OPERATING AND MANAGEMENT AGREEMENT
THIS AGREEMENT, made as of the 31st day of July, 1984, by and between
▇▇▇▇▇▇▇ DE SAN ▇▇▇▇ ASSOCIATES, a joint venture formed pursuant to the general
partnership law of the State of New York ("Owner"), and ▇▇▇▇▇▇▇▇ HOSPITALITY
MANAGEMENT CORPORATION, a Delaware corporation ("Manager").
W I T N E S S E T H:
WHEREAS, Owner owns a hotel and casino in San ▇▇▇▇, Puerto Rico which
was formerly known as the El San ▇▇▇▇ Hotel (the "Hotel"); and
WHEREAS, the Hotel is currently closed and will undergo extensive
remodeling, renovation and refurbishing (the "Renovation") prior to its
scheduled re-opening in September, 1985; and
WHEREAS, the parties mutually desire Manager to provide technical
assistance services during the Renovation and to control, supervise and direct
the operation and management of the Hotel on behalf of Owner after the opening
of the Hotel;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the parties hereby agree as follows:
1. PRE-OPENING PERIOD.
1.1 Technical Assistance Services. From the date hereof until the
Commencement Date (as hereinafter defined in Section 2.1) (the "Pre-Opening
Period"), Manager shall make available technical assistance services as are
reasonably required from time
to time in connection with the Renovation, including providing advice, guidance
and supervision to Owner in connection with the planning, designing and
implementation of the Renovation.
1.2 Pre-Opening Program. In addition to providing technical
assistance services pursuant to Section 1.1 of this Agreement, during the
Pre-Opening Period, Manager shall (a) recruit and train the initial staff of the
Hotel using such training techniques as Manager shall reasonably deem advisable,
(b) organize the Hotel's operations and services, including licenses and
concessionaires, and (c) provide for the marketing program of the Hotel, which
shall include advertising, promotions, literature, travel, business
entertainment and opening celebration ceremonies.
1.3 Renovation. Owner shall proceed diligently to complete the
Renovation in accordance with the plans and specifications previously approved
by Owner and Manager so that the Hotel may be operated as a first class luxury
resort hotel.
1.4 Working Capital and Supplies. Prior to the Commencement Date,
Owner shall provide all necessary working capital and all necessary inventories
of chinaware, silverware, utensils, glasses, linens, towels, uniforms, food,
beverage, paper products, soap, cleaning supplies and other operating supplies
and consumables as Manager deems reasonably necessary to operate the Hotel as a
first class luxury resort hotel.
1.5 Expenses. All costs, fees and expenses incurred during the
Pre-Opening Period, including the cost of the Renovation, the cost of the
pre-opening program set forth in Section 1.2 of this Agreement and the cost of
the supplies set forth in Section 1.4 of this Agreement shall be borne by Owner
and shall not be the responsibility of Manager.
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2. APPOINTMENT OF MANAGER.
2.1 Appointment and Term. Owner hereby appoints and employs
Manager to act as its agent for the supervision, direction and control of the
operation and management of the Hotel on Owner's behalf, upon the terms and
conditions hereinafter set forth, for a term of 20 years beginning on the first
day Owner opens the Hotel to the general public and commences business as a
fully renovated first class luxury resort hotel (the "Commencement Date").
Manager hereby accepts such appointment and shall supervise, direct and control
the operation and management of the Hotel during the term of this Agreement upon
the terms and conditions hereinafter set forth.
2.2 Relation of the Parties. Subject to the provisions of this
Agreement, Manager shall have complete control and discretion in the management
of the Hotel and shall be free from interruption or disturbance in managing the
Hotel. Notwithstanding anything herein to the contrary, in performing its duties
hereunder, Manager shall act only as the appointed agent or representative of
Owner, and nothing in this Agreement shall be construed as creating a tenancy,
partnership, joint venture or any other relationship between the parties hereto
except that of principal and agent. All debts and liabilities incurred by
Manager in the course of the Pre-Opening Period and its management and operation
of the Hotel pursuant to this Agreement shall be the debts and obligations of
Owner only and shall be borne by Owner and shall not be the responsibility of
Manager.
3. BUDGETS.
3.1 General Policy. It is the intention of the parties to operate
the Hotel at all times in accordance with pre-established budgets which will be
prepared by Manager and
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reviewed and approved by Owner. All budgeting, planning, accounting records and
reports will be based upon generally accepted accounting principles consistently
applied and the Uniform System of Accounts for Hotels, copyrighted by the Hotel
Association for New York City, 7th edition of 1977, as amended from time to
time.
3.2 Fiscal Year. For all purposes under this Agreement, the
Hotel's fiscal year ("Fiscal Year") will be the twelve-month period ending on
September 30 or such other period as Owner shall designate, which period shall
be reasonably acceptable to Manager.
3.3 Annual Budgets. For each Fiscal Year hereunder commencing
with the Fiscal Year commencing on October 1, 1985, Manager shall submit to
Owner 60 days before the beginning of each such Fiscal Year, reasonably detailed
operating, capital and cash flow budgets (the "Annual Budgets"). If Owner does
not notify Manager in writing within 30 days from the receipt of such budgets
that it objects to such budgets, specifying its objections in reasonable detail,
the Annual Budgets shall be deemed approved by Owner. After such approval,
Manager may, if reasonably deemed by Manager to be in the best interests of the
Hotel, exceed the expenditures provided in the Annual Budgets by up to ten (10%)
percent for any Fiscal Year of operation hereunder without obtaining prior
written approval of Owner. If Owner disapproves the Annual Budgets for any
Fiscal Year, Manager may continue to operate the Hotel and make expenditures for
such Fiscal Year within the parameters of the Annual Budgets for the most recent
Fiscal Year approved by Owner.
