, as to one or more of the
Hotels, on the expiration of the then current Hotel Term with respect to such
Hotel or Hotels, Management Company shall give Owner written notice to that
effect prior to the expiration of the then current Hotel Term with respect to
such Hotel or Hotels. If Management Company elects to exercise such option,
Management Company shall, unless sooner released by Owner, continue to manage
such Hotel or Hotels until the earliest of: (i) the sale of such Hotel or
Hotels, (ii) such time as Owner obtains a new manager therefor, or (iii)
eighteen (18) months from the date of notice from Management Company exercising
such option, but in all three cases not earlier than the expiration of the then
current term. In the event Management Company
- 20 -
elects to terminate as to one or more, but not all, of the Hotels, the
adjustments described in subsections B through F of Section 18.02 shall be made
to this Agreement.
4.02 Performance Termination
-----------------------
A. Subject to the provisions of Section 4.02B below, Owner shall have
the option to terminate this Agreement with respect to all of the Hotels if the
sum of the Operating Profit for all of the Hotels during any period consisting
of three (3) consecutive Fiscal Years during the term of this Agreement (not
including any period of time before the expiration of the 1992 Fiscal Year) does
not equal or exceed eight percent (8%) of the sum total for the same three (3)
Fiscal Years of (i) the original total cost ($169,818,182) of the Hotels, as
adjusted for any Termination, added once for each of such three (3) Fiscal
Years, plus (ii) the weighted average outstanding balance of Additional Hotel
Investments with respect to the Hotels, added once for each of such three (3)
Fiscal Years. Solely for purposes of the foregoing calculation, the term
"Operating Profit" shall include the aggregate amount of any payments pursuant
to Section 4.02B with respect to such Fiscal Years, with all such payments being
applied first to the earliest Fiscal Year for which Operating Profit did not
equal eight percent (8%) of such sum total for such Fiscal Year and then being
applied to each successive Fiscal Year until the full amount has been applied
(but no more than an amount equal to eight percent (8%) of such sum total for a
Fiscal Year shall be applied to such Fiscal Year). Such option to terminate
shall be exercised by serving written notice thereof on Management Company no
later than sixty (60) days after the receipt by Owner of the annual accounting
under Section 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
Management Company does not elect to avoid termination pursuant to Section 4.02B
below, this Agreement shall terminate as of the end of the second full
Accounting Period following the date on which Management Company receives
Owner's written notice of its intent to terminate this Agreement. Owner's
failure to exercise its
- 21 -
right to terminate this Agreement pursuant to this Section 4.02A 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 4.02A, Management Company shall have the option, to be exercised within
sixty (60) days after receipt of said notice, to avoid such termination by
lending to Owner the amount of any deficiency described in Section 4.02A, and
upon paying such deficiency, Management Company shall be deemed to have
satisfied the test described in Section 4.02A for such three (3) year period. If
Management Company exercises such option, then the foregoing Owner's election to
terminate this Agreement under Section 4.02A shall be cancelled and be of no
force or effect, and this Agreement shall not terminate. Such cancellation,
however, shall not affect the right of Owner, as to subsequent Fiscal Years to
which this Section 4.02 applies, to again elect to terminate this Agreement
pursuant to the provisions of Section 4.02A (which subsequent election shall
again be subject to Management Company's rights under this Section 4.02B). If
Management Company does not exercise its option to make the loan permitted by
this Section 4.02B, then this Agreement shall be terminated as of the date set
forth in Section 4.02A.
4.03 Actions to be Taken on Termination
----------------------------------
Upon a Termination of this Agreement with respect to any one or more of
the Hotels, the following shall be applicable:
A. Management Company shall prepare a final accounting statement with
respect to such Hotel or Hotels, 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 case
the defaulting party shall pay such cost.
- 22 -
B. Management Company shall release and transfer to Owner any of Owners
funds which are held or controlled by Management Company with respect to such
Hotel or Hotels.
C. Management Company shall make available to Owner such books, records
and other documents respecting such Hotel or Hotels (including those from prior
years, subject to Management Company's reasonable records retention policies) as
will be needed by Owner to prepare the accounting statements, in accordance with
the Uniform System of Accounts, for such Hotel or Hotels for the year in which
the Termination occurs and for any subsequent year.
D. Management Company shall (to the extent permitted by law) assign to
Owner or to the new manager all operating licenses and permits for such Hotel or
Hotels which have been issued in Management Company's name; provided that if
Management Company has expended any of its own funds in the acquisition of any
of such licenses or permits, Owner shall reimburse Management Company therefor
if it has not done so already.
E. Appropriate adjustments shall be made regarding the application of
this Agreement to any remaining Hotels, such as, but not limited to, those
adjustments described in Section 18.02. In the event of Termination for any
reason other than a sale of such Hotel or Hotels or as a result of an "event of
default" by Owner hereunder, the adjustments described in Section 18.02 shall be
made with respect to the remaining Hotels, and Owner shall be released from all
further obligations hereunder with respect to the terminated Hotel or Hotels.
F. Various other actions shall be taken, as described in this
Agreement, including, but not limited to, the actions described in Sections
6.01, 9.02, 11.03 and 13.01C.
G. Management Company shall peacefully vacate and surrender such Hotel
or Hotels to Owner and cooperate with Owner and the new manager after the
Termination
END OF ARTICLE IV
- 23 -
ARTICLE V
COMPENSATION OF MANAGEMENT COMPANY
----------------------------------
5.01 Base Management Fee
-------------------
A. In consideration of services to be performed during the term of this
Agreement, Management Company shall be paid an annual amount equal to three
percent (3%) of Gross Revenues (the "Base Management Fee") to cover the Hotels'
share of costs and expenses incurred by Management Company or its affiliated
companies for services which benefit all other Marriott full-service hotels
owned, leased or managed by Management Company or another Marriott Affiliate in
the United States, are performed by personnel not normally located at the Hotels
and are not Chain Services. Such services include executive supervision,
consulting, planning, policy making, corporate finance, risk planning and
insurance services, personnel and employee relations, in-house legal services,
legislative and governmental representation, trademark protection, research and
development, and the services of Management Company's technical, operational and
marketing experts making periodic inspection and consultation visits to the
Hotels but not the services of the personnel of the Architecture and
Construction Division of Marriott or its affiliates providing architectural,
technical or procurement services for the Hotel. Notwithstanding anything to the
contrary contained herein, any payments to third parties for services covered by
the Base Management Fee shall be borne by Management Company.
5.02 Incentive Management Fee
------------------------
In further consideration of the services to be performed during the
term of this Agreement, an Incentive Management Fee in an annual amount equal to
twenty percent (20%) of Operating Profit in each Fiscal Year shall be payable to
Management Company as provided in Sections 5.03 and 5.04.
- 24 -
5.03 Payment of Incentive Management Fee and Contingent Incentive
------------------------------------------------------------
Management Fees from Operating Profit
-------------------------------------
The payment of the Incentive Management Fee with respect to each Fiscal
Year (and with respect to each Accounting Period thereof) shall be payable out
of Operating Profit in accordance with the following sequence of computations,
and no Incentive Management Fee shall be deemed earned or accrued until
sufficient Operating Profit is available for actual payment thereof:
A. First, Owner shall retain any Operating Profit (to the extent of
Operating Profit in that Fiscal Year) in amounts sufficient to pay the
Qualifying Mortgage Debt Service for such Fiscal Year (which shall be prorated
among the Accounting Periods within any given Fiscal Year).
B. Second, beginning January 1, 1993, Owner shall retain any remaining
Operating Profit in an amount sufficient to pay Net Administrative Expenses for
such Fiscal Year.
C. Third, Owner shall retain any remaining Operating Profit until Owner
has retained an amount equal to Owner's 10% Priority Return (which shall be
prorated among the Accounting Periods within any given Fiscal Year).
D. Fourth, Owner shall retain any remaining Operating Profit in amounts
sufficient to pay any remaining Other Qualifying Debt Service for such Fiscal
Year (which shall be prorated among the Accounting Periods within any given
Fiscal Year).
E. Fifth, Owner shall retain any and all such additional amounts as
Owner is required pursuant to the terms of the Permanent Loan to pay prior to
payment of Incentive Management Fees and Contingent Incentive Management Fees
hereunder.
