EXHIBIT 10.N
Hanover Marriott
Hanover, New Jersey
MANAGEMENT AGREEMENT
BETWEEN
HANOVER MARRIOTT LIMITED PARTNERSHIP
("OWNER")
AND
MARRIOTT HOTEL SERVICES, INC.
("MANAGEMENT COMPANY")
TABLE OF CONTENTS
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Page
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ARTICLE I - DEFINITION OF TERMS
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1.01 Definition of Terms---------------------------- 3
1.02 Terms Defined in Other Sections---------------- 16
ARTICLE II - APPOINTMENT OF MANAGEMENT COMPANY
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2.01 Appointment------------------------------------ 18
2.02 Delegation of Authority------------------------ 18
2.03 Operational Standards-------------------------- 19
2.04 Limitations on Authority----------------------- 24
ARTICLE III - THE HOTEL
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3.01 Ownership of Site and Hotel-------------------- 26
3.02 No Covenants or Restrictions------------------- 27
ARTICLE IV - TERM
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4.01 Term------------------------------------------- 28
4.02 Owner's Right to Terminate--------------------- 29
ARTICLE V - COMPENSATION OF MANAGEMENT COMPANY; DISTRIBUTIONS
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5.01 Management Fees-------------------------------- 30
5.02 Accounting and Interim Payments---------------- 30
ARTICLE VI - PRE-OPENING ACTIVITIES
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[Intentionally omitted.]----------------------------- 32
ARTICLE VII - WORKING CAPITAL, INVENTORIES AND FIXED ASSET
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SUPPLIES
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7.01 Working Capital and Inventories---------------- 33
7.02 Fixed Asset Supplies--------------------------- 33
ARTICLE VIII - MAINTENANCE, REPLACEMENT AND CHANGES
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8.01 Repairs and Maintenance------------------------ 35
8.02 Repairs and Equipment Reserve------------------ 35
8.03 Alterations and Improvements------------------- 38
8.04 Liens------------------------------------------ 40
8.05 Ownership of Replacements, Etc.---------------- 40
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ARTICLE IX - BOOKKEEPING AND BANK ACCOUNTS
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9.01 Books and Records ----------------------------- 41
9.02 Hotel Accounts--------------------------------- 42
9.03 Annual Operating Budget------------------------ 42
9.04 Operating Loss; Credit------------------------- 43
ARTICLE X - TRADEMARK AND TRADE NAME
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10.01 Marriott Name--------------------------------- 44
10.02 Fixed Asset Supplies-------------------------- 45
10.03 Breach of Covenant---------------------------- 45
ARTICLE XI - POSSESSION AND USE OF HOTEL
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11.01 Quiet Enjoyment------------------------------- 46
11.02 Actions for Quiet Occupation------------------ 46
11.03 Use------------------------------------------- 47
11.04 Chain Services-------------------------------- 48
11.05 Owner's Right to Inspect---------------------- 49
ARTICLE XII - INSURANCE
- -----------------------
12.01 Interim Insurance----------------------------- 50
12.02 Property and Operational Insurance------------ 50
12.03 General Insurance Provisions------------------ 52
12.04 Cost and Expense------------------------------ 54
12.05 Owner's Option to Obtain Certain Insurance---- 55
ARTICLE XIII - TAXES
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13.01 Real Estate and Property Taxes---------------- 58
ARTICLE XIV - HOTEL EMPLOYEES
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14.01 Employees------------------------------------- 59
ARTICLE XV - DAMAGE, CONDEMNATION AND FORCE MAJEURE
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15.01 Damage and Repair----------------------------- 60
15.02 Condemnation---------------------------------- 61
15.03 Force Majeure--------------------------------- 62
15.04 Damage, Condemnation and Force
Majeure Under First Mortgage----------------- 63
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ARTICLE XVI - DEFAULTS
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16.01 Defaults-------------------------------------- 64
16.02 Remedies Cumulative--------------------------- 65
ARTICLE XVII - WAIVER; PARTIAL INVALIDITY
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17.01 Waiver---------------------------------------- 67
17.02 Partial Invalidity---------------------------- 67
ARTICLE XVIII - ASSIGNMENT
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18.01 Assignment------------------------------------ 68
18.02 Subordination--------------------------------- 70
18.03 Transfer of Hotel to Lender Under
First Mortgage and Second Mortgage----------- 71
ARTICLE XIX - SALE OF HOTEL
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19.01 Sale of Hotel--------------------------------- 72
ARTICLE XX - ARBITRATION
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20.01 Arbitration----------------------------------- 75
ARTICLE XXI - MISCELLANEOUS
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21.01 Right to Make Agreement----------------------- 78
21.02 Consents-------------------------------------- 78
21.03 Agency---------------------------------------- 79
21.04 Applicable Law-------------------------------- 80
21.05 Recordation----------------------------------- 80
21.06 Headings-------------------------------------- 81
21.07 Certificates---------------------------------- 81
21.08 Notices--------------------------------------- 82
21.09 Entire Agreement------------------------------ 83
21.10 Termination----------------------------------- 83
21.11 Indemnification------------------------------- 85
21.12 Confidentiality------------------------------- 85
21.13 Owner's Exculpation--------------------------- 86
21.14 Termination of Operating Lease---------------- 86
Exhibit A - The Site
Exhibit B - Permitted Exceptions
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MANAGEMENT AGREEMENT
--------------------
This Management Agreement (this "Agreement") is executed as of the 18th day
of August, 1997, ("Effective Date"), by and between HANOVER MARRIOTT LIMITED
PARTNERSHIP, a Delaware limited partnership with its principal address at 10400
Fernwood Road, Bethesda, Maryland 20817 ("Owner"), and MARRIOTT HOTEL SERVICES,
INC., a Delaware corporation with its principal address at 10400 Fernwood Road,
Bethesda, Maryland 20817 ("Management Company").
W I T N E S S E T H:
WHEREAS, Owner is the owner of a modern, first-class hotel in Hanover, New
Jersey, as more fully described in Section 1.01;
WHEREAS, the Hotel is as of the Effective Date being operated by Management
Company pursuant to that certain Amended and Restated Lease dated as of July 29,
1986 (the "Operating Lease");
WHEREAS, Management Company and Owner desire to terminate the Operating
Lease as of the Effective Date; and
WHEREAS, Owner desires to have Management Company continue to operate the
Hotel and Management Company is willing to continue to operate the Hotel for the
account of Owner but on the terms
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and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
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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:
A. "Accounting Period" shall mean the four (4) week accounting periods
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having the same beginning and ending dates as Management Company's four (4) week
accounting periods, except that an Accounting Period may occasionally contain
five (5) weeks when necessary to conform Management Company's accounting system
to the calendar.
B. "Additional Invested Capital" shall mean the cumulative total, as of any
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given point in time during the term of this Agreement, of any expenditures made
by Owner pursuant to Section 8.03 and any contributions by Owner to the FF&E
Reserve beyond the funding described in Section 8.02 B.
C. "Annual Operating Statement" shall mean a financial statement in
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reasonable detail summarizing the Hotel operations for a given Fiscal Year.
D. "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 Owner's Priority.
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E. "Base Management Fee" shall mean an amount equal to three percent (3%)
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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.
F. "Central Office Services" shall mean certain services which are provided
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to 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 a Deduction).
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
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comparable full-service hotels within the Marriott Hotel System.
G. "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, but not be limited to, 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.
H. "Employment Laws" shall mean any federal, state or local law (including
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the 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
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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.
I. "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.
J. "First Mortgage" shall mean that instrument which secures the permanent
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first-lien financing from Connecticut General Life Insurance Company for the
Hotel in the principal amount of Twenty-Nine Million Eight Hundred Seventy-Five
Thousand Dollars ($29,875,000). Unless specifically stated to the contrary
elsewhere herein, the term "First Mortgage" shall include renewals, extensions,
amendments or refinancings of said instrument so long as the principal amount of
the First Mortgage as so renewed, extended, amended or refinanced is not in
excess of the aforesaid amount.