3.4 No Guarantee. Manager makes no guarantee, warranty or
representation whatsoever with respect to the foregoing budgets, including
whether there will be profits or losses from the operation of the Hotel. Such
budgets are intended as estimates only.
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4. OPERATION.
4.1 Operational Standards, Etc. Manager shall, at the expense of
Owner, operate the Hotel as a first class luxury resort hotel in accordance with
the provisions of this Agreement.
Owner hereby warrants to Manager uninterrupted control and operation of
the Hotel during the term of this Agreement, unless this Agreement is earlier
terminated pursuant to the provisions of this Agreement. Owner shall not
interfere or involve itself with the day-to-day operation of the Hotel, and
Manager may operate the Hotel free of molestation, eviction, disturbance by
Owner or any third party claiming by, through or under Owner. Manager shall have
absolute discretion in the determination of room rates, food and beverage menu
prices, and charges to guests for other services performed by the Hotel for
guests and may alter room rates or other charges without prior consultation with
Owner. Such absolute control and discretion shall extend to the use of the Hotel
for all customary purposes, including, the terms of admittance to the Hotel for
rooms, for commercial purposes, for privileges of entertainment, the labor
policies of the Hotel and all phases of publicity and promotion. Owner agrees
that no influence will be brought on Manager relating to the granting or
extension of credit. Credit facilities shall be given by Manager in its
discretion and in accordance with Manager's standard practice.
4.2 Permits. Manager shall, on behalf of and with the cooperation
of Owner and at Owner's sole expense, obtain all necessary licenses, findings of
suitability, approvals and permits from the applicable governmental authorities
(the "Governmental Authorities"), including the Secretary of the Treasury of the
Commonwealth of Puerto Rico and any other governmental
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body or agency having authority over gaming, as may be required for the
operation of the Hotel throughout the term of this Agreement, including without
limitation, such liquor, bar, restaurant, gaming, sign and hotel licenses as may
be required for the operation of the Hotel as a first class luxury resort hotel.
Manager undertakes to comply in all material respects with the rules,
regulations and orders of the Government Authorities and with any conditions set
out in any such licenses and permits and at all times to operate and manage the
Hotel substantially in accordance with such conditions and any other
requirements of the law.
4.3 Personnel.
4.3.1 Manager, as agent for Owner, shall hire, supervise,
direct the work of, discharge, and determine the compensation and other benefits
of all personnel working in the Hotel during the term hereof and the Pre-Opening
Period, all of whom shall be in the sole employ of Owner and not in the employ
of Manager. Manager shall be the sole judge of the fitness and qualifications of
such personnel and shall have absolute discretion in the hiring, supervision,
direction, discharging and determination of the compensation and other benefits
of such personnel during the course of their employment. Manager shall in no way
be liable to such personnel for their wages, compensation or other benefits
(including, without limitation, severance, vacation and termination pay), nor to
Owner, and Owner shall not interfere with or give orders or instructions to
personnel employed at the Hotel.
Manager shall employ such of its personnel as deemed necessary by
Manager for the performance of its duties hereunder. During the term hereof and
the Pre-Opening Period, Manager shall be reimbursed by Owner for the salary and
out-of-pocket expenses of such personnel and other compensation or benefits. If
such personnel perform services for other
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hotels managed by Manager, such personnel's salary, expenses and other
compensation and benefits shall be fairly allocated by Manager. Manager shall
have the right to grant complementary rooms and food and beverages to key
personnel and their families, or to others wherein such is customary in the
hotel industry or in Manager's standard practice or policy.
4.3.2 The costs, fees, compensation or other expenses of any
persons engaged by Owner or Manager during the term hereof and the Pre-Opening
Period to perform duties of a specialist in nature related to the operation,
maintenance or protection of the Hotel, such as engineers, designers, attorneys,
independent accountants and the like, shall be borne by Owner and shall not be
the responsibility of Manager.
4.4 Sales and Promotion. Manager may cause the Hotel, on behalf
of Owner and at the sole expense of Owner, to participate in sales and
promotional campaigns and activities involving complementary rooms and food and
beverages to travel agents, tourist officials and airline representatives.
Manager, on behalf of Owner and at the sole expense of Owner, shall
institute and supervise a sales and marketing program.
4.5 Maintenance and Capital Replacement. Owner and Manager
recognize the necessity of a program of replacement of furnishings and equipment
and the need to cause the Hotel to be furnished, equipped and landscaped as a
first class luxury resort hotel.
4.6 Operating, Supply and Maintenance Contracts. Manager is
authorized to make and enter into in the name of, for the account of, and at the
expense of Owner all such contracts and agreements as are in Manager's opinion
necessary for the operation, supply and maintenance of the Hotel and to pay the
same when due from the Hotel's accounts. Manager
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shall be required to obtain the consent of Owner before entering into any
contract, agreement or purchase involving any structural repair, alteration or
rehabilitation of the Hotel or the repair or replacement of any furnishings,
fixtures or equipment contained therein if not provided for in the Annual
Budgets and if the amount payable under such contract exceeds the sum of
$50,000.
4.7 Accounting Services. As an expense of Owner, Manager shall
maintain an accurate accounting system in connection with its management of the
Hotel. The books and records shall be kept in accordance with Section 3.1 of
this Agreement, shall be maintained at the Hotel, and shall be the property of
Owner. As an expense of Owner, Manager shall comply with all requirements in
respect of internal controls and accounting and shall prepare all required
reports under the rules and regulations of the Government Authorities or any
other applicable law or regulation.