F. Sixth, Owner shall retain fifty percent (50%) of any remaining
Operating Profit for such Fiscal Year (which shall be prorated among the
Accounting Periods within any given Fiscal Year).
- 25 -
G. Seventh, Owner shall apply the remaining fifty percent (50%) of
Operating Profit for such Fiscal Year (or portion thereof) ("Cash Flow Available
for Incentive Management Fee") to pay Management Company the Incentive
Management Fee for the current Fiscal Year. In the event Cash Flow Available for
Incentive Management Fee is insufficient to pay the full Incentive Management
Fee for any Fiscal Year, such unpaid Incentive Management Fee shall be payable,
without adjustment for interest, as a "Contingent Incentive Management Fee"
pursuant to this Article V; provided, however, that the maximum amount of unpaid
Incentive Management Fees that can become Contingent Incentive Management Fees
during the period beginning on the Effective Date and ending on December 31,
1999 is Twelve Million Dollars ($12,000,000) on an aggregate, cumulative basis.
Following application pursuant to the above to pay the Incentive Management Fee
for the current year, Owner shall apply any remaining balance of Cash Flow
Available for Incentive Management Fee to pay Management Company any Contingent
Incentive Management Fees then owed to Management Company. Upon termination of
this Agreement with respect to a Hotel or Hotels due to a default of Management
Company, or if Management Company fails to renew the Hotel Term with respect to
such Hotel or Hotels, or if this Agreement is terminated pursuant to Section
4.02, Management Company shall not be permitted to receive payment of any
Contingent Incentive Management Fees with respect thereto.
H. Eighth, following application pursuant to paragraph G above, Owner
shall retain any remaining balance of Cash Flow Available for Incentive
Management Fee.
5.04 Payment of Incentive Management Fee and Contingent Incentive
------------------------------------------------------------
Management Fees from Capital Proceeds
-------------------------------------
In the event that Owner, from time to time during the term of this
Agreement, realizes Capital Proceeds, then Owner shall apply such Capital
Proceeds (to the extent thereof) in the following order and amounts:
- 26 -
(1) First, Owner shall retain Capital Proceeds until Owner has
retained an amount equal to any unamortized balance under Section
7.02E3 hereof;
(2) Second, Owner shall retain any remaining balance of such Capital
Proceeds until Owner has retained from appropriate sources an amount
equal to Owner's 15% Priority and Capital Return.
(3) Third, Owner shall retain fifty percent (50%) of any remaining
balance of Capital Proceeds.
(4) Fourth, Owner shall apply up to a maximum of Six Million Dollars
($6,000,000) (on an aggregate, cumulative basis) of the remaining
fifty percent (50%) of Capital Proceeds to pay to Management Company
any Incentive Management Fees or Contingent Incentive Management Fees
then owed to Management Company.
(5) Fifth, Owner shall retain any remaining balance of Capital
Proceeds.
5.05 Accounting and Interim Payment
------------------------------
A. Within twenty (20) days after the close of each Accounting Period,
Management Company shall submit an interim accounting to Owner showing, in
reasonable detail, the amount (and calculation where appropriate) of Gross
Revenues, Deductions, FF&E Reserve contributions and expenditures, Operating
Profit and Cash Flow Allowable for Incentive Management Fee, and all retentions,
distributions and other applications thereof with respect to the Hotels.
Management Company shall transfer with each accounting any interim amounts due
Owner and shall retain any interim management fees due Management Company (as
described in this Article V). Each accounting will be prepared on a consolidated
and consolidating basis.
B. Calculations and payments of the Base Management Fee, the Incentive
Management Fee, the Contingent Incentive Management Fees and applications of
Operating Profit made with respect to each Accounting Period within a Fiscal
Year shall be accounted for cumulatively. Within seventy-five (75) days after
the end of each Fiscal
- 27 -
Year, Management Company shall submit an accounting, as more fully described in
Section 8.01, for such Fiscal Year to Owner, which accounting shall be
controlling over the interim accountings. Any adjustments required by the Fiscal
Year accounting shall be made 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. Within twenty (20) days after the closing of a refinancing or a sale
of one or more of the Hotels, Owner will provide Management Company an
accounting showing Owner's 10% Priority Return and Owner's 15% Priority and
Capital Return, Net Sales Proceeds, and Net Refinancing Proceeds (as the case
may be).
D. Within twenty (20) days after the close of each Accounting Period,
Owner will provide Management Company an accounting showing Owner's 10% Priority
Return and Net Contributed Capital.
E. Notwithstanding anything to the contrary contained herein, Owner
shall not be required to make any payment to Management Company if and to the
extent payment thereof would violate Section 6.1 of the Loan Agreement, Section
2 of the Assignment or any similar provision of any other instrument relating to
or securing the financing provided thereunder or any refinancing thereof.
END OF ARTICLE V
- 28 -
ARTICLE VI
WORKING CAPITAL AND FIXED ASSET SUPPLIES
----------------------------------------
6.01 Working Capital and Inventories
-------------------------------
Owner shall from time to time promptly advance, upon request of
Management Company, any funds necessary to maintain Working Capital and
Inventories at levels reasonably determined by Management Company to be
necessary to satisfy the needs of each Hotel as its operation may from time to
time require. Funds so advanced for Working Capital shall be utilized by
Management Company on behalf of Owner for the purposes of this Agreement
pursuant to cash-management policies established for the other Marriott
full-service hotels owned, leased or managed by Management Company or another
Marriott Affiliate in the United States, but Owner shall be the beneficial owner
of all such funds throughout the term of this Agreement. Upon Termination with
respect to any Hotel or Hotels, Management Company shall return to Owner any
unused Working Capital (including Inventories), except for Inventories purchased
by Management Company pursuant to Section 9.02.
6.02 Fixed Asset Supplies
--------------------
Owner shall from time to time promptly advance, upon request of
Management Company, any funds necessary to maintain Fixed Asset Supplies at
levels reasonably determined by Management Company to be necessary to satisfy
the needs of each Hotel as its operation may from time to time require. Fixed
Asset Supplies shall remain the property of Owner throughout the term of this
Agreement except for Fixed Asset Supplies purchased by Management Company
pursuant to Section 9.02.
END OF ARTICLE VI
- 29 -
ARTICLE VII
REPAIRS, MAINTENANCE AND REPLACEMENTS
-------------------------------------
7.01 Routine Repairs and Maintenance
-------------------------------
Management Company shall maintain the Hotels 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 expensed under generally accepted accounting principles, as
it, from time to time, deems reasonably necessary for such purposes. The cost of
such maintenance, repairs and alterations shall be paid from Gross Revenues and
shall be treated as a Deduction in determining Operating Profit. The cost of
non-routine repairs and maintenance, either to a Hotel building or its FF&E,
shall be paid for in the manner described in Sections 7.02 and 7.03.
7.02 FF&E Reserves
-------------
A. Management Company shall establish a separate escrow reserve account
for each Hotel ("FF&E Reserve") to cover the cost of the following ("FF&E
Replacements"):
1. Replacements and renewals related solely to the Hotels'
FF&E (including communication systems and computer systems); and
2. Certain routine repairs and maintenance to the Hotels'
buildings 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 paid by Owner
under Section 7.03 rather than from the FF&E Reserve. Subject to any reasonable
limitations required by the Permanent Loan or Replacement Debt with respect
thereto, the FF&E Reserve accounts shall be maintained in one or more banks,
money market or similar interest-bearing accounts designated by Owner and
approved by Management Company.
