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EXHIBIT 10.3
POOLING AGREEMENT
THIS POOLING AGREEMENT (this "Agreement") is made as of the 15th day of
June, 2001 (the "Effective Date"), by and among (i) Marriott International,
Inc., a Delaware corporation (hereinafter referred to as "Marriott"), (ii)
Marriott Hotel Services, Inc., a Delaware corporation, Residence Inn By
Marriott, Inc., a Delaware corporation, Courtyard Management Corporation, a
Delaware corporation, SpringHill SMC Corporation, a Delaware corporation, and
Towneplace Management Corporation, a Delaware corporation (the entities named in
this clause (ii) each sometimes hereinafter referred to individually as a
"Manager" and collectively as the "Managers"), and (iii) HPT TRS MI-135, INC., a
Delaware corporation (hereinafter referred to as "Tenant").
RECITALS:
A. Certain of the Managers (as sellers) and Hospitality Properties
Trust, a Maryland real estate investment trust (as purchaser) (hereinafter
referred to as "HPT"), are parties to that certain Purchase and Sale Agreement
dated of even date herewith (the "Limited Service Purchase Contract") with
respect to the three (3) hotels listed on Exhibit A attached hereto as the
properties to be purchased (the "Additional Limited Service Properties").
B. Marriott Kauai, Inc., a Delaware corporation (as seller) and HPT (as
purchaser), are parties to that certain Purchase and Sale Agreement dated of
even date herewith (the "Kauai Purchase Contract") with respect to the
Marriott's Kauai Resort and Beach Club (the "Kauai Hotel"). (The Limited Service
Purchase Contract and the Kauai Purchase Contract are referred to hereinafter
collectively as the "Purchase Contracts," and the Additional Limited Service
Properties and the Kauai Hotel are referred to hereinafter collectively as the
"Additional Properties.")
C. Pursuant to certain Assignment and Assumption Agreements dated of
even date herewith, HPT has assigned its rights under the Limited Service
Purchase Contract to HPTMI Properties Trust, a Maryland real estate investment
trust, with respect to the Additional Limited Service Properties, and to HPTMI
Hawaii, Inc., a Delaware corporation (collectively, "Landlord"), and Landlord
has assumed the obligations of HPT thereunder. Landlord is also, as of the date
hereof, the owner, directly or indirectly, of certain other hotels operated by
Marriott and/or its Affiliates and which are listed on Exhibit B attached hereto
(the "Initial Properties").
D. HPT, Landlord, Tenant and Marriott are parties to that certain
Agreement to Assign, Release, Franchise and Manage dated of even date herewith
(the "Agreement to Lease") with respect to the Additional Properties and the
Initial Properties (each of the four (4) Additional Properties and the
thirty-one (31) Initial Properties a "Property" and collectively the
"Properties").
E. From and after the date that each Property is made subject to a
Lease and a Management Agreement pursuant to the Agreement to Lease, such
Property shall constitute a "Portfolio Property" and all of such Properties
shall collectively constitute the "Portfolio Properties." Any Property with
respect to which a Manager Deconsolidation Event, a Kauai Deconsolidation Event
or a Tenant Deconsolidation Event has occurred shall thereafter no longer be
considered a Portfolio Property.
F. Simultaneously with the execution and delivery of this Agreement
Marriott and Tenant entered into a guaranty agreement (the "Guaranty Agreement")
pursuant to which, inter alia, Marriott has agreed to guarantee to Tenant
(subject to the terms, conditions and limitations set forth therein) that Tenant
will receive timely payment of Tenant's First Priority with respect to the
Portfolio Properties in certain events.
G. Pursuant to the Agreement to Lease, Tenant has entered into or will
enter into (i) a management agreement with each applicable Manager with respect
to each Portfolio Property (each a "Management Agreement" and collectively the
"Management Agreements"), and (ii) a franchise agreement with Marriott with
respect to each Portfolio Property except with respect to the Kauai Hotel (each
a "Franchise Agreement" and collectively the "Franchise Agreements").
H. Pursuant to the Agreement to Lease it is contemplated that, as each
Lease of an Initial Property is assigned to Tenant, the applicable Manager will
enter into a Management Agreement for such Property (or confirmation of the
applicability of a Management Agreement to such Property, as applicable), and
Tenant and Marriott will enter into a Franchise Agreement for such Property, at
which time such Property will be considered a Portfolio Property in accordance
with the provisions hereof.
I. The parties desire that (i) the revenues generated by the operations
of the Portfolio Properties be pooled for purposes of paying operating expenses
of the Portfolio Properties, fees and other amounts due to Marriott, the
Managers and Tenant, and distributions to various other persons, and (ii)
working capital and reserves of the Portfolio Properties be managed on a pooled
basis, all as hereinafter provided.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Marriott, each Manager, and Tenant hereby covenant and agree as
follows:
ARTICLE I
DEFINED TERMS
1.01 Definitions.
The following capitalized terms as used in this Agreement shall have
the meanings set forth below:
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"Accounting Period" shall have the meaning, with respect to any
Portfolio Property, given such term in the Management Agreement for such
Portfolio Property.
"Actual Tenant Distribution" shall have the meaning set forth in
Section 7.01.C.
"Additional Limited Service Properties" shall have the meaning set
forth in the Recitals.
"Additional Manager Advances" shall mean advances made by the Managers
and as so defined in each Management Agreement.
"Additional Marriott Advances" shall mean all advances made by Marriott
pursuant to Sections 3.03, 4.03 (to the extent described therein as deemed
Additional Marriott Advances) and 5.01.B of this Agreement.
"Additional Properties" shall have the meaning set forth in the
Recitals.
"Advance Notice" shall have the meaning set forth in Section 4.03.B.
"Affiliate" shall have the meaning set forth in the Management
Agreements.
"Agreement" shall have the meaning set forth in the Preamble.
"Agreement to Lease" shall have the meaning set forth in the Recitals.
"Aggregate Base Management Fee" shall mean, for any given period, the
sum of the Base Management Fees for the Portfolio Properties for such period.
"Aggregate Deductions" shall mean, for any given period, the sum of
Deductions for the Portfolio Properties for such period.
"Aggregate First Incentive Management Fee" shall mean, for any given
period, the sum of the First Incentive Management Fees for the Portfolio
Properties for such period.
"Aggregate Gross Revenues" shall mean, for any given period, the sum of
Gross Revenues for the Portfolio Properties for such period.
"Aggregate Operating Loss" shall mean, for any given period, a negative
Aggregate Operating Profit for such period.
"Aggregate Operating Profit" shall mean, for any given period, an
amount equal to Aggregate Gross Revenues less Aggregate Deductions for such
period.
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"Aggregate Operating Profit After Aggregate First Incentive Management
Fee" shall mean, for any period, Aggregate Operating Profit remaining after the
distribution provided for in items (1) through (8) of Section 2.02.A hereof.
"Aggregate Priority Management Fee" shall mean, for any given period,
the sum of the Priority Management Fees for the Portfolio Properties for such
period.
"Aggregate Second Incentive Management Fee" shall mean an amount that
is equal to fifty percent (50%) of Aggregate Operating Profit After Aggregate
First Incentive Management Fee in any Portfolio Fiscal Year (or portion
thereof).
"Aggregate System Fee" shall, during any given Portfolio Fiscal Year
(or portion thereof), be equal to the sum of the System Fees for the Portfolio
Properties for such period.
"Aggregate Tenant's First Priority" shall mean, for any given period,
the sum of the Tenant's First Priority for the Portfolio Properties for such
period.
"Aggregate Tenant's First Priority Deficiency" shall have the meaning
set forth in Section 2.02.B.
"Aggregate Tenant's Second Priority" shall mean, for any given period,
the sum of the Tenant's Second Priority for the Portfolio Properties for such
period.
"Aggregate Tenant's Third Priority" shall mean, for any given period,
the sum of the Tenant's Third Priority for the Portfolio Properties for such
period.
"Allocation Formula" shall have the meaning set forth in Section
6.02.C.
"Available Funds" shall have the meaning set forth in item (5) of
Section 2.02.A.
"Base Management Fee" shall have the meaning, for each Property, given
such term in the Management Agreement for such Property.
"Business Day" shall have the meaning given such term in the Management
Agreements.
"Closing" shall have the meaning, with respect to any Property, given
such term in the Purchase Contract applicable to such Property.