As an expense of Owner, a certified audit of the Hotel shall be
performed annually by Ernst and Whinney or another independent accounting firm
mutually acceptable to Owner and Manager and at least one copy thereof shall be
furnished to each party. Nothing herein contained shall prevent Manager's
shareholders or Owner's joint venturers or their duly authorized designees or
their independent accounting firms from examining the books and records of the
Hotel.
On or before the 25th day of each month, Manager shall furnish Owner
with a statement for the preceding calendar month of the gross income received
from rooms, food and beverages, gaming and other sources, guest room occupancy
percentage, average room rate and total
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expenses paid by category during the said month, such statement to be prepared
in accordance with Section 3.1 of this Agreement.
4.8 Bank Accounts. Manager shall establish such bank accounts as
Manager deems appropriate for the operation of the Hotel.
4.9 Concessions. Manager is authorized to consummate, in the name
of and for the benefit of Owner, arrangements and leases with concessionaires,
licensees, tenants and other intended users of any facilities related to the
Hotel. Copies of all such arrangements and leases shall be furnished to Owner.
4.10 Working Capital. Owner shall, at its sole expense, provide
Manager with sufficient working capital for the uninterrupted and efficient
operation of the Hotel in accordance with the Annual Budgets.
4.11 Legal Actions. Manager may institute, at its sole option, in
its name or Owner's name, but at the sole expense of Owner, legal actions or
other proceedings to collect charges or rents, to oust guests or tenants, or to
terminate leases or agreements.
4.12 Expenses.
4.12.1 All costs, expenses, funding of operating deficits
and working capital, debts, obligations and liabilities under this Agreement
("Owner's Financial Obligations") shall be the sole and exclusive responsibility
and obligation of Owner. It is understood that statements in this Agreement
indicating that Manager shall furnish, provide or otherwise supply, present or
contribute items or services hereunder shall not be interpreted or construed to
mean that Manager is liable or responsible to fund or pay for such items or
services.
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4.12.2 Owner shall reimburse Manager upon demand for any
money or other property which Manager may in its discretion pay out for any
reason whatsoever in performing its duties hereunder whether the payment is for
operating expenses or any other charges or debts, including, without limitation,
the payment of the principal and interest due pursuant to the Financing
Agreement (as hereinafter defined in Section 5.5); provided, however, that it is
understood and agreed that Manager shall have no obligation or duty to fund or
pay for any of Owner's Financial Obligations or advance any of its own funds for
the operation of the Hotel.
4.12.3 As agent for Owner and at Owner's sole expense,
Manager shall cause to be paid all taxes, fees and other charges due by Owner to
the Government Authorities and other federal, commonwealth, state and local
authorities in respect of the operation of the Hotel.
4.12.4 With respect to any deficits which may arise as a
result of operations of the Hotel, Owner shall be obligated to fund and pay such
deficits which are not covered by the Hotel income, within 10 days after written
request therefor by Manager. If Owner fails or delays in furnishing funds to
cover such deficits (by unreasonable failure to approve or delay in approving
the budgets provided for in Section 3.3 of this Agreement in a timely manner or
otherwise), Manager shall have no responsibility or liability, and Owner shall
indemnify and hold harmless Manager with respect to any liability, however
arising, which may arise out of or relate to, directly or indirectly, such
failure or delay in funding such deficits.
4.13 Consents and Approvals. In acting under this
Agreement in all matters relative to this Agreement and in approving or
consenting to any matter under this Agreement,
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Owner and Manager shall act in a reasonable manner. Owner shall take into
account Manager's advice stemming from its experience as a manager of hotel and
casino properties, and conditions prevailing generally in the hotel and casino
industry.
5. COMPENSATION OF MANAGER.
5.1 Compensation for Technical Assistance Services. In
consideration for all technical assistance services rendered by Manager during
the Pre-Opening Period pursuant to this Agreement, Owner shall pay to Manager a
fee of $30,000 per month on the first day of each month commencing August 1,
1984 until the Commencement Date, provided that such fee shall be prorated and
calculated on a straight line basis for any period less than one month.
5.2 Basic Compensation for Management Services. In consideration
for all services rendered by Manager pursuant to this Agreement on or after the
Commencement Date, Owner shall pay to Manager, subject to the provisions of
Sections 5.4 and 5.5 of this Agreement, a basic management fee (the "Basic
Management Fee") of five (5%) percent of Hotel and Casino Gross Revenues (as
hereinafter defined in Section 5.7). The Basic Management Fee shall be payable
monthly based on the monthly operating statements prepared in accordance with
Section 4.7 of this Agreement, subject, however, to adjustment as provided in
Section 5.4 of this Agreement.
5.3 Incentive Management Fees. Subject to the provisions of
Sections 5.4 and 5.5 of this Agreement, for each Fiscal Year during the term of
this Agreement, Owner shall pay Manager an incentive management fee (the
"Incentive Management Fee") of twelve (12%) percent of Hotel and Casino Gross
Operating Profits (as hereinafter defined in Section 5.7), which Incentive
Management Fee shall be payable annually on the earlier to occur of (a) five
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days after receipt of audited financial statements for such Fiscal Year or (b)
120 days after the end of such Fiscal Year.
5.4 Fee Adjustment. Basic Management Fees paid or payable to
Manager prior to the end of any Fiscal Year will be subject to verification and
adjustment after receipt of the audited financial statements for the applicable
Fiscal Year. The Basic Management Fee, the Incentive Management Fee and the
basis upon which they are predicated with respect to any short Fiscal Year shall
be prorated and calculated on a straight line basis (for example, five-twelfths
(5/12ths) for a five-month Fiscal Year).
