Exhibit 10.17
MARRIOTT'S DESERT SPRINGS RESORT & SPA
PALM DESERT, CALIFORNIA
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November 25, 1997
MANAGEMENT AGREEMENT
between
DS Hotel LLC
("Owner")
and
MARRIOTT HOTEL SERVICES, INC.
("Management Company")
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TABLE OF CONTENTS
Page
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ARTICLE I - DEFINITION OF TERMS
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1.01 Definition of Terms............................................. 1
ARTICLE II - APPOINTMENT OF MANAGEMENT COMPANY
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2.01 Appointment..................................................... 20
2.02 Delegation of Authority......................................... 20
2.03 Operational Standards........................................... 20
2.04 Limitations on Authority........................................ 23
2.05 Covenants, Conditions or Restrictions........................... 24
2.06 Licenses and Permits............................................ 25
ARTICLE III - HOTEL
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3.01 Ownership of Interest in Site, Hotel, and
Golf Course B................................................... 26
ARTICLE IV - TERM
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4.01 Term............................................................ 28
4.02 Actions to be Taken Upon Termination............................ 29
4.03 Performance Termination......................................... 30
ARTICLE V - COMPENSATION OF MANAGEMENT COMPANY; DISTRIBUTIONS
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5.01 Management Fees................................................. 32
5.02 Accounting and Interim Payments................................. 32
ARTICLE VI - FINANCING OF THE HOTEL
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6.01 Amendments of Management Agreement.............................. 34
6.02 Notice and Opportunity to Cure.................................. 35
6.03 Assignment of Management Agreement.............................. 36
6.04 Subordination of Management Agreement........................... 36
6.05 Non-Disturbance Agreement....................................... 37
6.06 Attornment...................................................... 38
6.07 No Modification or Termination of Agreement..................... 39
6.08 Owner's Right to Finance the Hotel.............................. 39
6.09 Sale/Leaseback Transactions..................................... 39
ARTICLE VII - WORKING CAPITAL AND FIXED ASSET SUPPLIES
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7.01 Working Capital and Inventories................................. 41
7.02 Fixed Asset Supplies............................................ 41
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ARTICLE VIII - REPAIRS, MAINTENANCE AND REPLACEMENTS
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8.01 Repairs and Maintenance......................................... 42
8.02 FF&E Reserve.................................................... 42
8.03 Building Alterations, Improvements, Renewals,
and Replacements.............................................. 46
8.04 Liens........................................................... 48
8.05 Ownership of Replacements, Etc.................................. 48
ARTICLE IX - BOOKKEEPING AND BANK ACCOUNTS
- ------------------------------------------
9.01 Books and Records............................................... 49
9.02 Hotel Accounts, Expenditures.................................... 50
9.03 Annual Operating Budget......................................... 50
9.04 Operating Losses; Credit........................................ 51
ARTICLE X - PROPRIETARY MARKS; INTELLECTUAL PROPERTY
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10.01 Proprietary Marks.............................................. 53
10.02 Purchase of Inventories and Fixed Asset Supplies............... 53
10.03 Computer Software and Equipment................................ 54
10.04 Intellectual Property.......................................... 54
10.05 Breach of Covenant............................................. 54
ARTICLE XI - POSSESSION AND USE OF HOTEL
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11.01 Quiet Enjoyment................................................ 55
11.02 Use............................................................ 55
11.03 Chain Services................................................. 56
11.04 Owner's Right to Inspect....................................... 57
11.05 Indemnity...................................................... 57
ARTICLE XII - INSURANCE
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12.01 Interim Insurance.............................................. 59
12.02 Property and Operational Insurance............................. 59
12.03 General Insurance Provisions................................... 60
12.04 Cost and Expense............................................... 61
ARTICLE XIII - TAXES
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13.01 Real Estate and Personal Property Taxes........................ 63
ARTICLE XIV - HOTEL EMPLOYEES
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14.01 Employees...................................................... 65
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ARTICLE XV - DAMAGE, CONDEMNATION AND FORCE MAJEURE
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15.01 Damage and Repair.............................................. 68
15.02 Condemnation................................................... 68
15.03 Force Majeure.................................................. 69
ARTICLE XVI - DEFAULTS
- ----------------------
16.01 Definition of "Default"........................................ 71
16.02 Definition of "Event of Default"............................... 71
16.03 Remedies Upon an Event of Default.............................. 72
16.04 Owner's Estate................................................. 73
ARTICLE XVII - WAIVER AND PARTIAL INVALIDITY
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17.01 Waiver......................................................... 74
17.02 Partial Invalidity............................................. 74
ARTICLE XVIII - ASSIGNMENT
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18.01 Assignment..................................................... 75
ARTICLE XIX - SALE OF THE HOTEL
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19.01 Sale of the Hotel.............................................. 77
ARTICLE XX - MISCELLANEOUS
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20.01 Right to Make Agreement........................................ 81
20.02 Consents....................................................... 81
20.03 Relationship................................................... 81
20.04 Confidentiality................................................ 82
20.05 Equity and Debt Offerings...................................... 82
20.06 Applicable Law................................................. 83
20.07 Recordation.................................................... 83
20.08 Headings....................................................... 83
20.09 Notices........................................................ 83
20.10 Environmental Matters.......................................... 84
20.11 Estoppel Certificates.......................................... 85
20.12 [Intentionally omitted]........................................ 85
20.13 Arbitration.................................................... 85
20.14 Affiliates..................................................... 87
20.15 Entire Agreement............................................... 87
20.16 Rental of Golf Course B........................................ 87
20.17 Recitals....................................................... 88
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Exhibit "A" - Legal Description of the Site and
Golf Course B Tract
Exhibit "A-1" - [Intentionally omitted]
Exhibit "B" - Form of Accounting Statement
Exhibit "C" - [Intentionally omitted]
Exhibit "D" - [Intentionally omitted]
Exhibit "D-1" - [Intentionally omitted]
Exhibit "E" - Existing Ground Lease (if applicable); Existing
Mortgage (if any); Existing Non-Mortgage Loans
Exhibit "F" - Proprietary Marks owned by Owner (if any)
Exhibit "G" - Title Insurance Policy
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MANAGEMENT AGREEMENT
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This Management Agreement ("Agreement") is executed on this 25th day of
November, 1997, by DS HOTEL LLC ("Owner"), a Delaware limited partnership, with
a mailing address at c/o Host Marriott Corporation, 10400 Fernwood Road,
Bethesda, Maryland 20817 and MARRIOTT HOTEL SERVICES, INC. ("Management
Company"), a Delaware corporation, with a mailing address at 10400 Fernwood
Road, Bethesda, Maryland 20817.
R E C I T A L S:
A. Owner is the owner of the Hotel (as defined and more fully described in
Section 1.01), which is located as set forth on Exhibit "A" hereto; and
B. Owner (as successor in interest to Desert Springs Marriott Limited
Partnership) and Management Company (as successor in interest to Desert Springs
Hotel Services) are parties to that certain Lease Agreement ("Prior Operating
Lease") for Marriott's Desert Springs Resort and Spa, dated as of April 23, 1987
regarding the leasing and operation of the Hotel; and
C. The Prior Operating Lease is or has been terminated as of this same
date and Owner and Management Company now wish to enter into this Agreement,
which shall completely supersede the Prior Operating Lease as of the Effective
Date of this Agreement and change the arrangement between Owner and Management
Company from one of landlord and tenant to one of owner and manager;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
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 each of the four (4) week accounting periods
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which are used in Management Company's accounting system, except that an
Accounting Period may occasionally contain five (5) weeks when necessary to
conform Management Company's accounting system to the calendar.
"Accounting Period Statement" shall have the meaning set forth in Section
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5.02.
"Additional Invested Capital" shall mean the cumulative total, as of any
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given point in time during the Term, of the following: (i) any expenditures
made by Owner pursuant to Section 8.03, excepting expenditures made pursuant to
Section 20.10 C; (ii) any contributions by Owner to the FF&E Reserve (beyond the
funding described in Section 8.02 B), other than those contributions that are
reimbursed to Owner under Section 8.02 E; and (iii) any payments by Owner with
regard to special assessments or impact fees pursuant to Section 13.01 B(2) or
(3).
"Additional Invested Capital Amount" shall mean a dollar amount equal to
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ten and seventy-five hundredths percent (10.75%) of any Additional Invested
Capital expended by Owner, with each expenditure of Additional Invested Capital
to be added into the calculation of such dollar amount (with respect to the
Fiscal Year or Fiscal Years during which such expenditure(s) occurred) on a pro
rata basis, beginning with the first full Accounting Period after such
expenditures occurred, and thereafter over the remainder of the then-current
Fiscal Year.
"Affiliate" shall mean any individual or entity directly or indirectly
---------
through one or more intermediaries, controlling, controlled by or under common
control with a party. The term "control," as used in the immediately preceding
sentence, means, with respect to a corporation, the right to exercise, directly
or indirectly, fifty percent (50%) or more of the voting rights attributable to
the shares of the controlled corporation, and, with respect to an entity that is
not a corporation, the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of the controlled
entity.
"Agreement" shall have the meaning set forth in the Preamble.
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"Annual Operating Budget" shall have the meaning set forth in Section 9.03.
-----------------------
"Annual Operating Statement" shall have the meaning set forth in Section
--------------------------
9.01.
"Available Cash Flow" shall mean an amount, with respect to each Fiscal
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Year or portion thereof, equal to the excess (if any) of the Operating Profit
for such Fiscal Year over the applicable Owner's Priority.
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"Base Management Fee" shall mean an amount equal to three percent (3%) of
-------------------
Gross Revenues, which shall be paid to Management Company as compensation (in
addition to the Incentive Management Fee) for the services performed pursuant to
this Agreement.
"Building Estimate" shall have the meaning set forth in Section 8.03 A.
-----------------
"Capital Expenditures" shall have the meaning set forth in Section 8.03 A.
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"Capitalization Multiple" shall mean the number ten (10).
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"Case Goods" shall mean furniture and furnishings used in the Hotel,
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including, without limitation: chairs, beds, chests, headboards, desks, lamps,
tables, television sets, mirrors, pictures, wall decorations and similar items.
"CC&R's" shall have the meaning set forth in Section 2.05.
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"Central Office Services" shall mean certain services which are provided to
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the Hotel by personnel who are employees of Management Company or one of its
Affiliates and who are not normally located at the Hotel, including the
following: executive supervision; planning and policy making; corporate finance;
corporate personnel and employee relations; in-house legal services; trademark
protection relating to Proprietary Marks which are used generally by the
Marriott chain; certain product research and development; and the services of
Management Company's technical and operational experts making routine periodic
inspection and consultation visits to the Hotel (but not the services of the
personnel of the Architecture and Construction Division of Management Company
(or any of its Affiliates) providing architectural, technical or procurement
services for the Hotel, the costs and expenses of which shall be paid pursuant
to paragraph 6 of the definition of Operating Profit). Any service which is
defined as being included within the term "Chain Services" shall not also be
included within "Central Office Services". The Central Office Services which
are provided to the Hotel shall be generally consistent with those Central
Office Services which are provided to other comparable full-service hotels
within the Marriott Hotel System.
"Chain Services" shall have the meaning set forth in Section 11.03.
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"Coverage Ratio" shall mean the number one and three-tenths (1.3).
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"Cure Notice" shall have the meaning set forth in Section 4.03 B.
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"Cure Period" shall have the meaning set forth in Section 4.03 B.
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"Deductions" shall have the meaning set forth in the definition of
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Operating Profit.
"Default" shall have the meaning set forth in Section 16.01.
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"Effective Date" shall mean November 25, 1997.
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"Employee Claims" shall mean any and all claims (including all fines,
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judgments, penalties, costs, Litigation and/or arbitration expenses, attorneys'
fees and expenses, and costs of settlement with respect to any such claim) by
any employee or employees of Management Company against Owner or Management
Company with respect to the employment at the Hotel of such employee or
employees. "Employee Claims" shall include, without limitation, the following:
(i) claims which are eventually resolved by arbitration, by Litigation or by
settlement; (ii) claims which also involve allegations that any applicable
employment-related contracts affecting the employees at the Hotel have been
breached; and (iii) claims which involve allegations that one or more of the
Employment Laws has been violated; provided, however, that "Employee Claims"
shall not include claims for worker compensation benefits (which shall be
governed by Article XII hereof) or for unemployment benefits.
"Employment Laws" shall mean any federal, state or local law (including the
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common law), statute, ordinance, rule, regulation, order or directive with
respect to employment, conditions of employment, benefits, compensation, or
termination of employment that currently exists or may exist at any time during
the Term of this Agreement, including, but not limited to, Title VII of the
Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Workers
Adjustment and Retraining Act, the Occupational Safety and Health Act, the
Immigration Reform and Control Act of 1986, the Polygraph Protection Act of 1988
and the Americans With Disabilities Act of 1990.
"Environmental Laws" shall mean any federal, state or local law, rule or
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regulation (both present and future) dealing with the use, generation,
treatment, storage, disposal or abatement of Hazardous Materials, including, but
not limited to, (i) the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601 et seq., as amended, and (ii) the
-- ---
regulations promulgated thereunder, from time to time.
"Event of Default" shall have the meaning set forth in Section 16.02.
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"Existing CC&R's" shall have the meaning set forth in Section 2.05 A.
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"Existing Ground Lease" shall mean the ground lease listed on Exhibit "E",
---------------------
but, for purposes of this Agreement, shall not include any amendments or
modifications thereof after the Effective Date, unless Management Company
consents to any such amendment or modification (which consent shall not be
unreasonably withheld, provided that (i) the proposed amendment or modification
would not materially affect the rights and/or obligations of Management Company
in a manner adverse to Management Company, and (ii) in any event, such amendment
or modification would have no adverse impact on the amount of the Management
Fees).
"Existing Mortgage" shall mean the Mortgage that is listed on Exhibit "E",
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but, for purposes of this Agreement, shall not include any amendments or
modifications thereof after the Effective Date.
"Existing Non-Mortgage Loans" shall mean the loans that are listed on
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Exhibit "E" that are not Mortgages, only in the amounts stated as qualifying as
"Existing Non-Mortgage Loans." For purposes of this Agreement, "Existing Non-
Mortgage Loans" shall not include any amendments or modifications thereof after
the Effective Date.
"FF&E" shall mean furniture, furnishings, fixtures, Soft Goods, Case Goods,
----
signage and equipment at the Hotel (including, without limitation, facsimile
machines, communication systems, audio-visual equipment, and all computer and
other equipment needed for the reservation system and the property management
system, and all other electronic systems needed for the Hotel, from time to
time, as well as similar systems based on other technologies which may be
developed in the future.
"FF&E Estimate" shall have the meaning set forth in Section 8.02 D.
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"FF&E Reserve" shall have the meaning set forth in Section 8.02 A.
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"First Notice" shall have the meaning set forth in Section 6.02.
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"Fiscal Year" shall mean Management Company'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 Effective Date and the commencement of the first
full Fiscal Year, and any partial Fiscal Year between the end of the
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last full Fiscal Year and the Termination of this Agreement, shall constitute a
separate Fiscal Year. If Management Company's Fiscal Year is changed in the
future, appropriate adjustment to this Agreement's reporting and accounting
procedures shall be made; provided, however, that no such change or adjustment
shall alter the Term of this Agreement, or in any way reduce the distributions
of Operating Profit or other payments due to Owner hereunder, or otherwise
significantly and adversely affect Owner's rights or obligations under this
Agreement.
"Fixed Asset Supplies" shall mean supply items included within "Property
--------------------
and Equipment" under the Uniform System of Accounts, including linen, china,
glassware, silver, uniforms, and similar items.
"Force Majeure" shall mean acts of God, acts of war, civil disturbance,
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governmental action (including the revocation or refusal to grant licenses or
permits, where such revocation or refusal is not due to the fault of the party
whose performance is to be excused for reasons of Force Majeure), strikes, fire,
unavoidable casualties or any other causes beyond the reasonable control of
either party (excluding, however, (i) lack of financing, or (ii) general
economic and/or market factors).
"Foreclosure" shall mean any exercise of the remedies available to a
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Holder, upon a default under the Secured Loan held by such Holder, which results
in a transfer of title to or possession of the Hotel. The term "Foreclosure"
shall include, without limitation, any one or more of the following events, if
they occur in connection with a default under a Secured Loan: (i) a transfer by
judicial foreclosure; (ii) a transfer by deed in lieu of foreclosure; (iii) the
appointment by a court of a receiver to assume possession of the Hotel; (iv) a
transfer of either ownership or control of the Owner, by exercise of a stock
pledge or otherwise; (v) [intentionally omitted]; or (vi) any similar judicial
or non-judicial exercise of the remedies held by the Holder.
"Foreclosure Date" shall mean the date on which title to or possession of
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the Hotel is transferred by means of a Foreclosure.
"Future CC&R's" shall have the meaning set forth in Section 2.05 B.
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"GDP Deflator" shall mean the "Gross Domestic Product Implicit Price
------------
Deflator" issued from time to time by the United States Bureau of Economic
Analysis of the Department of Commerce, or if the aforesaid GDP Deflator is not
at such time so prepared and published, any comparable index selected by Owner
and reasonably satisfactory to Management Company (a "Substitute Index") then
prepared and published by an agency of the
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Government of the United States, appropriately adjusted for changes in the
manner in which such index is prepared and/or year upon which such index is
based. Any dispute regarding the selection of the Substitute Index or the
adjustments to be made thereto shall be settled by arbitration in accordance
with Section 20.13. Except as otherwise expressly stated herein, whenever a
number or amount is required to be "adjusted by the GDP Deflator", or similar
terminology, such adjustment shall be equal to the percentage increase or
decrease (except that, for purposes of this Agreement, the GDP Deflator shall
not be decreased below its level as of the Effective Date) in the GDP Deflator
which is issued for the month in which such adjustment is to be made (or, if the
GDP Deflator for such month is not yet publicly available, the GDP Deflator for
the most recent month for which the GDP Deflator is publicly available) as
compared to the GDP Deflator which was issued for the month in which the
Effective Date occurred.
"Golf Course A" shall mean an eighteen (l8) hole golf course owned by Owner
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and located on the Site.
"Golf Course B" shall mean an eighteen (l8) hole golf course adjacent to
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the Site and leased under the Existing Ground Lease.
"Golf Courses" shall mean Golf Course A and Golf Course B.
------------
"Gross Revenues" shall mean all revenues and receipts of every kind derived
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from operating the Hotel and parts thereof, including, but not limited to:
income (from both cash and credit transactions), before commissions and
discounts for prompt or cash payments, from rental of rooms, stores, offices,
meeting, exhibit or sales space of every kind; license, lease and concession
fees and rentals (not including gross receipts of licensees, lessees and
concessionaires); golf course membership and green fees and all other revenues
from the operation of the Golf Courses and related facilities, income from
vending machines; health club membership fees; food and beverage sales; sales of
merchandise (other than proceeds from the sale of FF&E no longer necessary to
the operation of the Hotel, which shall be deposited in the FF&E Reserve as set
forth in Section 8.02 C hereof); service charges, to the extent not distributed
to the employees at the Hotel as, or in lieu of, gratuities; and proceeds, if
any, from business interruption or other loss of income insurance; provided,
however, that all refunds, rebates, discounts, and credits of a similar nature,
given, paid, or returned by Owner or Management Company in the course of
obtaining all such revenue and income shall be excluded; and provided further,
that Gross Revenues shall not include the following: gratuities to Hotel
employees; federal, state or municipal excise, sales, use or similar taxes
collected directly from patrons or guests or included as part of the sales price
of
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any goods or services; insurance proceeds (other than proceeds from business
interruption or other loss of income insurance); condemnation proceeds (other
than for a temporary taking); any proceeds from any Sale of the Hotel or from
the refinancing of any debt encumbering the Hotel; proceeds from the disposition
of FF&E no longer necessary for the operation of the Hotel; interest which
accrues on amounts deposited in either the FF&E Reserve or any escrow accounts
which are established in accordance with Section 13.01 C; or Cure Payments.
"Ground Lease Rental" shall mean the annual rental, as of the Effective
-------------------
Date, under the Existing Ground Lease.
"Ground Lessor" shall mean the landlord under the Existing Ground Lease.
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"Hazardous Materials" shall mean any substance or material containing one
-------------------
or more of any of the following: "hazardous material", "hazardous waste",
"hazardous substance", "regulated substance", "petroleum", "pollutant",
"contaminant", or "asbestos", as such terms are defined in any applicable
Environmental Law, in such concentration(s) or amount(s) as may impose clean-up,
removal, monitoring or other responsibility under any applicable Environmental
Law, or which may present a significant risk of harm to guests, invitees or
employees of the Hotel.
"Holder" shall mean any holder, from time to time, of any Secured Loan.
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"Hotel" shall mean that certain hotel property currently known as
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Marriott's Desert Springs Resort and Spa, located in Palm Desert, California,
which Owner owns at the location specified in Exhibit "A," and shall include, as
appropriate to the context, (i) the Site, (ii) Existing Ground Lease, and (iii)
all improvements built, and all FF&E, Fixed Asset Supplies, and Inventories
installed, now or hereafter, on the Site and Golf Course B.