"Consolidated Financials" shall mean, for any fiscal year or other
accounting period of Marriott, annual audited and quarterly unaudited financial
statements of Marriott prepared on a consolidated basis, including Marriott's
consolidated balance sheet and the related statements of income and cash flows,
all in reasonable detail, and setting forth in comparative form for the
corresponding figures for the corresponding figures for
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the corresponding period in the preceding fiscal year, and prepared in
accordance with GAAP throughout the periods reflected.
"Deconsolidation Event" shall have the meaning set forth in Section
6.02.A.
"Deductions" shall have the meaning, for each Property, given such term
in the Management Agreement for such Property.
"Deficiency Owed Tenant" shall have the meaning set forth in Section
7.01.C.
"Domestic Hotels" shall mean each of the Portfolio Properties
excluding, in any event, the Kauai Hotel.
"Effective Date" shall have the meaning set forth in the Preamble.
"Existing Lease Payments" shall have the meaning set forth in Section
7.01.A.
"First Incentive Management Fee" shall have the meaning, for each
Property, given such term in the Management Agreement for such Property.
"Fiscal Year" shall have the meaning, with respect to any Portfolio
Property, given such term in the Management Agreement for such Portfolio
Property.
"Franchise Agreement" and "Franchise Agreements" shall have the
meanings set forth in the Recitals and shall include only the Franchise
Agreements for the Portfolio Properties.
"GAAP" shall mean generally accepted accounting principles consistently
applied.
"Gross Revenues" shall have the meaning, for each Property, given such
term in the Management Agreement for such Property.
"Guaranty Agreement" shall have the meaning set forth in the Recitals.
"Guaranty Term" shall have the meaning given such term in the Guaranty
Agreement.
"Guaranty Termination Event" shall have the meaning set forth in
Section 4.03.
"Holdback Agreement" shall mean the Holdback Agreement of even date
herewith between, inter alia, Marriott and Tenant.
"Holdback Agreement Advances" shall mean advances which Tenant elects,
in its discretion, to make, pursuant to the terms of the Holdback Agreement.
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"HPT" shall have the meaning set forth in the Recitals.
"Hypothetical Report" shall have the meaning set forth in Section
7.01.A.
"Hypothetical Tenant Distribution" shall have the meaning set forth in
Section 7.01.B.
"Initial Properties" shall have the meaning set forth in the Recitals.
"Kauai Deconsolidation Event" shall have the meaning set forth in
Section 6.03.
"Kauai Hotel" shall have the meaning set forth in the Recitals.
"Kauai Owner" shall mean HPTMI Hawaii, Inc., a Delaware corporation.
"Kauai Purchase Contract" shall have the meaning set forth in the
Recitals.
"Landlord" shall have the meaning set forth in the Recitals.
"Landlord Deconsolidation Event" shall have the meaning set forth in
Section 6.02.A.
"Leases" shall have the meaning set forth in the Management Agreements.
"Limited Service Purchase Contract" shall have the meaning set forth in
the Recitals.
"Management Agreement" and "Management Agreements" shall have the
meanings set forth in the Recitals but shall include only the Management
Agreements for the Portfolio Properties.
"Manager" and "Managers" shall have the meaning set forth in the
Preamble.
"Manager Deconsolidation Event" shall have the meaning set forth in
Section 6.02.A.
"Manager Reserve Advances" shall mean advances made by the Managers and
as so defined in each Management Agreement.
"Marriott" shall have the meaning set forth in the Preamble.
"Marriott Guaranty Advance" shall have the meaning set forth in Section
4.03.
"Modification" shall have the meaning set forth in Section 8.04.
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"Owner Agreements" shall mean, collectively, the Owner Agreements
applicable to the Portfolio Properties and Franchise Agreements related thereto
among the Landlord, Marriott, the applicable Manager, and Tenant.
"Pooled Reserve" shall have the meaning set forth in Section 5.02.
"Pooled Working Capital" shall have the meaning set forth in Section
5.01.
"Portfolio Accounting Period" shall mean, for any period during which
the Kauai Hotel is a Portfolio Property, a period comprised of one Accounting
Period with respect to the Domestic Hotels, and either zero or one Accounting
Period with respect to the Kauai Hotel, all as more fully set forth on the
schedule attached hereto as Exhibit C. For any period during which the Kauai
Hotel is not a Portfolio Property, Portfolio Accounting Period shall have the
same meaning as the definition of "Accounting Period" as set forth in the
Management Agreements applicable to the Domestic Hotels. Marriott shall have the
right to make changes to the Portfolio Accounting Periods in the future, and
appropriate adjustments to this Agreement's reporting and accounting procedures
shall be made; provided, however, that no such change or adjustment shall in any
way reduce or in any material respect delay the distribution of Operating Profit
or other payments due hereunder.
"Portfolio Fiscal Year" shall mean, for any period during which the
Kauai Hotel is a Portfolio Property, the thirteen (13) full Accounting Periods
of a Fiscal Year with respect to the Domestic Hotels and the twelve (12) full
Accounting Periods of the most closely corresponding Fiscal Year with respect to
the Kauai Hotel. A partial Portfolio Fiscal Year between the Effective Date and
the first full Portfolio Fiscal Year shall constitute a separate Portfolio
Fiscal Year. A partial Portfolio Fiscal Year following the last full Portfolio
Fiscal Year shall constitute a separate Portfolio Fiscal Year. For any period
during which the Kauai Hotel is not a Portfolio Property, Portfolio Fiscal Year
shall have the same meaning as the definition of "Fiscal Year" as set forth in
the Management Agreements applicable to the Domestic Hotels. Marriott shall have
the right to make changes to the Portfolio Fiscal Year in the future, and
appropriate adjustments to this Agreement's reporting and accounting procedures
shall be made; provided, however, that no such change or adjustment shall in any
way reduce or in any material respect delay the distribution of Operating Profit
or other payments due hereunder.
"Portfolio Property" and "Portfolio Properties" shall have the meanings
set forth in the Recitals.
"Priority Management Fee" shall have the meaning, for each Property,
given such term in the Management Agreement for such Property.
"Property" and "Properties" shall have the meanings set forth in the
Recitals.
"Prorated Portions" shall have the meaning set forth in Section 3.02.
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"Purchase Contracts" shall have the meaning set forth in the Recitals.
"Reserve" shall have the meaning, for each Property, given such term in
the Management Agreement for such Property.
"Second Incentive Management Fee" shall have the meaning, for each
Property, given such term in the Management Agreement for such Property.
"Sum Due Marriott" shall have the meaning set forth in item (5) of
Section 2.02.A.
"Sum Due Tenant" shall have the meaning set forth in item (5) of
Section 2.02.A.
"Surplus" shall have the meaning set forth in Section 7.01.C.
"System Fee" shall have the meaning, for each Property, given such term
in the Management Agreement for such Property.
"Tenant" shall have the meaning given such term in the Preamble.
"Tenant Advances" shall have the meaning set forth in item (5) of
Section 2.02.A.
"Tenant Aggregate Operating Loss Advance" shall have the meaning set
forth in Section 3.03.
"Tenant Deconsolidation Event" shall have the meaning set forth in
Section 6.02.A.
"Tenant Working Capital Advances" shall have the meaning set forth in
Section 5.01.B.
"Tenant's First Priority" shall have the meaning, for each Property,
given such term in the Management Agreement for such Property.
"Tenant's Second Priority" shall have the meaning, for each Property,
given such term in the Management Agreement for such Property.
"Tenant's Third Priority" shall have the meaning, for each Property,
given such term in the Management Agreement for such Property.
"Transaction Documents" shall have the meaning set forth in Section
7.01.
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"Working Capital" shall have the meaning, with respect to each
Property, given such term in the Management Agreement for such Property.