5.5 Subordination of Fees. Notwithstanding anything herein to the
contrary, (a) during the three year period commencing on the Commencement Date,
no Basic Management Fee in respect of any month shall be payable until all of
the principal and interest due and payable during such month with respect to the
loan (the "Loan") to Owner pursuant to the Financing Agreement (the "Financing
Agreement") to be executed among Owner, the Government Development Bank for
Puerto Rico ("GDB") and participating lenders shall have been paid or provided
for by Owner, and (b) during the term of GDB's participation in the Loan, no
Incentive Management Fee in respect of any Fiscal Year shall be payable without
the prior written consent of GDB pursuant to the Financing Agreement.
Owner shall pay or provide for the payment, when due, of
all principal and interest pursuant to the Financing Agreement to enable the
Owner to pay the Basic and Incentive Management Fees provided for by this
Agreement, and if such payments pursuant to the Financing Agreement are not made
or provided for, Manager may make such payments on behalf of Owner and at
Owners' sole expense. Except for the Financing Agreement, Owner
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shall not, without the prior written consent of Manager, enter into any
agreement which requires Owner to subordinate the Basic Management Fee or the
Incentive Management Fee.
5.6 Losses. Losses in any Fiscal Year shall be borne exclusively
by Owner and shall not reduce the amount of any compensation which Manager may
be entitled to receive pursuant to this Agreement for any prior or subsequent
Fiscal Year. No part of such loss shall be charged against, recaptured out of or
otherwise serve to diminish or affect the Hotel and Casino Gross Operating
Profit for any prior or subsequent Fiscal Year.
5.7 Certain Definitions. For purposes of this Agreement:
5.7.1 "Hotel and Casino Gross Revenues" shall mean all
gross revenues from Hotel and casino operations, such as rooms, food and
beverage, telephone, telex, casino net wins and other receipts (exclusive of
tips, service charges added to a customer's ▇▇▇▇ or statement in lieu of
gratuities, which are payable to Hotel employees, taxes collected and remitted
to others, and the value of complementary rooms, food and beverages, except
those purchased by the casino) including, without limitation, rentals or other
payments from lessees, licensees, or concessionaires (but not including the
concessionaires' receipts), minus actual credits and refunds made to customers,
guests or patrons. Subject to the foregoing adjustments, Hotel and Casino Gross
Revenues shall be determined in accordance with generally accepted accounting
principles and the Uniform System of Accounts for Hotels as set forth in Section
3.1 of this Agreement, it being understood that Hotel and Casino Gross Revenues,
as used herein, shall mean the same as "net sales" as defined in the said
Uniform System of Accounts for Hotels, except that in the event of conflict the
definition of "Hotel and Casino Gross Revenues" herein shall be controlling.
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5.7.2 "Hotel and Casino Operating Profits" shall be
determined by deducting from the sum of Hotel and Casino Gross Revenues all
operating expenses, including the deduction of the Basic Management Fee, but
prior to deducting (i) premiums for insurance maintained pursuant to Section 6.1
of this Agreement; (ii) depreciation of buildings, plant, furniture, fixtures
and equipment; (iii) amortization of pre-opening expenses; (iv) financing costs,
including interest charges, principal payments and debt servicing; (v) property
taxes and taxes on income; (vi) capital expenditures, including replacement of
furniture, fixtures and equipment; and (vii) the Incentive Management Fee.
6. INSURANCE.
6.1 Insurance. Manager shall procure and maintain, on behalf of
and at the expense of Owner, at all times during the Pre-Opening Period and the
term of this Agreement, all such insurance as Manager and Owner shall deem
advisable.
6.2 Insurance Standards and Requirements. Owner shall advise
Manager in writing of the requirements of applicable laws, rules or regulations
and third parties having the right to determine insurance requirements for the
Hotel, including without limitation, the Financing Agreement, and if Owner so
notifies Manager, all insurance procured pursuant to Section 6.1 of this
Agreement shall meet or exceed any requirements of such applicable laws, rules
or regulations and third parties having the right to determine insurance
requirements for the Hotel. Insurance procured hereunder shall be placed with
reputable, financially sound insurance companies. All insurance hereunder shall
name Manager and Owner as co-insureds and/or additional insureds.
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6.3 Indemnification.
6.3.1 Indemnification of Manager. Owner shall defend and
promptly indemnify Manager and save and hold it harmless from, against, for and
in respect of and pay any and all damages, losses, obligations, liabilities,
claims, encumbrances, deficiencies, costs and expenses, including without
limitation, actual attorneys' fees and other costs and expenses incident to any
suit, action, investigation, claim or proceeding, suffered, sustained, incurred
or required to be paid by Manager by reason of (a) any breach or failure of any
observance or performance of any representation, warranty, covenant, agreement
or commitment made by Owner hereunder or relating to or as a result of any such
representation, warranty, covenant, agreement or commitment being untrue or
incorrect in any respect, (b) injury or death to persons or damage or
destruction of property due to any cause whatsoever, either in or about the
Hotel or elsewhere, as a result of the performance of this Agreement by Manager,
its agents, officers, directors or employees, or otherwise, irrespective of
whether alleged to be caused, wholly or partially, by Manager, its agents,
officers, directors or employees or (c) for any money or other property which
Manager is required to pay out for any reasons whatsoever in performing its
duties under this Agreement, whether the payment is for operating expenses or
any other charges or debts incurred or assumed by Manager or any other party, or
judgments, settlements, or expenses in defense of any claim, civil or criminal
action, proceeding, charge, or prosecution made, instituted or maintained
against Manager or Owner, jointly or severally, because of the condition or use
of the Hotel, or acts or failures to act of Manager, its agents, officers,
directors or employees, or arising out of or based upon any law, regulation,
requirement, contract or award. Notwithstanding the foregoing, Owner shall not
be liable to Manager pursuant to this
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Section 6.3.1 if any liability described above results from the willful
misconduct of Manager, its officers, directors or employees who are not employed
substantially full time in the management or operation of the Hotel.
