Exhibit 99.13
MANAGEMENT AGREEMENT
by and between
[PATRIOT AMERICAN HOSPITALITY OPERATING PARTNERSHIP, L.P.]
(as "LESSEE")
and
IHC II, LLC
(as "Manager")
Dated as of ______________, 1998
TABLE OF CONTENTS
Page
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ARTICLE I
MANAGEMENT OF THE HOTEL................................................2
1.01 Acceptance of the Hotel.......................................2
1.02 Conversion of the Hotel.......................................2
1.03 Management Responsibilities...................................4
1.04 Chain Services................................................8
1.05 Employees.....................................................8
1.06 Lessee's Right to Inspect.....................................9
1.07 Conditions to Take-Over of Hotel..............................9
ARTICLE II
TERM
.....................................................................10
2.01 Term.........................................................10
2.02 Performance Termination......................................10
ARTICLE III
COMPENSATION OF MANAGER...............................................12
3.01 Management Fees..............................................12
3.02 Operating Profit.............................................12
ARTICLE IV
ACCOUNTING MATTERS....................................................12
4.01 Accounting, Distributions and Annual Reconciliation..........12
4.02 Books and Records............................................13
4.03 Accounts, Expenditures.......................................14
4.04 Accounting for Conversion of Hotel...........................15
4.05 Business Plan................................................15
4.06 Working Capital..............................................17
4.07 Fixed Asset Supplies.........................................18
ARTICLE V
REPAIRS, MAINTENANCE AND REPLACEMENTS.................................18
5.01 Repairs and Maintenance Costs Which Are Expensed.............18
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5.02 FF&E Reserve.................................................19
5.03 Capital Expenditures.........................................21
5.04 Ownership of Replacements....................................22
ARTICLE VI
INSURANCE, DAMAGE, CONDEMNATION, AND FORCE MAJEURE
.....................................................................23
6.01 Insurance....................................................23
6.02 Owner's Option to Obtain Property Insurance..................25
6.03 Damage and Repair............................................26
6.04 Condemnation.................................................27
ARTICLE VII
TAXES
.....................................................................28
7.01 Real Estate and Personal Property Taxes......................28
ARTICLE VIII
MANAGEMENT OF THE HOTEL
.....................................................................29
8.01 Ownership of the Hotel.......................................29
8.02 Mortgages....................................................30
8.03 Subordination, Non-Disturbance and Attornment................30
8.04 No Covenants, Conditions or Restrictions.....................32
8.05 Liens; Credit................................................32
8.06 Amendments Requested by Mortgagee............................33
ARTICLE IX
DEFAULTS
.....................................................................34
9.01 Events of Default............................................34
9.02 Remedies.....................................................35
9.03 Additional Remedies..........................................35
ARTICLE X
ASSIGNMENT AND SALE
.....................................................................36
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10.01 Assignment...................................................36
ARTICLE XI
MISCELLANEOUS
.....................................................................37
11.01 Right to Make Agreement......................................37
11.02 Consents and Cooperation.....................................37
11.03 Relationship.................................................38
11.04 Applicable Law...............................................38
11.05 [Intentionally Omitted]
11.06 Headings............................................38
11.07 Notices......................................................38
11.08 Environmental Matters........................................39
11.09 Confidentiality..............................................41
11.10 Projections..................................................42
11.11 Actions to be Taken Upon Termination.........................42
11.12 Trademarks, Trade Names and Intellectual Property............45
11.13 [Intentionally Omitted]
11.14 Waiver..............................................46
11.15 Partial Invalidity...........................................46
11.16 Survival.....................................................47
11.17 [Intentionally Omitted]
............................................................47
11.18 Negotiation of Agreement.....................................47
11.19 Estoppel Certificates........................................47
11.20 System Standards.............................................47
11.21 Arbitration..................................................48
11.22 Marriott Restricted Area Right of Termination
Manager agrees to exercise its rights under Section 11.22 of
the Submanagement Agreement including, without limitation, as to
any termination of the Submanagement Agreement pursuant to such
Section 11.22, only as directed from time to time by Lessee.
11.23 Entire Agreement....................................49
11.24 Expert Resolution Process....................................49
ARTICLE XII
iii
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DEFINITION OF TERMS
.....................................................................50
12.01 Definition of Terms..........................................50
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Exhibit "A-1" Name and Location of Hotel
Manager
Take-Over Date
Term Expiration Date
Base Management Fee
Initial FF&E Reserve Balance
FF&E Reserve Contribution
Exhibit "B-1" Five-Year Plan
Exhibit "B-2" Additional Capital Expenditures
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MANAGEMENT AGREEMENT
This Management Agreement ("Agreement") is executed as of the ____ day of
__________, 1998 ("Effective Date"), by Patriot American Hospitality Operating
Partnership, L.P., a Delaware limited partnership with a mailing address at ▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ ("Lessee"), and IHC II, LLC
("Manager"), a _________ limited liability company with a mailing address at
________________________________.
R E C I T A L S :
A. Patriot American Hospitality Partnership, L.P., an Affiliate thereof,
or an entity in which Patriot American Hospitality Partnership, L.P. or an
Affiliate thereof ("Owner") is the owner of fee title to [ground lessee with
respect to Atlanta] the parcel of real property (the "Site") containing a hotel
building or buildings located at the address as set forth in Exhibit "A-1,"
together with a lobby, restaurants, meeting rooms, administrative offices, and
certain other amenities and related facilities (collectively, the "Hotel
Improvements" or the "Improvements"). The Site and the Hotel Improvements, in
addition to certain other rights, improvements, and personal property as more
particularly described in the definition of "Hotel" in Section 12.01 hereof, are
collectively referred to as the "Hotel."
B. Owner has entered into a lease (the "Lease") of the Hotel to Lessee.
C. The Hotel is presently operated as a Marriott Hotel pursuant to a
franchise agreement (the "Franchise Agreement") between Marriott International,
Inc., or one or its Affiliates, as franchisor and Interstate Hotels Corporation,
or one of its Affiliates, as franchisee, which franchisee interest has been
assumed by Manager.
D. Owner, Lessee, Marriott International, Inc. and Interstate Hotel
Company have previously entered into a settlement agreement (the "Settlement
Agreement") concerning the resolution of disputes among the parties, pursuant to
which this Agreement is being executed .
E. Owner, Lessee, Manager and Marriott (as defined below), simultaneously
with the execution of this Agreement and effective as of the Take-Over Date,
have entered into an Owner Agreement (the "Owner Agreement") which sets forth
certain rights and responsibilities among Owner, Lessee, Manager and Marriott
(as defined below).
F. Lessee desires to engage Manager effective as of the Take-Over Date to
manage and operate the Hotel and Manager desires to accept such engagement upon
the terms and conditions set forth in this Agreement.
G. Immediately following the execution and delivery of this Agreement,
Manager intends to enter into a Submanagement Agreement with [Marriott Hotel
Services, Inc./Marriott
International, Inc.] ("Marriott")pursuant to which Manager shall delegate all of
its rights and obligations with respect to the management and operation of the
Hotel to Marriott, and Lessee has consented to such delegation pursuant to such
Submanagement Agreement .
H. All capitalized terms used in this Agreement shall have the meaning set
forth in Article XII hereof.
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement and other good and valuable consideration, the receipt of which is
hereby acknowledged, Lessee and Manager agree as follows:
ARTICLE I
MANAGEMENT OF THE HOTEL
1.01 Acceptance of the Hotel
Manager represents that it is familiar with the condition and operation of
the Hotel and, subject to the provisions of the Agreement, Manager accepts the
Hotel "AS IS." Such acceptance is based on the assumption that the Hotel will
continue to be operated by Lessee in accordance with System Standards up to the
Take-Over Date. Such acceptance includes:
A. Manager's agreement to cause Marriott to hire all current Hotel
employees, except as provided in Section 1.02A;
B. Manager's acceptance of all hotel operating systems, subject to
conversion as provided in Section 1.02B;
C. Manager's acceptance of all existing service and supply contracts
and bookings;
D. Manager's acceptance of the Improvements and all FF&E,
Inventories, Fixed Asset Supplies, Softgoods and Case Goods, subject to Section
5.02, Section 5.03 and Exhibit A-1.
1.02 Conversion of the Hotel
A. Based on interviews conducted prior to the Take-Over Date,
Manager shall cause Marriott to determine which members of the Hotel Executive
Committee will not be accepted by Marriott for employment with Marriott. In
addition, the parties acknowledge that Marriott will perform (i) drug-testing on
all persons applying for employment with Submanager, and (ii) SRI testing on all
managerial applicants. Manager and Marriott will
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jointly arrange that such interviewing and such testing will occur on a schedule
which will permit Marriott to give Manager notice, at least thirty (30) days
prior to the Take-Over Date, as to which individuals have not been accepted for
employment by Marriott. In connection with the foregoing, Manager agrees that:
(i) Manager will cause Marriott to hire a sufficient number of the existing
employees at the Hotel to avoid the occurrence of a "closing" under the WARN
Act; and (ii) Manager will cause Marriott to hire at least eighty percent of the
existing managerial staff who apply for positions with Marriott. Lessee shall
make arrangements so that, prior to the Take-Over Date, the employment of all
such employees who are not accepted for employment by Marriott is terminated or
that such employees have been transferred to another location. All severance pay
due to such employees shall be paid by the employer who terminates them;
provided, however, that severance costs required to be paid for employees
terminated by Manager or Marriott will be treated as Deductions in accordance
with the terms of this Agreement. Lessee agrees to indemnify, defend and hold
harmless Manager and Marriott and their Affiliates (and their respective
directors, officers, shareholders, employees and agents) from any and all
claims, causes of action, costs, expenses and liabilities resulting from such
termination of employment of such employees and/or the failure of Manager to
hire such employees (including, without limitation, severance pay, wrongful
discharge claims, claims and other costs under the WARN Act, and claims and/or
fines under other applicable Legal Requirements) and/or resulting from the
employment of such individuals prior to such termination (including, without
limitation, disability claims, vacation, sick leave, wages, salaries and other
benefits).
B. Prior to the Take-Over Date, Manager will cause Marriott to
install in the Hotel (at Lessee's cost) the Accounting, Payroll and Human
Resources Systems (both hardware and software) necessary for Marriott to operate
the Hotel. The parties estimate that (assuming that the Hotel has the RS-6000
computer system) the cost of such equipment will be approximately One Hundred
and Six Thousand Dollars ($106,000). Such amount is separate from and in
addition to the Initial FF&E Reserve Balance set forth in Exhibit A-1. Lessee
shall reimburse Manager for such costs within thirty (30) days after being
invoiced by Manager; if Lessee fails to do so, Manager shall have the right to
deduct such amounts from distributions to Lessee under Section 3.02.A.
C. Prior to the Take-Over Date, Manager and Marriott shall have
access to the Hotel at reasonable times in order to inspect Hotel and the
physical plant, to familiarize themselves with the systems and maintenance, to
review maintenance records and otherwise to perform its customary due diligence
prior to a take-over of a hotel; provided, however, that such access shall not
materially interfere with the operation of the Hotel. Lessee shall reasonably
cooperate in good faith with such diligence activities and otherwise with
respect to the take-over of management of the Hotel.
D. Prior to and after the Take-Over Date, Lessee shall (and shall
cause Owner to ) cooperate with Manager and Submanager in obtaining and
transferring such licenses, permits and approvals necessary for the operation of
the Hotel (subject to the provisions contained in Section 1.07.A.1).
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1.03 Management Responsibilities
A. From and after the Take-Over Date, Manager shall, and Lessee
hereby authorizes and engages Manager to, supervise, direct and control the
management and operation of the Hotel in accordance with the terms and
conditions of this Agreement; provided, however, that Lessee acknowledges that
such supervision, direction and control will be delegated to and exercised by
Marriott pursuant to the Submanagement Agreement. During the Term, the Hotel
shall be known as a Marriott Hotel, with such additional identification
determined by Marriott as may be necessary to provide local identification.
B. Manager shall cause Marriott to manage the Hotel in accordance
with System Standards and shall, subject to the terms of this Agreement, perform
or cause Marriott to perform each of the following functions (the costs and
expenses of which shall be Deductions) with respect to the Hotel:
1. Recruit, employ, supervise, direct and discharge the
employees at the Hotel.
2. Establish prices, rates and charges for services provided
in the Hotel, including Guest Room rates.
3. Establish and revise, as necessary, administrative policies
and procedures, including policies and procedures for the control of revenue and
expenditures, for the purchasing of supplies and services, for the control of
credit, and for the scheduling of maintenance, and verify that the foregoing
procedures are operating in a sound manner.
4. Make payments on accounts payable and handle collections of
accounts receivable.
5. Arrange for and supervise public relations and advertising,
prepare marketing plans, and make available to the Hotel the benefits of various
marketing programs in use in the Marriott System as they may exist from time to
time, such as the Marriott Rewards Program.
6. Procure all Inventories and replacement of Fixed Asset
Supplies.
7. Prepare and deliver interim accountings, annual
accountings, Annual Operating Statements, Building Estimates, FF&E Estimates,
Proposed Business Plans, and such other information as is required by this
Agreement and be available at reasonable times to discuss the above-listed items
as well as the operations at the Hotel generally with Owner in connection with
Owner's rights to receive and/or approve such items pursuant to the Lease.
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8. Plan, execute and supervise repairs, maintenance, and FF&E
purchases at the Hotel.
9. Provide, or cause to be provided, risk management services
relating to the types of insurance required to be obtained or provided by
Manager under this Agreement.
10. Obtain and keep in full force and effect, either in
Owner's or Lessee's name, as may be required by applicable law, any and all
licenses and permits to the extent same is within the control of Manager (or, if
same is not within the control of Manager, Manager shall use due diligence and
reasonable efforts to obtain and keep same in full force and effect).
C. The operation of the Hotel from and after the Take-Over Date
shall be under the exclusive supervision and control of Manager which, except as
otherwise specifically provided in this Agreement, shall be responsible for the
proper and efficient operation of the Hotel. In fulfilling its obligations under
this Agreement, Manager shall act as a reasonable and prudent manager of the
Hotel, having regard for the status of the Hotel and maintaining the System
Standards. Manager shall have discretion and control in all matters relating to
management and operation of the Hotel, including, without limitation, the
following: charges for Guest Rooms, commercial space, and services provided by
the Hotel; food and beverage services; employment policies; credit policies;
granting of leases, subleases, licenses and concessions for shops and businesses
within the Hotel, provided that (i) the term of any such lease, sublease,
license or concession shall not exceed the Term of this Agreement and (ii) no
such lease, sublease, license or concession shall be on a basis such that the
rental or other amounts payable thereunder would be based, in whole or in part,
on either the net income or profits derived by the business activities of such
Lessee, Sublessee, Licensee or Concessionaire or any other formula which would
cause any portion of the rents payable by Lessee to Owner under the Lease to
fail to qualify as "rents from real property" within the meaning of Section 856
(d) of the Internal Revenue Code, as amended; receipt, holding and disbursement
of funds; maintenance of bank accounts; procurement of Inventories (including
initial Inventories), supplies and services; payment of costs and expenses
specifically provided for in this Agreement or otherwise reasonably necessary
for the proper and efficient operation of the Hotel; and, generally, all
activities necessary for operation of the Hotel. Notwithstanding the foregoing,
Manager agrees that it shall consult with Lessee prior to the hiring of any
General Manager of the Hotel by Marriott in connection with Manager's
consultation with Marriott on such hiring decision pursuant to the Submanagement
Agreement.
D. Manager will comply with and abide by or cause Marriott to comply
with and abide by all applicable Legal Requirements (except for certain Legal
Requirements which are Lessee's or Owner's responsibility under Section 5.03 and
Section 11.08 hereof) pertaining to its operation of the Hotel, including in
connection with any drug testing or SRI testing of employees and applicants.
Lessee shall comply (or shall cause Owner to comply, as applicable) with and
abide by all applicable Legal Requirements pertaining to the Hotel
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Improvements or to Owner's or Lessee's ownership interest in the Hotel
(including, without limitation, Lessee's or Owner's obligations under Sections
5.03 and 11.08 hereof). Either Owner, Lessee or Manager shall have the right,
but not the obligation, in its reasonable discretion, to contest or oppose, by
appropriate proceedings, any such Legal Requirements. The reasonable expenses of
any such contest of a Legal Requirement shall be paid from Gross Revenues as
Deductions.
E. Manager acknowledges that pursuant to the Settlement Agreement,
if the Submanagement Agreement is terminated either by Marriott upon a default
by Manager or by Manager, Owner and/or Lessee may be obligated to pay to
Marriott a Special Fee (as that term is defined in the Settlement Agreement) and
to secure an Approved Operator (as that term is also defined in the
Submanagement Agreement) which will assume the suspended Franchise Agreement.
Manager shall indemnify, defend and hold Owner and Lessee harmless from and
against all claims, loss, cost, liability and damage (including, without
limitation, attorneys' fees and expenses, and the cost of litigation) arising
from (i) any termination of the Submanagement Agreement resulting from a default
by Manager under the Submanagement Agreement other than a default caused by a
default by Lessee under this Agreement or (ii) any other termination of the
Submanagement Agreement by Manager without the prior written consent of Lessee.
In addition, Manager shall indemnify, defend and hold Owner and Lessee harmless
from and against all claims, loss, cost, liability and damage (including,
without limitation, attorneys' fees and expenses, and the cost of litigation)
(x) relating to any matter with respect to which Primary Manager is indemnified
by Marriott under the Submanagement Agreement and (y) any inaccuracy in the
certificate provided by Marriott with respect to Chain Services pursuant to
Section 1.04. Manager's obligations under this Section 1.03.E. shall survive the
termination of this Agreement.
F. Notwithstanding anything to the contrary contained in this
Agreement, Manager shall neither approve or otherwise give its consent nor allow
its approval or consent to be deemed given in any instance in which its approval
or consent is necessary or allowed under any of the following provisions of the
Submanagement Agreement, without first obtaining the approval or consent of
Lessee under this Agreement:
(a) Business Plan (Section 4.05)
(b) Building Estimates (Section 5.03)
(c) FF&E Estimates (Section 5.02.C)
(d) Capital Expenditures in excess of FF&E Reserve (Section 5.02.D)
(e) Increases in deposits of FF&E Reserve (Section 5.02.E)
(f) Changes to 5-Year Plans (Section 5.02.A)
6
(g) Designations of arbitrators or Experts (Section 11.21 and 11.24)
(h) Decision to restore or terminate in the event of Total Casualty
(Section 6.03)
(i) Approval of insurance companies (Section 6.01.A)
(j) Decision to obtain Owner property insurance (Section 6.02)
(k) Consent to Assignment or transfer of Submanager's interest
(Section 10.01)
(l) Audits of Annual Operating Statements (Section.4.02)
(m) Agreement on any alternative Competitive Set or source of
information regarding the same received from Marriott (definition of
"Competitive Set" in Section. 12.01)
Lessee and Manager acknowledge that (i) pursuant to the Lease Owner's
approval is required with respect to each of the foregoing matters and Lessee is
not entitled to approve or disapprove any of the foregoing matters without the
approval or disapproval of Owner and (ii) pursuant to the Owner Agreement Lessee
has appointed Manager as Lessee's agent for the purpose of obtaining such
approvals (or disapprovals) from Owner.
Lessee and Manager acknowledge that many of Manager's obligations
hereunder have been delegated to Marriott pursuant to a corresponding provision
in the Submanagement Agreement. Except as otherwise provided herein and without
in any way releasing Manager from its duty to perform hereunder, Lessee agrees
that it will accept the performance by Marriott on Manager's behalf of Manager's
obligations hereunder.