- 30 -
B. All expenditures of funds initially deposited into the Dayton Hotel
Reserve Account (together with any interest earned thereon) shall be subject to
Owner's approval (not to be unreasonably withheld), except that Management
Company may use such funds in 1993 or later in order to perform a major rooms
renovation. Subject to the provisions of subsection E below, (i) with respect to
each of the Fairview Park, Southfield, Livonia and Fullerton Hotels, during
Fiscal Years 1993 and 1994, Management Company shall transfer into the FF&E
Reserve an amount equal to three percent (3%) of Gross Revenues from such Hotels
for each such Fiscal Year; during Fiscal Years 1995, 1996, 1997, 1998 and 1999,
Management Company shall transfer into the FF&E Reserve an amount equal to four
percent (4%) of Gross Revenues from such Hotels for each such Fiscal Year; and
during Fiscal Year 2000 and each Fiscal Year thereafter, Management Company
shall transfer into the FF&E Reserve an amount equal to four percent (4%) of
Gross Revenues from such Hotels for each of such Fiscal Years; (ii) with respect
to the Dayton Hotel, Management Company shall transfer into the FF&E Reserve
with respect to such Hotel an annual amount equal to five percent (5%) of Gross
Revenues from such Hotel in each Fiscal Year; and (iii) with respect to the
Research Triangle Park Hotel, Management Company shall transfer into the FF&E
Reserve with respect to such Hotel, an annual amount equal to four percent (4%)
of Gross Revenues from such Hotel in Fiscal Years 1993, 1994, 1995, 1996 and
1997, and an annual amount equal to five percent (5%) of Gross Revenues from
such Hotel in Fiscal Year 1998 and each Fiscal Year thereafter. Transfers into
the FF&E Reserve shall be made at the time of each interim accounting described
in Section 5.05A. All amounts transferred into the FF&E Reserve as required
above shall be deducted from Gross Revenues in determining Operating Profit and
deposited in the special FF&E Reserve account described in Section 7.02A hereof.
C. Management Company shall from time to time make such FF&E
Replacements as it deems necessary, up to the balance in each FF&E Reserve. No
expenditures will be made in excess of said balance without the prior approval
of Owner. At the end of each
- 31 -
Fiscal Year, any amounts remaining in each FF&E Reserve shall be carried forward
to the next Fiscal Year. Proceeds from the sale of FF&E no longer necessary to
the operation of a Hotel shall be deposited in the FF&E Reserve with regard to
such Hotel. Each FF&E Reserve will be kept in an interest-bearing account, and
any interest which accrues thereon shall be retained in such FF&E Reserve.
Neither (i) proceeds from the disposition of FF&E, nor (ii) interest which
accrues on amounts held in the FF&E Reserves, shall (a) result in any reduction
in the required contributions to the FF&E Reserves set forth in subsection B
above, nor (b) be included in Gross Revenues.
D. Management Company shall prepare an estimate ("FF&E Replacement
Estimate") of the expenditures (and time schedule) necessary for FF&E
Replacements during the ensuing Fiscal Year and shall submit such FF&E
Replacement Estimate to Owner at the same time it submits the Annual Operating
Projection described in Section 8.03. Management Company will consider in good
faith suggestions made by Owner with respect to the FF&E Replacement Estimate
and make appropriate modifications thereto.
E. The percentage contributions for the FF&E Reserve described in
Section 7.02B are estimates based upon Management Company's and Marriott
Affiliates' prior experience. As each Hotel ages, these percentages either (i)
may not be sufficient to keep the FF&E Reserve at the levels necessary to make
the FF&E Replacements which are required to maintain such Hotels as Marriott
full-service hotels or (ii) may be in excess of those amounts necessary to
maintain such Hotels as Marriott full-service hotels. If Management Company
reasonably determines that the percentages contained in Section 7.02B are in
excess of the amounts sufficient to maintain the Hotels as Marriott full-service
hotels, then Management Company may reduce the percentages. Management Company
shall provide to Owner upon request from time to time a report, in reasonable
detail, supporting the amount in the FF&E Reserve with respect to the Hotels
and/or the percentages contained in Section 7.02B.
- 32 -
If the FF&E Replacement Estimate reasonably prepared in good faith by
Management Company exceeds the available funds in the FF&E Reserve or if
Management Company reasonably determines that the percentages contained in
Section 7.02B are insufficient to maintain the Hotels as Marriott full-service
hotels and Management Company requests Owner to increase the percentages, Owner
will:
1. Agree to increase the annual percentage in Section 7.02B to
provide the appropriate 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 retained by Owner from Gross Revenues as if it were a repayment on an
interest bearing loan in equal installments over the period of the next
sixty-five (65) Accounting Periods. Such periodic amounts shall be treated as
Deductions.
A failure or refusal by Owner to agree to either 1, 2 or 3 above within
a sixty (60) day period after Management Company's request therefor shall
entitle Management Company, within sixty (60) days after such failure or
refusal, to notify Owner that it will terminate this Agreement, as to those
Hotels as to which agreement was not reached, as of a date nine (9) months after
the date of Management Company's notice of termination. If Owner subsequently
does either 1, 2 or 3 above within eight (8) months after Management Company
notifies Owner of its intention to terminate this Agreement, this Agreement
shall not be terminated and Management Company shall continue to manage the
Hotels in question. If Management Company does not so notify Owner, it shall
continue to manage the Hotels in question, as provided under this Agreement,
without the aforesaid increase in the percentage contribution to the FF&E
Reserve.
- 33 -
F. Upon Termination of this Agreement with respect to any one or more
of the Hotels, whether pursuant to 7.02E above or pursuant to other provisions
of this Agreement, the FF&E Reserve with respect to such Hotel or Hotels shall
be paid to Owner.
G. With the exception of any furniture or equipment leases which are in
effect on the Effective Date and with the exception of telephone equipment, if
Management Company elects to lease rather than purchase any FF&E which is
customarily purchased for the other Marriott full-service hotels owned, leased
or managed by Management Company or another Marriott Affiliate in the United
States with monies from an FF&E Reserve, the lease payments for such FF&E shall
be made from the FF&E Reserves.
7.03 Building Alterations, Improvements, Renewals, and Replacements
--------------------------------------------------------------
A. Management Company shall prepare an annual estimate of the expenses
for necessary major repairs, alterations, improvements, renewals and
replacements (which repairs, alterations, improvements, renewals and
replacements are not among those referred to in Section 7.02A2 and are not
expansions) to the structural, mechanical, electrical, heating, ventilating, air
conditioning, plumbing or vertical transportation elements of each Hotel
building ("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 shall be prepared on a consolidated basis showing proposed
expenditures as to each Hotel. Management Company shall not make any
expenditures for such purposes until the Building Estimate is approved by Owner;
provided that if major repairs, alterations, improvements, renewals or
replacements to any Hotel are required by reason of any law, ordinance,
regulation or order of a competent government authority (after exhausting any
appeals) or are otherwise required for the continued safe and orderly operation
of such Hotel, Management Company shall immediately give Owner notice thereof
and shall be authorized (but not obligated) to take appropriate remedial action
without such approval if (i) the cost of such remedial action
- 34 -
does not exceed three percent (3%) of such Hotel's Gross Revenues for the
previous Fiscal Year; or (ii) failure to take such remedial action immediately
would result, in the reasonable opinion of Management Company, in a clear and
present danger to the health or safety of guests or employees of such Hotel; or
(iii) Owner does not disapprove Management Company's written request to take
such remedial action within five (5) business days after receipt of such
request. Owner shall bear the cost of all such alterations, improvements,
renewals or replacements by either:
1. Providing financing for the additional funds required, in which
event the principal and interest payments on such financing shall constitute
Additional Hotel Investment Loans and be included in Qualifying Debt Service, or
2. Providing the additional funds required, which amounts shall be
treated as Additional Hotel Investments hereunder.
B. If Owner does not approve the Building Estimate as to one or more or
all of the Hotels within sixty (60) days after it has been submitted, Management
Company may, within sixty (60) days after the end of said sixty (60) day period,
notify Owner that it will terminate this Agreement as to those Hotels as to
which agreement was not reached as of a date nine (9) months after the date of
Management Company's notice of termination. If Owner subsequently approves the
Building Estimate within eight (8) months after Management Company notifies
Owner of its intention to terminate this Agreement, this Agreement shall not be
terminated and Management Company shall continue to manage the Hotels in
question. If Management Company does not so notify Owner, it shall continue to
manage the Hotels in question, as provided under this Agreement, without making
any expenditures in the Building Estimate that were not approved. The provisions
of this subsection 7.03B shall not apply to requests from Management Company to
expand any Hotel.