K. "Fiscal Year" shall mean the same period as Management Company's Fiscal
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Year, which now begins at 12:01 a.m. on the first Saturday following the Friday
closest to December 31 of
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each calendar year and shall consist of thirteen (13) Accounting Periods, thus
providing a Fiscal Year of fifty-two (52) weeks, except that when appropriate
(every five or six years), a Fiscal Year shall contain fifty-three (53) weeks.
The first full Fiscal Year shall begin on the Saturday following the Friday
closest to the first December 31st following the Effective Date. Any period
between the Effective Date and the beginning of the first full Fiscal Year of
the Initial Term, as well as any period between the last full Fiscal Year and
the expiration or termination of this Agreement, shall be considered a "Partial
Fiscal Year." If Management Company's Fiscal Year is changed in the future,
appropriate adjustments in this Agreement's accounting and reporting procedures
shall be made; provided, however, that no such change or adjustments shall in
any way alter the term of this Agreement or in any way reduce or diminish
Owner's Distribution.
L. "Fixed Asset Supplies" shall mean supply items included within "Property
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and Equipment" under the Uniform System of Accounts (as hereinafter defined)
including linen, china, glassware, silver, uniforms, and similar items.
M. "GDP Deflator" shall mean the "Gross Domestic Product Implicit Price
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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
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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 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 20.01. 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.
N. "Gross Revenues" shall mean all revenues and receipts of every kind
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derived from operating the Hotel and all departments and parts thereof,
including, but not limited to, income (from both cash and credit transactions),
before commissions and
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discounts for prompt or cash payments, from: the rental of rooms, stores,
offices, exhibit or sales space of every kind; license, lease and concession
fees and rentals; income from vending machines; health club membership fees;
food and beverage sales; wholesale and retail sales of merchandise; service
charges; and the proceeds, if any, from business interruption or other loss of
income insurance; provided, however, that Gross Revenues shall not include: (i)
gratuities to Hotel employees; (ii) Federal, state and municipal excise, sales
and use taxes or similar impositions collected directly from patrons or guests
or included as part of the sales price of any goods or services; (iii) the
proceeds of casualty and public liability insurance; (iv) condemnation awards;
or (v) gross receipts of licensees, sublessees and concessionaires which are not
owned by or affiliated with Management Company.
O. "Hazardous Materials" shall mean any substance or material containing
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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
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Hotel.
P. "Hotel" shall mean the improvements presently located on the Site, and
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the furniture, furnishings, fixtures and equipment now or hereafter placed
thereon.
Q. "Impositions" shall have the meaning set forth in Section 13.01.
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R. "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, which shall be an
amount equal to one hundred percent (100%) of the first Four Hundred Thousand
Dollars ($400,000) of Available Cash Flow in each Fiscal Year (or portion
thereof) plus twenty-five percent (25%) of Available Cash Flow in excess of Four
Hundred Thousand Dollars ($400,000) in each Fiscal Year (or portion thereof).
S. "Inventories" shall mean "Inventories" as defined in the Uniform System
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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.
T. "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
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business or operation of the Hotel or the matters which are the subject of this
Agreement, including, but not limited to, the following: (i) any building,
zoning or use laws, ordinances, regulations or orders; and (ii) Environmental
Laws.
U. "Litigation" shall mean: (i) any cause of action commenced in a
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federal, state or local court; or (ii) any claim brought before an
administrative agency or body (for example, but not limited to, employment
discrimination claims).
V. "Management Fees" shall mean the Base Management Fee plus the Incentive
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Management Fee.
W. "Marriott" shall mean Marriott International, Inc., a Delaware
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corporation having an address at 10400 Fernwood Road, Bethesda, Maryland 20817.
X. "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".
Y. "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
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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).
Z. "Operating Loss" shall mean a negative Operating Profit.
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AA. "Operating Profit" shall mean for each Fiscal Year (and Partial Fiscal
----------------
Year) the excess of Gross Revenues over the following deductions ("Deductions"),
as determined under the Uniform System of Accounts except as otherwise
specifically provided for herein, incurred by Management Company in operating
the Hotel:
1. The cost of sales, salaries, wages, fringe benefits, payroll taxes
and other costs related to Hotel employees;
2. Departmental expenses; administrative and general expenses and the
cost of Hotel advertising and business promotion; heat, light, power and all
other utility costs; and routine repairs, maintenance and minor alterations
under Section 8.01;
3. The cost of Inventories and Fixed Asset Supplies consumed in the
operation of the Hotel;
4. License fees and taxes, if any, payable by or assessed against
Owner or Management Company related to the Site, the Hotel, to this Agreement or
to Management Company's operation of the Hotel (exclusive of income, franchise
and similar taxes
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owed by either Owner or Management Company) but including all ad valorem,
personal property and real estate taxes described in Section 13.01, and special
public assessments levied against the Hotel during the term of this Agreement;
5. Insurance costs and expenses as provided in Article XII;
6. A reserve for uncollectible accounts receivable as reasonably
determined by Management Company;
7. All costs and fees of independent accountants or other third
parties who perform services for the Hotel which are required or permitted
hereunder;
8. The cost and expense of technical consultants and operational
experts for specialized services in connection with non-routine Hotel work;
9. The Base Management Fee;
10. The Hotel's pro rata share of costs and expenses incurred by
Management Company in providing Chain Services (as defined in Section 11.04);
11. Repairs and Equipment Reserve contributions in accordance with
Section 8.02;
12. Such other costs and expenses as are specifically provided for
elsewhere in this Agreement (not including the costs and expenses of providing
the Central Office Services) or are otherwise reasonably necessary for the
proper and efficient
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operation of the Hotel.
Specifically excluded from Deductions (and to be paid solely by Owner) are
all payments on loans (including, but not limited to, the First Mortgage, the
Second Mortgage and debt owed to Host Marriott Corporation and its affiliates)
incurred with respect to the purchase of the Site and/or the construction,
furnishing and equipping of the Hotel, except as may otherwise be expressly set
forth herein. 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 (i) rental payments pursuant to any
ground lease of the Site, nor (ii) any expenditures which are included within
the definition of "Additional Invested Capital"; all of which shall be paid by
Owner from its own funds, and not from Gross Revenues nor from
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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.
Depreciation shall be excluded from the computation of Operating Profit.
BB. "Owner's Distribution" shall mean, with respect to each Fiscal Year or
--------------------
portion thereof during the term of this Agreement, Operating Profit less any
Incentive Management Fee due to Management Company.
CC. "Owner's Priority" shall mean, with respect to each Fiscal Year
----------------
(prorated for any partial Fiscal Years) during the term of this Agreement, the
sum of (i) Four Million Six Hundred Fifty Thousand Dollars ($4,650,000) and (ii)
a dollar amount equal to ten percent (10%) of any Additional Invested Capital
expended by Owner; in calculating the dollar amount in the foregoing clause
(ii), each expenditure of Additional Invested Capital shall be added into such
calculation (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 current Fiscal Year. As of
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the Effective Date, the Owner's Priority is Four Million Six Hundred Fifty
Thousand Dollars ($4,650,000).
DD. "Site" shall mean that certain parcel of land in Hanover, New Jersey
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shown on Exhibit A attached hereto.
EE. "Termination" shall mean the expiration or sooner cessation of this
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Agreement.
FF. "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.
GG. "Working Capital" shall mean funds which are reasonably necessary for
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the day-to-day operation of the Hotel's business, including, but not limited to,
amounts sufficient for the maintenance of change and petty cash funds, operating
bank accounts, receivables, prepaid expenses and funds required to maintain
Inventories, less accounts payable and accrued current liabilities.
HH. "Second Mortgage" shall mean that instrument which secures the
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permanent second-lien financing from Host Marriott Corporation for the Hotel in
the original principal amount of Seven Million One Hundred Twenty-Five Thousand
Dollars ($7,125,000). Unless specifically stated to the contrary elsewhere
herein, the term "Second Mortgage" shall include renewals, extensions,
amendments or refinancings of said instrument so long as the principal amount of
the Second Mortgage
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as so renewed, extended, amended or refinanced is not in excess of the aforesaid
amount; provided, however, that the term "Second Mortgage" shall include an
increase in principal amount of up to an additional One Million Seven Hundred
Thousand Dollars ($1,700,000) if lender under the Second Mortgage makes an
additional loan to Owner to fund a portion of the renovation project currently
scheduled to take place in Fiscal Year 1997 and Fiscal Year 1998.