G. Manager shall use reasonable best efforts to ensure the timely
performance by Marriott of all of Marriott's obligations under the Submanagement
Agreement and shall not waive or excuse in any manner the timely performance by
Marriott of any material obligation to be performed by Marriott under the
Submanagement Agreement without the prior written consent of Lessee; provided,
however, that where Manager is required under the provisions of this Agreement
to cause Marriott to take an action or refrain from taking an action (as opposed
to using reasonable best efforts or some other lesser standard to cause Marriott
to take such action or refrain from taking such action), then the provisions of
this sentence shall not modify such provisions of this Agreement. Manager shall
not enter into, and shall not allow, any amendment, replacement, extension,
renewal, termination (other than a termination by Marriott in accordance with
the terms of the Submanagement Agreement) , surrender or other modification of
the Submanagement Agreement without the prior written consent of Lessee.
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1.04 Chain Services
Commencing with the Take-Over Date and thereafter during the Term of this
Agreement, Manager shall cause Marriott to cause to be furnished to the Hotel
certain services (collectively referred to herein as "Chain Services") that are
furnished generally on a central, regional or other group basis to other hotels
in the Marriott System and which benefit such hotels such as: (i) national sales
office services; central training services; career development and relocation of
management personnel; central advertising and promotion (including direct and
image media and advertising administration); the Marriott national reservations
system services and the Marriott computer payroll and accounting services;
benefits administration; gift shop merchandise handling; and (ii) such
additional central, regional or other group services as are or may be, from time
to time, furnished for the benefit of hotels in the Marriott System or in
substitution for services now performed at individual hotels which may be more
efficiently performed on a group basis. The charges for Chain Services shall
include, as applicable, allocation of salaries, wages, and overhead related to
the employees of Marriott, or any Affiliate involved in providing any of the
Chain Services and shall be allocated on a fair basis among all hotels receiving
such services. At the time of the delivery of each Annual Operating Statement,
Manager shall cause Marriott to deliver to Manager a certification executed by
an officer of Marriott that (i) the allocation of charges for Chain Services is
consistent with GAAP and generally accepted hotel practices, (ii) such charges
are allocated among the hotels in the Marriott System in a fair and equitable
manner, and (iii) the method of allocation of such expenses has not been changed
since the date of this Agreement or, if they have changed, advising Manager of
the details of such change. Manager shall promptly forward a copy of such
certificate to Lessee.
1.05 Employees
All personnel employed at the Hotel shall, at all times from and after the
Take-Over Date, be the employees of Manager or Marriott. Manager and Marriott,
with respect to the respective employees of each, shall have absolute discretion
with respect to all personnel employed at the Hotel, including, without
limitation, decisions regarding hiring, promoting, transferring, compensating,
supervising, terminating, directing and training all employees at the Hotel,
and, generally, establishing and maintaining all policies relating to
employment. Manager shall be permitted to allow Marriott to provide free
accommodations and amenities to its employees and representatives living at or
visiting the Hotel in connection with its management or operation of the Hotel
to the extent such provision of accommodations and amenities is customary with
System Standards. No person shall otherwise be given gratuitous accommodations
or services without prior approval of Lessee, except in accordance with usual
practices of the hotel and travel industry, and Marriott shall not grant such
approval under the Submanagement Agreement without the prior approval of Lessee.
8
1.06 Lessee's Right to Inspect
Owner and Lessee shall have access to the Hotel at any and all reasonable
times upon prior advance notice to the general manager of the Hotel for the
purpose of showing the Hotel to prospective purchasers, tenants or Mortgagees.
1.07 Conditions to Take-Over of Hotel
A. The obligation of Manager to assume operation of the Hotel
hereunder shall be conditioned upon each of the following:
1. That Manager or Marriott has received, prior to the
Take-Over Date, all licenses, permits, and all other approvals necessary for
operation of the Hotel by Manager or Marriott (or valid transfers of such
licenses, etc., to Manager or Marriott); provided, however, that to the extent
such licences, permits and other approvals are held by Owner or Lessee and
Manager or Marriott can operate the hotel with such licenses, permits and other
approvals in the name of Owner or Lessee, then such licenses, permits and other
approvals shall remain in the name of Owner or Lessee, as applicable;
2. If required under Article VIII, that Manager, Marriott and
each Mortgagee have executed the "Subordination Agreement" described in Section
8.03;
3. That the Initial FF&E Reserve Balance, as described in
Section 5.02.A, shall have been deposited in the FF&E Reserve.
4. That the Lessee has provided the necessary initial Working
Capital, as described in Section 4.06.
B. Notwithstanding any other provision of this Agreement, Manager
shall have the right to terminate this Agreement, on thirty (30) days' written
notice to Lessee, if (i) the conditions to the take-over of the Hotel by Manager
which are listed in Section 1.07.A.1 and 2 have not been satisfied within thirty
(30) days after receipt of notice from Manager that such conditions remain
unsatisfied at the time Manager provides such notice (which notice may be given
by Manager at any time on or after the Take-Over Date), or (ii) if the
conditions to the takeover of the Hotel by Manager which are listed in Section
1.07.A.3 and 4 have not been satisfied within ten (10) days after receipt of
notice from Manager that such conditions remain unsatisfied at the time Manager
provides such notice (which notice may be given by Manager at any time on or
after the Takeover Date). Any such termination shall not be exclusive of any
other rights or remedies of Manager under this Agreement, the Owner Agreement or
the Settlement Agreement. Notwithstanding the foregoing provisions of this
subsection B, Manager shall have no right to terminate this Agreement unless
Marriott has terminated the Submanagement Agreement.
9
ARTICLE II
TERM
2.01 Term
The term ("Term") of this Agreement shall begin on the Take-Over
Date and shall continue until the Term Expiration Date. Pursuant to the terms of
the Settlement Agreement, during the Term of the Submanagement Agreement, the
obligations of the parties under the Franchise Agreement shall be suspended
without penalty (except for the royalty fee provisions thereof, and the royalty
fees payable thereunder shall continue to be paid by Manager to Marriott
International, Inc.) and is of no force or effect until such time as the
Franchise Agreement may be reinstated pursuant to the provisions of Section
2.01.B of the Submanagement Agreement. Such royalty fee payments under the
Franchise Agreement shall be paid out of Gross Revenues, and Manager is hereby
authorized and directed to cause Marriott to make such payments, which shall be
treated as Deductions for all purposes.
2.02 Performance Termination
A. Subject to the provisions of Section 2.02.B below, Lessee shall
have the option to terminate this Agreement and to cause Manager to terminate
the Submanagement Agreement, if:
1. With respect to any two (2) Fiscal Years within any three
(3) Fiscal Year period (not including any portion of any Fiscal Year prior to
the expiration of the first (1st) full Fiscal Year after the Take-Over Date)
Operating Profit is less than the applicable Performance Termination Threshold;
and
2. The Revenue Index of the Hotel during each of such Fiscal
Years (i.e. any two (2) Fiscals Years within three (3) Fiscal Year period) is
less than the Revenue Index Threshold.
Such option to terminate and to cause Manager to terminate the Submanagement
Agreement shall be exercised by serving written notice thereof on Manager no
later than sixty (60) days after the receipt by Lessee of the annual accounting
under Section 4.01.B hereof for the second of the two (2) Fiscal Years referred
to in Section 2.02.A.1. If Manager (and Marriott pursuant to Section 2.02.B of
the Submanagement Agreement) do not elect to avoid such Termination pursuant to
Section 2.02.B below, this Agreement shall terminate (and Manager shall cause
the Submanagement Agreement to terminate) as of the end of the fourth (4th) full
Accounting Period following the date on which Manager receives Lessee's written
notice of its intent to terminate this Agreement; provided that such period of
time shall be extended as required by applicable Legal Requirements pertaining
to the termination of the employment of the employees at the Hotel. Lessee's
failure to exercise its right to terminate this Agreement pursuant to Section
2.02.A with respect to any given Fiscal Year shall not be deemed an
10
estoppel or waiver of Lessee's right to terminate this Agreement (and to cause
Manager to terminate the Submanagement Agreement) with respect to subsequent
Fiscal Years to which this Section 2.02.A may apply.
B. Upon receipt of Lessee's written notice of Termination under
Section 2.02.A, Manager shall have the option, to be exercised within sixty (60)
days after receipt of said notice, to avoid such Termination by electing (in a
notice to Lessee) to waive the payment of the Base Management Fee and by
obtaining from Marriott a written waiver of the Base Management Fee under the
Submanagement Agreement (and a written waiver of the payment of franchise fees
under the Franchise Agreement) (in each case beginning as of the first day of
the next full Accounting Period after the date of such notice from Manager)
until such time as the total cumulative amount (the "Cumulative Waived Base
Fees") of such waived Base Management Fees and franchise fees equals the total
amount (the "Cure Payment") by which Operating Profit for each of the Fiscal
Years in question (i.e., the Fiscal Years referred to in Section 2.02.A.1) was
less than the Performance Termination Threshold. [ In the case of Houston, the
following applies: Upon receipt of Lessee's written notice of Termination under
Section 2.02.A, Manager shall have the option, to be exercised within sixty (60)
days after receipt of said notice, to avoid such Termination by electing (in a
notice to Lessee) to pay an amount equal to the amount (the "Cure Payment") by
which Operating Profit for each of the Fiscal Years in question (i.e., the
Fiscal Years referred to in Section 2.02.A.1) was less than the Performance
Termination Threshold, and shall pay the Cure Payment within thirty (30) days of
providing such notice to Lessee.] In the event Manager makes a Cure Payment
pursuant to this Section 2.02.B, the Fiscal Years with respect to which such
Cure Payment was made shall thereafter not be treated, for purposes of
subsequent elections by Lessee pursuant to Section 2.02.A, as Fiscal Years in
which the circumstances described in Section 2.02.A.1 have occurred. If Manager
exercises such option to make such Cure Payment, then the foregoing Lessee's
election to terminate this Agreement under Section 2.02.A shall be canceled and
of no force or effect with respect to the two (2) Fiscal Years in question, and
this Agreement shall not terminate. Such cancellation, however, shall not affect
the right of Lessee, as to each subsequent Fiscal Year to which Section 2.02.A
applies, to again elect to terminate this Agreement pursuant to the provisions
of Section 2.02.A. If Manager does not exercise its option to make a Cure
Payment as aforesaid, then this Agreement and the Submanagement Agreement shall
each be terminated as of the date set forth in Section 2.02.A. Manager may not
elect to make a Cure Payment more than one (1) time during the Term hereof.
2.03 Termination Pursuant to Settlement Agreement; Automatic
Termination Upon Termination of Submanagement Agreement
Manager acknowledges that the Settlement Agreement provides for the
termination of this Agreement by Lessee in certain circumstances and in
connection therewith to cause Manager to terminate the Submanagement Agreement,
and Manager hereby consents to any such termination by Lessee in accordance with
the Settlement Agreement.
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Notwithstanding anything to the contrary herein or in any other document,
upon any termination of the Submanagement Agreement for any reason whatsoever,
this Agreement shall automatically and immediately terminate and neither Lessee
nor Manager shall have any further liability hereunder except for the payment of
any outstanding amounts payable through the date of termination and except for
any obligations hereunder which expressly survive the termination of this
Agreement (including, without limitation, Manager's indemnity obligations under
Section 1.03.E).
ARTICLE III
COMPENSATION OF MANAGER
3.01 Management Fees
Manager shall be paid the Base Management Fee, which the parties
acknowledge is the amount payable as Base Management Fee under the Submanagement
Agreement and the franchise or royalty fees payable under the suspended
Franchise Agreement, and such amounts therefore shall be retained by Marriott
from Gross Revenues pursuant to the Submanagement Agreement.
3.02 Operating Profit
Operating Profit shall be distributed to Lessee in accordance with Article
IV.
ARTICLE IV
ACCOUNTING MATTERS
4.01 Accounting, Distributions and Annual Reconciliation
A. Manager agrees that it shall exercise its rights under the
Submanagement Agreement to cause Marriott to institute (as soon as reasonably
practicable after the Take-Over Date, but in no event more than sixty (60) days
after the Take-Over Date) cash management protocols at the Hotel in order that
Marriott will distribute to an account designated and owned by Primary Manager
on a daily basis (to the extent possible, subject to holidays, banking holidays,
and other days in which account transfers cannot be effected by banks) all
amounts in the Operating Accounts that are in excess of the Reasonable Amount of
Working Capital and amounts due Submanager. During the up to 60 day period when
such daily sweep is being implemented, Manager shall cause Marriott to sweep
weekly to Primary Manager's account on a manual basis. Amounts in such account
of Primary Manager received from Marriott shall be transferred to an account
designated and owned by Lessee within one (1) business day of receipt by Manager
(to the extent possible, subject to holidays, banking holidays, and other
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days in which account transfers cannot be effected by banks). Within twenty (20)
days after the close of each Accounting Period, Manager shall deliver an interim
accounting (the "Accounting Period Statement") to Lessee showing Gross Revenues,
Deductions, Operating Profit, and applications and distributions thereof for the
preceding Accounting Period.
B. Calculations and payments of the Base Management Fee, and
distributions 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 Year, Manager shall deliver to Lessee a
statement (the "Annual Operating Statement") in reasonable detail summarizing
the operations of the Hotel for the immediately preceding Fiscal Year and a
certificate of Manager's chief accounting officer certifying that, to the best
of his or her knowledge, such Annual Operating Statement is true and correct.
The parties shall, within five (5) business days after Lessee's receipt of such
Annual Operating 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 Annual Operating Statement. Such Annual Operating
Statement shall be controlling over the preceding Accounting Period Statements.
No adjustments shall be made for any Operating Loss in any preceding Fiscal
Year.
C. To the extent there is an Operating Loss for any Accounting
Period, additional funds in the amount of any such Operating Loss shall be
provided by Lessee within thirty (30) days after Manager has delivered written
notice thereof to Lessee. If Lessee does not so fund such Operating Loss within
the thirty (30) day time period, Manager shall have the right (without affecting
Manager's other remedies under this Agreement) to withdraw an amount equal to
such Operating Loss from future distributions of funds otherwise due to Lessee.
4.02 Books and Records
Books of control and account pertaining to operations at the Hotel shall
be kept on the accrual basis and in all material respects in accordance with the
Uniform System of Accounts. Upon request of Lessee from time to time, Manager
shall exercise its rights under the Submanagement Agreement to examine
Marriott's records with respect to the operation of the Hotel, including as to
specific matters requested by Lessee, and shall report the results of such
examinations to Lessee. If Lessee desires, at its own expense, to audit,
examine, or review the Annual Operating Statement, Lessee shall notify Manager
in writing within sixty (60) days after receipt of such Annual Operating
Statement of its intention to audit, whereupon such audit shall begin no sooner
than thirty (30) days and no later than sixty (60) days after Manager's receipt
of such notice. Pursuant to the Lease, Owner has the right to conduct such
audit, and Primary Manager shall allow Ower to conduct or otherwise control all
aspects of any such audit of the Annual Operating Statement and Marriott's
records with respect thereto. Such audit shall be completed within ninety (90)
days after commencement thereof. If Lessee does not request such an audit, then
such Annual Operating Statement shall be deemed to be conclusively accepted by
Lessee as being correct, and Lessee shall have no right thereafter,
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except in the event of fraud by Manager or Marriott, to question or examine the
same. If any audit discloses an understatement of any amounts due Lessee,
Manager shall promptly pay Lessee such amounts found to be due, plus interest
thereon (at the Prime Rate plus one percent (1%) per annum) from the date such
amounts should originally have been paid. If any audit discloses that Manager
has not received any amounts due it, Lessee shall pay Manager such amounts, plus
interest thereon (at the Prime Rate plus one percent (1%) per annum) from the
date such amounts should originally have been paid. Any dispute concerning the
correctness of an audit shall be settled by arbitration, in accordance with
Section 11.21. Notwithstanding anything to the contrary contained in this
Agreement, at the request of Lessee Manager shall exercise its rights under the
Submanagement Agreement to give the auditors (which may be Owner's auditors) the
right upon reasonable advance notice to conduct preliminary audit procedures
prior to the end of a Fiscal Year in preparation for the annual audit outlined
above (e.g., such auditors would have the right to audit during the fourth
quarter of a Fiscal Year the first three quarters of such Fiscal Year), and
Manager shall exercise its rights under the Submanagement Agreement to provide
access to the books and control of account for the Hotel for such purpose.
Manager agrees to retain all accounting records for each Fiscal Year for at
least three (3) years after the expiration of such Fiscal Year.
4.03 Accounts, Expenditures
A. Manager shall exercise its rights under the Submanagement
Agreement to insure that all funds derived from operation of the Hotel shall be
deposited on a daily basis (to the extent possible, subject to holidays, banking
holidays and other days in which deposits to banks cannot be effected) by
Marriott in bank accounts (the "Operating Accounts") in a bank or banks
designated by Marriott, subject to Lessee's reasonable approval. Withdrawals
from said Operating Accounts shall be made solely by representatives of Marriott
whose signatures have been authorized pursuant to the Submanagement Agreement.
Manager shall exercise its rights under the Submanagement Agreement to cause
Marriott to assume the responsibilities of a fiduciary with respect to
Marriott's handling of Lessee's funds which are derived from the operation of
the Hotel. Reasonable ▇▇▇▇▇ cash funds shall be maintained at the Hotel.
B. All payments contemplated hereunder or under the Submanagement
Agreement to be made from the Operating Accounts, ▇▇▇▇▇ cash funds, or from the
FF&E Reserve (in accordance with Section 5.02) shall be made in accordance with
the terms hereof and the Submanagement Agreement. Manager shall not be required
to make any advance or payment with respect to the Hotel except out of such
funds, and Manager shall not be obligated to incur any liability or obligation
with respect to the Hotel without assurances that the necessary funds for the
discharge thereof will be provided by Lessee. In any event, if any such
liability or obligation is incurred by Manager with respect to the Hotel,
Manager shall have the option to deduct such amounts from Lessee's share of
Operating Profit if Lessee has not fully reimbursed Manager for said amounts
within ten (10) days after Lessee's receipt of notice from Manager that said
amounts are due.
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C. Debts and liabilities incurred by Manager as a result of its
operation and management of the Hotel pursuant to the terms hereof, whether
asserted before or after Termination, will be paid by Lessee to the extent funds
are not available for that purpose from Gross Revenues. The provisions of this
Section 4.03 C shall survive Termination.
4.04 Accounting for Conversion of Hotel
A. It shall be a general principle in the accounting for the Hotel
that all liabilities (including, without limitation, all Previously-Accrued
Payables) incurred prior to the Take-Over Date, or properly allocated to the
period prior to the Take-Over Date under generally accepted accounting
principles, shall be paid by Lessee from its own funds, and not from Gross
Revenues nor from the FF&E Reserve. Lessee agrees to indemnify, defend and hold
Manager, Marriott and their respective Affiliates (and their respective
directors, officers, shareholders, employees and agents) harmless from and
against all claims, causes of action, costs, expenses and damages arising from
such liabilities.
B. As a convenience to the Lessee, Manager agrees to cause Marriott
to apply any Previously-Accrued Receivables which Marriott receives at the Hotel
to pay those Previously-Accrued Payables which Lessee has confirmed in writing
to Manager. Manager shall cause Marriott to use commercially reasonable
procedures to collect such Previously- Accrued Receivables, but neither Manager
nor Marriott shall not be obligated to institute any legal actions with respect
to any Previously-Accrued Receivables. If the Previously-Accrued Payables exceed
the Previously-Accrued Receivables, Lessee shall be responsible for the payment
of such excess. Manager shall exercise its rights under the Submanagement
Agreement to cause any surplus of the Previously-Accrued Receivables received by
Marriott or Manager over such Previously-Accrued Payables to be promptly
remitted by Marriott or Manager to Lessee.