- 35 -
7.04 Liens
-----
Management Company and Owner shall use their reasonable best efforts to prevent
any liens from being filed against any Hotel which arise from any maintenance,
repairs, alterations, improvements, renewals or replacements in or to such
Hotel. They shall cooperate fully in obtaining the release of any such liens,
and the cost thereof, if the lien was not occasioned by the fault of either
party, shall be treated the same as the cost of the matter to which it relates.
If the lien arises as a result of the fault of either party, then the party at
fault shall bear the cost of obtaining the lien release.
7.05 Ownership of Replacements
-------------------------
All repairs, alterations, improvements, renewals or replacements made
pursuant to Article VII, and all amounts kept in the FF&E Reserve, shall be the
property of Owner.
END OF ARTICLE VII
-36-
ARTICLE VIII
BOOKKEEPING AND BANK ACCOUNTS
-----------------------------
8.01 Books and Records
-----------------
Books of control and account shall be kept on the accrual basis and in
all material respects in accordance with the Uniform System of Accounts, with
the exceptions provided in this Agreement. Owner may at reasonable intervals
during Management Company's normal business hours examine such records. Within
seventy-five (75) days after the end of each Fiscal Year, Management Company
shall furnish Owner a statement in reasonable detail summarizing the operations
of the Hotels for such Fiscal Year and a certificate of Management Company'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 or send a notice of dispute setting forth the disputed
matters in reasonable detail. 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. The cost of such audit shall not be
treated as a Deduction. If Owner does not make 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 Management
Company or as provided in Section 8.01B, to question or examine the same. If
any audit by Owner discloses an understatement of any amounts due Owner,
Management Company shall promptly pay Owner such amounts found to be due, plus
interest thereon (at the Prime Rate plus one percentage point (1%) per annum)
from the date such amounts should originally have been paid. If, however, the
audit discloses that Management Company has not received any amounts due it,
Owner shall pay Management Company such amounts, plus interest thereon (at the
Prime Rate plus one percentage point (1%) per
-37-
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%),
Management Company shall pay for the cost of Owner's audit. In addition, in such
event, Owner may audit the statements of Hotel operations and supporting records
at Management Company's expense for the three (3) preceding Fiscal Years. The
costs of such audits shall not be treated as a Deduction. Any error or dispute
with respect thereto shall be handled as set forth in Section 8.01A.
C. All statements shall be prepared on a consolidated basis and on an
individual Hotel basis.
8.02 Accounts Expenditures
---------------------
A. All funds derived from operation of the Hotels shall be deposited by
Management Company, in accordance with Management Company's cash management
procedures, in bank account(s) in a financial institution(s) designated by
Management Company and reasonably approved by Owner. Withdrawals from said
account(s) shall be made by representatives of Management Company whose
signatures have been authorized. Reasonable ▇▇▇▇▇ cash funds shall be maintained
at each Hotel.
B. All payments made by Management Company hereunder shall be made from
authorized bank accounts, ▇▇▇▇▇ cash funds, or from Working Capital provided
pursuant to Section 6.01. Management Company shall not be required to make any
advance or payment to or for the account of Owner except out of such funds, and
Management Company shall not be obligated to incur any liability or obligation
for Owner's account without assurances that necessary funds for the discharge
thereof will be provided by Owner. Debts and liabilities incurred by Management
Company as a result of its operation and management of the Hotels pursuant to
the terms hereof, whether
- 38 -
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 Hotels.
8.03 Annual Operating Projection
---------------------------
Management Company shall submit to Owner for its review fifteen (15)
days after the beginning of each Fiscal Year after the Effective Date an "Annual
Operating Projection." Such projection shall project, on a consolidated and
consolidating basis, the estimated average daily room rates, average
occupancies, Gross Revenues, room revenues, departmental profits, Ground Rent,
Deductions, and Operating Profit for the forthcoming Fiscal Year for the Hotels,
taking into account each Hotel's market area, and shall include such other
information, excluding proprietary information of Management Company and
Marriott Affiliates, as Owner reasonably may request. Management Company shall
use its reasonable 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 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 Management Company shall be entitled to depart therefrom due
to causes of the foregoing nature.
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 Management Company has given written notice to
Owner of such Operating Loss. If Management Company elects not to so notify
Owner or if Owner does not so fund such deficiency on Management Company's
request (but, in such latter case, without affecting Management Company's other
remedies under this Agreement), Management Company shall have the right to
withhold an amount equal to such deficiency from future disbursements of funds
otherwise due to Owner.
- 39 -
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 TX
TRADEMARKS, TRADE NAMES AND SERVICE MARKS
-----------------------------------------
9.01 Trademarks, Trade Names and Service Marks
-----------------------------------------
A. During the term of this Agreement, each Hotel shall be known as a
Marriott full-service hotel, with such additional identification as may be
necessary to provide local identification. The name "Marriott" when used alone
or in connection with another word or words and the Marriott trademarks, service
marks, trade names, symbols, logos and designs shall in all events remain the
exclusive property of Marriott, and nothing contained herein shall confer on
Owner the right to use the Marriott name, trademarks, service marks, 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 a Hotel, any use of or right to use the Marriott name,
trademarks, service marks, trade names, symbols, logos or designs by Owner shall
cease forthwith with respect to such Hotel and Owner shall as soon as
practicable remove from the Hotel any signs or similar items which contain the
Marriott name, trademarks, service marks, trade names, symbols, logos or
designs. If Owner has not removed such signs or similar items promptly upon
Termination, Management Company shall have the right to remain at the Hotel 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 Hotels, whether or not the marks contain the "Marriott" name. The right to
use such trademarks, service marks, trade names, symbols, logos or designs
belongs exclusively to Marriott Affiliates or Management Company, and the use
thereof inures to the benefit of Marriott and/or Management Company whether or
not the same are registered and regardless of the source of the same.
C. Upon Termination of this Agreement with respect to a Hotel, if
there are any trademarks, service marks, trade names, symbols, logos or designs
which are unique
- 41 -
to such Hotel, Management Company shall, to the extent it is capable, transfer
such name(s) to Owner, without charge other than any out-of-pocket expenses.
9.02 Purchase of Inventories and Fixed Asset Supplies
------------------------------------------------
A. Upon Termination of this Agreement, either in its entirety or
with respect to a given Hotel, Management Company shall have the option, to be
exercised within thirty (30) days after Termination, to purchase, at their then
book value, (and remove from the Hotel at its expense within a reasonable time
thereafter) any items of such Hotel's Inventories and Fixed Asset Supplies as
may be marked with the Marriott name or any Marriott trademark, trade name,
symbol, logo or design. In the event Management Company does not exercise such
option, Owner agrees that it will use any such items not so purchased
exclusively in connection with the Hotel until they are consumed.
B. During the term of this Agreement, for so long as Owner is known
as Marriott Diversified American Hotels, L.P. (or any other name containing the
word "Marriott"), Owner may use such name to the extent necessary on its legal
and business documents. Upon Termination of this Agreement as to all of the
Hotels, Owner shall promptly take all necessary steps so that its name no longer
contains the word "Marriott".
9.03 Breach of Covenant
------------------
Management Company and/or its affiliated companies 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
- 42 -
ARTICLE X
POSSESSION AND USE OF THE HOTELS
--------------------------------
10.01 Ground Lease
------------
So long as Management Company is not wrongfully withholding any money
from Owner and so long as no other monetary event of default has occurred and is
continuing, Owner agrees to promptly pay and discharge (i) any and all rental
due and owing pursuant to the Ground Lease and the Fairview Park Hotel parking
garage lease and (ii) any payments and charges required to be paid thereunder
and, at its expense, to prosecute all appropriate actions, judicial or
otherwise, necessary to assure Management Company's operation of the Fairview
Park Hotel and the Fullerton Hotel subject to Ground Lease or the Fairview Park
parking garage lease as provided herein. If Owner fails to make a payment under
the Ground Lease beyond the due date, Management Company has the right, but not
the obligation, to pay such amount to the landlord, but such amount shall not be
treated as a loan or advance.
10.02 Management of the Hotels
------------------------
A. Management Company shall manage each Hotel under standards
comparable to those prevailing with respect to the other Marriott full-service
hotels owned, leased or managed by Management Company or another Marriott
Affiliate in the United States, including all activities in connection therewith
which are customary and usual to such an operation.
