LEASE AGREEMENT
---------------
This Amended and Restated Lease Agreement (the "Lease") is executed as of
the 29th day of July, 1986, ("Effective Date"), by and between MARRIOTT
CORPORATION, a Delaware corporation with its principal address at 10400 Fernwood
Road, Bethesda, Maryland 20058 ("Landlord") and MARRIOTT HOTEL SERVICES, INC., a
Delaware corporation with its principal address at 10400 Fernwood Road,
Bethesda, Maryland 20058 ("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord plans to construct and equip a hotel in Hanover, New
Jersey, as more fully described in Section 1.01 hereof; and
WHEREAS, Landlord desires to lease said hotel to Tenant and Tenant desires
to lease same from Landlord.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
TABLE OF CONTENTS
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Page
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ARTICLE I - LEASE OF PROPERTY
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1.01 Granting Clause..................................... 2
ARTICLE II - DEFINITION OF TERMS
- --------------------------------
2.01 Definition of Terms................................. 3
2.02 Terms Defined in Other Sections..................... 10
ARTICLE III - THE HOTEL
- -----------------------
3.01 Construction........................................ 12
3.02 Ownership of Site and Hotel......................... 12
3.03 No Covenants or Restrictions........................ 13
ARTICLE IV - TERM
- -----------------
4.01 Term................................................ 14
4.02 Landlord's Right to Terminate....................... 15
ARTICLE V - RENTALS
- -------------------
5.01 Annual Rentals During Initial Term and
Renewal Terms..................................... 16
5.02 Accounting and Interim Payment...................... 18
ARTICLE VI - PRE-OPENING ACTIVITIES
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6.01 Description......................................... 20
6.02 Pre-Opening Expenses................................ 21
ARTICLE VII - WORKING CAPITAL AND FIXED ASSET SUPPLIES
- ------------------------------------------------------
7.01 Working Capital and Inventories..................... 22
7.02 Fixed Asset Supplies................................ 22
ARTICLE VIII - MAINTENANCE, REPLACEMENT AND CHANGES
- ---------------------------------------------------
8.01 Repairs and Maintenance............................. 24
8.02 Repairs and Equipment Reserve....................... 24
8.03 Alterations and Improvements........................ 28
8.04 Liens............................................... 29
8.05 Ownership of Replacements, Etc. .................... 30
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Page
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ARTICLE XI - BOOKKEEPING AND BANK ACCOUNTS
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9.01 Books and Records................................... 31
9.02 Hotel Accounts...................................... 32
9.03 Annual Operating Projection......................... 32
9.04 Operating Loss; Credit.............................. 33
ARTICLE X - TRADEMARK AND TRADENAME
- -----------------------------------
10.01 Marriott Name....................................... 34
10.02 Fixed Asset Supplies................................ 35
10.03 Breach of Covenant.................................. 35
ARTICLE XI - POSSESSION AND USE OF HOTEL
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11.01 Quiet Enjoyment..................................... 36
11.02 Actions for Quiet Occupation........................ 36
11.03 Use................................................. 37
11.04 Chain Services...................................... 38
11.05 Landlord's Right to Inspect......................... 39
ARTICLE XII - INSURANCE
- -----------------------
12.01 Property Insurance.................................. 40
12.02 Operational Insurance............................... 41
12.03 Coverage............................................ 42
12.04 Cost and Expense.................................... 43
12.05 Policies and Endorsements........................... 44
12.06 Insurance Requirements Under First Mortgage......... 45
ARTICLE XIII - TAXES
- --------------------
13.01 Real Estate and Property Taxes...................... 46
13.02 Investment Tax Credit............................... 47
ARTICLE XIV - HOTEL EMPLOYEES
- -----------------------------
14.01 Employees........................................... 48
ARTICLE XV - DAMAGE, CONDEMNATION AND FORCE MAJEURE
- ---------------------------------------------------
15.01 Damage and Repair................................... 49
15.02 Condemnation........................................ 50
15.03 Force Majeure....................................... 53
15.04 Damage, Condemnation and Force
Majeure Under First Mortgage..................... 53
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Page
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ARTICLE XVI - DEFAULTS
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16.01 Defaults............................................ 55
16.02 Remedies Cumulative................................. 56
ARTICLE XVII - WAIVER, PARTIAL INVALIDITY
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17.01 Waiver.............................................. 58
17.02 Partial Invalidity.................................. 58
ARTICLE XVIII - ASSIGNMENT
- --------------------------