"Hotel Retention" shall have the meaning set forth in Section 12.03 hereof.
---------------
"Impositions" shall mean all real estate and personal property taxes,
-----------
levies, assessments and similar charges (other than those which are specifically
excluded pursuant to Section 13.01 B) including, without limitation, the
following: all water, sewer or similar fees, rates, charges, excises or levies;
license fees; permit fees; inspection fees and other authorization fees and
other governmental charges of any kind or nature whatsoever, whether general or
special, ordinary or extraordinary, foreseen or unforeseen, or hereinafter
levied or
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assessed of every character (including all interest and penalties thereon),
which at any time during or in respect of the Term of this Agreement may be
assessed, levied, confirmed or imposed on Owner with respect to the Hotel or
Golf Course B, or otherwise in respect of or be a lien upon the Hotel or Golf
Course B. Impositions shall not include any income or franchise taxes payable by
Owner or Management Company. Impositions shall include any taxes, levies,
assessments and similar charges which may be enacted by the applicable
governmental authority in lieu of, or in complete or partial substitution for,
Impositions.
"Incentive Management Fee" shall mean the payments which shall be made to
------------------------
Management Company, as compensation (in addition to the Base Management Fee) to
Management Company for its services under this Agreement, in an amount equal to:
(i) With respect to Fiscal Year 1997, the lesser of (a) two million
dollars ($2,000,000.00) or (b) one hundred percent (100%) of the
Operating Profit (as defined in accordance with the Prior Operating
Lease) for the period from the beginning of the Fiscal Year until the
Effective Date of this Agreement, plus one hundred percent (100%) of
the amount of Operating Profit (as defined in accordance with this
Agreement) for the period from the Effective Date of this Agreement
through the end of Fiscal Year 1997, less Owner's Priority for Fiscal
Year 1997 (as defined in this Agreement); and
(ii) With respect to each Fiscal Year (or portion thereof) thereafter, (a)
one hundred percent(100%) of the first one million, eight hundred
thousand dollars ($1,800,000.00) of Available Cash Flow in such Fiscal
Year (or portion thereof); plus, (b) one hundred percent (100%) of the
----
remaining Available Cash Flow up to an amount equal to any Incentive
Management Fees earned in prior Fiscal Years but not paid; plus, (c)
----
(1) twenty-five percent (25%) of the Available Cash Flow in such
Fiscal Year (or portion thereof) remaining after the payments required
in subsection (a), above; plus, (2) if any payments have been made by
----
Management Company pursuant to Section 4.03 B of this Agreement, an
additional eighteen and seventy-five hundredths percent (18.75%) of
Available Cash Flow in such Fiscal Year (or portion thereof) remaining
after the payment required in subsection (a), above, until the Section
4.03 B payments have been fully recovered.
"Initial Term" shall have the meaning set forth in Section 4.01.
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"Intellectual Property" shall mean: (i) all Software; and (ii) all
---------------------
manuals, brochures and directives issued by Management Company to its employees
at the Hotel regarding the procedures and techniques to be used in operating the
Hotel.
"Interest Rate" shall mean an annual rate of interest equal to the Prime
-------------
Rate (as adjusted from time to time) plus three hundred (300) basis points;
provided, however, that in no event shall the Interest Rate exceed the maximum
rate which is permitted under applicable Legal Requirements.
"Inventories" shall mean "Inventories" as defined in the Uniform System of
-----------
Accounts, such as provisions in storerooms, refrigerators, pantries and
kitchens; beverages in wine cellars and bars; other merchandise intended for
sale; fuel; mechanical supplies; stationery; and other expensed supplies and
similar items.
"Legal Requirement" shall mean any federal, state or local law, code, rule,
-----------------
ordinance, regulation or order of any governmental authority or agency having
jurisdiction over the business or operation of the Hotel or the matters which
are the subject of this Agreement, including, without limitation, the following:
(i) any building, zoning or use laws, ordinances, regulations or orders; and
(ii) Environmental Laws.
"License" shall mean any license, permit, decree, act, order, authorization
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or other approval or instrument which is necessary in order to operate the Hotel
in accordance with Legal Requirements and pursuant to the Marriott Standards and
otherwise in accordance with this Agreement.
"Management Analysis Report" shall mean a narrative report on the state of
--------------------------
business and affairs of the Hotel, prepared on an annual basis by Management
Company and delivered to Owner at the time of the delivery of the Annual
Operating Statement, which shall include a narrative description regarding the
preceding Fiscal Year, of: (i) the Hotel's operating performance, including
significant variations from the Annual Operating Budget; (ii) an analysis of any
significant variation of the actual average daily rate and occupancy from what
was set forth in the Annual Operating Budget; (iii) a review of the competitive
hotel market; (iv) a description of any significant promotional or other
marketing programs in which the Hotel participated, which were not included as
part of the Annual Operating Budget for the preceding Fiscal Year; and (v) such
other supplementary information as Owner or Management Company shall reasonably
deem necessary to an understanding of the operation of the Hotel.
"Litigation" shall mean: (i) any cause of action commenced in a federal,
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state or local court; or (ii) any claim brought
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before an administrative agency or body (for example, without limitation,
employment discrimination claims).
"Management Company" shall have the meaning set forth in the Preamble.
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"Management Fees" shall mean the Base Management Fee plus the Incentive
---------------
Management Fee.
"Marriott" shall mean Marriott International, Inc., a Delaware corporation
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having an address at 10400 Fernwood Road, Bethesda, Maryland 20817.
"Marriott Hotel System" shall mean the full-service hotel system managed by
---------------------
Marriott (or one or more of its Affiliates) which is, as of the Effective Date,
operated under the trade name "Marriott Hotels, Resorts and Suites".
"Marriott Standards" shall mean both the operational standards (for
------------------
example, staffing, amenities offered to guests, advertising, etc.) and the
physical standards (for example, the quality, condition, utility and age of the
FF&E, etc.) of comparable full-service hotels in the Marriott Hotel System, as
such operational and physical standards may fluctuate from time to time
(provided, however, that the Marriott Standards shall in no event be lower than
the operational and physical standards, as of the date in question, of
comparable "quality segment" (as such term was being used as of the Effective
Date) full-service hotels in other full-service hotel systems).
"Mortgage" shall mean any security instrument which encumbers the Site
--------
and/or the Hotel, including, without limitation, mortgages, deeds of trust,
security deeds and similar instruments.
"Non-Disturbance Agreement" shall mean an agreement, in recordable form in
-------------------------
the jurisdiction in which the Hotel is located, executed and delivered by a
Holder (which agreement shall by its terms be binding upon all assignees of such
Holder and upon all Subsequent Owners), for the benefit of Management Company,
pursuant to which, in the event such Holder (or its assignee) or any Subsequent
Owner comes into possession of or acquires title to the Hotel either at or
following a Foreclosure, such Holder (and its assignees) and all Subsequent
Owners shall (x) recognize Management Company's rights under this Agreement, and
(y) shall not name Management Company as a party in any Foreclosure action or
proceeding, and (z) shall not disturb Management Company in its right to
continue to manage the Hotel pursuant to this Agreement; provided, however, that
at such time, (i) this Agreement has not expired or otherwise been earlier
terminated in accordance with its terms, and (ii) there are no
- 11 -
outstanding Events of Default by Management Company, and (iii) no material event
has occurred and no material condition exists which, after notice or the passage
of time or both, would entitle Owner to terminate this Agreement (excluding
events which would constitute an Event of Default, which are to be governed
exclusively by clause (ii) hereof).
"Opening Date" shall mean February 2, 1987.
------------
"Operating Accounts" shall have the meaning set forth in Section 9.02.
------------------
"Operating Loss" shall mean a negative Operating Profit.
--------------
"Operating Profit" shall mean the excess of Gross Revenues over the
----------------
following deductions ("Deductions") incurred by Management Company in operating
the Hotel:
1. The cost of sales including salaries, wages, employee benefits,
Employee Claims (except to the extent specifically set forth to the contrary in
Section 14.01 C or D), payroll taxes and other costs related to Hotel employees;
2. Departmental expenses; administrative and general expenses;
relocation expenses not otherwise paid as part of Chain Services; the cost of
Hotel advertising and business promotion; the cost of heat, light, power, water,
and all other utility costs; and the cost of routine repairs, maintenance and
minor alterations which are treated as Deductions under Section 8.01;
3. The cost of Inventories and Fixed Asset Supplies consumed in the
operation of the Hotel;
4. A reasonable reserve for uncollectible accounts receivable as
determined by Management Company;
5. All reasonable costs and fees of independent professionals or
other third parties who are retained by Management Company to perform services
required or permitted hereunder; provided that Management Company will notify
Owner at least thirty (30) days in advance of any proposed expenditure under
this paragraph 5 which is in excess of Fifty Thousand Dollars ($50,000) (to be
adjusted by the GDP Deflator) and which was not specifically identified in the
Annual Operating Budget, and Management Company shall consider in good faith any
comments which Owner may have with respect to such proposed expenditure; and
provided, further, that if such expenditure involves immediately-needed repair
work to the Hotel or if immediate action is otherwise required, the above-
described requirement regarding thirty (30) days' prior notice shall be modified
to
- 12 -
require whatever notice period is reasonable under the circumstances;
6. The reasonable cost and expense of technical consultants and
operational experts who are employees of Management Company or one of its
Affiliates, and who perform specialized services in connection with non-routine
Hotel work; provided, however, that the costs and expenses so incurred shall
only be Deductions to the extent such costs and expenses are reasonable and
competitively priced, as compared to similar work done by outside consultants or
experts; and provided, further, that Management Company will notify Owner at
least thirty (30) days in advance of any proposed expenditure under this
paragraph 6 which is in excess of Fifty Thousand Dollars ($50,000) (to be
adjusted by the GDP Deflator) and which was not specifically identified in the
Annual Operating Budget, and Management Company shall consider in good faith any
comments which Owner may have with respect to such proposed expenditure; and
provided, further, that if such expenditure involves immediately-needed repair
work to the Hotel or if immediate action is otherwise required, the above-
described requirement regarding thirty (30) days' prior notice shall be modified
to require whatever notice period is reasonable under the circumstances;
7. The Base Management Fee;
8. The Hotel's pro rata share of costs and expenses incurred by
Management Company (or its Affiliates) in providing Chain Services;
9. The Hotel's pro rata share of costs and expenses incurred in
connection with sales, advertising and/or promotional programs developed for or
within the Marriott Hotel System, such as (without limitation) the Marriott
Rewards Program, where such costs and expenses are not deducted as either
departmental expenses under paragraph 2 above or as Chain Services under
paragraph 8 above;
10. Insurance costs and expenses as provided in Section 12.04 B;
11. License fees and taxes, if any, payable by or assessed against
Management Company related to the Hotel, this Agreement, or to Management
Company's operation of the Hotel (exclusive of Management Company's income taxes
or franchise taxes) and all Impositions assessed against the Hotel;
12. Amounts which are transferred into the FF&E Reserve in accordance
with the provisions of Section 8.02;
- 13 -
13. Lease payments pursuant to leases of Telephones and Miscellaneous
Equipment;
14. [Intentionally omitted]
15. All maintenance and operational costs related to the Golf
Courses;
16. Rental payments made by or on behalf of Owner pursuant to the
Existing Ground Lease; and
17. Such other costs and expenses incurred by Management Company or
its Affiliates (not including the costs and expenses of providing the Central
Office Services) as are specifically provided for elsewhere in this Agreement or
are otherwise reasonably necessary for the proper and efficient operation of the
Hotel (including, without limitation, the costs and expenses of all functions
described in Section 2.03, to the extent such costs and expenses are not already
treated as Deductions elsewhere in this definition of Operating Profit, unless,
and to the extent that, any such costs and expenses are specifically stated not
to be Deductions under any provision of this Agreement).
The term "Deductions" shall not include debt service payments pursuant to
any Secured Loan or Existing Non-Mortgage Loan, which shall be paid by Owner
from its own funds, and not from Gross Revenues nor from the FF&E Reserve. In
no event shall the costs or expenses of providing the Central Office Services be
treated as Deductions, or otherwise be reimbursed out of Gross Revenues; it
being the intent of the parties that all such costs and expenses are to be paid
by Management Company (or its Affiliates) from its own funds.
"Owner" shall have the meaning set forth in the Preamble. Subject to
-----
compliance with Articles XVIII and XIX of this Agreement, the term "Owner" shall
include all successors and assigns of the entity identified as the "Owner" in
the Preamble.
"Owner's Distribution" shall mean, with respect to each Fiscal Year or
--------------------
portion thereof during the Term, Operating Profit less any Incentive Management
Fee due to Management Company.
"Owner's Implied Initial Cost" shall mean Two Hundred Fifteen Million
----------------------------
Dollars ($215,000,000.00).
"Owner's Investment" shall mean the sum total, as of any given point in
------------------
time during the Term, of: (i) the Owner's Implied Initial Cost; plus (ii) any
Additional Invested Capital expended by Owner; provided that each expenditure of
Additional Invested Capital shall be added to the Owner's Investment (with
respect to
- 14 -
the Fiscal Year or Fiscal Years during which such expenditure(s) occurred) on a
pro rata basis, beginning with the first full Accounting Period after such
expenditures occurred, and thereafter over the remainder of the current Fiscal
Year.
"Owner's Priority" shall mean (i) with respect to Fiscal Year 1997, the
----------------
Additional Invested Capital Amount plus the greater of (x) twenty million, five
hundred thousand dollars ($20,500,000.00), and (y) the annual scheduled debt
service (excluding balloon payments, cash sweeps, and payments into debt service
liquidity reserves, if any) on the Existing Mortgage, the Existing Non-Mortgage
Loans, and any prior mortgages in effect during said Fiscal Year; and (ii) with
respect to each other Fiscal Year (prorated for any partial Fiscal Years) during
the Term, the Additional Invested Capital Amount plus the greater of (x) twenty-
one million, five hundred thousand dollars ($21,500,000.00), and (y) the annual
scheduled debt service (excluding balloon payments, cash sweeps, and payments
into debt service liquidity reserves, if any) on the Existing Mortgage and the
Existing Non-Mortgage Loans.
"Post-Foreclosure Decision Date" shall have the meaning set forth in
------------------------------
Section 6.06.
"Prime Rate" shall mean the "prime rate" as published in the "Money Rates"
----------
section of The Wall Street Journal; however, if such rate is, at any time during
--- ---- ------ -------
the Term, no longer so published, the term "Prime Rate" shall mean the average
of the prime interest rates which are announced, from time to time, by the three
(3) largest banks (by assets) headquartered in the United States which publish a
"prime rate."
"Proprietary Marks" shall mean all trademarks, trade names, symbols, logos,
-----------------
slogans, designs, insignia, emblems, devices, service marks and distinctive
designs of buildings and signs, or combinations thereof, which are used to
identify hotels in the Marriott Hotel System. The term "Proprietary Marks"
shall also include all trade names, trademarks, symbols, logos, designs, etc.
which are used in connection with the operation of the Hotel during the Term
(such as, without limitation, the names of the restaurants and lounges). The
term "Proprietary Marks" shall include all present and future Proprietary Marks,
whether they are now or hereafter owned by Management Company or one of its
Affiliates, and whether or not they are registered under the laws of the United
States or any other country. The names "Marriott", "Marriott Hotels" and
"Marriott Resorts", and any of the foregoing used in conjunction with other
words or names, are examples of Proprietary Marks. Notwithstanding the
foregoing, those trade names, trademarks, symbols, logos, designs, etc., which
are specifically set forth on Exhibit "F" hereto shall be deemed to be
"Proprietary Marks" only for so long as this
- 15 -
Agreement is in effect, and such Proprietary Marks shall revert to the exclusive
control of Owner as of the date of Termination.
"Proprietary Signage" shall mean any signage used in connection with the
-------------------
Hotel (including both interior and exterior signage, and including billboards
and other signage not located on the Site) which contains one or more
Proprietary Marks; any signage which contains the word "Marriott" shall
automatically be deemed to be Proprietary Signage.
"Prospectus" shall have the meaning set forth in Section 20.05.
----------
"Qualified Lender" shall mean any Holder, from time to time, of any
----------------
Qualified Loan with respect to which Management Company has received a written
notice (pursuant to Section 20.09 of this Agreement) stating: (i) the name and
address of such Holder; and (ii) that such Holder is a "Qualified Lender"
pursuant to the terms of this Agreement.
"Qualified Loan" shall mean any Secured Loan in which the initial principal
--------------
amount, as of the date such Secured Loan is incurred, when added to the current
principal balance of all existing Secured Loans and any then-remaining Existing
Non-Mortgage Loans as of that date, is less than or equal to the greater of the
following:
(i) Seventy percent (70%) of Owner's Investment; or
(ii) the result obtained by (a) dividing the Operating Profit for the
thirteen (13) most recent full Accounting Periods by the Coverage
Ratio; then, (b) multiplying the result of clause (a) by the
Capitalization Multiple; or
(iii) the existing balance of any Secured Loans encumbering the Hotel plus
the existing balance of any then-remaining Existing Non-Mortgage Loans
immediately prior to the date of the incurrence of such Qualified Loan,
plus commercially reasonable Transaction Costs associated with such
refinancing up to an amount equal to four percent (4%) of the principal
amount of such Qualified Loan.
In addition, regardless of whether or not the above test set forth in clauses
(i), (ii) and (iii) is satisfied, (a) the existing (as of the Effective Date)
balance of any Secured Loan which is secured by an Existing Mortgage shall be
deemed to be a "Qualified Loan"; and (b) any Secured Loan which is secured by a
Mortgage and with respect to which Management Company, in it sole discretion,
shall have given its written approval shall be deemed
- 16 -
to be a "Qualified Loan" (provided that an approval by Management Company that a
given Secured Loan shall be deemed to be a Qualified Loan hereunder shall only
apply to the specific hotel or hotels which are described in such approval, and
shall not be deemed to be an approval with respect to other hotels, regardless
of whether such Secured Loan by its terms permits the substitution or addition
of such other hotels as security for such Secured Loan).
"Renewal Term" shall have the meaning set forth in Section 4.01 A.
------------
"Required Capital Expenditures" shall have the meaning set forth in Section
-----------------------------
8.03 A.
"ROI Capital Expenditures" shall mean such Capital Expenditures as are
------------------------
required, in Management Company's reasonable judgment, to keep the Hotel in a
competitive, efficient and economical operating condition (which Management
Company shall substantiate by demonstrating a reasonable return on the proposed
investment to be made by Owner), in accordance with the Marriott Standards;
provided that the term "ROI Capital Expenditures" shall in no event include
expenditures which are within the definition of Required Capital Expenditures.
"Sale/leaseback Transaction" shall have the meaning set forth in Section
--------------------------
6.09.
"Sale of the Hotel" shall mean any sale, assignment, transfer or other
-----------------
disposition, for value or otherwise, voluntary or involuntary, of Owner's title
to the Hotel or the Site (either fee or leasehold title, as the case may be),
but shall not include a collateral assignment intended to provide security for a
loan. For purposes of this Agreement, a "Sale of the Hotel" shall also include
a lease (or sublease) of the entire Hotel or Site. The phrase "Sale of the
Hotel" shall also include any sale, transfer, or other disposition, for value or
otherwise, in a single transaction or a series of related transactions, of the
controlling interest in Owner. If Owner is a corporation, the phrase
"controlling interest" shall mean the right to exercise, directly or indirectly,
fifty percent (50%) or more of the voting rights attributable to the shares of
Owner (through ownership of such shares or by contract). If Owner is not a
corporation, the phrase "controlling interest" shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of Owner. Notwithstanding the foregoing, the term "Sale
of the Hotel" shall not include any sale, assignment, transfer or other
disposition of the Hotel or the Site by Owner to an Affiliate of Owner.
- 17 -
"Second Notice" shall have the meaning set forth in Section 6.02.
-------------
"Secured Loan" shall mean and include (a) any indebtedness secured by a
------------
Mortgage encumbering the Hotel or all or any part of Owner's interest therein;
(b) all amendments, modifications, supplements and extensions of any such
Mortgage; and (c) the Existing Mortgage.
"Secured Loan Acceleration" shall mean the acceleration of the indebtedness
-------------------------
incurred pursuant to any Secured Loan, as a result of a default under the terms
and conditions of such Secured Loan.
"Seller" shall have the meaning set forth in Section 6.09.
------
"Settlement Threshold Amount" shall mean the greater of (i) One Hundred
---------------------------
Thousand Dollars ($100,000) (as adjusted by the GDP Deflator); or (ii) a dollar
amount (to be re-determined whenever reasonably necessary) equal to the highest
amount paid in a representative sampling of Employee Claims which have been
settled within the preceding twelve (12) months, where each of such settlements
can be reasonably characterized as being (i) within the normal course of
business at the Hotel, and (ii) within the range of similar settlements at other
hotels comparable to the Hotel. Any dispute between the parties as to the
appropriate amount under clause (ii) of the preceding sentence shall be
submitted to arbitration under Section 20.13.