B. Unless specifically approved in writing by Owner in its sole and
absolute discretion, no gaming or gambling shall be permitted in the Hotels
other than occasional use thereof for such purposes on a not-for-profit basis
and in compliance with all applicable laws.
C. In connection with the Fairview Park Hotel, Management Company
shall abide by the Operating Covenant and the Use Covenant (as such terms are
defined in that
- 43 -
certain Covenant and Restriction Agreement dated as of April 30, 1986 that is
applicable to such Hotel).
10.03 Chain Services
--------------
Management Company will, during the term of this Agreement, cause to be
furnished to each Hotel certain services ("Chain Services") which are furnished
generally on a central or regional basis to other Marriott full-service hotels
owned, leased or managed by Management Company or another Marriott Affiliate in
the United States and which benefit each hotel as a participant in such Marriott
full-service hotel system. Chain Services shall include: (i) development and
operation of computer systems; (ii) national sales office services; central
training services, manpower development and management personnel relocation;
central advertising and promotion (including direct and image media and
advertising administration); the Marriott National reservations system and the
Marriott computer payroll and accounting services; and (iii) such additional
central or regional services as may from time to time be furnished for the
benefit of all other Marriott full-service hotels owned, leased or managed by
Management Company or another Marriott Affiliate in the United States or in
substitution for services now performed at individual hotels which may be more
efficiently performed on a group basis. Chain Services do not include services
provided pursuant to the Base Management Fee. Costs and expenses incurred in the
providing of such services shall be allocated on a fair and equitable,
non-discriminatory basis among all Marriott full-service hotels owned, leased or
managed by Management Company and its affiliates in the United States receiving
the same. In lieu of the method of allocation set forth in this Section 10.03,
Management Company may, from time-to-time, modify, amend or change such method
if, in its reasonable judgment, to do so would result in a fairer and more
equitable allocation method.
- 44 -
10.04 Owner's Right to Inspect
------------------------
Owner or its agents shall have access to any Hotel at any and all
reasonable times for the purpose of protecting the same against fire or other
casualty, prevention of damage to the Hotels, inspection, making repairs, or
showing such Hotels to prospective purchasers, tenants or mortgagees.
END OF ARTICLE X
- 45 -
ARTICLE XI
INSURANCE
11.01 Property and Operational Insurance
----------------------------------
Management Company shall, commencing with the Effective Date and
thereafter during the term of this Agreement, procure and maintain, using funds
deducted from Gross Revenues in determining Operating Profit, either with
insurance companies of recognized responsibility or by legally qualifying itself
as a self insurer in the state where the respective Hotel is located, a minimum
of the insurance identified below.
A. Property insurance on each Hotel building(s) and contents
against loss or damage by all perils covered by "all risk" (as such term is
commonly used in the insurance industry, excluding earthquake and flood)
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 commercially reasonable terms and rates, then such insurance
shall be in an amount not less than ninety-five percent (95%) of the replacement
cost of the Hotel;
B. Should a Hotel be located in a zone identified by the Federal
Emergency Management Agency as a flood hazard area, flood insurance shall be
maintained in an amount not less than the maximum limit available under the
National Flood Insurance Program if required by the lender(s) holding a first
mortgage on said Hotel.
C. Insurance against loss or damage from explosion of boilers,
pressure vessels, pressure pipes and sprinklers, to the extent applicable to
each Hotel;
D. 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 11.01A and C for Management Company's
established period (but not less than one (1) year after the occurrence) of a
type and in amounts as are generally established by Management Company at other
Marriott full-service hotels it or Marriott Affiliates own, lease or manage
under the Marriott name in the United States;
-46-
E. General liability insurance against claims for personal injury,
death or property damage occurring on, in, or about any Hotel, and automobile
liability insurance on vehicles operated in conjunction with any Hotel, with a
combined single limit for each occurrence of not less than One Hundred Million
Dollars ($100,000,000);
F. Workers' compensation and employer's liability insurance as may
be required under applicable laws covering all of Management Company's employees
at the Hotel;
G. Fidelity bonds, with reasonable limits to be determined by
Management Company, covering its employees in job classifications normally
bonded in other Marriott full-service hotels it, or its Affiliates, own, lease
or manage under the Marriott name in the United States or as otherwise required
by law, and comprehensive crime insurance to the extent Management Company and
Owner mutually agree it is necessary for any Hotel; and
H. As respects the Fullerton Hotel, earthquake insurance shall be
carried to the extent such insurance is maintained by the Management Company, in
its good faith business judgment, under its blanket earthquake program for
participating properties owned, leased, or managed by the Management Company or
its Affiliates in California.
I. Such other insurance in amounts as Management Company in its
reasonable judgment deems advisable for protection against claims, liabilities
and losses arising out of or connected with the operation of any Hotel or as
reasonably required by Owner's lender(s) holding a first mortgage on any Hotel,
subject to Management Company's reasonable approval.
11.02 General Insurance Provisions
----------------------------
A. All insurance described in Section 11.01 may be obtained by
Management Company by endorsement or equivalent means under its, Marriott's, or
a Marriott Affiliate's blanket insurance policies, provided that such blanket
policies substantially fulfill the requirements specified herein.
-47-
B. Management Company may self insure or otherwise retain such
risks or portions thereof as it does with respect to other Marriott full-service
hotels it or Marriott Affiliates own, lease or manage under the Marriott name in
the United States.
C. All policies of insurance required under Section 11.01 shall be
carried in the name of Management Company. The policies required under Sections
11.01A, B, C, D and E shall include the Owner as an additional insured. Upon
notice by the Owner, Management Company shall also have the policies required
under Sections 11.01A, B, C, D and E include any mortgagee or lender of the
Hotels as mortgagee, loss-payee or additional insured. Subject to the rights of
any such Lender, any property losses thereunder shall be payable to the insured
parties as and to the extent their respective interests may appear. Any mortgage
on any Hotel shall contain provisions to the effect that, in the absence of a
default thereunder, proceeds of the insurance policies required to be carried
under Section 11.01A, B and C shall be available for repair and restoration of
the Hotel.
D. All policies and certificates of insurance provided for under
Article XI shall, to the extent obtainable, state that the insurance shall not
be cancelled or materially changed without at least thirty (30) days' prior
written notice to the policy holder and all certificate holders.
E. Management Company shall deliver to Owner certificates of
insurance with respect to all policies so procured, including existing,
additional and renewed policies, and, in the case of insurance policies about to
expire, shall deliver certificates with respect to the renewal thereof prior to
the respective dates of expiration.
11.03 Cost and Expense
----------------
Insurance premiums and any costs or expenses with respect to the
insurance or self-insurance required under this Article XI, including any Hotel
Retention, shall be treated as Deductions. Such premiums and costs shall be
allocated on an equitable basis to the Hotels participating under Management
Company's, Marriott's or a Marriott
-48-
Affiliate's blanket insurance or self-insurance programs. Any reserves, losses,
costs or expenses which are uninsured shall be treated as a cost of insurance
and shall be Deductions. Premiums on policies for more than one year shall be
charged pro rata against Gross Revenues as a Deduction over the period of the
policies. Upon Termination, either of this entire Agreement or with respect to a
given Hotel, an escrow fund in an amount reasonably acceptable to Management
Company and Owner shall be established from Gross Revenues (or, if Gross
Revenues are not sufficient, with funds provided by Owner) to cover the amount
of any Hotel Retention and all other costs which will eventually have to be paid
by Management Company with respect to pending or contingent claims, including
those which arise after Termination for causes arising during the term of this
Agreement.
11.04 Owner Provided Coverage
-----------------------
Notwithstanding anything to the contrary contained in this Article XI,
Owner may, at its option, with sixty (60) days advance written notice to
Management Company, procure the insurance coverages required under subsections
A, B, C, and D of Section 11.01 hereof, the premiums for which are to be treated
as a Deduction. However, if the costs of such insurance procured by Owner
exceeds the cost of Management Company's insurance by ten percent (10%) for
comparable coverages, all excess costs over such 10% threshold shall be the sole
responsibility of Owner and not be a Deduction in computing Operating Profit.