C. As of the Take-Over Date, the cash on hand at the Hotel shall be
deposited in one of the Operating Accounts set up by Marriott in accordance with
Section 4.03, and shall be treated as part of the Working Capital described in
Section 4.06. The term "cash on hand" shall not be deemed to include amounts
remaining in the FF&E Reserve which was maintained by Lessee.
4.05 Business Plan
A. Manager shall submit to Lessee for its approval (which shall not
be unreasonably withheld or delayed), at least forty-five (45) days prior to the
beginning of each Fiscal Year which begins after the Take-Over Date, a
preliminary draft (the "Proposed Business Plan") of the budget of the estimated
financial results of the operation of the Hotel during the next Fiscal Year as
prepared by Marriott pursuant to the Submanagement Agreement. Lessee's approval
shall be deemed to have been given if Manager has received no notice from Lessee
to the contrary within forty-five (45) days after Lessee's receipt of such
Proposed Business Plan. Such Proposed Business Plan shall project the estimated
Gross
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Revenues, departmental profits, Deductions, and Operating Profit for the
forthcoming Fiscal Year for the Hotel. Manager shall exercise its rights under
the Submanagement Agreement to insure that in preparing the Proposed Business
Plan for each Fiscal Year, Marriott's goal will be the maximization of the
long-term Operating Profit of the Hotel, in keeping with System Standards and
the general standards of the hotel industry for similar properties. If there are
material items in any given Proposed Business Plan which have been budgeted at
significantly different amounts from the amounts actually experienced (or
projected) for the same items in the preceding Fiscal Year, Manager agrees to
take reasonable steps to ensure that, at Lessee's request, qualified personnel
from Marriott's staff are available at the Hotel to explain these differences to
Manager and Owner (pursuant to Owner's rights under the Lease and the Owner
Agreement). A meeting (or meetings) for such purpose shall be held, at the
Hotel, at Lessee's request, within a reasonable period of time after the
submission to Lessee of the Proposed Business Plan. Pursuant to Owner's right to
approve the Proposed Business Plan pursuant to the Lease, Owner shall have the
right to participate in such meeting. Manager will exercise its rights under the
Submanagement Agreement to insure that Marriott will at all times give good
faith consideration to Manager's and Owner's suggestions regarding any Proposed
Business Plan, and in any event each Proposed Business Plan is subject to the
approval of Lessee as set forth in Section 4.05.B.
B. Lessee shall not be entitled to withhold its approval of any
Proposed Business Plan based on its objection to: (i) Marriott's reasonable
projections of either Gross Revenues or the components thereof; (ii) projected
costs and expenses which are "system charges" ( that is, costs and expenses
which are generally uniform throughout the Marriott System, such as: the charges
for Chain Services; the costs of the Marriott frequent guest program or, if
applicable, the "Marriott Rewards Program" and other chain-wide marketing
programs; employee benefits and other compensation programs); (iii) costs and
expenses which are not within the control of either Owner, Lessee, Manager or
Marriott such as Impositions and the cost of utilities; or (iv) increases in
projected costs and expenses of operating the Hotel, which increases are
primarily caused by projected increases in Gross Revenues. The approval of
Lessee (as set forth in the first sentence of Section 4.05.A) shall not be
required if, and to the extent that, the Proposed Business Plan for a given
Fiscal Year is, in all material respects, the same as the Proposed Business Plan
for the preceding Fiscal Year, as adjusted by the GDP Deflator; provided,
however, that in any event (x) the FF&E Reserve expenditures and Capital
Expenditures components of such Proposed Business Plan shall be subject to
Lessee's approval and (y) if there were, in the prior Fiscal Year, expenditures
from the FF&E Reserve or Capital Expenditures which affect operating costs or
revenues, then the Proposed Business Plan shall be subject to the approval of
the Lessee as set forth in Section 4.05.A. If Lessee and Manager fail to
mutually agree on the Proposed Business Plan within sixty (60) days after the
submission to Lessee of the Proposed Business Plan, as described in the first
sentence of Section 4.05.A, either party shall have the right to cause to be
submitted to the Expert Resolution Process under the Submanagement Agreement the
issue of whether or not the Proposed Business Plan prepared by Marriott is
unreasonable, given the goals which are set forth in the fourth sentence of
Section 4.05.A. Based on Owner's right to approve any Proposed Business Plan
pursuant to the Lease, Owner shall have the right to participate in such
16
Expert Resolution Process, and the result of such Expert Resolution Process
shall be binding on Lessee and Owner. While such determination by the Expert is
pending, Manager shall cause Marriott to operate the Hotel, in all material
respects, based on the Business Plan for the preceding Fiscal Year (as adjusted
by the GDP Deflator), with adjustments for those items over which there is no
disagreement between Lessee and Manager and Marriott, and with adjustments for
those items listed in clauses (i), (ii), (iii), and (iv) above. The Proposed
Business Plan, as approved by Lessee (or deemed approved pursuant to the Expert
Resolution Process), is herein referred to as the "Business Plan".
C. With respect to the "stub year" (if any) immediately following
the TakeOver Date, Manager shall submit the Proposed Business Plan to Lessee by
no later than thirty (30) days prior to the Take-Over Date.
D. Manager shall exercise its rights under the Submanagement
Agreement to cause Marriott to diligently operate the Hotel in accordance with
the Business Plan. It is understood, however, that the Business Plan is an
estimate only and that unforeseen circumstances such as the costs of labor,
material, services and supplies, casualty, operation of law, or economic and
market conditions, may make adherence to the Business Plan impracticable, and
Manager shall be entitled to depart therefrom due to causes of the foregoing
nature. In the event that Manager determines that circumstances require that
there will be material changes in the Business Plan, Manager shall so notify
Lessee, and, as to any components of a Business Plan over which Lessee has
approval rights under this Agreement, Lessee shall have the right to reasonably
approve such proposed material changes. Lessee's approval shall be deemed to
have been given if Manager has received no notice from Lessee to the contrary
within twenty (20) days after Lessee's receipt of such notice of proposed
material changes in the Business Plan.
E. Manager shall provide to Lessee with fifteen (15) days after the
expiration of each fiscal quarter a reforecast of the Business Plan for such
Fiscal Year prepared by Marriott pursuant to the Submanagement Agreement.
4.06 Working Capital
A. On or prior to the Take-Over Date, Lessee shall provide Manager
with initial Working Capital for the Hotel in the amount of One Thousand Two
Hundred Fifty Dollars ($1,250) per guest room, as adjusted by the GDP Deflator,
per Guest Room, less cash on hand at the Hotel as of the Take-Over Date. If
Lessee fails to provide any Working Capital as required under this Section
4.06.A, Manager shall have the right (after first giving Lessee ten (10) days
written notice thereof) to deduct the required amounts from Gross Revenues.
B. Lessee shall, from time to time during the Term, promptly, but no
later than thirty (30) days after written request by Manager, advance any
additional funds, over and above those required pursuant to Section 4.06.A,
necessary to maintain a Reasonable Amount of Working Capital. If Lessee does not
so fund additional Working Capital within the said
17
thirty (30) day time period, Manager shall have the right (without affecting
Manager's other remedies under this Agreement) to withdraw an amount equal to
the funds required to maintain a Reasonable Level of Working Capital from future
distributions of funds otherwise due to Lessee or to allow Marriott to withdraw
such amount from funds due Manager under the Submanagement Agreement. All funds
so advanced for Working Capital shall be utilized by Marriott for the purposes
set forth in the Submanagement Agreement pursuant to cash management policies
established for the Marriott System. Upon Termination, Manager shall, except as
otherwise provided in this Agreement, return the outstanding balance of the
Working Capital to Lessee.
4.07 Fixed Asset Supplies
Lessee shall, within thirty (30) days after request by Manager, provide
funds that are necessary to increase the level of Fixed Asset Supplies to levels
determined by Manager, in its good faith judgment, to be necessary to satisfy
the needs of the Hotel as its operation may, from time to time, require. The
cost of Fixed Asset Supplies consumed in the operation of the Hotel shall
constitute a Deduction. Fixed Asset Supplies shall remain the property of Lessee
throughout the term of the Agreement and upon Termination (except for those
Fixed Asset Supplies which are purchased by Marriott pursuant to Section
11.11.E).
4.08 Litigation
Submanager shall give notice to Primary Manager from time to time of any
material litigation affecting the Hotel, together with such additional
information within the possession or control of Submanager or the applicable
insurance carrier as Primary Manager may reasonably request.
ARTICLE V
REPAIRS, MAINTENANCE AND REPLACEMENTS
5.01 Repairs and Maintenance Costs Which Are Expensed
Manager shall cause Marriott to maintain the Hotel in good repair and
condition, and shall make or cause to be made such routine maintenance, repairs
and minor alterations as it determines are necessary for such purposes. The
phrase "routine maintenance, repairs, and minor alterations" as used in this
Section 5.01 shall include only those which are normally expensed under
generally accepted accounting principles. The cost of such maintenance, repairs
and alterations shall be paid from Gross Revenues (and not from the FF&E
Reserve) and shall be treated as a Deduction in determining Operating Profit.
18
5.02 FF&E Reserve
A. Manager shall cause Marriott to establish a reserve account (the
"FF&E Reserve"), in a bank or similar institution reasonably acceptable to both
Manager and Lessee, to cover the cost of: (i) replacements, renewals and
additions to the FF&E at the Hotel; and (ii) Special Capital Expenditures.
Withdrawals from the FF&E Reserve shall be made solely by representatives of
Marriott whose signatures have been authorized. Lessee covenants that, as of the
Take-Over Date, the dollar amount in the FF&E Reserve shall be no less than the
Initial FF&E Reserve Balance. If Lessee fails to provide the dollar amount in
the FF&E Reserve in an amount no less than the Initial FF&E Reserve Balance as
required under this Section 5.02.A, Marriott shall have the right (after first
giving Lessee ten (10) days written notice thereof) to deduct the required
amounts from Gross Revenues. In addition, Lessee covenants that the Five-Year
Plan attached hereto as Exhibit "B-1" shall be implemented, subject to any
mutually-approved changes, as Special Capital Expenditures from the FF&E
Reserve.
B. During the Term of this Agreement, subject to the provisions of
subsection E, below, Lessee shall transfer into the FF&E Reserve an amount set
forth on Exhibit "A-1" (except to the extent that the Five-Year Plan sets forth
different percentage(s) applicable to certain periods in the Term, in which
event such percentage(s) in the Five-Year Plan shall be controlling during such
periods) for each such Accounting Period. Transfers into the FF&E Reserve shall
be made at the time of each interim accounting described in Section 4.01 hereof.
All amounts transferred into the FF&E Reserve pursuant to this Section 5.02.B
shall be paid from Gross Revenues as Deductions.
C. Manager shall cause Marriott to prepare an annual estimate (the
"FF&E Estimate") of the expenditures necessary for (1) replacements, renewals
and additions to the FF&E of the Hotel, and (2) Special Capital Expenditures,
during the ensuing Fiscal Year and shall deliver the FF&E Estimate to Lessee for
its approval (which shall not be unreasonably withheld or delayed), at the same
time as Manager submits the Proposed Business Plan described in Section 4.05.A.
The FF&E Estimate shall also indicate the estimated time schedule for making
such replacements, renewals, and additions. In preparing the FF&E Estimate for
each Fiscal Year, Manager's goal will be to maintain the Hotel in accordance
with System Standards and the general standards of the hotel industry for
similar properties. Lessee shall not be entitled to withhold its approval of any
FF&E Estimate based on its objection to: (i) items already agreed upon in the
Five-Year Plan; (ii) costs and expenses which are consistent throughout the
Marriott System for similarly situated hotels (such as periodic hard and soft
good replacement schedules); (iii) costs and expenses of items that fall within
the "under $25,000" category of expenditures (namely, that a given order or
related series of orders for FF&E purchases is less than $25,000) that are
characterized as such in the FF&E Estimate; or (iv) costs and expenses of items
that are introduced into the Marriott System as part of System Standards. If
Lessee and Manager fail to mutually agree on the FF&E Estimate within forty-five
(45) days after the submission to Lessee, Lessee shall have the right to cause
Manager to submit to the Expert Resolution Process pursuant to the Submanagement
19
Agreement the issue of whether or not Marriott's proposed FF&E Estimate is
unreasonable, given the goals which are set forth in the third sentence of this
Section 5.02.C. While such determination by the Expert is pending, Manager shall
cause Marriott to operate the Hotel, in all material respects, based on the FF&E
Estimate for the preceding Fiscal Year (as adjusted by the GDP Deflator), with
adjustments for those items over which there is no disagreement between Lessee
and Manager, and for those items listed above over which Lessee has no right of
approval.
D. Manager shall, consistent with the applicable FF&E Estimate, from
time to time cause Marriott to make such (1) replacements, renewals and
additions to the FF&E of the Hotel, and (2) Special Capital Expenditures, as
Manager deems necessary, up to the balance in the FF&E Reserve. No expenditures
will be made that are in excess of the FF&E Reserve without the approval of
Lessee and Manager shall cause Marriott to diligently operate the Hotel in
accordance with the FF&E Estimate approved (or deemed approved through the
Expert Resolution Process) by Lessee, provided that, to the extent not included
in the applicable FF&E Estimate or not otherwise approved by Lessee, Marriott
shall be allowed to use the funds in the FF&E Reserve for expenditures deemed
reasonably necessary by Marriott to repair or correct any condition on or about
the Hotel which (i) constitutes a violation of any applicable Legal Requirement
which imposes liability or potential liability on Marriott, or (ii) presents a
threat to life or property of Marriott or any guest, employee or invitee on or
about the Hotel; provided, however, that Manager shall cause Marriott to give
notice to Manager and Manager shall give notice to Lessee of any such
expenditure made by Marriott reasonably promptly following such expenditure. At
the end of each Fiscal Year, any amounts remaining in the 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 the Hotel shall be added to the FF&E
Reserve. The FF&E Reserve will be kept in an interest-bearing account, and any
interest which accrues thereon shall be retained in the FF&E Reserve. Neither
(1) proceeds from the disposition of FF&E, nor (2) interest which accrues on
amounts held in the FF&E Reserve, shall (a) result in any reduction in the
required transfers to the FF&E Reserve set forth in subsection B above, nor (b)
be included in Gross Revenues.
E. As the Hotel ages, the percentages of Gross Revenues which are
set forth in Section 5.02.B may not be sufficient to keep the FF&E Reserve at
the levels necessary to make the replacements, renewals, and additions to the
FF&E of the Hotel, or to make the Special Capital Expenditures, which are
required to maintain the Hotel in accordance with the System Standards. If
Marriott gives notice to Manager pursuant to the Submanagement Agreement that it
reasonably believes that the funding of the FF&E Reserve (with respect to the
following Fiscal Year or any subsequent Fiscal Year) will not be adequate to
maintain the Hotel in accordance with System Standards, Manager shall give
notice to Lessee of a proposed increase in the annual percentage in Section
5.02.B to provide the additional funds required, which increase in the annual
percentage shall require the approval of Lessee. If Lessee and Manager fail to
agree on a requested increase in the annual percentage Section 5.02.B within
forty-five (45) days after the submission to Lessee, Lessee shall have the right
to cause Manager to submit to the Expert Resolution Process under the
Submanagement Agreement the
20
issue of whether or not Marriott's proposed increase in the annual percentage is
reasonable. Pursuant to the Owner Agreement and Owner's right to approve any
such increase under the Lease, Owner shall have the right to participate in any
such Expert Resolution Process. Until such time as an increase in the annual
percentage in this Section 5.02.B has been approved (or deemed approved through
the Expert Resolution Process) by Lessee, the reserve set forth in this Section
5.02.B (as the same may have been previously increased pursuant to the
procedures set forth in Section 5.02.E) shall continue to apply. Notwithstanding
the foregoing, in the event, the FF&E Reserve is not increased through the
procedures described in this Section 5.02 E, and such failure shall result in
Marriott being unable to maintain the Hotel in accordance with the System
Standards, Manager may, on sixty (60) days written notice to Lessee, terminate
this Agreement if Marriott terminates the Submanagement Agreement. Finally, the
placing of any restrictions on the expenditure by Marriott of funds from the
FF&E Reserve other than as set forth in this Section 5.02 (including, without
limitation, restrictions resulting from (i) any Litigation involving Owner,
Lessee, Manager, or the Hotel, or (ii) a Foreclosure) shall entitle Manager, on
sixty (60) days written notice to Lessee, to terminate this Agreement if, as a
result thereof, Marriott has terminated the Submanagement Agreement.
F. Manager covenants that it shall exercise its rights under the
Submanagement Agreement to cause Marriott to utilize amounts in the FF&E Reserve
only for replacements, renewals and additions to the FF&E at the Hotel and
Special Capital Expenditures, as provided in the foregoing provisions of this
Section 5.02, and that such amounts are not subject to setoff for any other
amounts alleged by Submanager to be owed by Primary Manager, Lessee or Owner to
Submanager.
5.03 Capital Expenditures
A. Manager shall cause Marriott to prepare an annual estimate (the
"Building Estimate") of all Capital Expenditures. Upon receiving the Building
Estimate from Marriott, Manager shall submit the Building Estimate to Lessee for
its approval at the same time as Manager submits the Proposed Business Plan
described in Section 4.05.A. Manager shall not allow Marriott to make any
Capital Expenditures without the prior written Approval of Lessee, unless
otherwise permitted herein. Lessee shall cause Owner to make Capital
Expenditures to allow the completion of the work described on Exhibit "B-2"
hereto at Owner's sole cost and expense and not from Gross Revenues or the FF&E
Reserves.
B. Notwithstanding the provisions of Section 5.03A, Manager shall
cause Marriott to take appropriate remedial action (including making any
necessary Capital Expenditures) without receiving Lessee's prior consent in the
following circumstances: (i) if there is an emergency threatening the Hotel, its
guests, invitees or employees; or (ii) if the continuation of the given
condition would subject Manager and/or Owner and/or Lessee to civil or criminal
liability, and if Lessee has either failed to remedy the situation or has failed
to take appropriate legal action to stay the effectiveness of any applicable
Legal Requirement. Manager shall cooperate with Lessee in the pursuit of any
such action and shall have the right
21
to participate therein. Lessee shall, upon written request by Manager, promptly
reimburse all expenditures made by Marriott pursuant to this Section 5.03.B.
C. The cost of all Capital Expenditures (including the expenses
incurred by either Lessee, Marriott or Manager in connection with any civil or
criminal proceeding described above) shall be borne solely by Lessee (or Owner),
and shall not be paid from Gross Revenues nor from the FF&E Reserve.
D. Lessee shall not unreasonably withhold its Approval with respect
to Capital Expenditures as are: (i) required, in Manager's reasonable judgment,
to keep the Hotel in a first-class, competitive, efficient and economical
operating condition in accordance with System Standards; or (ii) required by
reason of any Legal Requirement, or otherwise required for the continued safe
and orderly operation of the Hotel. Manager shall be entitled to terminate this
Agreement, on sixty (60) days' notice to Lessee, if: Lessee either (a) fails to
approve any Capital Expenditure described in the preceding sentence, or (b)
fails to provide funding for any such Capital Expenditure within sixty (60) days
after the submission to Lessee of the Building Estimate requesting such Capital
Expenditure, and if Marriott terminates the Submanagement Agreement pursuant to
the comparable provision of the Submanagement Agreement.