"Site" shall mean the parcel or parcels of land described in Exhibit "A"
----
attached hereto.
"Soft Goods" shall mean all fabric, textile and flexible plastic products
----------
(not including items which are classified as "Fixed Asset Supplies" under the
Uniform System of Accounts) which are used in furnishing the Hotel, including,
without limitation: carpeting, drapes, bedspreads, wall and floor coverings,
mats, shower curtains and similar items.
"Software" shall mean all computer software and accompanying documentation
--------
(including all future upgrades, enhancements, additions, substitutions and
modifications thereof), other than computer software which is commercially
available, which are used by Management Company in connection with the property
management system, the reservation system and all future electronic systems
developed by Management Company for use in the Hotel.
"Subsequent Owner" shall mean any individual or entity which acquires title
----------------
to or possession of the Hotel at or through a Foreclosure.
- 18 -
"Telephones and Miscellaneous Equipment" shall mean the following equipment
--------------------------------------
used in the Hotel and all ancillary equipment: (i) telephones; (ii)
miscellaneous office equipment such as copiers, postage meters, etc.; (iii)
television sets; and (iv) audio-visual equipment.
"Term" shall mean the Initial Term plus all Renewal Terms.
----
"Termination" shall mean the expiration or sooner cessation of this
-----------
Agreement.
"Transaction Costs" shall mean, with respect to the incurring of any
-----------------
Secured Loan, all normal transaction costs (to the extent actually incurred)
including, without limitation, the following: state and local transfer taxes;
escrow fees; recording costs; Mortgage recording taxes; costs of any survey;
reasonable fees of the Holder's outside attorneys and accountants; appraisal
fees; title insurance premiums; financing costs (including "points"); reasonable
attorneys' fees of Owner in connection with such Secured Loan; environmental
inspection, testing and reporting fees; and brokerage commissions (provided that
no such brokerage commissions shall be recognized as "Transaction Costs"
hereunder if they are made to a person or entity affiliated with Owner, to the
extent (if any) that such payments exceed the normal customary amounts).
"Uniform System of Accounts" shall mean the Uniform System of Accounts for
--------------------------
Hotels, Eighth Revised Edition, 1986, as published by the Hotel Association of
New York City, Inc.
"Working Capital" shall mean assets which are used in the day-to-day
---------------
operation of the Hotel's business, including, without limitation, amounts kept
in petty cash funds, amounts deposited in operating bank accounts, receivables,
prepaid expenses and funds expended to purchase Inventories, less accounts
payable and accrued current liabilities.
END OF ARTICLE I
- 19 -
ARTICLE II
APPOINTMENT OF MANAGEMENT COMPANY
---------------------------------
2.01 Appointment
-----------
Owner and Management Company intend to, and hereby do, terminate the Prior
Operating Lease, waive all obligations therein relating to termination thereof,
and enter into this Agreement in complete replacement thereof, all effective
immediately upon the Effective Date of this Agreement.
Owner hereby appoints and employs Management Company as Owner's exclusive
independent contractor to supervise, direct and control the management and
operation of the Hotel for the Term provided in Article IV. Management Company
accepts said appointment and agrees to manage the Hotel during the Term of this
Agreement in accordance with the terms and conditions hereinafter set forth.
The performance of all activities by Management Company hereunder shall be for
the account of Owner.
2.02 Delegation of Authority
-----------------------
Except as otherwise specifically set forth in this Agreement, Hotel
operations shall be under the exclusive supervision and control of Management
Company which, except as otherwise specifically provided in this Agreement,
shall be responsible for the proper and efficient operation of the Hotel.
Management Company shall have discretion and control, free from interference,
interruption or disturbance, but in all respects subject to the provisions of
this Agreement, in all matters relating to management and operation of the
Hotel, including, without limitation, the following: charges for rooms and
commercial space; credit policies; food and beverage services; employment
policies; granting of leases, licenses and concessions for shops and agencies
within the Hotel (provided that the term of any such lease, license or
concession shall not exceed the Term of this Agreement; and provided further
that Owner's consent shall be required prior to the execution by Management
Company of any such lease, license or concession which (i) has a term of more
than five (5) years, or (ii) involves more than one thousand (1,000) square feet
of space within the Hotel); 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 Hotel.
2.03 Operational Standards
---------------------
In accordance with the Marriott Standards and the other terms of this
Agreement, Management Company shall, in connection with the Hotel, perform each
of the following functions (provided
- 20 -
that in all cases, except as otherwise specifically set forth in this Agreement,
the costs and expenses of performing such functions shall be Deductions):
A. Obtain and keep in full force and effect, either in its own name on
behalf of Owner or in Owner's name, as may be required by the Legal
Requirements, any and all Licenses necessary for the operation of the Hotel, to
the extent the same is within the control of Management Company (or, if same is
not within the control of Management Company, Management Company shall use all
due diligence and reasonable efforts to obtain and keep same in full force and
effect).
B. Recruit, employ, supervise, direct and (when appropriate) discharge all
of the employees at the Hotel.
C. Establish and revise, as necessary, administrative policies and
procedures, including policies and procedures for the control of revenue and
expenditures, for the purchasing of supplies and services, for the control of
credit, and for the scheduling of maintenance, and verify that the foregoing
procedures are operating in a sound manner.
D. Plan, execute, and supervise repairs and maintenance at the Hotel.
E. Procure (on behalf of Owner) all Fixed Asset Supplies and Inventories.
F. Maintain the Operating Accounts.
G. Prepare and deliver Accounting Period Statements, Annual Operating
Statements, Annual Operating Budgets, Building Estimates, FF&E Estimates, and
such other budgets and reports as are required by this Agreement.
H. Establish prices, rates and charges for services provided in the Hotel,
including room rates.
I. On behalf of Owner, negotiate and enter into leases, concessions and
licenses for shops and other facilities within the Hotel; provided, however,
that notwithstanding any provision in this Agreement to the contrary, Management
Company shall not enter into any leases, licenses or concessions for shops or
other facilities or agencies at the Hotel for any "non-hotel use" (which shall
be defined as any use which is not ultimately for the benefit of the hotel
guest; permitting third parties to install cellular telephone and/or other
telecommunications antennas at the Hotel (other than to service Hotel equipment)
or entering into any lease, license or concession relating to conducting time-
share activities are examples of "non-hotel
- 21 -
uses") without the prior written consent of Owner, which consent may be withheld
in Owner's sole discretion.
J. Administer the leases, concessions and licenses for shops and other
facilities within the Hotel (whether entered into pursuant to subsection I,
above, or otherwise).
K. Provide the Central Office Services and the Chain Services.
L. Provide, or cause to be provided, risk management services relating to
the types of insurance required to be obtained or provided by Management Company
under this Agreement, provided that the costs and expenses of providing such
services are to be paid as described in Section 12.04 B.
M. Reasonably cooperate with Owner concerning (i) disputes with any Holder
regarding the Hotel, (ii) contests of Impositions and Legal Requirements, and
(iii) adjustments of insurance claims and condemnation awards involving the
Hotel.
N. Reasonably cooperate (provided that Management Company shall not,
except as otherwise specifically set forth in Section 6.01, be obligated to
enter into any amendments of this Agreement) with Owner in any attempt(s) by
Owner to effectuate a Sale of the Hotel (provided that nothing herein shall
affect the provisions of Section 20.05) or a renewal, extension, amendment, or
refinancing of the Existing Mortgage or the Existing Non-Mortgage Loans, or to
obtain any Secured Loan. Such cooperation shall include, without limitation:
(i) answering any reasonable questions by prospective purchasers and Holders;
(ii) preparing lists and schedules of leases, concessions, FF&E, Fixed Asset
Supplies, Inventories, and similar items; and (iii) making such certifications
and representations to Owner, to such purchasers and to such Holders, regarding
the Hotel and the operation thereof, as Owner may reasonably request (taking
into account the extent of Management Company's control and responsibility
provided for hereunder). Owner shall promptly reimburse Management Company,
from its own funds and not as a Deduction, for the reasonable costs and expenses
incurred by Management Company in connection with any actions necessary to
comply with the requirements of this Section 2.03 N, provided that such actions
are not otherwise required under other provisions of this Agreement.
O. Arrange for and supervise public relations and advertising, and prepare
annual marketing plans.
P. Endeavor to manage the timing of expenditures to replenish Inventories,
Fixed Asset Supplies, payments on accounts payable and collections of accounts
receivable, so as to avoid or
- 22 -
minimize any cash deficits with respect to Hotel operations, which deficits
would otherwise require additional funding of Working Capital by Owner.
Q. Comply with all provisions in the Existing Ground Lease and in the
Existing Mortgage which are by their terms applicable to the operation of the
Hotel; provided, however, that all practices and procedures used by Management
Company in the operation of the Hotel as of the Effective Date shall be deemed
to be in compliance with the Existing Ground Lease and all Existing Mortgage;
but provided further, that if either the Ground Lessor or any Holder under an
Existing Mortgage shall, from time to time, notify Management Company that it
has determined that certain practices and procedures which are used by
Management Company in the operation of the Hotel are not in compliance with the
provisions of the Existing Ground Lease or such Existing Mortgage (as the case
may be), Management Company shall promptly alter such practices and procedures
to ensure such compliance; and provided further, that if such compliance would
require work by Management Company which is beyond the normal course of Hotel
operations, or would impose additional financial burdens on the Hotel which are
beyond the normal course of Hotel operations, Owner (from its own funds, not as
a Deduction) shall compensate Management Company for such work and such
additional burdens.
2.04 Limitations on Authority
------------------------
Notwithstanding anything in Section 2.02 or elsewhere in this Agreement to
the contrary (unless otherwise stated in this Section 2.04), and in addition to
the various other provisions of this Agreement which prohibit Management Company
from taking certain actions or which allow certain actions only if Owner's
consent thereto has been obtained, Management Company shall not, without the
prior written approval of Owner, which approval Owner may withhold in its sole
discretion, perform any of the following actions in connection with the Hotel
and on behalf of or burdening Owner:
1. Acquiring any land or interest therein;
2. Acquiring any capital assets or interest therein except (i) items
in the approved Building Estimate, and (ii) FF&E, Fixed Asset Supplies and
Inventories (to the extent the same constitute capital assets) in the ordinary
course of business as expressly provided for in this Agreement;
3. Financing, refinancing or mortgaging of any portion of the Hotel
or the revenue due to Owner therefrom;
- 23 -
4. Selling (other than dispositions of FF&E, Fixed Asset Supplies and
Inventories in the ordinary course of business as expressly provided for in this
Agreement), leasing (other than as expressly provided for in this Agreement), or
other transferring of, or the pledging or placing of any lien or encumbrance on,
any part of the Hotel;
5. In the event of a total or partial condemnation, consenting to any
award or participating in any condemnation proceeding, except as expressly
provided for in this Agreement;
6. Entering into, modifying or terminating any lease, concession or
license, except to the extent permitted under Section 2.02;
7. Adjusting any claim or settling any Litigation which (a) is not
covered by any of the insurance policies described in Article XII and is not an
Employee Claim, and which would result in a Deduction or payment in excess of
Five Hundred Thousand Dollars ($500,000) in any Fiscal Year, as adjusted by the
GDP Deflator, or (b) would impose on Owner any material liability or obligation
other than the payment of money, or would require Owner to make any material
admission; or
8. Adjusting any claim, under the applicable property insurance
policies, regarding injury or damage to the Hotel or its contents, where the
estimated cost of restoration is in excess of One Million Dollars ($1,000,000),
as adjusted by the GDP Deflator.
2.05 Covenants, Conditions or Restrictions
-------------------------------------
A. As of the Effective Date, there are existing covenants, conditions,
restrictions and/or agreements, including reciprocal easements or cost-sharing
arrangements (all of the foregoing types of encumbrances on the Hotel, or
agreements relating to the Hotel, whether existing as of the Effective Date or
not, shall be collectively referred to as "CC&R's"; those CC&R's which are in
existence as of the Effective Date, and which are referenced in the title
insurance policy, a copy of which is attached hereto as Exhibit "G", shall be
referred to in this Agreement as "Existing CC&R's"). Management Company hereby
gives its consent to all Existing CC&R's. All costs, expenses and charges which
are imposed on the Hotel under the Existing CC&R's shall be paid from Gross
Revenues as Deductions; provided, however, that any such costs, expenses or
changes which are treated under generally-accepted accounting principles as
"capital expenditures" (for example, building a common roadway) shall be treated
as expenditures under Section 8.03 for purposes of this Agreement.
- 24 -
B. CC&R's which are entered into, or become encumbrances on the Hotel
and/or the Site, after the Effective Date shall be referred to in this Agreement
as "Future CC&R's." Owner agrees that it will give Management Company written
notice of its intention to execute any Future CC&R's, such notice to be
reasonably in advance of the execution thereof. Owner covenants that, during
the Term of this Agreement, there will not be (unless Management Company has
given its prior written consent thereto) any Future CC&R's affecting the Site or
the Hotel: (i) which purport to impose any material financial obligations on
the Hotel; (ii) which would prohibit or limit Management Company from operating
the Hotel, including cocktail lounges, restaurants and other facilities
customarily a part of or related to a first-class hotel, in accordance with the
Marriott Standards; or (iii) which would allow Hotel facilities (for example,
parking spaces) to be used by persons other than guests, invitees or employees
of the Hotel.
C. All financial obligations imposed on Owner or on Management Company or
on the Hotel pursuant to any Future CC&R's shall be paid by Owner from its own
funds, and not from Gross Revenues or from the FF&E Reserve, unless Management
Company has given its prior written consent to such Future CC&R's. Management
Company agrees that it will not unreasonably withhold its consent to any such
Future CC&R's; provided, however, that Management Company shall be entitled to
withhold its consent in its discretion if a proposed Future CC&R would have a
material impact on the operation of the Hotel, as described in clauses (i), (ii)
or (iii) of Section 2.05 B.
2.06 Licenses and Permits
--------------------
Owner agrees that, upon request by Management Company, it will sign
promptly and without charge applications for Licenses necessary for operation of
the Hotel.
END OF ARTICLE II
- 25 -
ARTICLE III
HOTEL
-----
3.01 Ownership Interest in Site, Hotel, and Golf Course B
----------------------------------------------------
A. Owner hereby represents that: (i) it has no reason to believe that
title to the Site and the Hotel is other than as set forth in the title policy,
a copy of which is attached as Exhibit "G" hereto; and (ii) that it has
purchased title insurance with regard to such title, as described in said
Exhibit "G". Owner hereby covenants that, throughout the Term of this
Agreement, it will not change the status of title to the Site from that which is
in existence as of the Effective Date (as described on Exhibit "G" hereto),
except that Owner shall have the right either (i) to effectuate a Sale of the
Hotel in accordance with Article XIX, or (ii) to encumber the Site and the Hotel
with the following:
1. Mortgages which are given to secure any one or more Qualified
Loans;
2. Liens for Impositions or other public charges not yet due or which
are being contested in good faith; and
3. Easements or other encumbrances (not including those described in
subsection 1 or 2 above) which do not adversely affect the operation of the
Hotel by Management Company and which are not prohibited pursuant to Section
2.05 B of this Agreement. (Management Company acknowledges that the Hotel is
subject to an agreement with homeowners owning lots adjoining the Golf Courses
giving them rights to use certain Hotel facilities.)
Notwithstanding the foregoing, Owner specifically covenants that it will
keep and maintain title free and clear of any and all mortgages, deeds of trust,
or similar security instruments unless such documentation contains a provision
reasonably acceptable to Management Company'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, deed of trust, or
security instrument.
B. Provided Management Company is not in default under this Agreement,
Owner shall pay and discharge, on or before the due date, any and all
installments of principal and interest due and payable on any Secured Loan, and
all payments on other loans secured by the Hotel, including debt owed Management
Company or its Affiliates. Owner shall indemnify Management Company from and
against all claims, litigation, and damages arising from the
- 26 -
failure to make such payments as and when required, except for claims,
litigation, or damages resulting from Management Company's default under this
Agreement.
END OF ARTICLE III
- 27 -
ARTICLE IV
TERM
----
4.01 Term
----
A. The initial term ("Initial Term") of this Agreement shall commence with
the Effective Date and, unless sooner terminated as herein provided, shall
continue through the end of Fiscal Year 2022. The term thereafter shall be
renewed by Management Company automatically (on the same terms and conditions
contained herein) for each of four (4) successive periods of ten (10) Fiscal
Years (the "Renewal Terms"), unless Management Company exercises its option to
terminate this Agreement by giving Owner, in accordance with Section 20.09,
written notice to that effect not less than twenty-four (24) months before the
expiration of the then-current term. Notwithstanding the foregoing, if
Management Company provides such notice during such twenty-four (24) month
period (and before the expiration of the then-current term), the termination
shall be effective on a date that is twenty-four (24) months after the giving of
such notice. Management Company's renewal shall be effective only if at the
time of commencement of such Renewal Term Management Company is not in default
under this Agreement or, if Management Company is in default, such default is
being cured as provided in Section 16.02.
B. If Owner has the right, under the provisions of the Existing Ground
Lease, to elect to renew or extend the term of the Existing Ground Lease, Owner
shall so notify Management Company at least one hundred eighty (180) days (but
no more than one (1) year) prior to the expiration of the period within which
Owner is obligated to notify the Ground Lessor of its election to renew or
extend the term of the Existing Ground Lease. Such notice from Owner shall
contain all of the relevant facts about the impending election to renew or
extend, including the length of the period of renewal or extension. Unless
Management Company notifies Owner, within a period of ninety (90) days after
receipt of the foregoing notice from Owner, that Management Company disapproves
the renewal or extension of the term of the Existing Ground Lease, Owner will,
by proper notice to the Ground Lessor, within the applicable time period under
the Existing Ground Lease, elect to renew or extend the term of the Existing
Ground Lease.
C. If, after proper notice from Owner in accordance with Section 4.01 B,
Management Company fails to disapprove the renewal or extension of the term of
the Existing Ground Lease, the Term of this Agreement shall be deemed to be
automatically extended to the later of: (i) the expiration of the term of the
Existing Ground Lease, as renewed or extended in accordance with Section 4.01 B;
or (ii) the date on which the Term of this
- 28 -
Agreement would otherwise have expired absent this sentence. If, in order to
comply with the preceding sentence, it is necessary for Management Company to
waive its option not to renew with respect to one or more Renewal Terms, such
waiver shall be deemed to have been given; however, Management Company shall
retain the right not to renew (as more particularly described in Section 4.01 A)
as to any portion of such Renewal Term which would occur after the expiration of
the term of the Existing Ground Lease, as renewed or extended in accordance with
Section 4.01 B.
4.02 Actions to be Taken Upon Termination
------------------------------------
Upon a Termination of this Agreement, the following shall be applicable:
A. Management Company shall, within sixty (60) days after Termination of
this Agreement, prepare and deliver to Owner a final accounting statement with
respect to the Hotel, as more particularly described in Section 9.01 hereof,
along with a statement of any sums due from Owner to Management Company pursuant
hereto, dated as of the date of Termination. Within thirty (30) days after the
receipt by Owner of such final accounting statement, the parties will make
whatever cash adjustments are necessary pursuant to such final statement. The
cost of preparing such final accounting statement shall be a Deduction, unless
the Termination occurs as a result of an Event of Default by either party, in
which case the defaulting party shall pay such cost. Management Company and
Owner acknowledge that there may be certain adjustments for which the necessary
information will not be available at the time of such final accounting, and the
parties agree to readjust such amounts and make the necessary cash adjustments
when such information becomes available; provided, however, that (unless there
are ongoing disputes of which each party has received notice) all accounts shall
be deemed final as of one hundred eighty (180) days after such Termination.
B. As of the date of the final accounting referred to in subsection A
above, Management Company shall release and transfer to Owner any of Owner's
funds which are held or controlled by Management Company with respect to the
Hotel, with the exception of funds to be held in escrow pursuant to Section
12.04 and Section 14.01 F. During the period between the date of Termination
and the date of such final accounting, Management Company shall pay (or reserve
against) all Deductions which accrued (but were not paid) prior to the date of
Termination, using for such purpose any Gross Revenues which accrued prior to
the date of Termination.
C. Management Company shall make available to Owner such books and
records respecting the Hotel (including those from
- 29 -
prior years, subject to Management Company's reasonable records retention
policies) as will be needed by Owner to prepare the accounting statements, in
accordance with the Uniform System of Accounts, for the Hotel for the year in
which the Termination occurs and for any subsequent year. Such books and records
shall not include: (i) employee records which must remain confidential either
under Legal Requirements or under reasonable chain-wide corporate policies of
Management Company; or (ii) any Intellectual Property.
D. Management Company shall (to the extent permitted by Legal
Requirements) assign to Owner, or to any other manager employed by Owner to
operate and manage the Hotel, all operating Licenses for the Hotel which have
been issued in Management Company's name; provided that if Management Company
has expended any of its own funds in the acquisition of any of such Licenses,
Owner shall reimburse Management Company therefor if it has not done so already.