Should Owner exercise its option to provide such insurance, Owner hereby waives
its rights of recovery from Management Company, its affiliates, directors and
employees for loss or damage to the Hotel, and any resultant interruption of
business, to the extent covered by the insurance provided herein.
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 Hotel ("Impositions") during each Hotel
Term shall be paid by Management Company on behalf of Owner from Gross Revenues
before any fine, penalty, or interest is added thereto or lien placed upon the
Hotel or this Agreement, unless payment thereof is in good faith being contested
and enforcement thereof is stayed. Accruals of any such payments shall be a
Deduction in determining Operating Profit. Owner shall, within five (5) days of
receipt, furnish Management Company with copies of official tax bills and
assessments which it may receive with respect to any of the Hotels. Either Owner
or Management Company, with Owner's consent, not to be unreasonably withheld,
(in which case Owner agrees to sign the required applications and otherwise
cooperate with Management Company 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
HOTEL EMPLOYEES
---------------
13.01 Employees
---------
A. All personnel employed at each Hotel shall at all times be the
employees of Management Company, Marriott, or a Marriott Affiliate. Management
Company shall have absolute discretion to hire, promote, supervise, direct, move
and train all employees at the Hotels, to fix their compensation and, generally,
establish and maintain all policies relating to employment.
B. Management Company shall be permitted to provide free accommodations
and amenities to its employees and representatives living at or visiting each
Hotel in connection with its management or operation. No person shall otherwise
be given gratuitous accommodations or services without prior joint approval of
Owner and Management Company except in accordance with usual practices of the
hotel and travel industry.
C. At Termination with respect to a given Hotel, other than a
Termination (i) by reason of a default of Management Company hereunder, or (ii)
at Management Company's option (except as a result of a default by Owner),
provided that the expiration of a given Hotel Term under Section 4.01 shall not
be deemed "at Management Company's option" for purposes of this Section 13.01,
an escrow fund shall be established from Operating Profit to reimburse
Management Company for all costs and expenses incurred by Management Company
terminating its employees at the Hotel in accordance with its standard policies,
such as severance pay, unemployment compensation and other employee liability
costs arising out of the termination of employment of Management Company's
employees at such Hotel. Transfer costs shall not be included.
D. Neither Owner nor Management Company shall effect a Termination of
this Agreement without allowing sufficient time for Management Company to comply
with notice requirements of federal and state laws and regulations regarding the
closing of a
- 51 -
business or termination of employees. Management Company shall comply with
notice requirements of federal and state laws and regulations regarding the
closing of a business or termination of employees.
END OF ARTICLE XIII
- 52 -
ARTICLE XIV
DAMAGE, CONDEMNATION AND FORCE MAJEURE
--------------------------------------
14.01 Damage and Repair
-----------------
A. If, during the term hereof, any of the Hotels 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 Hotel 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 Hotel if one or
more of the following is true: (i) the Hotel is so badly damaged or destroyed
that it cannot reasonably be repaired or replaced within one (1) year of the
date of the casualty or such later date as is covered by business interruption
insurance described under Article XI; (ii) the proceeds of insurance available
for such repair or replacement are less than ninety-five percent (95%) of the
estimated repair and replacement costs; or (iii) the uninsured loss is greater
than $50,000, the remainder of the Hotel Term with respect to such Hotel is less
than ten (10) years, and Management Company fails to agree to extend such Hotel
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 hotel for one or more of the foregoing
reasons, it shall so notify Management Company by written notice within ninety
(90) days after the date of the casualty. If Owner does not so notify Management
Company, Owner shall promptly commence and complete the repairing, rebuilding or
replacement of the same so that the Hotel shall be substantially the same as it
was prior to such damage or destruction.
B. In the event damage or destruction to any Hotel from any cause
materially and adversely affects the operation of such Hotel and Owner notifies
Management Company pursuant to the provisions of Section 14.01A above that Owner
will not repair or replace such damage for one or more of the reasons set forth
in Section 14.01A, Management
- 53 -
Company may, at its option, terminate this Agreement with respect to such Hotel
within sixty (60) days after such notice.
C. Subject to the provisions of Section 14.01B, if(i) damage to any
Hotel is in excess of the amount of insurance proceeds plus amounts made
available by Management Company or Marriott Affiliates, or (ii) the conditions
of Section 14.01A(i) or (iii) are met, Owner may terminate this Agreement with
respect to such Hotel upon sixty (60) days' written notice.
14.02 Condemnation
------------
A. In the event all or substantially all of any Hotel shall be taken in
any eminent domain, condemnation, compulsory acquisition, or similar proceeding
by any competent authority for any public or quasi-public use or purpose, or in
the event a portion of the Hotel shall be so taken, but the result is that it is
unreasonable to continue to operate such Hotel, this Agreement shall terminate
with respect to such Hotel. Owner and Management Company shall each have the
right to initiate such proceedings as they deem advisable to recover any damages
to which they may be entitled.
B. In the event a portion of any Hotel shall be taken by the events
described in Section 14.02A, or the entire Hotel is affected but on a temporary
basis, and the result is not to make it unreasonable to continue to operate such
Hotel, this Agreement shall not terminate. However, so much of any award for any
such partial taking or condemnation as shall be necessary to render such Hotel
equivalent to its condition prior to such event shall be used for such purpose.
Any balance of the condemnation award, to the extent resulting in Net Sales
Proceeds, shall be retained and applied pursuant to Section 5.04.
14.03 Force Majeure
-------------
A. If acts of God, acts of war, civil disturbance, governmental action,
strikes or other organized labor disputes, vendor delays or fires (collectively
herein referred to as "Force Majeure") shall make it impractical for either
Owner or Management Company to perform any of its respective obligations
hereunder, such obligation shall be suspended
- 54 -
until it is again possible for the affected party to perform it. In addition, if
such an event, in Management Company's or Owner's reasonable judgment, makes
continued operation of an Hotel impractical for more than a reasonably temporary
period, then management Company or Owner may terminate this Agreement as to such
Hotel on sixty (60) days written notice to the other.
B. The provisions of Section 14.03A 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
- 55 -
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 15.01A 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 Management Company liable for fraud, gross
negligence or willful wanton misconduct in its dealings with Owner hereunder; or
D. If Management Company 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
- 56 -
proceeding, or be adjudicated a bankrupt or insolvent, or take any act on
looking toward dissolution; or
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 Management Company 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 future statute,
law or regulation with respect to Management Company or Owner, or appointing a
receiver, trustee or liquidator of all or a substantial part of Management
Company'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 15.02A 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
- 57 -
ARTICLE XVI
WAIVER, PARTIAL INVALIDITY AND OTHER MATTERS
--------------------------------------------
16.01 Waiver
------
The failure of either party to insist upon a strict performance of any
of the terms or provisions of this Agreement, or to exercise any option, right
or remedy herein contained, shall not be construed as a waiver or as a
relinquishment for the future of such term, provision, option, right or remedy,
but the same shall continue and remain in full force and effect. No waiver by
either party of any term or provision hereof shall be deemed to have been made
unless expressed in writing and signed by such party.
16.02 Partial Invalidity
------------------
If any portion of this Agreement shall be declared invalid by order,
decree or judgment of a court, this Agreement shall be construed as if such
portion had not been inserted herein except when such construction would operate
as an undue hardship on Management Company or Owner or constitute a substantial
deviation from the general intent and purpose of said parties as reflected in
this Agreement.
16.03 Estoppel Certificates
---------------------
Promptly after written request therefor from the other party (and in
any event within fifteen (15) days thereafter), each party shall deliver to the
other (and to all actual or potential lenders or transferees thereof as
requested by the other party) a certificate identifying this Agreement and all
amendments hereto, stating that this Agreement as so amended is in full force
and effect, stating the date to which all payments hereunder have been made and
the amount (if ascertainable) of all future payments required hereunder,
identifying any known defaults of the other hereunder, and covering such
additional matters as may be reasonably requested.
END OF ARTICLE XVI
- 58 -
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 Management Company shall have the right, without such
consent, to (1) assign its interest in this Agreement to any Marriott Affiliate
(other than one which is a partner of Owner) which (i) either itself or with
resources made available by Marriott has comparable experience in managing
hotels and adequate capital and resources to conduct its business as Management
Company 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 Hotels 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 as security for any mortgage on the Hotels 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 a permitted sale of
one or more of the Hotels pursuant to Section 18.01.
