EXHIBIT 10.7
AMENDED AND RESTATED MANAGEMENT AGREEMENT
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by and between
RESIDENCE INN BY MARRIOTT, INC.
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as "MANAGER"
and
APPLE HOSPITALITY MANAGEMENT, INC.
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as "LESSEE"
Dated as of September 28, 2001
TABLE OF CONTENTS
PAGE
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Article I - Definition of Terms
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1.01 Definition of Terms ................................................
Article II - Appointment of Manager
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2.01 Appointment ........................................................
2.02 Delegation of Authority ............................................
2.03 Licenses and Permits ...............................................
2.04 Non-Discrimination .................................................
Article III - Ownership of the Inns
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3.01 Ownership of the Inns ..............................................
Article IV - Term
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4.01 Term ...............................................................
4.02 Performance Termination ............................................
4.03 Actions to be Taken on Termination .................................
Article V - Compensation of Manager
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5.01 Management Fee .....................................................
5.02 Payment of Base Management Fees and Incentive Management
Fees From Operating Profit .........................................
5.03 Payment of Base Management Fees and Incentive Management
Fees from Net Sales Proceeds and Net Refinancing Proceeds ..........
5.04 Debt Service .......................................................
5.05 Accounting and Interim Payment .....................................
Article VI - Working Capital and Fixed Asset Supplies
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6.01 Working Capital and Inventories ....................................
6.02 Fixed Asset Supplies ...............................................
Article VII - Repairs, Maintenance and Replacements
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7.01 Routine Repairs and Maintenance ....................................
7.02 Repairs and Equipment Reserve ......................................
7.03 Building Alterations, Improvements, Renewals and Replacements ......
7.04 Liens ..............................................................
7.05 Ownership of Replacements ..........................................
Article VIII - Bookkeeping and Bank Accounts
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8.01 Books and Records ..................................................
8.02 Accounts; Expenditures .............................................
8.03 Annual Operating Projection ........................................
8.04 Operating Losses; Credit ...........................................
Article IX - Trademarks, Trade Names and Service Marks
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9.01 Trademarks, Trade Names and Service Marks and Computer Software ....
9.02 Purchase of Inventories and Fixed Asset Supplies ...................
9.03 Computer Software ..................................................
9.04 Breach of Covenant .................................................
Article X - Management and Use of the Inns
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10.01 Management of the Inns ...........................................
10.02 Chain Services ...................................................
10.03 Marketing Fund ...................................................
10.04 Lessee's Right to Inspect ........................................
Article XI - Insurance
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11.01 Property Insurance ...............................................
11.02 Operational Insurance ............................................
11.03 Coverage .........................................................
11.04 Cost and Expense .................................................
11.05 Lessee Provided Coverage .........................................
11.06 Policies and Endorsements ........................................
Article XII - Taxes
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12.01 Real Estate and Personal Property Taxes ..........................
Article XIII - Inn Employees
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13.01 Employees ........................................................
Article XIV - Damage, Condemnation and Force Majeure
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14.01 Damage and Repair ................................................
14.02 Condemnation .....................................................
14.03 Force Majeure ....................................................
Article XV - Defaults
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15.01 Events of Default ................................................
15.02 Remedies .........................................................
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Article XVI - Waiver and Partial Invalidity
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16.01 Waiver ...........................................................
16.02 Partial Invalidity ...............................................
Article XVII - Assignment
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17.01 Assignment .......................................................
17.02 Mortgages and Collateral Assignments .............................
Article XVIII - Sale or Refinancing of an Inn or Inns and Other Termination
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18.01 Right of First Refusal ...........................................
18.02 Effect of Sale of Fewer Than All Inns ............................
18.03 Effect of Other Termination of Fewer Than All Inns ...............
18.04 Effect of Refinancing of Fewer Than All Inns or Pursuant
to More Than One Transaction .....................................
Article XIX - Miscellaneous
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19.01 Right to Make Agreement ..........................................
19.02 Consents .........................................................
19.03 Relationship .....................................................
19.04 Applicable Law ...................................................
19.05 Recordation ......................................................
19.06 Headings .........................................................
19.07 Notices ..........................................................
19.08 Limited Liability ................................................
19.09 Survival .........................................................
19.10 Environmental Matters ............................................
19.11 Estoppel Certificates ............................................
19.12 Compliance with Ground Leases and Loan Documents .................
19.13 Entire Agreement .................................................
Exhibit A - Locations and Legal Descriptions of the Inns
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AMENDED AND RESTATED MANAGEMENT AGREEMENT
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This AMENDED AND RESTATED MANAGEMENT AGREEMENT ("Agreement") is
executed as of the 28th day of September, 2001 ("Execution Date), by and between
APPLE HOSPITALITY MANAGEMENT, INC., a Virginia corporation with a mailing
address at ▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ("Lessee"), and
RESIDENCE INN BY MARRIOTT, INC. ("Manager"), a Delaware corporation, with a
mailing address at ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
R E C I T A L S:
A. Lessee is an indirect, wholly-owned subsidiary of Apple
Hospitality Two, Inc., a Virginia corporation and a real estate investment trust
("Apple Hospitality"), which also is the indirect owner, though Marriott
Residence Inn USA Limited Partnership, of 100% of the equity of Residence Inn
III LLC ("Lessor"), a Delaware limited liability company that holds fee simple
title to nine (9) of the ten (10) hotels, currently operated under the trade
name "Residence Inn" or "Residence Inn by Marriott" or "Marriott Residence Inn,"
described on Exhibit A attached to this Agreement and incorporated herein, and
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holds a leasehold interest in remaining Inn listed on Exhibit A - specifically,
the Meriden, Connecticut Residence Inn by Marriott ("Meriden Inn") (these ten
hotels collectively referred to herein as the "Sites" or individually, a
"Site"). Each Site is improved by buildings containing guest suites, a GATEHOUSE
(a registered trademark of Manager) building containing a common area lobby,
meeting rooms and administrative offices, and certain other amenities and
related facilities (the "Buildings"). Each respective Site and the Buildings
thereon are collectively referred to as an "Inn," as more particularly described
in Section 1.01 hereof.
▇. ▇▇▇▇▇▇ has leased to Lessee and Lessee has leased from Lessor the
Inns pursuant to that certain Master Lease Agreement of even date hereof ("Inns
Lease").
C. Pursuant to that certain Management Agreement dated as of
December 29, 1999, between Manager and Lessor, (the "Original Management
Agreement"), Manager manages and operates each of the Inns as a Residence Inn by
Marriott. Pursuant to that certain Consent, Assignment and Assumption of
Management Agreement of even date hereof, Lessor assigned its interest in the
Original Management Agreement to Lessee, subject to certain obligations set
forth in such Consent, Assignment and Assumption of Management Agreement of even
date hereof and that certain Owner Agreement of even date hereof.
D. Manager and Lessee desire and have agreed to amend and restate
the Original Management Agreement by this Agreement.
NOW THEREFORE, in consideration of the mutual covenants contained in
this Agreement and other good and valuable consideration, the receipt of which
is hereby acknowledged, Lessee and Manager agree that the Original Management
Agreement is hereby amended and restated as set forth herein.
ARTICLE I
DEFINITION OF TERMS
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1.01 Definition of Terms
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The following terms when used in this Agreement shall have the
meanings indicated:
"Accounting Period" shall mean the four (4) week accounting periods
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having the same beginning and ending dates as Manager's four (4) week accounting
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periods, except that an Accounting Period may occasionally contain five (5)
weeks when necessary to conform Manager's accounting system to the calendar.
"Actual Debt Service" shall mean the lesser of (i) an amount equal to
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eleven and one-half percent (11 1/2%) of the Refinanced Principal Amount per
Fiscal Year plus amortization of principal in that Fiscal Year on the Refinanced
Principal Amount pursuant to a 25 year amortization schedule; or (ii) the actual
interest paid or accrued in that Fiscal Year (provided that the rate is a
commercially reasonable market interest rate), plus the actual amortization of
principal in that Fiscal Year (provided that the amortization rate is a
commercially reasonable market rate), on the Refinanced Principal Amount.
"Additional Inn Investment" shall mean the sum of any amounts expended
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by Lessor or Lessee after the Execution Date for the following purposes: (a) to
fund the cost of any expansion or improvements, previously consented to by
Manager and not funded from the Reserve, of any Inn; (b) to fund the cost of any
repairs or replacements under Section 14.01, with respect to any Inn, which are
not covered by insurance proceeds under Section 11.01 A; (c) to fund the cost of
any building alterations, improvements, renewals and replacements and related
expenses requested by Manager under Section 7.03A(2); (d) to fund any reasonable
business needs (not including amounts funded under Section 7.02 E) of Lessee
relating to operation of one or more of the Inns, as requested by or otherwise
approved by Manager; and (e) to fund the cost of any ground rent paid by Lessee
or Lessor with respect to the Ground Lease; provided, however, that Additional
Inn Investments shall be adjusted as provided in Sections 18.02 F, 18.03 F, and
18.04 F.
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"Additional Inn Investment Loan" shall mean (i) any indebtedness
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incurred by Lessor or Lessee to fund an Additional Inn Investment, provided that
the terms of any such loan are commercially reasonable, plus (ii) expenses
incurred by Lessor or Lessee in obtaining such indebtedness not to exceed two
(2) percentage points of the principal amount of such indebtedness.
"Adjusted Contributed Capital" shall mean the balance, from time to
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time, of:
1. Contributed Capital; less
2. Net Sales Proceeds and Net Refinancing Proceeds; provided,
however, that Adjusted Contributed Capital shall be adjusted pursuant to Section
18.04 I.
"Administrative Expenses" shall mean, with respect to any Fiscal Year,
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an annual amount equal to the lesser of (i) the aggregate amount of payments
for, or reserves created for payment for, administrative expenses of Lessor or
Lessee with respect to such Fiscal Year; or (ii) an amount equal to Two Hundred
Fifty Three Thousand Six Hundred Dollars ($253,600) increased by the percentage
by which the "Consumer Price Index for All Urban Consumers" (CPI-U), published
by the Bureau of Labor Statistics of the United States Department of Labor, U.S.
City Average, all items (1984-1986=100) (or appropriate substitute index if such
index is no longer published) (the "CPI") for January of the Fiscal Year in
question exceeds the CPI for January 2001.
"Affiliate" shall mean (i) any corporation of which a party to this
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Agreement, either directly or indirectly through one or more intermediary
corporations, owns fifty-one percent (51%) or more of the voting stock or (ii)
any partnership wherein a party, either directly or indirectly through one or
more intermediary corporations or
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other entities, owns or controls the general partnership interests and fifty-one
percent (51%) or more of the voting, capital and profits of such partnership.
"Agreement" shall mean this Management Agreement between Lessee and
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Manager with respect to the 10 Inns listed on Exhibit A hereto.
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"Allocable Percentage" shall mean the percentage calculated by
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dividing the amount of Operating Profit for the prior twenty-six (26) Accounting
Periods generated by the applicable Inn by the total Operating Profit during
such period.
"Annual Operating Projection" shall have the meaning ascribed to it in
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Section 8.03.
"Annual Priority Return" shall mean an annual noncumulative amount
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retained by Lessee out of certain portions of Operating Profit, as set forth in
Section 5.02 hereof, equal to eleven percent (11%) of the Contributed Capital
for each Fiscal Year (such amount to be prorated for any partial Fiscal Year).
"Base Management Fee" shall mean an amount payable to Manager,
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pursuant to the provisions of Article V hereof, for the following services
hereunder: Marriott corporate planning and policy services, Marriott financial
planning and corporate financial services (excluding any services provided in
refinancing the Inns), risk planning and insurance services, Marriott corporate
executive management, legislative and governmental representation, in-house
legal services and protection of the "Marriott" trade name and trademarks. Such
amount shall be equal, during any given Fiscal Year (or portion thereof), to two
percent (2%) of Gross Revenues.
"Building Estimate" shall have the meaning ascribed to it in Section
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7.03 A.
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"Chain Services" shall have the meaning ascribed to it in Section
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10.02.
"Contingent Management Fees (IMF)" shall mean the cumulative total
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(which shall not bear interest) of those portions of the Incentive Management
Fee for each Fiscal Year (or portion thereof) which are not payable to Manager
owing to the limitations set forth in Section 5.02 hereof, provided, however,
that Contingent Management Fees (IMF) shall be adjusted pursuant to Sections
18.02 G and 18.04 G. Contingent Management Fees (IMF) shall also include any
Incentive Management Fee that becomes Contingent Management Fees (IMF) pursuant
to Section 5.04.
"Contributed Capital" shall mean (i) Fifty Nine Million Seven Hundred
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Thirty Five Thousand Three Hundred Seventy Seven Dollars ($59,735,377); plus
(ii) the amount of Additional Inn Investments (excluding those funded by an
Additional Inn Investment Loan) from and after the Execution Date; provided,
however, that, for purposes of calculating the Annual Priority Return only,
Contributed Capital shall be adjusted pursuant to Sections 18.02 B, 18.03 B, and
18.04 B.
"Deductions" shall have the meaning ascribed to it in the definition
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of Operating Profit.
"Environmental Laws" shall have the meaning ascribed to it in Section
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19.10.
"Execution Date" shall have the meaning as set forth in the Preamble.
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"FF&E" shall mean furniture, furnishings, fixtures, vehicles,
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carpeting and equipment, including front desk and back-of-the house computer
equipment but shall not include Fixed Asset Supplies or any computer software of
any type (including upgrades
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and replacements) owned by Manager, Marriott, a Marriott Affiliate, or the
licensor of any of them other than computer software that is commercially
available to the public.
"Filing Period" shall mean such period of time (not to exceed seventy-
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five (75) days) after the close of each Fiscal Year within which Manager shall
deliver final accounting statements to Lessee with respect to such Fiscal Year.
"First Mortgage" shall have the meaning ascribed to it in Section
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3.01(A)(2).
"Fiscal Year" shall mean Manager's Fiscal Year which now ends at
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midnight on the Friday closest to December 31 in each calendar year; the new
Fiscal Year begins on the Saturday immediately following said Friday. Any
partial Fiscal Year between the Original Effective Date and the commencement of
the first full Fiscal Year shall constitute a separate Fiscal Year. A partial
Fiscal Year between the end of the last full Fiscal Year and the Termination of
this Agreement shall also constitute a separate Fiscal Year. If Manager's Fiscal
Year is changed in the future, appropriate adjustment to this Agreement's
reporting and accounting procedures shall be made; provided, however, that no
such change or adjustment shall alter the term of this Agreement or in any way
reduce the applications of Operating Profit or other payments hereunder.
"Fixed Asset Supplies" shall mean items included within "Property and
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Equipment" under the Uniform System of Accounts including, but not limited to,
linen, china, glassware, tableware, uniforms, and similar items, whether used in
connection with public space or Suites.
"Force Majeure" shall have the meaning ascribed to it in Section 14.03
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hereof.
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"Gross Revenues" shall mean all revenues and receipts of every kind
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derived from operating the Inns and all departments and parts thereof,
including, but not limited to: income (from both cash and credit transactions)
from rental of Suites, 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; health club membership fees; food and beverage sales;
wholesale and retail sales of merchandise (except as otherwise provided in
Section 7.02 C hereof with respect to the sale of FF&E), service charges, and
proceeds, if any, from business interruption or other loss of income insurance;
provided, however, that Gross Revenues shall not include: (i) gratuities to
employees of any of the Inns; (ii) federal, state or municipal excise, sales or
use taxes or similar Impositions collected directly from patrons or guests or
included as part of the sales price of any goods or services; (iii) Net
Refinancing Proceeds or Net Sales Proceeds; (iv) proceeds from the sale of FF&E;
(v) interest received or accrued with respect to the funds in the Reserve or the
other operating accounts of the Inns; or (vi) any refunds, rebates, discounts
and credits of a similar nature, given, paid or returned in the course of
obtaining Gross Revenues or components thereof (including, without limitation,
commissions and discounts for prompt or cash payments).
"Ground Lease" shall mean the Land Lease dated as of April 15, 1988
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between Meriden Land Development Limited Partnership and Lessor, pertaining to
the Meriden, Connecticut Inn, as amended by that certain letter agreement dated
as of December 13, 1999.
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"Hazardous Materials" shall have the meaning ascribed to it in Section
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19.10.
"Impositions" shall have the meaning ascribed to it in Section 12.01.
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"Incentive Management Fee" shall mean an amount which equals twenty
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percent (20%) of the excess of Operating Profit in any Fiscal Year over the
Operating Profit Goal. Payment of the Incentive Management Fee to Manager shall
be subject to the provisions of Article V hereof.
"Initial Term" shall have the meaning ascribed to it in Section 4.01.