E. All Proprietary Signage shall be removed by Management Company from
the Hotel and from the Site (and from any locations other than the Site). The
cost of such removal shall be a Deduction, unless the Termination occurs either:
(i) as a result of an Event of Default by either party, in which case the
defaulting party shall pay the cost of such removal from its own funds, and not
as a Deduction; or (ii) as a result of Management Company's election not to
renew the Term, as of the expiration of either the Initial Term or any Renewal
Term (as the case may be), in which case Management Company shall pay the cost
of such removal from its own funds, and not as a Deduction.
F. Various other actions shall be taken, as described in this Agreement,
including, but not limited to, the actions described in Sections 7.01, 10.02,
10.03, 10.04, 12.04 B, and 14.01 F.
G. Management Company shall cooperate with the new operator of the Hotel
as to effect a smooth transition and shall peacefully vacate and surrender the
Hotel to Owner.
The provisions of this Section 4.02 shall survive any Termination.
4.03 Performance Termination
-----------------------
A. Owner may terminate this Lease if, in any two (2) of three (3)
consecutive Fiscal Years, Operating Profit is less than fifteen million dollars
($15,000,000). If Owner exercises such option to terminate, it shall do so by
written notice served on Management Company in accordance with Section 20.09
within sixty (60) days following receipt of the annual statement described in
- 30 -
Section 9.01 for the second consecutive Fiscal Year in which there is an
Operating Profit of less than $15,000,000.
B. Management Company may avoid Termination under subsection A by paying
Owner, within sixty (60) days after receipt of notice of Owner's exercise of its
option to terminate, an amount equal to the difference between $15,000,000 and
Operating Profit for each of such two Fiscal Years. The maximum amount
Management Company shall be required to pay Owner under this subsection shall
equal $15,000,000 per Fiscal Year. Upon making such payment, the exercise of
Owner's option under subsection A shall be deemed null and void for the
applicable period to which such option related, and this Agreement shall
continue in full force and effect. Any amounts so paid by Management Company
under this Section shall be recovered in the manner set forth in the definition
of "Incentive Management Fee" or as set forth in Section 19.01 C, as
appropriate.
C. If Owner exercises its right to terminate this Agreement under
subsection A, and Management Company does not prevent Termination as provided in
subsection B, this Agreement shall terminate in accordance with Section 4.02 as
of the date one hundred and fifty (150) days after Management Company receives
Owner's notice of its exercise of its option to terminate, provided that such
period of time shall be extended as required by applicable Legal Requirements
pertaining to the termination of the employment of the employees at the Hotel.
END OF ARTICLE IV
- 31 -
ARTICLE V
COMPENSATION OF MANAGEMENT COMPANY; DISTRIBUTIONS
-------------------------------------------------
5.01 Management Fees
---------------
In consideration of services to be performed during the Term of this
Agreement, Management Company shall retain the Management Fees. All monies to
which Management Company was entitled pursuant to Article 4 of the Prior
Operating Lease that was accrued or deferred, but not paid, prior to the
Effective Date shall be waived by Management Company.
5.02 Accounting and Interim Payments
-------------------------------
A. On or before the twentieth (20th) day after the close of each
Accounting Period, Management Company shall deliver to Owner a reasonably
detailed accounting statement (the "Accounting Period Statement") in
substantially the form set forth in Exhibit "B" hereto. Upon Owner's written
request therefor, Management Company shall forward copies of any such Accounting
Period Statement to any Qualified Lenders or Ground Lessors, at the addresses
specified by Owner. Such Accounting Period Statement shall set forth the
results of the operations (by department) of the Hotel for the preceding
Accounting Period and for the Fiscal Year-to-date, all in accordance with
generally accepted accounting principles applied on a consistent basis. Each
Accounting Period Statement shall be accompanied by a statement, by either the
controller of the Hotel or Management Company's regional controller, that, to
the best of his or her knowledge and belief, and subject to routine year-end
audit and adjustment, such Accounting Period Statement is true and correct in
all material respects. Each Accounting Period Statement shall include: (i)
calculations of Gross Revenues, Deductions, Operating Profit, the Management
Fees; and (ii) comparisons with the applicable Annual Operating Budget. With
each such Accounting Period Statement, Management Company shall transfer any
interim Owner's Distribution due to Owner, and shall retain any interim
Management Fees due to Management Company.
B. Calculations and payments of the Management Fees and the Owner's
Distribution with respect to each Accounting Period within a Fiscal Year shall
be accounted for cumulatively. Within seventy-five (75) days after the close of
each Fiscal Year, Management Company shall submit an Annual Operating Statement,
as more fully described in Section 9.01, for such Fiscal Year to Owner, which
Annual Operating Statement shall be controlling over the interim Accounting
Period Statements. Any adjustments or payments required by any such Annual
Operating Statement shall be made promptly by the parties. Operating Losses
shall not be carried forward or backward to subsequent or prior Fiscal Years.
- 32 -
C. [Intentionally omitted]
D. [Intentionally omitted]
END OF ARTICLE V
- 33 -
ARTICLE VI
FINANCING OF THE HOTEL
----------------------
6.01 Amendments of Management Agreement
----------------------------------
A. If requested by any Qualified Lender or prospective Qualified Lender,
Management Company agrees to execute and deliver any amendment of this Agreement
which is reasonably required by such Qualified Lender or prospective Qualified
Lender, provided that Management Company shall be under no obligation to amend
this Agreement if the result of such amendment would be: (i) to reduce, defer
or delay the amount of any payment to be made to Management Company hereunder;
(ii) to materially increase Management Company's obligations under this
Agreement; (iii) to change the Term of this Agreement; (iv) to cause the Hotel
to be operated other than pursuant to the Marriott Standards; (v) to amend
materially either Section 8.02 or Section 14.01; or (vi) to otherwise materially
affect Management Company's rights under this Agreement. Any such amendment
shall take effect as of the funding of such Qualified Loan.
B. In addition to the provisions of Section 6.01 A, if a Qualified Lender
or prospective Qualified Lender requests that Management Company enter into an
amendment of this Agreement, and if such amendment would impose additional
duties (for example, an increase in the reporting requirements or in the record-
keeping requirements, or adding the obligation to prepare parallel accounting
statements using a different fiscal year) on Management Company or would
otherwise adversely affect Management Company's rights under this Agreement, but
not to the degree described in clauses (i) through (vi) of Section 6.01 A,
Management Company hereby agrees that it will execute and deliver such requested
amendment of this Agreement, provided that Owner compensates Management Company
for the additional burden imposed by such amendment. It is understood that the
word "burden", as used in the preceding sentence, shall encompass not only
additional work to be performed by Management Company, but also the adverse
effect on the Incentive Management Fee which would be caused by requiring
increased services by third parties. Any dispute as to whether Management
Company is entitled to any compensation pursuant to this Section 6.01 B, or as
to the amount of such compensation, shall be resolved by arbitration pursuant to
Section 20.13.
C. Proposed amendments to this Agreement which are requested by any
Qualified Lender or prospective Qualified Lender, and which would affect the
insurance provisions set forth in Article XII, shall be governed exclusively by
Article XII.
- 34 -
6.02 Notice and Opportunity to Cure
------------------------------
A. In the event of (i) a Default by Owner in the performance or observance
of any of the terms and conditions of this Agreement, or (ii) any other
occurrence which entitles Management Company to terminate this Agreement, and in
the event that Management Company gives written notice thereof to Owner pursuant
to Article XVI of this Agreement, Management Company shall also give a duplicate
copy (herein referred to as the "First Notice") of such notice to each Qualified
Lender, at the address(es) previously provided to Management Company. Any such
notice will be sent in the manner described in Section 20.09 hereof. In
addition, in the event that such Default is not cured within the applicable cure
period under Article XVI of this Agreement, and Management Company intends to
exercise its remedy of terminating this Agreement, Management Company shall send
a second notice (the "Second Notice") to each Qualified Lender, to the same
address(es) and in the same manner applicable to the First Notice, stating
Management Company's intention to terminate this Agreement. Management Company
shall forbear from taking any action to terminate this Agreement for a period of
thirty (30) days after the service of the First Notice, and for an additional
period of thirty (30) days after the service of the Second Notice (if such
Second Notice is required, as set forth above).
B. In the event of a Default by Owner under the provisions of this
Agreement, Management Company agrees to accept performance by any Qualified
Lender with the same force and effect as if same were performed by Owner, in
accordance with the provisions and within the cure periods prescribed in this
Agreement (except that each Qualified Lender shall have such additional cure
periods, not available to Owner, as are set forth in this Section 6.02).
C. No notice given by Management Company to Owner shall be effective as a
notice under Article XVI of this Agreement unless the applicable duplicate
notice to each Qualified Lender which is required under Section 6.02 A (either
the First Notice or the Second Notice, as the case may be) has been given. It
is understood that any failure by Management Company to give such a duplicate
notice (either the First Notice or the Second Notice, as the case may be) to any
Qualified Lender shall not itself be a Default by Management Company under this
Agreement, but rather shall operate only to void the effectiveness of any such
notice by Management Company to Owner under Article XVI of this Agreement.
D. Except as specifically limited by this Section 6.02, nothing herein
shall preclude Management Company from exercising any of its rights or remedies
against Owner with respect to any Default by Owner under this Agreement.
- 35 -
6.03 Assignment of Management Agreement
----------------------------------
Owner shall have the right to collaterally assign to any Qualified Lender,
as additional security for the indebtedness evidenced by a Qualified Loan, all
of Owner's right, title and interest in and to this Agreement, including the
right to distributions payable to Owner pursuant to Article V thereof. If,
pursuant to any such assignment (or subsequent loan documentation entered into
between Owner and a Qualified Lender with a similar purpose), and provided that
Management Company has previously received a copy of such assignment and such
subsequent documentation, Management Company may receive (from time to time) a
notice or notices from such Qualified Lender directing Management Company to pay
to such Qualified Lender subsequent distributions under Article V of this
Agreement which would otherwise be payable to Owner, Management Company shall
comply with any such notice. Management Company shall continue to make payments
in compliance with any such notice from such Qualified Lender until Management
Company receives written instructions to the contrary from such Qualified
Lender. Owner hereby gives its consent to any such payments by Management
Company to such Qualified Lender which are in compliance with any such notice.
The foregoing consent by Owner shall be deemed to be irrevocable until the
entire Qualified Loan has been discharged, as evidenced either by the
recordation of a satisfaction or release executed by such Qualified Lender, or
by the delivery of a written statement to that effect from such Qualified Lender
to Management Company. Management Company shall comply with the direction set
forth in any such notice without any necessity to investigate why such Qualified
Lender sent such notice, or to confirm whether or not Owner is in fact in
default under the terms of such Qualified Loan. If Management Company receives
such notices from more than one Qualified Lender, Management Company shall (at
its option) either (i) comply with the provisions of the notice sent by the
Qualified Lender whose Qualified Loan has the senior lien priority, or (ii)
institute Litigation for a declaratory judgment to determine to whom payments
under this Agreement shall be made (in which case, the costs and expenses of
such Litigation, including attorneys' fees, shall be Deductions).
6.04 Subordination of Management Agreement
-------------------------------------
A. This Agreement, and Management Company's right to continue to manage
and operate the Hotel pursuant to this Agreement, are and shall be subject and
subordinate to the lien of any Qualified Loan (i.e., upon a Foreclosure of any
such Qualified Loan, such Qualified Lender, at its option, unless it has
otherwise agreed to the contrary in a Non-Disturbance Agreement, shall have the
right to terminate this Agreement). Notwithstanding the foregoing, during the
Term of this Agreement,
- 36 -
all debt service (including increased or accelerated payments after a default)
payable with respect to any Qualified Loan shall be paid exclusively from
Owner's Distribution.
B. Section 6.04 A is intended to be, and is, fully effective and binding,
as between Management Company and any such Qualified Lender; however, Management
Company agrees to execute such confirmatory documentation (in recordable form in
the jurisdiction in which the Hotel is located) as such Qualified Lender shall
reasonably request.
C. Notwithstanding the possible termination of this Agreement which is set
forth in the foregoing provisions of this Section 6.04, it is understood that,
until such time as this Agreement is validly terminated either (i) pursuant to
the applicable provision of this Agreement, or (ii) pursuant to a court order in
connection with the Foreclosure of a Qualified Loan (assuming that such
termination does not breach any binding Non-Disturbance Agreement), the Holder
of each Qualified Loan will honor and recognize the right of Management Company
to operate the Hotel in accordance with this Agreement (including the right of
Management Company to collect all Gross Revenues and to make expenditures in
accordance with this Agreement).
6.05 Non-Disturbance Agreement
-------------------------
A. Owner agrees that, in connection with the obtaining by Owner of any
Secured Loan or Secured Loans, from time to time, Owner will use good faith
reasonable efforts to obtain a Non-Disturbance Agreement from each Holder or
Holders. The phrase "good faith reasonable efforts" shall be determined by
reference to the following: (i) normal loan underwriting procedures and
practices (including those practices relating to non-disturbance agreements)
which are generally being implemented by entities which are making loans similar
to such Secured Loan, as of that point in time; and (ii) the concessions which
Management Company is, as of that point in time, reasonably prepared to make in
order to satisfy the objectives of lenders in connection with the lender-manager
relationship after a Foreclosure. In no event, however, shall the failure of
Owner to obtain such a Non-Disturbance Agreement affect or modify any of the
responsibilities of Management Company toward Qualified Lenders which are
contained elsewhere in this Article VI.
B. Notwithstanding Section 6.05 A, Owner agrees that, prior to obtaining
any Qualified Loan, it will obtain from each prospective Holder or Holders
thereof a Non-Disturbance Agreement pursuant to which Management Company's
rights under this Agreement will not be disturbed as a result of a loan default
stemming from non-monetary factors which (i) relate to Owner and do not relate
solely to the Hotel, and (ii) are not Defaults by
- 37 -
Management Company under Article XVI of this Agreement. If Owner desires to
obtain a Qualified Loan, Management Company, on written request from Owner,
shall promptly identify those provisions in the proposed loan documents which
fall within the categories described in clauses (i) and (ii) above, and
Management Company shall otherwise assist in expediting the preparation of an
agreement between the prospective Holder and Management Company which will
implement the provisions of this Section 6.05 B.
6.06 Attornment
----------
A. Management Company agrees that, subject to the provisions of Section
6.06 B, upon a Foreclosure of any Qualified Loan, provided that this Agreement
has not expired or otherwise been earlier terminated in accordance with its
terms, Management Company shall attorn to any Subsequent Owner and shall remain
bound by all of the terms, covenants and conditions of this Agreement for the
balance of the remaining Term (including any Renewal Terms) with the same force
and effect as if such Subsequent Owner were the "Owner" under this Agreement;
provided, however, that Management Company shall be under no such obligation to
so attorn, and, to the contrary, shall thereupon have the right to terminate
this Agreement on thirty (30) days' prior written notice to both Owner and such
Subsequent Owner: (i) if such Subsequent Owner would not qualify as a permitted
transferee under Section 19.01 A of this Agreement; or (ii) unless such
Subsequent Owner, within twenty (20) days after the Foreclosure Date (or, in the
event such Subsequent Owner acquires title to the Hotel after the Foreclosure
Date, within twenty (20) days after the date of such acquisition of title to the
Hotel), assumes all of the obligations of the "Owner" under this Agreement which
arise from and after the Foreclosure Date (or such later date of acquisition of
title to the Hotel), pursuant to a written assumption agreement which shall be
delivered to Management Company. Upon the written request of any Qualified
Lender, Management Company shall periodically execute and deliver a statement,
in a form reasonably satisfactory to such Qualified Lender, reaffirming
Management Company's obligation to attorn as set forth in this Section 6.06 A.
B. It is understood by the parties that, in view of the fact that a
Qualified Lender will have the right to terminate this Agreement on a
Foreclosure under the provisions of Section 6.04, Management Company has an
interest in being informed, within a reasonable period of time after a Secured
Loan Acceleration, of whether or not such Qualified Lender intends to exercise
such right of termination. Accordingly, if, by no later than that date (the
"Post-Foreclosure Decision Date") which is ninety (90) days after the date of
any Secured Loan Acceleration, Management Company has not received a Non-
Disturbance Agreement
- 38 -
executed by the Holder of such Secured Loan, Management Company shall, as of the
Post-Foreclosure Decision Date and thereafter, no longer be under any obligation
to attorn (pursuant to the provisions of Section 6.06 A) with respect to any
Foreclosure of that Secured Loan, and Management Company shall have the option
to terminate this Agreement, by written notice to both Owner and the Holder of
each existing Qualified Loan, at any time within the sixty (60) day period
immediately following the Post-Foreclosure Decision Date.
6.07 No Modification or Termination of Agreement
-------------------------------------------
If the documents evidencing and securing a Qualified Loan require the
consent of the Qualified Lender to any amendment or modification of this
Agreement which materially affects such Qualified Lender, no such amendment or
modification of this Agreement shall be binding or effective unless such
Qualified Lender shall have consented in writing thereto.
6.08 Owner's Right to Finance the Hotel
----------------------------------
Owner shall have the right, from time to time, without Management Company's
prior consent or approval, to obtain Qualified Loans, and to encumber the Hotel
with Mortgages securing such Qualified Loans. Owner shall not, without the
prior consent of Management Company, have the right to obtain Secured Loans
which are not Qualified Loans.
6.09 Sale/Leaseback Transactions
---------------------------
Any single transaction or related series of transactions in which (i)
Owner's interest in the Hotel is sold or transferred by the then-Owner
("Seller") to a buyer ("Buyer"), and (ii) the Buyer (as "landlord") leases the
Hotel to the Seller (as "tenant"), is hereby defined as a "Sale/leaseback
Transaction". With respect to each Sale/leaseback Transaction during the Term
of this Agreement, the following provisions will apply: (a) the sale or
transfer of the Hotel will be considered a Sale of the Hotel; however, the
Seller (as tenant under the aforesaid lease), not the Buyer, shall thereafter be
treated as the "Owner" for purposes of this Agreement; (b) the purchase price
will not be a Secured Loan, but any mortgage financing placed (either at the
time of the transaction or later) on the Buyer's interest in the Hotel will be
treated as a Secured Loan, and the proceeds of each such Secured Loan will be
aggregated with all outstanding Secured Loans, which encumber either the Buyer's
interest in the Hotel or the Seller's leasehold interest in the Hotel, for
purposes of determining whether a given Secured Loan qualifies as a Qualified
Loan; (c) payments pursuant to such lease shall not be treated as Deductions,
except for Impositions and similar items which would have been treated as
Deductions in the absence of such
- 39 -
Sale/leaseback Transaction; and (d) all subsequent sales, transfers or
assignments of either Buyer's interest in the Hotel or Seller's interest in the
Hotel will be treated as Sales of the Hotel. Owner will not enter into any
Sale/leaseback Transaction unless Management Company and the proposed Buyer have
previously executed a mutually satisfactory attornment agreement pursuant to
which, as of the date of the termination of Seller's leasehold interest, the
provisions of this Agreement will (unless there has been an Event of Default or
other event entitling either party to terminate this Agreement) be binding both
on Management Company and on Buyer (as the successor "Owner"); such attornment
agreement will also contain an immediately-effective provision which will
incorporate the terms of Section 6.08 of this Agreement, binding both on
Management Company and on Buyer.
END OF ARTICLE VI
- 40 -
ARTICLE VII
WORKING CAPITAL AND FIXED ASSET SUPPLIES
----------------------------------------
7.01 Working Capital and Inventories
-------------------------------
A. As of the Effective Date, Management Company has provided the initial
Working Capital for the Hotel.
B. Management Company shall at all times provide the funds to supply the
Hotel with the amount of Working Capital and Inventories that Management Company
determines, in its reasonable business judgment, to be needed for the operation
of the Hotel. The Working Capital and Inventories of the Hotel shall be the
property of Management Company during the term of this Agreement and upon
Termination.
7.02 Fixed Asset Supplies
--------------------
As of the Effective Date, Management Company has provided the Hotel with
the Fixed Asset Supplies that are necessary to operate the Hotel in accordance
with the Marriott Standards. The cost of Fixed Asset Supplies expended during
the Hotel's operation shall be the responsibility of Management Company and
constitute a Deduction from Gross Revenues in determining Operating Profit. All
replacements of Fixed Asset Supplies shall be the property of Owner. Upon
Termination, Management Company shall be obligated to deliver to Owner such
Fixed Asset Supplies as are equal in quantity and comparable in quality to those
initially provided by Owner, subject to the provisions of Section 10.02.