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 Management Company of its interest in this Agreement shall not
relieve Owner or Management Company, 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.
- 59 -
17.02 Mortgages and Collateral Assignments
------------------------------------
Owner may from time to time (i) grant mortgages, deeds of trust or
similar security instruments encumbering the Hotels, and (ii) collaterally
assign its interest under this Agreement as additional security, provided that
all such mortgages, deeds of trust, other security instruments and collateral
assignments: (a) are granted or entered into in connection with indebtedness
that is described in Section 3.01A2 hereof, and (b) each contain a non-
disturbance provision in the form described in Section 3.01A2 hereof Provided
that all of the provisions of Section 3.01A2 are complied with, Management
Company agrees that (in connection with Owner obtaining such secured loans) it
will: (v) comply with any reasonable reporting requirements of the lender; (w)
provide the lender with notice of any default by Owner hereunder and thereafter
permit the lender to effect a cure thereof within a reasonable period; (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 Management Company'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 3.01A2 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 a Hotel 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
- 60 -
ARTICLE XVIII
SALE OF HOTEL OR HOTELS
-----------------------
18.01 Right of First Negotiation or First Refusal.
-------------------------------------------
A. If Owner and Management Company are not affiliates and if Owner
desires to sell or lease one or more of the Hotels, thirty (30) days prior to
any solicitation of a third party or placing of a listing agreement, Owner shall
give Management Company written notice of its intent to sell or lease one or
more of the Hotels along with the general terms and conditions it will seek with
the sale or lease. Within thirty (30) days after receipt of such notice,
Management Company, Marriott or a Marriott Affiliate shall have the right to
negotiate a binding agreement for the purchase or lease of such Hotel(s) before
Owner places the listing agreement or solicits a third party for the sale or
lease of such Hotel(s). If Owner and Management Company in good faith cannot
reach such an agreement within such thirty (30) day period, Owner may solicit
bids by any fair and equitable process and Management Company and Marriott
Affiliates will be treated on equal terms with any other prospective purchaser
or lessee, provided that: (i) if Management Company has made a cash offer to
Owner to buy or lease such Hotel(s) which Owner has rejected and, within the
nine (9) months following the expiration of said thirty (30) day negotiating
period, Owner is willing to accept a third-party offer at a price equal to or
lower than that offered by Management Company (with any financing extended by
Owner to such third party being substantially on market terms and conditions),
then Owner must make that same offer available to Management Company; and (ii)
if Owner and a third party have not both executed a purchase and sale agreement
(or lease agreement) for such Hotel(s) within nine (9) months after the
expiration of said thirty (30) day negotiation period, Owner must again offer
Management Company the above-described thirty (30) day negotiating period, and
comply with the other provisions of this Section 18.01 A, before it can enter
into subsequent negotiations with third parties regarding the sale or lease of
such Hotel(s). If
- 61 -
Management Company or a Marriott Affiliate does not purchase or lease such
Hotel(s) pursuant to this Section 18.01A, then the provisions of Section 18.01C
shall apply.
B. If Owner receives an unsolicited bona fide written offer to purchase
or lease any one or more of the Hotels and desires to accept such offer, Owner
shall promptly give written notice thereof to Management Company 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 reasonably requested by Management Company and
reasonably available to Owner. Within thirty (30) days after the date of receipt
of Owner's written notice, Management Company shall have the right to elect, by
written notice to Owner, to purchase or lease such Hotel or Hotels at the same
price or rental and upon the same terms and conditions as those set forth in the
written notice from Owner to Management Company or upon other terms acceptable
to Owner, in which event Owner and Management Company shall promptly enter into
a purchase agreement for such sale or lease and shall consummate the same within
one hundred fifty (150) days. If Management Company fails to exercise such right
during such thirty (30) day period, such failure shall be deemed conclusively to
be a decision not to purchase or lease such Hotel(s) and the provisions of
Section 18.01C shall apply. Any proposed sale or lease of which notice has been
given by Owner to Management Company hereunder must be consummated on
substantially the same terms within one hundred eighty (180) days following the
giving of such notice, unless Management Company has exercised its option under
this subsection 18.01B to purchase or lease the Hotels. Failing such
consummation, such notice, and any response thereto given by Management Company,
shall be null and void and all of the provisions of this Section 18.01B must
again be complied with before Owner shall have the right to consummate a sale or
lease of the Hotel upon the terms contained in said notice, or otherwise.
C. If Management Company or a Marriott Affiliate does not purchase or
lease such Hotel(s) pursuant to the provisions of Sections 18.01A or 18.01B
above and the
- 62 -
Hotel or Hotels are sold or leased, then Management Company shall enter into a
new Management Agreement, with respect to such Hotel or Hotels, with such
purchaser or tenant, which new Management Agreement will be on all of the terms
and conditions of this Agreement except that in preparing such new Management
Agreement appropriate adjustments shall be made to all terms and provisions of
this Agreement which have been agreed to and/or computed on the assumption that
this Agreement will apply to all six (6) Hotels (and reciprocal adjustments
shall likewise be made to this Agreement itself, which will be applicable to the
Hotels not being sold under this Section 18.01, as set forth in Section 18.02
hereof); provided, however, that if Management Company in good faith reasonably
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 Management Company, Marriott or any Marriott Affiliate
(unless the proposed purchaser is solely a passive owner of competitive
properties in the lodging business); (ii) the proposed purchaser is known in the
community as being of bad moral character; or (iii) that the financial condition
and prospects of the proposed purchaser are not adequate to discharge the
obligations of Owner under this Agreement, Management Company shall have the
right to terminate this Agreement, by written notice to Owner, with respect to
such Hotel or Hotels, and Management Company shall not be required to enter into
such new management agreement with respect thereto. Such written notice of
termination must be given to Owner within thirty (30) days after Management
Company receives a written notice from Owner as to the identity of the
prospective purchaser or tenant. The effective date of such Termination shall
coincide with the date of the consummation of the proposed sale or lease. Such
Termination shall not be effective if such sale or lease is not consummated.
D. Any sale, assignment, transfer, or other disposition, for value or
otherwise, voluntary or involuntary, of the controlling interest in Owner (i.e.,
the possession directly or indirectly of the power to direct or cause the
direction of the management and policies
- 63 -
of Owner, whether through the ownership of voting securities, or by contract or
otherwise) in a single transaction or series of related transactions (and, if
Owner is a limited partnership, which is combined with a transfer of the general
partnership interest(s) in connection therewith) shall be deemed a sale or lease
of the Hotels under Section 18.01 and shall be subject to the provisions
thereof.
E. If Owner intends to sell, lease or refinance any one or more of
the Hotels, Management Company agrees to cooperate in providing information to
facilitate such sale or refinancing.