18.01 Assignment.......................................... 59
18.02 Subordination....................................... 61
18.03 Transfer of Hotel to Lender under
First Mortgage.................................... 62
ARTICLE XIX - SALE OF HOTEL
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19.01 Right of First Refusal.............................. 64
ARTICLE XX - ARBITRATION
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20.01 Arbitration......................................... 68
ARTICLE XX - MISCELLANEOUS
- --------------------------
21.01 Right to Make Lease................................. 70
21.02 Consents............................................ 70
21.03 Lessor and Lessee................................... 71
21.04 Applicable Law...................................... 71
21.05 Recordation......................................... 71
21.06 Headings............................................ 71
21.07 Certificates........................................ 72
21.08 Notices............................................. 72
21.09 Entire Agreement.................................... 73
21.10 Termination......................................... 73
21.11 Brokers............................................. 75
21.12 Indemnification..................................... 75
21.13 Confidentiality..................................... 76
Exhibit A - The Site
Exhibit B - Permitted Exceptions
iii
LEASE AGREEMENT
---------------
This Amended and Restated Lease Agreement (The "Lease") is executed as of
the 29th day of July, 1986, ("Effective Date"), by and between MARRIOTT
CORPORATION, a Delaware corporation with its principal address at 10400 Fernwood
Road, Bethesda, Maryland 20058 ("Landlord") and MARRIOTT HOTEL SERVICES, INC., a
Delaware corporation with its principal address at 10400 Fernwood Road,
Bethesda, Maryland 20058 ("Tenant").
WITNESSETH:
WHEREAS, Landlord plans to construct and equip a hotel in Hanover, New
Jersey, as more fully described in Section 1.01 hereof; and
WHEREAS, Landlord desires to lease said hotel to Tenant and Tenant desires to
lease same form Landlord.
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
LEASE OF PROPERTY
-----------------
1.01 Granting Clause
---------------
A. In consideration of the rentals, covenants and agreements to be paid,
kept and performed hereunder, Landlord, for the term and upon the conditions
hereinafter set forth, leases to Tenant and Tenant leases and takes from
Landlord that certain parcel of land in Hanover, New Jersey shown on Exhibit "A"
hereto (the "Site"), together with the improvements presently located and to be
located thereon, and the furniture, furnishings, fixtures and equipment now or
hereafter placed thereon (said improvements, plus said furniture, furnishings,
fixtures and equipment, shall hereinafter be referred to as the "Hotel").
END OF ARTICLE I
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ARTICLE II
DEFINITION OF TERMS
-------------------
2.01 Definition of Terms
-------------------
The following terms when used in this Lease shall have the meanings
indicated:
A. "Accounting Period" shall mean the four (4) week accounting periods
-----------------
having the same beginning and ending dates as Tenant's four (4) week accounting
periods, except that an Accounting period may occasionally contain up to five
(5) weeks when necessary to conform Tenant's accounting system to the calendar.
B. "Consumer Price Index" means the most recent Consumer Price Index for
--------------------
All Urban Consumers, New York and Northeast Region, issued and published by the
Bureau of Labor Statistics of the United States Department of Labor (1967=100),
or, if the aforesaid Consumer Price Index is not at that time so prepared and
published or legally available, then based upon a reliable governmental or
non--partisan publication, any reasonable substitute or successor index selected
by Tenant evaluating changes in the cost of living, appropriately adjusted for
changes in the manner in which such index is prepared and/or the year upon which
such index is based.
C. "Debt Service" shall equal, with respect to each Partial Fiscal Year and
------------
each Fiscal Year, (i) the amount of principal and interest on the First Mortgage
payable during
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such period, not including any "balloon payments" made with respect thereto,
plus (ii) Landlord's reasonable and accountable administrative expenses payable
during such period. In the event of a refinancing of the First Mortgage, Debt
Service shall be calculated using the interest rate and amortization schedule of
such refinancing applied to the lesser of (i) the outstanding principal balance
of the loan at the time of the refinancing, or (ii) $36,500,000. In the event
Tenant requests (or Landlord requests and Tenant approves) that the Hotel be
expanded, Debt Service will include the principal and interest payments payable
during such period on the loan approved by Landlord and Tenant for such
expansion, not including "balloon payments" made with respect thereto.
D. "First Mortgage" shall mean that instrument which secures the permanent
--------------
first-lien financing from the National Bank of Canada for the Hotel in the
principal amount of Thirty-six Million Five Hundred Thousand Dollars
($36,500,000). Unless specifically stated to the contrary elsewhere herein, the
term "First Mortgage" shall not include renewals, extensions, amendments or
refinancings of said instrument.