E. Manager will not make a detailed inspection of the ADA compliance
and life-safety elements of the Hotel prior to the Take-Over Date. To the extent
that any of such elements are not in compliance with System Standards, Lessee
shall be obligated (or shall cause Owner)) to fund any necessary remedial
measures promptly after the Take-Over Date in accordance with a schedule for
such measures and the funding thereof proposed by Marriott. Manager shall review
any such elements and the schedule of compliance and funding with Lessee, and
shall consider in good faith any comments of Lessee as to methods of compliance
with ADA and priority of compliance efforts and report the same to Marriott.
F. On the Effective Date, Lessee shall fund an escrow account with
Primary Manager as provided in Section 3.2.8 of the Settlement Agreement.
5.04 Ownership of Replacements
All repairs, alterations, improvements, renewals or replacements made
pursuant to Article V, and all amounts kept in the FF&E Reserve, shall, except
as otherwise provided in this Agreement, be the property of Lessee or Owner, as
applicable.
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ARTICLE VI
INSURANCE, DAMAGE, CONDEMNATION, AND FORCE MAJEURE
6.01 Insurance
A. Subject to Section 6.02, Manager shall cause Marriott, commencing
with the Take-Over Date and thereafter during the Term of the Agreement, to
procure and maintain, either with insurance companies of recognized
responsibility reasonably approved by Lessee or by legally qualifying itself as
a self insurer, a minimum of the following insurance:
1. Property insurance on the Improvements and contents against
loss or damage by fire, lightning and all other risks covered by the usual
extended coverage endorsement, all in an amount not less than ninety percent
(90%) of the replacement cost thereof;
2. Boiler and machinery insurance against loss or damage from
explosion of boilers or pressure vessels to the extent applicable to the Hotel;
3. Business interruption insurance covering loss of profits
and necessary continuing expenses for interruptions caused by any occurrence
covered by the insurance referred to in Sections 6.01.A.1 and 2 of a type and in
amounts as are generally established by Marriott at similar hotels it owns,
leases or manages under the Marriott name in the United States;
4. General liability insurance against claims for bodily
injury, death or property damage occurring on, in, or about the Hotel, and
automobile liability insurance on vehicles operated in conjunction with the
Hotel, with a combined single limit for each occurrence of not less than One
Hundred Million Dollars ($100,000,000);
5. Workers' compensation as may be required under applicable
laws covering all of Marriott's employees at the Hotel;
6. Fidelity bonds, with reasonable limits to be determined by
Marriott, covering its employees in job classifications normally bonded in other
similar hotels it leases or manages under the Marriott name in the United States
or as otherwise required by law, and comprehensive crime insurance to the extent
Manager and Marriott mutually and reasonably agree it is necessary for the
Hotel;
7. Employer's liability insurance in accordance with
Marriott's standard practices and policies (it being agreed that, in the event
Lessee requests an increase in the coverage or limits of such insurance, and
provided that such increased coverage or limit is available, Manager shall cause
Marriott to obtain such increased coverage or limit, with the
23
additional cost thereof being a Deduction hereunder for all purposes other than
the calculation of Operating Profit for purposes of Section 2.02 hereof).
8. Such other insurance in amounts as Marriott in its
reasonable judgment pursuant to the Submanagement Agreement deems advisable for
protection against claims, liabilities and losses arising out of or connected
with the operation of the Hotel.
B. All insurance described in Section 6.01.A may be obtained by
Marriott by endorsement or equivalent means under its blanket insurance
policies, provided that such blanket policies substantially fulfill the
requirements specified in this Agreement.
C. Manager may allow Marriott to self insure or otherwise retain
such risks or portions thereof as it does with respect to other similar hotels
it owns, leases or manages under the Marriott name in the United States.
D. All policies of insurance required under Section 6.01.A shall be
carried in the name of Marriott. The policies required under Sections 6.01.A.1,
2, 3, and 4 shall include the Owner, Lessee and Manager as an additional
insured. Upon notice by the Lessee, Manager shall cause Marriott to also have
the policies required under Sections 6.01.A.1, 2, and 3 include any Mortgagee as
additional insureds. Any property losses thereunder shall be payable to the
respective parties as their interests may appear. Any Mortgage encumbering the
Hotel shall contain provisions to the effect that proceeds of the insurance
policies required to be carried under Sections 6.01.A.1 and 2 shall be available
for repair and restoration of the Hotel, subject to exceptions customarily
included in institutional hotel mortgages.
E. Manager shall deliver to Owner and Lessee certificates of
insurance with respect to all policies so procured and, in the case of insurance
policies about to expire, shall deliver certificates with respect to the renewal
thereof. All certificates of insurance provided for under this Section 6.01
shall, to the extent obtainable, state that the insurance shall not be canceled
or materially changed without at least thirty (30) days' prior written notice to
the certificate holder .
F. Insurance premiums and any other costs or expenses with respect
to the insurance or self-insurance required under Section 6.01.A., including any
Insurance Retention (as defined below), shall be paid from Gross Revenues
(except as otherwise set forth to the contrary in Section 1.03.E) as Deductions.
Such premiums and costs shall be allocated on an equitable basis to the hotels
participating under Marriott's blanket insurance or self-insurance programs, as
applicable. Except as otherwise set forth in Section 1.03.E and except for any
self-insurance retained by Marriott or any of its Affiliates, any reserves,
losses, costs or expenses which are uninsured shall be treated as a cost of
insurance and shall be Deductions. Upon Termination, a reserve in an amount
which is acceptable to Marriott pursuant to the Submanagement Agreement, and
which is in accordance with generally accepted practices in the insurance
industry, shall be established from Gross Revenues (or, if Gross Revenues are
24
insufficient, from Working Capital) to cover the amount of any Insurance
Retention and all other costs which will eventually have to be paid by either
Lessee, Manager or Marriott with respect to pending or contingent claims,
including those which arise after Termination for causes arising during the Term
of the Agreement. For purposes of this Section 6.01.F, "Insurance Retention"
shall mean the amount of any loss or reserve under Marriott's blanket insurance
or self-insurance programs which is allocated to the Hotel, not to exceed the
higher of (A) the maximum per occurrence limit established for similar hotels
participating in such programs, or (B) the insurance policy deductible on any
loss which may fall within high hazard classifications as mandated by the
insurer (e.g., earthquake, flood, windstorm on coastal properties, etc.). If the
Hotel is not a participant under Marriott's blanket insurance or self-insurance
programs, "Insurance Retention" shall mean the amount of any loss or reserve
allocated to the Hotel, not to exceed the insurance policy deductible.
G. Manager agrees to exercise its rights under the Submanagement
Agreement to ensure that the charge to the Hotel for insurance that Marriott
obtains pursuant to the foregoing provisions shall not incorporate a profit to
Marriott or any of its Affiliates, or, if a profit is incorporated, that the
charge therefor to the Hotel shall not be in excess of the competitive market
rate for comparable insurance.
6.02 Owner's Option to Obtain Property Insurance.
At any time, and from time to time, within ten (10) days after receipt of
Lessee's written request, Manager will cause Marriott to provide its best
estimate of the renewal cost of Marriott's blanket insurance as required in
Section 6.01.A.(1), (2) and (3), and Manager shall furnish such estimate to
Lessee. Lessee may, at its option, by written notice to Manager which shall be
delivered no later than ninety (90) days prior to the natural expiration of the
insurance policies which Manager has obtained pursuant to Section 6.01.A(1), (2)
and (3), advise Manager that Owner or Lessee shall procure and maintain the
insurance specified in Section 6.01.A(1), (2) and (3) (in which case Manager
shall cause Marriott to allow such policies obtained by it under Section
6.01.A(1), (2) and (3) to expire), subject to the following terms and
conditions:
A. All such policies of insurance shall be carried in the name of
Owner and/or Lessee as applicable, with Manager and Marriott as additional
insureds. Any property losses thereunder shall be payable to the respective
parties as their interests may appear. The documentation with respect to each
Mortgage shall contain provisions to the effect that proceeds of the insurance
policies required to be carried under Section 6.01.A(1), (2) and (3) shall be
available for repair and restoration of the Hotel, to the extent required
pursuant to Section 6.01.D. However, any Mortgagee shall be entitled to impose
reasonable conditions on the disbursement of insurance proceeds for the repair
and/or restoration of the Hotel, including a demonstration by Owner or Lessee
that the amount of such proceeds (together with other funds Owner or Lessee
agrees to make available) is sufficient for such purpose.
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B. Lessee shall deliver to Manager certificates of insurance with
respect to all policies so procured and, in the case of insurance policies about
to expire, shall deliver certificates with respect to the renewal thereof.
C. All such certificates of insurance shall, to the extent
obtainable, state that the insurance shall not be canceled or materially changed
without at least thirty (30) days' prior written notice to the certificate
holder.
D. Premiums for such insurance coverage shall be treated as
Deductions, provided that if the cost of such insurance procured by Owner or
Lessee exceeds the cost of Marriott's comparable coverage by more than ten
percent (10%), all such excess costs shall be the sole responsibility of Lessee
and shall not be a Deduction.
E. Should Lessee exercise its option to have the insurance described
in this Section 6.02 procured by Owner or Lessee, Lessee hereby waives and shall
cause Owner to waive in writing to Marriott their rights of recovery from
Manager or any of its Affiliates (and their respective directors, officers,
shareholders, agents and employees) for loss or damage to the Hotel, and any
resultant interruption of business.
F. All insurance procured by Owner or Lessee shall be obtained from
reputable insurance companies reasonably acceptable to Manager and Marriott.
G. Should Lessee exercise its right to have Owner or Lessee obtain
the insurance described in this Section 6.02, Lessee acknowledges that Marriott
is under no obligation to thereafter include the Hotel in its blanket insurance
program (with respect to the insurance described in Section 6.01.A(1), (2) and
(3)) for the balance of the Term.
6.03 Damage and Repair
A. If, during the Term, the Hotel is damaged by a Minor Casualty,
Manager shall cause Marriott, with all reasonable diligence to, proceed to
process the claim with the applicable insurance carriers, including settling
such claim, and to make the necessary arrangements with appropriate contractors
and suppliers to repair and/or replace the damaged portion of the Hotel.
Lessee's consent shall not be needed for Marriott to perform any of the
foregoing, all of which shall be performed in accordance with Marriott's
reasonable judgment pursuant to the Submanagement Agreement. Lessee agrees to
sign promptly any documents which are necessary to process and/or adjust the
claim with the insurance carriers, as well as any contracts with such
contractors and/or suppliers.
B. If, during the Term, the Hotel suffers a Total Casualty, (i) this
Agreement shall be terminable by Lessee at its option upon ninety (90) days'
written notice to Manager, where upon Manager shall exercise its rights under
the Submanagement Agreement to terminate the Submanagement Agreement as a result
of such Total Casualty, and (ii) this Agreement shall be terminable by Manager
by ninety (90) days' of written notice to Lessee, if
26
Marriott has terminated the Submanagement Agreement pursuant to such Total
Casualty. Any such notice pursuant to this Section 6.03.b. must be sent within
thirty (30) days after the date of the Total Casualty.
C. If, during the Term, the Hotel is damaged by fire, casualty or
other cause to a greater extent than a Minor Casualty, but not to the extent of
a Total Casualty, or if the Hotel suffers a Total Casualty but neither party
elects to terminate under Section 6.04.A, Lessee shall (or shall cause Owner, as
applicable), at such party's cost and expense and with all reasonable diligence,
repair and/or replace the damaged portion of the Hotel to the same condition as
existed previously. Marriott shall have the right to discontinue operating the
Hotel to the extent it deems necessary to comply with applicable Legal
Requirements or as necessary for the safe and orderly operation of the Hotel. To
the extent available, proceeds from the insurance described in Section 6.01 of
this Agreement shall be applied to such repairs and/or replacements. If Owner or
Lessee, as applicable, fails to so promptly commence and complete the repairing
and/or replacement of the Hotel so that it shall be substantially the same as it
was prior to such damage or destruction, such failure shall be an Event of
Default by Lessee.
6.04 Condemnation
A. In the event all or substantially all of the Hotel shall be taken
in any eminent domain, condemnation, compulsory acquisition, or similar
proceeding by any competent authority for any public or quasi-public use or
purpose, or in the event a portion of the Hotel shall be so taken, but the
result is that it is unreasonable to continue to operate the Hotel in accordance
with the standards required by this Agreement, this Agreement shall terminate,
and Manager shall terminate the Submanagement Agreement as a result of such
taking.
B. In the event a portion of the Hotel shall be taken by the events
described in Section 6.03.A, or the entire Hotel is affected but on a temporary
basis, and the result is not to make it unreasonable to continue to operate the
Hotel, this Agreement shall not terminate. However, so much of any award for any
such partial taking or condemnation as shall be necessary to render the Hotel
equivalent to its condition prior to such event shall be used for such purpose;
and Marriott shall have the right to discontinue operating the Hotel to the
extent it deems necessary for the safe and orderly operation of the Hotel.
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ARTICLE VII
TAXES
7.01 Real Estate and Personal Property Taxes
A. Except as specifically set forth in subsection B below, Manager
shall cause Marriott to pay from Gross Revenues all real estate and personal
property taxes, levies, assessments and similar charges on or relating to the
Hotel ("Impositions") during the Term, before any fine, penalty, or interest is
added thereto or lien placed upon the Hotel or upon the Agreement or the
Submanagement Agreement, unless payment thereof is in good faith being contested
and enforcement thereof is stayed. Any such payments shall be Deductions in
determining Operating Profit. Manager shall, within five (5) days after receipt,
furnish Marriott with copies of official tax bills and assessments which it may
receive with respect to the Hotel. Any of Owner, Lessee or Manager (in which
case Lessee agrees to cause Owner to sign the required applications and
otherwise cooperate with Marriott in expediting the matter) may initiate
proceedings to contest any negotiations or proceedings with respect to 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. Manager
shall, as part of its contest or negotiation of any Imposition, be entitled, on
Owner's or Lessee's behalf, to permit Marriott to waive any applicable statute
of limitations in order to avoid paying the Imposition during the pendency of
any proceedings or negotiations with applicable authorities.
B. The word "Impositions" as used in this Agreement shall not
include the following, all of which shall be paid solely by Owner or Lessee, as
applicable, not from Gross Revenues nor from the FF&E Reserve:
1. Any franchise, corporate, estate, inheritance, succession,
capital levy or transfer tax imposed on Owner or Lessee, or any income tax
imposed on any income of Owner or Lessee (including distributions to Lessee
pursuant to Article III hereof);
2. Special assessments (regardless of when due or whether they
are paid as a lump sum or in installments over time) imposed because of
facilities which are constructed by or on behalf of the assessing jurisdiction
(for example, roads, sidewalks, sewers, culverts, etc.) which directly benefit
the Hotel (regardless of whether or not they also benefit other buildings),
which assessments shall be treated as capital costs of construction and not as
Deductions;
3. "Impact Fees" (regardless of when due or whether they are
paid as a lump sum or in installments over time) which are required of Owner or
Lessee as a condition to the issuance of site plan approval, zoning variances or
building permits, which impact fees shall be treated as capital costs of
construction and not as Deductions; or
28
4. "Tax-increment financing" or similar financing whereby the
municipality or other taxing authority has assisted in financing the
construction of the Hotel by temporarily reducing or abating normal Impositions
in return for substantially higher levels of Impositions at later dates.
ARTICLE VIII
MANAGEMENT OF THE HOTEL
8.01 Ownership of the Hotel
A. Lessee hereby covenants that it will (i) have, keep, and maintain
good and marketable leasehold title to the Hotel pursuant to the Lease, and (ii)
cause Owner to have, keep and maintain good and marketable fee title [ground
lease as to Atlanta] to the Site in each case 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 and 3 hereof) that do not adversely affect the operation of the
Hotel by Manager and that are not prohibited pursuant to Section 8.04 of this
Agreement;
2. Qualified Mortgages; or
3. liens for taxes, assessments, levies or other public
charges not yet due or due but not yet payable.
B. Lessee shall (and shall exercise its rights under the Lease to
cause Owner to) pay and discharge, on or before the due date, any and all
payments due under any Mortgage. Lessee shall (and shall exercise its rights
under the Lease to cause Owner to) indemnify, defend, and hold Manager and
Marriott harmless from and against all claims, litigation and damages arising
from the failure of Owner or Lessee, as applicable, to make any such payments as
and when required; and this obligation of Lessee shall survive Termination.
Manager shall have no responsibility for payment of debt service due with
respect to the Hotel, from Gross Revenues or otherwise, and such responsibility
shall be solely that of Owner or Lessee.
C. Lessee covenants and shall exercise its rights under the Lease to
cause Owner to covenant that: (i) so long as Manager is not in Default under
this Agreement or any Subordination Agreement, Manager shall quietly hold,
occupy and enjoy the Hotel throughout the Term hereof free from hindrance,
ejection or molestation by Owner or Lessee or other party claiming under,
through or by right of Owner or Lessee, and (ii) so long as Marriott is not in
Default (as that term is defined in the Submanagement Agreement) under the
Submanagement Agreement or any Subordination Agreement, Submanager shall quietly
hold, occupy and enjoy the Hotel throughout the Term (as that term is defined in
the Submanagement
29
Agreement) hereof free from hindrance, ejection or molestation by Owner or
Lessee or other party claiming under, through or by right of Owner or Lessee.
Lessee shall pay and shall exercise its rights under the Lease to cause Owner to
pay and discharge any payments and charges and, at such party's expense, to
prosecute all appropriate actions, judicial or otherwise, necessary to assure
such free and quiet occupation; provided, however, that Owner or Lessee, as
applicable, shall have the right to contest by appropriate action any such
payments or charges as long as such contest does not disturb such free and quiet
occupation by Manager or Marriott.
8.02 Mortgages
A. Owner or Lessee shall be permitted to encumber the Hotel and/or
the Site with any Mortgage which is a Qualified Mortgage. Lessee shall not (and
shall exercise its rights under the Lease to ensure that Owner will not)
encumber the Hotel and/or the Site with any Mortgage which is not a Qualified
Mortgage.
B. Any Mortgage which meets all of the following requirements shall
be referred to in this Agreement as a "Qualified Mortgage":
1. The proposed Mortgage is from an Institutional Lender; and
2. Owner or Lessee (as applicable) and Manager and Submanager
and the holder of such Mortgage shall have entered into a Subordination
Agreement (to be recorded in the real property records in the jurisdiction where
the Site is located) as further described in Section 8.03 below. Manager agrees
to enter into (and shall exercise its rights under the Submanagement Agreement
to cause Marriott to enter into) a Subordination Agreement which satisfies the
requirements of Section 8.03 in connection with a proposed Mortgage which is
otherwise a Qualified Mortagage.
In addition, any Mortgage which encumbers the Hotel as of the date of the
Settlement Agreement and which continues to encumber the Hotel as of the
Take-Over Date shall be deemed to constitute a Qualified Mortgage whether or not
it meets the requirements set forth in 1 and 2 above.
8.03 Subordination, Non-Disturbance and Attornment
A. Lessee shall and shall exercise its rights under the Lease to
cause Owner to (i) to use best reasonable efforts to obtain from any Mortgagee
which holds a Mortgage as of the Take-Over Date and (ii) to obtain from any
Mortgagee which is granted a Mortgage after the Take-Over Date an instrument
(the "Subordination Agreement"), reasonably satisfactory in all respects to
Manager, Marriott and such Mortgagee, which shall be recordable in the
jurisdiction where the Hotel is located, pursuant to which:
30
1. This Agreement and any extensions, renewals, replacements
or modifications thereto, and all right and interest of Marriott and Manager in
and to the Hotel, shall be subject and subordinate to such Mortgage;
2. Marriott and Manager shall be obligated to each of the
Subsequent Owners (as defined below) to perform all of the terms and conditions
of this Agreement for the balance of the remaining Term hereof, with the same
force and effect as if such Subsequent Owners were the Owner or Lessee, as
applicable; and
3. In the event that there is a Foreclosure of such Mortgage
(or a deed in lieu of Foreclosure), or other exercise by such Mortgagee (or its
successor) of its remedies in the event of default, in connection with which
title or possession of the Hotel is transferred to the Mortgagee (or its
designee) or to a purchaser at Foreclosure or to a subsequent purchaser from the
Mortgagee (or from its designee) (all of the foregoing shall collectively be
referred to as "Subsequent Owners"), then regardless of whether the Lease is
terminated Marriott shall not be disturbed in its rights under the Submanagement
Agreement and Manager shall not be disturbed in its rights under this Agreement
so long as Marriott is not in default under the Submanagement Agreement and
Manager is not in Default hereunder.