1.02 Terms Defined in Other Sections
-------------------------------
As used in this Agreement, the following terms have the meanings specified
in the Sections listed below:
A. "Accounting Period Statement" - Section 5.02 A.
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B. "Agreement" - Preamble.
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C. "Annual Operating Budget" - Section 9.03.
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D. "Building Estimate" - Section 8.03.
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E. "Chain Services" - Section 11.04.
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F. "Deductions" - Section 1.01 AA.
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G. "Effective Date" - Preamble.
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H. "FF&E" - Section 8.02 A 1.
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I. "FF&E Estimate" - Section 8.02 D.
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J. "Force Majeure" - Section 15.01.B.
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K. "Hotel Retention" - Section 12.03 F.
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L. "Initial Term" - Section 4.01 A.
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M. "Management Company" - Preamble.
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N. "Operating Accounts" shall have the meaning set forth in Section 9.02.
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O. "Operating Lease" - Preamble.
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P. "Owner" - Preamble.
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Q. "Partial Fiscal Year" - Section 1.01 K.
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R. "Renewal Terms" - Section 4.01 B.
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S. "Repairs and Equipment Reserve" - Section 8.02 A.
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END OF ARTICLE I
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ARTICLE II
APPOINTMENT OF MANAGEMENT COMPANY
---------------------------------
2.01 Appointment
-----------
Owner hereby appoints and employs Management Company as Owner's exclusive
agent to supervise, direct and control the management and operation of the Hotel
for the term of this Agreement (beginning as of the Effective Date) provided in
Article IV. Management Company accepts said appointment and agrees to manage
the Hotel during the term of this Agreement (beginning as of the Effective Date)
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
-----------------------
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, in all matters relating to management
and operation of the Hotel, including, but not limited to, the following:
charges for rooms and commercial
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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 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. Management Company shall 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
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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 (as agent for 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.
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I. As agent for 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 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.
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M. Reasonably cooperate with Owner concerning (i) disputes with any holder
of the First Mortgage or the Second Mortgage 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 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 pursuant to Section 19.01
or a renewal, extension, amendment or refinancing of the First Mortgage or the
Second Mortgage. Such cooperation shall include, but be not limited to: (i)
answering any reasonable questions by prospective purchasers and any holder of
the First Mortgage or the Second Mortgage; (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 any such holder of the First Mortgage or the Second Mortgage,
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
-23-
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 minimize any cash deficits with respect to Hotel
operations, which deficits would otherwise require additional funding of Working
Capital by Management Company.
Q. Comply with all provisions in the First Mortgage and the Second 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 First Mortgage and the Second Mortgage; but provided
further, that if any holder under the First Mortgage or the Second 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 First
Mortgage or the Second Mortgage, respectively, Management Company shall promptly
alter such practices and procedures to
-24-
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
-25-
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;
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
-26-
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.
END OF ARTICLE II
-27-
ARTICLE III
THE HOTEL
---------
3.01 Ownership of Site and Hotel
---------------------------
A. Owner covenants that it holds fee title to the Site and that it will
have, keep and maintain good and marketable fee title interest therein free and
clear of any and all liens, encumbrances or other charges except for (i) the
First Mortgage and the Second Mortgage (or subordinated mortgages if Owner so
elects and if such subordinated mortgages are permitted under the First Mortgage
and the Second Mortgage), or (ii) other permitted exceptions as set forth on
Exhibit B attached hereto or elsewhere in this Agreement, or (iii) liens,
encumbrances or other charges resulting from the acts of Management Company.
Notwithstanding the foregoing, Owner (except if (i) the holder of the First
Mortgage or the Second Mortgage is "Owner" under this Agreement, or (ii) the
First Mortgage or the Second Mortgage has been foreclosed upon and a subsequent
purchaser at a foreclosure sale is "Owner" under this Agreement) 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 counsel for
Management Company that this Agreement will not be subject to forfeiture or
Termination other than in accordance
-28-
with the terms hereof, notwithstanding a default under such mortgage, deed of
trust or security instrument.
B. Provided Management Company is not in monetary default under the terms
and conditions of this Agreement, Owner shall pay and discharge, at or prior to
the due date, any and all installments of principal and interest due and payable
upon the First Mortgage and the Second Mortgage, other financing or refinancing,
and other obligations listed as specified exclusions from the computation of
Operating Profit pursuant to Section 1.01 AA and shall indemnify Management
Company from and against all claims, litigation and damages arising from the
failure to make such payments as and when required.
3.02 No Covenants or Restrictions
----------------------------
Owner warrants that after the Effective Date the Hotel will not be
encumbered by any covenants or restrictions which would adversely affect the
operation of the Hotel as a first-class hotel. Owner agrees upon request by
Management Company to sign promptly, and without charge, applications for
licenses, permits or other instruments necessary for operation of the Hotel.
END OF ARTICLE III
-29-
ARTICLE IV
TERM
----
4.01 Term
----
A. The initial term ("Initial Term") of this Agreement shall commence on
the Effective Date, and unless sooner terminated as herein provided, shall
continue for fourteen (14) Fiscal Years beginning with the first Fiscal Year
which occurs after the Effective Date.
B. The term thereafter shall be renewed by Management Company automatically
(on the same terms and conditions contained herein) for each of five (5)
successive periods of ten (10) Fiscal Years ("Renewal Terms") unless Management
Company exercises its option to terminate this Agreement by giving Owner notice
to that effect not less than twenty-four (24) months prior to 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 which is twenty-four (24) months after the giving of such notice.
Management Company's renewal shall be effective if and only if Management
Company is not in default under the terms and conditions of this Agreement at
the time of commencement of such Renewal Term.
-30-
4.02 Owner's Right to Terminate
--------------------------
A. Owner shall have the option to terminate this Agreement if in any two of
three consecutive Fiscal Years there is an Operating Loss. Owner's option to
terminate for the reason described in this Section 4.02 shall be exercised by
written notice served upon Management Company in accordance with Section 21.08
within sixty (60) days following receipt of the Annual Operating Statement for
the second Fiscal Year in which there is an Operating Loss in accordance with
the foregoing.
B. Notwithstanding the provisions of Section 4.02 A, Management Company
shall have the right to avoid Termination by advancing to Owner, within thirty
(30) days after receipt of the notice of Owner's exercise of its option to
terminate, an amount equal to the Operating Losses during such two Fiscal Years.
Upon making such payment, the exercise of Owner's options under Section 4.02 A
shall be deemed null and void for the applicable period to which such option
relates, and this Agreement shall continue in full force and effect.
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.
5.02 Accounting and Interim Payments
-------------------------------
A. Within twenty (20) days after the close of each Accounting Period,
Management Company shall submit to Owner an interim accounting statement (the
"Accounting Period Statement") to Owner showing Gross Revenues, Deductions,
Operating Profit, the Management Fees and other information necessary in
determining Owner's Distribution. Management Company shall transfer with each
Accounting Period Statement any interim Owner's Distribution due to Owner and
shall retain any interim Management Fees due to Management Company.
B. Calculations of Operating Profit and payments of the Management Fees and
Owner's Distribution with respect to each Accounting Period within a Fiscal Year
shall be accounted for cumulatively. Within ninety (90) days after the close of
each Fiscal Year, Management Company shall submit an Annual Operating Statement
to Owner, which Annual Operating Statement shall be
-32-
controlling over the interim Accounting Period Statements. Any adjustments
required by any such Annual Operating Statement shall be made promptly by the
parties. No adjustment shall be made for any given Fiscal Year for any Operating
Loss in a preceding or subsequent Fiscal Year.