6.3.2 Indemnification of Owner. Manager shall defend and
promptly indemnify Owner and save and hold it harmless from, against, for and in
respect of and pay any and all damages, losses, obligations, liabilities,
claims, encumbrances, deficiencies, costs and expenses, including without
limitation, actual attorneys' fees and other costs and expenses incident to any
suit, action, investigation, claim or proceeding, suffered, sustained, incurred
or required to be paid by Owner by reason of any injury or death of any person
or damage or destruction of property due to the willful misconduct of Manager,
its officers, directors or employees who are not employed substantially full
time in the management or operation of the Hotel.
6.3.3 Procedure for Indemnification. For purposes of this
Section 6.3, the party entitled to indemnification shall be known as the
"Injured Party" and the party required to indemnify shall be known as the "Other
Party." If the Other Party shall be obligated to the Injured Party pursuant to
this Section 6.3 or if a suit, action, investigation, claim or proceeding is
begun, made or instituted as a result of which the Other Party may become
obligated to the Injured Party hereunder, the Injured Party shall give prompt
written notice to the Other Party of the occurrence of such event. The Other
Party shall defend, contest or otherwise protect against any suit, action,
investigation, claim or proceeding at the Other Party's own cost and expense.
The Injured Party shall have the right, but not the obligation, to participate
at its own expense in the defense thereof by the counsel of its own choice. If
the Other Party fails timely
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to defend, contest or otherwise protect against any suit, action, investigation,
claim or proceeding, the Injured Party shall have the right to defend, contest
or otherwise protect against the same and upon ten days' written notice to the
Other Party may make any compromise or settlement thereof and recover the entire
cost thereof from the Other Party including without limitation, actual
attorneys' fees, disbursements and all amounts paid as a result of such suit,
action, investigation, claim or proceeding or compromise or settlement thereof.
7. DAMAGE TO HOTEL AND CONDEMNATION.
7.1 Casualty Damage.
7.1.1 Owner to Restore. Owner shall, subject to the
provisions of this Section 7.1, repair, restore, rebuild or replace any damage
to, or impairment or destruction of the Hotel from fire or other casualty. If
Owner fails to undertake such work within 90 days after the casualty, or shall
fail to complete the same diligently, Manager may, but shall not be obligated
to, undertake or complete such work for the account of Owner and shall be
entitled to repaid therefor, and the proceeds of insurance shall be made
available to Manager.
7.1.2 Limitation on Restoration. If the Hotel shall be
destroyed or substantially destroyed during the term of this Agreement by fire
or other casualty and the costs of repairing, restoring, rebuilding and
replacing the same shall exceed 120% of the proceeds of the insurance available
for such repairing, restoring, rebuilding or replacing, Owner shall have the
right and option, upon notice served upon Manager within 60 days after such fire
or other casualty, to decide not to make any repair, restoration, rebuilding or
replacement and to terminate this Agreement upon 30 days' written notice and the
insurance collected shall be distributed as follows: Manager shall be entitled
to Manager's Liquidation Share (as hereinafter
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defined in Section 7.3) determined at the date of damage and Owner shall be
entitled to the balance, if any. If the cost of repairing, restoring, rebuilding
or replacing the damage, impairment or destruction resulting from such fire or
other casualty shall be less than 120% of the proceeds of the insurance
available for such repairing, restoring, rebuilding or replacing, Owner shall
repair, restore, rebuild or replace such damage, impairment or destruction,
unless and to the the extent that Owner and Manager shall otherwise agree. If
Owner fails to undertake such work within 90 days after fire or other casualty,
or shall fail to complete the same diligently, Manager without prejudice to its
rights to repair, restore, rebuild or replace damage, impairment or destruction
for and on behalf of Owner and its rights and remedies upon undertaking any such
work provided for in this Section 7.1, may, at its election, terminate this
Agreement upon five days' notice to Owner and the balance of the insurance
collected not previously applied to such restoration, if any, shall be
distributed as follows: Manager shall be entitled to an amount equal to
Manager's Liquidation Share determined at the date of damage and Owner shall be
entitled to the balance, if any.
7.2 Condemnation.
7.2.1 Total Condemnation. If the whole of the Hotel shall
be taken or condemned in any eminent domain, condemnation, compulsory
acquisition or like proceeding by any competent authority for any public or
quasi-public use or purpose, of if such a portion thereof shall be taken or
condemned so as to make it imprudent or unfeasible, in Manager's opinion, to use
the remaining portion as a hotel of the type and class immediately preceding
such taking or condemnation, then in either case, at Manager's election, the
term of this Agreement shall cease and terminate as of the date of such taking
or condemnation, and any award for such
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taking or condemnation shall be distributed as follows: Manager shall be
entitled to an amount equal to Manager's Liquidation Share determined at the
date of such taking or condemnation and Owner shall be entitled to the balance,
if any.
7.2.2 Partial Condemnation. If only a part of the Hotel
shall be taken or condemned and the taking or condemnation of such part does not
make it unfeasible or imprudent, in Manager's opinion, to operate the remainder
as a hotel of the type and class immediately preceding such taking or
condemnation, this Agreement shall not terminate, but out of the condemnation
award, so much thereof as shall be reasonably necessary to repair any damage to
the Hotel, or any part thereof, or to alter or modify the Hotel, or any part
thereof, so as to render the Hotel a complete and satisfactory architectural
unit as a hotel and casino of the same type and class as it was immediately
preceding the taking or condemnation shall be used for that purpose. The balance
of the award, after deduction of the sum necessary for restoration as aforesaid,
shall be distributed as follows: Manager shall be entitled to an amount equal to
Manager's Liquidation Share at the date of the taking or condemnation multiplied
by a fraction, the numerator of which shall be the decrease in square footage of
the Hotel as a result of the taking or condemnation and the denominator of which
shall be the total square footage in the Hotel prior to such taking or
condemnation and Owner shall be entitled to the balance, if any.