B. In the event that the Subordination Agreement contains provisions
requiring Manager (upon a default under the Mortgage, or upon various other
stipulated conditions) to pay certain amounts which are otherwise due to Lessee
under this Agreement to the Mortgagee or its designee (rather than to Lessee),
Lessee hereby gives its consent to such provisions, which consent shall be
deemed to be irrevocable until the entire debt secured by the Mortgage has been
discharged.
C. Prior to any encumbrance of the Hotel or the Site after the
Take-Over Date with any Mortgage, Lessee shall and shall be obligated to
exercise its rights under the Lease to cause Owner to obtain from the proposed
Mortgagee an executed, recordable Subordination Agreement. Lessee and Manager
agree to execute such Subordination Agreement for the benefit of such proposed
Mortgagee. If Owner or Lessee encumbers the Hotel or the Site with a Mortgage
after the Take-Over Date without first obtaining such a Subordination Agreement
from the Mortgagee: (i) it shall be a Default of Lessee under this Agreement,
entitling Manager to all of the remedies set forth in Article IX; and (ii) in
addition, Manager shall thereafter have a continuing right to terminate this
Agreement upon sixty (60) days' prior written notice to Lessee.
D. Notwithstanding the subordination of this Agreement which is
described in Section 8.03.A.1 (or any subsequent subordination to any other
Mortgage), if, in connection with the exercise by any Mortgagee of its remedies
under any Mortgage, there is a material adverse impact upon the operation of the
Hotel by Manager or Marriott in accordance with the System Standards (such as,
for example, the imposition of restrictions upon expenditures from the FF&E
Reserve by Manager or Marriott, where such restrictions are not set forth in
this
31
Agreement), the foregoing shall be deemed to be an Event of Default by Lessee
entitling Manager to all of the remedies set forth in Article IX.
8.04 No Covenants, Conditions or Restrictions
A. Lessee covenants that it will not and that it will exercise its
rights under the Lease to cause Owner to not (unless Manager has given its prior
written consent thereto) enter into any covenants, conditions or restrictions,
including reciprocal easement agreements or cost-sharing arrangements
(collectively referred to as "CC&R's") affecting the Site or the Hotel (i) which
would prohibit or limit in any material respect Manager or Marriott from
operating the Hotel in accordance with the System Standards, including related
amenities proposed for the Hotel pursuant to the Five Year Plan; (ii) which
would allow the Hotel facilities (for example, parking spaces) to be used by
persons other than guests, invitees or employees of the Hotel; (iii) which would
allow the Hotel facilities to be used for specified charges or rates which have
not been approved by Manager; or (iv) which would subject the Hotel to exclusive
arrangements regarding food and beverage operation or retail merchandise. To
Lessee's knowledge, any existing CC&R's affecting the Site or the Hotel are
effected in instruments which have been provided by Owner or Lessee to Manager.
B. Unless otherwise agreed by both Lessee and Manager, all financial
obligations imposed on Owner or Lessee or on the Hotel pursuant to any CC&R's
shall be paid by Lessee (or Lessee shall cause to be paid by Owner) from its own
funds, and not from Gross Revenues or from the FF&E Reserve. Manager's consent
to any such CC&R's shall be conditioned (among other things) on satisfactory
evidence that: (i) the CC&R in question provides a reasonable and cost-effective
benefit to the operation of the Hotel; (ii) the costs incurred (including
administrative expenses) pursuant to such CC&R will be both reasonable and
allocated to the Hotel on a reasonable basis; and (iii) no capital expenditures
incurred pursuant to said CC&R will be paid as a Deduction (but rather, such
capital expenditures will be paid separately by Owner or Lessee).
8.05 Liens; Credit
Manager and Lessee shall use commercially reasonable efforts, Manager
shall exercise its rights under the Submanagement Agreement to cause Marriott to
use commercially reasonable efforts and Lessee shall exercise its rights under
the Lease to cause Owner to use commercially reasonable efforts to prevent any
liens from being filed against the Hotel which arise from any maintenance,
repairs, alterations, improvements, renewals or replacements in or to the Hotel.
Manager and Lessee shall cooperate fully, Manager shall exercise its rights
under the Submanagement Agreement to cause Marriott to cooperate fully, and
Lessee shall exercise its rights under the Lease to cause Owner to cooperate
fully, as applicable) 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
32
of obtaining the lien release. In no event shall either party borrow money in
the name of or pledge the credit of the other.
8.06 Amendments Requested by Mortgagee
A. If requested by any Mortgagee or prospective Mortgagee, Manager
agrees to execute and deliver any amendment of this Agreement and shall exercise
its rights under the Submanagement Agreement to cause Marriott to execute and
deliver any amendment of the Submanagement Agreement that is reasonably required
by such Mortgagee or prospective Mortgagee, provided that Manager shall be under
no obligation to amend this Agreement and shall be under no obligation to cause
Marriott to amend the Submanagement Agreement if the result of any such
amendment would be: (i) to reduce, defer or delay the amount of any payment to
be made to Manager hereunder (or to Marriott under the Submanagement Agreement);
(ii) to materially and adversely increase Manager's obligations or affect
Manager's rights under this Agreement; (iii) to change the Term of this
Agreement or of the Submanagement Agreement; (iv) to cause the Hotel to be
operated other than pursuant to the System Standards and other provisions
hereof; or (v) to amend Section 5.02 or Section 5.03 hereunder or under the
Submanagement Agreement. Any such amendment shall be in effect only for the
period of time in which such Mortgage is outstanding.
B. Notwithstanding the provisions of Section 8.06.A, if a Mortgagee
or prospective Mortgagee requests that Manager enter into an amendment of this
Agreement and/or Marriott enter into an amendment of the Submanagement Agreement
which would impose additional duties (for example, an increase in the reporting
requirements or in the record-keeping requirements, or adding the obligation to
prepare parallel accounting statements using a different fiscal year) on Manager
or Marriott, as applicable, or would otherwise adversely affect Manager's rights
under this Agreement or Marriott's rights under the Submanagement Agreement, but
not to the degree of materiality which would be prohibited under Section 8.06.A,
and with respect to which Manager and/or Marriott believe, in their respective
good faith judgment, that they can be adequately compensated, Manager hereby
agrees that it will execute and deliver such requested amendment of this
Agreement and shall exercise its rights under the Submanagement Agreement to
cause Marriott to execute and deliver such requested amendment of the
Submanagement Agreement, provided that Lessee agrees to compensate Manager and
to allow Manager to compensate Marriott under the Submanagement Agreement for
the additional burden imposed by any such amendment. It is understood that the
word "burden", as used in the preceding sentence, shall encompass not only
additional work to be performed by Manager, but also the adverse effect on the
achievement of the Performance Termination Threshold which would be caused by
requiring increased services to be provided to the Hotel by third parties and by
paying from Gross Revenues any other expenses incurred by Manager and/or
Marriott in meeting such additional obligations. Any dispute as to the
additional compensation to which Manager is entitled pursuant to this Section
8.06.B. shall be resolved by arbitration pursuant to Section 11.21.
33
ARTICLE IX
DEFAULTS
9.01 Events of Default
Each of the following shall constitute a "Default" under this Agreement.
A. The filing of a voluntary petition in bankruptcy or insolvency or
a petition for reorganization under any bankruptcy law by either party, or the
admission by either party that it is unable to pay its debts as they become due.
Upon the occurrence of any Default by either party (referred to as the
"defaulting party") as described under this subsection A, said Default shall be
deemed an "Event of Default" under this Agreement.
B. The consent to an involuntary petition in bankruptcy or the
failure to vacate, within ninety (90) days from the date of entry thereof, any
order approving an involuntary petition by either party. Upon the occurrence of
any Default by either party as described under this subsection B, said Default
shall be deemed an "Event of Default" under this Agreement.
C. The entering of an order, judgment or decree by any court of
competent jurisdiction, on the application of a creditor, adjudicating either
party as bankrupt or insolvent or approving a petition seeking reorganization or
appointing a receiver, trustee, or liquidator of all or a substantial part of
such party's assets, and such order, judgment or decree's continuing unstayed
and in effect for an aggregate of sixty (60) days (whether or not consecutive).
Upon the occurrence of any Default by either party as described under this
subsection C, said Default shall be deemed an "Event of Default" under this
Agreement.
D. The failure of either party to make (or in the case of Lessee,
the failure of Lessee to cause Owner to make) any payment required to be made in
accordance with the terms of this Agreement. Upon the occurrence of any Default
by either party as described under this subsection D, said Default shall be
deemed an "Event of Default" under this Agreement if the defaulting party fails
to cure such Default within ten (10) business days after receipt of written
notice from the non-defaulting party demanding such cure.
E. The failure of either party to perform, keep or fulfill any of
the other covenants, undertakings, obligations or conditions set forth in this
Agreement, and the continuance of such default for a period of thirty (30) days
after the defaulting party's receipt of written notice from the non-defaulting
party of said failure. Upon the occurrence of any Default by either party as
described under this subsection E, said Default shall be deemed an "Event of
Default" under this Agreement if the defaulting party fails to cure the Default
within thirty (30) days after receipt of written notice from the non-defaulting
party demanding such cure, or, if the Default is such that it cannot reasonably
be cured within said thirty (30) day
34
period of time, if the defaulting party fails to commence the cure of such
Default within said thirty (30) day period of time or thereafter fails to
diligently pursue such efforts to completion.
9.02 Remedies
Upon the occurrence of an Event of Default, the non-defaulting party shall
have the right to pursue any one or more of the following courses of action: (1)
if the Event of Default has a material adverse impact on the non-defaulting
party, to terminate this Agreement by written notice to the defaulting party,
which termination shall be effective as of the effective date which is set forth
in said notice, provided that said effective date shall be at least thirty (30)
days after the date of said notice and further provided that, if the defaulting
party is Manager, the foregoing period of thirty (30) days shall be extended to
seventy-five (75) days (or such longer period of time as may be necessary under
Legal Requirements pertaining to termination of employment); (2) to institute
forthwith any and all proceedings permitted by law or equity including, without
limitation, actions for specific performance and/or damages; and/or (3) to avail
itself of the remedies described in Section 9.03.
9.03 Additional Remedies
A. Upon the occurrence of a Default by either party under the
provisions of Section 9.01.D, the amount owed to the non-defaulting party shall
accrue interest, at an annual rate equal to the Prime Rate plus three (3)
percentage points, from and after the date on which the Default occurred.
B. Upon the occurrence of an Event of Default by Lessee under the
provisions of Section 9.01.D, Manager shall have the right (without affecting
Manager's other remedies under this Agreement) to withdraw the amount (plus
accrued interest as described in 9.03.A above) owed to Manager by Lessee from
distributions otherwise payable to Lessee pursuant to Sections 3.01 and 4.01 of
this Agreement.
C. Manager and/or any Affiliate shall be entitled, in case of any
breach of the covenants of Sections 11.11.E, F, or G or of Section 11.12 by
Lessee or others claiming through it, to injunctive relief and to any other
right or remedy available at law.
D. The remedies granted under Sections 9.02 and 9.03 shall not be in
substitution for, but shall be in addition, to, any and all rights and remedies
available to the non-defaulting party (including, without limitation, injunctive
relief and damages) by reason of applicable provisions of law or equity and
shall survive Termination.
9.04 Default under Owner's Agreement
In the event of a Default by Owner or Lessee under the Owner's Agreement,
Manager shall be entitled to terminate this Agreement, provided that such
Termination shall not be an
35
exclusive remedy and Manager shall be entitled to pursue any remedies it may
have under the Owner's Agreement or under this Agreement against Lessee.
Notwithstanding the foregoing, Manager shall be entitled to terminate this
Agreement pursuant to this section 9.04 only if Marriott has terminated the
Submanagement Agreement.
ARTICLE X
ASSIGNMENT AND SALE
10.01 Assignment
A. Manager shall not directly or indirectly assign or transfer its
interest in this Agreement without the prior written consent of Lessee;
provided, however, that Manager shall have the right, without Lessee's consent,
to (1) assign its interest in this Agreement to any Affiliate (provided such
Affiliate has the right to use the Marriott Trade Names and Marriott Trademark,
and otherwise is of sufficient financial capacity to perform Manager's duties
hereunder), (2) pursuant to the Submanagement Agreement allow Marriott to lease
shops or grant concessions at the Hotel so long as the terms of any such leases
or concessions do not exceed the Term of the Submanagement Agreement, and (3)
assign its interest in this Agreement to any entity into or with which Manager
is merged or consolidated or to which all or substantially all of the assets of
Manager are sold.
B. Lessee shall not assign or transfer its interest in this
Agreement without the prior written consent of Manager; provided, however, that
Lessee shall have the right, without such consent, to (1) cause this Agreement
to be conditionally assigned as security for a Mortgage of the Hotel in
accordance with this Agreement, (2) assign its interest in this Agreement to any
entity into or with which Lessee is merged or consolidated or to which all or
substantially all of the assets of Lessee are sold, and (4) assign its interest
in this Agreement pursuant to or as a result of a Sale of the Hotel which
complies with the provisions of the Settlement Agreement.
C. 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 Lessee or Manager of its interest in this Agreement shall not relieve
Lessee or Manager, as the case may be, from its respective obligations under
this Agreement, and shall inure to the benefit of, and be binding upon, its
respective successors, heirs, legal representatives, or assigns.
D. Manager shall have the right to terminate this Agreement, on
thirty (30) days' written notice, if title to or possession of the Hotel is
transferred by judicial or administrative process (including, without
limitation, a foreclosure, or a sale pursuant to an order of a bankruptcy court,
or a sale by a court-appointed receiver) to an individual or entity
36
which would not qualify as a permitted transferee under the Settlement
Agreement, regardless of whether or not such transfer is the voluntary action of
Owner or Lessee (or successor owner of the Hotel or leasehold interest therein)
or whether (under applicable law) Owner or Lessee (or successor owner of the
Hotel or leasehold interest therein) is in fact the transferor.
10.02 Sale of the Hotel.
With respect to the Owner designated in the Recitals hereof, and
Lessee, the respective rights and obligations of the parties hereto relating to
a Sale of the Hotel are set forth in the Settlement Agreement.
10.03 Change in Control of Manger.
Lessee shall have the right to terminate this Agreement on thirty
(30) days' written notice if at any time there is an "adverse change in control"
in Manager. The term "adverse change in control" shall mean the assignment,
transfer or other disposition, for value or otherwise, voluntary or involuntary,
in a single transaction or a series of transactions, of the direct or indirect
controlling interest in the Manager to a Person which is engaged in the business
of operating, franchising or managing (as distinguished from merely owning or
financing) its own hotel brand or its own lodging system in competition with
Lessee or Marriott. The phrase "controlling interest" shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of Manager.
ARTICLE XI
MISCELLANEOUS
11.01 Right to Make Agreement
Each party warrants, with respect to itself, that neither the execution of
the Agreement nor the finalization of the transactions contemplated hereby shall
violate any provision of law or judgment, writ, injunction, order or decree of
any court or governmental authority having jurisdiction over it; result in or
constitute a breach or default under any indenture, contract, other commitment
or restriction to which it is a party or by which it is bound; or require any
consent, vote or approval which has not been taken, or at the time of the
transaction involved shall not have been given or taken. Each party covenants
that it has and will continue to have throughout the term of the Agreement and
any extensions thereof, the full right to enter into the Agreement and perform
its obligations hereunder.
11.02 Consents and Cooperation
Wherever in the Agreement the consent or approval of Lessee or Manager is
required, such consent or approval shall not be unreasonably withheld, delayed
or conditioned, shall be in writing and shall be executed by a duly authorized
officer or agent of the party granting such
37
consent or approval subject, however, to the provisions of the Owner's
Agreement. If either Lessee or Manager fails to respond within thirty (30) days
to a request by the other party for a consent or approval, such consent or
approval shall be deemed to have been given (except as otherwise provided in
this Agreement). Additionally, Lessee shall execute such leases, subleases,
licenses, concessions, equipment leases, service contracts and other agreements
negotiated in good faith by Manager and pertaining to the Hotel that, in
Manager's reasonable judgment, should be made in the name of the lessee of the
Hotel.
11.03 Relationship
In the performance of this Agreement, Manager shall act solely as an
independent contractor. Neither this Agreement nor any agreements, instruments,
documents, or transactions contemplated hereby shall in any respect be
interpreted, deemed or construed as making Manager a partner, joint venturer
with, or agent of, Owner or Lessee. Lessee and Manager agree that neither party
will make any contrary assertion, claim or counterclaim in any action, suit,
arbitration or other legal proceedings involving Owner or Lessee and Manager.
11.04 Applicable Law
The Agreement shall be construed under and shall be governed by the laws
of the state in which the Hotel is located.
11.05 [Intentionally Omitted]
11.06 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.
11.07 Notices
Notices, statements and other communications to be given under the terms
of the Agreement shall be in writing and delivered by hand against receipt or
sent by certified or registered mail, postage prepaid, return receipt requested
or by nationally utilized overnight delivery service, addressed to the parties
as follows:
To Manager:
IHC II, LLC
---------------------------
---------------------------
---------------------------
38
FAX:
-------------------
with copy to :
------------------------------------
------------------------------------
------------------------------------
FAX:
-------------------
To Lessee:
----------------------------------
----------------------------------
----------------------------------
FAX:
-------------------
or at such other address as is from time to time designated by the party
receiving the notice. Any such notice that is mailed in accordance herewith
shall be deemed received when delivery is received or refused, as the case may
be. Additionally, notices may be given by telephone facsimile transmission,
provided that an original copy of said transmission shall be delivered to the
addressee by nationally utilized overnight delivery service by no later than the
second business day following such transmission. Telephone facsimiles shall be
deemed delivered on the date of such transmission. Manager agrees to provide to
Lessee a copy of any notice received by Manager from Marriott pursuant to the
Submanagement Agreement.
11.08 Environmental Matters
A. Lessee hereby represents and warrants to Manager that, to the
best of its knowledge except as set forth in any environmental assessment
reports provided by Owner or Lessee to Manager, as of the Effective Date, there
are no Hazardous Materials on any portion of the Site or the Hotel, nor have any
Hazardous Materials been released or discharged on any portion of the Site or
the Hotel. In addition, Lessee hereby represents and warrants that it has
previously delivered or has caused Owner to have delivered to Manager copies of
all reports concerning environmental conditions which have been received by
Lessee or any of its Affiliates. Prior to the Take-Over Date, Manager shall have
the right to terminate this Agreement, at its option, if Hazardous Materials are
found on the Site and/or the Hotel in quantities sufficient to create a danger
(in Manager's good-faith judgment) of possible adverse legal consequences to
Manager if it were to assume operation of the Hotel, but only if Marriott has
terminated the Submanagement Agreement pursuant to a comparable provision of the
Submanagement Agreement.