END OF ARTICLE V
-33-
ARTICLE VI
PRE-OPENING ACTIVITIES
----------------------
[Intentionally omitted.]
END OF ARTICLE VI
-34-
ARTICLE VII
WORKING CAPITAL, INVENTORIES AND FIXED ASSET SUPPLIES
-----------------------------------------------------
7.01 Working Capital and Inventories
-------------------------------
As of the Effective Date, Management Company has provided the funds
necessary to supply the Hotel with the amount of Working Capital and Inventories
which Management Company determines, in its reasonable business judgment, to be
needed for the operation of the Hotel. During the term of this Agreement,
Management Company shall maintain Working Capital at levels which it reasonably
believes to be necessary for the operational requirements of the Hotel. All
replacements to Inventories shall be funded from Gross Revenues and shall
constitute a Deduction from Gross Revenues in determining Operating Profit. 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, Owner has provided the funds necessary to supply
the Hotel with the necessary quantity and quality of Fixed Asset Supplies, as
determined by Management Company in its reasonable business judgment. The cost
of Fixed Asset Supplies expended during the Hotel's operation shall
-35-
constitute a Deduction from Gross Revenues in determining Operating Profit. All
replacements of Fixed Asset Supplies shall be funded from Gross Revenues and
shall remain 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 provided by Owner as of the
Effective Date, subject to the provisions of Section 10.02.
END OF ARTICLE VII
-36-
ARTICLE VIII
MAINTENANCE, REPLACEMENT AND CHANGES
------------------------------------
8.01 Repairs and Maintenance
-----------------------
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
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 Repairs and Equipment Reserve, shall be paid from Gross Revenues
and treated as Deductions in computing Operating Profit.
8.02 Repairs and Equipment Reserve
-----------------------------
A. As of the Effective Date, Management Company has, on behalf of Owner,
established an escrow account ("Repairs and Equipment Reserve") in a bank
selected by Management Company, subject to Owner's approval, into which the
funds from the Reserve maintained pursuant to the Operating Lease have been
transferred as of the Effective Date and which Repairs and Equipment Reserve
shall be funded as set forth in Section 8.02 B, to cover the cost of:
-37-
1. Replacements and renewals to the furniture, furnishings, fixtures
and equipment ("FF&E") of the Hotel; and
2. Certain non-routine repairs and maintenance to the Hotel building
which are 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.
B. Management Company shall, on behalf of Owner, transfer into the Repairs
and Equipment Reserve, subject to the provisions of Section 8.02 F, an amount
equal to five percent (5%) of Gross Revenues for each such Fiscal Year. All
such transfers shall take place with respect to each Accounting Period and shall
be accounted for cumulatively and adjusted at the close of each Fiscal Year.
Any amount remaining in the Repairs and Equipment Reserve upon Termination shall
be paid to Owner.
C. Any proceeds from the sale of FF&E no longer necessary to the operation
of the Hotel shall be credited to the Repairs and Equipment Reserve. Any
interest paid upon such account shall also be credited to the Repairs and
Equipment Reserve. The
-38-
amount that would otherwise be transferred to the Repairs and Equipment Reserve
in any given Fiscal Year shall be reduced by amounts so credited under this
Section 8.02 C.
D. Each Fiscal Year Management Company shall prepare an estimate (the "FF&E
Estimate") of the expenditures necessary for the replacement of FF&E, as well as
the non-routine repairs and maintenance described in Section 8.02 A 2, during
the next Fiscal Year and shall submit such FF&E Estimate to Owner at the same
time as it submits the Annual Operating Budget.
E. Management Company shall from time to time make such substitutions and
replacements of or renewals to FF&E, as well as the non-routine repairs and
maintenance described in Section 8.02 A 2, as it deems necessary up to the
balance in the Repairs and Equipment Reserve. No expenditures will be made from
the Repairs and Equipment Reserve other than in accordance with the preceding
sentence. To the extent reasonably feasible Management Company will follow the
FF&E Estimate for such Fiscal Year in making such expenditures. No expenditures
will be made in excess of the balance in the Repairs and Equipment Reserve
without the approval of Owner. At the end of each Fiscal Year, any amounts
remaining in the Repairs and Equipment Reserve shall be carried forward to the
next Fiscal Year.
F. The annual percentage of Gross Revenues to be placed in the Repairs and
Equipment Reserve as set forth in Section 8.02 B
-39-
is an estimate based upon Management Company's prior experience with other
comparable hotels. If, in good faith, Management Company feels at any time
during the term of this Agreement that such percentage has become excessive
given the needs of the Hotel, such percentage will be reduced to such an amount
as Management Company deems reasonably necessary for the proper operation of the
Hotel. On the other hand, as the Hotel ages, this percentage may not be
sufficient to maintain the Hotel as a first-class hotel and, therefore, if, in
any given Fiscal Year, the FF&E Estimate prepared in good faith by Management
Company exceeds available funds in the Repairs and Equipment Reserve, Owner will
either:
1. Agree to increase the annual percentages of Gross Revenues
contributed to the Repairs and Equipment Reserve to provide the additional funds
required, or
2. Obtain financing for the additional funds required; in such event,
the principal and interest payments (which shall be on a commercially reasonable
amortization basis) with respect to such financing will be treated as Deductions
in computing Operating Profit.
A failure or refusal by Owner to agree to either 1 or 2 above within a
sixty (60) day period after Management Company's request therefor shall entitle
Management Company to terminate this Agreement upon six (6) months' written
notice.
-40-
8.03 Alterations and Improvements
----------------------------
Management Company will prepare in good faith an annual estimate of major
expenditures for building alterations, improvements, renewals and replacements
necessary to maintain and operate the Hotel as a first-class hotel facility
("Building Estimate") other than those to be paid from the Repairs and Equipment
Reserve, and shall submit the estimate to Owner for approval at the same time
the Annual Operating Budget is submitted. Management Company will not make any
expenditures for such purposes that have not been approved by Owner, provided
that if major changes, repairs, additions, alterations and improvements to the
Hotel are required by reason of any law, ordinance, regulation or order of a
competent government authority, or are otherwise required for the continued safe
and orderly operation of the Hotel, Management Company shall immediately give
Owner notice thereof and shall be authorized to take appropriate remedial action
without approval in cases of emergency if Owner does not act. If Owner does not
approve the Building Estimate as in good faith recommended by Management Company
within sixty (60) days after it has been submitted and it is Management
Company's reasonable business judgment that the failure to implement the
Building Estimate will adversely affect the position of the Hotel within its
geographical market or as a member of the Marriott chain of hotels, then
Management Company
-41-
shall have the right at its option to terminate this Agreement upon six (6)
months' prior written notice. The cost of all such alterations, improvements,
renewals and replacements shall be borne solely by Owner.
8.04 Liens
-----
Management Company and Owner agree that the party obligated to cause or pay
for any maintenance, repair, replacements, alterations or improvements in or to
the Hotel shall not permit any liens to be filed against the Hotel which arise
from such activities. Management Company and Owner shall cooperate fully in
obtaining the release of any liens, and the cost thereof, if the lien was not
occasioned by the fault of either party, shall be a proper Deduction from Gross
Revenues (unless the work with respect to which the lien was filed is within the
scope of Section 8.03, in which case Owner will bear such cost). 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 replacements, additions, substitutions and improvements made pursuant to
this Article VIII, together with the funds periodically placed in the Repairs
and Equipment Reserve, shall be the property of Owner.
-42-
END OF ARTICLE VIII
-43-
ARTICLE IX
BOOKKEEPING AND BANK ACCOUNTS
-----------------------------
9.01 Books and Records
-----------------
Books of control and account shall be kept on the accrual basis and in all
material respects in accordance with the Uniform System of Accounts, with the
exceptions provided in this Agreement. Owner and its agents and representatives
(or the holder of the First Mortgage or the Second Mortgage) shall have the
right, at reasonable intervals during Management Company's normal business
hours, to examine such records and to make copies thereof, at Owner's expense.
