SUBMANAGEMENT AGREEMENT
by and between
[MARRIOTT INTERNATIONAL, INC./MARRIOTT HOTEL SERVICES, INC.]
(as "SUBMANAGER")
and
IHC II, LLC
(as "Primary Manager")
Dated as of , 1998
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TABLE OF CONTENTS
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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.................................. 3
1.04 Chain Services............................................... 4
1.05 Employees.................................................... 5
1.06 Primary Manager's Right to Inspect........................... 5
1.07 Conditions to Take-Over of Hotel............................. 5
ARTICLE II
TERM
..................................................................... 6
2.01 Term......................................................... 6
2.02 Performance Termination...................................... 6
ARTICLE III
COMPENSATION OF SUBMANAGER............................................ 7
3.01 Management Fees.............................................. 7
3.02 Operating Profit............................................. 7
ARTICLE IV
ACCOUNTING MATTERS.................................................... 7
4.01 Accounting, Distributions and Annual Reconciliation.......... 7
4.02 Books and Records............................................ 8
4.03 Accounts, Expenditures....................................... 9
4.04 Accounting for Conversion of Hotel........................... 9
4.05 Business Plan................................................ 9
4.06 Working Capital............................................. 11
4.07 Fixed Asset Supplies........................................ 11
ARTICLE V
REPAIRS, MAINTENANCE AND REPLACEMENTS................................ 11
5.01 Repairs and Maintenance Costs Which Are Expensed............ 11
5.02 FF&E Reserve................................................ 12
5.03 Capital Expenditures........................................ 13
5.04 Ownership of Replacements................................... 14
ARTICLE VI
INSURANCE, DAMAGE, CONDEMNATION, AND FORCE MAJEURE................... 14
6.01 Insurance................................................... 14
6.02 Owner's Option to Obtain Property Insurance................. 16
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6.03 Damage and Repair........................................... 17
6.04 Condemnation................................................ 17
ARTICLE VII
TAXES................................................................ 18
7.01 Real Estate and Personal Property Taxes..................... 18
ARTICLE VIII
MANAGEMENT OF THE HOTEL.............................................. 18
8.01 Ownership of the Hotel...................................... 18
8.02 Mortgages................................................... 19
8.03 Subordination, Non-Disturbance and Attornment............... 20
8.04 No Covenants, Conditions or Restrictions.................... 21
8.05 Liens; Credit............................................... 21
8.06 Amendments Requested by Mortgagee........................... 21
ARTICLE IX
DEFAULTS............................................................. 22
9.01 Events of Default........................................... 22
9.02 Remedies.................................................... 23
9.03 Additional Remedies......................................... 23
ARTICLE X
ASSIGNMENT AND SALE.................................................. 23
10.01 Assignment.................................................. 23
ARTICLE XI
MISCELLANEOUS........................................................ 25
11.01 Right to Make Agreement..................................... 25
11.02 Consents and Cooperation.................................... 25
11.03 Relationship................................................ 25
11.04 Applicable Law.............................................. 25
11.05 Recordation................................................. 25
11.06 Headings.................................................... 26
11.07 Notices..................................................... 26
11.08 Environmental Matters....................................... 27
11.09 Confidentiality............................................. 28
11.10 Projections................................................. 28
11.11 Actions to be Taken Upon Termination........................ 29
11.12 Trademarks, Trade Names and Intellectual Property........... 31
11.13 Competing Facilities........................................ 31
11.14 Waiver...................................................... 32
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11.15 Partial Invalidity.......................................... 32
11.16 Survival.................................................... 32
11.17 Affiliates.................................................. 32
11.18 Negotiation of Agreement.................................... 32
11.19 Estoppel Certificates....................................... 32
11.20 System Standards............................................ 33
11.21 Arbitration................................................. 33
11.22 Restricted Area Right of Termination........................ 33
11.23 Entire Agreement............................................ 34
11.24 Expert Resolution Process................................... 34
ARTICLE XII
DEFINITION OF TERMS ................................................. 35
12.01 Definition of Terms......................................... 35
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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
Restricted Area
Trade Area Expiration Date
Exhibit "A-2" Trade Area Description
Exhibit "B-1" Five-Year Plan
Exhibit "B-2" Additional Capital Expenditures
Exhibit "C" Memorandum of Management Agreement
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SUBMANAGEMENT AGREEMENT
This Submanagement Agreement ("Agreement") is executed as of the ____ day
of __________, 1998 ("Effective Date"), by IHC II, LLC ("Primary Manager"), a
_________ limited liability company with a mailing address at
________________________________, and [MARRIOTT HOTEL SERVICES, INC or MARRIOTT
INTERNATIONAL, INC.] (as specified on Exhibit "A-1")("Submanager"), a Delaware
corporation, with a mailing address at c/o Marriott International, Inc., ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
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 owns an interest ("Owner") is the owner of fee title
[leasehold title in the case of Atlanta] to 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 and Patriot American Hospitality Operating Partnership, L.P.
("Wyndham") have entered into a lease of the Hotel to Wyndham.
C. Wyndham and Primary Manager have entered into a management agreement
(the "Primary Management Agreement") for the management of the Hotel by Primary
Manager.
D. The Hotel is presently (as of the Effective Date) being managed by
Primary Manager (the "Primary Manager").
E. 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 Primary Manager.
F. Owner, Wyndham, 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 .
G. Owner, Wyndham, Primary Manager and Submanager, simultaneously with the
execution of this Agreement and effective as of the Take-Over Date, have entered
into an Owner's Agreement (the "Owner's Agreement") which sets forth certain
rights and responsibilities among Owner, Wyndham and Submanager.
H. Primary Manager desires to engage Submanager effective as of the
Take-Over Date to manage and operate the Hotel and Submanager desires to accept
such engagement upon the terms and conditions set forth in this Agreement.
I. 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, Primary Manager and Submanager agree as follows:
ARTICLE I
MANAGEMENT OF THE HOTEL
1.01 Acceptance of the Hotel
Submanager represents that, due to the fact that the Hotel has been
operated as a Marriott franchised property, it is familiar with the condition
and operation of the Hotel and, subject to the provisions of the Agreement,
Submanager accepts the Hotel "AS IS." Such acceptance is based on the assumption
that the Hotel will continue to be operated by Primary Manager in accordance
with System Standards up to the Take-Over Date. Such acceptance includes:
A. Submanager's agreement to hire all current Hotel employees,
except as provided in Section 1.02A;
B. Submanager's acceptance of all hotel operating systems, subject
to conversion as provided in Section 1.02B;
C. Submanager's acceptance of all existing service and supply
contracts and bookings;
D. Submanager'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,
Submanager shall determine which members of the Hotel Executive Committee will
not be accepted by Submanager for employment with Submanager. In addition,
Submanager will perform (i) drug-testing on all persons applying for employment
with Submanager, and (ii) SRI testing on all managerial applicants. Submanager
and Primary Manager will jointly arrange that such interviewing and such testing
will occur on a schedule which will permit Submanager to give Primary Manager a
notice, at least thirty (30) days prior to the Take-Over Date, as to which
individuals have not been accepted for employment by Submanager. In connection
with the foregoing, Submanager agrees that: (i) Submanager will hire a
sufficient number of the existing employees at the Hotel to avoid the occurrence
of a "closing" under the WARN Act; and (ii) Submanager will hire at least eighty
percent of the existing managerial staff who apply for positions with
Submanager. Primary Manager shall make arrangements so that, prior to the
TakeOver Date, the employment of all such employees who are not accepted for
employment by Submanager 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 Submanager will be treated
as Deductions in accordance with the terms of this Agreement. Primary Manager
agrees to indemnify, defend and hold harmless Submanager and its 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
Submanager 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, Submanager will install in the Hotel
(at Primary Manager's cost) the Accounting, Payroll and Human Resources Systems
(both hardware and software) necessary for Submanager 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. Primary
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Manager shall reimburse Submanager for such costs within thirty (30) days after
being invoiced by Submanager; if Primary Manager fails to do so, Submanager
shall have the right to deduct such amounts from distributions to Primary
Manager under Section 3.02.A.
C. Prior to the Take-Over Date, Submanager shall have access to the
Hotel at reasonable times in order to inspect Hotel and the physical plant, to
familiarize itself 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.
D. Prior to and after the Take-Over Date, Primary Manager shall (and
shall cause Wyndham and Owner to) cooperate with Submanager in obtaining and
transferring such licenses, permits and approvals necessary for the operation of
the Hotel (subject to the provision contained in Section 1.07A.1).
1.03 Management Responsibilities
A. From and after the Take-Over Date, Submanager shall, and Primary
Manager hereby authorizes and engages Submanager to, supervise, direct and
control the management and operation of the Hotel in accordance with the terms
and conditions of this Agreement. During the Term, the Hotel shall be known as a
Marriott Hotel, with such additional identification determined by Submanager as
may be necessary to provide local identification.
B. Submanager shall manage the Hotel in accordance with System
Standards and shall, subject to the terms of this Agreement, 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 Primary Manager.
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
Submanager under this Agreement.