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"Inn" or "Inns" shall refer individually or collectively to the ten
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(10) inns located on the ten (10) Sites described on Exhibit A hereto, or such
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lesser number of inns as shall continue to be managed by Manager pursuant to
this Agreement. The term "Inn" or "Inns" shall incorporate not only the Site or
Sites but also all easement or other appurtenant rights thereto, together with
the buildings and all other improvements constructed or to be constructed
thereon, and all FF&E and Fixed Asset Supplies installed or located therein.
"Inn Term" shall have the meaning ascribed to it in Section 4.01.
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"Insurance Retention" shall have the meaning ascribed to it in Section
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11.04.
"Inventories" shall mean "Inventories" as defined in the Uniform
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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.
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"Lessee" shall have the meaning ascribed to it in the Preamble;
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provided, however, upon permitted succession or assignment, "Lessee" shall mean
the permitted successor or assignee.
"Lessee's Capital Return" shall mean an amount equal to (a) the
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portion not yet distributed to Lessee or Lessor from Operating Profit (less the
amounts retained by Lessee pursuant to Sections 5.02 B, C and E) or Net Sales
Proceeds or Net Refinancing Proceeds (less the amounts retained by Lessee
pursuant to Sections 5.03 A and B) equal to a cumulative non-compounded return
on the average daily outstanding balance of Adjusted Contributed Capital, from
time to time, of fourteen percent (14%) per annum from the Execution Date
through the date such Net Sales Proceeds or Net Refinancing Proceeds are
realized; plus (b) the portion not yet distributed to Lessee or Lessor from Net
Sales Proceeds or Net Refinancing Proceeds (less the amounts retained by Lessee
pursuant to Sections 5.03 A and B) equal to one hundred percent (100%) of the
Adjusted Contributed Capital as of the date on which such Net Sales Proceeds or
Net Refinancing Proceeds are realized by Lessee or Lessor.
"Lessor" shall have the meaning ascribed to it in the Preamble;
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provided, however, upon permitted succession or assignment, "Lessor" shall mean
the permitted successor or assignee.
"Manager" shall have the meaning ascribed to it in the Preamble
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hereto; provided, however, upon permitted succession or assignment, "Manager"
shall mean the permitted successor or assignee.
"Marketing Fund" shall mean that certain fund maintained by Manager,
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Marriott, or a Marriott Affiliate, in its capacity as franchisor of the System,
or any
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successor to such fund, to pay for the following System costs: all costs
associated with developing, preparing, producing, directing, administering,
conducting, maintaining and disseminating advertising, marketing, promotional
and public relations materials, programs, campaigns, sales and marketing
seminars and training programs, and similar activities of every kind and nature,
including the Residence Inn directory; conducting market research; and paying
the central operational costs of the Residence Inn reservation system; provided,
however, that any costs described in this definition of Marketing Fund may, at
the option of Manager and The Residence Inn Association, whose membership is
currently limited to Residence Inn franchisees, be charged directly to each Inn
in the System on the basis of actual use by or benefit to each Inn and, in such
event, shall become Deductions.
"Marriott" shall mean Marriott International Inc., the corporate
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parent of Manager.
"Mortgage(s)" shall have the meaning ascribed to it in Section
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3.01(A)(2).
"Net Refinancing Proceeds" shall mean the cumulative full amount
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disbursed (in one or more advances) under any loan or loans obtained by Lessee
or Lessor (other than Additional Inn Investment Loans), from time to time, to
the extent such disbursement or disbursements are not used for the following
purposes: (i) simultaneous repayment of other indebtedness of Lessee or Lessor
related to the Inns; (ii) to pay commercially reasonable transaction costs in
connection with such loan or loans; and (iii) the payment of, or creation of
reserves deemed necessary in the reasonable discretion of Lessee for,
Administrative Expenses, the Reserve and Working Capital needs related to the
Inns.
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"Net Sales Proceeds" shall mean the cumulative net proceeds received
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by Lessee or Lessor, from time to time, from any one or more of the following:
(i) any Sale of an Inn; (ii) the exchange, condemnation, eminent domain taking,
casualty or other disposition of any of (or any portion of) the Inns or the
Sites; or (iii) the liquidation of Lessee's or Lessor's property interest in the
Inns in connection with a dissolution of Lessee or Lessor. The phrase "net
proceeds," as used in the foregoing sentence, shall mean the gross proceeds
received from any of the foregoing to the extent such gross proceeds are not
used for the following purposes: (i) simultaneous repayment of indebtedness (or
any portion thereof) secured by the Inn or Inns being sold or of any other
indebtedness required to be repaid from such proceeds; (ii) to pay commercially
reasonable transaction costs and, in the case of a condemnation, eminent domain
taking or casualty, all costs of repairing, restoring, replacing and
reconstructing an Inn or any portion thereof; and (iii) the payment of, or
creation of reserves deemed necessary in the reasonable discretion of Lessee
for, Administrative Expenses of Lessee, the Reserve, and Working Capital needs
with respect to the remaining Inns. The term "Net Sales Proceeds" shall not
include proceeds from dispositions of FF&E described in Section 7.02 C hereof.
"Operating Loss" shall mean a negative Operating Profit.
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"Operating Profit" shall mean the excess of Gross Revenues over the
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following deductions ("Deductions") incurred by Manager, on behalf of Lessee, in
operating the Inns:
1. The cost of sales including, without limitation, salaries, wages
(including accruals for year-end bonuses to key management employees), fringe
benefits,
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payroll taxes and other costs related to employees of each Inn (the foregoing
costs shall not include salaries and other employee costs of executive personnel
of Manager who do not work at one of the Inns on a regular basis; except that
the foregoing costs shall include the allocable portion of the salary and other
employee costs of any general manager or other supervisory personnel [not
including regional vice-presidents or regional salespeople] assigned to a
"cluster" of hotels and inns which includes one or more of the Inns);
2. Departmental expenses incurred by departments within each Inn,
administrative and general expenses and the cost of marketing incurred by each
Inn, advertising and business promotion incurred by the Inns, heat, light,
power, computer line charges and routine repairs, maintenance and minor
alterations treated as Deductions under Section 7.01;
3. Credit card and travel agent commissions;
4. The cost of Inventories and Fixed Asset Supplies consumed in the
operation of each Inn;
5. A reasonable reserve for uncollectible accounts receivable as
determined by Manager;
6. All costs and fees of independent accountants or other third
parties who perform services required or permitted hereunder;
7. All costs and fees of technical consultants and operational
experts who are retained or employed by Manager, Marriott, or Marriott
Affiliates for specialized services (including, without limitation, quality
assurance inspectors) and the cost of
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attendance by employees of the Inns at training and manpower development
programs sponsored by Manager;
8. The Residence Inn System Fee;
9. The Base Management Fee;
10. The Inns' pro rata share of costs and expenses incurred by
Manager in providing Chain Services;
11. Insurance costs and expenses as provided in Article XI, including
those payable directly to the insurer and those required to be deposited into
the Escrow for Prepaid Items;
12. Taxes, if any, payable by or assessed against Manager related to
this Agreement or to Manager's operation of the Inns (exclusive of taxes on
Manager's income, profits, or a levy on the net worth of Manager) and all
Impositions, including those payable directly to the entity assessing such taxes
and Impositions and those required to be deposited into the Escrow for Prepaid
Items;
13. The contributions to the Repairs and Equipment Reserve which are
required pursuant to Section 7.02 B and 7.02 E;
14. The contributions required to be made, as they may change from
time to time, to the Marketing Fund in order for the Inns to remain members of
the System (such contributions are presently two and one-half percent (2.5%) of
Suite Revenues);
15. Rent payable under equipment leases included in initial FF&E
only; and
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16. Such other costs and expenses as are specifically provided for
elsewhere in this Agreement or are otherwise reasonably necessary for the proper
and efficient operation of the Inns.
"Operating Profit Goal" shall mean the amount of Eight Million Seven
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Hundred Eighty Thousand Dollars ($8,780,000) (such amount to be prorated for any
partial Fiscal Year); provided, however, that Operating Profit Goal shall be
adjusted as provided in Sections 18.02 C, 18.03 C, and 18.04 C.
"Original Effective Date" shall mean December 29, 1999.
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"Prime Rate" shall mean the base rate on corporate loans at large
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United States money center commercial banks, as published from time to time in
the Wall Street Journal; and, if more than one such rate is so published, then
the average of such rates shall be used herein.
"Qualified Debt" shall mean (i) the current First Mortgage secured by
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the Inns (as of the Execution Date), (ii) Additional Inn Investment Loans, (iii)
any indebtedness, to the extent permitted by the Operating Agreement, incurred
to pay the Base Management Fee, the Incentive Management Fee, and Contingent
Management Fees (IMF) and (iv) the Refinanced Principal Amount with respect to
the foregoing indebtedness; provided, however, that Qualified Debt shall be
adjusted pursuant to Sections 18.02 E, 18.03 E, and 18.04 E.
"Qualifying Debt Service" shall mean, for all Accounting Periods to
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date in each Fiscal Year, (i) interest and principal actually paid or accrued on
Qualified Debt or any Refinanced Principal Amount thereof, plus (ii) all
servicing and other fees, charges and costs with respect to the above debt
service and all penalties attributable to
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acts or omissions of Manager constituting a breach by Manager of its obligations
hereunder. In no event, however, shall "Qualifying Debt Service" include, with
respect to any indebtedness: (i) any balloon payments; (ii) voluntary
prepayments, or (iii) repayments of the portion of any indebtedness which is
incurred for the purpose of distributing the same to the member(s), partner(s)
or shareholder(s) of Lessee or Lessor. The term "balloon payments," as used in
this Agreement, shall mean any repayments or prepayments of principal in any
given Fiscal Year (regardless of whether the borrower is permitted or obligated
to make same) to the extent that such repayments or prepayments exceed five
percent (5%) per year of the outstanding principal amount of such indebtedness
as of the date of full disbursement thereof to the borrower thereunder.
"Refinanced Principal Amount" shall mean, with respect to refinancings
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of Qualified Debt, an amount equal to the sum of: (a) the outstanding principal
balances at the time of such refinancing (plus any optional prepayments of
principal previously made) of the loan being refinanced, plus (b) commercially
reasonable transaction costs and loan origination fees relating to such
refinancing, but only to the extent such costs and fees do not exceed, in the
aggregate, two percent (2%) of the aggregate of the outstanding principal
balance of the loan being refinanced (plus any optional prepayments of principal
previously made).
"Renewal Term" or "Renewal Terms" shall have the meaning ascribed to
------------ -------------
it in Section 4.01.
"Repairs and Equipment Reserve" shall have the meaning ascribed to it
-----------------------------
in Section 7.02 A; provided, however, that the Repairs and Equipment Reserve
shall be adjusted as provided in Sections 18.02 D, 18.03 D, and 18.04 D.
16
"Repairs and Equipment Estimate" shall have the meaning ascribed to it
------------------------------
in Section 7.02 D.
"Reserve" shall have the meaning ascribed to it in Section 7.02 A;
-------
provided, however, that the Reserve shall be adjusted as provided in Sections
18.02 D, 18.03 D, and 18.04 D.
"Residence Inn System Fee" shall mean an amount paid to Manager for
------------------------
the following services hereunder: System financial planning (excluding any
services provided in refinancing the Inns) and policy services; product planning
and development; human resources management and planning for the System (but not
any particular inn within the System); protection of the "Marriott Residence
Inn," "Residence Inn by Marriott," and "Residence Inn" trade names, trademarks,
logos and servicemarks; and the development and implementation of Manager's
technical and operational programs designed for the periodic inspection and
consultation visits to the inns in the System (but not the services of the
personnel of the Architecture and Construction Division of Marriott providing
architectural, technical or procurement services for any Inn, which shall be
treated as a Deduction described in subsection 6 of the definition of "Operating
Profit"). The Residence Inn System Fee shall be equal, during any given Fiscal
Year (or portion thereof), to four percent (4%) of Suite Revenues.
"Sale of an Inn" or "Sale of the Inns" shall mean any sale,
-------------- ----------------
assignment, transfer or other disposition, for value or otherwise, voluntary or
involuntary, of the fee simple title to or leasehold interest in, as the case
may be, one or more of the Sites and/or the Inns.
17
"Site" or "Sites" refer individually or collectively to the parcels of
---- -----
land whose addresses are set forth on Exhibit A attached hereto and incorporated
---------
herein.
"Suite" shall mean a lodging unit within an Inn.
-----
"Suite Revenues" shall mean that portion of the Gross Revenues of any
--------------
Inn, or of all of the Inns, which is attributable to the rental of Suites.
"System" shall mean all inns which are operated under the "Residence
------
Inn by Marriott," "Residence Inn" or "Marriott Residence Inn" trade names.
"Termination" shall mean the expiration or sooner cessation of the
-----------
Agreement with respect to a given Inn or Inns.
"Trade Names" shall have the meaning ascribed in Section 9.01.
-----------
"Uniform System of Accounts" shall mean the Uniform System of Accounts
--------------------------
for Hotels, Ninth Revised Edition, 1996, as published by the Hotel Association
of New York City, Inc.
"Working Capital" shall mean funds which are reasonably necessary for
---------------
the day-to-day operation of the business of the Inns, including, without
limitation, amounts sufficient for the maintenance of change and ▇▇▇▇▇ cash
funds, operating bank accounts, receivables, payrolls, prepaid expenses and
funds required to maintain Inventories, less accounts payable and accrued
current liabilities.
END OF ARTICLE I
18
ARTICLE II
APPOINTMENT OF MANAGER
----------------------
2.01 Appointment
-----------
Lessee hereby appoints and employs Manager to exclusively supervise,
direct and control the management and operation of the Inns for the term
provided in Article IV. Manager accepts said appointment and agrees to manage
the Inns as Residence Inns during their respective Inn Terms in accordance with
the terms and conditions hereinafter set forth. Manager may not delegate its
duties hereunder except to a Marriott Affiliate which satisfies the requirements
of Section 17.01 A 1 hereof. Manager represents and warrants that it possesses,
or through its affiliates it possesses, the resources necessary to fulfill its
obligations under this Agreement. Marriott covenants that, so long as Manager
is a Marriott Affiliate, Marriott will make available to Manager any and all
resources possessed by Marriott, but not otherwise available to Manager,
necessary for Manager to fulfill its obligations hereunder.
2.02 Delegation of Authority
-----------------------
The operations of the Inns shall be under the exclusive supervision
and control of Manager which, except as otherwise specifically provided in the
Agreement, shall be responsible for the proper and efficient operation of the
Inns. Manager shall have discretion and control, free from interference,
interruption or disturbance, in all matters relating to management and operation
of each Inn, including, without limitation, charges for Suites, credit policies,
food and beverage services, employment policies,
19
receipt, holding and disbursement of funds, maintenance of bank accounts,
procurement of Inventories, supplies and services, promotion and publicity and,
generally, all activities necessary for operation of the Inns. If Manager buys
merchandise, services, or other property from Marriott or any Marriott
Affiliate, the compensation, price or fee therefor shall be no less favorable
than the compensation, price or fee that would be charged by an unaffiliated
person in an arm's length transaction.
2.03 Licenses and Permits
--------------------
A. Lessee agrees, upon request by Manager, not to unreasonably
withhold, condition or delay the prompt signing, without charge, of applications
for licenses, permits or other instruments necessary for operation of each Inn,
which applications shall be prepared by Manager as necessary from time to time.
B. Manager shall have the option to terminate the Agreement with
respect to a given Inn, at any time, upon one hundred twenty (120) days' written
notice to Lessee, in the event of a withdrawal or revocation, by any lawful
governing body having jurisdiction thereof, of any license or permit that
materially affects the operation of the Inn, provided: (i) such withdrawal or
revocation is not the fault of Manager, but rather is due to circumstances
beyond Manager's reasonable control; (ii) all applicable appeals to higher
governmental authorities regarding such withdrawal or revocation have been
exhausted; (iii) Manager has made every reasonable effort to obtain a substitute
license or permit that would allow for the continued operation of such Inn as a
first-class lodging facility; and (iv) such revocation is not common with other
first-class lodging facilities in the same market area.
20
2.04 Non-Discrimination
------------------
The parties recognize that Manager, Marriott and Marriott Affiliates
either own or manage other hotels and inns. Certain of these hotels and inns,
now or in the future, may be located within the general geographical area of one
or more of the Inns. Manager, Marriott, and Marriott Affiliates shall institute
reasonable internal controls and procedures to ensure that no favoritism shall
be accorded to such other hotels or inns on the basis of the ownership thereof
and that, at all times during the term of this Agreement, Manager, Marriott, and
Marriott Affiliates will operate the various hotels or inns under their
management, including the Inns, in a nondiscriminatory manner.