ARTICLE II
COMPENSATION OF MANAGERS; PRIORITIES FOR
DISTRIBUTION OF AGGREGATE OPERATING PROFIT
2.01. System and Management Fees
In lieu of the System Fee, the Priority Management Fee, the Base
Management Fee, the First Incentive Management Fee and the Second Incentive
Management Fee to be paid pursuant to Section 3.01 of each Management Agreement,
the Managers of the Portfolio Properties and Tenant agree that such Managers
shall be paid, collectively, the following management fees:
A. The Aggregate System Fee; plus
B. The Aggregate Priority Management Fee; plus
C. The Aggregate Base Management Fee; plus
D. The Aggregate First Incentive Management Fee; plus
E. The Aggregate Second Incentive Management Fee.
The Aggregate Priority Management Fee, the Aggregate First Incentive Management
Fee and the Aggregate Second Incentive Management Fee shall be allocated among
the Managers as the Managers shall determine in their sole discretion, and
Tenant shall have no responsibility or liability in connection with any such
allocation as determined by the Managers or the distribution thereof among the
Managers. If in any Portfolio Fiscal Year the amount of Aggregate Operating
Profit is insufficient, after distributions higher in the priority of payments
set forth in Section 2.02.A, to pay the full amount of the Aggregate Base
Management Fee, the Aggregate First Incentive Management Fee or the Aggregate
Second Incentive Management Fee due for such Portfolio Fiscal Year, the amount
paid shall be allocated among the Managers as the Managers shall determine in
their sole discretion, and any portion of the Aggregate Base Management Fee, the
Aggregate First Incentive Management Fee or the Aggregate Second Incentive
Management Fee for such Portfolio Fiscal Year left unpaid shall be deemed waived
and shall not accrue or be payable in any subsequent Portfolio Fiscal Year.
2.02 Priorities for Distribution of Aggregate Operating Profit
A. Aggregate Operating Profit shall be distributed, to the extent
available, in the following order of priority (which distributions Marriott is
irrevocably authorized to pay):
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(1) First, to Tenant, in an amount equal to Aggregate Tenant's
First Priority.
(2) Second, to Tenant, in an amount equal to Aggregate Tenant's
Second Priority.
(3) Third, to Tenant, in an amount equal to Aggregate Tenant's
Third Priority.
(4) Fourth, To Tenant, in an amount necessary to replenish all
Holdback Agreement Advances.
(5) Fifth, to (i) Tenant in an amount necessary to reimburse
Tenant for all Tenant Working Capital Advances and Tenant Aggregate Operating
Loss Advances made by Tenant from time to time (collectively, "Tenant Advances")
which have not yet been repaid, and (ii) to Marriott in an amount necessary to
reimburse Marriott and/or any Affiliate for all Additional Marriott Advances and
all Additional Manager Advances made by Marriott or any Affiliate from time to
time which have not yet been repaid. If at any time the amounts available for
distribution to Tenant and Marriott pursuant to this Section 2.02.A(5)
("Available Funds") are insufficient (a) to repay to Tenant all outstanding
Tenant Advances (the "Sum Due Tenant"), and (b) to repay to Marriott all
outstanding Additional Marriott Advances and Additional Manager Advances (the
"Sum Due Marriott"), then (x) Tenant shall be paid from the Available Funds the
amount obtained by multiplying a number equal to the amount of the Available
Funds by a fraction, the numerator of which is the Sum Due Tenant and the
denominator of which is a number equal to the sum of the Sum Due Tenant and the
Sum Due Marriott, and (y) Marriott shall be paid from the Available Funds the
amount obtained by multiplying a number equal to the amount of the Available
Funds by a fraction, the numerator of which is the Sum Due Marriott and the
denominator of which is a number equal to the sum of the Sum Due Tenant and the
Sum Due Marriott.
(6) Sixth, to the Manager in an amount equal to the Aggregate
Priority Management Fee.
(7) Seventh, to the Managers in an amount equal to the Aggregate
Base Management Fee.
(8) Eighth, to the Managers, in an amount equal to the Aggregate
First Incentive Management Fee (however, in no event shall any amount be due or
payable by Marriott or any Manager pursuant to this clause (8) in the event the
Aggregate First Incentive Management Fee is equal to or less than Zero Dollars
($0.00).
(9) Ninth, to the Managers, in an amount equal to the Aggregate
Second Incentive Management Fee.
(10) Tenth, to Tenant, the balance, if any.
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B. For any Portfolio Accounting Period, if Tenant does not receive on
or before the first day of each Portfolio Accounting Period Aggregate Tenant's
First Priority for such Portfolio Accounting Period (an "Aggregate Tenant's
First Priority Deficiency"), and further provided that if Marriott does not fund
such Aggregate Tenant's First Priority Deficiency (as an Additional Marriott
Advance hereunder) within ten (10) days of receiving written request for the
same from Tenant, Tenant shall have the right to effect a termination of this
Agreement and all (but not less than all) of the Management Agreements by
written notice to Marriott, which termination shall be effective as of the
effective date which is set forth in said notice, provided that said effective
date shall be at least thirty (30) days after the date of such notice. Such
termination (i) shall be in accordance with the provisions of Section 11.11 of
each Management Agreement, (ii) shall constitute a Manager Default under each
Management Agreement, and (iii) shall entitle Tenant to all rights and remedies
available to it with respect to Manager Defaults as provided for in Article IX
of each Management Agreement.
ARTICLE III
ACCOUNTING; INTERIM DISTRIBUTIONS; ANNUAL ADJUSTMENTS
3.01 Portfolio Accounting Periods; Statements; Distributions
A. The Accounting Periods applicable to the Domestic Hotels are
different than the Accounting Periods applicable to the Kauai Hotel in that the
Management Agreements applicable to the Domestic Hotels provide for thirteen
(13) Accounting Periods in each Fiscal Year, and the Management Agreement
applicable to the Kauai Hotel provides for twelve (12) Accounting Periods in
each Fiscal Year. In order to allow all of the Portfolio Properties to make
interim accountings and distributions on a pooled basis notwithstanding such
difference in Accounting Periods, all such interim accountings and distributions
with respect to such Portfolio Properties shall be made only following and with
respect to each Portfolio Accounting Period as provided for herein,
notwithstanding any provisions to the contrary in any of the Management
Agreements.
B. Within twenty (20) days after the close of the last Accounting
Period included within a Portfolio Accounting Period, Marriott shall deliver an
interim accounting to Tenant showing Aggregate Gross Revenues, Aggregate
Deductions, Aggregate Operating Profit, and application and distributions
thereof. Notwithstanding the order of distribution of Aggregate Operating Profit
set forth in Section 2.02.A, for each Portfolio Accounting Period, Marriott
shall, with each such accounting, transfer to Tenant any interim amounts due
Tenant hereunder, transfer to the Managers any interim amounts due the Managers
(including, without limitation, the Aggregate Base Management Fee calculated on
a year-to-date basis for such Portfolio Fiscal Year), and retain any interim
amounts due to Marriott under Section 2.02.A. In addition, each Manager shall
provide Tenant with interim accountings pursuant to the applicable Management
Agreement on an Accounting Period basis for each Portfolio Property that it
manages as if the applicable Portfolio Property were not a participant in this
Agreement.
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If the portion of Aggregate Operating Profit to be distributed to Tenant
pursuant to Items 1, 2, 3, 4 or 5 of Section 2.02.A is insufficient to pay each
of such interim amounts then due in full following the end of any Portfolio
Accounting Period, any such interim amounts left unpaid shall be paid from and
to the extent of Aggregate Operating Profit available therefor at the time
distributions are made following successive Portfolio Accounting Periods until
such interim amounts are paid in full, and such payments shall be made from such
Aggregate Operating Profit in the same order of priority as other payments made
on account of such item in such following Portfolio Accounting Periods. If the
portion of Aggregate Operating Profit to be distributed to Marriott or the
Managers pursuant to Items 5, 6 or 7 of Section 2.02.A is insufficient to pay
each of such interim amounts then due in full following the end of any Portfolio
Accounting Period, any such interim amounts left unpaid shall be paid from and
to the extent of Aggregate Operating Profit available therefor at the time
distributions are made following successive Portfolio Accounting Periods until
such interim amounts are paid in full, and such payments shall be made from such
Aggregate Operating Profit in the same order of priority as other payments made
on account of such item in such following Portfolio Accounting Periods.