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10. Obtain and keep in full force and effect, either in
Owner's or Wyndham's name, as may be required by applicable law, any and all
licenses and permits to the extent same is within the control of Submanager (or,
if same is not within the control of Submanager, Submanager 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 Submanager 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, Submanager shall act as a reasonable and prudent manager
of the Hotel, having regard for the status of the Hotel and maintaining the
System Standards. Submanager 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 the term of any such lease,
sublease, license or concession shall not exceed the Term of this Agreement and
rent under any such lease or sublease or payments under any license or
concession agreement shall not be computed based upon the net income or profits
derived from the business activities of the tenant or licensee or concessionaire
at the Hotel; 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. Submanager agrees that it shall consult with Primary Manager prior
to the hiring of any general manager of the Hotel
D. Submanager will comply with and abide by all applicable Legal
Requirements (except for certain Legal Requirements which are Primary Manager's,
Wyndham'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. Primary Manager shall cause
Wyndham to comply (or shall cause Wyndham to cause Owner to comply, as
applicable) with and abide by all applicable Legal Requirements pertaining to
the Hotel Improvements or to Owner's or Wyndham's ownership interest in the
Hotel (including, without limitation, Primary Manager's, Wyndham's or Owner's
obligations under Sections 5.03 and 11.08 hereof). Either Owner, Wyndham,
Primary Manager or Submanager 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. Submanager will indemnify, defend and hold Owner, Wyndham and
Primary Manager 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 any willful or grossly negligent violation of
any of Submanager's corporate policies by any member of the Hotel Executive
Committee, if said claims, loss, cost, liability or damage is not insured.
1.04 Chain Services
Commencing with the Take-Over Date and thereafter during the Term of this
Agreement, Submanager shall 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 Submanager, 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, Submanager shall deliver to Primary Manager a certification
executed
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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
Primary Manager of the details of such change.
1.05 Employees
All personnel employed at the Hotel shall, at all times from and after the
Take-Over Date, be the employees of Submanager. Submanager 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. Submanager shall be permitted to provide free accommodations and
amenities to its employees and representatives living at or visiting the Hotel
in connection with its management or operation 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 Primary Manager and Submanager, except in accordance with
usual practices of the hotel and travel industry.
1.06 Primary Manager's Right to Inspect
Primary Manager and its respective agents and Owner and its respective
agents shall have access to the Hotel at any and all reasonable times for the
purpose of inspection. Owner and Wyndham 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 Submanager to assume operation of the Hotel
hereunder shall be conditioned upon each of the following:
1. That Submanager has received, prior to the Take-Over Date,
all licenses, permits, and all other approvals necessary for operation of the
Hotel by Submanager (or valid transfers of such licenses, etc., to Submanager);
provided, however, that to the extent such licenses, permits and other approvals
are held by Owner, Wyndham or Primary Manager and Submanager can operate the
hotel with such licenses, permits and other approvals in the name of Owner,
Wyndham or Primary Manager, then such licenses, permits and other approvals
shall remain in the name of Owner, Wyndham or Primary Manager, as applicable;
2. If required under Article VIII, that Submanager 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 Primary Manager has provided the necessary initial
Working Capital, as described in Section 4.06.
B. Notwithstanding any other provision of this Agreement, Submanager
shall have the right to terminate this Agreement, on thirty (30) days' written
notice to Primary Manager, if (i) the conditions to the take-over of the Hotel
by Submanager which are listed in Section 1.07.A.1 and 2 have not been satisfied
within thirty (30) days after receipt of notice from Submanager that such
conditions remain unsatisfied at the time Submanager provides such notice (which
notice may be given by Submanager at any time on or after the Take-Over Date),
or (ii) if the conditions to the takeover of the Hotel by Submanager which are
listed in Section 1.07.A.3 and 4 have not been satisfied within ten (10) days
after receipt of notice from Submanager that such conditions remain unsatisfied
at the time Submanager provides such notice (which notice may be given by
Submanager at any time on or after the
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Takeover Date). Any such termination shall not be exclusive of any other rights
or remedies of Submanager under this Agreement, the Owners Agreement or the
Settlement Agreement.
ARTICLE II
TERM
2.01 Term
A. 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 this Agreement, 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 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 below. Such royalty fee payments under the Franchise Agreement
shall be paid out of Gross Revenues hereunder, and Submanager is hereby
authorized and directed to make such payments, which shall be treated as
Deductions hereunder for all purposes.
B. In the event of any Termination of this Agreement (but excluding:
(i) natural expiration at the Term Expiration Date, or (ii) Termination pursuant
to Section 11.22), Primary Manager shall, as of the effective date of said
Termination (the "Termination Effective Date") reinstate the Franchise Agreement
(the "Reinstated Franchise Agreement"), modified as follows: (w) such Reinstated
Franchise Agreement shall be in effect from and after the Termination Effective
Date, and shall continue until the Term Expiration Date, (x) the franchise fees
under such Reinstated Franchise Agreement shall continue until the Term
Expiration Date, (y) the restrictions on Owner, Lessee or Primary Manager from
developing, owning, franchising or operating other hotels within a designated
area around the Hotel shall not be effective, and (z) such other modifications
to the Franchise Agreement as are provided in the Settlement Agreement. In
addition, upon such Termination (i.e. other than a Termination which is excluded
in the parenthetical clause in the first sentence of this Section 2.01.B),
Submanager shall be paid the "Special Fee" as defined herein, which, in the
event the lump sum payment option is selected, shall be paid on or before the
effective date of Termination, to the extent not paid pursuant to the Settlement
Agreement. In the event of any Termination of this Agreement pursuant to Section
11.22, the Franchise Agreement shall not be reinstated and as of the date of
such Termination, no further royalty fees shall be payable under the Franchise
Agreement, and the Franchise Agreement will not be of any further force or
effect.
2.02 Performance Termination
A. Subject to the provisions of Section 2.02.B below, Primary
Manager shall have the option to terminate this 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 TakeOver 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 shall be exercised by serving written notice thereof on
Submanager no later than sixty (60) days after the receipt by Primary Manager 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 Submanager does not elect to
avoid such Termination pursuant to Section 2.02.B below, this Agreement shall
terminate as of the end of the fourth (4th) full Accounting Period following the
date on which Submanager receives Primary Manager'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. Primary Manager's failure to
exercise
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its right to terminate this Agreement pursuant to Section 2.02.A with respect to
any given Fiscal Year shall not be deemed an estoppel or waiver of Primary
Manager's right to terminate this Agreement with respect to subsequent Fiscal
Years to which this Section 2.02.A may apply.
B. Upon receipt of Primary Manager's written notice of Termination
under Section 2.02.A, Submanager 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 Primary Manager) to waive the payment of the Base
Management Fee and the payment of franchise fees under the Franchise Agreement
(beginning as of the first day of the next full Accounting Period after the date
of such notice from Submanager) until such time as the total cumulative amount
(the "Cumulative Waived Base Fees") of such waived Base Management Fee 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 the Houston, the following applies: Upon receipt of Primary
Manager's written notice of Termination under Section 2.02.A, Submanager 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 Primary Manager)
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
Primary Manager.] In the event Submanager 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
Primary Manager pursuant to Section 2.02.A, as Fiscal Years in which the
circumstances described in Section 2.02.A.1 have occurred. If Submanager
exercises such option to make such Cure Payment, then the foregoing Primary
Manager'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 Primary Manager, 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 Submanager does not exercise
its option to make a Cure Payment as aforesaid, then this Agreement shall be
terminated as of the date set forth in Section 2.02.A. Submanager may not elect
to make a Cure Payment more than one (1) time during the Term hereof.
ARTICLE III
COMPENSATION OF SUBMANAGER
3.01 Management Fees
Submanager shall be paid the Base Management Fee, which shall be retained
by Submanager from Gross Revenues.
3.02 Operating Profit
Operating Profit shall be distributed to Primary Manager in accordance
with Article IV.
ARTICLE IV
ACCOUNTING MATTERS
4.01 Accounting, Distributions and Annual Reconciliation
A. Submanager agrees that it shall institute (as soon as reasonably
practicable after the TakeOver Date, but in no event more than sixty (60) days
after the Take-Over Date) cash management protocols at the Hotel in order to
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
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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, Submanager shall
sweep weekly to Primary Manager's account on a manual basis. Within twenty (20)
days after the close of each Accounting Period (Submanager hereby agreeing to
use reasonable best efforts to deliver reports in fifteen (15) days), Submanager
shall deliver an interim accounting (the "Accounting Period Statement") to
Primary Manager 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, Submanager shall deliver to Primary
Manager 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 Submanager'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 Primary
Manager'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 Primary Manager within thirty (30) days after Submanager has
delivered written notice thereof to Primary Manager. If Primary Manager does not
so fund such Operating Loss within the thirty (30) day time period, Submanager
shall have the right (without affecting Submanager's other remedies under this
Agreement) to withdraw an amount equal to such Operating Loss from future
distributions of funds otherwise due to Primary Manager.
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. Primary Manager may at reasonable intervals during
Submanager's normal business hours examine such records. If Primary Manager
desires, at its own expense, to audit, examine, or review the Annual Operating
Statement, Primary Manager shall notify Submanager in writing within sixty (60)
days after receipt of such Annual Operating Statement of its intention to audit
and begin such audit no sooner than thirty (30) days and no later than sixty
(60) days after Submanager's receipt of such notice. Primary Manager shall
complete such audit within ninety (90) days after commencement thereof. If
Primary Manager does not make such an audit, then such Annual Operating
Statement shall be deemed to be conclusively accepted by Primary Manager as
being correct, and Primary Manager shall have no right thereafter, except in the
event of fraud by Submanager, to question or examine the same. If any audit by
Primary Manager discloses an understatement of any amounts due Primary Manager,
Submanager shall promptly pay Primary Manager 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
Submanager has not received any amounts due it, Primary Manager shall pay
Submanager 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, Primary Manager's auditors (which may be
Owner's auditors) shall have 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 Submanager shall provide access to the books and control
of account for the Hotel for such purpose. Submanager also agrees to make
available in connection with Primary Manager's audit such other information as
it may have in order that Primary Manager can prepare or furnish Wyndham with
the information for Wyndham to prepare such reports as may be required under the
Lease and so that Owner and Wyndham can make filings required under any
applicable securities laws and regulations or requirements of any applicable
stock exchange. Submanager agrees to retain all accounting records for each
Fiscal Year for at least three (3) years after the expiration of such Fiscal
Year.