END OF ARTICLE II
21
ARTICLE III
PROPERTY INTERESTS IN THE INNS
------------------------------
3.01 Interest in the Inns
--------------------
A. Lessee hereby covenants that it has and will keep and maintain
its leasehold interest, and that it will cause Lessor to keep and maintain its
fee title interest (with the exception of the Meriden Inn, with respect to which
it will cause Lessor to maintain its leasehold interest), to the Site of each
Inn and such Inn free and clear of any and all liens, encumbrances or other
charges, except as follows:
1. Easements or other encumbrances (other than those described
in subsections 2, 3 and 4 hereof) that do not materially adversely affect the
operation of any Inn by Manager, including, without limitation, any encumbrances
or other defects of title subject to which title was conveyed to Lessor and/or
Lessee;
2. Mortgage(s), deed(s) of trust or similar security
instrument(s) ("Mortgage(s)") which: (i) contain a provision reasonably
acceptable to Manager's counsel that this Agreement will not be subject to
forfeiture or Termination other than in accordance with the terms hereof,
notwithstanding a default under such Mortgage (except that Mortgages relating to
first mortgage indebtedness with respect to the Inns (a "First Mortgage") shall
not be required to contain the foregoing provision if the value of the
collateral provided as security for such indebtedness is at least twice the
amount of such indebtedness at the time such indebtedness is incurred); and (ii)
secure either (x) any indebtedness on which all or a portion of the payments
constitute Qualifying Debt Service, or (y) debt incurred for distribution to
Lessee or Lessor;
22
3. Liens for taxes, assessments, levies or other public charges
not yet due or that are being contested in good faith;
4. Liens, encumbrances, or other charges resulting from
Manager's acts;
5. Terms and conditions of the Ground Lease and the effect of
any collateral assignment thereof executed by Lessee or Lessor.
B. Provided Manager is not in monetary default under this Agreement,
Lessee shall pay and discharge, or cause Lessor to pay and discharge (whichever
is applicable), on or before the due date, any and all installments of principal
and interest due and payable upon any mortgage, deed of trust or like instrument
described in this Section (including, without limitation, any amounts owed under
the Indenture) and shall indemnify Manager from and against all claims,
litigation and damages (other than damages representing Manager's lost profits)
arising from the failure to make such payments as and when required except where
such claims, litigation or damages are attributable to acts or omissions of
Manager constituting a breach by Manager of its obligations hereunder.
END OF ARTICLE III
23
ARTICLE IV
TERM
----
4. 01 Term
----
A. The term of this Agreement shall be from the Original Effective
Date to the expiration of the Inn Term (as defined in subsection B below) for
the last Inn to which this Agreement applies.
B. With respect to each Inn, the "Inn Term" shall consist of an
"Initial Term" and the "Renewal Term(s)." The "Initial Term" began on the
Original Effective Date and shall continue until December 30, 2011, which is the
last day of Fiscal Year 2011. Each Inn Term will automatically be extended and
renewed (on the same terms and conditions contained herein, except as set forth
in the final sentence of this Section 4.01 B), for each of five (5) successive
periods of ten (10) Fiscal Years each ("Renewal Terms"), provided that an "event
of default" by Manager has not occurred under Section 15.01 hereof (or, if such
an "event of default" has occurred, that it is not being cured in accordance
with the provisions of Section 15.01 or 15.02 hereof) unless Manager, at its
sole option, elects to terminate this Agreement as to any or all of the Inns as
set forth below. If Manager elects to exercise such option to terminate this
Agreement as to one or more of the Inns on the expiration of the then current
Inn Term with respect to such Inn or Inns, it shall give Lessee notice to that
effect at least eighteen (18) months prior to the expiration of the then current
Inn Term with respect to such Inn or Inns. Manager shall continue to manage
such Inn or Inns during the final eighteen (18) months of their respective Inn
Terms, unless, during such eighteen (18) month period, Lessee or
24
Lessor effects a sale of such Inn or Inns or secures a new manager therefor, in
which case the respective Inn Terms of such affected Inns shall be prematurely
terminated, as of the date of such sale or the effective date of such new
management contract. In the event Manager elects to terminate as to one or more,
but not all, of the Inns, the adjustments described in Section 18.03 shall be
made to this Agreement.
4.02 Performance Termination
-----------------------
A. Subject to the provisions of Section 4.02 B below, Lessee shall
have the option to terminate this Agreement with respect to all of the Inns if
the sum of the Operating Profit (computed, for purposes of this Section 4.02
only, without deducting Base Management Fees) for all of the Inns during any
period of two (2) consecutive Fiscal Years during the term of this Agreement
(not including any period of time before the expiration of the 1999 Fiscal Year)
does not equal or exceed the sum total of (i) the Operating Profit Goal, added
once for each of such two (2) Fiscal Years (but to be prorated for any partial
Fiscal Year), and (ii) eight percent (8%) of the weighted average outstanding
balance of Additional Inn Investments, added once for each of such two (2)
Fiscal Years (but to be prorated for any lesser period of time for which such
Additional Inn Investments were made). Such option to terminate shall be
exercised by serving written notice thereof on Manager no later than sixty (60)
days after the receipt by Lessee of the annual accounting under Section 8.01
hereof for such second consecutive Fiscal Year. Such notice shall state the
basis on which Lessee asserts the right of termination and shall show all
mathematical calculations constituting the basis therefor. If Manager does not
elect to avoid termination pursuant to Section 4.02 B below, this Agreement
25
shall terminate as of the end of the first full Accounting Period following the
date on which Manager's option to avoid such termination expires pursuant to
Section 4.02 B. Lessee's failure to exercise its right to terminate this
Agreement pursuant to Section 4.02 A during any given Fiscal Year shall not be
deemed an estoppel or waiver of Lessee's right to terminate this Agreement as to
subsequent Fiscal Years to which this Section may apply. In the event Lessee or
Lessor refinances fewer than all of the Inns or refinances all of the Inns
pursuant to more than one financing transaction and calculations of various
items under this Agreement are adjusted pursuant to Section 18.04 and Lessee and
Manager enter into one or more new management agreements covering the Inns being
refinanced in accordance with Section 18.04, then, notwithstanding the
provisions of Section 18.04, the calculation for determining whether Lessee has
a right to terminate this Agreement as set forth above in this Section 4.02 A
and the amount of deficiency to be advanced by Manager under Section 4.02 B to
avoid termination shall be made as if all of the Inns were still covered by this
Agreement and no adjustments had been made.
B. Upon receipt of Lessee's written notice of termination under
Section 4.02 A, Manager shall have the option, to be exercised within sixty (60)
days after receipt of said notice, to avoid such termination by advancing to
Lessee the amount of any deficiency described in Section 4.02 A. If Manager
exercises such option, then the foregoing Lessee's election to terminate this
Agreement under Section 4.02 A shall be canceled and of no force or effect and
this Agreement shall not terminate. Such cancellation, however, shall not
affect the right of Lessee, as to each subsequent Fiscal Year to which Section
4.02 A applies, to again elect to terminate this Agreement pursuant to the
provisions of Section 4.02 A (which subsequent election shall again be subject
to
26
Manager's rights under this Section 4. 02 B); provided, however, that neither
of the two (2) Fiscal Years for which Manager has advanced to Lessee the
deficiency described in Section 4.02 A shall be included in determining whether
Lessee has the future right to terminate this Agreement under Section 4.02 A.
If Manager does not exercise its option to make the advance permitted by this
Section 4.02 B, then this Agreement shall be terminated as of the date set forth
in Section 4.02 A. Any amounts advanced by Manager pursuant to this Section
4.02 B shall be recovered by Manager, without interest, in subsequent Fiscal
Years, in the same manner and with the same priority as Contingent Management
Fees (IMF); provided, however, that none of such advances made by Manager shall
become nonrecoverable notwithstanding the limitation on recovery of Incentive
Management Fees set forth in the definition of Contingent Management Fees (IMF).
4.03 Actions to be Taken on Termination
----------------------------------
Upon a Termination of this Agreement with respect to any one or more
of the Inns, except in the case of a refinancing of fewer than all of the Inns
as provided for in Section 18.04, the following shall be applicable:
A. Manager shall prepare a final accounting statement with respect
to such Inn or Inns, as more particularly described in Section 8.01 hereof,
dated as of the date of Termination. Within thirty (30) days of the receipt by
Lessee of such final accounting statement, the parties will make whatever cash
adjustments are necessary pursuant to such final statement. The cost of
preparing such final accounting statement
27
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.
B. Manager shall release and transfer to Lessee any of Lessee's
funds which are held or controlled by Manager with respect to such Inn or Inns
with the exception of funds to be held in escrow pursuant to Sections 11.04 and
13.01 C and otherwise in accordance herewith.
C. Manager shall make available to Lessee such books and records
respecting such Inn or Inns (including those from prior years, subject to
Manager's reasonable records retention policies) as will be needed by Lessee to
prepare the accounting statements, in accordance with the Uniform System of
Accounts, for such Inn or Inns for the year in which the Termination occurs and
for any subsequent year.
D. Manager shall (to the extent permitted by law) assign to Lessor,
Lessee or to the new manager all operating licenses and permits for such Inn or
Inns which have been issued in Manager's name (including liquor and restaurant
licenses, if any); provided, that if Manager has expended any of its own funds
in the acquisition of any of such licenses or permits, Lessee shall reimburse
Manager therefor if it has not done so already, with such reimbursement to be
made on a prorata basis taking into account the remaining time left on the
license or permit in the case of licenses and permits that have a stated
expiration date.
E. Appropriate adjustments shall be made regarding the application
of this Agreement to any remaining Inns, such as, but not limited to, those
adjustments described in Sections 18.02 and 18.03.
28
F. Various other actions shall be taken, as described in this
Agreement, including, but not limited to, the actions described in Sections
6.01, 9.02, 11.04, and 13.01 C.
G. Manager shall peacefully vacate and surrender such Inn or Inns to
Lessee.
END OF ARTICLE IV
29
ARTICLE V
COMPENSATION OF MANAGER
-----------------------
5.01 Management Fee
--------------
In consideration of services to be performed during the term of this
Agreement, Manager shall, subject to the provisions of this Article V, be paid
the sum of the following as its management fee:
(a) the Base Management Fee; plus
(b) the Residence Inn System Fee; plus
(c) the Incentive Management Fee.
The Base Management Fee will be calculated on the basis of Gross
Revenues and will be payable in accordance with this Article V. The Incentive
Management Fee will be calculated on the basis of Operating Profit and will be
payable in accordance with this Article V. Any Incentive Management Fees which
become Contingent Management Fees (IMF) shall be payable in accordance with this
Article V. The Residence Inn System Fee shall be calculated on the basis of
Suite Revenues and will be payable as set forth in this Article V, and shall not
be subject to limitations based on the amount of Operating Profit.
Notwithstanding anything to the contrary contained herein, any payments to third
parties for services covered by the Base Management Fee or the Residence Inn
System Fee shall be borne by the Manager.
30
5.02 Payment of Base Management Fees and Incentive
---------------------------------------------
Management Fees from Operating Profit
-------------------------------------
Any Base Management Fee, Incentive Management Fee, and Contingent
Management Fee (IMF) shall, in each Fiscal Year or portion thereof (and with
respect to each Accounting Period within each such Fiscal Year, as more
particularly described in Section 5.05 hereof), be payable in accordance with
the following priority scheme:
A. First, Base Management Fees due to Manager with respect to such
current Fiscal Year (which shall be prorated among the Accounting Periods within
any given Fiscal Year) shall be paid to Manager as a Deduction in determining
Operating Profit;
B. Second, Lessee shall receive the Operating Profit (to the extent
of Operating Profit in that Fiscal Year) until Lessee has received an amount
sufficient to pay the Qualifying Debt Service for such Fiscal Year (which shall
be prorated among the Accounting Periods within any given Fiscal Year) and
Lessee shall use such amount to pay said amounts owing to the appropriate
parties, if any;
C. Third, Lessee shall receive the remaining balance of Operating
Profit (to the extent of Operating Profit in that Fiscal Year) until Lessee has
received sufficient funds to pay, or to create reserves deemed necessary in the
reasonable discretion of Lessee for, Administrative Expenses for such Fiscal
Year (which shall be prorated among the Accounting Periods within any given
Fiscal Year);
D. Fourth, Lessee shall receive the remaining balance of Operating
Profit (to the extent of Operating Profit in that Fiscal Year) until Lessee has
received an
31
amount equal to its Annual Priority Return for such Fiscal Year (which shall be
prorated among the Accounting Periods within any given Fiscal Year);
E. Fifth, Lessee shall receive the remaining balance of Operating
Profit (to the extent of Operating Profit in that Fiscal Year) until Lessee has
received an amount sufficient to repay any loans made to Lessee by Marriott,
Manager, any Affiliate of Lessee and any Affiliate of Marriott (which may be
prorated by Lessee among the Accounting Periods within any given Fiscal Year),
and Lessee shall use such amount to repay said amounts owing to Marriott,
Manager, any Affiliate of Lessee, and any Marriott Affiliate; and
F. Sixth, the remaining balance of Operating Profit (to the extent
of Operating Profit in that Fiscal Year) shall be divided into two (2) equal
halves, one-half to be distributed to Lessee and the other half to be paid to
Manager, as and to the extent necessary, to be applied to the payment (in
sequence) of any Incentive Management Fee for such Fiscal Year and all
Contingent Management Fees (IMF) (including amounts recoverable by Manager
pursuant to Section 4.02 B) (which amount shall be prorated among the Accounting
Periods within any given Fiscal Year). If the one-half of the remaining balance
of Operating Profit available for payment to Manager pursuant to this subsection
F exceeds the amount of all the Incentive Management Fees for such Fiscal Year
and all Contingent Management Fees (IMF) (including amounts recoverable by
Manager pursuant to Section 4.02 B), then the remaining balance of such portion
of Operating Profit shall be distributed to Lessee. Notwithstanding any other
provisions hereof, the amount paid to Manager under this subsection F shall in
no event exceed the then current sum of any Incentive Management Fee for the
current Fiscal Year and any
32
Contingent Management Fees (IMF) (including amounts recoverable by Manager
pursuant to Section 4.02 B).
In the event Lessee or Lessor refinances fewer than all of the Inns or
refinances all of the Inns pursuant to more than one financing transaction and
calculations of various items under this Agreement are adjusted pursuant to
Section 18.04 and Lessee and Manager enter into one or more new management
agreements in accordance with Section 18.04 and if after the application of
Operating Profit to pay Manager the Incentive Management Fee and all Contingent
Management Fees (IMF) (including amounts recoverable by Manager pursuant to
Section 4.02 B), the amount of Operating Profit distributed to Lessee would
exceed one-half of the Operating Profit available for distribution immediately
prior to the application in paragraph F, but Operating Profit with respect to
the refinanced Inns is insufficient for Manager to receive the Incentive
Management Fee for such Fiscal Year and all Contingent Management Fees (IMF)
(including any amounts recoverable by Manager pursuant to Section 4.02 B of the
new management agreement(s)), under paragraph F of the new management
agreement(s), then notwithstanding the foregoing priority scheme, any Operating
Profit in excess of such one-half portion shall be paid to Manager as and to the
extent necessary to cover the amount of such shortfall in fees under paragraph F
of the new management agreement(s). It is the intention of the parties that,
notwithstanding the provisions of Section 18.04, all calculations and
distributions under this Section 5.02 shall be made as if all of the Inns owned
by Lessor (plus the Meridian Inn, which is leased by Lessor) and leased to
Lessee as of the Execution Date were still subject to this Agreement and no
adjustments had been made to the various calculations hereunder.
33
5.03 Payment of Incentive Management Fees
------------------------------------
from Net Sales Proceeds and Net
-------------------------------
Refinancing Proceeds
--------------------
In the event that Lessee or Lessor, from time to time during the term
of this Agreement, realizes Net Sales Proceeds or Net Refinancing Proceeds and,
at that time, there exist unpaid, (i) the Incentive Management Fee for such
Fiscal Year, or (ii) Contingent Management Fees (IMF) (including amounts
recoverable by Manager pursuant to Section 4.02 B), then Lessee shall apply or,
as applicable, cause Lessor to apply, such Net Sales Proceeds or Net Refinancing
Proceeds, as the case may be and to the extent thereof, in the following order
and amounts:
A. First, Lessee or Lessor shall retain amounts sufficient to repay
any loans made to Lessee by Marriott, Manager, any Affiliate of Lessee and any
Affiliate of Marriott, and shall use such amount to repay said loans;
B. Second, Lessee shall retain an amount sufficient to cover any
unamortized payments (and return thereon) under Section 7.02 E 3 hereof;
C. Third, Lessee shall retain an amount sufficient to cover the
Lessee's Capital Return;
D. Fourth, the remaining balance of Net Sales Proceeds or Net
Refinancing Proceeds, as the case may be, shall be divided into two (2) equal
halves, one-half to be retained by Lessee and the other half, as and to the
extent necessary, to be applied to the payment (in sequence) of any Incentive
Management Fee and any Contingent Management Fees (IMF) (including amounts
recoverable by Manager
34
pursuant to Section 4.02 B) due and not yet paid to Manager as of the date on
which such Net Sales Proceeds or Net Refinancing Proceeds are realized by Lessee
or Lessor. If the one-half of the remaining balance of Net Sales Proceeds or Net
Refinancing Proceeds, as the case may be, available for payment to Manager
pursuant to this subsection D exceeds the amount payable to Manager pursuant to
this subsection D, then any remaining balance of the portion of Net Sales
Proceeds or Net Refinancing Proceeds shall be retained by Lessee or Lessor.