7.3 Manager's Liquidation Share. For purposes of this Article 7,
"Manager's Liquidation Share" shall be an amount determined at the date of
determination ("Determination Date") as follows: (a) if less than one full
Fiscal Year shall have passed since the Commencement Date, Manager's Liquidation
Share shall be $5,000,000 or (b) if more than one
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full Fiscal Year shall have passed at the Determination Date, Manager's
Liquidation Share shall be an amount equal to 75% of the sum of the Individual
Year Amounts for each Fiscal Year or portion thereof remaining between the
Determination Date and the date occurring 20 years after the Commencement Date.
The "Individual Year Amount" for any Fiscal Year shall be an amount equal to the
average of the Basic Management Fees and the Incentive Management Fees payable
to Manager hereunder for the three full Fiscal Years which shall have passed
immediately prior to the Determination Date (or the average of all Fiscal Years
if at least three full Fiscal Years have not passed prior to the Determination
Date) discounted to the Determination Date assuming an 8% simple interest factor
and assuming further that each year's payment would have been made on the first
day of such year. The Individual Year Amount for any partial Fiscal Year shall
be prorated and calculated on a straight line basis.
8. TERMINATION.
8.1 Right of Termination. Notwithstanding anything herein to the
contrary, Manager may terminate this Agreement if Owner shall fail to keep,
observe or perform any covenant, agreement or provision of this Agreement
required to be kept, observed or performed by Owner, such termination to become
effective ten days after Manager served Owner notice of such failure, unless
cured by Owner within such period.
8.2 Payments. Upon termination of this Agreement for any cause,
all amounts owing from Owner to Manager pursuant to this Agreement for all
periods prior to the date of termination shall become immediately due and
payable and Owner shall immediately shall pay Manager an amount equal to
Manager's Liquidation Share at the date of termination.
20
9. MISCELLANEOUS.
9.1 Entire Agreement. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof. No change,
modification, amendment, addition or termination of this Agreement or any part
thereof shall be valid unless in writing and signed by or on behalf of the party
to be charged therewith.
9.2 Counterparts. This Agreement may be executed in one or more
counterparts, and shall become effective when one or more counterparts has been
signed by each of the parties.
9.3 Notices. Any and all notices or other communications or
deliveries required or permitted to be given pursuant to any of the provisions
of this Agreement shall be deemed to have been duly given for all purposes if
sent by certified or registered mail, return receipt requested and postage
prepaid, hand delivered or sent by telegraph or telex as follows:
If to Owner, at
c/o ESJ Hotel Corporation
▇▇▇▇▇▇▇▇ Electronics, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
If to Manager, at:
▇/▇ ▇▇. ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇ Hotel
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
21
with a copy to:
Golenbock and Barell
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
or at such other address as any party may specify by notice given to other party
in accordance with this Section 9.3. The date of giving of any such notice shall
be the date of receipt.
9.4 Waivers. No waiver of the provisions hereof shall be
effective unless in writing and signed by the party to be charged with such
waiver. No waiver shall be deemed a continuing waiver or waiver in respect of
any subsequent breach or default, either of similar or different nature, unless
expressly so stated in writing.
9.5 Severability. Should any clause, section or part of this
Agreement be held or declared to be void or illegal for any reason, all other
clauses, sections or parts of this Agreement which can be effected without such
illegal clause, section or part shall nevertheless continue in full force and
effect.
9.6 Choice of Law. This Agreement shall be governed, interpreted
and construed in accordance with the laws of the State of New York.
9.7 Non-Assignability. This Agreement and the various rights and
obligations arising hereunder shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and assigns. This Agreement
shall not be assignable by any of the parties hereto without the prior written
consent of all other parties hereto and any attempt to assign this Agreement
shall be void and of no effect.
22
9.8 Captions. The headings or captions under sections of this
Agreement are for convenience and reference only and do not in any way modify,
interpret or construe the intent of the parties or effect any of the provisions
of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed on the date and year first above written.
▇▇▇▇▇▇▇ DE SAN ▇▇▇▇ ASSOCIATES
(Owner)
By ESJ HOTEL CORPORATION,
a joint venturer
By: /s/
----------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
▇▇▇▇▇▇▇▇ HOSPITALITY MANAGEMENT
CORPORATION (Manager)
By: /s/
----------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President
23
▇▇▇▇▇▇▇ DE SAN ▇▇▇▇ ASSOCIATES
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇
October 25, 1984
▇▇▇▇▇▇▇▇ Hospitality Management Corporation
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Gentlemen:
Reference is made to the Operating and Management Agreement dated July
31, 1984 between ▇▇▇▇▇▇▇ de San ▇▇▇▇ Associates and ▇▇▇▇▇▇▇▇ Hospitality
Management Corporation.
Section 5.5(a) of such Agreement shall be deleted in its entirety and be
of no further force and effect and the following shall be substituted therefor:
"(a) during the four year period commencing on October 25, 1984 and
terminating on October 25, 1988, no Basic Management Fee in respect of
any month shall be payable until all of the principal and interest due
and payable during such month with respect to the loan (the "Loan") to
Owner pursuant to the Financing Agreement (the "Financing Agreement")
dated October 25, 1984 among Owner, the Government Development Bank for
Puerto Rico ("GDB"), First Federal Savings Bank, Banque Paribas and
▇▇▇▇▇▇▇ ▇▇▇▇▇, International Bank Incorporated shall have been paid or
provided for by Owner,".