8
4.03 Accounts, Expenditures
A. 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 Submanager in
bank accounts (the "Operating Accounts") in a bank or banks designated by
Submanager, subject to Primary Manager's reasonable approval. Withdrawals from
said Operating Accounts shall be made solely by representatives of Submanager
whose signatures have been authorized. Submanager shall assume the
responsibilities of a fiduciary with respect to Submanager's handling of Primary
Manager's funds which are derived from the operation of the Hotel. Reasonable
▇▇▇▇▇ cash funds shall be maintained at the Hotel.
B. All payments made by Submanager hereunder shall be made from the
Operating Accounts, ▇▇▇▇▇ cash funds, or from the FF&E Reserve (in accordance
with Section 5.02). Submanager shall not be required to make any advance or
payment with respect to the Hotel except out of such funds, and Submanager 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 Primary Manager. In any event, if any such liability or obligation
is incurred by Submanager with respect to the Hotel, Submanager shall have the
option to deduct such amounts from Primary Manager's share of Operating Profit
if Primary Manager has not fully reimbursed Submanager for said amounts within
ten (10) days after Primary Manager's receipt of notice from Submanager that
said amounts are due.
C. Debts and liabilities incurred by Submanager 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 Primary Manager 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 Primary Manager from its own funds, and not from
Gross Revenues nor from the FF&E Reserve. Primary Manager agrees to indemnify,
defend and hold Submanager and its 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 Primary Manager, Submanager agrees to
apply any Previously- Accrued Receivables which Submanager receives at the Hotel
to pay those Previously-Accrued Payables which Primary Manager has confirmed in
writing to Submanager. Submanager shall use commercially reasonable procedures
to collect such Previously-Accrued Receivables, but 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,
Primary Manager shall be responsible for the payment of such excess. Any surplus
of the Previously-Accrued Receivables received by Submanager over such
Previously-Accrued Payables shall be promptly remitted by Submanager to Primary
Manager.
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 Submanager pursuant to
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 Primary Manager.
4.05 Business Plan
A. Submanager shall submit to Primary Manager 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
9
financial results of the operation of the Hotel during the next Fiscal Year.
Primary Manager's approval shall be deemed to have been given if Submanager has
received no notice from Primary Manager to the contrary within forty-five (45)
days after Primary Manager's receipt of such Proposed Business Plan. Such
Proposed Business Plan shall project the estimated Gross Revenues, departmental
profits, Deductions, and Operating Profit for the forthcoming Fiscal Year for
the Hotel. In preparing the Proposed Business Plan for each Fiscal Year,
Submanager'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, Submanager agrees to take reasonable steps to
ensure that, at Primary Manager's request, qualified personnel from Submanager's
staff are available at the Hotel to explain these differences to Primary
Manager. A meeting (or meetings) for such purpose shall be held, at the Hotel,
at Primary Manager's request, within a reasonable period of time after the
submission to Primary Manager of the Proposed Business Plan. Submanager will at
all times give good faith consideration to Primary Manager's suggestions
regarding any Proposed Business Plan, and in any event each Proposed Business
Plan is subject to the approval of Primary Manager as set forth in Section
4.05.B.
B. Primary Manager shall not be entitled to withhold its approval of
any Proposed Business Plan based on its objection to: (i) Submanager'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, Wyndham, Primary
Manager or Submanager, 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 Primary Manager (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 Primary Manager'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 Primary Manager as set forth in Section 4.05.A. If Primary
Manager and Submanager fail to mutually agree on the Proposed Business Plan
within sixty (60) days after the submission to Primary Manager of the Proposed
Business Plan, as described in the first sentence of Section 4.05.A, either
party shall have the right to submit to the Expert Resolution Process the issue
of whether or not the Proposed Business Plan submitted by Submanager is
unreasonable, given the goals which are set forth in the fourth sentence of
Section 4.05.A. While such determination by the Expert is pending, Submanager
shall 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 Primary
Manager and Submanager, and with adjustments for those items listed in clauses
(i), (ii), (iii), and (iv) above. The Proposed Business Plan, as approved by
Primary Manager (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 Take-Over Date, Submanager shall submit the Proposed Business Plan to
Primary Manager by no later than thirty (30) days prior to the Take-Over Date.
D. Submanager shall 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
Submanager shall be entitled to depart therefrom due to causes of the foregoing
nature. In the event that Submanager determines that circumstances require that
there will be material changes in the Business Plan, Submanager shall so notify
Primary Manager, and, as to any components of a Business Plan over which Primary
Manager has approval rights under this Agreement, Primary Manager shall have the
right to reasonably approve such proposed material changes. Primary Manager's
approval shall be deemed to have been
10
given if Submanager has received no notice from Primary Manager to the contrary
within twenty (20) days after Primary Manager's receipt of such notice of
proposed material changes in the Business Plan.
E. Submanager shall provide to Primary Manager with fifteen (15)
days after the expiration of each fiscal quarter a reforecast of the Business
Plan for such Fiscal Year.
4.06 Working Capital
A. On or prior to the Take-Over Date, Primary Manager shall provide
Submanager 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 Primary Manager fails to provide any Working Capital as required under
this Section 4.06.A, Submanager shall have the right (after first giving Primary
Manager ten (10) days written notice thereof) to deduct the required amounts
from Gross Revenues.
B. Primary Manager shall, from time to time during the Term,
promptly, but no later than thirty (30) days after written request by
Submanager, 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 Primary Manager does not so fund additional Working Capital within the said
thirty (30) day time period, Submanager shall have the right (without affecting
Submanager's other remedies under this Agreement) to withdraw an amount equal to
the funds requested in order to maintain a Reasonable Amount of Working Capital
from future distributions of funds otherwise due to Primary Manager. All funds
so advanced for Working Capital shall be utilized by Submanager for the purposes
of this Agreement pursuant to cash management policies established for the
Marriott System. Upon Termination, Submanager shall, except as otherwise
provided in this Agreement, return the outstanding balance of the Working
Capital to Primary Manager.
4.07 Fixed Asset Supplies
Primary Manager shall, within thirty (30) days after request by
Submanager, provide funds that are necessary to increase the level of Fixed
Asset Supplies to levels determined by Submanager, 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 Hotel throughout the term of the Agreement and upon
Termination (except for those Fixed Asset Supplies which are purchased by
Submanager 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
Submanager shall 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.
11
5.02 FF&E Reserve
A. Submanager shall establish a reserve account (the "FF&E
Reserve"), in a bank or similar institution reasonably acceptable to both
Submanager and Primary Manager, 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
Submanager whose signatures have been authorized. Primary Manager 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 Primary Manager 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, Submanager
shall have the right (after first giving Primary Manager ten (10) days written
notice thereof) to deduct the required amounts from Gross Revenues. In addition,
Primary Manager 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, Submanager 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. Submanager shall 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 Primary Manager for its
approval (which shall not be unreasonably withheld or delayed), at the same time
as Submanager 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, Submanager's goal will be to maintain the Hotel in accordance
with System Standards and the general standards of the hotel industry for
similar properties. Primary Manager 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 Primary Manager and Submanager fail to mutually agree on the FF&E
Estimate within forty-five (45) days after the submission to Primary Manager,
either party shall have the right to submit to the Expert Resolution Process the
issue of whether or not Submanager'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, Submanager shall
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 Primary Manager and
Submanager, and for those items listed above over which Primary Manager has no
right of approval.
D. Submanager shall, consistent with the applicable FF&E Estimate,
from time to time make such (1) replacements, renewals and additions to the FF&E
of the Hotel, and (2) Special Capital Expenditures, as Submanager 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 Primary Manager
and Submanager shall diligently operate the Hotel in accordance with the FF&E
Estimate approved (or deemed approved through the Expert Resolution Process) by
Primary Manager, provided that, to the extent not included in the applicable
FF&E Estimate or not otherwise approved by Primary Manager, Submanager shall be
allowed to use the funds in the FF&E Reserve for expenditures deemed reasonably
necessary by Submanager 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 the Submanager, or (ii) presents a
threat to life or property of Submanager or any guest, employee or invitee on or
about
12
the Hotel; provided, however, that Submanager shall give notice of any such
expenditure made by Submanager 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
Submanager 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, Submanager
shall give notice to Primary Manager 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 Primary Manager.
If Primary Manager and Submanager fail to agree on a requested increase in the
annual percentage Section 5.02.B within forty-five (45) days after the
submission to Primary Manager, either party shall have the right to submit to
the Expert Resolution Process the issue of whether or not Primary Manager's
proposed increase in the annual percentage is reasonable. 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 Primary Manager, 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 the Submanager being unable to maintain the Hotel in
accordance with the System Standards, Submanager may, on sixty (60) days written
notice to Primary Manager, terminate this Agreement. Finally, the placing of any
restrictions on the expenditure by Submanager 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, Wyndham, Primary
Manager or the Hotel, or (ii) a Foreclosure) shall entitle Submanager, on sixty
(60) days written notice to Primary Manager, to terminate this Agreement.
F. Submanager covenants that it shall utilize amounts in the FF&E
Reserve solely 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 shall not be subject to setoff for any other amounts
alleged by Submanager to be owed by Primary Manager to Submanager.
5.03 Capital Expenditures
A. Submanager shall prepare an annual estimate (the "Building
Estimate") of all Capital Expenditures. Submanager shall submit the Building
Estimate to Primary Manager for its approval at the same time as Submanager
submits the Proposed Business Plan described in Section 4.05.A. Submanager shall
not make any Capital Expenditures without the prior written Approval of Primary
Manager, unless otherwise permitted herein. Primary Manager shall (or shall
cause Wyndham under the Primary Management Agreement (or cause Wyndham to cause
Owner, as applicable), to) make Capital Expenditures to allow the completion of
the work described on Exhibit "B-2" hereto at Primary Manager's, or Wyndham's or
Owner's, as applicable, sole cost and expense and not from Gross Revenues or the
FF&E Reserves.