Notwithstanding any other provisions hereof, the amount paid to Manager under
this subsection D shall in no event exceed the then current sum of any Incentive
Management Fee, and any Contingent Management Fees (IMF) (including amounts
recoverable by Manager pursuant to Section 4.02 B).
In the event Lessee or Lessor refinances fewer than all of the Inns or
refinances all of the Inns pursuant to more than one financing transaction and
calculations of various items under this Agreement are adjusted pursuant to
Section 18.04 and Lessee and Manager enter into one or more new management
agreement(s) in accordance with Section 18.04, and if after application of Net
Sales Proceeds or Net Refinancing Proceeds, as the case may be, in paragraph D
above to pay Manager the Incentive Management Fee and the Contingent Management
Fees (IMF) (including amounts recoverable by Manager pursuant to Section 4.02
B), the amount of Net Sales Proceeds or Net Refinancing Proceeds, as the case
may be, retained by Lessee or Lessor would exceed one-half of such proceeds
available for distribution immediately prior to the application in paragraph D,
but Net Sales Proceeds and Net Refinancing Proceeds with respect to the Inns
subject to the new management agreement(s) have been insufficient to pay Manager
all Incentive Management Fees for such Fiscal Year, and all Contingent
35
Management Fees (IMF) (including any amounts recoverable by Manager pursuant to
Section 4.02 B of the new management agreement(s)), under paragraph D of the new
management agreement(s), then notwithstanding the foregoing priority scheme, any
Net Sales Proceeds and Net Refinancing Proceeds in excess of such one-half
portion shall be paid to Manager as and to the extent necessary to cover the
amount of such shortfall under paragraph D of the new management agreement(s).
It is the intention of the parties that, notwithstanding the provisions of
Section 18.04, all calculations and distributions under this Section 5.03 shall
be made as if all of the Inns owned by Lessor (plus the Meridian Inn, which is
leased by Lessor) and leased to Lessee as of the Execution Date were still
subject to this Agreement and no adjustments had been made to the various
calculations hereunder.
5.04 Debt Service
------------
In the event that (i) Lessee's or Lessor's actual scheduled debt
service on the Refinanced Principal Amount of Lessee's or Lessor's indebtedness
secured by one or more of the Inns is in excess of Qualifying Debt Service (due
to the limitations set forth in the definition of Actual Debt Service) for any
Fiscal Year (or portion thereof) during the Inn Term, (ii) Manager is entitled
to receive pursuant to Section 5.02 all or a portion of any Incentive Management
Fee or any Contingent Management Fees (IMF) (including amounts recoverable by
Manager pursuant to Section 4.02 B), and (iii) the total amount distributed to
Lessee or paid pursuant to Sections 5.02 B, C, D & E for such Fiscal Year (or
portion thereof) is less than the sum of the actual debt service described in
clause (i) above, plus (A) the remaining portion of Qualifying Debt Service not
covered by clause
36
(i) above, (B) Lessee's Administrative Expenses for such Fiscal Year (or portion
thereof), and (C) amounts owing to Marriott, Manager, any Affiliate of Lessee
and any Affiliate of Marriott pursuant to any loans made by any of them to
Lessee, then Manager shall not be entitled to current payment of such portion of
any Incentive Management Fee or any Contingent Management Fees (IMF) (including
amounts recoverable by Manager pursuant to Section 4.02 B) up to an amount equal
to the excess of the amount under (i) above over the amount set forth in (iii)
above. Lessee shall use, or cause Lessor to use, such amount otherwise allocated
to any Incentive Management Fee or any Contingent Management Fees (IMF) to pay
said actual debt service. Such portion of the Incentive Management Fee shall
become Contingent Management Fees (IMF), and such Contingent Management Fees
(IMF) (including amounts recoverable by Manager pursuant to Section 4.02 B)
shall remain unchanged.
5.05 Accounting and Interim Payment
------------------------------
A. Within twenty (20) days after the close of each Accounting
Period, Manager shall submit an interim accounting to Lessee showing Gross
Revenues, Suite Revenue, Deductions, Operating Profit, and applications thereof.
Manager shall transfer with each accounting any interim amounts due Lessee and
shall retain any interim amounts due Manager (as described in this Article V).
Each accounting will be prepared on a consolidated basis and on an individual
Inn basis.
B. Calculations and payments of the Base Management Fee, the
Incentive Management Fee, Contingent Management Fees (IMF) (including amounts
recoverable by Manager pursuant to Section 4.02 B), the Residence Inn System
Fee, and
37
applications of Operating Profit made with respect to each Accounting Period
within a Fiscal Year shall be accounted for cumulatively. Within the Filing
Period, Manager shall submit an accounting to Lessee, as more fully described in
Section 8.01, for the immediately preceding Fiscal Year, which accounting shall
be controlling over the interim accountings. Any adjustments required by the
Fiscal Year accounting shall be made by cash payments within five (5) business
days of the receipt by Lessee of such final accounting. No adjustment shall be
made for any Operating Loss in a preceding or subsequent Fiscal Year.
END OF ARTICLE V
38
ARTICLE VI
WORKING CAPITAL AND FIXED ASSET SUPPLIES
----------------------------------------
6.01 Working Capital and Inventories
-------------------------------
Lessee shall from time to time after the Execution Date, within thirty
(30) days of a request by Manager, advance any funds necessary to maintain
Working Capital and Inventories at levels reasonably determined by Manager to be
necessary to satisfy the needs of each Inn as its operation may from time to
time require. Funds so advanced for Working Capital shall be utilized by
Manager on behalf of Lessee for the purposes of this Agreement pursuant to cash-
management policies established for the System, but Lessee shall be the
beneficial owner of all such funds throughout the term of this Agreement. Upon
Termination with respect to any Inn or Inns, Manager shall return to Lessee any
unused Working Capital and Inventories allocable to such Inn or Inns, except for
Inventories purchased by Manager pursuant to Section 9.02.
6.02 Fixed Asset Supplies
--------------------
The parties recognize that the Inns have Fixed Asset Supplies as of
the date of this Agreement. Lessee shall from time to time after the Execution
Date promptly advance, upon request of Manager, any additional funds necessary
to maintain Fixed Asset Supplies at levels determined by Manager to be necessary
to satisfy the needs of each Inn as its operation may from time to time require.
Fixed Asset Supplies shall remain the property of Lessee throughout the term of
the Agreement except for Fixed Asset Supplies purchased by Manager pursuant to
Section 9.02.
39
END OF ARTICLE VI
ARTICLE VII
REPAIRS, MAINTENANCE AND REPLACEMENTS
-------------------------------------
7.01 Routine Repairs and Maintenance
-------------------------------
Manager shall maintain each Inn in good repair and condition and in
conformity with applicable laws and regulations and shall make or cause to be
made such routine maintenance, repairs and minor alterations, the cost of which
can be expensed under generally accepted accounting principles, as it, from time
to time, deems necessary for such purposes. The cost of such maintenance,
repairs and alterations shall be paid from Gross Revenues and shall be treated
as a Deduction in determining Operating Profit.
7.02 Repairs and Equipment Reserve
-----------------------------
A. Manager shall establish, on a consolidated basis (or on such
other basis as may be reasonably required by lenders providing financing to
Lessee or Lessor with respect to the Inns), an escrow reserve account ("Repairs
and Equipment Reserve" or the "Reserve"), in a bank or similar institution
reasonably acceptable to both Manager and Lessee, to cover the cost of:
1. Replacements and renewals related solely to the FF&E of the
Inns; and
2. Certain routine repairs and maintenance to each Inn's
buildings which are normally capitalized under generally accepted accounting
principles,
40
such as exterior and interior repainting, resurfacing building walls, floors,
roofs and parking areas, buying or leasing replacement vehicles, and replacing
folding walls and the like, but which are not major repairs, alterations,
improvements, renewals or replacements to such building's structure or to its
mechanical, electrical, heating, ventilating, air conditioning, plumbing or
vertical transportation systems, the cost of which are to be paid by Lessee
under Section 7.03, rather than from the Reserve.
B. Subject to the provisions of subsection E, below, each Fiscal
Year, Manager shall transfer into the Reserve an amount equal to five percent
(5%) of Gross Revenues for each of such Fiscal Years. Transfers into the
Reserve shall be made at the time of each interim accounting described in
Section 5.05 A hereof. Any amounts held in the Reserve may be applied, as
between the Inns, without regard to the source of such amounts, provided that
such application satisfies the requirements of this Article VII. However,
Manager shall keep an accounting of amounts spent from the Reserve for each Inn
for purposes of allocating the Reserve in the event of a sale, refinancing or
other termination of this Agreement with respect to fewer than all of the Inns
in accordance with Sections 18.02 D, 18.03 D, and 18.04 D. All amounts
transferred to the Reserve shall be deducted from Gross Revenues in determining
Operating Profit and shall be deposited in the special Reserve account described
in Section 7.02 A hereof.
C. Manager shall from time to time make such (1) replacements and
renewals to the FF&E of the Inns, and (2) repairs to each Inn building of the
nature described in Section 7.02 A 2, as it deems necessary, up to the balance
in the Repairs and Equipment Reserve. No expenditures will be made in excess of
said balance without the prior approval of Lessee. Additionally, with respect
to renovation projects in excess of
41
$500,000 at an Inn, Lessee shall have the right to designate a contractor that
Manager must allow to bid on such project and whose bid Manager must consider in
good faith in selecting the contractor. At the end of each Fiscal Year, any
amounts remaining in the Repairs and Equipment Reserve shall be carried forward
to the next Fiscal Year. Proceeds from the sale of FF&E no longer necessary to
the operation of each Inn shall be added to the Reserve. The Reserve will be
kept in an interest-bearing account, and any interest which accrues thereon
shall be retained in the Reserve. Neither (i) proceeds from the disposition of
FF&E, nor (ii) interest which accrues on amounts held in the Reserve, shall (a)
result in any reduction in the required contributions to the Reserve set forth
in subsection B above, nor (b) be included in Gross Revenues.
D. Manager shall prepare an estimate ("Repairs and Equipment
Estimate") of the expenditures necessary for (1) replacements and renewals to
the FF&E of the Inns, and (2) repairs to each Inn building of the nature
described in Section 7.02 A 2, during the ensuing Fiscal Year and shall submit
such Repairs and Equipment Estimate to Lessee at the same time it submits the
Annual Operating Projection described in Section 8.03. Manager will consider in
good faith suggestions made by Lessee with respect to the Repairs and Equipment
Estimate and make modifications thereto that Manager deems appropriate. The
Repairs and Equipment Estimate shall be prepared on a consolidating basis
showing proposed expenditures as to each Inn. It shall also indicate the
estimated time schedule for making such replacements and renewals.
E. The percentage contributions for the Repairs and Equipment
Reserve described in Section 7.02 B are estimates based upon Manager's prior
experience. As each Inn ages, these percentages either (i) may not be
sufficient to keep
42
the Reserve at the levels necessary to make the replacements and renewals to the
FF&E of such Inn, or to make the repairs to such Inn building of the nature
described in Section 7.02 A 2, which are required to maintain such Inn as a
first-class facility or (ii) may be in excess of those amounts necessary to
maintain such Inn as a first-class facility. If the Manager reasonably
determines that the percentages contained in Section 7.02 B are in excess of the
amounts sufficient to maintain the Inns as first-class facilities, upon notice
to Lessee, Manager may reduce the percentages. Manager shall provide to Lessee
from time to time a report, in reasonable detail, supporting the amount in the
Repairs and Equipment Reserve and the percentages set forth in Section 7.02 B.
If the Repairs and Equipment Estimate reasonably prepared in good
faith by Manager exceeds the available funds in the Repairs and Equipment
Reserve, Lessee will:
1. Agree to increase the annual percentage in Section 7.02 B to
provide the additional funds required, or
2. Arrange to obtain outside financing for the additional funds
required, in which event the principal and interest payments on such financing
shall constitute Deductions in determining Operating Profit, or
3. Provide the additional funds required, in which case, such
amounts (plus interest at the Prime Rate plus one percent (1%) per annum) shall
be retained by Lessee from Gross Revenues as if they were a repayment on an
interest-bearing loan in equal installments over the period of the next sixty-
five (65) Accounting Periods, and such installment repayments shall be
Deductions.
43
A failure or refusal by Lessee to agree to either 1, 2 or 3 above
within a sixty (60) day period after Manager's request therefor shall entitle
Manager, within sixty (60) days after such failure or refusal, to notify Lessee
that it will terminate this Agreement, as to those Inns as to which agreement
was not reached, as of a date six (6) months after the date of Manager's notice.
If Lessee subsequently agrees to 1, 2 or 3 above within six (6) months after
Manager notifies Lessee of its intention to terminate this Agreement, this
Agreement shall not terminate and Manager shall continue to manage the Inns in
question. If Manager does not so notify Lessee, it shall continue to manage the
Inns in question, as provided under this Agreement, without the aforesaid
increase in the percentage contribution to the Reserve.
F. Upon Termination of this Agreement with respect to fewer than all
of the Inns, whether pursuant to Section 7.02 E above or pursuant to other
provisions of this Agreement, adjustments to the Reserve shall be made in
accordance with Sections 18.02 D, 18.03 D, and 18.04 D.
G. With the exception of any furniture or equipment leases that are
in effect on the Execution Date, if Manager elects to lease rather than purchase
any FF&E, the lease payments for such FF&E shall be made from the Reserve.
7.03 Building Alterations, Improvements, Renewals, and Replacements
--------------------------------------------------------------
A. Manager shall prepare an annual estimate of the expenses
necessary for major repairs, alterations, improvements, renewals and
replacements (which repairs, alterations, improvements, renewals and
replacements are not among those referred to in Section 7.02 A 2 and are not
expansions) to the structural,
44
mechanical, electrical, heating, ventilating, air conditioning, plumbing or
vertical transportation elements of each of the Inn buildings ("Building
Estimate") and shall submit such Building Estimate to Lessee for its approval at
the same time the Annual Operating Projection is submitted. The Building
Estimate shall be prepared on a consolidating basis showing proposed
expenditures as to each Inn. With respect to major repairs, alterations,
improvements, renewals, or replacements in excess of $500,000 at an Inn, Lessee
shall have the right to designate a contractor that Manager must allow to bid on
such project. Manager shall not make any expenditures for major repairs,
alterations, improvements, renewals or replacements until the Building Estimate
is approved by Lessee. However, if major repairs, alterations, improvements,
renewals or replacements to any Inn are required by reason of any law,
ordinance, regulation or order of a competent government authority (after
exhausting any appeals), or are otherwise required for the continued safe and
orderly operation of such Inn, Manager shall immediately give Lessee notice
thereof and shall be authorized (but not obligated) to take appropriate remedial
action without such approval if Lessee does not act; provided that Manager shall
in no event act without obtaining Lessee's prior consent if the cost of such
remedial action exceeds, for any given Inn four percent (4%) of such Inn's
annual Gross Revenues. Lessee shall bear the cost of all such alterations,
improvements, renewals or replacements by either:
1. Providing outside financing for the additional funds required, in
which event such financing shall constitute an Additional Inn Investment Loan,
or
2. Providing the additional funds required, which amounts shall be
treated as Additional Inn Investments hereunder.
45
Such costs shall not be paid from Gross Revenues nor from the Reserve.
B. If Lessee does not approve the Building Estimate as to one or
more or all of the Inns within sixty (60) days after it has been submitted,
Manager may, within sixty (60) days after the end of said sixty (60) day period,
notify Lessee that it will terminate this Agreement as to those Inns as to which
agreement was not reached as of a date six (6) months after the date of
Manager's notice. If Lessee subsequently agrees to 1 or 2 above within six (6)
months after Manager notifies Lessee of its intention to terminate this
Agreement, this Agreement shall not be terminated and Manager shall continue to
manage the Inns in question. If Manager does not so notify Lessee, it shall
continue to manage the Inns in question, as provided under this Agreement,
without making any expenditures in the Building Estimate that were not approved.
The provisions of this subsection 8.03 B shall not apply to requests from
Manager to expand any Inn.
7.04 Liens
-----
Manager and Lessee shall use their best efforts to prevent any liens
from being filed against any Inn which arise from any maintenance, repairs,
alterations, improvements, renewals or replacements in or to such Inn. They
shall cooperate fully in obtaining the release of any such liens, and the cost
thereof, if the lien was not occasioned by the fault of either party, shall be
treated the same as the cost of the matter to which it relates. If the lien
arises as a result of the fault of either party, then the party at fault shall
bear the cost of obtaining the lien release.