E. "Fiscal Year" shall mean the same period as Tenant's Fiscal Year, which
-----------
now begins at 12:01 a.m. on the first Saturday following the Friday closest to
December 31 of each calendar year and shall consist of thirteen (13) Accounting
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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 Opening Date. Any period
between the Opening 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 the Lease, shall be considered a "Partial Fiscal
Year," If Tenant's Fiscal Year is changed in the future, appropriate adjustments
in the Lease's accounting and reporting procedures shall be made; provided,
however, that no such change or adjustments shall in any way alter the Term of
the Lease or in any way reduce or diminish the Rentals due Landlord.
F. "Fixed Asset Supplies" shall mean supply items included within "Property
--------------------
and Equipment" under the Uniform System of Accounts (as hereinafter defined)
including linen, china, glassware, silver, uniforms, and similar items.
G. "Gross Revenues" shall mean all revenues and receipts of every kind
--------------
derived from operating the Hotel and all departments and parts thereof,
including, but not limited to, income (from both cash and credit transactions),
before commissions and 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;
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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 Tenant.
H. "Inventories" shall mean "Inventories" as defined in the Uniform System
-----------
of Accounts, such as provisions in storerooms, refrigerators, pantries and
kitchens; beverages in wine cellars and bars; other merchandise intended for
sale; fuel; mechanical supplies, stationery; and other expensed supplies and
similar items.
I. "Opening Date" shall mean July 30, 1986.
------------
J. "Operating Loss" shall mean a negative Operating Profit.
--------------
K. "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
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specifically provided for herein, to be paid by Tenant in operating the Hotel
in the following order:
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 Landlord
or Tenant related to the Site, the Hotel, to this Lease or to Tenant's operation
of the Hotel (exclusive of income, franchise and similar taxes owed by either
Landlord or Tenant) but including all ad valorem, personal property and real
estate taxes described in Section 13.01, and special public assessments (other
than any such taxes or assessments incurred in the course of the construction of
the Hotel which shall be paid solely by Landlord) levied against the Hotel
during the term of this lease;
5. Insurance costs and expenses as provided in Article XII;
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6. A reserve for uncollectible accounts receivable as reasonably determined
by Tenant;
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. An amount equal to three percent (3%) of Gross Revenues for the Hotel's
share of costs and expenses incurred by Tenant or its affiliated companies for
services which benefit all Marriott hotels and which are performed by personnel
not normally located at the Hotel and are not Chain Services (as defined in
Section 11.04). Such services include executive supervision, consulting,
planning, and policy making; corporate finance, personnel and employee
relations, and corporate legal services; trademark protection; research and
development not otherwise allocated among hotels owned, leased or operated by
Tenant, Marriott Corporation or their affiliated companies; and the services of
Tenant's technical, operational and marketing experts making periodic inspection
and consultation visits to the Hotel but not the services of the personnel of
the Architecture and Construction Division of Tenant or Marriott Corporation and
their affiliated companies providing architectural, technical or procurement
services relating to designing and constructing the Hotel;
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10. The Hotel's pro rata share of costs and expenses incurred by Tenant 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 Lease or are otherwise reasonably necessary for the proper and
efficient operation of the Hotel.
Specifically excluded from the Deductions (and to be paid solely by
Landlord) are all payments on loans (including, but not limited to, the First
Mortgage and debt owed to the Marriott Corporation and its Affiliates), incurred
with respect to the purchase of the Site and/or the construction, furnishing and
equipping of the Hotel.
Depreciation shall be excluded from the computation of Operating Profit.
L. "Owner's Priority" shall mean (i) One Hundred Thirty Thousand Seven
----------------
Hundred Dollars ($130,700) for the initial Partial Fiscal Year, (ii) Three
Hundred Forty Thousand Seven Hundred Dollars ($340,700) for the first full
Fiscal Year, (iii) Five Hundred Twenty-nine Thousand Seven Hundred Dollars
($529,700) for the second full Fiscal Year, (iv) Seven Hundred Eighteen Thousand
Seven Hundred Dollars ($718,700) for the third full Fiscal Year, and (v) Eight
Hundred Forty Thousand Dollars ($840,000) for the fourth full Fiscal Year and
each Fiscal Year thereafter.
- 9 -
M. "Termination" shall mean the expiration or sooner cessation of this
-----------
Lease.
N. "Uniform System of Accounts" shall mean the Uniform System of Accounts
--------------------------
for Hotels, Seventh Revised Edition, 1977, as published by the Hotel Association
of New York City, Inc.