B. Notwithstanding the provisions of Section 5.03A, Submanager shall
be authorized to take appropriate remedial action (including making any
necessary Capital Expenditures) without receiving Primary Manager'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 Submanager and/or Primary Manager and/or Owner
and/or Wyndham to civil or criminal liability, and if Primary Manager has either
failed to remedy the situation or has failed to take appropriate legal action to
stay the effectiveness of any applicable Legal Requirement. Submanager shall
cooperate with Primary Manager in the pursuit of any such action and shall have
the
13
right to participate therein. Primary Manager shall, upon written request by
Submanager, promptly reimburse all expenditures made by Submanager pursuant to
this Section 5.03.B.
C. The cost of all Capital Expenditures (including the expenses
incurred by either Primary Manager or Submanager in connection with any civil or
criminal proceeding described above) shall be borne solely by Primary Manager,
and shall not be paid from Gross Revenues nor from the FF&E Reserve.
D. Primary Manager shall not unreasonably withhold its Approval with
respect to Capital Expenditures as are: (i) required, in Submanager'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. Submanager shall be entitled
to terminate this Agreement, on sixty (60) days' notice to Primary Manager, if:
Primary Manager 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 Primary Manager of
the Building Estimate requesting such Capital Expenditure.
E. Submanager 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, Primary Manager shall be obligated (or shall cause Wyndham under the
Primary Management Agreement (or cause Wyndham to cause Owner, as applicable))
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
Submanager. Submanager shall review any such elements and the schedule of
compliance and funding with Primary Manager, and shall consider in good faith
any comments of Primary Manager as to methods of compliance with ADA and
priority of compliance efforts.
F. On the Effective Date, Primary Manager shall fund an escrow
account 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 Primary Manager or
Wyndham, as applicable.
ARTICLE VI
INSURANCE, DAMAGE, CONDEMNATION, AND FORCE MAJEURE
6.01 Insurance
A. Subject to Section 6.02, Submanager shall, commencing with the
Take-Over Date and thereafter during the Term of the Agreement, procure and
maintain, either with insurance companies of recognized responsibility
reasonably approved by Primary Manager 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;
14
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 Submanager 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 Submanager's employees at the Hotel;
6. Fidelity bonds, with reasonable limits to be determined by
Submanager, 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 Submanager and Primary Manager mutually and reasonably agree it is
necessary for the Hotel;
7. Employer's liability insurance in accordance with
Submanager's standard practices and policies (it being agreed that, in the event
Primary Manager requests an increase in the coverage or limits of such
insurance, and provided that such increased coverage or limit is available,
Submanager shall obtain such increased coverage or limit, with the 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 Submanager in its
reasonable judgment 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
Submanager by endorsement or equivalent means under its blanket insurance
policies, provided that such blanket policies substantially fulfill the
requirements specified in this Agreement.
C. Submanager may self insure or otherwise retain such risks or
portions thereof as it does with respect to other similar hotels it owns, leases
or manages under the Marriott name in the United States.
D. All policies of insurance required under Section 6.01.A shall be
carried in the name of Submanager. The policies required under Sections
6.01.A.1, 2, 3, and 4 shall include the Owner, Wyndham and Primary Manager as an
additional insured. Upon notice by the Primary Manager, Submanager shall also
have the policies required under Sections 6.01.A.1, 2, and 3 include any
Mortgagee as an additional insured. 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. Submanager shall deliver to Owner, Wyndham and Primary 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. 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 Submanager's blanket
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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 Submanager
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 Submanager, and which
is in accordance with generally accepted practices in the insurance industry,
shall be established from Gross Revenues (or, if Gross Revenues are
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
Primary Manager or Submanager 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 Submanager'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 Submanager'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. Submanager agrees that the charge to the Hotel for insurance that
it obtains pursuant to the foregoing provisions shall not incorporate a profit
to Submanager 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
Primary Manager's written request, Submanager will provide Primary Manager with
its best estimate of the renewal cost of Submanager's blanket insurance as
required in Section 6.01.A.(1), (2) and (3). Primary Manager may, at its option,
by written notice to Submanager which shall be delivered no later than ninety
(90) days prior to the natural expiration of the insurance policies which
Submanager has obtained pursuant to Section 6.01.A(1), (2) and (3), advise
Submanager that Owner or Wyndham shall procure and maintain the insurance
specified in Section 6.01.A(1), (2) and (3) (in which case Submanager shall
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 Wyndham as applicable, with Submanager 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 Wyndham that the
amount of such proceeds (together with other funds Owner or Wyndham agrees to
make available) is sufficient for such purpose.
B. Primary Manager shall deliver to Submanager 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
Wyndham exceeds the cost of Submanager's comparable coverage by more than ten
percent (10%), all such excess costs shall be the sole responsibility of Primary
Manager and shall not be a Deduction.
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E. Should Primary Manager exercise its option to have the insurance
described in this Section 6.02 procured by Owner or Wyndham, Primary Manager
hereby waives and shall cause Owner and Wyndham to waive in writing to
Submanager their rights of recovery from Submanager 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 Wyndham shall be obtained from
reputable insurance companies reasonably acceptable to Submanager.
G. Should Primary Manager exercise its right to have Owner or
Wyndham obtain the insurance described in this Section 6.02, Primary Manager
acknowledges that Submanager 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,
Submanager shall, with all reasonable diligence, 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. Primary Manager's
consent shall not be needed for Submanager to perform any of the foregoing, all
of which shall be performed in accordance with Submanager's reasonable judgment.
Primary Manager 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, this
Agreement shall be terminable at the option of either party upon ninety (90)
days' written notice to the other party. Such notice 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, Primary Manager shall cause Wyndham
(or shall cause Wyndham to 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. Submanager
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 Wyndham, 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 Primary Manager.
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.
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 Submanager 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, all real
estate and personal property taxes, levies, assessments and similar charges on
or relating to the Hotel ("Impositions") during the Term shall be paid by
Submanager from Gross Revenues, before any fine, penalty, or interest is added
thereto or lien placed upon the Hotel or upon the 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. Primary
Manager shall, within five (5) days after receipt, furnish Submanager with
copies of official tax bills and assessments which it may receive with respect
to the Hotel. Any of Owner, Wyndham, Primary Manager or Submanager (in which
case Primary Manager agrees to cause Owner or Wyndham to sign, as applicable,
the required applications and otherwise cooperate with Submanager 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. Submanager shall, as part of its contest or negotiation of any
Imposition, be entitled, on Owner's or Wyndham's behalf, 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 Primary Manager,
Owner or Wyndham, 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, Wyndham or Primary Manager, or
any income tax imposed on any income of Owner, Wyndham or Primary Manager
(including distributions to Primary Manager 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,
Wyndham or Primary Manager 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
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. Primary Manager hereby covenants that it will exercise its rights
under the Primary Management Agreement (i) to cause Wyndham to have, keep, and
maintain good and marketable leasehold title to
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the Hotel (ii) to cause Wyndham to cause Owner to have, keep and maintain good
and marketable fee title 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 Submanager 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. Primary Manager shall exercise its rights under the Primary
Management Agreement to cause Wyndham (or to cause Wyndham to cause Owner) to
pay and discharge, on or before the due date, any and all payments due under any
Mortgage. Primary Manager shall exercise its rights under the Primary Management
Agreement to cause Wyndham (or to cause Wyndham to cause Owner) to indemnify,
defend, and hold Submanager harmless from and against all claims, litigation and
damages arising from the failure of Owner or Wyndham, as applicable, to make any
such payments as and when required; and this obligation of Primary Manager shall
survive Termination. Submanager 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 Wyndham.
C. Primary Manager covenants and shall exercise its rights under the
Primary Management Agreement to cause Wyndham (or to cause Wyndham to cause
Owner) to covenant that, so long as Submanager is not in Default under this
Agreement or any Subordination Agreement, Submanager shall quietly hold, occupy
and enjoy the Hotel throughout the Term hereof free from hindrance, ejection or
molestation by Owner, Wyndham or Primary Manager or other party claiming under,
through or by right of Owner, Wyndham or Primary Manager. Primary Manager shall
exercise its rights under the Primary Management Agreement to cause Wyndham (or
to cause Wyndham 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 Wyndham, 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 Submanager.
8.02 Mortgages
A. Owner or Wyndham shall be permitted to encumber the Hotel and/or
the Site with any Mortgage which is a Qualified Mortgage. Primary Manager
covenants that it shall exercise its rights under the Primary Management
Agreement to cause Wyndham (or to cause Wyndham to cause Owner) not to 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 Wyndham (as applicable) and Primary 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. Submanager agrees 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.
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8.03 Subordination, Non-Disturbance and Attornment
A. Primary Manager shall exercise its rights under the Primary
Management Agreement to cause Wyndham (or to cause Wyndham to cause Owner) (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 Submanager and such
Mortgagee, which shall be recordable in the jurisdiction where the Hotel is
located, pursuant to which:
1. This Agreement and any extensions, renewals, replacements
or modifications thereto, and all right and interest of Primary Manager and
Submanager in and to the Hotel, shall be subject and subordinate to such
Mortgage;
2. Primary Manager and Submanager 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
Wyndham, 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 or survives such Foreclosure, Primary Manager shall not be disturbed
in its rights under the Primary Management Agreement and Submanager shall not be
disturbed in its rights under this Agreement so long as Primary Manager is not
in default under the Primary Management Agreement and Submanager is not in
Default hereunder.