46
7.05 Ownership of Replacements
-------------------------
All repairs, alterations, improvements, renewals or replacements made
pursuant to Article VII, and all amounts kept, in the Reserve, shall be the
property of Lessee.
END OF ARTICLE VII
47
ARTICLE VIII
BOOKKEEPING AND BANK ACCOUNTS
-----------------------------
8.01 Books and Records
-----------------
A. Books of control and account pertaining to operation of the Inns
shall be kept on the accrual basis and in material respects in accordance with
the Uniform System of Accounts, with the exceptions provided in the Agreement.
Lessee may at reasonable intervals during Manager's normal business hours
examine such records. Within the Filing Period, Manager shall furnish Lessee a
statement in reasonable detail summarizing the operations of the Inns for the
immediately preceding Fiscal Year and a certificate of Manager's chief
accounting officer certifying that such year-end statement is true and correct.
The parties shall, within fourteen (14) business days after the receipt of such
statement, make any adjustments, by cash payment, in the amounts paid or
retained for such Fiscal Year as are needed because of the final figures set
forth in such statement unless Lessee, within such fourteen (14) business day
period, sends a notice of dispute to Manager setting forth the basis of its
dispute in reasonable detail. If Lessee desires, at its own expense, to audit
such statement and supporting records, Lessee shall begin such audit within
ninety (90) days following its receipt of such statement and shall complete such
audit within ninety (90) days after the commencement of the audit. If Lessee
does not make such an audit, then such statement shall be deemed to be
conclusively accepted by Lessee as being correct, and Lessee shall have no right
thereafter, except in the event of fraud by Manager or as provided in Section
8.01 B, to question or examine the same. If any audit by Lessee discloses an
understatement of any
48
amounts due Lessee, Manager shall promptly pay Lessee such amounts found to be
due, plus interest thereon (at the Prime Rate plus one percent (1%) per annum)
from the date such amounts should originally have been paid. If, however, the
audit discloses that Manager has not received any amounts due it, Lessee shall
promptly pay Manager such amounts to Manager. If Lessee disputes the accuracy of
such audit, Lessee shall give written notice of such dispute to Manager setting
forth the dispute in reasonable detail. Any further dispute concerning the
correctness of an audit and any dispute between Lessee and Manager regarding
adjustments necessary because of final figures set forth in the annual
accounting statement, which dispute is not resolved within sixty (60) days after
Lessee's notice of dispute, shall be settled by arbitration.
Manager and Lessee shall designate any nationally recognized
accounting firm with a hospitality division or a nationally recognized
hospitality consulting firm (other than an accounting or consulting firm with a
then existing relationship with Manager, Lessee or their respective affiliates)
to serve as arbitrator. If the parties fail promptly to agree upon such an
accounting or consulting firm, or if no such firm is available and willing to
serve as arbitrator, a single arbitrator shall be selected by appointment made
by the American Arbitration Association ("AAA") from among the members of its
panels who are qualified and who have experience in resolving matters, of a
nature similar to the dispute to be resolved hereunder, by arbitration in
accordance with the AAA's standard rules and procedures for expedited commercial
arbitration. To the maximum extent practicable, the arbitrator and the parties,
and the AAA if applicable, shall take any action necessary to insure that the
arbitration shall be concluded within ninety (90) days after the date that a
dispute becomes subject to arbitration hereunder.
49
The arbitrator's determination shall be binding and enforceable by court order.
The fees and expenses of the arbitrator shall be shared equally by Manager and
Lessee, unless the arbitrator chooses to award the amount of such fees and
expenses to the successful party as a part of the arbitrator's determination.
B. If Lessee's audit discloses an error in the total payment of
amounts due Lessee, for any Fiscal Year so audited, that is in excess of five
percent (5%), Manager shall pay for the cost of Lessee's audit. In addition, in
such event, Lessee may audit the statements of Inn operations and supporting
records for the three (3) preceding Fiscal Years. Lessee shall bear the cost of
such audit except for the cost thereof relating to any Fiscal Year in which the
audit discloses an error in excess of five percent (5%) in the payment of
amounts due Lessee.
C. All statements shall be prepared on a consolidated basis and on
an individual Inn basis.
8.02 Accounts; Expenditures
----------------------
A. All funds derived from operation of the Inns shall be deposited
by Manager in a bank account or accounts in a bank or banks designated by
Manager. Withdrawals from said accounts shall be made solely by representatives
of Manager whose signatures have been authorized by Manager. Reasonable ▇▇▇▇▇
cash funds shall be maintained at each Inn.
B. All payments made by Manager hereunder shall be made from
authorized bank accounts, ▇▇▇▇▇ cash funds, or from Working Capital provided
pursuant to Section 6.01. Manager shall not be required to make any advance or
payment to or for
50
the account of Lessee except out of such funds, and Manager shall not be
obligated to incur any liability or obligation for Lessee's account without
assurances that necessary funds for the discharge thereof will be provided by
Lessee. Debts and liabilities incurred by Manager as a result of its operation
and management of the Inns pursuant to the terms hereof, whether asserted before
or after the Termination of this Agreement, will be paid by Lessee to the extent
funds are not available for that purpose from the operation of the Inns.
8.03 Annual Operating Projection
---------------------------
A. Manager shall submit to Lessee for its review and comment, at
least thirty (30) days prior to the beginning of each Fiscal Year, an "Annual
Operating Projection." Manager will consider in good faith suggestions made by
Lessee with respect to the Annual Operating Projection and make modifications
thereto that Manager deems appropriate. Such Annual Operating Projection shall
project, on a consolidated and consolidating basis, and on an individual Inn
basis, the estimated average daily Suite rates, average occupancy, Gross
Revenues, departmental profits, Deductions, and Operating Profit for the
forthcoming Fiscal Year for the Inns, taking into account each Inn's market
area. Manager shall use reasonable and diligent efforts to adhere to the Annual
Operating Projection. It is understood, however, that the Annual Operating
Projection is an estimate only and that unforeseen circumstances such as, but
not limited to, the costs of labor, material, services and supplies, casualty,
operation of law, or economic and market conditions may make adherence to the
Annual Operating
51
Projection impracticable, and Manager shall be entitled to depart therefrom due
to causes of the foregoing nature.
B. If Lessee or Lessor intends to sell or refinance any one or more
of the Inns, Manager agrees to cooperate in providing information to facilitate
such sale or refinancing.
8.04 Operating Losses; Credit
------------------------
A. To the extent there is an Operating Loss for any Accounting
Period, additional funds in the amount of any such deficiency shall be provided
by Lessee within twenty (20) days after Manager has given written notice to
Lessee of such Operating Loss. If Manager elects not to so notify Lessee or if
Lessee does not so fund such deficiency on Manager's request (but, in such
latter case, without affecting Manager's other remedies under this Agreement),
Manager shall have the right to withhold an amount equal to such deficiency from
future disbursements of funds otherwise due to Lessee.
B. In no event shall either party borrow money in the name of or
pledge the credit of the other.
END OF ARTICLE VIII
52
ARTICLE IX
TRADEMARKS, TRADE NAMES, SERVICE MARKS, AND COMPUTER SOFTWARE
-------------------------------------------------------------
9.01 Trademarks, Trade Names and Service Marks
-----------------------------------------
A. During the term of the Agreement, each Inn shall be known as a
"Residence Inn" or "Residence Inn by Marriott" or "Marriott Residence Inn," with
such additional identification as may be necessary to provide local
identification. If the name of the "Residence Inn by Marriott" System is
changed, Manager will change the name of each Inn to conform thereto. The names
"Marriott," "Residence Inn," "Residence Inn by Marriott" and "Marriott Residence
Inn" (each of the foregoing names, together with any combination thereof, shall
herein be collectively referred to as the "Trade Names") when used alone or in
connection with another word or words, and the Marriott or Residence Inn
trademarks, service marks, other trade names, symbols, logos and designs shall
in all events remain the exclusive property of Marriott, and nothing contained
herein shall confer on Lessee the right to use any of the Trade Names, or the
Marriott or Residence Inn trademarks, service marks, other trade names, symbols,
logos or designs otherwise than in strict accordance with the terms of this
Agreement. Except as provided in Section 9.02, upon Termination with respect to
an Inn, any use of or right to use any of the Trade Names, or any of the
Marriott or Residence Inn trademarks, service marks, other trade names, symbols,
logos or designs by Lessee shall cease forthwith with respect to such Inn and
Lessee shall promptly remove from such Inn any signs or similar items which
contain any of said Trade Names, trademarks, service marks, other trade names,
symbols, logos
53
or designs. If Lessee has not removed such signs or similar items promptly upon
Termination, Manager shall have the right to remain at such Inn as long as is
necessary for it to do so at Lessee's expense.
B. Included under the terms of this Section are all trademarks,
service marks, trade names, symbols, logos or designs used in conjunction with
the Inns, including but not limited to restaurant names, lounge names, etc.,
whether or not the marks contain the "Marriott" name or the "Residence Inn"
name. The right to use such trademarks, service marks, trade names, symbols,
logos or designs belongs exclusively to Manager, and the use thereof inures to
the benefit of Manager whether or not the same are registered and regardless of
the source of the same.
C. Upon Termination of this Agreement with respect to an Inn, if
there are any trademarks, service marks, trade names, symbols, logos or designs
that are unique to such Inn and do not constitute Trade Names, Manager shall, to
the extent it is capable, cause the transfer of such items to Lessee, without
charge other than any out-of-pocket expenses.
D. During the term of this Agreement, for so long as Lessor is known
as Residence Inn III LLC, Lessor and Lessee may use its name on its legal and
business documents. Upon Termination of this Agreement as to all of the Inns,
Lessee shall cause Lessor promptly to take all necessary steps so that its name
no longer contains the words "Residence Inn".
9.02 Purchase of Inventories and Fixed Asset Supplies
------------------------------------------------
54
Upon Termination, either of this entire Agreement or with respect to a
given Inn, Manager shall have the option, to be exercised within thirty (30)
days after Termination, to purchase, at their then book value (and remove from
the Inn at its expense within a reasonable time thereafter), any items of such
Inn's Inventories and Fixed Asset Supplies as may be marked with any Trade Name,
or any Marriott or Residence Inn trademark, other trade name, symbol, logo or
design. In the event Manager does not exercise such option, Lessee agrees that
it will use any such items exclusively in connection with such Inn (or one of
the other Inns) until they are consumed.
9.03 Computer Software
-----------------
A. Any computer software (including upgrades and replacements) at
any of the Inns that is owned by Manager, Marriott, a Marriott Affiliate, or the
licensor of any of them is proprietary to Manager, Marriott, such Marriott
Affiliate, or the licensor of any of them and shall in all events remain the
exclusive property of Manager, Marriott, the Marriott Affiliate or the licensor
of any of them, as the case may be, and nothing contained in this Agreement
shall confer on Lessee the right to use any of such software with the exception
of any computer software at the Inns that is commercially available to the
public.
B. Upon Termination of this Agreement with respect to any given Inn
or all Inns, Manager shall have the right to remove from each Inn with respect
to which this Agreement has been terminated, at its expense within a reasonable
time thereafter and without compensation to Lessee, any computer software
(including upgrades and
55
replacements), including, without limitation, the RICHIE System software, owned
by Manager, Marriott, any Marriott Affiliate or the licensor of any of them with
the exception of any computer software at the Inns that is commercially
available to the public. Furthermore, upon any such Termination, Manager shall
be entitled to remove from any Inn with respect to which this Agreement has been
terminated, at its expense within a reasonable time thereafter and without
compensation to Lessee, any computer equipment utilized as part of a centralized
reservation system or owned by a party other than Lessee. In the event of any
such removal hereunder, Manager shall provide to Lessee, in a form reasonably
satisfactory to Lessee and at Manager's expense, all information and data with
respect to the Inns stored in such computer software.
9.04 Breach of Covenant
------------------
Manager and/or its affiliated companies shall be entitled, in case of
any breach of the covenants of Article IX by Lessee or others claiming through
it, to injunctive relief and to any other right or remedy available at law.
Article IX shall survive Termination of this Agreement.
END OF ARTICLE IX
56
ARTICLE X
MANAGEMENT AND USE OF THE INNS
------------------------------
10.01 Management of the Inns
----------------------
Manager shall manage each Inn under standards comparable to those
prevailing in other inns in the "Residence Inn by Marriott" System, including
all activities in connection therewith which are customary and usual to such an
operation. Manager may, in its discretion and subject to compliance with
applicable laws, serve beer, wine and/or liquor at all or any of the Inns; but
Manager shall be under no obligation to do so.
10.02 Chain Services
--------------
Manager shall, commencing with the Execution Date and thereafter
during each Inn Term, cause to be furnished to each such Inn certain services
("Chain Services") which are furnished generally on a central or regional basis
to other inns in the "Residence Inn by Marriott" System which are managed by
Manager or any Marriott Affiliate, and which benefit each Inn as a participant
in such System. Chain Services shall include: (i) certain divisional executive
management; (ii) programs for training and manpower development; computer
payroll, accounts payable, property and other accounting services; and (iii)
such additional central or regional services as may from time to time be
furnished for the benefit of inns in the "Residence Inn by Marriott" System or
in substitution for services now performed at individual inns which may be more
efficiently performed on a group basis. The services described in this Section
10.02
57
shall not include services which are described in the definitions of "Base
Management Fee" and "Residence Inn System Fee." Costs and expenses incurred in
the provision of such services shall be allocated on a fair and equitable basis
among all "Residence Inn by Marriott" inns managed by Manager, Marriott, or any
Marriott Affiliate in the United States receiving the same. To the extent that
services described in this Section 10.02 have been funded through the Marketing
Fund, there will be no allocation of the costs and expenses thereof under this
Section 10.02.
10.03 Marketing Fund
--------------
Manager will, during the term of this Agreement, maintain, manage and
administer the Marketing Fund for the benefit of all inns in the System. Lessee
will contribute to the Marketing Fund the annual amount required for the Inns to
remain members of the System, such amount to be contributed on an Accounting
Period basis within twenty (20) days after the end of each Accounting Period.
10.04 Lessee's Right to Inspect
-------------------------
Lessee or its agents shall have access to any Inn at any and all
reasonable times for the purpose of protecting the same against fire or other
casualty, prevention of damage to the Inn, inspection, making repairs, or
showing such Inn to prospective purchasers, tenants or mortgagees.
58
END OF ARTICLE X
59
ARTICLE XI
INSURANCE
---------
11.01 Property Insurance
------------------
A. Manager shall, commencing with the Original Effective Date and
for the duration of each Inn Term, procure and maintain, using funds deducted
from Gross Revenues in determining Operating Profit, with insurance companies of
recognized responsibility, a minimum of the following property insurance:
1. Insurance on each Inn (including contents) against loss or damage
by all perils included in "all risk" (as such term is commonly used in the
insurance industry) coverage, excluding earthquake, in an amount not less than
one hundred percent (100%) of the replacement cost thereof, except that if such
100% replacement cost coverage is not available on reasonable rates and terms,
then such insurance shall be in an amount not less than ninety (90%) of the
replacement cost of each Inn;
2. As to any Inn located in a zone identified by the Federal
Emergency Management Agency ("FEMA") as a flood hazard area, flood insurance in
an amount not less than the maximum limit available under the National Flood
Insurance Program operated FEMA, if required by a First Mortgage;
3. Insurance against loss or damage from explosion of boilers,
pressure vessels, pressure pipes and sprinklers, to the extent applicable,
installed in each Inn;
4. Business interruption insurance covering loss of profits and
necessary continuing expenses for interruptions caused by any occurrence covered
by the
60
insurance referred to in Section 11.01 A 1 and 3, for a period of not less than
one (1) year after the occurrence, of a type and in amounts and with such
deductible limits as are generally established by Manager at the other inns it
owns or manages under the Marriott Residence Inn name in the United States.
B. All policies of insurance required under Section 11.01 ▇ ▇, ▇, ▇
▇▇▇ ▇ ▇▇▇▇▇ ▇▇ carried in the name of Lessee, Manager, and the holder of the
First Mortgage on such Inn; subject to the rights of any lender, any losses
thereunder shall be payable to the parties as and to the extent their respective
interests, if any, may appear.
C. Any Mortgage on any Inn shall contain provisions to the effect
that proceeds of the insurance policies required to be carried under Section
11.01 shall be available for repair and restoration of such Inn.