O. "Working Capital" shall mean funds which are reasonably necessary for
---------------
the day-to-day operation of the Hotel's business, including, without
limitation, 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.
2.02 Terms Defined in Other Sections
-------------------------------
As used in this Agreement, the following terms have the meanings specified
in the Sections listed below:
A. "Additional Rental" - Section 5.01 E.
-----------------
B. "Adjusted Rental" - Section 5.01 D.
---------------
C. "Annual Operating Projection" - Section 9.03.
---------------------------
D. "Annual Rental" - Section 5.01 A.
-------------
E. "Basic Rental" - Section 5.01 C.
------------
F. "Building Estimate" - Section 8.03.
-----------------
G. "Chain Services" - Section 11.04.
--------------
H. "Deductions" - Section 2.01 K.
----------
I. "Effective Date" - Preamble.
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J. "FF&E" - Section 8.02 A 1.
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- 10 -
K. "FF&E Estimate" - Section 8.02 D.
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L. "Hotel" - Section 1.01.
-----
M. "Initial Term" - Section 4.01 A.
------------
N. "ITC" - Section 13.02.
---
0. "Landlord" - Preamble.
--------
P. "Lease" - Preamble.
-----
Q. "Minimum Rental" - Section 5.01 B.
--------------
R. "Partial Fiscal Year" - Section 2.01 E.
-------------------
S. "Pre-Opening Estimate" - Section 6.02.
--------------------
T. "Pre-Opening Expenses" - Section 6.02.
--------------------
U. "Renewal Terms" - Section 4.01 B.
-------------
V. "Repairs and Equipment Reserve" - Section 8.02 A.
-----------------------------
W. "Reserve" - Section 8.02 A.
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X. "Site" - Section 1.01.
----
Y. "Tenant" - Preamble.
------
END OF ARTICLE II
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ARTICLE III
THE HOTEL
---------
3.01 Construction
------------
Landlord shall, at its sole cost and expense, complete the Hotel, fully
equipped, on the Site.
3.02 Ownership of Site and Hotel
---------------------------
A. Landlord 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 any refinancing thereof (or subordinated mortgages if
Landlord so elects and if such subordinated mortgages are permitted under the
First Mortgage or any refinancing), or (ii) other permitted exceptions as set
forth on Exhibit B or elsewhere in the Lease, or (iii) liens, encumbrances or
other charges resulting from the acts of Tenant. Notwithstanding the foregoing,
Landlord (except if (i) the holder of the First Mortgage is landlord under this
Agreement, or (ii) the First Mortgage has been foreclosed upon and a subsequent
purchaser at a foreclosure sale is landlord 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
- 12 -
documentation contains a provision reasonably acceptable to counsel for Tenant
that the Lease will not be subject to forfeiture or Termination other than in
accordance with the terms hereof, notwithstanding a default under such mortgage,
deed of trust or security instrument.
B. Provided Tenant is not in monetary default under the terms and
conditions of the Lease, Landlord 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, other financing or refinancing, and other obligations
listed as specified exclusions from the computation of Operating Profit pursuant
to Section 2.01 K hereof and shall indemnify Tenant from and against all claims,
litigation and damages arising from the failure to make such payments as and
when required.
3.03 No Covenants or Restrictions
----------------------------
Landlord warrants that after the Opening 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. Landlord agrees upon request by
Tenant to sign promptly, and without charge, applications for licenses, permits
or other similar instruments necessary for the operation of the Hotel.
END OF ARTICLE III
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ARTICLE IV
TERM
----
4.01 Term
----
A. The initial term ("Initial Term") of this Lease shall commence on the
Opening Date, and unless sooner terminated as herein provided, shall continue
for twenty-five (25) Fiscal Years beginning with the first Fiscal Year which
occurs after the Opening Date.
B. The term thereafter shall be renewed by Tenant automatically (on the
same terms and conditions contained herein) for each of five (5) successive
periods of ten (10) Fiscal Years ("Renewal Terms") unless Tenant exercises its
option to terminate the Lease by giving Landlord written notice to that effect
not less than twenty-four (24) months prior to the expiration of the then
current term. Notwithstanding the foregoing, if Tenant 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. Tenant's renewal shall
be effective if and only if Tenant is not in default under the terms and
conditions of the Lease at the time of commencement of such Renewal Term.