END OF ARTICLE VII
- 41 -
ARTICLE VIII
REPAIRS, MAINTENANCE AND REPLACEMENTS
-------------------------------------
8.01 Repairs and Maintenance
-----------------------
A. Management Company shall maintain the Hotel as a first-class hotel, in
good repair and condition and in conformity with applicable laws and regulations
and the Marriott Standards, and shall make or cause to be made such maintenance
and routine repairs, replacements, and minor alterations as shall be necessary
for such purposes. The cost of such routine repairs, minor alterations, and
similar items that are expensed under generally accepted accounting practices,
other than those to be paid from the FF&E Reserve, shall be paid from Gross
Revenues and treated as a Deduction in computing Operating Profit.
B. Management Company shall (pursuant to a schedule) arrange for and
coordinate routine and other appropriate inspections of the structure and
exterior facade of the Hotel, and of the mechanical, electrical, heating,
ventilating, air conditioning, plumbing, and vertical transportation elements of
the Hotel. The costs of such inspections shall be treated as Deductions.
C. Management Company shall submit to Owner (at the same time as the
submission of the Annual Operating Budget) a signed copy of an annual report
summarizing all preventative maintenance activities (including repairs,
alterations and inspections conducted at the Hotel) on all building components
of the Hotel during the previous twelve (12) calendar months.
8.02 FF&E Reserve
------------
A. Management Company shall, on behalf of Owner, establish an escrow
account (the "FF&E Reserve") in a bank selected by Management Company, subject
to Owner's approval, which shall be funded as set forth in Section 8.02 B, to
cover the cost of (1) replacements and renewals to the FF&E of the Hotel; and
(2) certain repairs and maintenance to the Hotel building the cost of which is
normally capitalized under generally accepted accounting principles, such as
exterior and interior repainting, resurfacing building walls, floors, roofs, and
parking areas, and replacing folding walls and the like, but which are not major
repairs, alterations, improvements, renewals, or replacements to the Hotel
building's structure or to its mechanical, electrical, heating, ventilating, air
conditioning, plumbing, or vertical transportation systems, the cost of which
are Owner's sole responsibility under Section 8.03.
Management Company agrees that it will, from time to time, execute such
reasonable documentation as may be requested by any
- 42 -
Qualified Lender to assist such Qualified Lender in establishing or perfecting
its security interest in the funds which are in the FF&E Reserve; provided,
however, that no such documentation shall contain any amendment or modification
of any of the provisions of this Agreement, including this Section 8.02.
B. Subject to the provisions of Section 8.02 E, for Fiscal Year 1997
Management Company shall, on behalf of Owner, deposit in the FF&E Reserve an
amount equal to four and one-half percent (4-1/2%) of Gross Revenues for such
Fiscal Year; and commencing with Fiscal Year 1998 and for all Fiscal Years
thereafter, Management Company shall so transfer to the Reserve an amount equal
to five and one-half percent (5-1/2%) of Gross Revenues for such Fiscal Years.
All such transfers shall take place for each Accounting Period, and shall be
accounted for cumulatively and adjusted at the close of each Fiscal Year. Any
amount remaining in the FF&E Reserve upon Termination shall be paid to Owner.
C. Each year, at the same time as Management Company submits the Annual
Operating Budget described in Section 9.03, Management Company shall prepare an
estimate (the "FF&E Estimate") of the expenditures necessary for (i)
replacements and renewals to the Hotel's FF&E, and (ii) repairs to the Hotel
building of the nature described in Section 8.02 A 2, during the ensuing Fiscal
Year, and shall submit such FF&E Estimate to Owner for its review. Management
Company shall also, if Owner so elects, prepare tentative forecasts of such
expenditures with regard to the four (4) subsequent Fiscal Years. Management
Company will at all times give good faith consideration to Owner's suggestions
regarding any FF&E Estimate. In the event that Owner requests forecasts covering
the aforesaid subsequent Fiscal Years, and such forecasts project a deficit in
the FF&E Reserve at some point during the current Fiscal Year or during such
four (4) subsequent Fiscal Years, Owner and Management Company will work
together in good faith to prepare alternative forecasts for such Fiscal Years
which will reduce or eliminate such deficit, but also take into account the
needs of the Hotel during such periods of time. All expenditures from the FF&E
Reserve will be (as to both the amount of each such expenditure and the timing
thereof) both reasonable and necessary, given the objective that the Hotel will
be maintained and operated in accordance with the Marriott Standards.
D. Management Company shall from time to time make such (1) replacements
and renewals to the Hotel's FF&E, and (2) repairs to the Hotel building of the
nature described in Section 8.02 A 2, as it deems necessary, provided that
Management Company shall not expend more than the balance in the FF&E Reserve
without the prior approval of Owner. Management Company will endeavor to follow
the applicable FF&E Estimate, but shall be entitled to depart therefrom, in its
reasonable discretion, provided that:
- 43 -
(A) such departures from the applicable FF&E Estimate result from circumstances
which could not reasonably have been foreseen at the time of the submission of
such FF&E Estimate; and (B) such departures from the applicable FF&E Estimate
result from circumstances which require prompt repair and/or replacement; and
(C) Management Company has submitted to Owner a revised FF&E Estimate setting
forth and explaining such departures. At the end of each Fiscal Year, any
amounts remaining in the FF&E Reserve shall be retained in the FF&E Reserve, and
shall be carried forward to the next Fiscal Year. Upon a Sale of the Hotel,
funds in the FF&E Reserve will not be affected (or, if withdrawn, will be
replaced as set forth in Section 19.01 E), and all dispositions of such funds
(both before and after such Sale of the Hotel) will continue to be made
exclusively pursuant to the provisions of this Agreement. Proceeds from the sale
of FF&E no longer necessary to the operation of the Hotel shall be deposited in
the FF&E Reserve, as shall any interest which accrues on amounts placed in the
FF&E Reserve. Neither (i) proceeds from the disposition of FF&E, nor (ii)
interest which accrues on amounts held in the FF&E Reserve, shall either (x)
result in any reduction in the required contributions to the FF&E Reserve set
forth in Section 8.02 B above, or (y) be included in Gross Revenues. The only
items of FF&E which Management Company is authorized to lease (rather than
purchase) shall be (a) Telephones and Miscellaneous Equipment; (b) shuttle vans;
and (c) the "Next Generation System" computer system ("NGS"). If Management
Company enters into a lease described in the preceding sentence, Management
Company shall give Owner notice of such lease either prior to or promptly after
entering into such lease. Lease payments with respect to Telephones and
Miscellaneous Equipment shall be Deductions, as set forth in paragraph 13 of the
definition of "Operating Profit" in Section 1.01; lease payments with respect to
shuttle vans and NGS shall be paid from the FF&E Reserve. If Management Company
proposes that items of FF&E other than Telephones and Miscellaneous Equipment,
shuttle vans, or NGS should be leased rather than purchased, Management Company
shall submit such proposal (which proposal shall include, without limitation, an
indication as to whether the rental which is owed under such lease will be
treated as a Deduction or paid from the FF&E Reserve) to Owner for Owner's
approval (not to be unreasonably withheld). In connection with the foregoing, it
is understood that the failure of a Qualified Lender to approve such leasing
proposal shall justify Owner in withholding its approval thereof, regardless of
whether withholding such approval would otherwise be deemed to be unreasonable.
E. The percentage contribution for the FF&E Reserve which is described in
Section 8.02 B is an estimate based upon Management Company's prior experience
with other comparable hotels. As the Hotel ages, this percentage may not be
sufficient to keep the FF&E Reserve at the levels necessary to make the
- 44 -
replacements and renewals to the Hotel's FF&E, or to make the repairs to the
Hotel building of the nature described in Section 8.02 A 2, which are required
to maintain the Hotel in accordance with the Marriott Standards. If any FF&E
Estimate which is prepared in accordance with Section 8.02 C would require
funding in excess of the applicable percentage of Gross Revenues which is set
forth on Exhibit A-1, Owner may:
1. Agree to increase the percentages of Gross Revenues set forth in
Section 8.02 B up to the level set forth in such FF&E Estimate, in order to
provide the additional funds required, such increases to be treated as
Deductions under paragraph 12 of the definition of "Operating Profit"; or
2. Make a lump-sum contribution to the FF&E Reserve in the necessary
amount (in which case such lump-sum contribution plus interest (at the Prime
Rate plus one percentage point (1%) per annum), shall be reimbursed to Owner
from Gross Revenues in equal installments over the period of the next five (5)
calendar years beginning as of the date of such contribution, and such
installment repayments shall be Deductions); or
3. Obtain financing for the additional funds required, in which
event, the principal and interest payments (which shall be on a commercially
reasonable amortization basis) for such financing shall be paid by Management
Company out of Gross Revenues and shall be treated as Deductions in computing
Operating Profit.
If Owner elects not to agree to any of options 1, 2, or 3 above (or Owner
does not respond with respect to any such option) within thirty (30) days after
the submission of such FF&E Estimate (or, if Owner has elected option 2, if
Owner fails to fund the required amount within a sixty (60) day period after the
date of such election), Management Company shall be entitled, at its option, to
terminate this Agreement upon ninety (90) days' written notice to Owner (with a
copy to each Qualified Lender); however, such failure by Owner shall not be
deemed a Default by Owner under Article XVI, and Management Company shall not be
entitled to any remedies with respect to such failure other than such
termination of this Agreement. If Management Company so elects to terminate
this Agreement, it shall notify Owner of such election within the sixty (60) day
period following either: (x) the date of receipt of Owner's election not to
agree to any of options 1, 2, or 3 above, or the expiration of the aforesaid
thirty (30) day period without Owner making an election with respect to either
option; or (y) if Owner has elected option 2, the date of the expiration of the
aforesaid sixty (60) day period without Owner funding the required amount.
- 45 -
8.03 Building Alterations, Improvements, Renewals, and Replacements
--------------------------------------------------------------
A. Management Company shall prepare an annual estimate (the "Building
Estimate") of the expenditures necessary for major repairs, alterations,
improvements, renewals and replacements to the structure or exterior facade of
the Hotel, or to the mechanical, electrical, heating, ventilating, air
conditioning, plumbing, or vertical transportation elements of the Hotel
building (the foregoing expenditures, together with all other repair and
maintenance expenditures which are classified as capital expenditures under
generally-accepted accounting principles, shall be collectively referred to as
"Capital Expenditures"). Management Company shall submit each such Building
Estimate to Owner for its approval at the same time the Annual Operating Budget
is submitted. Except with respect to the items described in Section 8.02 A (2),
Management Company shall not make any Capital Expenditures without the prior
written consent of Owner. Owner shall not unreasonably withhold its consent with
respect to Capital Expenditures which are required by reason of any Legal
Requirement, or required under Management Company's current life-safety
standards (provided that, in order for any such life-safety standards to be
"required" within the meaning of this Section 8.03 A, such standards must be
both required and in the process of being implemented at a majority of the
hotels within the Marriott Hotel System which are comparable to the Hotel), or
otherwise required for the continued safety of guests or prevention of material
damage to property, including the removal of Hazardous Materials in compliance
with all Environmental Laws pursuant to Section 20.10. All Capital Expenditures
which are described in the preceding sentence shall be referred to in this
Agreement as "Required Capital Expenditures" .
B. In the event of (x) an emergency threatening the Hotel, its guests,
invitees or employees, or (y) the receipt by Management Company of a
governmental order or other Legal Requirement regarding any Required Capital
Expenditures, Management Company shall give Owner notice thereof within five (5)
business days thereafter or sooner if circumstances reasonably warrant.
Management Company shall then be authorized (but not obligated) to take
appropriate remedial action without receiving Owner's prior consent as follows:
(i) in an emergency threatening the Hotel, its guests, invitees or employees; or
(ii) if the continuation of the given condition could (in Management Company's
reasonable judgment) subject Management Company and/or Owner to either criminal
or more than de minimis civil liability, and Owner has either failed to remedy
-- -------
the situation or has failed to take appropriate legal action to stay the
effectiveness of any applicable Legal Requirement. Management Company shall
cooperate with Owner in the pursuit of
- 46 -
any such action and shall have the right to participate therein. Owner shall
reimburse Management Company for any costs incurred by Management Company in
connection with any such remedial action within thirty (30) days after Owner's
receipt of notice from Management Company of the amount of such costs.
C. The cost of all Capital Expenditures (including the expenses incurred
by either Owner or Management Company in connection with any civil or criminal
proceeding described above, but not including costs of those Capital
Expenditures which are described in Section 8.02 A(2) hereof) shall be borne
solely by Owner, and shall not be paid from Gross Revenues or from the FF&E
Reserve.
D. The failure of Owner to either (i) approve and provide funding for any
proposed Required Capital Expenditure, within seventy-five (75) days after
Management Company's request therefor, or (ii) in the case of any Legal
Requirement which is described in Section 8.03 B, to either comply therewith or
to stay the effectiveness of such Legal Requirement during the period of any
contesting thereof, shall be a Default by Owner. In such event, Management
Company shall be entitled (without affecting its other remedies under Article
XVI) to terminate this Agreement upon ninety (90) days' written notice to Owner
(with a copy to each Qualified Lender); provided, however, that Management
Company shall have the right to stipulate such shorter period of time as may be
appropriate, given the time periods which are mandated by Legal Requirements, as
described in Section 8.03 A or B, or given Management Company's good faith
concerns about its own civil and/or criminal liability.
E. Management Company shall have the right, from time to time, to set
forth in any Building Estimate the recommendations of Management Company
regarding proposed ROI Capital Expenditures. Notwithstanding the provisions of
Section 8.03 C to the contrary, the cost of all ROI Capital Expenditures shall
be paid, to the extent reasonably possible (given the requirement, set forth in
Section 8.02, that the balance in the FF&E Reserve be maintained in accordance
with the Marriott Standards) from the FF&E Reserve, and Owner shall pay such
costs from its own funds only to the extent there are not adequate funds for
such purpose in the FF&E Reserve. Expenditures which are, pursuant to the
preceding sentence, made from the FF&E Reserve shall not be treated as
Additional Invested Capital. Any failure of Owner to approve and provide
funding for any ROI Capital Expenditures, or any other Capital Expenditures (not
including those Capital Expenditures which are described in Section 8.02 A(2)
hereof) which are not Required Capital Expenditures, within sixty (60) days
after Management Company's request therefor, shall not be a Default by Owner but
shall entitle Management Company to terminate this Agreement. Such
- 47 -
Termination shall be evidenced by a written notice to Owner (with a copy to each
Qualified Lender), which notice shall be delivered to Owner no later than ninety
(90) days after the expiration of the sixty (60) day period described in the
preceding sentence. The effective date of such Termination shall be the date
stated by Management Company in such notice, provided that such effective date
shall be no less than one hundred eighty (180) days, and no more than three
hundred sixty (360) days, after the date of such notice.
F. It is understood that "alterations" and "improvements" which either
(a) increase or decrease the number of guestrooms in the Hotel, or (b) involve
changing the architectural footprint of the Hotel or involve other significant
changes in the structural design of the Hotel, in any case by more than a de
--
minimis amount, are beyond the scope of this Article VIII, and would require an
- -------
amendment of this Agreement prior to implementation by either party.
8.04 Liens
-----
Management Company and Owner shall use their best efforts to prevent any
liens from being filed against the Hotel which arise from any maintenance,
repairs, alterations, improvements, renewals or replacements in or to the Hotel.
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.
8.05 Ownership of Replacements, Etc.
-------------------------------
All repairs, alterations, improvements, renewals or replacements of the
Hotel which are made pursuant to Article VIII or otherwise shall be the property
of Owner. Subject to the provisions of Section 8.02, the funds in the FF&E
Reserve shall be the property of Owner.
END OF ARTICLE VIII
- 48 -
ARTICLE IX
BOOKKEEPING AND BANK ACCOUNTS
-----------------------------
9.01 Books and Records
-----------------
A. Books of control and account shall be kept on the accrual basis and in
material respects in accordance with the Uniform System of Accounts, with the
exceptions provided in this Agreement. Owner may at reasonable intervals during
Management Company's normal business hours examine such records. Within
seventy-five (75) days following the close of each Fiscal Year, Management
Company shall furnish Owner a statement (the "Annual Operating Statement") in
reasonable detail summarizing the Hotel operations for such Fiscal Year and a
certificate of Management Company's chief accounting officer (or its controller
or any vice-president), certifying that such year-end Annual Operating Statement
is true and correct. Owner shall have ninety (90) days after receipt to examine
or review (at Owner's sole expense, and not as a Deduction) said Annual
Operating Statement. If Owner raises no objections within said ninety (90) day
period, the Annual Operating Statement shall be deemed to have been accepted by
Owner as true and correct, and Owner shall have no further right to question its
accuracy. If Owner does raise such an objection, by notice to Management
Company, Owner shall arrange for an independent audit to be commenced within
sixty (60) days after the date of such objection, and shall diligently cause
such audit to be completed within a reasonable period of time. Owner shall pay
all costs and expenses of such audit at its sole expense (and not as a
Deduction); however, if such audit establishes that Management Company has
understated the Operating Profit for that Fiscal Year by five percent (5%) or
more, the reasonable costs and expenses of such audit shall be paid as a
Deduction.
B. Management Company shall, on an annual basis, at the time of the
delivery of the Annual Operating Statement, prepare and deliver to Owner the
Management Analysis Report. In addition, Management Company shall, in
connection with an impending Sale of the Hotel or commitment by a Qualified
Lender to make a Qualified Loan, within thirty (30) days after written request
therefor from Owner, prepare and deliver to Owner an updated Management Analysis
Report describing significant changes since the effective date of the most
recent Management Analysis Report. The costs and expenses of preparing the
Management Analysis Report shall be paid as Deductions.
C. Owner shall have the right to require that any given Annual Operating
Statement will include a reasonably detailed report setting forth the components
of Chain Services, the amounts billed for each such component during the Fiscal
Year in question and the method of allocation for each such component;
- 49 -
provided, however, that Owner must request Management Company to prepare such
report by no later than thirty (30) days prior to the date on which such Annual
Operating Statement is to be delivered to Owner.
9.02 Hotel Accounts, Expenditures
----------------------------
A. All funds derived from operation of the Hotel shall be deposited by
Management Company in Hotel bank accounts (the "Operating Accounts") in a bank
or banks designated by Management Company and approved by Owner, which approval
shall not be unreasonably withheld. Withdrawals from said accounts shall be
made only by representatives of Management Company whose signatures have been
authorized. Reasonable petty cash funds shall be maintained at the Hotel.
B. All payments made by Management Company hereunder shall be made from
authorized bank accounts, petty cash funds, or from Working Capital provided by
Management Company pursuant to Section 7.01. Management Company shall not be
required to make any advance or payment to or for the account of Owner except
out of such funds, and Management Company shall not be obligated to incur any
liability or obligation for Owner's account without assurances that necessary
funds for the discharge thereof will be provided by Owner. Debts and
liabilities incurred by Management Company as a result of its operation and
management of the Hotel pursuant to the terms hereof, whether asserted before or
after the Termination of this Agreement, will be paid by Owner to the extent
funds are not available to Management Company for that purpose from Gross
Revenues.
9.03 Annual Operating Budget
-----------------------
A. Management Company shall submit to Owner for its review at least thirty
(30) days prior to the beginning of each Fiscal Year after the Effective Date a
preliminary draft of the budget (the "Annual Operating Budget") of the estimated
financial results of the operation of the Hotel during the next Fiscal Year.
Such Annual Operating Budget shall project the estimated Gross Revenues,
departmental profits, Deductions, and Operating Profit for the forthcoming
Fiscal Year for the Hotel. In preparing the Annual Operating Budget for each
Fiscal Year, Management Company's goal will be the maximization of the long-term
Operating Profit of the Hotel, in keeping with the Marriott Standards and the
general standards of the hotel industry for similar properties. If there are
material items in any given Annual Operating Budget which have been budgeted at
significantly different amounts from the amounts actually experienced (or
projected) for the same items in the preceding Fiscal Year, Management Company
agrees to take reasonable steps to ensure that, at Owner's request, qualified
personnel from Management
- 50 -
Company's staff are available to explain these differences to Owner. A meeting
(or meetings) for such purpose shall be held, at Owner's request, within a
reasonable period of time after the submission to Owner of the preliminary draft
of the Annual Operating Budget. Management Company will at all times give good
faith consideration to Owner's suggestions regarding any Annual Operating
Budget. Management Company shall thereafter submit to Owner, by no later than
thirty (30) days after the beginning of such Fiscal Year, the final Annual
Operating Budget.
B. [Intentionally omitted]
C. Each Annual Operating Budget will constitute a standard to which
Management Company shall use its reasonable best efforts to adhere. It is
understood, however, that the Annual Operating Budget is an estimate only and
that unforeseen circumstances such as, but not limited to, the costs of labor,
materials, services and supplies, casualty, operation of law, or economic and
market conditions may make adherence to the Annual Operating Budget
impracticable, and Management Company shall be entitled to depart therefrom for
such reasons; provided, however, that nothing herein shall be deemed to
authorize Management Company to take any action prohibited by this Agreement nor
to reduce Management Company's other rights or obligations hereunder.