Notwithstanding the foregoing sentence, if, in any Portfolio Fiscal Year, the
Aggregate Base Management Fee, the Aggregate First Incentive Management Fee or
the Aggregate Second Incentive Management Fee is not payable under Section
2.02.A hereof, the Managers shall not be entitled to the payment of the portion
of the Aggregate Base Management Fee, the Aggregate First Incentive Management
Fee or the Aggregate Second Incentive Management Fee not payable under Section
2.02.A hereof, and in no event shall Tenant be liable for the payment of such
portion of the Aggregate Base Management Fee, the Aggregate First Incentive
Management Fee or the Aggregate Second Incentive Management Fee. The portion of
Aggregate Operating Profit to be distributed to Tenant for Aggregate Tenant's
First Priority and Aggregate Tenant's Third Priority for the then current
Portfolio Fiscal Year, as well as the portion of Aggregate Operating Profit to
be distributed to the Managers as their interim Aggregate First Incentive
Management Fee and Second Incentive Management Fee shall be determined by
applying a cumulative prorated amount to such Aggregate Tenant's First Priority,
Aggregate Tenant's Third Priority, Aggregate First Incentive Management Fee and
Aggregate Second Incentive Management Fee (calculated on a year-to-date basis,
with the prorated amount being one-thirteenth (1/13) of the total amount for
each of such items with respect to each of the Domestic Hotels, and one-twelfth
(1/12) of the total amount for each of such items with respect to the Kauai
Hotel, for each Portfolio Accounting Period of each Portfolio Fiscal Year) to
the year-to-date cumulative Aggregate Operating Profit (all such portions being
hereinafter collectively referred to as the "Prorated Portions"). In each of the
second through thirteenth Portfolio Accounting Periods, inclusive, the Prorated
Portions shall be adjusted to reflect distributions, in each instance, to Tenant
and the Managers and retention by Marriott of Aggregate Operating Profit with
respect to such Prorated Portions for prior Portfolio Accounting Periods during
the then current Portfolio Fiscal Year. All distributions shall be made in the
order of priority as set forth in Section 2.02.A.
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3.02 Annual Accounting Statements and Cash Adjustments
A. The Fiscal Years applicable to the Domestic Hotels are different
than the Fiscal Years applicable to the Kauai Hotel in that the Management
Agreements applicable to the Domestic Hotels provide for a Fiscal Year
consisting of thirteen (13) Accounting Periods, and the Management Agreement
applicable to the Kauai Hotel provides for a Fiscal Year consisting of twelve
(12) Accounting Periods, and the beginning and end of each Fiscal Year
applicable to the Domestic Hotels and the corresponding Fiscal Year applicable
to the Kauai Hotel will, in most instances, begin and end on different dates. In
order to allow all of the Portfolio Properties to make annual accountings and
distributions on a pooled basis notwithstanding such difference in Fiscal Years,
all such annual accountings and distributions with respect to such Portfolio
Properties shall be made only following and with respect to each Portfolio
Fiscal Year as provided for herein, notwithstanding any provisions to the
contrary in any of the Management Agreements. Calculations and payments of the
Aggregate Base Management Fee, the Aggregate First Incentive Management Fee, the
Aggregate Second Incentive Management Fee, Tenant's First Priority, Tenant's
Second Priority, Tenant's Third Priority and distributions of Aggregate
Operating Profit made with respect to each Portfolio Accounting Period within a
Portfolio Fiscal Year shall be accounted for cumulatively. Within sixty (60)
days after the end of each Portfolio Fiscal Year, Marriott shall deliver to
Tenant a statement in reasonable detail summarizing the operations of the
Portfolio Properties for the immediately preceding Portfolio Fiscal Year and a
certificate of an officer of Marriott certifying that such year-end statement is
true and correct. Marriott, the Managers and Tenant shall, within ten (10)
Business Days after Tenant's receipt of such statement, make any adjustments, by
cash payment, in the amounts paid or retained for such Portfolio Fiscal Year as
are needed because of the final figures set forth in such statement. Such final
accounting shall be controlling over the interim accountings. No adjustment
shall be made for any Aggregate Operating Loss or Aggregate Operating Profit in
a preceding or subsequent Portfolio Fiscal Year, subject to the audit rights of
Tenant as set forth in each Management Agreement. Each Manager shall provide
Tenant with interim and annual statements pursuant to the applicable Management
Agreement for each Portfolio Property that it manages as if the applicable
Portfolio Property were not a participant in this Agreement.
B. In addition, on or before April 30 of each Fiscal Year, commencing
on the April 30 following the date hereof, Marriott shall deliver to Tenant and
Landlord an Officer's Certificate setting forth the totals of Aggregate Gross
Revenue, Aggregate Deductions, the calculation of Aggregate Tenant's Second
Priority and Aggregate Operating Profit After First Incentive Management Fee for
the Hotels with respect to which this Agreement was in effect for the preceding
Portfolio Fiscal Year, together with an audit thereof conducted by Arthur
Andersen LLP, or another so-called "Big Five" firm of independent certified
public accountants proposed by Manager and approved by Tenant and Landlord,
which approval shall not be unreasonably withheld or delayed. The cost of such
audit shall be an Aggregate Deduction hereunder.
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3.03 Aggregate Operating Loss
To the extent there is an Aggregate Operating Loss for any Portfolio
Accounting Period, Tenant shall have the right, without any obligation and in
its sole and absolute discretion, to advance funds required to fund such
Aggregate Operating Loss within twenty (20) days after Marriott has delivered
written notice thereof to Tenant. Any Aggregate Operating Loss so funded by
Tenant shall constitute a "Tenant Aggregate Operating Loss Advance." Tenant
Operating Loss Advance shall be repaid in accordance with Section 2.02.A(5)
hereof. If Tenant does not funds such Aggregate Operating Loss, Marriott shall
also have the right, within twenty (20) days after such initial twenty (20) day
period, without any obligation and in its sole and absolute discretion, to
advance funds required to fund such Aggregate Operating Loss, and any such
advance shall constitute an Additional Marriott Advance. Additional Marriott
Advances shall be repaid in accordance with Section 2.02.A(5). If neither party
elects to fund such Aggregate Operating Loss as provided for herein, the parties
will have the rights set forth in Section 4.01.E of each Management Agreement
for such Portfolio Properties (which right may be exercised as to all, but not
less than all, of such Portfolio Properties).
ARTICLE IV
ACCOUNTS; EXPENDITURES
4.01 Accounts
All funds derived from operation of the Portfolio Properties shall be
deposited in one or more bank accounts designated by Marriott, which accounts
may be commingled accounts containing other funds owned by or managed by
Marriott. The Pooled Reserve shall be held in an interest bearing escrow reserve
account in a bank or similar institution designated by Manager and reasonably
acceptable to Tenant and Landlord, and the Pooled Reserve shall not be comingled
with any other funds. Withdrawals from said accounts shall be made solely by
representatives of Marriott whose signatures have been authorized. Reasonable
petty cash funds shall be maintained at the Portfolio Properties.
4.02 Expenditures and Payments
A. Marriott, on behalf of and in coordination with the Managers
pursuant to their obligations under the Management Agreements, and in each
instance subject to the provisions of this Agreement, shall make expenditures,
to the extent of the sufficiency of funds available therefor pursuant to this
Agreement, for all Aggregate Deductions, and then, to reimburse Marriott or any
Affiliate for expenditures to the extent such expenditures have constituted a
Manager Reserve Advance pursuant to any of the Management Agreements. Payments
made to reimburse Marriott or any Affiliate for expenditures to the extent that
such expenditures have constituted a Manager Reserve Advance shall be deducted
from Aggregate Operating Profit prior to any other deduction or distribution
therefrom except for distributions of Aggregate Tenant's First Priority.
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B. Tenant irrevocably directs Marriott to pay and Marriott agrees to
pay (or repay, as applicable), from Aggregate Operating Profit, without notice,
demand or request therefor, but in each instance subject to the provisions of
this Agreement: (i) Aggregate Tenant's First Priority, Aggregate Tenant's Second
Priority and Aggregate Tenant's Third Priority, to Tenant when due and payable
hereunder, (ii) replenishment of any Holdback Agreement Advances to Tenant,
(iii) distributions to Tenant and Marriott with respect to Tenant Advances,
Additional Marriott Advances and Additional Manager Advances, (iv) distributions
to the Managers with respect to the Aggregate Priority Management Fee, (v)
distributions to the Managers with respect to the Aggregate Base Management Fee,
and (vi) any other distributions provided for in Section 2.02.A, in each of the
foregoing instances set forth in this Section 4.02.B(i) through (vi), at the
time interim distributions are made pursuant to Section 3.01, and to the extent
of the sufficiency of and in the order of distribution of Aggregate Operating
Profit pursuant to Section 2.02.A.