11.02 Operational Insurance
---------------------
Manager shall, commencing with the Original Effective Date and for the
duration of each Inn Term, procure and maintain, using funds deducted from Gross
Revenues in determining Operating Profit, with insurance companies of recognized
responsibility, or by Manager legally qualifying as a workers' compensation
self-insurer in the state where the particular Inn is located, the following
operational insurance:
A. Workers' compensation and employer's liability insurance as may
be required under applicable laws covering all of Manager's employees at each
Inn;
B. Fidelity bonds, with reasonable limits to be determined by
Manager, covering its employees in job classifications normally bonded in the
other inns it owns or manages under the "Residence Inn by Marriott" name in the
United States or
61
as otherwise required by law, and comprehensive crime insurance to the extent
Manager and Lessee mutually agree it is necessary for each Inn;
C. General public liability insurance against claims for personal
injury, death or property damage occurring on, in, or about each Inn, and
automobile insurance on vehicles operated in conjunction with each such Inn,
with a combined single limit of not less than Twenty-Five Million Dollars
($25,000,000) for each occurrence for personal injury, death and property
damage; if Manager feels in its reasonable discretion that higher limits are
appropriate, it will obtain them; and
D. Such other operational insurance in amounts as Manager in its
reasonable judgment deems advisable for protection against claims, liabilities
and losses arising out of or connected with the operation of the Inns or as
reasonably required by lenders holding First Mortgages on the Inns, subject to
Manager's reasonable approval.
11.03 Coverage
--------
All insurance described in Sections 11.01 and 11.02 may be obtained by
Manager by endorsement or equivalent means under its or Marriott's blanket
insurance policies, provided that such blanket policies substantially fulfill
the requirements specified herein. In addition, Manager may self-insure
workers' compensation insurance (if it has legally qualified to do so) or
otherwise retain such risks or portions thereof as it does with respect to other
inns it owns or manages under the "Residence Inn by Marriott" name in the United
States.
11.04 Cost and Expense
----------------
62
Insurance premiums and any costs or expenses with respect to the
insurance or self-insurance described in this Article XI, including any
Insurance Retention (as defined below), shall be Deductions in determining
Operating Profit. Premiums on policies for more than one year shall be charged
pro rata against Gross Revenues over the period of the policies. Such premiums
and costs shall be allocated on an equitable basis to the inns participating in
Manager's or Marriott's blanket insurance or self-insurance programs. Any
reserves, losses, costs, damages or expenses which are uninsured, or fall within
deductible limits, shall be treated as a cost of insurance and shall be
Deductions in determining Operating Profit. Upon Termination, either of this
entire Agreement or with respect to a given Inn, an escrow fund in an amount
reasonably acceptable to Manager and Lessee shall be established from Gross
Revenues (or, if Gross Revenues are not sufficient, with funds provided by
Lessee) to cover the amount of any Insurance Retention and all other costs which
Manager and Lessee believe will eventually have to be paid by Manager with
respect to pending or contingent claims, including those which arise after
Termination for causes arising during the term of the Agreement. For purposes
of this Section 11.04, "Insurance Retention" shall mean the amount of any loss
or reserve under Manager's or Marriott's blanket insurance or self-insurance
programs which is allocated to each Inn, not to exceed the higher of (A) the
maximum per occurrence limit established for similar inns 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., flood,
windstorm on coastal properties, etc.). If any Inn is not a participant under
Manager's or Marriott's blanket
63
insurance or self-insurance programs, "Insurance Retention" shall mean the
amount of any loss or reserve allocated to the Inn, not to exceed the insurance
policy deductible.
11.05 Lessee Provided Coverage
------------------------
Notwithstanding anything to the contrary contained in this Article XI,
Lessee may, at its option, with sixty (60) days advance written notice to
Manager, procure the insurance coverage required under Sections 11.01 and 11.02
hereof. Premiums for such coverage shall be treated as a Deduction; provided,
that if the cost of such insurance procured by Lessee exceeds the cost of
Manager's insurance for comparable coverage, all excess costs shall be the sole
responsibility of Lessee and shall not be a Deduction. If Lessee exercises its
option to procure such insurance, Manager shall not again be required to provide
such insurance for a period of four (4) Fiscal Years thereafter. If Lessee
exercises its option to procure such insurance, Lessee hereby waives its rights
of recovery from Manager and its affiliates, directors, officers and employees
for loss or damage to an Inn, and any resultant interruption of business, to the
extent covered by the insurance provided herein.
11.06 Policies and Endorsements
-------------------------
A. Where permitted, all insurance provided under Article XI shall
name Lessee and any lender or mortgagee designated by Lessee as additional
insureds. Manager shall deliver to such additional insureds certificates of
insurance with respect to all policies so procured, including existing,
additional and renewal policies and, in the case of insurance about to expire,
shall deliver certificates of insurance with respect to the
64
renewal policies prior to the respective dates of expiration. All policies of
insurance provided for under Article XI shall, to the extent obtainable, have
attached thereto an endorsement that such policy shall not be canceled or
materially changed without at least thirty (30) days' prior written notice to
the certificate holder. Each property insurance policy maintained in accordance
with Article XI shall contain a specific waiver of subrogation with respect to
property claims.
END OF ARTICLE XI
ARTICLE XII
TAXES
-----
12.01 Real Estate and Personal Property Taxes
---------------------------------------
All real estate and personal property taxes, levies, assessments and
similar charges on or relating to each Inn ("Impositions") during each Inn Term
shall be paid by Manager on behalf of Lessee from Gross Revenues, before any
fine, penalty, or interest is added thereto or lien placed upon any Inn or upon
the Agreement, unless payment thereof is in good faith being contested and
enforcement thereof is stayed. Any such payments (or accruals thereof) shall be
a Deduction in determining Operating Profit. Lessee shall, within five (5) days
of receipt, directly furnish to Manager, or cause Lessor to furnish to Manager,
copies of official tax bills and assessments which Lessee or Lessor may receive
with respect to any of the Inns. Impositions shall not include any franchise,
corporate, estate, inheritance, or succession tax, or levy on the net worth or
capital of Lessee or Lessor or transfer tax imposed on Lessee or Lessor or any
income tax imposed
65
on any income of Lessee or Lessor (including distributions of Operating Profit
to Lessee pursuant to Article V hereof). Either Lessee, Lessor, or Manager (in
which case Lessee agrees to sign, or cause to be signed, the required
applications and otherwise cooperate with Manager in expediting the matter) may
initiate proceedings to contest any Imposition, and all reasonable costs of any
such contest shall be paid from Gross Revenues and shall be a Deduction in
determining Operating Profit.
END OF ARTICLE XII
ARTICLE XIII
INN EMPLOYEES
-------------
13.01 Employees
---------
A. All personnel employed at each Inn shall at all times be the
employees of Manager. Manager shall have absolute discretion to hire, promote,
transfer, terminate, supervise, direct and train all employees at each Inn, to
fix their compensation and, generally, establish and maintain all policies
relating to employment. Manager shall notify Lessee of any anticipated changes
in the persons who occupy the positions of General Manager and Director of Sales
and Marketing for any Inn; provided, however, that the parties acknowledge and
agree that any failure by Manager to provide such notice shall neither
constitute an "event of default" under this Agreement nor constitute a material
breach of this Agreement.
B. Manager shall decide which, if any, of the employees of each Inn
shall reside at such Inn, and shall be permitted to provide free accommodations
and
66
amenities to its employees and representatives living at or visiting each Inn in
connection with its management or operation. No person shall otherwise be given
gratuitous accommodations or services without prior joint approval of Lessee and
Manager except in accordance with usual practices of the hotel and travel
industry.
C. At Termination with respect to a given Inn, other than a
Termination (i) by reason of a default of Manager hereunder or (ii) at Manager's
option (except as a result of a default by Lessee), provided that the expiration
without renewal by Manager of a given Inn Term under Section 4.01 shall not be
deemed "at Manager's option" for purposes of this Section 13.01, an escrow fund
shall be established from Gross Revenues (or, if Gross Revenues are not
sufficient, with funds provided by Lessee) to reimburse Manager for all costs
and expenses incurred by Manager in terminating its employees at the affected
Inn in accordance with law and Manager's standards, such as severance pay,
unemployment compensation, employee relocation and other employee liability
costs arising out of the termination of employment of Manager's employees at
such Inn.
D. Neither Lessee nor Manager shall effect a Termination of this
Agreement without allowing sufficient time for Manager to comply with notice
requirements of federal and state laws and regulations regarding the closing of
a business or termination of employees, and Manager shall comply with such
notice requirements; provided, however, that this provision shall not be
applicable if Lessee or its new hotel manager hires a sufficient number of Inn
employees to avoid Manager incurring liability under such notice requirements in
connection with such termination, and Lessee and Lessor (or their permitted
successors and assigns, if applicable), shall indemnify, defend
67
and hold Manager and Marriott Affiliates harmless from all costs, expenses,
claims and liabilities, including reasonable attorneys' fees, to the extent
arising or resulting from any such liability under federal and state laws and
regulations regarding the closing of a business or termination of employees.
END OF ARTICLE XIII
ARTICLE XIV
DAMAGE, CONDEMNATION AND FORCE MAJEURE
--------------------------------------
14.01 Damage and Repair
-----------------
A. If, during the term hereof, any of the Inns is damaged or
destroyed by fire, casualty or other cause, Lessee shall, at its cost and
expense and with all reasonable diligence, repair or replace the damaged or
destroyed portion of such Inn to the same condition as existed previously and
Manager shall have the right, in its discretion, to discontinue operating all or
part of the affected Inn until such Inn can be operated in a safe and orderly
manner. To the extent available, proceeds from the insurance described in
Section 11.01 shall be applied to such repairs or replacements. However, Lessee
shall not be obligated to so repair or replace the damaged or destroyed portion
of such Inn if one or more of the following is true: (i) the Inn is so badly
damaged or destroyed that it cannot reasonably be repaired or replaced within
one (1) year of the date on which the construction work relating to the repair
and/or replacement would begin; (ii) the proceeds of insurance available for
such repair or replacement are less than ninety percent (90%) of the estimated
repair and replacement costs; or (iii) the remainder
68
of the Inn Term with respect to such Inn is less than ten (10) years, and
Manager fails to agree to extend such Inn Term to a date which is at least ten
(10) years after the estimated date of the completion of such repair and/or
replacement. If Lessee elects not to repair or replace said damaged portion of
such Inn for one or more of the foregoing reasons, it shall so notify Manager by
written notice within one hundred and eighty (180) days after the date of the
casualty. If Lessee does not so notify Manager, Lessee shall promptly cause to
be commenced and completed the repairing, rebuilding or replacement of the same
so that the Inn shall be substantially the same as it was prior to such damage
or destruction.
B. In the event damage or destruction to any Inn from any cause
materially and adversely affects the operation of such Inn and (i) Lessee fails
to promptly commence and complete the repairing, rebuilding or replacement of
the same so that such Inn shall be substantially the same as it was prior to
such damage or destruction, or (ii) Lessee notifies Manager, pursuant to the
provisions of Section 14.01 A above, that Lessee will not repair or replace such
damage for one or more of the reasons set forth in Section 14.01 A, Manager may,
at its option, terminate the Agreement with respect to such Inn upon sixty (60)
days' prior written notice.
C. Subject to the provisions of Section 14.01 B, if (i) damage to
any Inn is in excess of the amount of insurance proceeds plus amounts, if any,
made available by Manager, Marriott, or Marriott Affiliates (in their sole
discretion), or (ii) the conditions of Section 14.01 A(i) or (iii) are met,
Lessee may terminate this Agreement with respect to such Inn upon sixty (60)
days prior written notice to Manager.
69
14.02 Condemnation
------------
A. In the event all or substantially all of any Inn shall be taken
in any eminent domain, condemnation, compulsory acquisition, or similar
proceeding by any competent authority for any public or quasi-public use or
purpose, or in the event a portion of such Inn shall be so taken, but the result
is that it is unreasonable to continue to operate such Inn, this Agreement shall
terminate with respect to such Inn. Lessee and Manager shall each have the
right to initiate such proceedings as they deem advisable to recover any damages
to which they may be entitled. Manager's rights to recover any damages pursuant
to this subsection shall be subject and subordinate to the prior rights of any
lender holding a First Mortgage with respect to such Inn to recover damages
related to its interest in the Inn being taken.
B. In the event a portion of any Inn shall be taken by the events
described in Section 14.02 A, or an entire Inn is affected but on a temporary
basis, and the result is not to make it unreasonable to continue to operate such
Inn, this Agreement shall not terminate. However, so much of any award for any
such partial taking or condemnation as shall be necessary to render such Inn
equivalent to its condition prior to such event shall be used for such purpose,
with the balance of such award being considered Net Sales Proceeds.
14.03 Force Majeure
-------------
A. If acts of God, acts of war, civil disturbance, or governmental
action (collectively herein referred to as "Force Majeure") make it impractical
for either Lessee or Manager to perform any of its respective obligations
hereunder, such obligation
70
shall be suspended until it is again possible for the affected party to perform
it. In addition, if such an event, in Manager's or Lessee's reasonable judgment,
makes continued operation of an Inn impractical for more than a reasonable
temporary period, then Manager or Lessee may terminate this Agreement as to such
Inn on sixty (60) days' prior written notice to the other.
B. The provisions of Section 14.03 A shall not apply to the specific
provisions of this Agreement regarding (i) damage or destruction, (ii)
condemnation, and (iii) withdrawal or revocation of licenses or permits.
END OF ARTICLE XIV
71
ARTICLE XV
DEFAULTS
--------
15.01 Events of Default
-----------------
The following shall constitute "events of default" to the extent
permitted by applicable law:
A. The failure of either party to make any payment required to be
made in accordance with the terms hereof within ten (10) days after written
notice that such payment has not been made; or
B. Unless Section 15.01 A is applicable, the breach by either party
of any material representation, warranty or covenant contained in this
Agreement, or the default by either party in the performance of any covenants,
undertakings, obligations or conditions set forth in this Agreement, which
breach or default shall not have been cured within thirty (30) days after
written notice of such breach or default; provided that an "event of default"
shall not exist with regard thereto if such breach or default (i) is not
attributable to a failure to pay any sums due under this Agreement and (ii) such
breach or default is curable (but not within such thirty (30) day period) and
the defaulting party commences the cure of said breach or default within said
thirty (30) day period and thereafter proceeds diligently and in good faith to
complete such cure; or
C. If a court of competent jurisdiction has entered a final, non-
appealable judgment finding Manager liable for fraud, gross negligence or
willful and wanton misconduct in its dealings with Lessee hereunder; or
72
D. If Manager or Lessee or Lessor shall apply for or consent to the
appointment of a receiver, trustee or liquidator of all or a substantial part of
its assets or make a general assignment for the benefit of its creditors, or
file a voluntary petition in bankruptcy or a petition seeking reorganization,
composition, arrangement with creditors, liquidation or similar relief under any
present or future statute, law or regulation, or file any answer admitting the
material allegations of a petition filed against it in any such proceeding, or
be adjudicated a bankrupt or insolvent, or take any action looking toward
dissolution (other than Lessee or Lessor pursuing a sale of all or substantially
all of its assets); or
E. If any final order, judgment or decree (that is, an order,
judgment or decree affirmed on appeal to a court of last resort or after the
expiration of any period to appeal) shall be entered without the application,
approval or consent of Manager or Lessee or Lessor by any court of competent
jurisdiction, approving a petition seeking reorganization, composition,
arrangement with creditors, liquidation or similar relief under any present or
future statute, law or regulation with respect to Manager or Lessee or Lessor,
or appointing a receiver, trustee or liquidator of all or a substantial part of
Manager's or Lessee's or Lessor's assets and such order, judgment or decree
shall continue unstayed and in effect for an aggregate of sixty (60) days
(whether or not consecutive).
15.02 Remedies
--------
A. If, at any time during the term of this Agreement, an "event of
default" (as defined in Section 15.01) shall occur, then the non-defaulting
party may, at
73
its option, terminate this Agreement by giving notice to the other party,
specifying a date, not earlier than thirty (30) days after the receipt of such
notice, for Termination of this Agreement. If the default has not been cured on
or before the date specified in the aforesaid notice, this Agreement shall
terminate on such date.
B. The rights set forth in Section 15.02 A shall not be in
substitution for, but shall be in addition to, any and all rights and remedies
available to the non-defaulting party by reason of applicable law.
END OF ARTICLE XV
74
ARTICLE XVI
WAIVER AND PARTIAL INVALIDITY
-----------------------------
16.01 Waiver
------
The failure of either party to insist upon a strict performance of any
of the terms or provisions of the Agreement, or to exercise any option, right or
remedy herein contained, shall not be construed as a waiver or as a
relinquishment for the future of such term, provision, option, right or remedy,
but the same shall continue and remain in full force and effect. No waiver by
either party of any term or provision hereof shall be deemed to have been made
unless expressed in writing and signed by such party.
16.02 Partial Invalidity
------------------
If any portion of the Agreement shall be declared invalid by order,
decree or judgment of a court, the Agreement shall be construed as if such
portion had not been inserted herein except when such construction would operate
as an undue hardship on Manager or Lessee or constitute a substantial deviation
from the general intent and purpose of said parties as reflected in the
Agreement.