D. Management Company shall notify Owner of any significant variations
from the Annual Operating Budget promptly after Management Company learns of the
same, but in no event later than the date on which Management Company is
required to give Owner the Accounting Period Statement covering the period in
which such variation occurs. Any such notice shall set forth in reasonable
detail the nature, extent and, if known by Management Company, the cause of such
variation, and recommendations of appropriate actions, either to correct the
variation or to prevent or minimize its occurrence or effect. Owner and
Management Company shall, at Owner's request, meet to review such variations and
to take appropriate action with respect thereto.
9.04 Operating Losses; Credit
------------------------
A. To the extent there is an Operating Loss in an Accounting Period,
additional funds in the amount of any such Operating Loss shall be provided by
Management Company within thirty (30) days after the Accounting Period during
which such Operating Loss occurs; provided, that Management Company may recoup,
during the next Accounting Period(s) within the same Fiscal Year for which there
exists an Operating Profit, as much of such Operating Loss as can be recovered
without causing an Operating Loss during such subsequent Accounting Period(s).
To the extent there is an Operating Loss for an entire Fiscal Year, additional
funds in the amount of any such Operating Loss shall
- 51 -
be provided by Management Company within thirty (30) days after the Accounting
Period during which such Operating Loss occurs.
B. In no event shall either party borrow money in the name of or pledge
the credit of the other.
END OF ARTICLE IX
- 52 -
ARTICLE X
PROPRIETARY MARKS; INTELLECTUAL PROPERTY
----------------------------------------
10.01 Proprietary Marks
-----------------
A. During the Term of this Agreement, the Hotel shall be known as a
Marriott Hotel, with such additional identification as may be agreed to by Owner
and Management Company to provide local identification. If the name of the
Marriott Hotel System is changed, Management Company shall have the right to
change the name of the Hotel to conform thereto.
B. The name "Marriott," whether used alone or in connection with another
word or words, and all other Proprietary Marks shall in all events remain the
exclusive property of Management Company and its Affiliates. Owner shall have
no right to use the Marriott name or any other Proprietary Mark; provided,
however, that Owner shall have the right, during the Term of this Agreement, to
have Proprietary Signage installed (in strict conformance with the
specifications provided by Management Company prior to the Effective Date, or
subsequent specifications provided by Management Company from time to time
during the Term) in the Hotel and on the Site.
C. Except as provided in Section 10.02, upon Termination, any use of or
right to use the Marriott name or any other Proprietary Mark by Owner under this
Agreement shall immediately cease. As of the date of Termination, Management
Company shall remove all Proprietary Signage from the Hotel and from the Site
(and from any locations other than the Site). The cost of such removal shall be
paid as set forth in Section 4.02 E.
D. Notwithstanding the foregoing, those trademarks, trade names, symbols,
logos and designs which are specifically listed on Exhibit "F" shall be deemed
"Proprietary Marks" only during the Term of this Agreement; upon a Termination,
the exclusive control of such Proprietary Marks shall revert to Owner.
10.02 Purchase of Inventories and Fixed Asset Supplies
------------------------------------------------
Upon Termination, Management Company shall have the option, to be exercised
by no later than thirty (30) days prior to Termination, to purchase, at their
then book value, any items of the Hotel's Fixed Asset Supplies as may be marked
with the Marriott name or any other Proprietary Mark. In the event Management
Company does not exercise such option, Owner agrees that it will use any such
items not so purchased exclusively in connection with the Hotel until they are
consumed.
- 53 -
10.03 Computer Software and Equipment
-------------------------------
A. All Software is and shall remain the exclusive property of Management
Company or one of its Affiliates (or the licensor of such Software, as the case
may be), and Owner shall have no right to use, or to copy, any Software.
B. Upon Termination, Management Company shall have the right to remove
from the Hotel, without compensation to Owner, all Software. Furthermore, upon
Termination, Management Company shall be entitled to remove from the Hotel any
computer equipment which is utilized as part of a centralized reservation or
property management system or is otherwise considered proprietary by Management
Company. If any of such removed computer equipment is owned by Owner,
Management Company shall reimburse Owner for all previous expenditures made by
Owner for the purchase of such equipment, subject to a reasonable allowance for
depreciation.
10.04 Intellectual Property
---------------------
All Intellectual Property shall at all times be proprietary to Management
Company or its Affiliates, and shall be the exclusive property of Management
Company or its Affiliates. During the Term of this Agreement, Management Company
shall be entitled to take all reasonable steps to ensure that the Intellectual
Property remains confidential and is not disclosed to anyone other than
Management Company's employees at the Hotel. Upon Termination, all Intellectual
Property shall be removed from the Hotel by Management Company, without
compensation to Owner.
10.05 Breach of Covenant
------------------
Management Company and/or its Affiliates shall be entitled, in case of any
breach of the covenants of Article X by Owner or others claiming through it, to
injunctive relief and to any other right or remedy available at law. Article X
shall survive Termination.
END OF ARTICLE X
- 54 -
ARTICLE XI
POSSESSION AND USE OF HOTEL
---------------------------
11.01 Quiet Enjoyment
---------------
Owner covenants that, so long as (i) an Event of Default by Management
Company has not occurred under Article XVI of this Agreement, and (ii) Owner
does not have the right to terminate this Agreement under any other Section of
this Agreement, Management Company shall quietly hold, occupy and enjoy the
Hotel throughout the Term hereof free from hindrance or ejection by Owner or
other party claiming under, through or by right of Owner (except as may be
otherwise set forth in Section 6.04). Owner agrees to pay and discharge any
payments and charges and, at its expense, to prosecute all appropriate actions,
judicial or otherwise, necessary to assure such free and quiet occupation.
Nothing set forth in the preceding sentence, however, shall be deemed to create
a recourse obligation by Owner to pay any payment or charge pursuant to a
contract which is non-recourse to Owner.
11.02 Use
---
A. Management Company shall use the Hotel solely for the operation of a
hotel pursuant to the Marriott Standards, and for all activities in connection
therewith which are customary and usual to such an operation.
B. Management Company shall comply with and abide by all Legal
Requirements pertaining to the operation of the Hotel, provided that: (i) all
costs and expenses (other than those which are specifically described in clauses
(ii) or (iii) of this Section 11.02 B) of such compliance shall be paid from
Gross Revenues as Deductions in the computation of Operating Profit; (ii) all
costs and expenses of compliance with Environmental Laws shall be paid as set
forth in Section 20.10; (iii) all costs and expenses of compliance with the
Legal Requirements which are described in Section 8.03 A shall be paid as set
forth in Section 8.03; and (iv) Management Company shall have the right, but not
the obligation, in its reasonable discretion, to contest or oppose, by
appropriate proceedings, any such Legal Requirements (provided that the consent
of Owner, not to be unreasonably withheld, shall be obtained prior to initiating
any such proceedings which involve Owner's ownership interest in the Hotel in a
material manner). The reasonable expenses of any such contest shall be paid
from Gross Revenues as Deductions.
- 55 -
11.03 Chain Services
--------------
A. Management Company shall, beginning with the Effective Date and
thereafter during the Term of this Agreement, cause to be furnished to the Hotel
certain services ("Chain Services") which are furnished generally on a central
or regional basis to other full service hotels in the Marriott chain. Chain
Services shall include: (i) national sales office services; central training
services; career development and relocation of management personnel; central
advertising and promotion (including direct and image media and advertising
administration); the Marriott national reservations system and the Marriott
computer payroll and accounting services; and (ii) such additional central or
regional services as are or may be, from time to time, furnished for the benefit
of hotels in the Marriott chain or in substitution for services now performed at
individual hotels which may be more efficiently performed on a group basis;
provided, however, that services shall only be added to "Chain Services"
pursuant to clause (ii) above if, and to the extent that, such services: (a)
are not Central Office Services; (b) are not services relating to non-routine
work (it being understood that the cost and expense of such non-routine services
shall be Deductions as set forth in paragraph 6 of the definition of Operating
Profit); and (c) are either (x) new services (i.e., not previously performed at
or for the Hotel) or (y) services which theretofore had been performed at the
Hotel, but which can be performed more efficiently and economically on a
centralized or regional basis.
B. Costs and expenses incurred in the providing of Chain Services shall be
allocated on a fair and equitable basis among all Marriott hotels owned, leased
or managed by Management Company in the United States. Such allocation shall be
made without regard to any "caps" or other limitations on the amount which
Management Company or its Affiliates may charge to a given hotel, pursuant to
agreements which Management Company (or its Affiliates) may have with the owner
of such hotel. Any excess of that portion of such costs and expenses which is
fairly allocated to a given hotel over the "cap" which may be in effect with
regard to that hotel shall be paid by Management Company from its own funds.
Management Company shall make no profit from Chain Services. Upon Owner's
written request, an explanation of the current Chain Services will be given to
Owner, and the basis for the allocation of the charge for each Chain Service
will be explained to Owner, in reasonable detail, at the time of the submission
of the Annual Operating Statement (as more particularly set forth in Section
9.01).
- 56 -
11.04 Owner's Right to Inspect
------------------------
Owner or its agents shall have access to the Hotel at any and all
reasonable times for the purpose of inspection or showing the Hotel to
prospective purchasers, tenants or Holders.
11.05 Indemnity
---------
A. Management Company shall indemnify and hold harmless Owner (and any
officer, director, employee, advisor, partner or shareholder of Owner) in
respect of, and, at Owner's request, shall defend any action, cause of action,
suit, debt, cost, expense (including, without limitation, reasonable attorneys'
fees), claim or demand whatsoever brought or asserted by any third person
whomsoever, at law or in equity, arising by reason of: (i) liabilities stemming
from general corporate matters of Management Company or its Affiliates, to the
extent the same are not directly and primarily related to the Hotel; (ii)
infringement and other claims relating to the Proprietary Marks; (iii) if
Management Company fails to maintain insurance coverage that it is required to
maintain pursuant to this Agreement, the excess of the amount of any liability
or loss that would have been covered over the amount of any applicable
deductible; and (iv) the bad faith or willful misconduct of Management Company
or its Affiliates, or any of their employees, servants or agents or other
persons for whom they are responsible, resulting in a claim for bodily injury,
death or property damage occurring on, in or in conjunction with the business of
the Hotel, to the extent that such claim exceeds the insurance proceeds
(including Hotel Retentions) which are available to pay such claim.
B. If any claim, action or proceeding is made or brought against Owner,
against which claim, action or proceeding Management Company shall be obligated
to indemnify pursuant to the terms of this Agreement, then, upon demand by
Owner, Management Company, at its sole cost and expense, shall resist or defend
such claim, action or proceeding (in Owner's name, if necessary), using such
attorneys as Owner shall approve, which approval shall not be unreasonably
withheld. If, in Owner's reasonable opinion, (i) there exists a conflict of
interest which would make it inadvisable to be represented by counsel for
Management Company, or (ii) there are legal defenses available to Management
Company that are different from or inconsistent with those available to Owner,
or (iii) there are claims at issue which are not covered by Management Company's
insurance, Owner shall be entitled to retain its own attorneys, and Management
Company shall pay the reasonable fees and disbursements of such attorneys.
- 57 -
C. Matters with respect to which Management Company has specifically
agreed to indemnify Owner under other provisions of this Agreement (for example,
Section 14.01 regarding "Employee Claims", and Section 20.11 regarding
environmental matters) are to be treated exclusively under such other provisions
and not under this Section 11.05.
END OF ARTICLE XI
- 58 -
ARTICLE XII
INSURANCE
---------
12.01 Interim Insurance
-----------------
[Intentionally omitted]
12.02 Property and Operational Insurance
----------------------------------
Management Company shall, commencing with the Effective Date and thereafter
during the Term of this Agreement, procure and maintain, either with insurance
companies of recognized responsibility or by legally qualifying itself as a self
insurer, a minimum of the following insurance:
A. Property insurance on the Hotel building(s) and contents against loss
or damage by fire, lightning and all other risks covered by the usual extended
coverage endorsement, all in an amount not less than one hundred percent (100%)
of the replacement cost thereof (excluding the cost of foundations and
excavations);
B. Boiler and machinery insurance against loss or damage from explosion of
boilers or pressure vessels to the extent applicable to the Hotel;
C. Business interruption insurance covering loss of profits and necessary
continuing expenses for interruptions caused by any occurrence covered by the
insurance referred to in Section 12.02 A and B, which shall be of a type and in
such amounts (but such coverage shall in no event be for less than one (1) year)
as are generally established by Management Company at similar hotels it owns,
leases or manages under the Marriott name in the United States;
D. General liability insurance against claims for bodily injury, death or
property damage occurring on, in, or in conjunction with the business of the
Hotel, and automobile liability insurance on vehicles operated in conjunction
with the Hotel, with a combined single limit for each occurrence of not less
than One Hundred Million Dollars ($100,000,000); representatives of Management
Company and Owner shall meet, at Owner's request, at intervals of approximately
once every five (5) years, to review the adequacy of such limit;
E. Workers' compensation and employer's liability insurance as may be
required under applicable laws covering all of Management Company's employees at
the Hotel;
F. Fidelity bonds, with reasonable limits to be determined by Management
Company, covering its employees in job
- 59 -
classifications normally bonded in other similar hotels it leases or manages
under the Marriott name in the United States or as otherwise required by law,
and comprehensive crime insurance to the extent Management Company and Owner
mutually agree it is necessary for the Hotel;
G. Such other insurance in amounts as Management Company and Owner, in
their reasonable judgment, mutually deem advisable for protection against
claims, liabilities and losses arising out of or connected with the operation of
the Hotel; and
H. Such earthquake insurance as Management Company can obtain in its
reasonable discretion, if available at rates and on terms that are reasonable.
12.03 General Insurance Provisions
----------------------------
A. All insurance described in Section 12.02 may be obtained by Management
Company by endorsement or equivalent means under its blanket insurance policies,
provided that such blanket policies substantially fulfill the requirements
specified herein. Upon the request of either Owner or any Qualified Lender,
representatives of the requesting party shall be entitled to examine, at
Management Company's corporate headquarters, all insurance policies maintained
by Management Company regarding the Hotel.
B. Management Company may self insure or otherwise retain such risks or
portions thereof as it does with respect to other similar hotels it owns, leases
or manages under the Marriott name in the United States.
C. All policies of insurance required under Section 12.02 shall be carried
in the name of Management Company. The policies required under Sections 12.02
A, B, C and D shall include the Owner and the Ground Lessor as additional
insureds. Upon notice by the Owner, Management Company shall also have the
policies required under Sections 12.02 A, B, C and D include any Qualified
Lender and any lender of an Existing Non-Mortgage Loan as additional insured(s).
All such mortgagees shall be named under the standard mortgagee clause
applicable in California. Any property losses thereunder shall be payable to
the respective parties as their interests may appear. Any Mortgage on the Hotel
shall contain provisions to the effect that proceeds of the insurance policies
required to be carried under Section 12.02 A and B shall, with respect to any
casualty involving less than twenty-five percent (25%) of the replacement cost
of the Hotel, be available for repair and restoration of the Hotel.
D. Management Company shall deliver to the Owner certificates of insurance
with respect to all policies so
- 60 -
procured and, in the case of insurance policies about to expire, shall deliver
certificates with respect to the renewal thereof.
E. All certificates of insurance provided for under Article XII shall, to
the extent obtainable, state that the insurance shall not be cancelled or
materially changed without at least thirty (30) days' prior written notice to
Owner.
F. The term "Hotel Retention" shall mean the amount of any loss or reserve
under Management Company's blanket insurance or self-insurance programs which is
allocated to the Hotel, not to exceed the higher of (a) the maximum per
occurrence limit established for similar hotels participating in such programs,
or (b) the insurance policy deductible on any loss which may fall within high
hazard classifications as mandated by the insurer (e.g., earthquake, flood,
windstorm on coastal properties, etc.). If the Hotel is not a participant under
Management Company's blanket insurance or self-insurance programs, "Hotel
Retention" shall mean the amount of any loss or reserve allocated to the Hotel,
not to exceed the insurance policy deductible.
12.04 Cost and Expense
----------------
A. Notwithstanding any other provision of this Article, insurance
requirements contained in the Existing Mortgage (for so long as they remain in
place) shall take precedence over this Article.
B. Insurance premiums and any other costs or expenses with respect to the
insurance or self-insurance required under Sections 12.02 and 12.04 A, including
any Hotel Retention, shall be paid from Gross Revenues as Deductions. To the
extent that such costs or expenses include reimbursement by Management Company
of its own costs or expenses, or those of one of its Affiliates, such costs or
expenses shall be generally competitive (as calculated over the Term of this
Agreement) with costs and expenses of non-affiliated entities providing similar
services. Such premiums and costs shall be allocated on an equitable basis to
the hotels participating under Management Company's blanket insurance or self-
insurance programs, provided, that incremental premiums and costs incurred
pursuant to Section 12.04 A shall be borne solely by the Hotel rather than being
allocated to other hotels. Any reserves, losses, costs or expenses which are
uninsured shall be treated as a cost of insurance and shall be Deductions. Upon
Termination, an escrow fund in an amount reasonably acceptable to Management
Company shall be established from Gross Revenues (or, if Gross Revenues are not
sufficient, with funds provided by Owner) to cover the amount of any Hotel
Retention and all other costs which will eventually have to be paid by either
Owner or Management Company with respect to pending or contingent claims,
including those which arise after
- 61 -
Termination for causes arising during the Term of this Agreement. Upon the final
disposition of all such pending or contingent claims, any unexpended funds
remaining in such escrow shall be paid to Owner.
END OF ARTICLE XII
- 62 -
ARTICLE XIII
TAXES
-----
13.01 Real Estate and Personal Property Taxes
---------------------------------------
A. Except as specifically set forth in subsection B below, all Impositions
which accrue during the Term of this Agreement (or are properly allocable to
such Term under generally accepted accounting principles) shall be paid by
Management Company from Gross Revenues, as a Deduction, before any fine,
penalty, or interest is added thereto or lien placed upon the Hotel or the
Agreement, unless payment thereof is stayed. Owner shall within five (5)
business days after the receipt of any invoice, bill, assessment, notice or
other correspondence relating to any Imposition, furnish Management Company with
a copy thereof. Management Company shall, within the earlier of thirty (30) days
of payment or five (5) business days following written demand by Owner, furnish
Owner with copies of official tax bills and assessments which Management Company
has received, and evidence of payment or contest thereof. Either Owner or
Management Company (in which case each party agrees to sign the required
applications and otherwise cooperate with the other party in expediting the
matter) may initiate proceedings to contest any Imposition, and all reasonable
costs of any negotiations or proceedings with respect to any such contest shall
be paid from Gross Revenues and shall be a Deduction in determining Operating
Profit; provided, however, that neither party shall have the right to expend in
excess of Five Thousand Dollars ($5,000) (to be adjusted by the GDP Deflator)
with respect to any such negotiations or proceedings without the consent of the
other party.
B. The word "Impositions", as used in this Agreement, shall not include
the following, all of which shall be paid solely by Owner, not from Gross
Revenues nor from the FF&E Reserve:
1. Any franchise, corporate, estate, inheritance, succession, capital
levy or transfer tax imposed on Owner, or any income tax imposed on any income
of Owner (including distributions to Owner pursuant to Article V hereof);
2. Special assessments (regardless of when due or whether they are
paid as a lump sum or in installments over time) imposed because of facilities
which are constructed by or on behalf of the assessing jurisdiction (for
example, roads, sidewalks, sewers, culverts, etc.) which directly benefit the
Hotel (regardless of whether or not they also benefit other buildings), which
assessments shall not be treated as Deductions, but rather shall be added to the
Additional Invested Capital as of each payment by Owner with respect thereto;
- 63 -
3. "Impact fees" (regardless of when due or whether they are paid as
a lump sum or in installments over time) which are required of Owner as a
condition to the issuance of site plan approval, zoning variances or building
permits, which impact fees shall not be treated as Deductions, but rather shall
be added to the Additional Invested Capital as of each payment by Owner with
respect thereto; and
4. "Tax-increment financing" or similar financing whereby the
municipality or other taxing authority has assisted in financing the
construction of the Hotel by temporarily reducing or abating normal Impositions
in return for substantially higher levels of Impositions at later dates.
C. Owner shall have the right to require Management Company to establish
an escrow account (with either any Qualified Lender or another entity reasonably
acceptable to both Owner and Management Company) from which Impositions will be
paid. Payments into such escrow account will be Deductions. Any interest which
accrues on amounts deposited in such escrow account shall be added to the
balance in such escrow account and used to pay Impositions.
END OF ARTICLE XIII
- 64 -
ARTICLE XIV
HOTEL EMPLOYEES
---------------
14.01 Employees
---------
A. All personnel employed at the Hotel shall be the employees of
Management Company. Subject to the provisions of this Agreement, Management
Company shall have absolute discretion to hire, promote, supervise, direct,
train and discharge all employees at the Hotel, to fix their compensation and,
generally, establish and maintain all policies relating to employment; provided,
however, that (i) all of the foregoing shall be in accordance with the Marriott
Standards, and (ii) Management Company shall not enter into any written
employment agreements with any person which purport to bind the Owner and/or
purport to be effective regardless of a Termination, without obtaining Owner's
prior consent which may be withheld in Owner's sole discretion. Management
Company and Owner shall each comply with all Legal Requirements regarding labor
relations; if either Management Company or Owner shall be required, pursuant to
any such Legal Requirement, to recognize a labor union or to enter into
collective bargaining with a labor union, the party so required shall promptly
notify the other party pursuant to Section 20.09.