B. In the event that the Subordination Agreement contains provisions
requiring Submanager (upon a default under the Mortgage, or upon various other
stipulated conditions) to pay certain amounts which are otherwise due to Primary
Manager under this Agreement to the Mortgagee or its designee (rather than to
Primary Manager), Primary Manager 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 with any
Mortgage after the Take-Over Date, Primary Manager shall be obligated to
exercise its rights under the Primary Management Agreement to cause Wyndham (or
to cause Wyndham to cause Owner) to obtain from the proposed Mortgagee an
executed, recordable Subordination Agreement. Primary Manager and Submanager
agree to execute such Subordination Agreement for the benefit of such proposed
Mortgagee. If Owner or Wyndham 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 Primary Manager under this
Agreement, entitling Submanager to all of the remedies set forth in Article IX;
and (ii) in addition, Submanager shall thereafter have a continuing right to
terminate this Agreement upon sixty (60) days' prior written notice to Primary
Manager.
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 Submanager in accordance with the System Standards (such as, for
example, the imposition of restrictions upon expenditures from the FF&E Reserve
by Submanager, where such restrictions are not set forth in this Agreement), the
foregoing shall be deemed to be an Event of Default by Primary Manager entitling
Submanager to all of the remedies set forth in Article IX.
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8.04 No Covenants, Conditions or Restrictions
A. Primary Manager covenants that it will exercise its rights under
the Primary Management Agreement to cause Wyndham (or to cause Wyndham to cause
Owner) to not (unless Submanager 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 Submanager 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 Submanager; or (iv)
which would subject the Hotel to exclusive arrangements regarding food and
beverage operation or retail merchandise. To Primary Manager's knowledge, any
existing CC&R's affecting the Site or the Hotel are effected in instruments
which have been provided by Primary Manager, Owner or Wyndham to Submanager.
B. Unless otherwise agreed by both Primary Manager and Submanager,
all financial obligations imposed on Owner, Wyndham or Primary Manager or on the
Hotel pursuant to any CC&R's shall be paid by Primary Manager (or Primary
Manager shall cause to be paid by Primary Manager or Wyndham) from its own
funds, and not from Gross Revenues or from the FF&E Reserve. Submanager'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 Primary
Manager or by Owner or Wyndham).
8.05 Liens; Credit
Submanager and Primary Manager shall use commercially reasonable
efforts, and Primary Manager shall exercise its rights under the Primary
Management Agreement to cause Wyndham (or to cause Wyndham 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. Submanager and
Primary Manager shall cooperate fully, and Primary Manager shall exercise its
rights under the Primary Management Agreement to cause Wyndham to cooperate
fully (or 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 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,
Submanager agrees to execute and deliver any amendment of this Agreement that is
reasonably required by such Mortgagee or prospective Mortgagee, provided that
Submanager shall be under no obligation to amend this Agreement if the result of
such amendment would be: (i) to reduce, defer or delay the amount of any payment
to be made to Submanager hereunder; (ii) to materially and adversely increase
Submanager's obligations or affect Submanager's rights under this Agreement;
(iii) to change the Term of this 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. 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 Submanager enter into an amendment of
this 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 Submanager, or would otherwise adversely affect Submanager's rights
under this Agreement, but not to the degree of materiality which would be
21
prohibited under Section 8.06.A, and with respect to which Submanager believes,
in its good faith judgment, that it can be adequately compensated, Submanager
hereby agrees that it will execute and deliver such requested amendment of this
Agreement, provided that Primary Manager agrees to compensate Submanager for the
additional burden imposed by such amendment. It is understood that the word
"burden", as used in the preceding sentence, shall encompass not only additional
work to be performed by Submanager, 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 Submanager in meeting
such additional obligations. Any dispute as to the additional compensation to
which Submanager is entitled pursuant to this Section 8.06.B. shall be resolved
by arbitration pursuant to Section 11.21.
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. Notwithstanding the foregoing, the Defaults described in subsection
A-C herein, shall not constitute an Event of Default triggering Submanager's
remedies under Section 9.02 in the event that Wyndham and Owner select a
replacement Primary Manager pursuant to the terms of the Owner's Agreement.
D. The failure of either party to make (or in the case of Primary
Manager, the failure of Primary Manager to make or to cause Wyndham, (or to
cause Wyndham to cause Owner, as applicable) 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 period of time, if the defaulting party
fails to commence the
22
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 Submanager, 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 Primary Manager
under the provisions of Section 9.01.D, Submanager shall have the right (without
affecting Submanager's other remedies under this Agreement) to withdraw the
amount (plus accrued interest as described in 9.03.A above) owed to Submanager
by Primary Manager from distributions otherwise payable to Primary Manager
pursuant to Sections 3.01 and 4.01 of this Agreement.
C. Submanager 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
Primary Manager 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 Wyndham under the Owner's Agreement,
Submanager shall be entitled to terminate this Agreement, provided that such
Termination shall not be an exclusive remedy and Submanager shall be entitled to
pursue any remedies it may have under the Owner's Agreement or under this
Agreement against Primary Manager.
ARTICLE X
ASSIGNMENT AND SALE
10.01 Assignment
A. Submanager shall not directly or indirectly assign or transfer
its interest in this Agreement without the prior written consent of Primary
Manager; provided, however, that Submanager shall have the right, without
Primary Manager's consent, to (1) assign its interest in this Agreement to
Marriott or any Affiliate (provided
23
such Affiliate has the right to use the Marriott Trade Names and Marriott
Trademark, and otherwise is of sufficient financial capacity to perform
Submanager's duties hereunder), (2) 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 this Agreement, (3) assign its interest in this Agreement to any entity
into or with which Submanager is merged or consolidated or to which all or
substantially all of the assets of Submanager or Marriott are sold, and (4)
assign its interest in this Agreement to any entity to which there is a sale of
all or substantially all of the Marriott System assets owned by Submanage or
Marriott.
B. Primary Manager shall not assign or transfer its interest in this
Agreement without the prior written consent of Submanager; provided, however,
that Primary Manager 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 Affiliate of Primary Manager (provided such Affiliate is no
less financially sound than Primary Manager at the time of assignment), (3)
assign its interest in this Agreement to any entity into or with which Primary
Manager is merged or consolidated or to which all or substantially all of the
assets of Primary Manager or its parent company 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 Primary Manager or Submanager of its interest in this Agreement shall not
relieve Primary Manager or Submanager, 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. Submanager shall have the right to terminate this Agreement, on
thirty (30) days' written notice, if title to or possession of the Hotel is
transferred by judicial or administrative process (including, without
limitation, a foreclosure, or a sale pursuant to an order of a bankruptcy court,
or a sale by a court-appointed receiver) to an individual or entity which is not
a Qualified Person (as defined in Section 10.02A), regardless of whether or not
such transfer is the voluntary action of Owner or Wyndham (or successor owner of
the Hotel or leasehold interest therein) or whether (under applicable law) Owner
or Wyndham (or successor owner of the Hotel or leasehold interest therein) is in
fact the transferor.
E. The foregoing provisions of this Section 10.01 are not intended
to limit or modify the provisions of the Settlement Agreement relating to an
assignment of this Agreement.
10.02 Sale of the Hotel.
A. Primary Manager shall not without the express prior written
consent of Submanager, which consent may be unreasonably withheld or delayed,
enter into a Sale of the Hotel with any Person other than a Qualified Person.
For purposes hereof, "Qualified Person" shall mean a Person that is not, and is
not an Affiliate of, (i) a hotel management entity which is a competitor of
Manager or any of its Affiliates in the management of hotels, (ii) a Person
controlled by, or associated with, organized crime, or (iii) a repeat felon or a
Person convicted of a capital crime.
B. Upon closing of any Sale of the Hotel, except as otherwise set
forth in the Settlement Agreement Primary Manager shall cause the purchaser of
the Hotel to enter into an agreement with Submanager, in form and substance
reasonably satisfactory to Submanager, agreeing that this Agreement continue in
full force and effect after such sale, assignment, transfer or other
disposition; and to assume all of the contractual obligations of Primary Manager
contained in this Agreement and accruing after the date of the Sale of the
Hotel. Except as otherwise provided in the Settlement Agreement, this Agreement
is not terminable due to or in connection with any Sale of the Hotel. In
addition to the assumption of this Agreement, Primary Manager shall cause the
purchaser of the
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Hotel to assume the Franchise Agreement (which shall remain suspended absent an
event that causes a Reinstated Franchise Agreement to become effective).
C. The foregoing provisions of this Section 10.02 are not intended
to limit or modify the provisions of the Settlement Agreement relating to the
Sale of the Hotel, including Section 3.2.4 thereof.
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 Primary Manager or
Submanager 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 consent or approval
subject, however, to the provisions of the Owner's Agreement. If either Primary
Manager or Submanager 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, Primary Manager agrees to cooperate with Submanager by exercising
its rights under the Primary Management Agreement to cause Wyndham to execute
such leases, subleases, licenses, concessions, equipment leases, service
contracts and other agreements negotiated in good faith by Submanager and
pertaining to the Hotel that, in Submanager's reasonable judgment, should be
made in the name of the lessee of the Hotel.
11.03 Relationship
In the performance of this Agreement, Submanager 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 Submanager a partner, joint venturer
with, or agent of, Primary Manager, Owner or Wyndham. Primary Manager and
Submanager agree that neither party will make any contrary assertion, claim or
counterclaim in any action, suit, arbitration or other legal proceedings
involving Primary Manager (or Owner or Wyndham) and Submanager.
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 Recordation
The terms and provisions of the Agreement shall run with Wyndham's
leasehold and Owner's fee interest in the parcel of land designated as the Site,
and with Wyndham's and Owner's interests therein, and shall be binding upon all
successors to such interest. Simultaneously with the execution of this
Agreement, Primary Manager shall exercise its rights under the Primary
Management Agreement to cause Wyndham to cause Owner to execute a recordable
"Memorandum of Management Agreement", in the form which is attached hereto as
Exhibit "D". The
25
Memorandum shall be recorded or registered promptly following the Effective Date
in the jurisdiction in which the Hotel is located. Any cost of such recordation
shall be reimbursed from Gross Revenues and treated as a Deduction. Upon a
termination of this Agreement in accordance with the provisions of this
Agreement, Submanager agrees to execute a recordable termination of such
Memorandum of Management Agreement in form reasonably agreed to by Primary
Manager (it being acknowledged that pursuant to the Primary Management Agreement
Primary Manager is required to obtain the agreement of Wyndham to such form).