Within ninety (90) days following the close of each Fiscal Year, Management
Company shall furnish Owner an Annual Operating Statement for such Fiscal Year
and a certificate of Management Company's chief accounting officer certifying
that such year-end statement is true and correct. Owner shall have ninety (90)
days after receipt to audit, examine, or review said statement. If Owner raises
no objections within said ninety (90) day period (unless Owner determines that
it wishes to have such statement audited, in which case the aforesaid period of
time shall be extended for a reasonable period until the completion of said
audit), the statement shall be deemed to have been accepted by Owner and
Management Company as true and correct and neither Owner nor Management Company
-44-
shall have any further right to question its accuracy. Notwithstanding the
above, Management Company shall furnish Owner with sufficient financial
information to permit Owner to comply with the terms of the First Mortgage and
the Second Mortgage pertaining to financial statements required thereunder.
9.02 Hotel Accounts
--------------
All funds derived from the operation of the Hotel, or placed in escrow
accounts in connection with said operation, shall be deposited by Management
Company in Hotel bank accounts (the "Operating Accounts") in a national or state
banking institution selected by Management Company, but subject to Owner's
approval. Withdrawals from said accounts shall be made by representatives of
Management Company whose signatures have been authorized. Reasonable petty cash
funds shall be maintained at the Hotel.
9.03 Annual Operating Budget
-----------------------
Management Company shall submit to Owner for its review thirty (30) days
prior to the beginning of each Fiscal Year an "Annual Operating Budget" which
shall set forth Management Company's good faith estimate of Gross Revenues,
departmental profits, Deductions, and Operating Profit for the forthcoming
Fiscal Year for the Hotel, taking into account the Hotel's market area and the
integration of the Hotel into the Marriott hotel
-45-
system. Management Company will use its best efforts and all due diligence to
operate the Hotel within the Annual Operating Budget. 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, material,
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 due to causes of the
foregoing nature.
9.04 Operating Loss; Credit
----------------------
A. Any Operating Loss during the term of this Agreement shall be funded
solely by Management Company, without reimbursement, adjustment or other
accounting by Owner and the payment thereof by Management Company shall not
constitute a Deduction hereunder.
B. In no event shall either party borrow money in the name of or pledge
the credit of the other.
END OF ARTICLE IX
-46-
ARTICLE X
TRADEMARK AND TRADE NAME
------------------------
10.01 Marriott Name
-------------
A. During the term of this Agreement, the Hotel shall be known as a
Marriott hotel, with additional identification as may be necessary 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. The name "Marriott" when used alone or in connection with
another word or words and the Marriott trademarks, service marks, trade names,
logos, symbols and designs shall in all events remain the exclusive property of
Management Company and its affiliates, and nothing contained herein shall confer
on Owner the right to use such name, trademarks, service marks, trade names,
logos, symbols or designs other than in strict accordance with the terms of this
Agreement. Except as provided in Section 10.02, upon Termination, any use of or
right to use said name, trademarks, service marks, trade names, logos, symbols
or designs by Owner shall cease forthwith and Management Company shall have the
right (at Management Company's sole cost and expense) to promptly remove from
the Hotel any signs or similar items which contain the Marriott name,
trademarks, service marks, trade names logos, symbols or designs.
-47-
B. Included under the terms of this Article X are all trademarks, service
marks, trade names, symbols, logos or designs used in conjunction with the
Hotel, including, but not limited to, restaurant names, lounge names, etc.,
whether or not the marks contain the "Marriott" name. All use of such marks by
Owner under this Agreement inures to the benefit of Management Company whether
or not the marks are registered and regardless of the source of the mark.
10.02 Fixed Asset Supplies
--------------------
Upon Termination, Management Company shall purchase, at their book value,
any items of the Hotel's Fixed Asset Supplies as may be marked with the Marriott
name or any Marriott trademark, trade name, service mark, symbol, logo or
design.
10.03 Breach of Covenant
------------------
Management Company and/or its affiliated companies shall be entitled, in
case of any breach of the covenants of this Article X by Owner or others
claiming through it, to injunctive relief and to any other right or remedy
available at law. The provisions of this Article X shall survive Termination.
END OF ARTICLE X
-48-
ARTICLE XI
POSSESSION AND USE OF HOTEL
---------------------------
11.01 Quiet Enjoyment
---------------
Owner covenants that so long as Management Company is not in default under
this Agreement and so long as Management Company is not responsible for lack of
free and quiet occupation, Management Company shall quietly hold, occupy and
enjoy the Hotel throughout the term of this Agreement free from hindrance,
ejection or molestation by Owner or other party claiming under, through or by
right of Owner. Owner agrees to make any payments and, at its expense, to
prosecute all appropriate actions, judicial or otherwise, necessary to assure
such free and quiet occupation.
11.02 Actions for Quiet Occupation
----------------------------
Notwithstanding the foregoing, nothing herein shall prevent Owner from
delaying any payment, provided Owner is prosecuting all appropriate actions in
good faith and provided that no action on the part of Owner in any such
prosecution shall create a possibility of foreclosure or any divesting of the
Hotel or the termination of this Agreement, or incur or create any civil or
criminal liability on the part of Management Company. For the purposes of the
preceding sentence, Management Company agrees that the filing of an appropriate
bond in accordance with
-49-
applicable law shall be sufficient action on the part of Owner to prevent the
possibility of foreclosure should Owner elect to delay any such payment and
prosecute any such action in good faith.
11.03 Use
---
A. Management Company shall use the Hotel solely for the operation of a
hotel with first-class standards and for all activities in connection therewith
which are customary and usual to such an operation. Management Company, in any
event, shall comply with and abide by all applicable laws, regulations,
ordinances, orders, standards and requirements, shall operate and maintain the
Hotel in an efficient manner and in accordance with the terms of the First
Mortgage and the Second Mortgage and shall use its reasonable best efforts to
apply sound administrative, accounting, budgeting, operational, sales,
advertising, personnel and purchasing policies and practices. Management
Company shall obtain, either in its own name or on behalf of Owner, any and all
licenses or permits necessary for the operation of the Hotel as a first-class
hotel facility.
B. Management Company shall have the option to terminate this Agreement at
any time upon seventy-five (75) days' written notice to Owner in the event of a
withdrawal or revocation, by any lawful governing body having jurisdiction
thereof, of any
-50-
material license or permit required for operation of the Hotel as a first-class
facility, including, but not limited to, occupancy permits; provided (i) such
withdrawal or revocation is not the result of any action or inaction of
Management Company, but is due to circumstances beyond Management Company's
reasonable control; and (ii) all applicable appeals to higher governmental
authorities regarding such withdrawal or revocation have been exhausted, and
every reasonable effort has been made to obtain a substitute license or permit
which would allow for the continued operation of the Hotel as a first-class
facility.
11.04 Chain Services
--------------
Management Company shall cause to be furnished to the Hotel certain services
("Chain Services") which are furnished generally on a central or regional basis
to other hotels in the Marriott chain and which benefit each hotel as a
participant in the Marriott chain. Chain Services shall include (i) national
sales office services, central training services, manpower development and
management personnel relocation, central advertising and promotion (including
direct and image media and advertising administration), the Marriott national
reservation system and the Marriott computer payroll and accounting services,
and (ii) such additional central or regional services as may from time to time
be furnished for the benefit of the hotels in the Marriott chain
-51-
or in substitution for services now performed at individual hotels which may be
more efficiently performed on a group basis. Costs and expenses incurred in the
providing of such services shall be allocated on a fair and equitable basis
among all Marriott hotels in the United States receiving the same.
11.05 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 protecting the same against fire or other casualty,
prevention of damage to the Hotel, or showing the Hotel to prospective
purchasers or mortgagees, or for inspection purposes.
END OF ARTICLE XI
-52-
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 Sections 12.02
-53-
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 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; and
-54-
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.