B. Management Company shall decide which, if any, of the Hotel's employees
shall reside at the Hotel (provided that Owner's prior approval shall be
obtained if more than two (2) such employees and their immediate families reside
at the Hotel), and shall be permitted to provide free accommodations and
amenities to its employees and representatives living at or visiting the Hotel
in connection with its management or operation. No person shall otherwise be
given gratuitous accommodations or services without prior joint approval of
Owner and Management Company except in accordance with usual practices of the
hotel and travel industry.
C. Any proposed settlement of any Employee Claim where the amount proposed
to be offered to the employee by Management Company is in excess of the
Settlement Threshold Amount shall be jointly approved by Management Company and
Owner. In addition, Management Company shall give Owner a written notice
(pursuant to Section 20.09) of any settlement of any Employee Claim where the
settlement amount is below the Settlement Threshold Amount, but is in excess of
Fifty Thousand Dollars ($50,000) (said dollar amount to be adjusted by the GDP
Deflator). Any dispute between Owner and Management Company as to whether
Management Company's settlement recommendation is reasonable, where such
proposed settlement is in excess of the Settlement Threshold Amount, shall be
resolved by arbitration under Section 20.13 hereof; provided that Management
Company shall have the right to settle any
- 65 -
Employee Claim (prior to the arbitration on the reasonableness of the
settlement, as described in this sentence) based on Management Company's
recommendation, which shall be Management Company's reasonable estimate, in good
faith, by using: (i) funds from Gross Revenues (as a Deduction) up to the amount
of Owner's settlement recommendation, which shall be Owner's reasonable
estimate, in good faith, and (ii) Management Company's own funds to the extent
Management Company's recommendation exceeds the amount described in subparagraph
(i) above. Following the settlement of such Employee Claim, the parties will
arbitrate under Section 20.13 the issue of whether Management Company's
settlement recommendation was reasonable under the circumstances. If the
arbitrators decide that Management Company's recommendation was reasonable,
Management Company shall be entitled to reimburse itself from Gross Revenues (as
a Deduction) in the amount of the funds advanced under subparagraph (ii) above,
together with accrued interest thereon at the Prime Rate. If the arbitrators
decide that Management Company's settlement recommendation was not reasonable,
then Management Company shall not be entitled to any reimbursement of the
amounts advanced by it under subparagraph (ii) above, nor to accrued interest
thereon.
D. Management Company shall pay from its own funds, and not from Gross
Revenues, any Employee Claim where the basis of such Employee Claim is conduct
by Management Company which: (i) is a substantial violation of the standards of
responsible labor relations as generally practiced by prudent owners or
operators of similar hotel properties in the general geographic area of the
Hotel; and (ii) is not the isolated act of individual employees, but rather is a
direct result of corporate policies of Management Company which either encourage
or fail to discourage such conduct. In addition, Management Company shall
indemnify, defend and hold harmless Owner from and against any fines or
judgments arising out of such conduct, and all Litigation expenses (including
reasonable attorneys' fees and expenses) incurred in connection therewith. Any
dispute between Owner and Management Company as to whether or not certain
conduct by Management Company is not in accordance with the aforesaid standards
shall be resolved by arbitration under Section 20.13 hereof. The arbitration
proceedings described in the preceding sentence shall be conducted independently
of any arbitration proceedings with respect to such Employee Claim pursuant to
the applicable employment-related contract and/or pursuant to Section 14.01 C of
this Agreement.
E. With respect to all Litigation or arbitration involving Employee Claims
in which both Management Company and Owner are involved as actual or potential
defendants, Management Company shall have exclusive and complete responsibility
(subject to the rights of Owner to approve certain settlements, as set forth in
- 66 -
Section 14.01 C) for the resolution of such Employee Claims. In the event that
any Employee Claim is made against Owner, but not against Management Company,
Owner shall give notice to Management Company of the Employee Claim in a timely
manner so as to avoid any prejudice to the defense of the Employee Claim,
provided that Management Company shall in all events be so notified within
twenty (20) days after the date such Employee Claim is made against Owner.
Management Company will thereafter assume exclusive and complete responsibility
for the resolution of such Employee Claim.
F. At Termination, other than by reason of an Event of Default of
Management Company hereunder, an escrow fund shall be established from Gross
Revenues (or, if Gross Revenues are not sufficient, with funds provided by
Owner) to reimburse Management Company for all costs and expenses incurred by
Management Company which arise out of either the transfer or the termination of
employment of Management Company's employees at the Hotel, such as reasonable
transfer costs, severance pay, unemployment compensation and other employee
liability costs.
G. [Intentionally omitted]
H. [Intentionally omitted]
END OF ARTICLE XIV
- 67 -
ARTICLE XV
DAMAGE, CONDEMNATION AND FORCE MAJEURE
--------------------------------------
15.01 Damage and Repair
-----------------
A. If, during the Term hereof, the Hotel is damaged or destroyed by fire,
casualty or other cause, Owner shall, with all reasonable diligence, to the
extent that proceeds from the insurance described in Section 12.02 are available
(subject to the provisions of any Mortgage encumbering the Hotel, but with the
limitations described in Section 12.03 C) for such purpose, repair or replace
the damaged or destroyed portion of the Hotel to the same condition as existed
previously.
B. In the event damage or destruction to the Hotel from any cause
materially and adversely affects the operation of the Hotel and Owner fails to
timely (subject to Force Majeure, and subject to unreasonable delays caused by
Management Company, including unreasonable delays in adjusting the insurance
claim with the carriers which participate in Management Company's blanket
insurance program) commence and complete the repairing, rebuilding or
replacement of the same so that the Hotel shall be substantially the same as it
was prior to such damage or destruction, Management Company may, at its option,
elect to terminate this Agreement upon one hundred twenty (120) days' written
notice.
15.02 Condemnation
------------
A. In the event all or substantially all of the Hotel shall be taken in
any eminent domain, condemnation, compulsory acquisition, or similar proceeding
by any competent authority for any public or quasi-public use or purpose, or in
the event a portion of the Hotel shall be so taken, but the result is that it is
unreasonable to continue to operate the Hotel, this Agreement shall terminate.
B. In the event a portion of the Hotel shall be taken by the events
described in Section 15.02 A, or the entire Hotel is affected but on a temporary
basis, and the result is not to make it unreasonable to continue to operate the
Hotel, this Agreement shall not terminate. However, so much of any award for
any such partial taking or condemnation as shall be necessary to render the
Hotel equivalent to its condition prior to such event shall be used for such
purpose; the balance of such award, if any, shall be fairly and equitably
apportioned between Owner and Management Company in accordance with their
respective interests. The Owner's Investment shall be reduced by that portion of
the total amount (if any) received by Owner pursuant to this Section 15.02 B
which is not used to restore the Hotel.
- 68 -
C. In the event of any proceeding described in Section 15.02 A or B, Owner
and Management Company shall each have the right to initiate such proceedings as
they deem advisable to recover any damages to which they may be entitled;
provided, however, that Management Company shall be entitled to retain the award
or compensation it may obtain through proceedings which are conducted separately
from those of Owner only if such award or compensation does not reduce the award
or compensation otherwise available to Owner. For this purpose, any award or
compensation received by any Holder shall be deemed to be an award or
compensation received by Owner).
15.03 Force Majeure
-------------
A. The withdrawal or revocation of any License which is material to the
operation of the Hotel in accordance with the Marriott Standards, where such
withdrawal or revocation (i) is not due to the fault of either Management
Company or Owner, and (ii) is not otherwise within the reasonable control of
either Management Company or Owner, shall not be an Event of Default under
Article XVI of this Agreement. Management Company and Owner shall each, in good
faith, use all commercially reasonable efforts (including the diligent pursuit
of all available appeals), during the period of one hundred twenty (120) days
after the date of such withdrawal or revocation, to have such License
reinstated. If, notwithstanding such efforts, such License is not reinstated
prior to the expiration of the aforesaid period of one hundred twenty (120)
days, either Owner or Management Company shall have the right, at its option, to
terminate this Agreement upon no less than sixty (60) days' notice to the other
party; provided, however, that the terminating party must deliver such notice of
Termination to the other party by no later than ninety (90) days after the
expiration of such one hundred twenty (120) day period; and provided further,
that no such Termination shall be effective if, prior to the effective date of
such Termination, such License is reinstated or such withdrawal or revocation of
such License is stayed.
B. If an order, judgment or directive by a court or administrative body is
issued, in connection with any Litigation involving Owner, which restricts or
prevents Management Company, in a material adverse manner, from operating the
Hotel in accordance with the Marriott Standards, and which, in Management
Company's reasonable opinion, will have a significant adverse effect upon
operations of the Hotel, Management Company shall be entitled, at its option, to
terminate this Agreement upon sixty (60) days' written notice; provided,
however, that Management Company shall (if it so elects) deliver such notice of
Termination to Owner by no later than ninety (90) days after the issuance of
such order,
- 69 -
judgment or directive (or, if such order, judgment or directive is appealed,
within ninety (90) days after the final disposition of such appeal).
END OF ARTICLE XV
- 70 -
ARTICLE XVI
DEFAULTS
--------
16.01 Definition of "Default"
-----------------------
Any one or more of the following shall constitute a "Default," to the
extent permitted by applicable law:
A. The filing of a voluntary petition in bankruptcy or insolvency or a
petition for reorganization under any bankruptcy law by either party, or the
admission by either party that it is unable to pay its debts as they become due;
B. The consent to an involuntary petition in bankruptcy or the failure to
vacate, within ninety (90) days from the date of entry thereof, any order
approving an involuntary petition by either party;
C. The entering of an order, judgment or decree by any court of competent
jurisdiction, on the application of a creditor, adjudicating either party as
bankrupt or insolvent or approving a petition seeking reorganization or
appointing a receiver, trustee, or liquidator of all or a substantial part of
such party's assets, and such order, judgment or decree's continuing unstayed
and in effect for any period of ninety (90) days;
D. The failure of either party to make any payment required to be made in
accordance with the terms of this Agreement, as of the due date which is
specified in this Agreement;
E. The failure of either party to perform, keep or fulfill any of the
other covenants, undertakings, obligations or conditions set forth in this
Agreement.
16.02 Definition of "Event of Default"
--------------------------------
A. Upon the occurrence of any Default by either party hereto (hereinafter
referred to as the "defaulting party") under Section 16.01 A, B or C, such
Default shall immediately and automatically, without the necessity of any notice
to the defaulting party, constitute an "Event of Default" under this Agreement.
B. Upon the occurrence of any Default by a defaulting party under Section
16.01 D, such Default shall constitute an "Event of Default" under this
Agreement if the defaulting party fails to cure such Default within ten (10)
days after written notice from the non-defaulting party specifying such Default
and demanding such cure.
- 71 -
C. Upon the occurrence of any Default by either party hereto under Section
16.01 E, such Default shall constitute an "Event of Default" under this
Agreement if the defaulting party fails to cure such Default within thirty (30)
days after written notice from the non-defaulting party specifying such Default
and demanding such cure, or, if the Default is such that it cannot reasonably be
cured within said thirty (30) day period of time, if the defaulting party fails
to commence the cure of such Default within said thirty (30) day period of time
or thereafter fails to diligently pursue such efforts to completion.
16.03 Remedies Upon an Event of Default
---------------------------------
A. Upon the occurrence of an Event of Default under the provisions of
Section 16.02, the non-defaulting party shall have the right to pursue any one
or more of the following courses of action: (i) in the event of a material
breach by the defaulting party of its obligations under this Agreement, to
terminate this Agreement by written notice to the defaulting party, which
termination shall be effective as of the effective date which is set forth in
said notice, provided that said effective date shall be at least thirty (30)
days after the date of said notice; and provided further that, if the defaulting
party is the employer of all or a substantial portion of the employees at the
Hotel, the foregoing period of thirty (30) days shall be extended to seventy-
five (75) days (or such longer period of time as may be necessary under
applicable Legal Requirements pertaining to termination of employment); (ii) to
institute forthwith any and all proceedings permitted by law or equity,
including, without limitation, actions for specific performance and/or damages;
and (iii) to avail itself of any one or more of the other remedies described in
this Section 16.03.
B. Upon the occurrence of a Default by either party under the provisions
of Section 16.01 D, the amount owed to the non-defaulting party shall accrue
interest, at the Interest Rate, from and after the date on which such payment
was originally due to the non-defaulting party.
C. The rights granted hereunder are intended to be cumulative, and shall
not be in substitution for, but shall be in addition to, any and all rights and
remedies available to the non-defaulting party (including, without limitation,
injunctive relief and damages; provided that the satisfaction of damage awards
against Owner shall be limited by the provisions of Section 16.04) by reason of
applicable provisions of law or equity.
- 72 -
16.04 Owner's Estate
--------------
Notwithstanding any other provision of this Agreement, in the event of any
Event of Default by Owner pursuant to the terms of this Agreement, Management
Company shall look only to Owner's estate and interest in the Site and the Hotel
(which shall, for this purpose, include (i) amounts deposited in the Operating
Accounts and in the FF&E Reserve, and (ii) accounts receivable) for the
satisfaction of a money judgment against Owner resulting from such Event of
Default, and no other property or assets of Owner, or of its partners, officers,
directors, shareholders or principals, shall be subject to levy, execution or
other enforcement procedure for the satisfaction of such judgment. Management
Company's right to look to Owner's estate and interest in the Site and the Hotel
for satisfaction of such a money judgment against Owner shall survive
Termination and shall not be affected by any one or more Sales of the Hotel.
Nothing contained in this Section 16.04 shall be deemed to affect or diminish
Management Company's remedies under this Article XVI other than money damages
against Owner (including, without limitation, Termination of this Agreement).
END OF ARTICLE XVI
- 73 -
ARTICLE XVII
WAIVER AND PARTIAL INVALIDITY
-----------------------------
17.01 Waiver
------
The failure of either party to insist upon a strict performance of any of
the terms or provisions of this 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.
17.02 Partial Invalidity
------------------
If any portion of this Agreement shall be declared invalid by order, decree
or judgment of a court, this Agreement shall be construed as if such portion had
not been inserted herein except when such construction would operate as an undue
hardship on Management Company or Owner, or constitute a substantial deviation
from the general intent and purpose of said parties as reflected in this
Agreement.
END OF ARTICLE XVII
- 74 -
ARTICLE XVIII
ASSIGNMENT
----------
18.01 Assignment
----------
A. Management Company shall not assign or transfer its management
responsibilities under this Agreement without the prior written consent of
Owner; provided, however, that Management Company shall have the right, without
such consent, to (1) assign its interest in this Agreement to any of its
Affiliates, and any such Affiliate shall be deemed to be the Management Company
for the purposes of this Agreement, and (2) sublease shops or grant licenses or
concessions at the Hotel so long as the terms of any such subleases, licenses or
concessions are consistent with the provisions of Section 2.02. In the event of
such an assignment by Management Company of its interest in this Agreement to an
Affiliate, the Management Company which is named in the Preamble to this
Agreement: (i) shall automatically be deemed to guarantee the performance of
such Affiliate under this Agreement; (ii) shall, at the request of Owner,
execute a guaranty, in form and substance reasonably satisfactory to both
parties, of the performance of such Affiliate under this Agreement (provided
that the failure of Owner to obtain an executed guaranty pursuant to this clause
(ii) shall not affect the validity or enforceability of the guaranty which is
automatically created pursuant to clause (i); and provided further, that, when
Owner does so receive an executed guaranty pursuant to this clause (ii), such
executed guaranty shall be deemed to have superseded the guaranty described in
clause (i) above); and (iii) shall make available to such Affiliate, in
connection with the performance by such Affiliate under this Agreement,
Management Company's skill, personnel, facilities and resources.
B. Owner shall not assign or transfer its interest in this Agreement nor
its interest in the Golf Course B Lease other than (i) in connection with a Sale
of the Hotel which complies with the provisions of Article XIX hereof, or (ii)
as set forth in Section 18.01 C.
C. Nothing contained herein shall prevent (i) the collateral assignment of
this Agreement and Owner's interest in the Golf Course B Lease by Owner as
security for any Mortgage which complies with the provisions of Section 3.01; or
(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 either party, provided
that (x) if such transfer is by Owner, the provisions of Article XIX hereof
shall be complied with, and (y) if such transfer is by Management Company, such
transfer is being done as a part of a merger or consolidation or a sale of
- 75 -
all or substantially all of the business which consists of managing the Marriott
Hotel System.
D. In the event either party consents to an assignment of this Agreement
by the other, no further assignment shall be made without the express consent in
writing of such party, unless such assignment may otherwise be made without such
consent pursuant to the terms of this Agreement.
E. An assignment (either voluntarily or by operation of law) by Owner of
its interest in this Agreement (in compliance with Article XVIII) shall not
relieve Owner from its obligations under this Agreement which accrued prior to
the date of such assignment, but shall relieve Owner of such obligations
accruing after such date, if the assignment complies with Section 18.01 B and if
Management Company has received an assumption agreement executed by the assignee
(in form and substance reasonably satisfactory to Management Company). An
assignment (either voluntarily or by operation of law) by Management Company of
its interest in this Agreement shall not relieve Management Company from its
obligations under this Agreement, unless Owner so agrees in writing.
F. Subject to the provisions of this Article XVIII, the terms and
conditions of this Agreement shall inure to the benefit of, and be binding upon,
the respective successors, heirs, legal representatives, or assigns of each of
the parties hereto.
END OF ARTICLE XVIII
- 76 -
ARTICLE XIX
SALE OF THE HOTEL
-----------------
19.01 Sale of the Hotel
-----------------
A. If Owner receives a bona fide written offer to purchase the Hotel and
desires to accept such offer, Owner shall give written notice thereof to
Management Company stating the name of the prospective purchaser, the price and
the terms and conditions of such proposed sale, together with all other
information requested by Management Company and reasonably available to Owner.
Within sixty (60) days after the date of receipt of Owner's written notice and
such other information, Management Company shall elect, by written notice to
Owner, one of the following alternatives:
1. To purchase the Hotel at the same price and on the same terms and
conditions as those set forth in the written notice from Owner to Management
Company or on other terms acceptable to Owner, in which event Owner and
Management Company shall promptly enter into an agreement for such sale and
shall finalize the sale within the time period allowed in such other offer.
2. To consent to such sale and to the assignment of this Agreement to
such purchaser, provided that concurrently with the finalization thereof the
purchaser shall, by appropriate instrument in form reasonably satisfactory to
Management Company, assume all of Owner's obligations hereunder and provided
that such sale must be finalized within the lesser of two hundred and seventy
(270) days following the receipt of Management Company's written response to
Owner's notice given under the first paragraph above or such period of time
specified in the proposal. Consent by Management Company shall not relieve Owner
from its obligations under this Agreement for any acts or omissions of Owner
before such approved sale and assignment. An executed copy of such assumption
agreement shall be delivered to Management Company.
3. To terminate this Agreement by written notice to Owner, which
notice will set an effective date for such Termination not earlier than thirty
(30) days, nor more than ninety (90) days, following the date of the giving of
such notice. Owner or Management Company shall have the right to change such
effective date of Termination to coincide with the date of the finalization of
the proposed sale. Said notice of Termination shall not be effective if such
sale is not finalized. Notwithstanding the foregoing, Management Company agrees
that if the proposed purchaser, in the reasonable opinion of Management Company,
(i) is financially responsible and has sufficient assets to fulfill the
obligations of Owner hereunder, (ii) is not a
- 77 -
party that has itself been connected with, or is either controlled by persons
known to be engaged in, criminal activities, or known as an associate or agent
of criminals, and (iii) does not directly or indirectly operate or manage
hotels, restaurants, food service operations, or other similar businesses in
competition with Management Company or its Affiliates, Management Company shall
not exercise its right to terminate this Agreement under this paragraph and
shall be deemed to have consented to the proposed sale or assignment under
paragraph 2.
B. If Management Company shall fail to elect any of the above alternatives
within said sixty (60) day period as set forth in the first paragraph of
subsection A, the same shall be conclusively deemed to constitute an election
and consent under paragraph A 2, and the provisions thereof shall prevail as if
Management Company had consented in writing thereto. Any proposed sale of which
notice has been given by Owner to Management Company hereunder must be finalized
within the lesser of two hundred and seventy (270) days following the end of
said sixty (60) day period or such period specified in the proposal, unless
Management Company has exercised its option under paragraph A 1 to purchase the
Hotel. Failing such finalization, such notice, and any response thereto given
by Management Company, shall be null and void and all of the provisions of
subsection A must again be complied with before Owner shall have the right to
finalize a sale of the Hotel on the terms contained in said notice, or
otherwise.