4.03 Classification of Advances Made by Marriott to Cover Payments of
Aggregate Tenant's First Priority
A. The parties acknowledge that Tenant, to ensure that Tenant has
sufficient funds to timely pay Minimum Rent due pursuant to the Leases, must
receive, and Marriott agrees to pay to Tenant subject to the sufficiency of
funds available therefor pursuant to this Agreement and the Guaranty Agreement,
Aggregate Tenant's First Priority on or before the first day of each Portfolio
Accounting Period. As a result, it is possible that Marriott will pay Aggregate
Tenant's First Priority prior to determining whether Aggregate Operating Profit
for such Portfolio Accounting Period was adequate to cover such Aggregate
Tenant's First Priority. If for any given Portfolio Accounting Period it is
determined that Aggregate Operating Profit was inadequate to cover any such
payments of Aggregate Tenant's First Priority that were made by Marriott with
respect to such Portfolio Accounting Period, then one of the following shall be
applicable:
1. if the Guaranty Term had not expired before the first day of
such Portfolio Accounting Period and Marriott's obligation to
advance funds had not terminated for any other reason pursuant
to the terms of the Guaranty Agreement (an expiration or
termination as aforesaid, hereinafter, a "Guaranty Termination
Event"), then that portion of Aggregate Tenant's First
Priority paid with respect to such Portfolio Accounting Period
in excess of the sum of Aggregate Operating Profit for such
Portfolio Accounting Period shall be deemed to be a "Guaranty
Advance" made pursuant to the Guaranty Agreement; or
2. if a Guaranty Termination Event had occurred prior to the
first day of such Portfolio Accounting Period, then that
portion of Aggregate Tenant's First Priority paid with respect
to such Portfolio Accounting Period in excess of the sum of
Aggregate Operating Profit for such Portfolio Accounting
Period shall be deemed to have been funded by Marriott as an
Additional Marriott Advance.
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No provision of this Section 4.03.A shall be construed to require
Marriott to make payments of Aggregate Tenant's First Priority except from
Aggregate Operating Profit and Marriott Guaranty Advances available therefor.
B. Notwithstanding anything herein to the contrary, within twenty (20)
days after the end of each Portfolio Accounting Period, Marriott shall determine
whether it is deemed to have made a Marriott Guaranty Advance pursuant to
Section 4.03.A with respect to such Portfolio Accounting Period, and if Marriott
has made such an advance with respect to such Portfolio Accounting Period,
Marriott shall advise Tenant in writing of the type and amount of such advance
(each such notice, an "Advance Notice"). This paragraph shall only be applicable
with respect to advances made or deemed made pursuant to this Section 4.03.
4.04 Financial Statements. Marriott shall furnish the following
statements to Tenant:
A. As soon as publicly available or, in the event the same shall no
longer be required to be made public, within forty-five (45) days after each of
the first three fiscal quarters of any Portfolio Fiscal Year, the most recent
Consolidated Financials.
B. As soon as publicly available or, in the event the same shall no
longer be required to be made public, within ninety (90) days after the end of
each Portfolio Fiscal Year, the most recent Consolidated Financials for such
year, certified by an independent certified public accountant.
C. Promptly after the sending or filing thereof, copies of all reports
which Marriott sends to its security holders generally, and copies of all
periodic reports which Marriott files with the United States Securities and
Exchange Commission or any stock exchange on which its shares are listed or
traded.
ARTICLE V
POOLING OF WORKING CAPITAL AND RESERVES
5.01 Pooling of Working Capital
A. The Working Capital applicable to all Portfolio Properties pursuant
to the Management Agreements shall be pooled and used by Marriott for the
purposes set forth in Section 4.02.A hereof pursuant to the Managers'
cash-management policies (the "Pooled Working Capital"). Upon any
Deconsolidation Event as to one or more but less than all of the Portfolio
Properties, Pooled Working Capital shall be allocated as described in Section
6.02.B. Upon the expiration or termination of all Management Agreements for all
Portfolio Properties, Tenant shall, except as otherwise provided in the
Management Agreements or this Agreement, receive any unused Pooled Working
Capital.
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B. Subject to Section 5.01.C, Tenant shall have the right, without any
obligation and in its sole and absolute discretion, within ten (10) days after
written request therefor, to advance any additional funds, over and above the
initial Working Capital for such Portfolio Properties, necessary to maintain
Pooled Working Capital at a level determined by Marriott to be reasonably
necessary to satisfy the needs of the Portfolio Properties as their operation
may from time to time require. Any such request by Marriott shall be accompanied
by a reasonably detailed explanation of the reasons for this request. All funds
so advanced shall be added to Pooled Working Capital. All advances made by
Tenant pursuant to this Section 5.01.B shall constitute "Tenant Working Capital
Advances." Tenant Working Capital Advances shall be repaid in accordance with
Section 2.02.A(5). Additionally, if Tenant does not elect to provide such
additional funds, Marriott shall also have the right, without any obligation and
in its sole and absolute discretion, within ten (10) days after such initial ten
(10) day period, to advance such additional funds as Tenant elected not to
advance, and any such advance shall constitute an Additional Marriott Advance.
Additional Marriott Advances shall be repaid in accordance with Section
2.02.A(5). If neither party elects to advance funds as contemplated in this
Section 5.01.B, the parties will have the rights set forth in Section 4.05.A of
each Management Agreement for such Portfolio Properties (which right may be
exercised as to all, but not less than all, of such Portfolio Properties).
C. Notwithstanding the provisions of Section 5.01.B, Marriott shall not
request a Tenant Working Capital Advance, and will make any such required
advance from its own funds (which will not constitute an Additional Marriott
Advance), until the expiration of at least twelve (12) months from the date that
the last Additional Property and Initial Property has become a Portfolio
Property (excluding any Additional Property or Initial Property with respect to
which the Agreement to Lease has been terminated).
5.02 Pooling of Reserves
All deposits required to be made to the Reserves pursuant to the
Management Agreements with respect to the Portfolio Properties shall instead be
pooled into one account to be used for the purposes set forth in the Management
Agreements for the Portfolio Properties on a pooled basis (the "Pooled
Reserve"). The funds in the Pooled Reserve shall be available for all Portfolio
Properties regardless of the amount of funds that would otherwise be held in a
Reserve for a particular Portfolio Property if the Reserves were separately
maintained. Upon any Deconsolidation Event as to one or more but less than all
of the Portfolio Properties, the Pooled Reserve shall be allocated as described
in Section 6.02.B. Upon the expiration or termination of all Management
Agreements for all Portfolio Properties, Marriott shall, except as otherwise
provided in the Management Agreements or this Agreement, release and transfer to
Landlord or (if directed by Landlord) to Tenant the remaining Pooled Reserve
funds after payment of all expenses that are to be paid out of the Reserves
pursuant to the Management Agreements relating to periods prior to such
expiration or termination.
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ARTICLE VI
ADDITION AND REMOVAL OF PROPERTIES AS PORTFOLIO PROPERTIES
6.01 Addition of Properties as Portfolio Properties
Immediately upon Closing pursuant to a Purchase Contract with respect
to an Additional Property or leasing of an Initial Property pursuant to the
Agreement to Lease and execution of a Lease with respect to such Property,
execution of a Management Agreement by the applicable Manager to manage the
Property (or confirmation of the applicability of a Management Agreement to such
Property, as applicable), and execution of the related agreements required
pursuant to the terms of the Agreement to Lease or the Purchase Contracts (as
applicable), such Property shall be deemed to be a Portfolio Property subject to
the provisions of this Agreement. Simultaneously with the execution of such
agreements, Marriott, the applicable Manager, and Tenant shall sign an agreement
confirming the applicability of this Agreement to such Property, which shall be
binding on all parties to this Agreement and the signature of all other Managers
other than the applicable Manager on any such confirmatory agreement shall not
be necessary to bind them in confirming that such Property has become a
Portfolio Property. If a Property becomes a Portfolio Property on a day other
than the first day of a Portfolio Accounting Period, prorated amounts of the
Gross Revenues and Deductions (and other amounts as may be necessary) applicable
to such Property for the period from and after the date on which such Property
became a Portfolio Property as are appropriate, in the parties' reasonable
judgment, shall be included in the calculation of Aggregate Gross Revenues and
Aggregate Deductions (and other amounts as may be necessary) for the Portfolio
Accounting Period in which such Property became a Portfolio Property, and
otherwise consistent with the provisions of Section 17 of the Agreement to Lease
with respect to Apportionments.