B. In the event of the discovery of Hazardous Materials (as defined
below) on any portion of the Site or in the Hotel during the Term of this
Agreement, Lessee shall (except as otherwise set forth to the contrary in
Section 11.08.C) or shall exercise its rights
39
under the Lease to cause Owner to promptly remove such Hazardous Materials,
together with all contaminated soil and containers, and shall otherwise remedy
the problem in accordance with (1) the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq., as amended; (2)
the regulations promulgated thereunder, from time to time; (3) all federal,
state and local laws, rules and regulations (now or hereafter in effect) dealing
with the use, generation, treatment, storage, disposal or abatement of Hazardous
Materials; and (4) the regulations promulgated thereunder, from time to time
(collectively referred to as "Environmental Laws"). Lessee shall (except as
otherwise set forth to the contrary in Section 11.08.C) and shall exercise its
rights under the Lease to cause Owner to indemnify, defend and hold Manager
harmless from and against all loss, costs, liability and damage (including,
without limitation, engineers' and attorneys' fees and expenses, and the cost of
litigation) arising from the presence of Hazardous Materials on the Site or in
the Hotel; and this obligation of Lessee shall survive Termination of this
Agreement. "Hazardous Materials" shall mean and include any substance or
material containing one or more of any of the following: "hazardous material",
"hazardous waste", "hazardous substance", "regulated substance", "petroleum",
"pollutant", "contaminant", "polychlorinated biphenyls", "lead or lead-based
paint" or "asbestos" as such terms are defined in any applicable Environmental
Law in such concentration(s) or amount(s) as may impose clean-up, removal,
monitoring or other responsibility under the Environmental Laws, as the same may
be amended from time to time, or which may present a significant risk of harm to
guests, invitees or employees of the Hotel.
C. In the event that Hazardous Materials are released on any portion
of the Site or in the Hotel during the Term of this Agreement as a result of the
actions of Manager's or Marriott's employees, then Manager shall or shall cause
Marriott to promptly remove such Hazardous Materials, together with all
contaminated soil and containers, and shall otherwise remedy the problem in
accordance with all Environmental Laws. All costs and expenses of the removal by
Manager or Marriott (pursuant to this Section 11.08.C) of Hazardous Materials,
and of the aforesaid compliance with Environmental Laws shall (to the extent
such costs exceed Ten Thousand Dollars ($10,000), as adjusted by the GDP
Deflator, with respect to any given incident or related series of incidents in
which such a release occurred) be paid from Manager's or Marriott's own funds
and not as a Deduction, and Manager shall and shall cause Marriott to indemnify,
defend and hold Owner, Lessee and any Mortgagee harmless from and against all
loss, costs, liability and damage (including, without limitation, engineers' and
attorneys' fees and expenses, and the cost of litigation) arising from the
actions described in this Section 11.08.C. In the event that the costs and
expenses of said removal by Manager and/or Marriott, and of the aforesaid
compliance, are less than Ten Thousand Dollars ($10,000), as adjusted by the GDP
Deflator, with respect to any such incident, said costs and expenses shall be
paid from Gross Revenues as a Deduction, and the foregoing indemnity by Manager
and Marriott shall not apply. Manager and Marriott shall be able to retain in
the Hotel reasonable quantities of cleansers, solvents and other materials used
in the ordinary course of hotel operations, notwithstanding that such materials
may contain or be Hazardous Materials, provided that Manager complies and causes
Marriott to comply with all Environmental Laws with regard to the storage, use
and disposal thereof.
40
D. Except as otherwise set forth to the contrary in Section 11.08.C,
all costs and expenses of the aforesaid removal of Hazardous Materials from the
Site or the Hotel, and of the aforesaid compliance with all Environmental Laws,
and any amounts paid to Manager pursuant to the indemnity set forth in Section
11.08.B, shall be paid by Lessee from its own funds, not as a Deduction nor from
the FF&E Reserve, and shall be treated as an expenditure by Lessee pursuant to
Section 5.03.
11.09 Confidentiality
A. The parties hereto agree that the matters set forth in this
Agreement and all statements, reports, projections, and other information
relating to the operation of the Hotel are strictly confidential and each party
will make every effort to ensure (including, in the case of Lessee, exercising
its rights under the Lease) that the information is not disclosed to any outside
person or entities (including the press) without the prior written consent of
the other party except as may be required by law and as may be reasonably
necessary to obtain licenses, permits, and other public approvals necessary for
the refurbishment or operation of the Hotel, or in connection with Owner's or
Lessee's financing of the Hotel, a Sale of the Hotel, or a sale of a controlling
interest in Owner, Lessee or Manager (except any financing or sale involving a
private or public offering of securities).
B. Lessee shall not include and shall exercise its rights under the
Lease to cause Owner not to include any reference to Manager or to any Affiliate
of Manager in any prospectus, private placement memorandum, offering circular or
offering documentation related thereto (collectively referred to as the "Lessee
Prospectus"), issued by Owner or Lessee or by one of their respective Affiliates
or by one or more Mortgagees, which is designated to interest potential
investors in debt or equity securities related to the Hotel, unless Manager has
previously received a copy of all such references. However, regardless of
whether Manager does or does not so receive a copy of all such references,
neither Manager nor any Affiliate of Manager will be deemed a sponsor of the
offering described in the Lessee Prospectus, nor will it have any responsibility
for the Lessee Prospectus. Unless Marriott agrees in advance, the Lessee
Prospectus will not include any Marriott Trade Names or Marriott Trademarks.
Lessee shall indemnify, defend and hold Manager harmless from and against all
loss, costs, liability and damage (including attorneys' fees and expenses, and
the cost of litigation) arising out of any Lessee Prospectus or the offering
described therein; and this obligation of Lessee shall survive Termination of
this Agreement.
C. No reference to Owner or Lessee or to any Affiliate of any of
them will be made in any prospectus, private placement memorandum, offering
circular or offering documentation related thereto (collectively referred to as
the "Manager Prospectus"), issued by Manager, one of Manager's Affiliates,
Marriott, or one of Marriott's Affiliates, which is designated to interest
potential investors in debt or equity securities, unless Owner or Lessee, as
applicable, has previously received a copy of all such references. However,
regardless of whether Owner or Lessee does or does not so receive a copy of all
such references, neither Owner, Lessee nor any Affiliate of any of them will be
deemed a sponsor of the offering
41
described in the Manager Prospectus, nor will it have any responsibility for the
Manager Prospectus. Unless Owner or Lessee, as applicable, agrees in advance,
the Manager Prospectus will not include any Trade Names or Trademarks of Owner
or Lessee. Manager shall, and shall cause Marriott to, as applicable indemnify,
defend and hold Owner and Lessee harmless from and against all loss, costs,
liability and damage (including attorneys' fees and expenses, and the cost of
litigation) arising out of any Manager Prospectus or the offering described
therein; and this obligation of Manager and Marriott, as applicable shall
survive Termination of this Agreement.
11.10 Projections
Lessee acknowledges that any written or oral projections, proformas, or
other similar information that has been (prior to execution of this Agreement)
or will (during the Term of this Agreement) be provided by Manager or Marriott
(or any Affiliate of either) to Lessee is for information purposes only, and
that Manager, Marriott, and any such Affiliate do not guarantee that the Hotel
will achieve the results set forth in any such projections, proformas, or other
similar information. Any such projections, proformas, or other similar
information are based on assumptions and estimates. Unanticipated events may
occur subsequent to the date of preparation of such projections, proformas, and
other similar information. Therefore, the actual results achieved by the Hotel
are likely to vary from the estimates contained in any such projections,
proformas, or other similar information and such variations might be material.
11.11 Actions to be Taken Upon Termination
Upon a Termination of this Agreement, the following shall be applicable:
A. Manager shall, within ninety (90) days after Termination of this
Agreement, prepare and deliver to Lessee a final accounting statement with
respect to the Hotel, as more particularly described in Section 4.02 hereof,
along with a statement of any sums due from Lessee to Manager pursuant hereto,
dated as of the date of Termination. Within thirty (30) days of the receipt by
Lessee 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. Manager and Lessee acknowledge that there
may be certain adjustments for which the information will not be available at
the time of the final accounting and the parties agree to readjust such amounts
and make the necessary cash adjustments when such information becomes available;
provided, however, that all accounts shall be deemed final as of the first (1st)
anniversary of the effective date of Termination.
B. Manager shall, and shall cause Marriott to, release and transfer
to Lessee (i) any of Lessee's funds which are held or controlled by Manager or
Marriott with respect to the Hotel with the exception of funds to be held in
escrow pursuant to Sections 6.01.F and
42
11.11.H and otherwise in accordance herewith and (ii) to the extent not
previously provided to Lessee, the guest history of the Hotel, (including names,
addresses and other information with respect to Hotel guests, but not
information as to national or regional accounts of Manager, Marriott or their
Affiliates other than names, addresses and other information of guests which
stayed at the Hotel pursuant to such accounts.
C. Manager shall, and shall cause Marriott to, make available to
Lessee such books and records respecting the Hotel (including those from prior
years, subject to Manager's or Marriott's, as applicable, reasonable records
retention policies) as will be needed by Lessee to prepare the accounting
statements, in accordance with the Uniform System of Accounts, for the Hotel for
the year in which the Termination occurs and for any subsequent year.
D. Manager shall, and shall cause Marriott to, (to the extent
permitted by law) assign to Lessee or to the new Manager all operating licenses
and permits for the Hotel which have been issued in Manager's or Marriott's name
(including liquor and restaurant licenses, if any); provided that if Manager has
expended any of its own funds in the acquisition of any of such licenses or
permits, Lessee shall reimburse Manager therefor if it has not done so already.
E. Lessee acknowledges that pursuant to the Submanagement Agreement
Marriott shall have the option, to be exercised within thirty (30) days after
Termination, to purchase, at their then fair market value, any items of the
Hotel's Inventories and Fixed Asset Supplies as may be marked with any Marriott
Trade Name or any Marriott Trademark. In the event Marriott does not exercise
such option, Lessee agrees that any such items which are not so purchased shall
be used exclusively in connection with the Hotel until they are consumed.
F. Manager shall cause Marriott to agree that Lessee shall have the
right to operate the improvements on the Site without modifying the
architectural design of same, notwithstanding the fact that such design or
certain features thereof may be proprietary to Marriott and/or protected by
trade marks or service marks held by Marriott or an Affiliate, provided that
such use shall be confined to the Site.
G. All Software used at the Hotel which is owned by any of the
Marriott Companies (or any Affiliates thereof) or the licensor of any of them is
proprietary to such Marriott Company (or such Affiliate) or the licensor of any
of them, and shall in all events remain the exclusive property of such Marriott
Company (or such Affiliate) or the licensor of any of them, as the case may be,
and nothing contained in this Agreement shall confer on Owner or Lessee the
right to use any of such Software. Marriott shall have the right to remove from
the Hotel without compensation to Owner or Lessee any Software (including
upgrades and replacements), including, without limitation, Software in general
use throughout the Marriott System, which is owned by any of the Marriott
Companies (or any Affiliates thereof) or the licensor of any of them.
Furthermore, upon Termination, notwithstanding Section 5.04 hereof, Marriott
shall be entitled to remove from the Hotel any computer
43
equipment which is: (i) owned by Marriott (without reimbursement to Owner or
Lessee); or (ii) owned by Manager, Owner or Lessee, but utilized as part of a
Marriott centralized reservation or property management system (with
reimbursement to Manager, Owner or Lessee, as applicable, of all previous
expenditures made by Manager, Owner or Lessee (or Marriott) with respect to such
equipment, subject to a reasonable allowance for depreciation).
H. A reserve fund shall be established from Gross Revenues to
reimburse Manager or, as long as Marriott is managing the Hotel pursuant to the
Submanagement Agreement, Marriott, for all costs and expenses incurred by
Manager or Marriott in terminating its employees at the Hotel, such as
reasonable severance pay, unemployment compensation, employment relocation
(however, Manager shall be responsible, and Manager shall cause Marriott to be
responsible, for relocation costs of any executive committee member relocating
to another hotel managed by Manager or its Affiliates (or by Marriott or its
Affiliates), arising from a Termination elected by Manager or Marriott, as
applicable, and in no event shall Manager, or Marriott, be reimbursed for the
cost of relocating any hourly (as opposed to salaried managerial) employees of
the Hotel), and other employee liability costs arising out of the termination of
employment of Manager's, or Marriott's, employees at the Hotel. Manager agrees
and shall cause Marriott to agree to use its reasonable efforts to mitigate such
costs and expenses. If Gross Revenues are insufficient to meet the requirements
of such reserve fund, then Lessee shall deliver to Manager, within ten (10) days
after receipt of Manager's written request therefor, the sums necessary to
establish such reserve fund; and if Lessee fails to timely deliver such sums to
Manager, Manager shall have the right or shall give Marriott the right (without
affecting Manager's other remedies under this Agreement or Marriott's other
remedies under the Submanagement Agreement) to withdraw the amount of such
expenses from the Operating Accounts or any other funds of Lessee held by or
under the control of Manager or Marriott other than the FF&E Reserve.
Notwithstanding the foregoing, Lessee, Owner and any successor manager shall
have the right to interview and continue the employment of any of Manager's or
Marriott's employees at the Hotel; provided, however, that Lessee, Owner or such
successor manager shall have the right to interview and continue the employment
of members of the Hotel Executive Committee only if such persons will be
terminated by Manager or Marriott, as applicable. If this Agreement is
terminated by reason of Default of Manager hereunder by reason of a default by
Marriott under the Submanagement Agreement, then no such reserve fund shall be
established and Manager or Marriott, as applicable shall pay from its own funds
all costs and expenses incurred by Manager or Marriott in terminating its
employees at the Hotel.
I. Lessee shall cause the entity which shall succeed Manager as the
operator of the Hotel to hire a sufficient number of the employees at the Hotel
to avoid the occurrence, in connection with such Termination, of a "closing"
under the WARN Act.
J. Various other actions shall be taken, as described in this
Agreement, including, but not limited to, the actions described in Sections 4.06
and 6.01.F.
44
K. In the event of a Termination pursuant to Section 2.02, Section
11.22, ordinary expiration of the Term or as a result of an Event of Default by
Manager, then (i) Manager shall not transfer and shall exercise its rights under
the Submanagement Agreement to cause Marriott not to transfer any then existing
bookings of rooms or functions at the Hotel to any other hotel of Manager,
Marriott or any Affiliate thereof or otherwise cancel any such bookings;
however, as set forth in the Submanagement Agreement Marriott, acting in good
faith, shall not be prohibited from responding affirmatively to inquiries or
requests by individuals or groups desiring to transfer bookings of rooms or
functions at the Hotel to any other hotel of Marriott or its affiliates, and
(ii) Manager shall act reasonably and in good faith and shall exercise its
rights under the Submanagement Agreement to cause Marriott to act reasonably and
in good faith to allow a transition of management and operations, including,
without limitation, by allowing representatives of Manager and/or any
replacement submanager to market the Hotel to potential guests for a period of
120 days (or such lesser period of time between the applicable notice of
Termination and actual Termination); provided, however, that in accordance with
the Submanagement Agreement such participation by Manager or a replacement
submanager shall not (x) unreasonably interfere with Marriott's operation of the
Hotel and (y) Marriott shall have the right to take such measures they
reasonably deems appropriate to protect its proprietary information with respect
to the Marriott System and its national and regional accounts. In participating
in any marketing of the Hotel during a transition period as set forth above,
Manager will represent the interests of Lessee and Owner to the best of its
ability.
L. Manager shall peacefully vacate and surrender the Hotel to
Lessee.
The provisions of this Section 11.11 shall survive Termination.
11.12 Trademarks, Trade Names and Intellectual Property
A. All Marriott Trade Names and Marriott Trademarks shall in all
events remain the exclusive property of Marriott (or one of its Affiliates), and
nothing contained in this Agreement shall confer on Owner or Lessee the right to
use any of the Marriott Trade Names or Marriott Trademarks otherwise than in
strict accordance with the terms of this Agreement. Except as provided in
Section 11.11.E, upon Termination, any use of or right to use any of the
Marriott Trade Names or Marriott Trademarks by Owner or Lessee shall cease
forthwith, and Lessee (i) shall immediately, as of the date of such Termination,
place coverings over any signs or similar identification which contain any of
said Marriott Trade Names or Marriott Trademarks, or shall otherwise render such
signs or other similar identification not visible to the public; and (ii) shall
remove any such signs or similar identification from the Hotel by no later than
ten (10) days after the date of Termination. If Lessee has not removed such
signs or similar items within ten (10) days after Termination, Manager shall
have the right to do so (or to allow Marriott to do so pursuant to the
Submanagement Agreement) at Lessee's expense; and if Lessee fails to reimburse
Manager for such expense within ten (10) days after receipt of written notice
thereof from Manager to Lessee, then Manager shall have the right (without
affecting Manager's other remedies under this Agreement) to withdraw (or
45
allow Marriott to withdraw pursuant to the Submanagement Agreement) the amount
of such expenses from the Operating Accounts or any other funds of Lessee held
by or under the control of Manager other than the FF&E Reserve. For purposes of
this Section 11.12, the term "Marriott Trademarks" shall include, without
limitation, all Trademarks and Trade Names used in conjunction with the Hotel,
including but not limited to restaurant names, lounge names, etc. (other than
Trademarks and Trade Names of third party tenants, licensees or concessionaires
at the Hotel), whether or not the marks contain the "Marriott" name. The right
to use or authorize others to use Marriott Trade Names or Marriott Trademarks
belongs exclusively to Marriott and/or its Affiliates, whether or not the same
are registered and regardless of the source of the same. The provisions of this
Section 11.12 shall survive Termination. Notwithstanding Section 1.02.A, if the
name of the Marriott System is changed, Manager will change or will cause
Marriott to change the name of the Hotel to conform thereto.
B. All Intellectual Property shall at all times be proprietary to
Marriott or its Affiliates, and shall be the exclusive property of Marriott or
its Affiliates. During the Term of this Agreement, Manager shall be entitled to
take all reasonable steps to ensure that the Intellectual Property remains
confidential and is not disclosed to anyone other than Manager's employees at
the Hotel. Upon Termination, all Intellectual Property shall be removed from the
Hotel by Manager or Marriott, without compensation to Owner or Lessee, subject
to the provisions of Section 11.11.G regarding Software.
C. Manager and/or its Affiliates shall be entitled, in case of any
breach by Lessee of any of the covenants of this Section 11.12, to injunctive
relief and to any other right or remedy available at law. Section 11.12 shall
survive Termination.
11.13 [Intentionally Omitted]
11.14 Waiver
The failure of either party to insist upon a strict performance of any of
the terms or provisions of the Agreement, or to exercise any option, right or
remedy contained in this Agreement, 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.
11.15 Partial Invalidity
If any portion of the Agreement shall be declared invalid by order, decree
or judgment of a court, the Agreement shall be construed as if such portion had
not been so inserted except when such construction would operate as an undue
hardship on Manager or Lessee or constitute a substantial deviation from the
general intent and purpose of said parties as reflected in the Agreement.
46
11.16 Survival
Except as otherwise specifically provided in this Agreement, the rights
and obligations of the parties herein shall not survive any Termination of this
Agreement.
11.17 [Intentionally Omitted]
11.18 Negotiation of Agreement
Lessee and Manager are both business entities having substantial
experience with the subject matter of this Agreement, and each has fully
participated in the negotiation and drafting of this Agreement. Accordingly,
this Agreement shall be construed without regard to the rule that ambiguities in
a document are to be construed against the draftsman. No inferences shall be
drawn from the fact that the final, duly executed Agreement differs in any
respect from any previous draft hereof.