C. If Owner or an assignee of Owner disposes of the Hotel, Owner or its
assignee shall pay Management Company from the proceeds of such sale any amounts
paid by Management Company pursuant to Section 4.03 B of this Agreement and not
recovered pursuant to the mechanism recited in the definition of the term
"Incentive Management Fee"; provided that the amount of such payment shall not
exceed the amount of the gross selling price of the Hotel reduced by (i) all
reasonable expenses of the sale, (ii) all amounts owed under any loans made by
Marriott, its Affiliates, or any other party for the Hotel, and (iii) if DS
Hotel LLC is Owner hereunder, an amount equal to the cumulative paid-in capital
of the partners of Desert Springs Marriott Limited Partnership less cumulative
distributions to such partners of sale and refinancing proceeds of Owner
("Invested Capital"), plus an amount equal to an annual twelve percent (12%)
cumulative noncompounded return to the limited partners of Owner on their
Invested Capital to the extent not previously received from cash available for
distribution of Owner, but not from sale or refinancing proceeds.
- 78 -
D. In connection with the possibility of a Sale of the Hotel achieved by
means of a transfer of the controlling interest in Owner, Owner, upon written
request of Management Company, shall (unless Owner is a publicly-traded
corporation which is registered under Section 12 or Section 15 of the Securities
Act of 1934) furnish Management Company with a list of the names and addresses
of the owners of the capital stock (but only those owners which hold an
ownership interest of thirty percent (30%) or more), or the partnership
interests (both (i) general partner, and (ii) any limited partner holding an
ownership interest of thirty percent (30%) or more), or other ownership
interests in Owner. In addition, Owner shall notify Management Company of any
transaction or series of transactions in which Owner reduces its ownership
interest in the Hotel below fifty percent (50%) or in which the former
controlling interest in Owner is reduced below fifty percent (50%). Management
Company agrees that it will treat all such lists confidential in accordance with
the provisions of Section 20.04.
E. It is understood that no Sale of the Hotel (which is otherwise in
compliance with the provisions of this Article XIX) shall reduce or otherwise
affect: (i) the current level of Working Capital; (ii) the current amount
deposited in the FF&E Reserve; or (iii) any of the Operating Accounts maintained
by Management Company pursuant to this Agreement. If, in connection with any
Sale of the Hotel, the selling Owner intends to withdraw, for its own use, any
of the cash deposits described in the preceding sentence, the selling Owner must
obtain the contractual obligation of the buying Owner to replenish those
deposits (in the identical amounts) simultaneously with such withdrawal. The
selling Owner is hereby contractually obligated to Management Company to ensure
that such replenishment in fact occurs. The obligations described in this
Section 19.01 E shall survive such Sale of the Hotel and shall survive
Termination.
F. Management Company shall have the right to terminate this Agreement, on
thirty (30) days' written notice, if title to or possession of the Hotel is
transferred by judicial or administrative process (including, without
limitation, a Foreclosure, or a sale pursuant to an order of a bankruptcy court,
or a sale by a court-appointed receiver) to an individual or entity which would
not qualify as a permitted transferee under clause (i), (ii) or (iii) of Section
19.01 A, regardless of whether or not such transfer is the voluntary action of
the transferring Owner, or whether (under applicable law) the Owner is in fact
the transferor; provided, however, that Management Company shall not have the
right to so terminate this Agreement
- 79 -
based on the assertion that a Qualified Lender fails to so qualify as a
permitted transferee under said clauses (i), (ii) or (iii) of Section 19.01 A.
END OF ARTICLE XIX
- 80 -
ARTICLE XX
MISCELLANEOUS
-------------
20.01 Right to Make Agreement
-----------------------
A. Each party warrants, with respect to itself, that neither the execution
of this Agreement nor the finalization of the transactions contemplated hereby
shall: (i) violate any provision of law or any judgment, writ, injunction,
order or decree of any court or governmental authority having jurisdiction over
it; (ii) 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, to the extent that the remedies for such breach or default would have
a material adverse effect on such party's ability to perform under this
Agreement; or (iii) 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 this Agreement and any extensions thereof, the full right to enter
into this Agreement and perform its obligations hereunder.
B. Each party agrees that it will, as of the Effective Date, provide the
other party with: (i) certified copies of the applicable resolutions of its
board of directors (if it is a corporation), or written authorization by all
general partners (if it is a partnership) or other appropriate documentation
establishing its authority to execute this Agreement; and (ii) such opinions of
counsel as the other party shall reasonably request regarding the matters
described in this Section 20.01.
20.02 Consents
--------
Wherever in this Agreement the consent or approval of Owner or Management
Company is required, such consent or approval shall (except to the extent that
such consent or approval is specifically designated as being "within the
discretion" of a party, or words to that effect, in the applicable provision)
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 Owner or Management Company 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.
20.03 Relationship
------------
A. The relationship of Owner and Management Company shall be one of an
independent contractor, and nothing contained in this Agreement shall be
construed to create a partnership, joint venture, or agency relationship between
them or their successors
- 81 -
in interest. Nothing contained herein shall prohibit, limit or restrict
Management Company or any of its Affiliates from developing, owning, operating,
leasing, managing or franchising hotels in the market area where the Hotel is
located, and Management Company and its Affiliates hereby specifically reserve
the right to do any of the foregoing.
20.04 Confidentiality
---------------
The parties hereto agree that the matters set forth in this Agreement are
strictly confidential and each party will make every effort to ensure that such
matters are not disclosed to any outside person or entities (including the
press) without the written consent of the other party; provided, however, that
such consent will not be required with respect to: (i) legally required filings
and other disclosures mandated by Legal Requirements; and (ii) in the case of
Owner, disclosure to any Qualified Lender or prospective Qualified Lender, or to
prospective purchasers of the Hotel (subject to the provisions of Section 20.05,
if applicable).
20.05 Equity and Debt Offerings
-------------------------
No reference to Management Company or to any of its Affiliates will be made
in any prospectus, private placement memorandum, offering circular or offering
documentation related thereto (herein collectively referred to as the
"Prospectus"), issued by Owner or one of its Affiliates, which is designed to
interest potential investors or lenders in the Hotel, unless Management Company
has previously received a copy of all such references. However, regardless of
whether Management Company does or does not so receive a copy of all such
references, neither Management Company nor any of its Affiliates will be deemed
a sponsor of the offering described in the Prospectus, nor will it have any
responsibility for the Prospectus, and the Prospectus will so state. Unless
Management Company agrees in advance, the Prospectus will not include: (i) any
Proprietary Mark; or (ii) except as required by applicable securities laws, the
text of this Agreement. Owner shall be entitled, however, to include in the
Prospectus an accurate summary of this Agreement. If there are no Legal
Requirements pursuant to which such information must be publicly disclosed,
appropriate measures shall be taken to ensure that entities or individuals
receiving such Prospectus shall acknowledge the confidentiality of such
information. Owner shall indemnify, defend and hold Management Company and its
Affiliates (and their respective directors, officers, shareholders, employees
and agents) harmless from and against all loss, costs, liability and damage
(including attorneys' fees and expenses, and the cost of Litigation) arising out
of any Prospectus or the offering described therein.
- 82 -
20.06 Applicable Law
--------------
This Agreement shall be construed under and shall be governed by the laws
of the State of California.
20.07 Recordation
-----------
The terms and provisions of this Agreement shall run with the land
designated as the Site, and with Owner's interest therein, and shall be binding
upon all successors to such interest. At the request of either party, the
parties shall execute an appropriate memorandum of this Agreement in recordable
form and cause the same to be recorded in the jurisdiction where the Hotel is
located. Any cost of such recordation shall be borne by Management Company.
20.08 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.
20.09 Notices
-------
Notices, statements and other communications to be given under the terms of
this Agreement shall be in writing, and shall be either (i) delivered by hand
against receipt, or (ii) sent by certified or registered mail, postage prepaid,
return receipt requested or (iii) sent by either Federal Express or by "fax"
machine (provided that, in either case, a confirmatory copy is thereafter sent
by certified or registered mail):
To Owner:
--------
DS Hotel LLC
c/o Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Law Department
with a copy to:
--------------
DS Hotel LLC
c/o Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Asset Management Department 908
- 83 -
To Management Company:
---------------------
Marriott Hotel Services, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Law Department/Lodging Operations
52/923
with a copy to:
--------------
Marriott Hotel Services, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Senior Vice President-Finance
Marriott Hotels, Resorts & Suites
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, as described
above, shall be deemed to have been served as of three (3) business days after
said posting.
20.10 Environmental Matters
---------------------
A. Management Company shall indemnify, defend and hold Owner and its
Affiliates (and their respective directors, officers, shareholders, employees
and agents) harmless from and against all loss, cost, liability and damage
(including, without limitation, engineers' and attorneys' fees and expenses, and
the cost of Litigation) arising from the placing, discharge, leakage, use or
storage of Hazardous Materials, in violation of applicable Environmental Laws,
on the Site or in the Hotel by Management Company's employees, representatives
or agents during the Term of this Agreement. Regardless of whether or not a
given Hazardous Material is permitted on the Site under applicable Environmental
Law, Management Company shall only bring on the Site such Hazardous Materials as
are needed in the normal course of business of the Hotel.
B. In the event of the discovery of Hazardous Materials on any portion of
the Site or in the Hotel during the Term of this Agreement, Owner shall (except
to the extent such removal is Management Company's responsibility pursuant to
Section 20.10 A) promptly remove (if required by applicable Environmental Law)
such Hazardous Materials, together with all contaminated soil and containers,
and shall otherwise remedy the problem in accordance with all Environmental
Laws. Owner shall (except to the extent that the removal of such Hazardous
Materials is Management Company's responsibility pursuant to Section 20.10 A)
indemnify, defend and hold Management Company and its Affiliates (and their
respective directors, officers, shareholders, employees and agents) harmless
from and against all loss, cost, liability and
- 84 -
damage (including, without limitation, engineers' and attorneys' fees and
expenses, and the cost of Litigation) arising from the presence of Hazardous
Materials on the Site or in the Hotel.
C. All costs and expenses of the removal of Hazardous Materials from the
Site or the Hotel pursuant to Section 20.10 B, and of the aforesaid compliance
with all Environmental Laws, and any amounts paid to Management Company pursuant
to the indemnity set forth in the last sentence of Section 20.10 B, shall be
paid by Owner from its own funds, not as a Deduction nor from the FF&E Reserve,
and shall be treated as an expenditure by Owner pursuant to Section 8.03, except
that such costs, expenses, and amounts shall not constitute Additional Invested
Capital.
20.11 Estoppel Certificates
---------------------
Each party to this Agreement shall at any time and from time to time, upon
not less than thirty (30) days' prior notice from the other party, execute,
acknowledge and deliver to such other party, or to any third party specified by
such other party, a statement in writing: (a) certifying that this Agreement is
unmodified and in full force and effect (or if there have been modifications,
that the same, as modified, is in full force and effect and stating the
modifications); (b) stating whether or not to the best knowledge of the
certifying party (i) there is a continuing default by the non-certifying party
in the performance or observance of any covenant, agreement or condition
contained in this Agreement, or (ii) there shall have occurred any event which,
with the giving of notice or passage of time or both, would become such a
default, and, if so, specifying each such default or occurrence of which the
certifying party may have knowledge; and (c) stating such other information as
the non-certifying party may reasonably request. Such statement shall be
binding upon the certifying party and may be relied upon by the non-certifying
party and/or such third party specified by the non-certifying party as
aforesaid. The obligations set forth in this Section 21.11 shall survive
Termination (that is, each party shall, on request, within the time period
described above, execute and deliver to the non-certifying party and to any such
third party a statement certifying that this Agreement has been terminated).
20.12 [Intentionally omitted]
20.13 Arbitration
-----------
A. In the event of a dispute between Owner and Management Company with
respect to any issue of fact specifically mentioned herein as a matter to be
decided by arbitration, such dispute shall be determined by arbitration as
provided in this Section 20.13.
- 85 -
B. Disputes shall be resolved in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then pertaining. The
decision of the arbitrators shall be binding, final and conclusive on the
parties.
C. Owner and Management Company shall each appoint and pay all fees of a
fit and impartial person as arbitrator who shall have had at least ten (10)
years' recent professional experience in the general subject matter of the
dispute. Notice of such appointment shall be sent in writing by each party to
the other, and the arbitrators so appointed, in the event of their failure to
agree within thirty (30) days after the appointment of the second arbitrator
upon the matter so submitted, shall appoint a third arbitrator. If either Owner
or Management Company shall fail to appoint an arbitrator, as aforesaid, for a
period of twenty (20) days after written notice from the other party to make
such appointment, then the arbitrator appointed by the party having made such
appointment shall appoint a second arbitrator and the two so appointed shall, in
the event of their failure to agree upon any decision within thirty (30) days
thereafter, appoint a third arbitrator. If such arbitrators fail to agree upon
a third arbitrator within forty-five (45) days after the appointment of the
second arbitrator, then such third arbitrator shall be appointed by the American
Arbitration Association from its qualified panel of arbitrators, and shall be a
person having at least ten (10) years' recent professional experience as to the
subject matter in question. The fees of the third arbitrator and the expenses
incident to the proceedings shall be borne equally between Owner and Management
Company, unless the arbitrators decide otherwise. The fees of respective
counsel engaged by the parties, and the fees of expert witnesses and other
witnesses called for the parties, shall be paid by the respective party engaging
such counsel or calling or engaging such witnesses.
D. The decision of the arbitrators shall be rendered within thirty (30)
days after appointment of the third arbitrator. Such decision shall be in
writing and in duplicate, one counterpart thereof to be delivered to Owner and
one to Management Company. A judgment of a court of competent jurisdiction may
be entered upon the award of the arbitrators in accordance with the rules and
statutes applicable thereto then obtaining.
- 86 -
20.14 Affiliates
----------
Except as otherwise specifically set forth in this Agreement, Management
Company shall be entitled to contract with one or more of its Affiliates to
provide goods and/or services to the Hotel only if the prices and/or fees paid
to any such Affiliate are competitive with the prices and/or fees currently
being paid to reputable and qualified parties which are not Affiliates of
Management Company. In determining, pursuant to the foregoing sentence, whether
such prices and/or fees are competitive, the goods and/or services which are
being purchased shall be grouped in reasonable categories, rather than being
compared item by item.
20.15 Entire Agreement
----------------
This Agreement, together with other writings signed by the parties which
are expressly stated to be supplemental hereto and together with any instruments
to be executed and delivered pursuant to this Agreement, constitutes the entire
agreement between the parties, and supersedes all prior written and oral
understandings. This Agreement may be amended only by a writing signed by both
parties hereto.
20.16 Rental of Golf Course B
-----------------------
A. This Agreement is subject and subordinate to the Existing Ground Lease.
Except as may be inconsistent with the terms hereof, all of the terms, covenants
and conditions of the Existing Ground Lease are hereby made part hereof with the
same force and effect as if fully set forth at length herein.
B. Management Company agrees, on behalf of Owner as part of Management
Company's management obligations under this Agreement, to perform all of the
terms, covenants, and conditions of the Existing Ground Lease to be performed by
the tenant therein named.
C. If the Existing Ground Lease is terminated for any reason whatsoever,
whether by operation of law or otherwise, except through the fault or action of
Owner, Owner shall not be responsible for such termination. This Agreement
shall terminate as to Golf Course B in the event of any such termination of the
Existing Ground Lease, but it shall remain in effect for the remainder of the
Hotel.
D. Management Company shall neither do nor permit anything to be done that
would cause the Existing Ground Lease to be terminated or forfeited by reason of
any right of termination or forfeiture reserved or vested in the Ground Lessor
under the Existing Ground Lease.
- 87 -
20.17 Recitals
--------
The Recitals set forth at the beginning of this Agreement are hereby
incorporated as a material part of this Agreement with the same force and effect
as if restated in full herein.
END OF ARTICLE XX
- 88 -
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
Attest: DS HOTEL LLC ("Owner")
/s/ Tracy Colden By /s/ P K Brady
- ------------------------- ----------------------------
Assistant Secretary Vice President
Attest: MARRIOTT HOTEL SERVICES, INC.
("Management Company")
/s/ Carol Bruff By /s/ Kevin M. Kimball
- ------------------------- ----------------------------
Assistant Secretary Vice President
-89-
EXHIBIT "A" TO MANAGEMENT AGREEMENT
Legal Description of the Site
-----------------------------
and Golf Course B Tract
-----------------------
The Site:
--------
Parcel A:
--------
Lots 1 and 4 through 7, inclusive, of Tract 19619, in the City of Palm
Desert, County of Riverside, State of California, as per Map recorded in Book
159, pages 30 through 37, inclusive, of maps, in the office of the County
Recorder of said County.
Except all oil, gas, and other petroleum and mineral substances in and
under all of said foregoing lands with the right to mine, excavate, drill for,
remove, and sell the same, all of which rights are limited to that portion of
the lands lying below a depth of 500.00 feet measured from the surface of said
lands, without the right to go upon or use the surface of said lands, as
reserved by Plaza Investment Company, a California General Partnership and
William Bone, a married man, as his sole and separate property in deed recorded
August 4, 1983 as Instrument No. 157881, Official Records.
Parcel A1:
---------
An appurtenant and perpetual easement over that portion of Lot 3 of Tract
19619 designated as 25.00 foot golf course access easements, as dedicated on the
map of Tract 19619, as per map recorded in Book 159, pages 30 through 37,
inclusive, of maps, in the office of the County Recorder of said County, and the
rear 25.00 feet of Lots 1 through 34 of Tract 21698, as per map recorded in Book
166, pages 64 through 66, inclusive, of maps, in the office of the County
Recorder of such County, as further evidenced by that certain Grant of Easement
made by Marriott's Desert Springs Development Corporation in favor of Desert
Springs Marriott Limited Partnership, dated April 23, 1987 and recorded April
24, 1987 as Instrument No. 114105, Official Records.
Parcel A2:
---------
An appurtenant and perpetual easement for an underground tunnel and
underground golf cart path over a portion of Lot A of Tract 21698, as per map
recorded in Book 166, pages 64 through 66, inclusive, of maps, in the office of
the County Recorder of said County, subject to the terms, conditions and
provisions contained in a document recorded October 25, 1994 as Instrument No.
408533, Official Records.
Parcel A3:
---------
An appurtenant and perpetual easement established by Parcel Map 27563, as
per map recorded in Book 183, pages 3 through 10,
inclusive, of maps, in the office of the County Recorder of said County, over
(a) that portion of Parcel Map 27563 designated as 25.00 foot wide easement for
golf course purposes and (b) that portion of Parcel 4 of Parcel Map 27563
designated as 15.00 foot wide and 20.00 foot wide easements for golf course
purposes.
Parcel B:
--------
Parcels 1 and 3 of Parcel Map 27563, in the City of Palm Desert, County of
Riverside, State of California, as per map recorded in Book 183, pages 3 through
10 inclusive, of Parcel Maps, in the office of the County Recorder of said
County.
Except from Parcel 1, that portion conveyed to Marriott Ownership Resorts,
Inc., a Delaware Corporation, in Deed recorded December 20, 1996 as Instrument
No. 480352, Official Records, described as follows:
Beginning at the Northwest corner of Lot 5 of Tract 27570-3, in the City of
Palm Desert, County of Riverside, State of California, as per map recorded in
Book 251, pages 32 and 33 of Maps, in the office of the County Recorder of said
County; thence South 00 15' 23" East, 104.43 feet; thence North 54 40' 48" West,
88.79 feet; thence North 00 15' 23" West, 52.77 feet; thence North 89 44' 37"
East, 72.22 feet to the Point of Beginning.
Said description is also shown on Parcel Map Waiver P.M.W. 96-11, recorded
December 20, 1996 as Instrument No. 480351, Official Records.
EXHIBIT "A-1" TO MANAGEMENT AGREEMENT
[Intentionally omitted]
EXHIBIT B
FORM OF ACCOUNTING PERIOD STATEMENT
-----------------------------------
PERIOD YEAR TO DATE
--------------------------------------------- ---------------------------------------------
$ ACTUAL % $ BUDGET % $ LAST YEAR % $ ACTUAL % $ BUDGET % $ LAST YEAR %
---------- ---------- ------------- ---------- ---------- -------------
Rooms
Telephone
Gift Shop
Garage
Restaurant
Lounge
Banquet
Specialty Rest
Room Services
Total F&B
Recreation Center
Business Center
Other Inc. Rents
Tradeout
Total Sales
Rooms
Laundry
Valet
Telephone
Gift Shop
Garage
Restaurants
Lounge
Banquet
Specialty Rest
Room Service
Total F&B
Recreation Center
Cafeteria
Business Center
Other Inc. Rents
Tradeout
Total Dept Profit
Local G&A
Cr Card Dis Exp
Heat, Light, Power
Repairs & Maint
Cntr Train and Relo
Accidents
Sales Promotion
Local Adv & Broch
National Adv Alloc
National Sls Alloc
Housekeeping Exp
Total Deduct
House Profit
Occupancy
Average Rate