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 the holder of the First
Mortgage or the Second Mortgage, 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 as an additional insured. Upon notice by
the Owner, Management Company shall also have the policies required under
-55-
Sections 12.02 A, B, C and D include the holder of the First Mortgage and the
Second Mortgage as additional insureds. Any property losses thereunder shall be
payable to the respective parties as their interests may appear. The First
Mortgage and the Second Mortgage on the Hotel shall contain provisions to the
effect that proceeds of the insurance policies required to be carried under
Sections 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 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 this Article XII shall,
to the extent obtainable, state that the insurance shall not be canceled or
materially changed without at least thirty (30) days' prior written notice to
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
-56-
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. [Intentionally omitted.]
B. Insurance premiums and any other costs or expenses with respect to the
insurance or self-insurance required under Section 12.02, 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. 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
-57-
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 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.
12.05 Owner's Option to Obtain Certain Insurance
------------------------------------------
Owner may, at its option, by written notice to Management Company which
shall be delivered no later than ninety (90) days prior to the natural
expiration of the insurance policies which Management Company has obtained
pursuant to Sections 12.02 A, B and C, procure and maintain the insurance
specified in Sections 12.02 A, B and C (in which case Management Company shall
allow such policies obtained by it under Sections 12.02 A, B, and C to expire),
subject to the following terms and conditions:
A. All such policies of insurance shall be carried in the name of Owner,
with Management Company as an additional insured. Any property losses thereunder
shall be payable to the respective parties as their interests may appear. The
documentation with respect to the First Mortgage and the Second Mortgage (or
-58-
subordinated mortgages if Owner so elects and if such subordinated mortgages are
permitted under the First Mortgage and the Second Mortgage) shall contain
provisions to the effect that proceeds of the insurance policies required to be
carried under Sections 12.01 A and B shall be available for repair and
restoration of the Hotel, to the extent required pursuant to Section 12.03 C.
However, any holder of the First Mortgage or the Second Mortgage (or
subordinated mortgages if Owner so elects and if such subordinated mortgages are
permitted under the First Mortgage and the Second Mortgage) shall be entitled to
impose reasonable conditions on the disbursement of insurance proceeds for the
repair and/or restoration of the Hotel, including a demonstration by Owner
and/or Management Company that the amount of such proceeds (together with other
funds Owner agrees to make available) is sufficient for such purpose.
B. Owner shall deliver to Management Company certificates of insurance with
respect to all policies so procured and, in the case of insurance policies about
to expire, shall deliver certificates with respect to the renewal thereof.
C. All such certificates of insurance shall, to the extent obtainable,
state that the insurance shall not be canceled or materially changed without at
least thirty (30) days' prior written notice to the certificate holder.
D. Premiums for such insurance coverage shall be treated as
-59-
Deductions, provided that if the cost of such insurance procured by Owner
exceeds the cost of Management Company's comparable coverage by more than ten
percent (10%), all such excess costs shall be the sole responsibility of Owner
and shall not be a Deduction.
E. Should Owner exercise its option to procure the insurance described in
this Section 12.05, Owner hereby waives its rights of recovery from Management
Company or any of its affiliates (and their respective directors, officers,
shareholders, agents and employees) for loss or damage to the Hotel, and any
resultant interruption of business.
F. Should Owner exercise its right to obtain the insurance described in
this Section 12.05, Owner acknowledges that Management Company is under no
obligation to thereafter include the Hotel in its blanket insurance program
(with respect to the coverage described in Sections 12.02 A, B and C) for the
balance of the term of this Agreement. However, upon a sale of the Hotel
pursuant to Section 19.01, a successor Owner shall have the right,
notwithstanding the fact that the previous Owner may have obtained insurance in
accordance with this Section 12.05, to have the Hotel included in Management
Company's blanket insurance program (provided that the Hotel, as of that point
in time, satisfies the applicable criteria for admission to such program, as
established by the program's insurance carriers) by making a
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written request to Management Company for such inclusion not later than thirty
(30) days after the date on which such party becomes the Owner.
G. All insurance procured by Owner hereunder shall be obtained from
reputable insurance companies reasonably acceptable to Management Company.
END OF ARTICLE XII
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ARTICLE XIII
TAXES
-----
13.01 Real Estate and Property Taxes
------------------------------
All real estate and ad valorem property taxes, assessments and similar
charges on or relating to the Site, the interest of Owner in the Site, the Hotel
or this Agreement during the term of this Agreement ("Impositions") shall be
paid by Management Company and shall be considered a Deduction from Gross
Revenues in arriving at Operating Profit before any fine, penalty, or interest
is added thereto or lien placed upon the Site, the interest of Owner in the
Site, the Hotel or this Agreement, unless payment thereof is in good faith being
contested and enforcement thereof is stayed. Management Company shall, within
the earlier of thirty (30) days of payment or three (3) days following written
demand by Owner, furnish Owner with copies of official tax bills and evidence of
payment or contest thereof.
END OF ARTICLE XIII
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ARTICLE XIV
HOTEL EMPLOYEES
---------------
14.01 Employees
---------
All Hotel personnel shall at all times during the term of this Agreement be
the employees of Management Company or affiliates of Management Company.
A. Management Company shall have absolute discretion to hire, promote,
supervise, direct and train all employees at the Hotel, to fix their terms of
compensation and, generally, establish and maintain all policies relating to
employment.
B. Management Company shall decide which, if any, of the Hotel's employees
shall 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 the prior joint approval
of Owner and Management Company except in accordance with the usual practices of
the hotel and travel industry.
C. All employees who are responsible for the handling of monies to be paid
to Owner pursuant to Article V, shall be under a blanket fidelity bond in a
company reasonably acceptable to Owner and Management Company.
-63-
END OF ARTICLE XIV
ARTICLE XV
DAMAGE, CONDEMNATION AND FORCE MAJEURE
--------------------------------------
15.01 Damage and Repair
-----------------
A. If, during the term of this Agreement, 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 the First Mortgage, 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. The term "Force Majeure" shall mean acts of God,
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acts of war, civil disturbance, governmental action (including the revocation or
refusal to grant licenses or permits, where such revocation or refusal is not
due to the fault of the party whose performance is to be excused for reasons of
Force Majeure), strikes, 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).
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
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Management Company in accordance with their respective interests. The Owner's
Priority shall be reduced by ten percent (10%) of 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.
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 of the First Mortgage or the Second Mortgage
shall be deemed to be an award or compensation received by Owner).
15.03 Force Majeure
-------------
Provided that the specific provisions of this Agreement regarding (i) damage
or destruction, (ii) condemnation and (iii) withdrawal or revocation of licenses
or permits shall govern exclusively with respect to those specific matters, if
acts of God, acts of war, civil disturbance or governmental action shall, in
Management Company's reasonable business judgment, make
-66-
continued operation of the Hotel impracticable for more than a temporary period,
then Management Company shall be entitled to terminate this Agreement upon sixty
(60) days' written notice to Owner.
15.04 Damage, Condemnation and Force Majeure Under First Mortgage
-----------------------------------------------------------
Notwithstanding any other provision of this Article XV, for so long as the
First Mortgage shall remain in place, the provisions on damage, condemnation and
force majeure contained in the First Mortgage shall take precedence over this
Article XV.
END OF ARTICLE XV
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ARTICLE XVI
DEFAULTS
--------
16.01 Defaults
--------
The following shall constitute events of default to the extent permitted by
law:
A. The filing of a voluntary petition in bankruptcy or insolvency or a
petition for reorganization under any bankruptcy law by either party;
B. The consent by either party to an involuntary petition in bankruptcy, or
the admission in writing by either party of its inability to pay its debts, or
the failure to vacate (within ninety (90) days from the date of entry thereof)
any order approving an involuntary petition against 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 continuing unstayed and
in effect for any period of ninety (90) days;
D. The appointment of a receiver for all or any substantial portion of the
property of either party if such appointment has not been withdrawn or vacated
within ninety (90) days of the
-68-
issuance thereof;
E. The failure of either party to make any payment which is due and payable
hereunder within twenty (20) days after written notice thereof from the other
party;
F. The failure of either party to perform, keep or fulfill any of the other
covenants, undertakings, obligations or conditions set forth in this Agreement,
and the continuance of such default for a period of thirty (30) days after
notice of said failure.