- 14 -
4.02 Landlord's Right to Terminate
-----------------------------
A. Landlord shall have the option to terminate this Lease if in any two of
three consecutive Fiscal Years beginning with any Fiscal Year after the
conclusion of the fifth (5th) Fiscal Year there is an Operating Loss. Landlord's
option to terminate for the reason described in this Section shall be exercised
by written notice served upon Tenant in accordance with Section 21.08 within
sixty (60) days following receipt of the annual statement as set forth in
Section 9.01 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 above, Tenant shall
have the right to avoid Termination by advancing to Landlord, within thirty (30)
days after receipt of the notice of Landlord's exercise of its option to
terminate, an amount as additional rental equal to the Operating Losses during
such two Fiscal Years. Upon making such payment, the exercise of Landlord's
options under Section 4.02 A shall be deemed null and void for the applicable
period to which such option relates, and this Lease shall continue in full force
and effect. Any amounts so paid by Tenant under this Section 4.02 B shall be
Additional Rental and recovered in the same manner as set forth in Section 5.01
E for additional rental.
END OF ARTICLE IV
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ARTICLE V
RENTALS
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5.01 Annual Rentals During Initial Term and Renewal Terms
----------------------------------------------------
A. Tenant, in consideration of this Lease, covenants and agrees to pay to
Landlord, in lawful money of the United States, during the Initial Term and any
Renewal Terms of this Lease, the annual rental ("Annual Rental") determined in
accordance with this Section 5.01 plus the sum of the deposits to the Repairs
and Equipment Reserve in accordance with Article VIII (and taxes paid in
accordance with Article XIII). The Annual Rental in any given Fiscal Year shall
equal the greatest of (i) the "Minimum Rental," or (ii) the "Basic Rental," or
(iii) the "Adjusted Rental," as said terms are defined below. The Annual Rental
shall be paid to Landlord in the manner and time set forth in Section 5.02. The
rental hereunder shall commence as of the Opening Date; no rental shall be paid
for the period from the Effective Date to the Opening Date.
B. The minimum rental ("Minimum Rental") shall equal One Hundred Thousand
Dollars ($100,000) per Fiscal Year.
C. The basic rental ("Basic Rental") under this Lease shall equal (subject
to subsection E) eighty percent (80%) of Operating Profit with respect to each
Fiscal Year (and Partial Fiscal Year) during the Initial Term and any Renewal
Terms; provided, however, in the event Landlord refinances the First
- 16 -
Mortgage (or elects to obtain a second mortgage in lieu of such refinancing) and
the principal amount of the loan secured by such new first mortgage (or First
Mortgage and second mortgage) is not used for and exceeds the outstanding
principal balance of the First Mortgage by (i) Four Million Four Hundred
Twenty-one Thousand Dollars ($4,421,000), and (ii) the reasonable costs of the
transaction, and (iii) any loans made by Marriott Corporation or an affiliate of
Marriott Corporation or any other party with respect to the Hotel after funds
from the refinancing (or second mortgage) are used to pay off the outstanding
balance, if any, on any such loans, the Basic Rental shall be reduced from
eighty percent (80%) to seventy-five percent (75%) of Operating Profit.
D. The adjusted rental ("Adjusted Rental") under this Lease shall equal,
with respect to each Fiscal Year (and Partial Fiscal Year) during the Initial
Term and any Renewal Terms, Debt Service plus the greater of (i) Owner's
Priority, or (ii) for each Fiscal Year through Fiscal Year 1991, fifty percent
(50%) of the amount by which Operating Profit exceeds Debt Service. In no event
shall the Adjusted Rental in any given Fiscal Year (and Partial Fiscal Year)
exceed one hundred percent (100%) of Operating Profit for such period.
E. Tenant shall maintain a record of the amount by which Annual Rental
exceeds Basic Rental in each and every Fiscal Year, plus the cumulative amount
of rental paid pursuant to Section 4.02 B ("Additional Rental"). If, in any
given Fiscal
- 17 -
Year the Basic Rental exceeds the Adjusted Rental, Annual Rental for such Fiscal
Year shall equal Basic Rental minus the lower of (i) the amount of Additional
Rental then outstanding, or (ii) fifty percent (50%) of such excess, reduced
(but not below zero) by any outstanding balance on any loan made by Marriott
Corporation or any affiliate of Marriott Corporation to any landlord hereunder
with respect to the Hotel, excluding the Deferred Purchase Debt. The cumulative
total of the then existing Additional Rental shall be reduced by the lower of
the two factors listed in the preceding sentence. If there is no Additional
Rental outstanding, there will be no adjustment pursuant to this subsection E.
5.02 Accounting and Interim Payment
------------------------------
A. Within twenty (20) days after the close of each Accounting Period after
the Effective Date, Tenant shall submit an interim accounting to Landlord
showing Gross Revenues and Deductions, Operating Profit and other information
necessary in determining the rental hereunder. Tenant shall transfer with each
accounting any interim amounts due Landlord pursuant to Section 5.02. Minimum
Rental for any Partial Fiscal Year shall be prorated.