END OF ARTICLE XVI
75
ARTICLE XVII
ASSIGNMENT
----------
17.01 Assignment
----------
A. Neither party shall assign or transfer or permit the assignment
or transfer of this Agreement (and, in the case of Manager, directly or
indirectly) without the prior written consent of the other; provided, however,
that Manager shall have the right, without such consent, to (1) assign its
interest in this Agreement to any Marriott Affiliate which (i) alone or through
its affiliates has adequate experience in managing hotels and alone has adequate
capital to conduct its business as Manager under this Agreement, and (ii) agrees
in writing to be bound by and comply with the terms of this Agreement (such
written agreement to be delivered to Lessee); and (2) lease shops or grant
concessions at the Inns so long as the terms of any such leases or concessions
do not exceed the term of this Agreement. Nothing contained herein shall
prevent (i) the conditional assignment of this Agreement by Lessee as security
for any Mortgage on the Inns pursuant to Section 17.02; (ii) the transfer of
this Agreement in connection with a merger or consolidation or a sale of all or
substantially all of the assets of Marriott or Manager; (iii) an assignment of
this Agreement in connection with an approved sale of one or more of the Inns
pursuant to Section 18.01 A 2, or (iv) assignment of this Agreement to a direct
or indirect, wholly-owned affiliate of Apple Hospitality, provided that Lessee
remains fully liable for performance of Lessee's obligations under this
Agreement.
B. In the event either party consents to an assignment of this
Agreement by the other, no further assignment shall be made without the express
consent
76
in writing of such party, unless such assignment may otherwise be made without
such consent pursuant to the terms of this Agreement. An assignment by either
Lessee or Manager of its interest in this Agreement shall not relieve Lessee or
Manager, as the case may be, from their respective obligations under this
Agreement, and shall inure to the benefit of, and be binding upon, their
respective successors, heirs, legal representatives, or assigns.
17.02 Mortgages and Collateral Assignments
------------------------------------
A. In the event that any documents and other instruments relating to
Qualified Debt contain provisions requiring Manager upon a default under said
documents or upon various other stipulated conditions to pay to the lender
thereunder certain amounts which are otherwise due to Lessee under this
Agreement or to take certain Actions which are inconsistent with the terms of
this Agreement, Lessee hereby gives its consent to such provisions which consent
shall be deemed to be irrevocable until the entire debt secured by said
documents has been discharged.
B. Lessee or Lessor may from time to time (i) grant mortgages, deeds
of trust or similar security instruments encumbering the Inns, and (ii)
collaterally assign its interest under this Agreement as additional security,
provided that all such mortgages, deeds of trust, other security instruments and
collateral assignments: (a) are granted or entered into in connection with
indebtedness that is described in Section 3.01 A 2(ii) hereof, and (b) if
required pursuant to Section 3.01 A 2 (i) hereof, each contain a non-disturbance
provision in the form described in Section 3.01 A 2(i) hereof. Provided that
all of the provisions of Section 3.01 A 2 are complied with, Manager agrees that
(in
77
connection with Lessee or Lessor obtaining such secured loans) it will: (v)
comply with any reasonable reporting requirements of the lender; (w) provide the
lender with notice of any default by Lessee hereunder and thereafter permit the
lender to effect a cure thereof within a reasonable period; (x) deliver to the
lender, upon Lessee's or Lessor's written request therefor, a statement that
this Agreement is in full force and effect and that there are no outstanding
defaults hereunder, or, if there are outstanding defaults, describing what they
are; (y) subordinate Manager's interest in this Agreement to the rights of the
lender upon foreclosure of any such mortgage, deed of trust, security agreement
or like instrument, or upon the granting of a deed in lieu of foreclosure
(provided that, if required pursuant to Section 3.01 A 2(i) hereof, such lender
simultaneously agrees to a non-disturbance provision in the form described in
Section 3.01 A 2(i) hereof); and (z) attorn to and recognize such lender or its
assignee as being the "Lessee" under this Agreement upon a conveyance of title
to the Inns to such lender or its assignee, whether such conveyance is the
result of a foreclosure of said mortgage, deed of trust, security agreement or
like instrument, or is the result of a deed in lieu of foreclosure.
END OF ARTICLE XVII
78
ARTICLE XVIII
SALE OR REFINANCING OF AN INN OR INNS AND OTHER TERMINATION
-----------------------------------------------------------
18.01 Right of First Refusal
----------------------
A. With the exception of any lease of the Inns by Lessor to Lessee
or any successor lessee wholly-owned, directly or indirectly, by Apple
Hospitality, if Lessor receives a bona fide written offer to purchase or lease
any one or more of the Inns, and desires to accept such offer, Lessee shall
cause Lessor to give written notice thereof to Manager stating the name of the
prospective purchaser or tenant, as the case may be, the price or rental and the
terms and conditions of such proposed sale or lease, together with all other
information requested by Manager and reasonably available to Lessor and/or
Lessee. Within thirty (30) days after the date of receipt of Lessor's written
notice and such other information, Manager shall elect, by written notice to
Lessor, one of the following alternatives:
1. To purchase or lease such Inn or Inns at the same price or rental
and upon the same terms and conditions as those set forth in the written notice
from Lessor to Manager or upon other terms acceptable to Lessor, in which event,
Lessor and Manager shall promptly enter into an agreement for such sale or lease
and shall consummate the same within one hundred twenty (120) days, and
Termination of this Agreement shall be effective as of the date of such sale or
lease. If Lessor fails to approve the sale or lease of such Inn or Inns to
Manager, then Lessor shall not accept the offer to purchase or lease made by the
prospective
79
purchaser or tenant identified by Lessor and shall not consummate a sale or
lease of such Inn or Inns to such prospective purchaser or tenant without first
complying again with all of the provisions of this Section 18.01 A.
2. To consent to such sale or lease and to agree to enter into a new
management agreement with respect to such Inn or Inns with such purchaser or
tenant, which new management agreement will be on all of the terms and
conditions of this Agreement, except that if such new management agreement
pertains to less than all of the Inns, changes shall be made to the new
management agreement as set forth in Section 18.02 I and appropriate adjustments
shall likewise be made to this Agreement itself, which will be applicable to the
Inns not being sold under this Section 18.01, as set forth in Section 18.02 A
through H hereof; provided, however, that if Manager in good faith believes (and
so states in writing to Lessor) that the prospective purchaser: (i) is engaged
in the business of operating (as distinguished from owning) hotels or other
lodging facilities in competition with Manager or any Affiliate of Manager,
except that an individual or entity shall not be deemed to be in the business of
operating hotels or other lodging facilities in competition with Manager or any
Affiliate of Manager solely by virtue of (x) the ownership of such hotels or
other lodging facilities, either directly or indirectly through subsidiaries,
affiliates and partnerships, or (y) holding a mortgage or mortgages secured by
one or more hotels or other lodging facilities; (ii) the proposed purchaser is
known as being of bad moral character or is in control of or controlled by
persons known as being of bad moral character; or (iii) the financial condition
and prospects of the proposed purchaser are not adequate to discharge the
obligations of Lessee under this Agreement, then Manager shall have the right to
terminate this Agreement, by written notice to Lessor and/or Lessee, with
respect to such Inn or Inns,
80
and Manager shall not be required to enter into such new management agreement
with respect thereto. The effective date of such Termination shall coincide with
the date of the consummation of the proposed sale or lease. Such Termination
shall not be effective if such sale or lease is not consummated.
B. If Manager shall fail to elect any of the above alternatives
within said thirty (30) day period, such failure shall be conclusively deemed to
constitute an election under subsection 2 above to enter into a new management
agreement, with respect to such Inn or Inns, with such purchaser or tenant, and
the provisions thereof shall prevail as if Manager had consented in writing
thereto. Any proposed sale or lease of which notice has been given by Lessor to
Manager hereunder must be consummated within one hundred eighty (180) days
following the giving of such notice, unless Manager has exercised its option
under subsection 1 above to purchase or lease the Inns. Failing such
consummation, such notice, and any response thereto given by Manager, shall be
null and void and all of the provisions of Section 18.01 A must again be
complied with before Lessor shall have the right to finalize a sale or lease of
the Inns upon the terms contained in said notice, or otherwise.
C. Except as provided in Article XVII, Lessee shall not enter into
any sublease relating to, or otherwise sublet or transfer, its entire leasehold
interest in one or more Inns prior to Termination.
D. Lessee shall cause Lessor to timely comply with all requirements
and obligations of this Section 18.01.
18.02 Effect of Sale of Fewer Than All Inns
-------------------------------------
81
Upon the consummation of the Sale of an Inn or Inns involving fewer
than all of the Inns, subject to the provisions of Section 18.01, then:
A. This Agreement shall terminate with respect to the Inn or Inns
involved in the sale, but not with respect to the remaining Inns; as to the Inn
or Inns involved in the sale, the actions described in Section 4.03 shall be
taken (except that, if Manager is entering into a new management agreement with
the purchaser or tenant, as the case may be, of such Inn or Inns, then the
actions described in subsections C, D and G of Section 4.03 shall not be
necessary);
B. For purposes of subsequently calculating the Annual Priority
Return only, Contributed Capital shall be deemed to have been reduced by the
amount of Net Sales Proceeds retained by Lessor or Lessee under Section 5.03;
C. The Operating Profit Goal shall be reduced by the Allocable
Percentage attributable to the Inn or Inns involved in the sale;
D. If the portion of the Repairs and Equipment Reserve attributable
to the Inn or Inns involved in the sale is greater than the amount of funds
actually disbursed from the Repairs and Equipment Reserve for the repair and
maintenance of such Inn or Inns, all as shown by the accounting of the Reserve
made by Manager pursuant to Section 7.02 B hereof, such excess shall be
transferred to the purchaser of such Inn (or, at the direction of the Lessee,
released to the Lessee) (except that if Manager is entering into a new
management agreement with the purchaser or tenant, as the case may be, of such
Inn or Inns, then such portion of the Reserve shall not be transferred to either
the purchaser or Lessee but shall continue to be held by Manager on behalf of
such purchaser but as part of the new Reserve established pursuant to the terms
of the new management agreement)
82
to the extent permitted by the terms of any Qualified Debt, and if there is a
negative balance in the Repairs and Equipment Reserve attributable to the Inn or
Inns involved in the sale resulting from actual disbursements from the Repairs
and Equipment Reserve for the repair and maintenance of such Inn or Inns in
excess of the amount attributable to such Inn or Inns, (as shown by the
Manager's accounting), Lessee shall contribute, or cause to be contributed, to
the Repairs and Equipment Reserve the amount of such deficit;
E. Qualified Debt shall be reduced by any principal payment made on
or required to be made on any Qualified Debt in connection with the sale of such
Inn or Inns; and if, and only if, Manager is entering into a new management
agreement with the purchaser or tenant, as the case may be, then Qualified Debt
shall be further reduced by (1) that portion of Qualified Debt attributable to
the portion of any Additional Inn Investment Loans related to or fairly
attributable to the Inn or Inns involved in the sale and (2) the Allocable
Percentage of any indebtedness incurred to pay any management fees attributable
to the Inn or Inns involved in the sale;
F. Additional Inn Investments shall be reduced by the Additional Inn
Investments related to or fairly attributable to the Inn or Inns involved in the
sale;
G. Contingent Management Fees (IMF) (including amounts recoverable
by Manager under Section 4.02 B) shall be reduced by the Allocable Percentage
attributable to the Inn or Inns involved in the sale if, and only if, Manager
is entering into a new management agreement with the purchaser or tenant, as the
case may be, of such Inn or Inns;
83
H. Additional appropriate adjustments, on the basis of the Allocable
Percentage (or, if readily determinable, the actual amount) attributable to the
Inn or Inns involved in the sale, shall be made to those other terms and
provisions of this Agreement (e.g., Working Capital, Administrative Expenses)
which have been agreed on, computed or established on the assumption that this
Agreement will apply to all ten (10) of the Inns; and
I. Manager and the new owner upon the Sale of the Inn or Inns shall
(i) in the event of a voluntary Sale of the Inn involving one or more of the
Inns, unless Manager has elected not to enter into a new management agreement
with the purchaser or tenant, as the case may be, of such Inn, for one or more
of the reasons set forth in subsections (i), (ii) and (iii) of Section 18.01 A 2
hereof, or (ii) in the event of an involuntary Sale of the Inn involving one or
more of the Inns upon foreclosure of any mortgage or deed of trust or upon the
granting of a deed in lieu of foreclosure pursuant to which Manager has agreed
to continue managing the Inn or Inns involved in such Sale of the Inn, enter
into a new management agreement with respect to the Inn or Inns involved in such
sale, which new management agreement shall be on all of the terms and conditions
of this Management Agreement, except that in preparing such new management
agreement, appropriate adjustments shall be made to the terms and provisions of
this Agreement that have been agreed to, computed or established on the
assumption that this Agreement will apply to all ten (10) Inns, including,
without limitation, the following adjustments and/or provisions:
1. Contributed Capital shall be the Allocable Percentage attributed
to the Inn or Inns of that portion of Contributed Capital set forth in part (i)
of the definition
84
thereof plus the portion of any Additional Inn Investments (excluding those
funded by Additional Inn Investment Loans) incurred by Lessee as set forth in
part (ii) of the definition of Contributed Capital related to or fairly
allocable to the Inn or Inns involved in such sale, to which shall be added any
future Additional Inn Investments (excluding those funded by an Additional Inn
Investment Loan) made by such purchaser;
2. Operating Profit Goal shall be the Allocable Percentage of the
Operating Profit Goal attributable to the Inn or Inns;
3. Qualified Debt shall be the Allocable Percentage attributable to
the Inn or Inns of the balance of the Refinanced Principal Amount of either
thereof, as applicable, to which shall be added (a) that portion of Qualified
Debt attributable to the portion of any Additional Inn Investment Loans related
to or fairly allocable to the Inn or Inns involved in such sale, and (b) the
Allocable Percentage of any indebtedness incurred to pay management fees
attributable to the Inn or Inns involved in such sale;
4. Additional Inn Investments shall be that portion of Additional
Inn Investments related to or fairly attributable to the Inn or Inns involved in
the sale;
5. Contingent Management Fees (IMF) (including amounts recoverable
by Manager under Section 4.02 B) shall be the Allocable Percentage of Contingent
Management Fees (IMF) (including amounts recoverable by Manager under Section
4.02 B), attributable to the Inn or Inns involved in such sale and the new owner
shall be obligated to pay such amounts attributable to such Inn or Inns pursuant
to the terms of the new management agreement; and
6. That portion of the Repairs and Equipment Reserve actually
attributable to the Inn or Inns involved in the sale as shown by the accounting
of the
85
Reserve made by Manager pursuant to Section 7.02 B hereof shall continue to be
held by Manager on behalf of such purchaser as part of a new reserve established
pursuant to the terms of the new management agreement. To the extent that the
terms of any Qualified Debt prevent retention of such reserve funds by Manager
on behalf of such purchaser, the purchaser shall, upon the closing of such sale,
transfer an equal amount into the reserve account established under the new
management agreement.
18.03 Effect of Other Termination of Fewer Than All Inns
--------------------------------------------------
Upon a Termination of this Agreement with respect to fewer than all of
the Inns, other than in connection with the Sale of an Inn or a refinancing, and
pursuant to which Manager will not be entering into a new management agreement
with respect to such Inn, then:
A. This Agreement shall terminate with respect to such Inn, but not
with respect to the remaining Inns, and as to such Inn, the actions described in
Section 4.03 shall be taken;
B. For purposes of subsequently calculating the Annual Priority
Return only, Contributed Capital shall be deemed to have been reduced by the
Allocable Percentage (or, if readily determinable, the actual amount)
attributable to such Inn;
C. The Operating Profit Goal shall be reduced by the Allocable
Percentage attributable to such Inn;
D. If the portion of the Repairs and Equipment Reserve attributable
to such Inn is greater than the amount of funds actually disbursed from the
Repairs and Equipment Reserve for the repair and maintenance of such Inn, all as
shown by the
86
accounting of the Reserve made by Manager pursuant to Section 7.02 B hereof,
such excess shall be released to Lessee to the extent permitted by the terms of
any Qualified Debt, and if there is a negative balance in the Repairs and
Equipment Reserve attributable to such Inn resulting from actual disbursements
from the Repairs and Equipment Reserve for the repair and maintenance of such
Inn in excess of the amount attributable to such Inn (as shown by the Manager's
accounting), Lessee shall contribute, or cause to be contributed, to the Repairs
and Equipment Reserve the amount of such deficit;
E. In the event any payment is made or required to be made under the
terms of any Qualified Debt in connection with a Termination with respect to
such Inn or in the event the principal indebtedness of any Qualified Debt is
reduced as a result of insurance, condemnation or other proceeds, Qualified Debt
shall be reduced by the amount of such principal payment made or required to be
made or the amount of insurance, condemnation, or other proceeds so applied in
connection with such Termination;
F. Additional Inn Investments shall be reduced by that portion of
Additional Inn Investments related to or fairly attributable to such Inn or
Inns;
G. Contingent Management Fees (IMF) (including amounts recoverable
by Manager under Section 4.02 B) shall not be reduced by any amount; and
H. Additional appropriate adjustments, on the basis of the Allocable
Percentage (or, if readily determinable, the actual amount) attributable to such
Inn, shall be made to those other terms and provisions of this Agreement (e.g.,
Working Capital, Administrative Expenses) which have been agreed on, computed or
established on the assumption that this Agreement will apply to all ten (10) of
the Inns.