11.19 Estoppel Certificates
Each party to this Agreement shall at any time and from time to time, upon
not less than thirty (30) days' prior notice from the other party, execute,
acknowledge and deliver to such other party, or to any third party specified by
such other party, a statement in writing: (a) certifying that this Agreement is
unmodified and in full force and effect (or if there have been modifications,
that the same, as modified, is in full force and effect and stating the
modifications); (b) stating whether or not to the best knowledge of the
certifying party (i) there is a continuing Default or Event of Default by the
non-certifying party in the performance or observance of any covenant, agreement
or condition contained in this Agreement, or (ii) there shall have occurred any
event which, with the giving of notice or passage of time or both, would become
a Default or Event of Default, and, if so, specifying each such Default or Event
of Default or occurrence of which the certifying party may have knowledge; and
(c) stating such other information as the non-certifying party may reasonably
request. Such statement shall be binding upon the certifying party and may be
relied upon by the non-certifying party and/or such third party specified by the
non-certifying party as aforesaid. In addition, upon written request after a
Termination, each party agrees to execute and deliver to the non- certifying
party and to any such third party a statement certifying that this Agreement has
been terminated.
11.20 System Standards
In the event of either (i) a Legal Requirement, including an order,
judgment or directive by a court or administrative body which is issued in
connection with any Litigation involving Owner or Lessee, or (ii) any action
taken by a Mortgagee in connection with a Foreclosure, which in either case
restricts or prevents Manager, in a material and adverse manner, from operating
the Hotel in accordance with System Standards (including without limitation, any
restrictions on expenditures by Manager from the Operating Accounts or from the
FF&E
47
Reserve, other than restrictions which are set forth in this Agreement), Manager
shall be entitled, at its option, to terminate this Agreement upon sixty (60)
days' written notice to Lessee, but only if Marriott has terminated the
Submanagement Agreement pursuant to the comparable provision of the
Submanagement Agreement. The foregoing shall not reduce or otherwise affect the
rights of the parties under either Article IX or Section 11.11.I.
11.21 Arbitration
A. In the event of a dispute between Lessee and Manager with respect
to any issue which is specifically described in this Agreement as a matter to be
decided by arbitration, such dispute shall be determined by arbitration as
provided in this Section 11.21.
B. Disputes shall be resolved in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then pertaining. The
decision of the arbitrators shall be binding, final and conclusive on the
parties.
C. Lessee and Manager shall each appoint and pay all fees of a fit
and impartial person as arbitrator who shall have had at least ten (10) years'
recent professional experience in the general subject matter of the dispute.
Notice of such appointment shall be sent in writing by each party to the other,
and the arbitrators so appointed, in the event of their failure to agree upon
the resolution of the dispute within thirty (30) days after the appointment of
the second arbitrator, shall appoint a third arbitrator. If either Lessee or
Manager shall fail to appoint an arbitrator, as aforesaid, for a period of
twenty (20) days after written notice from the other party to make such
appointment, then the arbitrator appointed by the party having made such
appointment shall appoint a second arbitrator. The two arbitrators so appointed
shall, in the event of their failure to agree upon resolution of the dispute
within thirty (30) days thereafter, appoint a third arbitrator. If such
arbitrators fail to agree upon a third arbitrator within forty-five (45) days
after the appointment of the second arbitrator, then such third arbitrator shall
be appointed by the American Arbitration Association from its qualified panel of
arbitrators, and shall be a person having at least ten (10) years' recent
professional experience as to the subject matter in question. The fees of the
third arbitrator and the expenses incident to the proceedings shall be borne
equally between Lessee and Manager, unless the arbitrators decide otherwise. The
fees of respective counsel engaged by the parties, and the fees of expert
witnesses and other witnesses called for the parties, shall be paid by the
respective party engaging such counsel or calling or engaging such witnesses.
D. The decision of the arbitrators shall be rendered within thirty
(30) days after appointment of the third arbitrator. Such decision shall be in
writing and in duplicate, one counterpart thereof to be delivered to Lessee and
one to Manager. A judgment of a court of competent jurisdiction may be entered
upon the award of the arbitrators in accordance with the rules and statutes
applicable thereto then obtaining.
11.22 Marriott Restricted Area Right of Termination
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Manager agrees to exercise its rights under Section 11.22 of the
Submanagement Agreement including, without limitation, as to any termination of
the Submanagement Agreement pursuant to such Section 11.22, only as directed
from time to time by Lessee.
11.23 Entire Agreement
The Agreement, together with any other writings signed by the parties
expressly stated to be supplemental hereto and together with any instruments to
be executed and delivered pursuant to the Agreement, constitutes the entire
agreement between the parties and supersedes all prior understandings and
writings, and may be changed only by a writing signed by the parties hereto.
11.24 Expert Resolution Process
If, under the applicable provisions of this Agreement, a matter is to be
referred to an Expert for determination, the following provisions shall apply:
A. The decision of the Expert shall be final and binding on the
parties and shall not be subject to challenge, whether by arbitration, in court
or otherwise.
B. Each party shall be entitled to make written submissions to the
Expert. If either party makes any submission to the Expert, such party shall
also provide a copy of such submission to the other party, and the other party
shall have the right to comment on such submission. The parties shall make
available to the Expert all books and records relating to the issue in dispute,
and shall render to the Expert any assistance requested of the parties. The
costs of the Expert and of the proceedings shall be borne as directed by the
Expert unless otherwise provided for herein. The Expert may direct that such
costs be treated as Deductions.
C. The terms of engagement of the Expert shall include an obligation
on the part of the Expert to:
1. establish a timetable for the making of submissions and
replies;
2. apply the standards applicable to first-class hotels in
accordance with System Standards; and
3. notify the parties in writing of the Expert's decision
within forty-five (45) days after the date on which the Expert has been
selected (or within such other period as the parties may mutually agree
upon and which is acceptable to the Expert).
49
ARTICLE XII
DEFINITION OF TERMS
12.01 Definition of Terms
The following terms when used in the Agreement and the Addendum attached
hereto shall have the meanings indicated:
"Accounting Period" shall mean the four (4) week accounting periods having
the same beginning and ending dates as Marriott's four (4) week accounting
periods, except that an Accounting Period may occasionally contain five (5)
weeks when necessary to conform Marriott's accounting system to the calendar.
"Accounting Period Statement" shall have the meaning set forth in Section
4.01.A.
"Affiliate" shall mean, as to any Person, any other Person that, directly
or indirectly, controls, is controlled by or is under common control with such
Person. For purposes of this definition, the term "control" (including the terms
"controlling", "controlled by" and "under common control with") of a Person
means the possession, directly or indirectly, of the power: (i) to vote more
than fifty percent (50%) of the voting stock of such Person; or (ii) to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting stock, by contract or otherwise.
"Agreement" shall mean this Management Agreement between Lessee and
Manager, including the exhibits attached hereto.
"Annual Operating Statement" shall have the meaning set forth in Section
4.01.
"Approval" shall mean prior written approval or consent, which, unless
otherwise specified herein, shall not be unreasonably withheld, conditioned or
delayed.
"Base Management Fee" shall mean the total amount payable to Manager which
is set forth on Exhibit "A-1" attached hereto, which the parties hereto
acknowledge is fully payable to Marriott pursuant to the Franchise Agreement and
the Submanagement Agreement
"Building Estimate" shall have the meaning ascribed to it in Section 5.03.
"Business Plan" shall have the meaning set forth in Section 4.05.
"Capital Expenditure" shall mean the expenses necessary for non-routine,
major repairs, alterations, improvements, renewals, replacements, and additions
to the Hotel including, without limitation, to the structure, the exterior
facade and all of the mechanical, electrical, heating, ventilating, air
conditioning, plumbing or vertical transportation elements
50
of the Hotel building, together with all other expenditures which are classified
as "capital expenditures" under generally-accepted accounting principles.
"Capitalization Multiple" shall mean the number ten (10).
"Case Goods" shall mean furniture and furnishings used in the Hotel,
including, without limitation: chairs, beds, chests, headboards, desks, lamps,
tables, television sets, mirrors, pictures, wall decorations and similar items.
"CC&R's" shall have the meaning ascribed to it in Section 8.04.
"Chain Services" shall have the meaning set forth in Section 1.04.
"Competitive Set" shall mean the five (5) most comparable hotels in the
general trade area of the Hotel as defined in and determined pursuant to the
Submanagement Agreement. If Manager and Marriott fail to agree on either an
alternate competitive set or source with respect to the determination of the
Competitive Set pursuant to the Submanagement Agreement and such matter is to be
resolved by the Expert Resolution Process under the Submanagement Agreement,
then Owner (pursuant to its rights under the Lease and the Owner Agreement)
shall have the right to participate in such Expert Resolution Process. If,
pursuant to the Submanagement Agreement, Manager receives a suggested
alternative competitive set or source of data from Marriott, then Manager shall
not agree on any such alternative competitive set or source, as the case may be,
without the prior approval of Lessee.
"Coverage Ratio" shall mean the number one and four-tenths (1.4).
"Deductions" shall mean the following expenses incurred by Marriott in
operating the Hotel:
1. the cost of sales, including, without limitation,
compensation, fringe benefits, payroll taxes, ERISA-related liabilities,
pension-fund withdrawal liabilities, and other costs related to employees of
Marriott (or one of its Affiliates) who are working for the benefit of the Hotel
(regardless of whether such employees are located at the Hotel or elsewhere);
provided that the foregoing costs shall not include the salary and other
employee costs of Marriott's or any Affiliate's corporate executive staff who
are located at Marriott's or such Affiliate's corporate headquarters, and that
the termination-related costs of regional employees shall only apply in the case
such termination was in connection with the Hotel or as a result of the
termination of this Agreement;
2. departmental expenses incurred at departments within the
Hotel; administrative and general expenses; the cost of marketing incurred by
the Hotel; advertising and business promotion incurred by the Hotel; heat,
light, and power; computer line charges; and routine repairs, maintenance and
minor alterations treated as Deductions under Section 5.01;
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3. the cost of Inventories and Fixed Asset Supplies consumed
in the operation of the Hotel;
4. a reasonable reserve for uncollectible accounts receivable
as determined by Marriott;
5. all costs and fees of independent professionals or other
third parties who are retained by Marriott to perform services required or
permitted under the Submanagement Agreement;
6. all costs and fees of technical consultants, professionals
and operational experts who are retained or employed by Marriott and Affiliates
for specialized services (including, without limitation, quality assurance
inspectors, personnel providing architectural, technical or procurement services
for the Hotel, tax consultants, and personnel providing legal services in
connection with matters directly involving the Hotel) and the cost of attendance
by employees of the Hotel at training and manpower development programs
designated by Marriott;
7. the Base Management Fee (but not including the portion
thereof consisting of the royalty or franchise fees under the Franchise
Agreement);
8. insurance costs and expenses as provided in Sections 6.01;
9. taxes, if any, payable by or assessed against Manager
related to this Agreement or against Marriott related to the Submanagement
Agreement or to Manager's or Marriott's operation of the Hotel (exclusive of
Manager's or Marriott's income taxes or franchise taxes);
10. all Impositions;
11. the amount of any transfers into the FF&E Reserve required
pursuant to Section 5.02;
12. the Hotel's pro rata share of costs and expenses incurred
in connection with marketing programs developed for the Marriott System where
such expenses are not deducted as either departmental expenses under paragraph 2
above or as Chain Services under paragraph 12 below, including, without
limitation, the Marriott Rewards Program;
13. the Hotel's pro rata share of the charges for Chain
Services;
14. all costs and expenses of compliance by Marriott with
applicable Legal Requirements pertaining to the operation of the Hotel;
52
15. such other costs and expenses incurred by Marriott (either
at the Hotel or elsewhere) as are specifically provided for elsewhere in the
Submanagement Agreement or are otherwise reasonably necessary for the proper and
efficient operation of the Hotel; and
16. royalty fees under the Franchise Agreement.
The term "Deductions" shall not include: (a) debt service payments
pursuant to any Mortgage on the Hotel; (b) payments pursuant to equipment leases
or other forms of financing obtained for the FF&E located in or connected with
the Hotel, unless Manager and Marriott have previously given their written
consent to such equipment lease and/or financing; (c) rental payments pursuant
to any ground lease of the Site; or (d) depreciation on the Hotel or any of its
contents. All of the foregoing items listed in this paragraph shall be paid by
Lessee from its own funds.
"Default" shall have the meaning ascribed to it in Section 9.01.
"Divestiture Date" shall have the meaning set forth in the Settlement
Agreement.
"Effective Date" shall have the meaning ascribed to it in the Preamble.
"Environmental Laws" shall have the meaning ascribed to it in Section
11.08.
"Event of Default" shall have the meaning ascribed to it in Section 9.01.
"Expert" shall mean an independent nationally recognized consulting firm
or individual who is qualified to resolve the issue in question, and who is
appointed in each instance by agreement of the parties. Failing such agreement,
each party shall select one (1) such nationally recognized consulting firm or
individual, and the two (2) respective firms and/or individuals so selected
shall select another such nationally recognized consulting firm or individual to
be the Expert.
"Expert Resolution Process" shall mean the process for Expert resolution
described in Section 11.24 herein.
"FF&E" shall mean furniture, furnishings, fixtures, Soft Goods, Case
Goods, signage, audio-visual equipment, kitchen appliances, vehicles, carpeting
and equipment, including front desk and back-of-the house computer equipment,
but shall not include Fixed Asset Supplies or Software.
"FF&E Estimate" shall have the meaning ascribed to it in Section 5.02.C.
"FF&E Reserve" shall have the meaning ascribed to it in Section 5.02.A.
53
"Fiscal Year" shall mean Marriott's Fiscal Year which, as of the Effective
Date, ends at midnight on the Friday closest to December 31 in each calendar
year; the new Fiscal Year begins on the Saturday immediately following said
Friday. Any partial Fiscal Year between the Take-Over Date and the commencement
of the first full Fiscal Year shall constitute a separate Fiscal Year. A partial
Fiscal Year between the end of the last full Fiscal Year and the Termination of
this Agreement shall also constitute a separate Fiscal Year. If Marriott's
Fiscal Year is changed in the future, appropriate adjustment to this Agreement's
reporting and accounting procedures shall be made; provided, however, that no
such change or adjustment shall alter the Term of this Agreement or in any way
reduce the distributions of Operating Profit or other payments due hereunder.
"Five-Year Plan" shall mean the "FF&E Budget Approval for 1998-2002" which
is attached hereto as Exhibit "B-1".
"Fixed Asset Supplies" shall mean 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 Guest Rooms.
"Food and Beverage Operation" means all of the following Hotel services,
whether performed inside or outside the Hotel: (1) all restaurant, dining, bar
and lounge food and beverage services; (2) all banquet, meeting, convention,
event, catering, and room services food and beverage services; and (3) any other
food, beverage or related services of the Hotel.
"Force Majeure" shall mean acts of God, acts of war, civil disturbance,
governmental action (including the revocation or refusal to grant licenses or
permits, where such revocation or refusal is not due to the fault of the party
whose performance is to be excused for reasons of Force Majeure), strikes,
lockouts, fire, unavoidable casualties or any other causes beyond the reasonable
control of either party (excluding, however, (i) lack of financing, or (ii)
general economic and/or market factors).
"Foreclosure" shall mean any exercise of the remedies available to a
Mortgagee, upon a default under the Mortgage held by such Mortgagee, which
results in a transfer of title to or possession of the Hotel. The term
"Foreclosure" shall include, without limitation, any one or more of the
following events, if they occur in connection with a default under a Mortgage:
(i) a transfer by judicial foreclosure; (ii) a transfer by deed in lieu of
foreclosure; (iii) the appointment by a court of a receiver to assume possession
of the Hotel; (iv) a transfer of either Owner or Lessee or control of an Owner
or Lessee, by exercise of a stock pledge or otherwise; (v) if title to the Hotel
is held by a tenant under a ground lease, an assignment of the tenant's interest
in such ground lease; or (vi) any similar judicial or non-judicial exercise of
the remedies held by the Mortgagee.
"Franchise Agreement" shall have the meaning ascribed to it in the
Recitals.
54
"GDP Deflator" shall mean the "Gross Domestic Product Implicit Price
Deflator" issued from time to time by the United States Bureau of Economic
Analysis of the Department of Commerce, or if the aforesaid GDP Deflator is not
at such time so prepared and published, any comparable index selected by Lessee
and reasonably satisfactory to Manager and Marriott (a "Substitute Index") then
prepared and published by an agency of the Government of the United States,
appropriately adjusted for changes in the manner in which such index is prepared
and/or year upon which such index is based. Any dispute regarding the selection
of the Substitute Index or the adjustments to be made thereto shall be settled
by arbitration in accordance with Section 11.21. Except as otherwise expressly
stated herein, whenever a number or amount is required to be "adjusted by the
GDP Deflator", or similar terminology, such adjustment shall be equal to the
percentage increase or decrease in the GDP Deflator which is issued for the
month in which such adjustment is to be made (or, if the GDP Deflator for such
month is not yet publicly available, the GDP Deflator for the most recent month
for which the GDP Deflator is publicly available) as compared to the GDP
Deflator which was issued for the month in which the Effective Date occurred.
"Gross Food and Beverage Sales" shall mean all sales and receipts of every
kind and nature, including, among other items, credit charges, charge backs and
uncollectible amounts, from the Food and Beverage Operations, but shall not be
deemed to include any sales, hotel, entertainment tax or similar taxes collected
from patrons or guests. Gross Food and Beverage Sales shall be accounted for on
an accrual basis and in accordance with the Uniform System.
"Gross Revenues" shall mean all revenues and receipts of every kind
derived from operating the Hotel and all departments and parts thereof,
including, but not limited to: income (from both cash and credit transactions)
from rental of Guest Rooms, telephone charges, stores, offices, exhibit or sales
space of every kind; license, lease and concession fees and rentals (not
including gross receipts of licensees, lessees and concessionaires); income from
vending machines; income from parking; health club membership fees; food and
beverage sales; wholesale and retail sales of merchandise; service charges; and
proceeds, if any, from business interruption or other loss of income insurance;
provided, however, that Gross Revenues shall not include the following:
gratuities to employees of the Hotel; federal, state or municipal excise, sales
or use taxes or any other taxes collected directly from patrons or guests or
included as part of the sales price of any goods or services; proceeds from the
sale of FF&E; interest received or accrued with respect to the funds in the FF&E
Reserve or the other operating accounts of the Hotel; any refunds, rebates,
discounts and credits of a similar nature, given, paid or returned in the course
of obtaining Gross Revenues or components thereof; insurance proceeds (other
than proceeds from business interruption or other loss of income insurance;
condemnation proceeds (other than for a temporary taking); or any proceeds from
any Sale of the Hotel or from the refinancing of any debt encumbering the Hotel.
"Gross Room Sales" shall mean all sales and receipts of every kind and
nature which accrue from the rental of Guest Rooms including, among other items,
credit charges, charge backs and uncollectible amounts, but shall not be deemed
to include any sales tax, value added
55
tax, or similar taxes collected from patrons or guests. Gross Room Sales shall
be accounted for on an accrual basis and in accordance with the Uniform System.
"Guest Profile Data" shall mean personal guest profiles and information
regarding guest preferences.
"Guest Room" shall mean a separately-keyed lodging unit in the Hotel.
"Hazardous Materials" shall have the meaning ascribed to it in Section
11.08.B.
"Hotel" shall mean the Site together with the following: (i) the Hotel
Improvements and all other improvements constructed or to be constructed on the
Site pursuant to this Agreement; (ii) all FF&E, Fixed Asset Supplies and
Inventories installed or located on the Site or in the Hotel Improvements; and
(iii) all easements or other appurtenant rights thereto.
"Hotel Executive Committee" shall mean the following individuals employed
by Marriott at the Hotel: general manager, resident manager, controller,
director of marketing, food and beverage director, the human resources director,
and the chief engineer or, or similar titled positions.