B. Calculations of Operating Profit and of rental due hereunder made with
respect to each Accounting Period within a Fiscal Year shall be accounted for
cumulatively. Within
- 18 -
ninety (90) days after the close of each Fiscal Year, Tenant shall submit an
accounting, as more fully described in Section 9.01, for such Fiscal Year to
Landlord, which accounting shall be controlling over the interim accountings.
Any adjustments required by the Fiscal Year accounting 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
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ARTICLE VI
PRE-OPENING ACTIVITIES
----------------------
6.01 Description
-----------
It is recognized that certain activities must be undertaken in order to
assure that the Hotel can function in an appropriate and orderly manner on the
Opening Date and through the end of the first Fiscal Year. Accordingly, Tenant
has or shall:
A. Recruit, train and employ the staff required for the Hotel;
B. Negotiate subleases and/or concession contracts for stores, office space
and lobby space within the Hotel;
C. Undertake pre-opening promotion and advertising, including opening
celebrations and related activities;
D. Test the operations of the Hotel and implement any modifications thereof
if necessary;
E. Provide, for a period to end not later than sixty (60) days from the
Opening Date, a task force of experts and personnel to supervise and assist with
pre-opening and opening operations;
F. Apply for, and use its best efforts to obtain, the licenses and permits
required for the operation of the Hotel as contemplated by this Lease;
G. In general, render such other miscellaneous services incidental to the
preparation and organization of the Hotel's
- 20 -
operations as may be required for the Hotel to be adequately staffed and capable
of operating on the Opening Date, including development and implementation of
marketing and sales programs, accounting and budgeting controls and similar
operational items.
6.02 Pre-Opening Expenses
--------------------
The expenses relating to much activities ("Pre-Opening Expenses ") shall
include, but not be limited to: salaries and wages (including those of personnel
of Tenant and its affiliated companies); costs of interim office space;
professional fees; telephone expenses; staff hiring and training costs; travel
and moving expenses; costs of entertainment and opening celebrations including
food, beverages and the room accounts of invitees; the cost of heat, light,
power and clean-up expenses not chargeable to the cost of the project;
advertising, public relations and promotional expenses; employee benefits and
meals prior to the Opening Date; classified advertising, agency fees,
recruitment costs and other associated miscellaneous expenses. Tenant has
prepared and submitted an estimate (the "Pre-Opening Estimate") of the
Pre-Opening Expenses to Landlord, which Landlord has approved. Any Pre-Opening
Expenses in excess of the Pre-Opening Estimate reasonably incurred by Tenant
shall be borne by Landlord.
END OF ARTICLE VI
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ARTICLE VII
WORKING CAPITAL AND FIXED ASSET SUPPLIES
----------------------------------------
7.01 Working Capital and Inventories
-------------------------------
Tenant shall provide the funds to initially supply the Hotel with the
amount of Working Capital and Inventories which Tenant determines, in its
reasonable business judgment, to be needed for the operation of the Hotel,
presently estimated to be Six Hundred Forty Thousand Dollars ($640,000) for
Working Capital (and Inventories). During the term hereof, Tenant 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 Tenant during the term of this Lease and upon
Termination.
7.02 Fixed Asset Supplies
--------------------
Landlord shall provide the funds necessary to initially supply the Hotel
with the necessary quantity and quality of Fixed Asset Supplies, as determined
by Tenant in its reasonable business judgment. The cost of Fixed Asset Supplies
expended during the Hotel's operation shall constitute a Deduction from Gross
Revenues in determining
- 22 -
Operating Profit. All replacements of Fixed Asset Supplies shall be funded from
Gross Revenues and shall remain the property of Landlord. Upon Termination,
Tenant shall be obligated to deliver to Landlord such Fixed Asset Supplies as
are equal in quantity and comparable in quality to those initially provided by
Landlord, subject to the provisions of Section 10.02.
END OF ARTICLE VII
- 23 -
ARTICLE VIII
MAINTENANCE, REPLACEMENT AND CHANGES
------------------------------------
8.01 Repairs and Maintenance
-----------------------
Tenant 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. Tenant shall, on behalf of Landlord, establish an escrow account
("Repairs and Equipment Reserve" or the "Reserve") in a bank selected by Tenant,
subject to Landlord's approval, which shall be funded as set forth in subsection
B hereof, to cover the cost of:
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
- 24 -
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
Landlord's sole responsibility under Section 9.03.