87
18.04 Effect of Refinancing of Fewer Than All Inns or Pursuant to More than One
-------------------------------------------------------------------------
Transaction
-----------
If, in connection with a refinancing by Lessee or Lessor of fewer than
all of the Inns or a refinancing of all of the Inns pursuant to more than one
financing transaction, the new lender or lenders require Lessee to enter into a
separate management agreement with respect to the Inn or Inns being refinanced
in the case of a refinancing of fewer than all of the Inns, or requires separate
management agreements with respect to each financing in the case of a
refinancing of all of the Inns pursuant to more than one financing transaction,
then:
A. In the case of a refinancing of fewer than all of the Inns, this
Agreement shall terminate with respect to the Inn or Inns involved in the
refinancing but not with respect to the remaining Inns; in the case of a
refinancing of all of the Inns pursuant to more than one financing transaction,
this Agreement shall terminate with respect to the Inn or Inns involved in all
but one of the financing transactions but not with respect to the Inns involved
in one of the financing transactions (it being understood that both or all of
the management agreements in effect with respect to the Inns are intended to
contain identical provisions except as hereinafter set forth);
B. For purposes of subsequently calculating the Annual Priority
Return only, Contributed Capital shall be deemed to have been reduced by the
Allocable Percentage attributable to the Inn or Inns involved in the refinancing
of that portion of Contributed Capital set forth in part (i) of the definition
thereof plus the portion of any Additional Inn Investments (excluding those
funded by Additional Inn Investment Loans)
88
incurred by Lessee as set forth in part (ii) of the definition of Contributed
Capital related to or fairly allocable to the Inn or Inns involved in such
refinancing, to which shall be added any future Additional Inn Investments
(excluding those funded by Additional Inn Investment Loans) made by Lessee with
respect to such Inns;
C. The Operating Profit Goal shall be reduced by the Allocable
Percentage attributable to the Inn or Inns involved in the refinancing;
D. If the portion of the Repairs and Equipment Reserve actually
attributable to the Inn or Inns involved in the refinancing as shown by the
accounting of the Reserve made by Manager pursuant to Section 7.02 B hereof
shall continue to be held by Manager on behalf of Lessee but as part of the new
Reserve established pursuant to the terms of the new management agreement to the
extent permitted by the terms of any Qualified Debt;
E. Qualified Debt shall be reduced by any principal payment made or
required to be made on any Qualified Debt in connection with the refinancing of
such Inn or Inns; and Qualified Debt shall be further reduced by (i) that
portion of Qualified Debt attributable to the portion of any Additional Inn
Investment Loans related to or fairly attributable to the Inn or Inns involved
in the refinancing, and (ii) the Allocable Percentage of any indebtedness
incurred to pay any management fees that are attributable to the Inn or Inns
involved in the refinancing, and the Refinanced Principal Amount from previous
refinancings of any of the foregoing;
F. Additional Inn Investments shall be reduced by the Additional Inn
Investments related to or fairly attributable to the Inn or Inns involved in the
refinancing;
89
G. Contingent Management Fees (IMF) (including amounts recoverable
by Manager under Section 4.02 B) shall be reduced by the Allocable Percentage
attributable to the Inn or Inns involved in the refinancing;
H. For purposes of this Agreement only, the amount due Marriott,
Manager, any Affiliate of Lessee and any Affiliate of Marriott as a result of
loans to Lessee made by them, shall be deemed to be reduced by the Allocable
Percentage attributable to the Inn or Inns involved in the refinancing;
I. In determining Adjusted Contributed Capital, the parties shall
first determine Adjusted Contributed Capital (based on the total number of Inns
subject to this Agreement before the refinancing) after consummation of the
refinancing and distribution of refinancing proceeds, which figure shall then be
reduced by the Allocable Percentage attributable to the Inn or Inns involved in
the refinancing;
J. Additional appropriate reductions, on the basis of the Allocable
Percentage (or, if readily determinable, the actual amount) attributable to such
Inn or Inns, shall be made to those other terms and provisions of this Agreement
(e.g., Working Capital, Administrative Expenses) which have been agreed on,
computed or established on the assumption that this Agreement will apply to all
ten (10) of the Inns; and
K. Lessee and Manager shall, in the case of a refinancing of fewer
than all of the Inns, enter into a new management agreement with respect to the
Inn or Inns being refinanced, or, in the case of a refinancing of all of the
Inns pursuant to more than one financing transaction, enter into a new
management agreement or agreements with respect to the Inns no longer covered by
this Agreement (it being the intention of the parties that there will be one
management for each Inn or group of Inns involved in each
90
financing transaction), which new management agreement(s) shall be on all of the
terms and conditions of this Management Agreement, except that in preparing such
new management agreement(s), appropriate adjustments shall be made to the terms
and provisions of this Agreement that have been agreed to, computed or
established on the assumption that this Agreement will apply to all ten (10)
Inns, including, without limitation, the following adjustments and/or
provisions:
1. Contributed Capital shall be the Allocable Percentage (or, if
readily determinable, the actual amount) attributable to the Inn or Inns
involved in the refinancing of that portion of Contributed Capital set forth in
part (i) of the definition thereof plus the portion of any Additional Inn
Investments (excluding those funded by Additional Inn Investment Loans) incurred
by Lessee as set forth in part (ii) of the definition of Contributed Capital
related to or fairly allocable to the Inn or Inns involved in such refinancing,
to which shall be added any future Additional Inn Investments (excluding those
funded by Additional Inn Investment Loans) made by Lessee pursuant to the new
management agreement;
2. The Operating Profit Goal shall be the Allocable Percentage of
the Operating Profit Goal attributed to the Inn or Inns involved in the
refinancing;
3. Qualified Debt shall be the actual debt incurred pursuant to the
refinancing, up to an amount equal to the amount of such debt that would be
allowed as Qualified Debt (considering only the component of Qualified Debt that
is the subject of the refinancing and only that portion of such component that
is attributable to the Inns being refinanced) under this Agreement if no new
management agreement were being entered into in connection with the refinancing,
to which shall be added (x) that portion
91
of Qualified Debt attributable to the portion of any Additional Inn Investment
Loans related to or fairly allocable to the Inn or Inns involved in the
refinancing, and (y) the Allocable Percentage of any indebtedness incurred to
pay management fees attributable to the Inn or Inns involved in the refinancing,
and the Refinanced Principal Amount from previous refinancings of any of the
foregoing;
4. [Intentionally Deleted];
5. Additional Inn Investments shall be that portion of Additional
Inn Investments related to or fairly attributable to the Inn or Inns involved in
the refinancing;
6. Contingent Fees (IMF) (including amounts recoverable by Manager
pursuant to Section 4.02 B) shall be the Allocable Percentage attributable to
the Inn or Inns involved in the refinancing and Lessee shall be obligated to pay
such amounts attributable to such Inn or Inns pursuant to the terms of the new
management agreement;
7. In determining Adjusted Contributed Capital, the parties shall
first determine Adjusted Contributed Capital under this Agreement (based on the
total number of Inns subject to this Agreement before the refinancing) after
consummation of the refinancing and distribution of refinancing proceeds, which
figure shall then be multiplied by the Allocable Percentage attributable to the
Inn or Inns involved in the refinancing;
8. To the extent that the terms of any Qualified Debt prevent the
Allocable Percentage of the Repairs and Equipment Reserve attributable to the
Inn or Inns involved in the refinancing to be used by Manager on behalf of
Lessee pursuant to the terms of the new management agreement, Lessee shall
transfer, upon the closing of
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such refinancing, such amount into the Reserve account established under the new
management agreement; and
9. The new management agreement(s) shall incorporate the provisions
of the last paragraph of each of Sections 5.02 and 5.03 hereof, it being the
intention of the parties that distributions of Operating Profit, Net Sales
Proceeds, and Net Refinancing Proceeds shall be made, notwithstanding the
provisions of the new management agreement(s), as if the refinancing(s) had not
taken place and all Inns owned by Lessee were still subject to the previous
management agreement (meaning this Agreement). The new management agreement(s)
shall also contain a provision to the effect that, notwithstanding the
provisions of the new management agreement(s), the calculation for determining
whether Lessee has a right to terminate the new agreement(s) as set forth in
Section 4.02 A shall be made as if all of the Inns owned by Lessor (plus the
Meridian Inn, which is leased by Lessor) and leased to Lessee as of the
Execution Date were still covered by this Agreement and the refinancing(s) had
not taken place.
END OF ARTICLE XVIII
93
ARTICLE XIX
MISCELLANEOUS
-------------
19.01 Right to Make Agreement
-----------------------
Each party warrants, with respect to itself, that neither the
execution of the Agreement nor the finalization of the transactions contemplated
hereby shall violate any provision of law or judgment, writ, injunction, order
or decree of any court or governmental authority having jurisdiction over it;
result in or constitute a breach or default under any indenture, contract, other
commitment or restriction to which it is a party or by which it is bound; or
require any consent, vote or approval which has not been taken, or at the time
of the transaction involved shall not have been given or taken. Each party
covenants that it has and will continue to have throughout the term of the
Agreement and any extensions thereof, the full right to enter into the Agreement
and perform its obligations hereunder.
19.02 Consents
--------
Wherever in the Agreement the consent or approval of Lessee or Manager
is required, such consent or approval shall not be unreasonably withheld, shall
be in writing and shall be executed by a duly authorized officer or agent of the
party granting such consent or approval. If either Lessee or Manager fails to
respond within thirty (30) days to a request by the other party for a consent or
approval, such consent or approval shall be deemed to have been given (except as
otherwise provided in this Agreement).
94
Where required to fulfill Lessee's obligations under this Agreement, Lessee
shall cause Lessor to timely grant its consent.
19.03 Relationship
------------
In the performance of this Agreement, Manager shall act solely as an
independent contractor. Neither this Agreement nor any agreements, instruments,
documents, or transactions contemplated hereby shall in any respect be
interpreted deemed or construed as making Manager a partner, joint venturer
with, or agent of, Lessee or Lessor. Manager and Lessee each agree that it will
not make any contrary assertion, claim or counterclaim in any action, suit,
arbitration or other legal proceedings involving Lessee, Lessor or Manager.
19.04 Applicable Law
--------------
The Agreement shall be construed under and shall be governed by the
laws of the State of Maryland.
19.05 Recordation
-----------
The terms and provisions of the Agreement shall run with the parcels
of land designated as the Sites, and with Lessee's and Lessor's interest
therein, and shall be binding upon all successors to such interest. At the
request of either party, the parties shall execute sufficient copies of an
appropriate memorandum of the Agreement in recordable form and cause the same to
be recorded in each of the jurisdictions where the Inns are located. Any cost
of such recordation shall be initially borne by Lessee, reimbursed to Lessee
from Gross Revenues, and treated as a Deduction.
95
19.06 Headings
--------
Headings of Articles and Sections are inserted only for convenience
and are in no way to be construed as a limitation on the scope of the particular
Articles or Sections to which they refer.
19.07 Notices
-------
Notices, statements and other communications to be given under the
terms of the Agreement shall be in writing and delivered by hand against receipt
or sent by certified or registered mail, postage prepaid, return receipt
requested, or by Federal Express (or other nationally-recognized overnight
courier), marked for next business day delivery, with delivery charges paid by
the sender:
To Lessee:
---------
Apple Hospitality Management, Inc.
▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
with a copy to Lessor at:
Apple Hospitality Two, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
with a copy, which shall not constitute notice, to:
Jenkens & ▇▇▇▇▇▇▇▇▇, P.C.
▇▇▇▇ ▇▇▇▇ ▇▇▇., ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
96
To Manager:
----------
Residence Inn by Marriott, Inc.
c/o Marriott International, Inc.
Law Department
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: North American Lodging Operations/Dept. 52.923
with a copy to:
Residence Inn by Marriott, Inc.
c/o Marriott International, Inc.
Lodging Finance
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Senior Vice President, Global Asset Management
or at such other address as is from time to time designated by the party
receiving the notice. Any such notice which is properly mailed shall be deemed
to have been served as of five (5) days after said posting for purposes of
establishing that the sending party complied with the applicable time
limitations set forth herein, but shall not be binding on the addressee until
actually received. Any such notice which is properly sent by Federal Express (or
other nationally-recognized overnight courier) shall be deemed to have been
served as of the business day after being sent for purposes of establishing that
the sending party complied with the applicable time limitations set forth
herein, but shall not be binding on the addressee until actually received.
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19.08 [Intentionally Deleted]
19.09 Survival
--------
All of the rights and obligations of the parties which, by their terms
or by their nature, extend beyond Termination or that accrued but were not
discharged prior to Termination shall automatically survive Termination.
19.10 Environmental Matters
---------------------
A. In the event of the discovery of Hazardous Materials (as defined
below) on any portion of any of the Sites or in any of the Inns during the term
of this Agreement, Lessee shall promptly remove, or cause to be promptly
removed, 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; and (3) all applicable 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 (collectively
referred to as "Environmental Laws"). Lessee shall indemnify, defend and hold
Manager harmless from and against all loss, costs, liability and damage
(including, without limitation, engineers' and attorneys' fees and expenses, and
the cost of litigation) arising from the presence of Hazardous Materials on any
of the Sites or in any of the Inns; and this obligation of Lessee shall survive
Termination of this Agreement. "Hazardous Materials" shall mean any asbestos-
containing materials,
98
polychlorinated biphenyls (PCBs), flammable materials, explosives, radioactive
materials, petroleum (including crude oil and any fraction thereof) and any
materials, wastes, substances or chemicals that are deemed hazardous, toxic, a
pollutant or a contaminant under any applicable Environmental Laws.
B. All costs and expenses of the aforesaid removal of Hazardous
Materials from any of the Sites or any of the Inns, and of the aforesaid
compliance with all Environmental Laws, and any amounts paid to Manager pursuant
to the indemnity set forth in Section 19.10 A, shall be paid by Lessee from its
own funds, not as a Deduction nor from the Reserve, and shall be treated as an
expenditure by Lessee pursuant to Section 7.03.
19.11 Estoppel Certificates
---------------------
Promptly after written request therefor from the other party (and in
any event within fifteen (15) days thereafter), each party shall deliver to the
other (and to all actual or potential lenders or transferees thereof as required
by the other party) a certificate identifying this Agreement and all amendments
hereto, stating that this Agreement as so amended is in full force and effect,
stating the date to which all payments hereunder have been made and the amount
(if ascertainable) of all future payments required hereunder, identifying any
known defaults of the other hereunder, and covering such additional matters as
may be reasonably requested.
99
19.12 Compliance with Ground Lease
-----------------------------
Unless the contrary is otherwise expressly permitted in this
Agreement, Manager shall take such actions and refrain from taking such actions
as shall be necessary for Lessee to comply with its obligations under the Ground
Lease. Notwithstanding the foregoing, Manager shall have no obligation to make
any monetary payments under the Ground Lease or take any action other than in
its capacity as manager under this Agreement.
19.13 Entire Agreement
----------------
The Agreement, together with other writings signed by the parties
expressly stated to be supplemental hereto and together with any instruments to
be executed and delivered pursuant to the Agreement, constitutes the entire
agreement between the parties and supersedes all prior understandings and
writings, and may be changed only by a writing signed by the parties hereto.
END OF ARTICLE XIX
[SIGNATURES ON FOLLOWING PAGE]
100
IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be
executed under seal as of the day and year first written above.
APPLE HOSPITALITY MANAGEMENT, INC.,
a Virginia corporation ("Lessee")
Attest:
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (SEAL)
------------------------------- -------------------------
Secretary/Assistant Secretary ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (NAME)
--------------------
President (TITLE)
--------------------
RESIDENCE INN BY MARRIOTT,
INC., a Delaware corporation
Attest: ("Manager")
/s/ [illegible] By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ (SEAL)
------------------------------- ------------------------
Secretary/Assistant Secretary ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ (NAME)
-------------------
Vice President (TITLE)
-------------------
MARRIOTT INTERNATIONAL, INC.
(for purposes of Sections 2.01,
Attest: 2.04, 9.01 and 9.02 only)
/s/ [illegible] By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ (SEAL)
------------------------------- -----------------------
Secretary/Assistant Secretary ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ (NAME)
------------------
Vice President (TITLE)
------------------
101
EXHIBIT A
Locations and Legal Descriptions of the Inns
--------------------------------------------
[omitted]
102