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 Primary Manager:
IHC II, LLC
---------------------------
---------------------------
---------------------------
FAX:
-----------------------
with copy to:
---------------------------
---------------------------
---------------------------
FAX:
-----------------------
To Submanager:
Marriott Hotel Services, Inc.
c/o Marriott International, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Law Department 52/923 -- Hotel Operations
FAX: 301/▇▇▇-▇▇▇▇
with copy to:
Marriott Hotel Services, Inc.
c/o Marriott International, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Lodging Financial Analysis Dept. 911.10
FAX: 301/▇▇▇-▇▇▇▇
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
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second business day following such transmission. Telephone facsimiles shall be
deemed delivered on the date of such transmission.
11.08 Environmental Matters
A. Primary Manager hereby represents and warrants to Submanager
that, to the best of its knowledge except as set forth in any environmental
assessment reports provided by Owner, Wyndham or Primary Manager to Submanager,
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, Primary Manager hereby
represents and warrants that it has previously delivered or has caused Owner or
Wyndham to have delivered to Submanager copies of all reports concerning
environmental conditions which have been received by Primary Manager or any of
its Affiliates. Prior to the Take-Over Date, Submanager 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
Submanager's good-faith judgment) of possible adverse legal consequences to
Submanager if it were to assume operation of the Hotel.
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, Primary Manager shall (except as otherwise set forth to the contrary
in Section 11.08.C) exercise its rights under the Primary Management Agreement
to cause Wyndham (or to cause Wyndham 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"). Primary Manager shall (except as otherwise set forth to
the contrary in Section 11.08.C) exercise its rights under the Primary
Management Agreement to cause Wyndham (or cause Wyndham to cause Owner) to
indemnify, defend and hold Submanager 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 Primary
Manager 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 Submanager's employees, then Submanager shall 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 Submanager (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
Submanager's own funds and not as a Deduction, and Submanager shall indemnify,
defend and hold Owner, Wyndham, Primary Manager 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 Submanager, 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
Submanager shall not apply. Submanager 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
27
that such materials may contain or be Hazardous Materials, provided that
Submanager complies with all Environmental Laws with regard to the storage, use
and disposal thereof.
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 Submanager pursuant to the indemnity set forth in
Section 11.08.B, shall be paid by Primary Manager from its own funds, not as a
Deduction nor from the FF&E Reserve, and shall be treated as an expenditure by
Primary Manager 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 Primary Manager,
exercising its rights under the Primary Management Agreement and causing Wyndham
to exercise 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 Wyndham's financing of the Hotel, a Sale of the Hotel, or a sale of a
controlling interest in Owner, Wyndham, Submanager, or Marriott (except any
financing or sale involving a private or public offering of securities).
B. Primary Manager shall not include and shall exercise its rights
under the Primary Management Agreement to cause Wyndham (or to cause Wyndham to
cause Owner) not to include any reference to Submanager or to any Affiliate of
Submanager in any prospectus, private placement memorandum, offering circular or
offering documentation related thereto (collectively referred to as the "Primary
Manager Prospectus"), issued by Owner, Wyndham or Primary Manager 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 Submanager has previously received a copy of all such references.
However, regardless of whether Submanager does or does not so receive a copy of
all such references, neither Submanager nor any Affiliate of Submanager will be
deemed a sponsor of the offering described in the Primary Manager Prospectus,
nor will it have any responsibility for the Primary Manager Prospectus. Unless
Submanager agrees in advance, the Primary Manager Prospectus will not include
any Marriott Trade Names or Marriott Trademarks. Primary Manager shall
indemnify, defend and hold Submanager harmless from and against all loss, costs,
liability and damage (including attorneys' fees and expenses, and the cost of
litigation) arising out of any Primary Manager Prospectus or the offering
described therein; and this obligation of Primary Manager shall survive
Termination of this Agreement.
C. No reference to Owner, Wyndham or Primary Manager 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 "Submanager Prospectus"), issued by Submanager
or by one of Submanager's Affiliates, which is designated to interest potential
investors in debt or equity securities, unless Owner, Wyndham or Primary
Manager, as applicable, has previously received a copy of all such references.
However, regardless of whether Owner, Wyndham or Primary Manager does or does
not so receive a copy of all such references, neither Primary Manager nor any
Affiliate of any of them will be deemed a sponsor of the offering described in
the Submanager Prospectus, nor will it have any responsibility for the
Submanager Prospectus. Unless Owner, Wyndham or Primary Manager, as applicable,
agrees in advance, the Submanager Prospectus will not include any Trade Names or
Trademarks of Owner, Wyndham or Primary Manager. Submanager shall indemnify,
defend and hold Owner, Wyndham and Primary 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 Submanager Prospectus or the offering
described therein; and this obligation of Submanager shall survive Termination
of this Agreement.
11.10 Projections
Primary Manager 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
28
Submanager or Marriott (or any Affiliate of either) to Primary Manager is for
information purposes only, and that Submanager, 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. Submanager shall, within ninety (90) days after Termination of
this Agreement, prepare and deliver to Primary Manager 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 Primary Manager to
Submanager pursuant hereto, dated as of the date of Termination. Within thirty
(30) days of the receipt by Primary Manager 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. Submanager and
Primary Manager 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. Submanager shall release and transfer to Primary Manager (i) any
of Primary Manager's funds which are held or controlled by Submanager with
respect to the Hotel with the exception of funds to be held in escrow pursuant
to Sections 6.01.F and 11.11.H and otherwise in accordance herewith and (ii) to
the extent not previously provided to Primary Manager, 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 Submanager,
Marriott or their Affiliates other than names, addresses and other information
of guests which stayed at the Hotel pursuant to such accounts.
C. Submanager shall make available to Primary Manager such books and
records respecting the Hotel (including those from prior years, subject to
Submanager's reasonable records retention policies) as will be needed by Primary
Manager 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. Submanager shall (to the extent permitted by law) assign to
Primary Manager or to the new submanager all operating licenses and permits for
the Hotel which have been issued in Submanager's name (including liquor and
restaurant licenses, if any); provided that if Submanager has expended any of
its own funds in the acquisition of any of such licenses or permits, Primary
Manager shall reimburse Submanager therefor if it has not done so already.
E. Submanager 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 Submanager does
not exercise such option, Primary Manager agrees that any such items which are
not so purchased shall be used exclusively in connection with the Hotel until
they are consumed.
F. Primary Manager 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
Submanager and/or protected by trade marks or service marks held by Submanager
or an Affiliate, provided that such use shall be confined to the Site.
29
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 Primary Manager, Owner
or Wyndham the right to use any of such Software. Submanager shall have the
right to remove from the Hotel without compensation to Primary Manager, Owner or
Wyndham 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, Submanager shall be entitled to remove from the Hotel any computer
equipment which is: (i) owned by Submanager (without reimbursement to Primary
Manager, Owner or Wyndham); or (ii) owned by Primary Manager, Owner or Wyndham,
but utilized as part of a Marriott centralized reservation or property
management system (with reimbursement to Primary Manager, Owner or Wyndham, as
applicable, of all previous expenditures made by Primary Manager, Owner or
Wyndham with respect to such equipment, subject to a reasonable allowance for
depreciation).
H. A reserve fund shall be established from Gross Revenues to
reimburse Submanager for all costs and expenses incurred by Submanager in
terminating its employees at the Hotel, such as reasonable severance pay,
unemployment compensation, employment relocation (however, Submanager shall be
responsible for relocation costs of any executive committee member relocating to
another hotel managed by Submanager or its affiliates, arising from a
Termination elected by Submanager, and in no event shall Submanager 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 Submanager's employees at the Hotel.
Submanager agrees 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 Primary Manager shall deliver to Submanager, within ten (10)
days after receipt of Submanager's written request therefor, the sums necessary
to establish such reserve fund; and if Primary Manager fails to timely deliver
such sums to Submanager, Submanager shall have the right (without affecting
Submanager's other remedies under this Agreement) to withdraw the amount of such
expenses from the Operating Accounts or any other funds of Primary Manager held
by or under the control of Submanager other than the FF&E Reserve.
Notwithstanding the foregoing, Wyndham, Owner, Primary Manager and any successor
manager shall have the right to interview and continue the employment of any of
Submanager's employees at the Hotel; provided, however, that Wyndham, Owner or
Primary Manager 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 Submanager. If this Agreement is terminated by
reason of Default of Submanager hereunder, then no such reserve fund shall be
established and Submanager shall pay from its own funds all costs and expenses
incurred by Submanager in terminating its employees at the Hotel.
I. Primary Manager shall cause the entity which shall succeed
Submanager 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.
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
Submanager, then (i) Submanager shall not transfer any then existing bookings of
rooms or functions at the Hotel to any other hotel of Submanager, Marriott or
any Affiliate thereof or otherwise cancel any such bookings; however,
Submanager, 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
Submanager or its affiliates, and (ii) Submanager shall act reasonably and in
good faith to allow a transition of management and operations, including,
without limitation, by allowing representatives of Primary Manager or
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 such participation
by Primary Manager or replacement submanager shall not (x) unreasonably
interfere with Submanager's operation of the Hotel and (y) Submanager shall have
the right to take
30
such measures it reasonably deems appropriate to protect its proprietary
information with respect to the Marriott System and its national and regional
accounts.
L. Submanager shall peacefully vacate and surrender the Hotel to
Primary Manager.