B. For the first Fiscal Year after the Opening Date, Tenant shall, on
behalf of Landlord, deposit in the Reserve an amount equal to one percent (1%)
of Gross Revenues; for the second Fiscal Year after the Opening Date, Tenant
shall so transfer to the Reserve an amount equal to two percent (2%) of Gross
Revenues; for the third through the fifth Fiscal Years after the opening Date,
Tenant shall so transfer to the Reserve an amount equal to three percent (3%) of
Gross Revenues for each such Fiscal Year; for the sixth through tenth Fiscal
Years after the Opening Date, Tenant shall so transfer to the Reserve an amount
equal to four percent (4%) of Gross Revenues for each such Fiscal Year;
commencing with the eleventh Fiscal Year after the Opening Date and for all
Fiscal Years thereafter, subject to the provisions of subsection F, below,
Tenant shall so transfer to the Reserve 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, on a pro rata basis,
- 25 -
as set forth in Section 5.02 A, 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 Landlord. For the
purposes of this Lease, funds deposited into the Repairs and Equipment Reserve
shall be additional rental to Landlord.
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 Reserve. The
amount that would otherwise be transferred to the Reserve in any given Fiscal
Year shall be reduced by amounts so credited under this subsection C.
D. Each Fiscal Year Tenant 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 Landlord at the same
time as it submits the Annual Operating Projection described in Section 9.03.
E. Tenant 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 Reserve
other than in accordance with the preceding sentence.
- 26 -
To the extent reasonably feasible Tenant 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 Reserve without the approval of Landlord. At the end of
each Fiscal Year, any amounts remaining in the Reserve shall be carried forward
to the next Fiscal Year.
F. The annual percentages of Gross Revenues to be placed in the Repairs
and Equipment Reserve as set forth in Section 8.02 B are estimates based upon
Tenant's prior experience with new properties. If, in good faith, Tenant feels
at any time during the term of this Lease that such percentages have become
excessive given the needs of the Hotel, such percentages will be reduced to such
amounts as Tenant deems reasonably necessary for the proper operation of the
Hotel. On the other hand, as the Hotel ages, these percentages 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 Tenant
exceeds available funds in the Repairs and Equipment Reserve, Landlord will
either:
1. Agree to increase the annual percentages of Gross Revenues
contributed to the 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
- 27 -
basis) with respect to such financing will be treated as Deductions in computing
Operating Profit.
A failure or refusal by Landlord to agree to either 1 or 2 above within a
sixty (60) day period after Tenant's request therefor shall entitle Tenant to
terminate this Lease upon six (6) months' written notice.
8.03 Alterations and Improvements
----------------------------
Tenant will prepare in good faith an annual estimate of major expenditures
for building alterations, improvements, renewa1s 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 Reserve, and shall submit the
estimate to Landlord for approval at the same time the Annual Operating
Projection is submitted. Tenant will not make any expenditures for such purposes
that have not been approved by Landlord or which would result in insufficient
funds to pay Debt Service under the First Mortgage, 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, Tenant shall immediately give Landlord notice
thereof and shall be authorized to take appropriate remedial action without
approval in cases of emergency if Landlord does not act.
- 28 -
Except during the term of the First Mortgage, if Landlord does not approve the
Building Estimate as in good faith recommended by Tenant within sixty (60) days
after it has been submitted and it is Tenant'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 Tenant shall have the right at its option to
terminate this Lease upon six (6) months' prior written notice. The cost of all
such alterations, improvements, renewals and replacements shall be borne solely
by Landlord.
Notwithstanding any other provision of this Section 8.03, if Landlord,
in good faith, estimates that the Operating Profit shown in Annual Operating
Projection, plus funds from other sources available to Landlord, are
insufficient to fund major expenditures after payment of Debt Service on the
First Mortgage, then Landlord shall not be required to approve the Building
Estimate and the Tenant may not terminate the Lease.
8.04 Liens
-----
Tenant and Landlord 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. Tenant and Landlord shall cooperate
- 29 -
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 Landlord 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
Reserve, shall be the property of Landlord.