If you are in agreement with the foregoing please execute this letter in
the space provided below.
Yours very truly,
▇▇▇▇▇▇▇ DE SAN ▇▇▇▇ ASSOCIATES
(Owner)
By ESJ HOTEL CORPORATION
a joint venturer
By: /s/
-----------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
AGREED TO AND ACCEPTED
THIS 25TH DAY OF OCTOBER, 1984
▇▇▇▇▇▇▇▇ HOSPITALITY MANAGEMENT
CORPORATION (Manager)
By: /s/
---------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President
AMENDMENT OF MANAGEMENT AGREEMENT
THIS AMENDMENT OF MANAGEMENT AGREEMENT (this "Amendment"), dated
as of the 1st day of October 1986, by and between ▇▇▇▇▇▇▇ de SAN ▇▇▇▇
ASSOCIATES, a New York general partnership, having an office at ▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇ (the "Owner") and ▇▇▇▇▇▇▇▇ HOSPITALITY
MANAGEMENT CORPORATION, a Delaware corporation having an office at ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇ (the "Manager").
W I T N E S S E T H:
WHEREAS, the Owner and the Manager have entered into that certain
Operating and Management Agreement, dated as of July 31, 1984, as amended on
October 25, 1984 (the "Management Agreement") pursuant to which the Manager
agreed to, among other things, operate and manage the hotel, resort, casino and
other facilities commonly known as the El San ▇▇▇▇ Hotel and Casino (together
with the real property on which the foregoing is located, collectively, the
"Hotel and Casino");
WHEREAS, pursuant to that certain Letter of Credit and
Reimbursement Agreement, dated as of October 1, 1986 (such agreement, as amended
and supplemented from time to time, is called the "Letter of Credit Agreement")
among Banque Paribas, a banking corporation organized under the laws of the
republic of France, acting through its Houston Agency (the "Bank"), the Puerto
Rico Industrial, Medical, Higher Education and Environmental Pollution Control
Facilities Financing Authority ("AFICA") and ▇▇▇▇▇▇▇ ▇▇▇▇▇ International Bank,
Incorporated, as agent, the Bank has agreed to issue its Letter of Credit to
provide for the payment of the Bonds in accordance with their terms;
WHEREAS, pursuant to that certain Loan Agreement (the "Loan
Agreement") between AFICA and the Owner, dated as of October 1, 1986, AFICA has
agreed to loan certain amounts to the Owner and the Owner has agreed to pay
certain amounts to AFICA;
WHEREAS, one of the conditions precedent to the obligation of the
Bank to issue the Letter of Credit is the agreement of the Owner and the Manager
to amend the Management Agreement in the manner hereinafter appearing;
WHEREAS, the financing of the Project, as contemplated by the
Loan Agreement and the Related Documents, is in furtherance of the purposes of
the Management Agreement.
NOW, THEREFORE, for and in consideration of the foregoing, the
mutual promises and covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto further agree to amend the Management Agreement as follows:
The following section is hereby added to the Management
Agreement:
"SECTION 10. AMENDMENT AS OF OCTOBER 1, 1986.
10.1 Definitions.
All capitalized terms used in this Section 10 and not otherwise
defined shall have the meanings ascribed to such terms in the Loan Agreement
between AFICA and the Owner, dated as of October 1, 1996.
10.2 Incentive Management Fee.
The Manager and the Owner hereby agree that any and all amounts
due to the Manager as Incentive Management Fees, as defined in Section 5.3 of
this Agreement, shall be paid by the Owner to the Manager only from Profit
Available for Incentive Management Fees.
2
To the extent that the Incentive Management Fee exceeds the Profit Available for
Incentive Management Fees in any fiscal year of the Owner, the payment of such
excess shall be deferred. Amounts so deferred shall be subject to the
subordination provisions of Section 6 of the Management Agreement Subordination
Agreement, and shall bear interest at a rate of ten percent (10%) per annum
compounded annually, and shall be payable in any subsequent fiscal year of the
Owner only from Profit Available for Incentive Management Fees.
10.3 FF&E Reserve.
(a) During each fiscal year of the Owner, the Manager shall
deposit for each calendar month included in such fiscal year an amount equal to
(i) one percent (1%) of Hotel Gross Revenues for such calendar month during the
fiscal year of the Owner ending in 1987; (ii) two percent (2%) of Hotel Gross
Revenues for such calendar month during the fiscal year ending in 1988; (iii)
three percent (3%) of Hotel Gross Revenues for such calendar month during the
fiscal years ending in 1989, 1990 and 1991; and (iv) four percent (4%) of Hotel
Gross Revenues for each calendar month thereafter, into a fund to be entitled
"Furniture, Fixtures and Equipment Reserve Fund," (the "Fund") which Fund shall
be maintained on deposit by the Manager in trust for the Owner in an
interest-bearing bank account and amounts in the Fund shall not at any time be
commingled with other funds of the Owner or the Manager. Interest earned from
the amounts on deposit in such Fund, after payment of taxes, if any, as provided
below shall be included in computing Profit Available for Incentive Management
Fees and shall be distributed to Owner monthly. To the extent that the Manager
shall be required to pay any income taxes on such interest as a fiduciary, the
same shall be payable out of such Fund. In addition to such payments into such
Fund, all proceeds from the sale of FF&E no longer needed
3
for the operation of the Hotel which has not been replaced by similar FF&E shall
also be paid into such Fund. Proceeds from the sale of FF&E which is so replaced
need not be paid into the Fund.