Upon the occurrence of any of such events of default, the non-defaulting
party may give to the defaulting party notice of intention to terminate this
Agreement for default after the expiration of a period of thirty (30) days from
the date of such notice, and if the default has not been cured on or before the
expiration of such period, this Agreement shall terminate. If, however, upon
receipt of such notice, the defaulting party shall (if such default is not
susceptible of being cured within thirty (30) days) promptly commence to cure
the default, and shall thereafter diligently pursue such efforts to completion,
then such notice shall be of no force and effect. The provision of the
immediately preceding sentence shall not apply to Sections 16.01 A, B, C, D and
E.
16.02 Remedies Cumulative
-------------------
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The rights granted hereunder shall not be in substitution for, but shall be
in addition to, any and all rights and remedies available to the non-defaulting
party by reason of applicable provisions of law.
END OF ARTICLE XVI
-70-
ARTICLE XVII
WAIVER; 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
------------------
In the event that any portion of this Agreement shall be declared invalid by
order, decree or judgment of a court, or governmental agency having
jurisdiction, 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
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ARTICLE XVIII
ASSIGNMENT
----------
18.01 Assignment
----------
Neither party shall assign or transfer or permit the assignment or transfer
of this Agreement without the prior written consent of the other party, except
as follows:
A. Owner shall have the right to assign or transfer its interest in this
Agreement without such consent in connection with a sale of the Hotel pursuant
to Section 19.01;
B. Owner shall have the right to assign or transfer its interest in this
Agreement without such consent as collateral security with respect to the
financing evidenced by any mortgage, deed of trust or similar security
instrument; provided, however, any such mortgage, deed of trust or security
instrument will contain 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 of this Agreement,
notwithstanding a default under any such mortgage, deed of trust or security
instrument. Under such circumstances, Management Company is obligated to comply
with the provisions of Section 18.02(vi);
C. Provided that Management Company remains liable under all of the
provisions hereof, Management Company shall have the right
-72-
to transfer or assign its interest in this Agreement without such consent to any
affiliates controlling or controlled by Marriott, including a partnership in
which Marriott or any affiliate controlling or controlled by it is a general
partner. For the purposes of this Section 18.01 C, an affiliate shall be deemed
controlling or controlled by Marriott if Marriott, through one or more
controlled intermediaries, owns or controls a minimum of fifty-one percent (51%)
of the voting interests in such affiliate; and
D. Management Company shall have the right to transfer or assign its
interest in this Agreement without such consent in connection with a merger,
consolidation, or sale of all or substantially all of the assets of Marriott.
Any permitted transfer or assignment pursuant to the foregoing provisions
shall be effective only upon an assumption by the assignee of all of the
assignor's duties under this Agreement. In the event of consent by either party
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. Any permitted assignment by either Owner or Management Company
of its interest in this Agreement, and the assumption by the assignee of the
assignor's duties under this Agreement, shall relieve Owner or
-73-
Management Company (except in the event of an assignment under Section 18.01 C),
as the case may be, from their respective obligations under this Agreement
arising or accruing after the effective date of such assignment, and shall inure
to the benefit of, and be binding upon, their respective successors or assigns.
18.02 Subordination
-------------
Management Company shall, on request of Owner or any lender under the First
Mortgage or the Second Mortgage, enter into such supplemental agreements as may
obligate Management Company to (i) provide such a lender with notice of any
default by Owner hereunder and thereafter permit such a lender to effect a cure
thereof within a reasonable period; (ii) supply such a lender with copies of any
notices or other communications contemplated by this Agreement from Management
Company to Owner, (iii) postpone termination of this Agreement in the event of a
default by Owner for so long as such a lender shall have commenced to cure any
such default or, if possession of the Hotel is required to effect such cure or
such default is not susceptible to cure, for so long as such lender in good
faith shall notify Management Company that such lender intends to institute
foreclosure proceedings and thereafter for so long as such proceedings shall
have been instituted and prosecuted with reasonable diligence; (iv) in the event
of a termination of this Agreement, offer to
-74-
enter into a new management agreement with such a lender upon the same terms and
conditions as this Agreement, except that such lender shall have the right to
assign this Agreement without Management Company's consent and the covenants
referred to in Sections 3.01 and 3.02 shall not apply to such lender; (v)
subordinate Management Company's interest in this Agreement to the rights of
such a lender upon foreclosure of any mortgage, deed of trust, security
agreement or like instrument against the Hotel or by a deed in lieu of
foreclosure; and (vi) attorn to and recognize such a lender or its assignee as
being Owner hereunder upon conveyance of title to the Hotel to such lender or
assignee, whether such conveyance is upon foreclosure of a mortgage, deed of
trust, security agreement or like instrument or by a deed in lieu of a
foreclosure.
18.03 Transfer of Hotel to Lender Under First Mortgage and Second Mortgage
--------------------------------------------------------------------
In the event of a transfer of the Hotel from Owner to the lender under the
First Mortgage or the Second Mortgage or a purchaser, including such lender
under the First Mortgage or the Second Mortgage, at foreclosure or by deed in
lieu of foreclosure, then such transferee shall have no personal liability to
Management Company under this Agreement, and the only recourse of Management
Company shall be to the extent of the
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interest of such transferee in the Hotel.
END OF ARTICLE XVIII
-76-
ARTICLE XIX
SALE OF HOTEL
-------------
19.01 Sale of 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 thirty (30) 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 two alternatives:
1. 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 satisfactory to Management
Company, assume all of Owner's obligations hereunder and provided that such sale
must be finalized within one hundred eighty (180) days following the receipt of
written notice from Owner given pursuant to Section 19.01 A. Consent by
Management Company shall not relieve Owner from its obligations under this
Agreement for any acts or omissions of Owner prior to such approved sale and
assignment.
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An executed copy of such assumption agreement shall be delivered to Management
Company.
2. 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 sixty (60) 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, and (ii) is not a party which 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 or restaurants in
competition with Management Company or Marriott or their affiliates, Management
Company shall not exercise its right to terminate this Agreement pursuant to
this Section 19.01 A 2 and shall be deemed to have consented to the proposed
sale or assignment pursuant to Section 19.01 A 1.
B. If Management Company shall fail to elect one of the
-78-
above alternatives within said thirty (30) day period as set forth in the first
paragraph of Section 19.01 A, the same shall be conclusively deemed to
constitute an election and consent under Section 19.01 A 1, 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 one hundred eighty (180) days following the
giving of such notice. Failing such finalization, such notice, and any response
thereto given by Management Company, shall be null and void and all of the
provisions of Section 19.01 A must again be complied with before Owner shall
have the right to finalize a sale of the Hotel upon the terms contained in said
notice, or otherwise.
C. The provisions of this Section 19.01 will not apply to the lender under
the First Mortgage or the Second Mortgage in the event of a foreclosure or
foreclosure sale (or deed in lieu of foreclosure) of the First Mortgage or the
Second Mortgage, respectively, or to Owner if the lender under the First
Mortgage or the Second Mortgage has an economic interest as a lender in the
Hotel.
END OF ARTICLE XIX
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ARTICLE XX
ARBITRATION
-----------
20.01 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 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.
B. 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' experience in the State of New Jersey in a calling connected with the
subject matter of the dispute within thirty (30) days of notice by either party
of such party's election to seek arbitration in accordance with the provisions
of this Section 20.01. Such appointment shall be signed 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
-80-
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 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 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. The fees of respective counsel
engaged by the parties, and the fees of the 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.
C. The decision of the arbitrators shall be by majority vote and shall be
rendered within thirty (30) days after appointment of the third arbitrator, and
such decision shall be in writing and in duplicate, one counterpart thereof to
be delivered each to Owner and 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
-81-
obtaining. Nothing herein shall be deemed to grant such arbitrators authority to
modify or amend this Agreement.
END OF ARTICLE XX
-82-
ARTICLE XXI
MISCELLANEOUS
-------------
21.01 Right to Make Agreement
-----------------------
Each party warrants, with respect to itself, that neither the execution of
this Agreement, nor the finalization of the transactions contemplated hereby,
shall violate any provision of any law, or any judgment, writ, injunction, order
or decree of any court or governmental authority having jurisdiction over it;
nor 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;
nor require any consent, vote or approval which has not been given or 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.