18.02 Effect of Sale or Refinancing of a Hotel
----------------------------------------
Upon the consummation of the Sale of a Hotel or a refinancing of the
Permanent Loan (or any Replacement Debt with respect thereto) as to fewer than
all of the Hotels then subject to this Agreement, subject to the provisions of
Section 18.01, then:
A. This Agreement shall terminate with respect to such Hotel(s),
but not with respect to the remaining Hotels; as to each such Hotel, the actions
described in Section 4.03 shall be taken (except that, if Management Company is
entering into a new management agreement with the purchaser or tenant, as the
case may be, of such Hotel, then the action described in subsection G of Section
4.03 shall not be necessary);
B. Any sale or lease of all of the Hotels shall be conditioned on
the purchaser or tenant assuming the obligations of Owner under this Agreement
with respect to the Hotels being sold or leased, subject to the rights of
Management Company under the provisions of Section 18.01C by appropriate
instrument in form reasonably satisfactory to Management Company; and any sale
or lease of, or any refinancing of the Permanent Loan (or any Replacement Debt
with respect thereto) as to fewer than all of the Hotels then subject to this
Agreement shall be conditioned on the purchaser or tenant (or Owner in the case
of any such refinancing) entering into a new Management Agreement with respect
to such Hotel or Hotels in the form described in Section 18.01C. Upon such sale
or lease, an executed copy of such Assumption Agreement or new Management
Agreement shall be
- 64 -
delivered to Management Company, and Owner hereunder shall be released from all
further obligations hereunder with respect to the Hotels being sold or leased;
C. The FF&E Reserve maintained pursuant to Section 7.02 hereof for the
Hotel being so sold, leased or refinanced shall be transferred to the purchaser
of such Hotel;
D. Owner's 10% Priority Return (including Owner's Contributed
Capital), Owner's 15% Priority and Capital Return (including both Owner's Net
Contributed Capital and the 15% return component), the amount set forth in
Section 4.02A(i) and the $12,000,000 amount (as such amount may have been
reduced by prior applications of Cash Available for Incentive Management Fee
and/or Capital Receipts) described in the definition of Contingent Incentive
Management Fee and Section 5.03G shall be reduced in this Agreement by an amount
equal to the percentage calculated by dividing the amount of the Operating
Profit for the prior twenty-six (26) Accounting Periods for the Hotel or Hotels
being so sold, leased or refinanced by the total Operating Profit for the prior
twenty-six (26) Accounting Periods for all of the Hotels, and the amount of such
reduction shall be reflected in the new Management Agreement. The $6,000,000
amount (as the same may have been reduced by prior applications of Capital
Receipts) described in Section 5.04(4) shall not be affected in this Agreement,
but the limitation to be set forth in Section 5.04(4) of the new Management
Agreement shall be equal to $6,000,000 multiplied by a fraction, the numerator
of which is the Operating Profit for the prior twenty-six (26) Accounting
Periods for the Hotel or Hotels being so sold, leased or refinanced, and the
denominator is the total Operating Profit for the prior twenty-six (26)
Accounting Periods for all of the Hotels.
E. To the extent Contingent Incentive Management Fees are not
eliminated by the sale of one or more Hotels or by previous or current
refinancings, a portion of the remaining Contingent Incentive Management Fee
will be allocated to the Hotel being so sold, leased or refinanced. The portion
of the Contingent Incentive Management Fee
- 65 -
allocated to the Hotel being sold shall be calculated by multiplying (a) the
remaining unpaid Contingent Incentive Management Fees by (b) the percentage the
Operating Profit generated by the Hotel being so sold, leased or refinanced for
the prior twenty-six (26) Accounting Periods represents to the total Operating
Profit for all the Hotels for such prior twenty-six (26) Accounting Periods. The
purchaser or lessee of such Hotel(s) shall assume the obligation to pay the
Contingent Incentive Management Fee allocated to such Hotel(s) pursuant to the
terms of the Management Agreement;
F. 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 six (6) of the Hotels. Such adjustments shall be calculated by
multiplying (a) the total amount of such other term or provision by (b) the
percentage the Operating Profit generated by the Hotel being so sold, leased or
refinanced for the prior twenty-six (26) Accounting Periods represents to the
total Operating Profit for all the Hotels for the prior twenty-six (26)
Accounting Periods;
G. Unless Management Company has elected not to enter into a new
management agreement with the purchaser or tenant, as the case may be, of such
Hotel, for one or more of the reasons set forth in subsections (i), (ii) and
(iii) of Section 18.01C hereof, Management Company and such purchaser or tenant
shall execute the new management agreement described in Section 18.01C.
H. In the case of any adjustments pursuant to this Section 18.02 which
are based on the prior twenty-six (26) Accounting Periods, such adjustments
shall be made based on the actual number of full Accounting Periods the Hotels
have been subject to this Agreement if the Hotels have been subject to this
Agreement for less than twenty-six full Accounting Periods.
END OF ARTICLE XVIII
- 66 -
ARTICLE XIX
MISCELLANEOUS
-------------
19.01 Right to Make Agreement
-----------------------
Each party warrants, with respect to itself, that neither the execution
of this 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 this
Agreement and any extensions thereof, the full right to enter into this
Agreement and perform its obligations hereunder.
19.02 Consents
--------
Wherever in this Agreement the consent or approval of Owner or
Management Company 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 Management Company fails to respond within thirty (30) days to a
request by the other party for a consent or approval, such consent or approval
shall be deemed to have been given (except as otherwise provided in this
Agreement).
19.03 Agency
------
The relationship of Owner and Management Company shall be that of
principal and agent, and nothing contained in this Agreement shall be construed
to create a partnership or joint venture between them or their successors in
interest. Management Company's agency established by this Agreement is coupled
with an interest and may not be terminated by Owner until the expiration of the
term of this Agreement, except as
- 67 -
provided in Section 4.02, Articles XIV or XV. Notwithstanding the agency
relationship created by this Agreement, nothing contained herein shall prohibit,
limit, or restrict (except as specifically set forth in Sections 2.04 hereof),
Management Company or any of its affiliates and subsidiaries from developing,
owning, operating, leasing, managing or franchising competing hotels or
restaurants or food services facilities in the market area where any one or more
of the Hotels are located.
19.04 Applicable Law
--------------
This 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 this Agreement shall run with the 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 this
Agreement in recordable form and cause the same to be recorded in the
jurisdiction where the Hotels are located.
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 this Agreement shall be in writing and delivered by hand against
receipt or sent by certified or registered mail, postage prepaid, return receipt
requested:
- 68 -
To Owner:
---------
Marriott Diversified American Hotels, L.P.
c/o Marriott MDAH One Corporation
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Assistant General Counsel (Corporate Finance)
To Management Company:
----------------------
Marriott International, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Associate General Counsel (Hotel Operation)
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 as set forth herein, but shall not be binding on one addressee until
actually received.
19.08 Limited Liability
-----------------
Management company agrees that no general or limited partner of Owner
shall have any personal liability hereunder in excess of such partner's
contribution obligations to the capital of Owner.
19.09 Entire Agreement
----------------
This 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 this 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.
- 69 -
19.10 Binding Effect.
---------------
This Agreement shall bind and inure to the benefit of all the
respective heirs, personal representatives, successors and permitted assigns of
the parties hereto.
19.11 Compliance with Loan Documents.
-------------------------------
Management Company shall take such actions and refrain from taking such
actions in operating and managing the Hotels under the provisions of this
Management Agreement, as shall be necessary for Owner to comply with its
obligations under the Loan Agreement and other loan documents executed by Owner
in connection with the Permanent Loan to the extent such loan documents have
been furnished to Management Company. Notwithstanding the above, Management
Company shall have no obligation to make any monetary payments under such loan
documents.
19.12 Effective Date.
---------------
The amendment and restatement of the Existing Management Agreement
pursuant to the terms hereof shall be deemed effective as of the Effective Date
(as defined in the Loan Agreement).
END OF ARTICLE XIX
- 70 -
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
OWNER
-----
MARRIOTT DIVERSIFIED AMERICAN
HOTELS, L.P.
a Delaware limited partnership ("Owner")
By: MARRIOTT MDAH ONE CORPORATION, a
Delaware Corporation, General Partner
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------------
Vice President
MARRIOTT INTERNATIONAL,
INC., a Delaware Corporation
("Management Company")
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------------
Vice President
MARRIOTT CORPORATION
(for purposes of Sections 2.01, 2.04,
9.01 and 9.02 only)
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
---------------------------------------
Sr. Vice President
OWNER HAS ASSIGNED ALL OF ITS RIGHTS UNDER THIS AGREEMENT PURSUANT TO, AND THE
TERMS AND CONDITIONS OF THIS AGREEMENT ARE SUBJECT TO AND HAVE BEEN MODIFIED BY,
THAT CERTAIN AMENDED AND RESTATED ASSIGNMENT OF MANAGEMENT AGREEMENT DATED AS OF
JUNE 30, 1993 (AS AMENDED, SUPPLEMENTED, RESTATED OR OTHERWISE MODIFIED FROM
TIME TO TIME, THE "ASSIGNMENT") BY AND AMONG THE PARTIES HERETO AND NATIONSBANK
OF GEORGIA, NATIONAL ASSOCIATION.
EXHIBIT A
---------
The Hotels
Fullerton Marriott Hotel
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Livonia Marriott Hotel
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Southfield Marriott Hotel
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Marriott at Research Triangle Park
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Dayton Marriott
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fairview Park Marriott
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
- 72 -