(b) The Manager shall, prior to the commencement of each fiscal
year, prepare a plan (the "Plan") for the replacements of and additions to FF&E
for such year and a budget for the anticipated cost thereof. The Manager shall
be entitled to withdraw from such Fund any amounts required to pay the cost of
replacements of, and additions to, the FF&E made pursuant to the Plan or
otherwise reasonably deemed by the Manager to be necessary or desirable,
provided that monies in such Fund shall not be used to make contributions to the
cost of replacement or repair of, and additions to, the Operating Equipment. The
items of FF&E so replaced or added shall be and become, forthwith upon
acquisition and installation and without further act or action, the property of
the Owner and part of the Hotel and Casino. Any amounts remaining in such Fund
at the end of any fiscal year shall be retained and carried forward to the
succeeding fiscal year without reducing the obligation of the Manager to comply
with the requirements of subsection (a) of this subsection 10.3 in any
succeeding fiscal year.
(c) The Manager shall not, without the approval of the Owner
(which approval shall not be unreasonably withheld), expend any monies for
replacements of, or additions to, the FF&E in excess of the amount then existing
in the Fund and, notwithstanding anything else to the contrary in this Agreement
contained, the Manager's obligations with respect to additions to, or
replacements of, FF&E shall be excused to the extent that the amount in such
Fund is inadequate to meet such obligations. Amounts expended by the Manager or
the Owner for the replacement of or additions to FF&E other than from the Fund
shall reduce, dollar for dollar,
4
the amounts next required to be deposited into the Fund, provided that no such
reduction shall relieve the Manager of its obligation to make deposits into the
Fund for more than 12 consecutive months.
(d) Except to the extent prevented by causes beyond its
reasonable control (including force majeure causes), the Manager shall maintain
the Hotel and Casino as a first class luxury resort hotel and in good order and
operating condition and make all repairs thereto and shall replace or make
additions to Operating Equipment, all as may be necessary in the reasonable
judgment of the Manager.
(e) If structural repairs or changes to the Hotel or alterations,
additions or improvements of a non-recurring nature shall be required at any
time during the term of the Loan Agreement to maintain the Hotel and Casino in
good condition, or by reason of any laws, ordinances, rules or regulations now
or hereafter in force, or by order of any governmental or municipal power,
department, agency, authority or officer or otherwise, or because the Owner and
the Agent jointly agree upon the desirability thereof, then in such event all
such structural repairs or changes and/or alterations, shall be paid for by the
Owner, and shall be made with as little hindrance as possible to the operation
of the Hotel and Casino.
(f) For the purpose of this Section 10, (x) "Furniture, Fixtures
and Equipment" or "FF&E" shall mean all of the personal property, furniture,
furnishings, wall coverings, floor coverings, fixtures and other property and
equipment located on, or used in connection with the Hotel and Casino including
all equipment for the operation of kitchens, bars, laundries, office equipment
and material handling equipment, but not including Operating Equipment; (y)
"Operating Equipment" shall, without limiting its generality, include blankets,
linen, uniforms,
5
silver, china, glassware, crockery, kitchen utensils, cleaning equipment, and
similar items; and (z) "Hotel Gross Revenue" for any period shall mean "Hotel
and Casino Gross Revenue" , as defined in Section 5.7.1 of this Agreement, minus
gross revenues from casino operations for such period.
10.4. No Other Changes.
Except as expressly set forth herein, all the terms, covenants
and conditions set forth in this Management Agreement shall continue in full
force and effect. In the event of any conflict between the terms or provisions
of this Section 10 and the terms or provisions of the rest of the Management
Agreement this Section 10 shall prevail."
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed by their respective officers thereunto duly authorized as of
the day and year first above written.
▇▇▇▇▇▇▇▇ HOSPITALITY MANAGEMENT
CORPORATION
By: /s/
-------------------------------------------
Name:
Title:
Date: October ____, 1986
▇▇▇▇▇▇▇ de SAN ▇▇▇▇ ASSOCIATES
By: /s/
-------------------------------------------
Name:
Title:
Date: October ____, 1986
6
SHACK & ▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
TEL: (▇▇▇) ▇▇▇-▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
FACSIMILE TRANSMISSION
DATE: January 21, 1997
PLEASE DELIVER THE FOLLOWING 2 PAGES (INCLUDING THIS COVER PAGE) IMMEDIATELY.
To: ▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Company: Mercedes-Benz of North America Tel: (▇▇▇) ▇▇▇-▇▇▇▇
cc: ▇▇. ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Fax: (▇▇▇) ▇▇▇-▇▇▇▇
COMPANY: Welbilt Corporation Tel: (▇▇▇) ▇▇▇-▇▇▇▇
cc: ▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Fax: ▇▇▇-▇▇-▇▇▇-▇▇▇-▇▇▇▇
COMPANY: ▇▇▇▇▇▇▇▇▇ plc Tel: ▇▇▇-▇▇-▇▇▇-▇▇▇-▇▇▇▇
COMMENTS:
The contract has been signed by ▇▇▇▇▇▇▇▇▇, and a copy of the signature
page is sent herewith. Please advise when you will be wiring the deposit,
so that we can instruct The Bank of New York to look for it. As soon as the
deposit is received in our account, I'll release the contract and will
send you two originals by Federal Express. Before the contract is released,
I'll (i) sign it for this firm, as Escrow Agent; (ii) date it, and (iii)
fill in the closing date. Will you please confirm to me that the closing date
is to be 105 days from the date of release of the contract (90 day due
diligence period, plus 15 days).
Thanks.
FROM: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ REFERENCE: 99220-002