6.02 Removal of Properties as Portfolio Properties
A. Each of the following shall be, with respect to any Portfolio
Property, a "Deconsolidation Event": (i) if any Portfolio Property ceases to be
owned by (1) the owner of such Portfolio Property as of the date hereof, (2) any
Affiliate of the owner of such Portfolio Property as of the date hereof or HPT,
or (3) any other permitted successor to the interest of the owner of such
Portfolio Property as of the date hereof and/or such Affiliate of the owner of
such Portfolio Property as of the date hereof and HPT with respect to all (but
not less than all) of the then-remaining Portfolio Properties (a "Landlord
Deconsolidation Event"), or (ii) if any Portfolio Property ceases to be leased
by (1) Tenant, (2) any Affiliate of Tenant or Landlord, or (3) any other
permitted successor to the interest of Tenant, Landlord and/or such Affiliate of
either of them with respect to all (but not less than all) of the then-remaining
Portfolio Properties (a "Tenant Deconsolidation Event"), or (iii) if the
applicable Management Agreement is terminated with respect to such Portfolio
Property (a "Manager Deconsolidation Event"). No provision of this Agreement
shall be construed as modifying the terms of any Lease or
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any Management Agreement, Franchise Agreement or Owner Agreement with respect to
transfers of any interest of any part therein.
B. From and after the date of a Tenant Deconsolidation Event or Manager
Deconsolidation Event with respect to any particular Portfolio Property, such
Property shall no longer be treated as a Portfolio Property pursuant to this
Agreement. If the Deconsolidation Event occurs on a day other than the last day
of a Portfolio Accounting Period, the parties shall exclude such prorated
amounts of the Gross Revenues and Deductions (and other amounts as may be
necessary) applicable to such Property for the period following the
Deconsolidation Event, as are appropriate in their reasonable judgment, in the
calculation of Aggregate Gross Revenues and Aggregate Deductions (and other
amounts as may be necessary) for the Portfolio Accounting Period in which the
Deconsolidation Event occurred. Additionally, the parties shall make such
prorations, adjustments, allocations, and changes pursuant to the Allocation
Formula set forth in Section 6.02.C hereof to reflect the removal of such
Property from being subject to this Agreement, including, without limitation, to
allocate to such Property its continuing liability with respect to any
outstanding Aggregate Priority Management Fee, any outstanding Additional
Marriott Advances, any outstanding Additional Manager Advances, any outstanding
Holdback Agreement Advances remaining to be replenished, and any outstanding
Tenant Advances. Notwithstanding the foregoing, if the applicable Manager will
not continue to manage the Property being removed pursuant to the Management
Agreement applicable to such Property, then (a) Tenant shall require that any
successor manager enter into a cash management agreement to which the applicable
Manager and Marriott are each a party which provides for assurances that the
Operating Profit for such Hotel is applied to repay amounts due to the
applicable Manager and Marriott in accordance with Section 3.02.B of the
Management Agreement with respect to the Hotel, as the applicable Manager and
Marriott may reasonably require, or (b) HPT shall provide (and Tenant shall
cause HPT to so provide) a written guaranty that the Operating Profit for such
Hotel shall be applied to repay amounts due to the applicable Manager and
Marriott in accordance with Section 3.02B of the Management Agreement with
respect to each such Hotel which Manager will no longer continue to manage.
Further notwithstanding the foregoing, if Tenant will not continue to lease the
Property being removed pursuant to the Lease, then there shall be no reduction
of the outstanding amount of any Tenant Working Capital Advances and Tenant
Aggregate Operating Loss Advances. Additionally, in the case of a Manager
Deconsolidation Event, Tenant and the applicable Manager, both acting
reasonably, shall determine the portion of (1) the Pooled Working Capital
allocable to the Property being removed from this Agreement and the amount of
the Pooled Working Capital so allocated shall be remitted to the parties
entitled to the same pursuant to the applicable Management Agreement, the Owner
Agreements and this Agreement, and (2) the Pooled Reserve allocable to the
Property being removed from this Agreement and the amount of the Pooled Reserve
so allocated shall, after payment of all amounts properly payable therefrom
pursuant to the Management Agreement and this Agreement: (i) if the Property
which is the subject of such Manager Deconsolidation Event shall remain subject
to the Lease, be made available to Tenant to allow Tenant to fulfill its
obligations under the Lease, and (ii) otherwise, be delivered to Landlord. In
determining the portion of the Pooled Reserve
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allocable to such Property, the parties shall take into account whether and when
such Property and the Portfolio Properties have each undergone a substantial
soft-goods or case-goods replacement.
C. The "Allocation Formula" shall be to multiply the amount in question
by a fraction, the numerator of which is the Operating Profit for the Property
with respect to which a Tenant Deconsolidation Event has occurred for the
preceding thirteen (13) full Portfolio Accounting Periods, and the denominator
of which is the Aggregate Operating Profit for all Portfolio Properties for the
same period. From and after a Tenant Deconsolidation Event with respect to a
Property, such Property shall continue to be liable for any items relating to
the period before such Tenant Deconsolidation Event as allocated to such
Property pursuant to this Section 6.02.C, and, except as otherwise provided for
herein, the balance of the Portfolio Properties shall have no further liability
with to such allocated amount.
D. From and after the date of a Landlord Deconsolidation Event (that is
not also a Tenant Deconsolidation Event or a Manager Deconsolidation Event) with
respect to any particular Portfolio Property, such Property shall no longer be
treated as a Portfolio Property for purposes of Section 5.02 of this Agreement,
but shall continue to be treated as a Portfolio Property for all other purposes.
6.03 Removal of the Kauai Hotel as a Portfolio Property. At any time
while this Agreement is in effect and applicable to the Kauai Hotel, Tenant may
elect, upon not less than sixty (60) days written notice to Marriott, to cause
the Kauai Hotel to cease to be a Portfolio Property subject to the pooling
aspects of this Agreement, and thereafter the Kauai Hotel, notwithstanding that
no change has occurred with respect to ownership of Tenant's leasehold interest
therein, and notwithstanding that no change has occurred with respect to Kauai
Owner's fee interest therein, shall be treated for all purposes as if a Tenant
Deconsolidation Event and a Landlord Deconsolidation Event had occurred with
respect thereto (a "Kauai Deconsolidation Event").
ARTICLE VII
TRANSITION PROVISIONS
7.01 Transition Of Initial Properties.
The parties acknowledge that, subject to the terms and conditions
herein set forth, it is their mutual intent to make financial adjustments to
place Tenant in the economic position in which it would have been had each of
the Initial Properties been made subject to the Lease and the pooling aspects of
this Agreement on the date hereof, notwithstanding the fact that some of the
Initial Properties will be made subject to the Lease, the Management Agreement
applicable thereto, the pooling aspects of this Agreement and all other
documents contemplated by the Agreement to Lease with respect to each such
Initial Property (collectively, the "Transaction Documents") after the date
hereof. To give effect to such intent, the parties hereby agree as follows,
which
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agreement is a material part of the consideration for the covenants and
agreements set forth in this Agreement:
A. Together with each interim accounting provided to Tenant after
the close of each Portfolio Accounting Period as provided for in Section 3.01,
Marriott shall also deliver to Tenant a hypothetical interim accounting for such
Portfolio Accounting Period (the "Hypothetical Report") calculated in all
respects as the actual interim accounting except that the Hypothetical Report
shall be prepared on the assumption that each Initial Property was made subject
to the Transaction Documents on the date of this Agreement, notwithstanding the
actual date on which any of such Initial Properties were or will be made subject
to the Transaction Documents. The Hypothetical Report shall also take into
account sums paid with respect to such Portfolio Accounting Period to Affiliates
of HPT pursuant to existing lease arrangements between such Affiliates of HPT
and Affiliates of Marriott ("Existing Lease Payments"), which lease arrangements
would otherwise have been terminated had the Properties which are the subjects
thereof been made subject to the Lease and the pooling aspects of this Agreement
on the date hereof.
B. The Hypothetical Report shall also indicate any sums Tenant
would have been entitled to receive as distributions of Aggregate Operating
Profit under Sections 2.02 of this Agreement over and above Existing Lease
Payments actually made with respect to such period, using the assumptions set
forth for such Hypothetical Report in the foregoing Section 7.01.A (the
"Hypothetical Tenant Distribution").