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 Submanager (or one of its Affiliates),
and nothing contained in this Agreement shall confer on Owner, Wyndham or
Primary Manager 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, Wyndham or
Primary Manager shall cease forthwith, and Primary Manager (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 Primary Manager has not removed such signs or
similar items within ten (10) days after Termination, Submanager shall have the
right to do so at Primary Manager's expense; and if Primary Manager fails to
reimburse Submanager for such expense within ten (10) days after receipt of
written notice thereof from Submanager to Primary Manager, then Submanager shall
have the right (without affecting Submanager's other remedies under this
Agreement) to withdraw the amount of such expenses from the Operating Accounts
or any other funds of Primary Manager held by or under the control of Submanager
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
Submanager 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, Submanager will change the name of the Hotel to conform
thereto.
B. All Intellectual Property shall at all times be proprietary to
Submanager or its Affiliates, and shall be the exclusive property of Submanager
or its Affiliates. During the Term of this Agreement, Submanager shall be
entitled to take all reasonable steps to ensure that the Intellectual Property
remains confidential and is not disclosed to anyone other than Submanager's
employees at the Hotel. Upon Termination, all Intellectual Property shall be
removed from the Hotel by Submanager, without compensation to Owner, Wyndham or
Primary Manager, subject to the provisions of Section 11.11.G regarding
Software.
C. Submanager and/or its Affiliates shall be entitled, in case of
any breach by Primary Manager 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 Competing Facilities
Subject to the parties' rights of termination set forth in Section 11.22,
neither this Agreement nor anything implied by the relationship between
Submanager and Primary Manager shall prohibit Submanager or any of the Marriott
Companies from developing, constructing, operating, promoting, and/or
authorizing others to develop, construct, operate, or promote one or more
hotels, or any other lodging products, time-share facilities, restaurants, or
other business operations of any type, using any brand name available to the
Marriott Companies, at any location, including a location proximate to the Site,
and Primary Manager hereby acknowledges and agrees that Submanager and any of
the Marriott Companies have the unconditional right to engage in such
activities.
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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 Submanager or Primary Manager or constitute a substantial deviation
from the general intent and purpose of said parties as reflected in the
Agreement.
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. To the extent not paid pursuant to the Settlement Agreement, any
obligation of Primary Manager to pay the Special Fee, pursuant to Section 2.01
B, shall survive Termination of this Agreement.
11.17 Affiliates
Submanager shall be entitled to contract with one or more of its
Affiliates to provide goods and/or services to the Hotel, provided that the
prices and/or fees paid to any such Affiliate are competitive with the prices
and/or fees which would be charged by reputable and qualified parties which are
not Affiliates of Submanager for similar goods and/or services. The prices
and/or fees paid to Affiliates may include overhead and the allowance of a
reasonable return which is customary for the goods and/or services to be
provided. In determining, pursuant to the foregoing, whether such prices and/or
fees are competitive, the goods and/or services which are being purchased shall
be grouped in reasonable categories, rather than being compared item by item.
11.18 Negotiation of Agreement
Primary Manager and Submanager 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
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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 Primary Manager, Owner or Wyndham, or
(ii) any action taken by a Mortgagee in connection with a Foreclosure, which in
either case restricts or prevents Submanager, in a material and adverse manner,
from operating the Hotel in accordance with System Standards (including without
limitation, any restrictions on expenditures by Submanager from the Operating
Accounts or from the FF&E Reserve, other than restrictions which are set forth
in this Agreement), Submanager shall be entitled, at its option, to terminate
this Agreement upon sixty (60) days' written notice to Primary Manager. 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 Primary Manager and Submanager
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. Primary Manager and Submanager 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 Primary Manager or Submanager 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 Primary Manager and Submanager, 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 Primary
Manager and one to Submanager. 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 Restricted Area Right of Termination
In the event that Submanager or any of its Affiliates, during the Term,
operates or manages (or franchises another party to operate or manage) a
Restricted MHRS Hotel, within the Restricted Area, Primary Manager and
Submanager shall each have the right to terminate this Agreement as follows:
Submanager shall provide Primary Manager notice upon the earlier to occur of (i)
thirty (30) days following the date on which Submanager or its Affiliate
executes a purchase agreement, management agreement, or license agreement or
franchise agreement, as the case may be, relating to a Restricted MHRS Hotel in
the Restricted Area, or (ii) upon the opening of such Restricted
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MHRS Hotel (meaning the date that the Restricted MHRS Hotel first accepts paying
customers). Submanager shall act in good faith with respect to the giving of
such notice, if practicable, at least ninety (90) days prior to the opening of a
Restricted MHRS Hotel. Within sixty (60) days after Primary Manager's receipt of
written notice that it will purchase, manage, license or franchise a Restricted
MHRS Hotel, Primary Manager shall give Submanager (or Submanager shall give to
Primary Manager) written notice (a "Termination Notice") that it elects to
terminate this Agreement, which termination shall be effective upon the opening
of the Restricted MHRS Hotel. Failure to deliver the Termination Notice within
such sixty (60) day period by either party shall constitute a waiver by such
party to exercise such termination right. Such Termination pursuant to this
Section 11.22 shall be without penalty or cost to either party. The preceding
sentence shall not be deemed to affect the accounting and other termination
procedures set forth in Section 11.11. In the event of any Termination of this
Agreement pursuant to this Section 11.22, the related Franchise Agreement shall
not be reinstated and, subject to payment of any royalty fees theretofore
accrued thereunder, shall be of no further force or effect. If indicated on
Exhibit A-1 as "yes" next to "Chain Exception," the foregoing shall not apply to
any hotel, the management or ownership of which Submanager (or an Affiliate)
acquires in connection with the acquisition of, or the right to operate, a chain
or group of three (3) or more hotels, in each case in a single transaction.
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).
ARTICLE XII
DEFINITION OF TERMS
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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 Submanager's four (4) week accounting
periods, except that an Accounting Period may occasionally contain five (5)
weeks when necessary to conform Submanager'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 Submanagement Agreement between Primary
Manager and Submanager, 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 an amount payable to Submanager (as a
Deduction from Gross Revenues) which is set forth on Exhibit "A-1" attached
hereto.
"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 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. The term "comparable hotels" shall mean hotels
which have a comparable rating to the Hotel in recognized travel guides (e.g.,
Mobil "star" or AAA "diamond" rating systems). If, in the reasonable opinion of
either Primary Manager or Submanager, such ▇▇▇▇▇'▇ STAR Report ceases to be a
satisfactory source of data regarding the rooms revenues of various hotels in
the general trade area of the Hotel, or if the "competitive set" requires
adjustment due to changes in
35
the market, then either Primary Manager or Submanager shall suggest an
alternative competitive set or source of data for the other party's approval. If
the parties fail to agree on either such alternate competitive set or source, as
the case may be, within a reasonable period of time, then at the election of the
suggesting party, the matter shall be resolved by the Expert Resolution Process.
"Coverage Ratio" shall mean the number one and four-tenths (1.4).
"Deductions" shall mean the following expenses incurred by Submanager 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
Submanager (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 Submanager's or any Affiliate's corporate executive
staff who are located at Submanager'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;
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 Submanager;
5. all costs and fees of independent professionals or other
third parties who are retained by Submanager to perform services required or
permitted hereunder;
6. all costs and fees of technical consultants, professionals
and operational experts who are retained or employed by Submanager, 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 Submanager;
7. the Base Management Fee;
8. insurance costs and expenses as provided in Sections 6.01;
9. taxes, if any, payable by or assessed against Submanager
related to this Agreement or to Submanager's operation of the Hotel (exclusive
of Submanager'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;
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13. the Hotel's pro rata share of the charges for Chain
Services;
14. all costs and expenses of compliance by Submanager with
applicable Legal Requirements pertaining to the operation of the Hotel;
15. such other costs and expenses incurred by Submanager
(either at the Hotel or elsewhere) as are specifically provided for elsewhere in
this Agreement or are otherwise reasonably necessary for the proper and
efficient operation of the Hotel; and
16. royalty or franchise 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 Submanager has previously given its 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 Primary Manager
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.
"Fiscal Year" shall mean Submanager'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
Submanager'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".
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"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 Wyndham or control of an Owner
or Wyndham, 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.
"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 Primary
Manager and reasonably satisfactory to Submanager (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
38
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 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 Submanager at the Hotel: general manager, resident manager, controller,
director of marketing, food and beverage director, the human resources director,
and the chief engineer, 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 Submanager 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; beverages in wine cellars and bars; other merchandise
intended for sale; fuel; mechanical supplies; stationery; and other expensed
supplies and similar items.
"Legal Requirement" shall mean any federal, state or local law, code,
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.
39
"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).
"Marriott" shall mean Marriott International, Inc., a Delaware
corporation.
"Marriott Companies" shall mean Submanager, Marriott, and any Affiliate of
Submanager or Marriott.
"Marriott System" shall mean the chain of full-service hotels in the
United States which are operated by Submanager (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
Submanager's reasonable judgment) of repairing and/or replacing of the damaged
portion of the Hotel to the same condition as existed previously does not exceed
the dollar 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 Wyndham
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.
"Primary Management Agreement" shall have the meaning ascribed to it in
the Recitals."
"Primary Manager" shall have the meaning ascribed to it in the Preamble or
shall mean any successor or permitted assign, as applicable.
"Primary Manager Prospectus" shall have the meaning set forth in Section
11.09.
"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 its 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
40
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) and management fees in a deemed
amount equal to the Base Management Fee (in lieu of any actual management fees)
shall be included in Deductions. Within sixty (60) days after the end of the
Performance Termination Period, Submanager shall deliver to Primary Manager a
statement 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
Submanager and shall reflect the costs reasonably incurred at similar hotels
managed by Submanager. 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
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 the
Hotel's balance sheet (current copies of which, through the Take-Over Date,
shall be delivered to Submanager); 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 Primary Manager's
balance sheet (current copies of which, through the Take-Over Date, shall be
delivered to Submanager); and (ii) all other receivables.