21.02 Consents
--------
Except as otherwise specifically restricted or limited, wherever in this
Agreement the consent or approval of Owner or Management Company is required,
such consent or approval shall not be unreasonably withheld, delayed or
conditioned, shall be
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without charge, shall be in writing and shall be executed by a duly authorized
officer or agent of the party granting such consent or approval.
21.03 Agency
------
A. The relationship of Owner and Management Company shall be that of
principal and agent, and nothing contained in this Agreement shall be construed
to create a partnership or joint venture between them or their successors in
interest. Management Company's agency established by this Agreement is coupled
with an interest and may not be terminated by Owner until the expiration of the
term of this Agreement, except as provided in Section 4.02 and in Articles XV or
XVI. Notwithstanding the agency relationship created by this Agreement, 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.
B. The agency coupled with an interest herein was created by a complex,
single, integrated transaction. Among other considerations, Owner and
Management Company stipulate that their mutual decision to enter into this
Agreement was based on the following assumptions: (i) that one of the reasons
why the
-84-
Marriott hotel system has succeeded in gaining the loyalty of its customers is
that Marriott hotels are located in a large number of geographical markets; (ii)
that the success of many of Management Company's promotional efforts (such as
the Honored Guest Award program) depends on the expectation of its customers
that there will be a Marriott hotel in most destinations where they may choose
to travel; and (iii) by executing this Agreement, Management Company intends to
select this Hotel to represent the Marriott hotel system in the Hotel's market
area, and, in so doing, Management Company has foregone the opportunity to
select other hotels in this market area. This agency is intended to provide
security for the covenants, promises and guarantees herein. The agency was
purchased for valuable consideration and is not terminable except as
specifically allowed by the express provisions of this Agreement. The parties
intend for this agency to be coupled with an interest, waive any right to claim
that it is terminable at will, and further agree to be equitably estopped from
asserting that the agency is not coupled with an interest.
21.04 Applicable Law
--------------
This Agreement shall be construed under and shall be governed by the laws of
the State of New Jersey.
21.05 Recordation
-----------
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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 initially borne by Owner, reimbursed to Owner from Gross
Revenues, and treated as a Deduction.
21.06 Headings
--------
The headings of the Articles and Sections herein are inserted only for
convenience and are in no way to be construed as limitations on the scope of the
particular Article or Section to which they refer.
21.07 Certificates
------------
Either party, upon request of the other party, without charge, shall deliver
a written instrument to the requesting party or to any other party designated by
the requesting party, duly executed and acknowledged, certifying:
A. That this Agreement is unmodified and in full force and effect, or, if
there is any modification then in effect or any existing modification that will
become effective thereafter, stating such modification and stating that this
Agreement is in full force and effect as modified;
B. Whether or not there are any defaults hereunder known to
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such party or existing setoffs or defenses against the enforcement of any of the
terms, agreements, covenants and conditions of this Agreement, and, if so,
specifying the same; and
C. The dates to which any stated amounts of the Management Fees, Owner's
Distribution and/or other charges hereunder have been paid.
The giving of any such certificate shall not preclude Owner or Management
Company from thereafter asserting any existing default of which such party did
not have actual knowledge on the date of the making of such certificate.
21.08 Notices
-------
Notices, statements and other communications to be given under the terms of
this Agreement shall be in writing and delivered by hand against receipt or sent
by certified or registered mail, return receipt requested, as follows:
To Owner:
--------
Hanover Marriott Limited Partnership
c/o Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Law Department
with a copy to:
Hanover Marriott Limited Partnership
c/o Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
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Attn: Asset Management Department 908
To Management Company:
---------------------
Marriott Hotel Services, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Law Department
with a copy to:
--------------
Marriott Hotel Services, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Senior Vice President-Finance
Marriott Hotels, Resorts & Suites
or to such other address as from time to time may be designated by proper notice
given by the party to whom addressed. All such notices which are sent by
certified or registered mail, postage prepaid, shall be deemed served in the
fifth (5th) business day after being posted.
21.09 Entire Agreement
----------------
This Agreement, together with other writings signed by the parties
expressly stated to be supplemental hereto and together with any instruments to
be executed and delivered pursuant to this Agreement, constitutes the entire
agreement between the parties, supersedes all prior understandings and writings
relating specifically to the subject matter hereof, and may be changed only by a
writing signed by the parties hereto.
21.10 Termination
-----------
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In the event of a Termination of this Agreement, the following events shall
occur:
A. Management Company shall, as of the date of Termination, surrender the
Hotel, the Site and Fixed Asset Supplies to Owner, in the condition the property
is in as of such date, subject to Management Company's obligations to maintain
the property as set forth in Sections 8.01 and 8.02.
B. Management Company shall be obligated to deliver to Owner certain Fixed
Asset Supplies in accordance with Sections 7.02 and 10.02.
C. All items of income and expense will be prorated as of the date of
Termination, and a final accounting pertaining to operations of the Hotel prior
to said date will be prepared by Management Company and delivered to Owner
within sixty (60) days after the date of Termination, all adjustments to be made
and paid simultaneously with the delivery of said accounting.
D. All contracts pertaining to the operations of the Hotel will be
assigned to Owner and assumed by Owner.
E. To the extent legally possible, all licenses and permits required for
the operation of the Hotel will be assigned to Owner.
F. Management Company will deliver all books and records pertaining to the
operation of the Hotel to Owner. Owner agrees that Management Company will have
reasonable access (including
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the right to make copies, at its expense) to such books and records after
Termination.
G. Management Company will transfer to Owner all advance reservations and
any deposits made with respect thereto. Management Company agrees that it will
not attempt to transfer any reservations made at the Hotel to any other hotels
it operates; the foregoing will not affect Management Company's right to inform
all parties making reservations for dates after Termination that the Hotel will
no longer be operated as a Marriott hotel after the date of Termination.
H. Owner and Management Company will undertake such other actions as are
necessary and appropriate in connection with Termination of this Agreement and
the transfer of possession of the Hotel to Owner.
21.11 Indemnification
---------------
Owner shall indemnify Management Company from and against all liabilities,
claims, obligations, damages, costs and expenses as a result of a breach of this
Agreement by Owner. Likewise Management Company shall indemnify Owner from and
against all liabilities, claims, obligations, damages, costs and expenses as a
result of a breach of this Agreement by Management Company.
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21.12 Confidentiality
---------------
The parties hereby agree that the matters set forth in this Agreement are
strictly confidential and each party will make every effort to ensure that such
information is not disclosed to any outside persons or entities (including the
press) without the consent of the other party.
21.13 Owner's Exculpation
-------------------
It is expressly understood and agreed by Management Company or any other
entity hereafter claiming an interest pursuant to this Agreement that the
liability of Owner hereunder, including any partner, officer or director of
Owner, for damages or otherwise shall be limited to Owner's interest in the
Site, Hotel and this Agreement and that no personal liability is assumed by nor
shall be asserted or enforced against Owner or any of its respective successors
or assigns.
21.14 Termination of Operating Lease
------------------------------
The term of the Operating Lease shall end as of 11:59 p.m. on the day
immediately preceding the Effective Date.
END OF ARTICLE XXI
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers.
ATTEST: HANOVER MARRIOTT LIMITED
PARTNERSHIP ("OWNER")
By: Marriott Hanover Hotel
Corporation, General Partner
David E. Reichmann
=========================== By: Bruce D. Wardinski
--------------------------
Name: David E. Reichmann Name: Bruce D. Wardinski
---------------------- ------------------------
Title: Assistant Secretary Title: Vice President
ATTEST: MARRIOTT HOTEL SERVICES, INC.
("MANAGEMENT COMPANY")
Carol Bruff
=========================== By: Kevin M. Kimball
-------------------------------
Name: Carol Bruff Name: Kevin M. Kimball
---------------------- -----------------------------
Title: Assistant Secretary Title: Vice President
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