"Hotel Improvements" shall have the meaning set forth in the Recitals.
"Impositions" shall have the meaning set forth in Section 7.01.
"Improvements" shall have the meaning set forth in the Recitals.
"Initial FF&E Reserve Balance" shall mean the dollar amount set forth on
Exhibit "A-1" attached hereto.
"Institutional Lender" shall mean a foreign or domestic commercial bank,
trust company, savings bank, savings and loan association, life insurance
company, real estate investment trust, pension trust, pension plan or pension
fund, a public or privately-held fund engaged in real estate and/or corporate
lending, or any other financial institution commonly known as an institutional
lender (or any Affiliate thereof) having a minimum paid up capital (or net
assets in the case of a pension fund) of One Hundred Million Dollars
($100,000,000).
"Insurance Retention" shall have the meaning ascribed to it in Section
6.01.F.
"Intellectual Property" shall mean: (i) all Software; (ii) all manuals,
brochures and directives issued by Marriott to its employees at the Hotel
regarding the procedures and techniques to be used in operating the Hotel; and
(iii) customer lists and Guest Profile Data.
"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;
56
beverages in wine cellars and bars; other merchandise intended for sale; fuel;
mechanical supplies; stationery; and other expensed supplies and similar items.
"Lease" shall have the meaning ascribed to it in the Recitals.
"Legal Requirement" shall mean any federal, state or local law, code,
rule, ordinance, regulation or order of any governmental authority or agency
having jurisdiction over the business or operation of the Hotel or the matters
which are the subject of this Agreement, including, without limitation, the
following: (i) any building, zoning or use laws, ordinances, regulations or
orders; and (ii) Environmental Laws.
"Lessee" shall have the meaning ascribed to it in the Preamble or shall
mean any successor or permitted assign, as applicable.
"Lessee Prospectus" shall have the meaning set forth in Section 11.09.
"Litigation" shall mean: (i) any cause of action (including, without
limitation, bankruptcy or other debtor/creditor proceedings) commenced in a
federal, state or local court; or (ii) any claim brought before an
administrative agency or body (for example, without limitation, employment
discrimination claims).
"Manager" shall have the meaning ascribed to it in the Preamble hereto or
shall mean any successor or permitted assign, as applicable.
"Manager Prospectus" shall have the meaning set forth in Section 11.09.
"Marriott" shall mean Marriott International, Inc., a Delaware
corporation.
"Marriott Companies" shall mean Marriott and any Affiliate of Marriott.
"Marriott System" shall mean the chain of full-service hotels in the
United States which are operated by Marriott (or one of its Affiliates) under
the Trade Name of "Marriott".
"Marriott Trade Names" shall mean both the name "Marriott" (when used
alone or in connection with another word or words) and any other Trade Names
which contain the word "Marriott".
"Marriott Trademark" shall mean any Trademark which is used in the
operation of hotels in the Marriott System.
"Minor Casualty" shall mean any fire or other casualty which results in
damage to the Hotel and/or its contents, to the extent that the total cost (in
Marriott's reasonable judgment pursuant to the Submanagement Agreement) of
repairing and/or replacing of the damaged portion of the Hotel to the same
condition as existed previously does not exceed the dollar
57
amount of Two Hundred Fifty Thousand Dollars ($250,000), said dollar amount to
be adjusted by the GDP Deflator.
"Mortgage" shall mean any mortgage, deed of trust, or security document
encumbering the Hotel and/or the Site or the interest of Owner or Lessee
therein.
"Mortgagee" shall mean the holder of any Mortgage.
"Notice of Proposed Sale" shall have the meaning set forth in Section
10.02.B.
"Operating Accounts" shall have the meaning set forth in Section 4.03.A.
"Operating Loss" shall mean a negative Operating Profit.
"Operating Profit" shall mean, with respect to any given period of time,
the excess of Gross Revenues over Deductions (each calculated in accordance with
this Agreement and the Uniform System).
"Owner's Agreement" shall have the meaning ascribed to it in the Recitals.
"Performance Termination Period" shall mean the twelve (12) month period
consisting of the six (6) months immediately prior to and including the month in
which the Take-Over Date occurs, and the six (6) months immediately thereafter.
"Performance Termination Threshold" shall mean the average Operating
Profit over the Performance Termination Period; provided, however, that for the
purpose of calculating the Performance Termination Threshold, the following
adjustments shall be made in calculating the average Operating Profit over the
Performance Termination Period: (i) so-called one-time charges in connection
with Manager's or Marriott's take-over of the Hotel shall not be included as
Deductions, and (ii) costs that would have been incurred during the first six
(6) months of the Performance Termination Period had the Hotel been operating in
accordance with System Standards (i.e. costs of guest complementaries such as
newspapers, front desk staffing and other similar recurring operating costs to
the extent not incurred during such six first (6) month period) shall be
included in Deductions. Within sixty (60) days after the end of the Performance
Termination Period, Manager shall deliver to Lessee a statement prepared by
Marriott of the Performance Termination Threshold, and therein shall describe
any adjustments made pursuant to subsections (i) and/or (ii) above. Any
adjustments made pursuant to subsection (ii) shall be made in good faith by
Marriott as set forth in the Submanagement Agreement and shall reflect the costs
reasonably incurred at similar hotels managed by Marriott. Commencing as of
first day of the fourth (4th) full Fiscal Year during the Term, and for each
Fiscal Year thereafter, the Performance Termination Threshold (as originally
calculated) applicable to such year shall be adjusted by adding (or subtracting)
thereto (or therefrom) an amount equal to the product of (i) 75% of the
percentage change in the GDP
58
Deflator from the Effective Date to the date of adjustment, times (ii) the
Performance Termination Threshold (as originally calculated).
"Person" means an individual (and the heirs, executors, administrators, or
other legal representatives of an individual), a partnership, a corporation,
limited liability company, a government or any department or agency thereof, a
trustee, a trust and any unincorporated organization.
"Previously-Accrued Payables" shall mean all liabilities incurred with
respect to the operation of the Hotel prior to the Take-Over Date (or allocable
to the period prior to the Take-Over Date, under generally accepted accounting
principles). The term "Previously- Accrued Payables" shall include, without
limitation: (i) all accounts payable and accrued liabilities shown on Lessee's
balance sheet (current copies of which, through the Take-Over Date, shall be
delivered to Manager); and (ii) all accrued employee benefits.
"Previously-Accrued Receivables" shall mean all receivables accrued in
connection with the operation of the Hotel prior to the Take-Over Date,
including (i) those accounts receivable which are shown on Lessee's balance
sheet (current copies of which, through the Take-Over Date, shall be delivered
to Manager); and (ii) all other receivables.
"Prime Rate" shall mean the "base rate" of interest announced from time to
time by Bankers Trust Company, New York, New York.
"Proposed Business Plan" shall have the meaning set forth in Section 4.05.
"Qualified Mortgage" shall have the meaning set forth in Section 8.02.
"Reasonable Amount of Working Capital" shall mean an amount equal to
$1,250 times the number of Guest Rooms in the Hotel, plus 1/26 of the annual
payroll costs of the Hotel, such amount to be subject to adjustment after the
first Fiscal Year of operation of the Hotel (either upward or downward) as the
parties may reasonably agree to account for individual characteristics of the
operations of the Hotel, such as seasonality of revenues and expenses. Following
the first Fiscal Year of operation of the Hotel, such amount shall be subject to
adjustment as part of the Proposed Business Plan approval process, provided that
Lessee shall not disapprove a Reasonable Amount of Working Capital that is no
more than the amount arrived at pursuant to the first sentence hereof, as
modified to adjust the amount of $1,250 in proportion to any percentage change
in the Revenue per Room for the Hotel for the previous Fiscal Year.
"Reinstated Franchise Agreement" shall have the meaning set forth in
Section 2.01.B.
"Restricted Area" shall mean the area described in Exhibit "A-1" attached
hereto.
59
"Revenue Data Publication" shall mean ▇▇▇▇▇'▇ STAR Report, a monthly
publication distributed by ▇▇▇▇▇ Travel Research, Inc. of Gallatin, Tennessee,
or an alternative source, reasonably satisfactory to both parties, of data
regarding the Revenue Per Room of hotels in the general trade area of the Hotel.
If such ▇▇▇▇▇'▇ STAR Report is discontinued in the future, or ceases (in the
reasonable opinion of Manager and Marriott) to be a satisfactory source of data
regarding the Revenue Per Room of various hotels in the general trade area of
the Hotel, Manager and Marriott shall select an alternative source pursuant to
the Submanagement Agreement.
"Revenue Index" shall mean that fraction which is equal to (a) the Revenue
Per Room for the Hotel, divided by (b) the average Revenue Per Room for the
hotels in the Competitive Set, as set forth in the Revenue Data Publication.
Appropriate adjustments shall be made in the event of Force Majeure or a major
renovation of the Hotel.
"Revenue Index Threshold" shall mean ninety percent (90%) of the Revenue
Index as calculated over the Performance Termination Period.
"Revenue Per Room" shall mean (i) the term "revenue per room" as defined
by the Revenue Data Publication; or (ii) if the Revenue Data Publication is no
longer being used (as more particularly set forth in the definition of "Revenue
Data Publication"), the aggregate gross room revenues of the hotel in question
for a given period of time divided by the total room nights for such period. If
clause (ii) of the preceding sentence is being used, a "room" shall be a hotel
guestroom which is keyed as a single unit.
"Sale of the Hotel" shall mean any sale, assignment, transfer or other
disposition, for value or otherwise, voluntary or involuntary, of the fee simple
title [leasehold on Atlanta] to the Site and/or the Hotel. For purposes of this
Agreement, a Sale of the Hotel shall also include a lease (or sublease) of all
or substantially all of the Hotel or Site and any sale, assignment, transfer or
other disposition, for value or otherwise, voluntary or involuntary, in a single
transaction or a series of transactions, of the controlling interest in Owner.
If Owner is a corporation, the phrase "controlling interest" shall mean the
right to exercise, directly or indirectly, more than fifty percent (50%) of the
voting rights attributable to the shares of Owner (through ownership of such
shares or by contract). If Owner is not a corporation, the phrase "controlling
interest" shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of Owner.
"Settlement Agreement" shall have the meaning ascribed to it in the
Recitals.
"Site" shall have the meaning ascribed to it in Section A of the Recitals.
"Soft Goods" shall mean all fabric, textile and flexible plastic products
(not including items which are classified as "Fixed Asset Supplies" under the
Uniform System of Accounts) which are used in furnishing the Hotel, including,
without limitation: carpeting, drapes, bedspreads, wall and floor coverings,
mats, shower curtains and similar items.
60
"Software" shall mean all computer software and accompanying documentation
(including all future upgrades, enhancements, additions, substitutions and
modifications thereof), other than computer software which is commercially
available, which are used by Marriott in connection with the property management
system, the reservation system and all future electronic systems developed by
Marriott for use in the Hotel.
"Special Capital Expenditures" shall mean certain routine, non-major
expenditures which are classified as "capital expenditures" under
generally-accepted accounting principles, but which will be funded from the FF&E
Reserve (pursuant to Section 5.02), rather than pursuant to the provisions of
Section 5.03. Special Capital Expenditures consist of the following types of
expenditures: exterior and interior repainting; resurfacing building walls and
floors; resurfacing parking areas; replacing folding walls; and miscellaneous
similar expenditures.
"Subordination Agreement" shall have the meaning ascribed to it in Section
8.03.
"Subsequent Owners" shall have the meaning ascribed to it in Section 8.03.
"System Standards" shall mean either (or both, as the context requires) of
the following two (2) categories of standards: (i) the operational standards
(for example, services offered to guests, quality of food and beverages,
cleanliness, staffing and employee compensation and benefits, Chain Services,
the Marriott Rewards Program and other similar programs, etc.); and (ii) the
physical standards (for example, quality of the Improvements, FF&E, and Fixed
Asset Supplies, frequency of FF&E replacements, etc.); each of such standards
shall be the standard which is generally prevailing or in the process of being
implemented at other hotels in the Marriott System, including all services and
facilities in connection therewith that are customary and usual at comparable
hotels in the Marriott System.
"Take-Over Date" shall mean the date which is set forth on Exhibit "A-1"
hereto.
"Term" shall have the meaning ascribed to it in Section 2.01.
"Term Expiration Date" shall mean the date set forth on Exhibit "A-1"
attached hereto; provided, however, that if the Submanagement Agreement is
terminated for any reason in accordance with its terms prior to the Term
Expiration Date set forth in Exhibit "A-1" attached hereto, then the Term
Expiration Date shall be the date of such termination of the Submanagement
Agreement.
"Termination" shall mean the expiration or sooner cessation of this
Agreement.
"Termination Effective Date" shall have the meaning set forth in Section
2.01.B.
"Total Casualty" shall mean any fire or other casualty which results in
damage to the Hotel and its contents to the extent that the total cost of
repairing and/or replacing the damaged
61
portion of the Hotel to the same condition as existed previously would be thirty
percent (30%) or more of the then total replacement cost of the Hotel.
"Trade Area Expiration Date" shall mean the date which is set forth in
Exhibit "A-1" attached hereto.
"Trade Names" shall mean any name, whether informal (such as a fictitious
name or d/b/a) or formal (such as the full legal name of a corporation or
partnership) which is used to identify an entity.
"Trademark" shall mean any word, name, device, symbol, logo, design,
brand, servicemark, other distinctive feature or any combination of the
foregoing which is used to identify or symbolize a party's goods and/or services
and to distinguish them from the goods and/or services of others.
"Uniform System of Accounts" shall mean the Uniform System of Accounts for
the Lodging Industry, Ninth Revised Edition, 1996, as published by the Hotel
Association of New York City, Inc.
"Working Capital" shall mean funds that are used in the day-to-day
operation of the business of the Hotel, including, without limitation, amounts
sufficient for the maintenance of change and ▇▇▇▇▇ cash funds, amounts deposited
in operating bank accounts, receivables, amounts deposited in payroll accounts,
prepaid expenses and funds required to maintain Inventories, less accounts
payable and accrued current liabilities.
"WARN Act" shall mean the "Worker Adjustment and Retraining Notification
Act, 29 U.S.C. 2101 et seq.
END OF ARTICLE XII
SIGNATURE PAGE FOLLOWS
62
IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be
executed under seal as of the day and year first written above.
MANAGER:
IHC II, LLC
Attest:
By: By:
-------------------------- --------------------------
Title: Title:
Lessee:
Attest: Patriot American Hospitality Operating
Partnership, L.P.
By: By:
-------------------------- --------------------------
Title: Title:
63
EXHIBIT A-1
Name and Location of Hotel: Albany Marriott
▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Submanager: Marriott International, Inc.
Take-Over Date: Divestiture Date
Term Expiration Date: February 22, 2009
Base Management Fee: Two and 85/100 percent (2.85%) of Gross
Revenues.
[subject to adjustment per the Settlement
Agreement]
Initial FF&E Reserve Balance: $754,000*
FF&E Reserve Contribution: Five percent of Gross Revenues
* Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
EXHIBIT A-1
Name and Location of Hotel: Atlanta Marriott North Central
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Submanager: Marriott Hotel Services, Inc
Take-Over Date: One Year after Divestiture Date
Term Expiration Date: September 1, 2005
Base Management Fee: Two and 85/100 percent (2.85%) of Gross
Revenues
[subject to adjustment per the Settlement
Agreement]
Initial FF&E Reserve Balance: $327,000*
FF&E Reserve Contribution: Five percent of Gross Revenues
* Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
EXHIBIT A-1
Name and Location of Hotel: Pittsburgh Airport Marriott
▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Submanager: Marriott Hotel Services, Inc
Take-Over Date: One Year after Divestiture Date
Term Expiration Date: September 2, 2011
Base Management Fee: Two and 85/100 percent (2.85%) of Gross
Revenues
[subject to adjustment per the Settlement
Agreement]
Initial FF&E Reserve Balance: $18,000*
FF&E Reserve Contribution: Five percent of Gross Revenues
* Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
EXHIBIT A-1
Name and Location of Hotel: Harrisburg Marriott
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Submanager: Marriott Hotel Services, Inc.
Take-Over Date: Divestiture Date
Term Expiration Date: March 30, 2004
Base Management Fee: Two and 85/100 percent (2.85%) of Gross
Revenues.
[subject to adjustment per the Settlement
Agreement]
Initial FF&E Reserve Balance: $144,000*
FF&E Reserve Contribution: Five percent of Gross Revenues
* Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
EXHIBIT A-1
Name and Location of Hotel: Houston Marriott North at Greenspoint
▇▇▇ ▇▇. ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Submanager: Marriott Hotel Services, Inc.
Take-Over Date: One year after Divestiture Date
Term Expiration Date: January 31, 2011
Base Management Fee: Zero (i.e. no Base Management Fee)
[subject to adjustment per the Settlement
Agreement]
Initial FF&E Reserve Balance: $660,000*
FF&E Reserve Contribution: Five percent of Gross Revenues
*Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
EXHIBIT A-1
Name and Location of Hotel: Indian River Plantation Marriott Resort
▇▇▇ ▇.▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Submanager: Marriott International, Inc.
Take-Over Date: Divestiture Date
Term Expiration Date: December 31, 2017
Base Management Fee: Two and 85/100 percent (2.85%) of Gross
Revenues.
[subject to adjustment per the Settlement
Agreement]
Initial FF&E Reserve Balance: $1,075,000*
FF&E Reserve Contribution: Through December, 1999: Four percent of Gross
Revenues
2000 and thereafter: Five percent of Gross
Revenues
*Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
EXHIBIT A-1
Name and Location of Hotel: Philadelphia Marriott West
Matson Ford at Front Street
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Submanager: Marriott Hotel Services, Inc.
Take-Over Date: Divestiture Date
Term Expiration Date: August 28, 2014
Base Management Fee: Two and 85/100 percent (2.85%) of Gross
Revenues
[subject to adjustment per the Settlement
Agreement]
Initial FF&E Reserve Balance: $26,000*
FF&E Reserve Contribution: Five percent of Gross Revenues
* Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
EXHIBIT A-1
Name and Location of Hotel: San Diego Marriott Mission Valley
▇▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Submanager Marriott International, Inc.
Take-Over Date: Divestiture Date
Term Expiration Date: June 1, 2012
Base Management Fee: Two and 85/100 percent (2.85%) of Gross
Revenues.
[subject to adjustment per the Settlement
Agreement]
Initial FF&E Reserve Balance: $451,000
FF&E Reserve Contribution: Through May, 1999: Four percent of Gross
Revenues
June 1999 and thereafter: Five percent of
Gross Revenues
*Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
EXHIBIT A-1
Name and Location of Hotel: Minneapolis Marriott Southwest
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Submanager: Marriott Hotel Services, Inc.
Take-Over Date: One Year after Divestiture Date
Term Expiration Date: April 22, 2013
Base Management Fee: Two and 85/100 percent (2.85%) of Gross
Revenues.
[subject to adjustment per the Settlement
Agreement]
Initial FF&E Reserve Balance: $148,000*
FF&E Reserve Contribution: Five percent of Gross Revenues
*Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
EXHIBIT A-1
Name and Location of Hotel: Warner Center Marriott Woodland Hills
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Submanager: Marriott International, Inc.
Take-Over Date: Divestiture Date
Term Expiration Date: December 15, 2005
Base Management Fee: Two and 85/100 percent (2.85%) of Gross
Revenues.
[subject to adjustment per the Settlement
Agreement]
Initial FF&E Reserve Balance: $1,336,000*
FF&E Reserve Contribution: Five percent of Gross Revenues
* Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
EXHIBIT B-1
5-Year Plan
EXHIBIT B-2
Additional Capital Expenditures