"Primary Manager" shall have the meaning set forth in the Recitals.
"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
Primary Manager 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.
"Restricted MHRS Hotel" shall mean any full-service hotel operating
(either managed or franchised) under the "Marriott" trade name. The term
"Restricted Hotel" shall not include any one or more of the following: (i) any
41
existing (as of the Effective Date) full-service hotel operating under the
"Marriott" trade name within the Restricted Area; (ii) any ▇▇▇▇-▇▇▇▇▇▇▇ hotel,
Courtyard by Marriott Hotel, Renaissance Hotel, Conference Center by Marriott,
Residence Inn by Marriott, Fairfield Inn, Fairfield Suites, TownePlace Suites or
any other lodging product which is not operated as a full-service hotel under
the "Marriott" trade name; or (iii) any future lodging product developed by
Manager or one of its Affiliates which is not operated under the "Marriott"
tradename.
"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 either Primary Manager or Submanager) to be a satisfactory
source of data regarding the Revenue Per Room of various hotels in the general
trade area of the Hotel, Submanager shall select an alternative source, subject
to Primary Manager's approval (such approval not to be unreasonably withheld).
If the parties fail to agree on such alternative source within a reasonable
period of time, the matter shall be resolved by determination by arbitration
pursuant to Section 11.21.
"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 to the Site and/or the Hotel [for Atlanta, leasehold interest]. 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.
"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 Submanager in connection with the property
management system, the reservation system and all future electronic systems
developed by Submanager for use in the Hotel.
42
"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.
"Special Fee" shall have the meaning set forth for such term in the
Settlement Agreement.
"Submanager" shall have the meaning ascribed to it in the Preamble hereto
or shall mean any successor or permitted assign, as applicable.
"Submanager Prospectus" shall have the meaning set forth in Section 11.09.
"Subordination Agreement" shall have the meaning ascribed to it in Section
8.03.
"Subsequent Primary Managers" 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.
"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 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
43
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
44
IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be
executed under seal as of the day and year first written above.
PRIMARY MANAGER:
IHC II, LLC
Attest:
By: By:
------------------------------- -------------------------------
Title: Title:
SUBMANAGER:
Attest: MARRIOTT INTERNATIONAL, INC./MARRIOTT
HOTEL SERVICES, INC.
a Delaware corporation
By: By:
------------------------------- -------------------------------
Title: Title:
45
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
Description of "Restricted Area": See Exhibit "A-2"
Trade Area Expiration Date: February 22, 2009
Chain Exception: Yes
* 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
Description of "Restricted Area": See Exhibit "A-2"
Trade Area Expiration Date: September 1, 2005
Chain Exception: Yes
* 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
Description of "Restricted Area": See Exhibit "A-2"
Trade Area Expiration Date: September 2, 2011
Chain Exception: No
* 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
Description of "Restricted Area": See Exhibit "A-2"
Trade Area Expiration Date: March 30, 2004
Chain Exception: No
* 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
Description of "Restricted Area" See Exhibit "A-2"
Trade Area Expiration Date: January 31, 2011
Chain Exception: No
*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
Description of "Restricted Area": See Exhibit "A-2"
Trade Area Expiration Date: December 31, 2017
Chain Exception: No
*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
Description of "Restricted Area": See Exhibit "A-2"
Trade Area Expiration Date: August 28, 2014
Chain Exception: Yes
* 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
Description of "Restricted Area" See Exhibit "A-2"
Trade Area Expiration Date: June 1, 2012
Chain Exception: No
*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
Description of "Restricted Area" See Exhibit "A-2"
Trade Area Expiration Date: April 22, 2013
Chain Exception: No
*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
Description of "Restricted Area" See Exhibit "A-2"
Trade Area Expiration Date: December 15, 2005
Chain Exception: Yes
* 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-2"
Atlanta Marriott North Central
Two (2) mile radius from the Hotel, as shown on the attached map.
EXHIBIT "A-2"
Harrisburg Marriott
Dauphin County plus triangle of area bounded by the Pennsylvania Turnpike on the
south to a point west of Harrisburg where it connects with I-81 then northwest
on I-81 to the Susquehanna River south to the Pennsylvania Turnpike plus one (1)
mile outside the triangle at each interstate intersection. All as more
specifically indicated on the attached map.
For purposes of delineating the boundary of the area described above, such
boundary shall be the center line of the specified road or highway. If there
exists a conflict between the map and the narrative description set forth above,
the narrative shall control.
EXHIBIT "A-2"
Houston Marriott North at Greenspoint
The area outlined on the attached map.
EXHIBIT "A-2"
Indian River Plantation Marriott Resort
Ten (10) mile radius from the Hotel.
EXHIBIT "A-2"
Philadelphia Marriott West (Conshohoken)
Three (3) mile radius from the Hotel, as shown on the attached map.
EXHIBIT "A-2"
San Diego Marriott Mission Valley
That area outlined on the attached map which is described as follows:
At the intersection of Interstate 5 and 274, continue due east crossing
Genesee Avenue, 163, and Interstate 805 until Mission Gorge Road. Continue south
on Mission Gorge Road to Fairmont Avenue. Follow Fairmont Avenue south to
University. Head west on University until intersecting Park Boulevard. Continue
south on Park Boulevard turning south on Upas Street. Proceed on Upas Street to
Richmond. Continue south on Richmond until 163. Head south on 163 to El ▇▇▇▇▇.
Follow El ▇▇▇▇▇ to Interstate 5. At the intersection of El ▇▇▇▇▇ and Interstate
5 continue north on Interstate 5 until reaching 274.
For purposes of delineating the boundary of the area described above, such
boundary shall be the center line of the specified road or highway. If there
exists a conflict between the map and the narrative description set forth above,
the narrative shall control.
EXHIBIT "A-2"
Warner Center Marriott Woodland Hills
That area outlined on the attached map which is described as follows:
Five (5) mile radius from the Hotel as extended to an area bounded by Victory
Boulevard, Interstate 405, ▇▇▇▇▇▇▇▇▇▇ Drive, Triunfo Canyon Road, Kanan Road and
the Ventura County Line.
For purposes of delineating the boundary of the area described above, such
boundary shall be the center line of the specified road or highway. If there
exists a conflict between the map and the narrative description set forth above,
the narrative shall control.
EXHIBIT "▇-▇"
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇
Three (3) mile radius from the Hotel, as shown on the attached map.
EXHIBIT "A-2"
Pittsburgh Airport
In Pittsburgh, Pennsylvania, that certain area bounded on the south by the
Allegheny/Washington county line, on the west by the Beaver/Allegheny county
line, on the north by the Ohio River, and on the east by Interstate 79, as shown
on the attached map.
For purposes of delineating the boundary of the area described above, such
boundary shall be the center line of the specified road or highway. If there
exists a conflict between the map and the narrative description set forth above,
the narrative shall control.
EXHIBIT B-1
Five-Year Plan
EXHIBIT B-2
Additional Capital Expenditures
EXHIBIT C
Memorandum of Management Agreement
WHEN RECORDED MAIL TO:
MARRIOTT INTERNATIONAL, INC.
[Attorney] - Dept. ▇▇/▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
MEMORANDUM OF MANAGEMENT AGREEMENT
THIS MEMORANDUM OF MANAGEMENT AGREEMENT (the "Memorandum") is made
and entered into as of this ______ day of _____, 19__ by and between
_______________, a _________________ ("Owner"), with a mailing address of
_________________ and ___________________, a ___________________ ("Manager"),
with a mailing address at ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
WITNESSETH:
Owner acknowledges that Manager has entered into that certain
Submanagement Agreement dated ______________ (herein the "Management Agreement")
with respect to operation of a hotel on the premises located in ______________
County, _______________, as more particularly described on Exhibit A attached
hereto (the "Premises").
The Management Agreement is in effect. The term of the Management
Agreement expires on _____________________________, subject to early termination
as set forth therein.
Article 8 of the Management Agreement contains certain terms and
restrictions relating to financing of the Premises. Article 10 of the Management
Agreement also contains terms and conditions relating to Owner's ability to sell
or transfer interests in itself or the Premises.
This Memorandum is not intended to alter or modify in any way the
terms and conditions of the Management Agreement.
IN WITNESS WHEREOF, Owner and Manager have caused this Memorandum to be
executed under seal by their duly authorized representatives as of the day,
month and year first above written, for the purpose of providing an instrument
for recording and giving notice of the Management Agreement and certain of the
terms and conditions therein.
OWNER:
------
Witnesses:
---------------------------------
By:
--------------------------------- ---------------------------------
Printed: Name:
------------------------- ---------------------------------
Title:
---------------------------------
MANAGER:
--------
Witnesses:
---------------------------------
By:
--------------------------------- ---------------------------------
Printed: Name:
------------------------- ---------------------------------
Title:
---------------------------------
STATE OF
-------------------------
COUNTY OF
-------------------------
On this the _____ day of ______________, 19__, before me, the undersigned
officer, personally appeared _____________________________ who acknowledged
himself to be the _________________ of __________________, a
_____________________ and that he as such officer being authorized so to do,
executed the foregoing instrument for the purposes therein contained, by signing
the name of the ___________________ by himself as _____________________.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
---------------------------------
Notary Public
My Commission Expires:
----------
STATE OF
-----------------------
COUNTY OF
-----------------------
On this the _____ day of ______________, 19__, before me, the undersigned
officer, personally appeared _____________________________ who acknowledged
himself to be the _________________ of __________________, a
_____________________ and that he as such officer being authorized so to do,
executed the foregoing instrument for the purposes therein contained, by signing
the name of the ___________________ by himself as _____________________.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
---------------------------------
Notary Public
My Commission Expires:
----------
EXHIBIT A TO MEMORANDUM OF MANAGEMENT AGREEMENT
LEGAL DESCRIPTION
[To Be Added]