C. If the Hypothetical Tenant Distribution is larger than the
actual distributions due to Tenant (the "Actual Tenant Distribution"), the
difference between such Hypothetical Tenant Distribution and the Actual Tenant
Distribution shall constitute the "Deficiency Owed Tenant." If the Actual Tenant
Distribution is larger that the Hypothetical Tenant Distribution, the difference
between such Actual Tenant Distribution and the Hypothetical Tenant Distribution
shall constitute the "Surplus."
D. If the foregoing interim accounting and Hypothetical Report for
any Portfolio Accounting Period indicate a Deficiency Owed Tenant, Marriott
shall pay such Deficiency Owed Tenant to Tenant at the time it provides Tenant
with such interim accounting and Hypothetical Report. If the foregoing interim
accounting and Hypothetical Report for any Portfolio Accounting Period indicate
a Surplus, there shall be no adjustment to the distributions provided for in
this Agreement.
E. The provisions of this Section 7.01 shall terminate on such
date as all Initial Properties shall have either (i) become a Portfolio
Property, or (ii) been eliminated from the Agreement to Lease pursuant to the
terms thereof. If a termination pursuant to the foregoing clause (ii) occurs on
a day other than the last day of a Portfolio Accounting Period, Marriott shall
make such adjustments as are appropriate in its reasonable judgment, to reflect
the elimination of any such Initial Property for the balance of the Portfolio
Accounting Period in which such termination occurred. Furthermore, if the
Agreement to Lease is terminated with respect to any Initial Property
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prior to the date such Initial Property becomes a Portfolio Property, the
Hypothetical Report shall be prepared without consideration of such Initial
Property from and after the date of such termination with respect to such
Initial Property. If such termination occurs on a day other than the first day
of a Portfolio Accounting Period, Marriott shall, in its reasonable judgment,
make such prorations and adjustments as it deems appropriate in preparing the
Hypothetical Report for such Portfolio Accounting Period.
7.02 Annual Accounting Statements and Cash Adjustments
Calculations and payments of Deficiencies Owed Tenant and Surpluses
made with respect to each Portfolio Accounting Period within a Portfolio Fiscal
Year shall be accounted for cumulatively. Within sixty (60) days after the end
of each Portfolio Fiscal Year, Marriott shall deliver to Tenant a statement in
reasonable detail of such calculations for the immediately preceding Portfolio
Fiscal Year and a certificate of Marriott's chief accounting officer certifying
that such year-end statement is true and correct. The parties shall, within ten
(10) Business Days after Tenant's receipt of such statement, make any
adjustments, by cash payment if required as set forth above, in the amounts paid
or retained for such Portfolio Fiscal Year as are needed because of the final
figures set forth in such statement. Such final accounting shall be controlling
over the interim accountings.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.01 Notices.
A. Any and all notices, demands, consents, approvals, offers, elections
and other communications required or permitted under this Agreement shall be
deemed adequately given if in writing and the same shall be delivered either in
hand, by telecopier with written acknowledgment of receipt, or by mail or
Federal Express or similar expedited commercial carrier, addressed to the
recipient of the notice, postpaid and registered or certified with return
receipt requested (if by mail), or with all freight charges prepaid (if by
Federal Express or similar carrier).
B. All notices required or permitted to be sent hereunder shall be
deemed to have been given for all purposes of this Agreement upon the date of
acknowledged receipt, in the case of a notice by telecopier, and, in all other
cases, upon the date of receipt or refusal, except that whenever under this
Agreement a notice is either received on a day which is not a business day or is
required to be delivered on or before a specific day which is not a business
day, the day of receipt or required delivery shall automatically be extended to
the next business day.
C. All such notices shall be addressed,
if to Marriott (and/or if to a Manager, addressed to such Manager in
care of Marriott, at the following address):
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Marriott International, Inc.
10400 Fernwood Road, Dept. 52/924.11
Bethesda, Maryland 20817
Attn: Treasurer
Telecopier No. (301) 380-5067
with a copy to:
Marriott International, Inc.
10400 Fernwood Road, Dept. 52/923
Bethesda, Maryland 20817
Attn: Assistant General Counsel -- Lodging Operations
Telecopier No. (301) 380-6727
and a copy to:
Marriott International, Inc.
10400 Fernwood Road, Dept. 52/11.10
Bethesda, Maryland 20817
Attn: Lodging - Senior Vice President, Finance
Telecopier No. (301) 380-3667
and a copy to:
Venable, Baetjer and Howard, LLP
1800 Mercantile Bank and Trust Building
2 Hopkins Plaza
Baltimore, Maryland 21201
Attn: James D. Wright, Esq.
Telecopier No. (410) 244-7742
if to Tenant to:
HPT TRS MI-135, INC.
c/o Hospitality Properties Trust
400 Centre Street
Newton, Massachusetts 02458-2076
Attn: President
Telecopier No. (617) 969-5730
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with a copy to:
Sullivan & Worcester, LLP
One Post Office Square
Boston, Massachusetts 02109
Attn: Alexander A. Notopoulos, Esq.
Sander E. Ash, Esq.
Telecopier No. (617) 338-2880
D. By notice given as herein provided the parties hereto and their
respective successors and assigns shall have the right from time to time and at
any time while this Agreement is in effect to change their respective addresses
effective upon receipt by the other party of such notice and each shall have the
right to specify as its address any other address within the United States of
America.
8.02 Applicable Law; Jurisdiction
This Agreement shall be interpreted, construed, applied and enforced in
accordance with the laws of the State of Maryland applicable to contracts
between residents of Maryland which are to be performed entirely within
Maryland, regardless of (i) where any such instrument is executed or delivered;
or (ii) where any payment or other performance required by any such instrument
is made or required to be made; or (iii) where any breach of any provision of
any such instrument occurs, or any cause of action otherwise accrues; or (iv)
where any action or other proceeding is instituted or pending; or (v) the
nationality, citizenship, domicile, principal place of business, or jurisdiction
of organization or domestication of any party; or (vi) whether the laws of the
forum jurisdiction otherwise would apply the laws of a jurisdiction other than
the State of Maryland; or (vii) any combination of the foregoing. The parties
acknowledge, consent and agree that the United States District Court for the
District of Maryland and any court of competent jurisdiction in the State of
Maryland shall have exclusive jurisdiction in any proceeding instituted to
enforce this Agreement or any provision hereof and any objections to venue are
hereby waived.
8.03 Binding Effect
The rights, powers, privileges, and discretions (hereinafter referred
to as the "rights") to which the parties may be entitled hereunder shall inure
to the benefit of each of their respective successors and permitted assigns. All
the rights of the parties herein are cumulative and not alternative and may be
enforced successively or concurrently. Failure of either party to exercise any
of its rights shall not be deemed a waiver thereof, and no waiver of any of a
party's rights shall be deemed to apply to any other rights. The terms,
covenants, and conditions of or imposed upon each party herein shall be binding
upon the successors and assigns of such party.
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8.04 Severability
In case any provision (or any part of any provision) contained in this
Agreement shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalid, illegal or unenforceable provision shall not
affect any other provision (or remaining part of the affected provision) of this
Agreement, but this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had not been included herein.
8.05 Grammar
When used herein, the singular shall include the plural, the plural
shall include the singular, and the use of any gender shall be applicable to all
genders.
8.06 Time of the Essence
Time is of the essence in the performance of the obligations and
undertakings of the parties hereto.
8.07 Captions
The captions appearing in this Agreement are inserted only as a matter
of convenience and do not define, limit, construe or describe the scope or
intent of the sections of this Agreement nor in any way affect this Agreement.
8.08 Remedies
No remedy herein conferred upon a party hereto is intended to be
exclusive of any other remedy, and each and every remedy shall be cumulative and
shall be in addition to every other remedy given hereunder or now or hereafter
existing at law or in equity or by statute or otherwise.
8.09 Due Authorization
Each party hereto represents and warrants to the other that this
Agreement has been duly authorized, executed and delivered by the representing
party, and constitutes the binding and enforceable obligation of such party
subject to (i) applicable bankruptcy, insolvency, reorganization, moratorium,
and other laws affecting the rights of creditors generally; and (ii) the
exercise of judicial discretion in accordance with general principles of equity.
8.10 Counterparts
The parties agree that this Agreement may be signed and delivered in
counterparts.
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8.11 Entire Agreement
This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and shall supersede and take
the place of any other instruments purporting to be an agreement of the parties
hereto relating to the subject matter hereof.
8.12 GAAP
All calculations made pursuant to this Agreement shall, except to the
extent expressly provided to the contrary herein, be made in accordance with
generally accepted accounting principles, consistently applied.
8.13 Tenant's Obligations Under The Lease. Nothing contained herein
shall limit Tenant's obligations under the Lease. It is acknowledged by the
parties hereto that this Agreement is not intended to, and shall not, interfere
with or restrict the Landlord's rights under the Lease.
8.14 Termination of Tenant Liability. Upon expiration of the entire
term of each Management Agreement and expiration of the entire term of the Lease
(in each instance including with respect to any exercised renewals), and
provided that such expiration did not result from a default by Tenant under any
Management Agreement, Tenant shall have no further liability for repayment of
Additional Marriott Advances made pursuant to this Agreement.
8.15 Default. It shall be a default by any party hereto if such party
fails to perform any obligation hereunder within eight (8) Business Days after
receipt of written notice from a non-defaulting party demanding such cure, or,
if such default is susceptible of cure, but such cure cannot be accomplished
within said eight (8) Business Day period of time, if the defaulting party fails
to commence the cure of such default within such eight (8) Business Day period
of such notice or thereafter fails to diligently pursue such cure to completion.
8.16 NONLIABILITY OF OFFICERS, ETC. NO TRUSTEE, OFFICER, SHAREHOLDER OR
AGENT OF MARRIOTT, ANY MANAGER OR TENANT SHALL BE HELD TO ANY PERSONAL
LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST,
MARRIOTT, ANY MANAGER OR TENANT. ALL PERSONS DEALING WITH MARRIOTT, ANY MANAGER
OR TENANT, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF MARRIOTT, THE APPLICABLE
MANAGER OR TENANT, AS THE CASE MAY BE, FOR THE PAYMENT OF ANY SUM OR THE
PERFORMANCE OF ANY OBLIGATION HEREUNDER.
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8.17 Single Agreement; Integration.
(A) It is expressly acknowledged and agreed by each of Marriott,
the Managers, Landlord and Tenant that the underlying terms and conditions of
this Agreement, the Guaranty, the Management Agreements, the Franchise
Agreements and each and every other document and agreement entered into in
connection herewith or therewith and/or contemplated hereby or thereby
(collectively, the "Deal Terms") have been negotiated by the parties as a single
integrated transaction. The fact that there exists separate Management
Agreements for the different hotel brands is merely a matter of convenience to
Marriott and the Managers to reflect their existing internal corporate
organization. The purpose of this Agreement and the intent of the parties hereto
is that the Portfolio Properties at all times constitute a single pool and a
portfolio and the Deal Terms have been established with this understanding (e.g.
The purchase price and rent for certain properties has been set at a higher
amount than would be the case if such properties were the subject of a stand
alone transaction or smaller group transaction and not aggregated with the
Portfolio Properties. Landlord and Tenant have agreed to include certain
properties in this transaction in locations in which neither would otherwise
make an investment but for the existence of a portfolio.) The purpose of this
Agreement is that the Properties constitute a single pool and the Deal Terms
have been established with purpose). The aggregation and integration of the
properties into a single pool and portfolio is a material inducement to Landlord
and Tenant to agree to the Deal Terms and an underiding principle of the Deal
Terms.
(B) The Managers acknowledge and agree that a fundamental and
material purpose of this Agreement is to integrate the Portfolio Properties and
Deal Terms as one and to invalidate the right of any Manager to reject any
Management Agreement or this Agreement as to a particular Portfolio Property
(and not to all Portfolio Properties) in the event of a bankruptcy of such
manager. Accordingly, Manager hereby waives, to the maximum extent permitted by
law, any right to terminate this Agreement or reject any of the Deal Terms,
whether pursuant to the Title 11 of the U.S. Code or any other similar
insolvency or state bankruptcy laws.
8.18 Special Termination Right.
The parties acknowledge and agree that if, notwithstanding the
provisions of Section 9.10 any Manager terminates any Management Agreement or
this Owner Agreement in connection with such Manager's reorganization,
recapitalization or bankruptcy, Tenant shall have the right to terminate each
remaining Management Agreement and Franchise Agreement (without any termination
fee or penalty) by giving written notice thereof to Marriott and the Managers,
in which event, all Managing Agreements and franchise Agreements shall terminate
on the later to occur of the date set forth in such notice and 30 days after the
giving thereof.
[Signatures appear on the following page.]
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement with the intention of creating an instrument under seal.
MARRIOTT:
WITNESS: MARRIOTT INTERNATIONAL, INC.
/s/ Laura H. Brophy By: /s/ Timothy J. Grisius (SEAL)
Name: Laura H. Brophy Name: Timothy J. Grisius
Title: Authorized Signatory
MANAGERS:
WITNESS: MARRIOTT HOTEL SERVICES, INC.
/s/ Laura H. Brophy By: /s/ Timothy J. Grisius (SEAL)
Name: Laura H. Brophy Name: Timothy J. Grisius
Title: Authorized Signatory
WITNESS: RESIDENCE INN BY MARRIOTT, INC.
/s/ Laura H. Brophy By: /s/ Timothy J. Grisius (SEAL)
Name: Laura H. Brophy Name: Timothy J. Grisius
Title: Vice President
WITNESS: COURTYARD MANAGEMENT
CORPORATION
/s/ Laura H. Brophy By: /s/ Timothy J. Grisius (SEAL)
Name: Laura H. Brophy Name: Timothy J. Grisius
Title: Vice President
WITNESS: SPRINGHILL SMC CORPORATION
/s/ Laura H. Brophy By: /s/ Timothy J. Grisius (SEAL)
Name: Laura H. Brophy Name: Timothy J. Grisius
Title: Vice President
WITNESS: TOWNEPLACE MANAGEMENT
CORPORATION
/s/ Laura H. Brophy By: /s/ Timothy J. Grisius (SEAL)
Name: Laura H. Brophy Name: Timothy J. Grisius
Title: Vice President
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TENANT:
WITNESS: HPT TRS MI-135, INC.
/s/ Laura H. Brophy By: /s/ John G. Murray (SEAL)
Name: Laura H. Brophy Name: John G. Murray
Title: Vice President
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Exhibit A
Additional Limited Service Properties
1. CYBM Emeryville, CA
2. SHBM Renton, WA
3. TSBM Renton, WA
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Exhibit B
Initial Properties
1. RIBM Fresno, CA
2. RIBM Dallas/Richardson, TX
3. RIBM San Antonio, TX
4. RIBM Reno, Nevada
5. RIBM Fort Worth/Fossil Creek, TX
6. CYBM Fort Worth, Fossil Creek, TX
7. CYBM Houston/Hobby Airport, TX
8. RIBM Birmingham/Homewood, AL
9. RIBM Charlottesville, VA
10. RIBM Atlanta, GA
11. RIBM Fairfax/Fairlakes, VA
12. RIBM Bethlehem, PA
13. CYBM Bethlehem, PA
14. CYBM Birmingham, AL
15. MHRS Nashville, TN
16. MHRS St. Louis, MO
17. TSBM Atlanta/Norcross, GA
18. TSBM Norfolk, Newport News, VA
19. TSBM Atlanta/Northlake, GA
20. TSBM Virginia Beach, VA
21. TSBM Richmond/Northwest, VA
22. TSBM Fairfax/Chantilly, VA
23. TSBM Falls Church, Virginia
24. RIBM Raleigh Airport, NC
25. CYBM Charlston North, SC
26. RIBM Chicago/Waukegan, IL
27. RIBM Raleigh/Cary, NC
28. TSBM Chicago/W. Dundee, IL
29. CYBM Chicago/W. Dundee, IL
30. TSBM Detroit/Novi, MI
31. CYBM Detroit/Novi, MI
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Exhibit C
Portfolio Accounting Periods*
Portfolio Accounting Period per Accounting Period Included Accounting Period Included
Portfolio Fiscal Year From Domestic Hotel From the Kauai Hotel
Management Agreements's Management Agreement's
Fiscal Year Fiscal Year
- ------------------------------------------------------------------------------------------------------
1st 1st None
2nd 2nd 1st
3rd 3rd 2nd
4th 4th 3rd
5th 5th 4th
6th 6th 5th
7th 7th 6th
8th 8th 7th
9th 9th 8th
10th 10th 9th
11th 11th 10th
12th 12th 11th
13th 13th 12th
*Assuming that with respect to such Portfolio Accounting Periods, the Kauai
Hotel is, during such period, a Portfolio Property.
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