END OF ARTICLE VIII
- 30 -
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 Lease. Landlord and its agents and representatives
(or the holder of the First Mortgage) shall have the right, at reasonable
intervals during Tenant's normal business hours, to examine such records and to
make copies thereof, at Landlord's expense. Within ninety (90) days following
the close of each Fiscal Year, Tenant shall furnish Landlord a statement in
reasonable detail summarizing the Hotel operations for such Fiscal Year and a
certificate of Tenant's chief accounting officer certifying that such year-end
statement is true and correct. Landlord shall have ninety (90) days after
receipt to audit, examine, or review said statement. If Landlord raises no
objections within said ninety (90) day period (unless Landlord 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 Landlord and
Tenant as true and correct and neither Landlord nor Tenant shall have any
further right to question its accuracy. Notwithstanding the above, Tenant
- 31 -
shall furnish Landlord with sufficient financial information to permit Landlord
to comply with the terms of the First 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 Tenant in
Hotel bank accounts in a national or state banking institution selected by
Tenant, but subject to Landlord's approval. Withdrawals from said accounts shall
be made by representatives of Tenant whose signatures have been authorized.
Reasonable petty cash funds shall be maintained at the Hotel.
9.03 Annual Operating Projection
---------------------------
Tenant shall submit to Landlord for its review thirty (30) days prior to
the beginning of each Fiscal Year after the Opening Date an "Annual Operating
Projection" which shall set forth Tenant'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 system. Tenant
will use its best efforts and all due diligence to operate the Hotel within the
Annual Operating Projection. It is understood, however, that the
- 32 -
Annual Operating Projection is an estimate only and that unforeseen
circumstances such as, but not limited to, the costs of labor, material,
services and supplies, casualty, operation of law, or economic and market
conditions may make adherence to the Annual operating Projection impracticable,
and Tenant 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 Lease shall be funded solely
by Tenant, without reimbursement, adjustment or other accounting by Landlord.
B. In no event shall either party borrow money in the name of or pledge
the credit of the other.
END OF ARTICLE IX
- 33 -
ARTICLE X
TRADEMARK AND TRADE NAME
------------------------
10.01 Marriott Name
-------------
A. During the term of this Lease, 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, Tenant
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 Marriott Corporation, and
nothing contained herein shall confer on Landlord 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 Lease. 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 Landlord shall cease
forthwith and Tenant shall have the right (at Tenant'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.
B. Included under the terms of this Article are all trademarks, service
marks, trade names, symbols, logos or
- 34 -
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 Landlord under this Lease inures to
the benefit of Tenant whether or not the marks are registered and regardless of
the source of the mark.
10.02 Fixed Asset Supplies
--------------------
Upon Termination, Tenant 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
------------------
Tenant and/or its affiliated companies shall be entitled, in case of any
breach of the covenants of Article X by Landlord or others claiming through it,
to injunctive relief and to any other right or remedy available at law. The
provisions of Article X shall survive Termination.
END OF ARTICLE X
- 35 -
ARTICLE XI
POSSESSION AND USE OF HOTEL
---------------------------
11.01 Quiet Enjoyment
---------------
Landlord covenants that so long as Tenant is not in default under this
Lease and so long as Tenant is not responsible for lack of free and quiet
occupation, Tenant shall quietly hold, occupy and enjoy the Hotel throughout the
term hereof free from hindrance, ejection or molestation by Landlord or other
party claiming under, through or by right of Landlord. Landlord 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 Landlord from
delaying any payment, provided Landlord is prosecuting all appropriate actions
in good faith and provided that no action on the part of Landlord in any such
prosecution shall create a possibility of foreclosure or any divesting of the
Hotel or the termination of the Lease, or incur or create any civil or criminal
liability on the part of Tenant. For the purpose of the preceding sentence,
Tenant agrees that the filing of an appropriate bond in accordance with
applicable law shall be sufficient action on the part of Landlord to prevent the
possibility of foreclosure should
- 36 -
Landlord elect to delay any such payment and prosecute any such action in good
faith.
11.03 Use
---
A. Tenant 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. Tenant, 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 shall use its
reasonable best efforts to apply sound administrative, accounting, budgeting,
operational, sales, advertising, personnel and purchasing policies and
practices. Tenant shall obtain, either in its own name or on behalf of the
Landlord, any and all licenses or permits necessary for the operation of the
Hotel as a first class hotel facility.
B. Tenant shall have the option to terminate this Lease at any time upon
seventy-five (75) days' written notice to Landlord in the event of a withdrawal
or revocation, by any lawful governing body having jurisdiction thereof, of any
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 Tenant,
but is
- 37 -
due to circumstances beyond Tenant'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 by
Tenant 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
--------------
Tenant 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 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.
- 38 -
11.05 Landlord's Right to Inspect
---------------------------
Landlord 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, showing the Hotel to prospective
purchasers or mortgagees, or for inspection purposes.
END OF ARTICLE XI
- 39 -
ARTICLE XII
INSURANCE
---------
12.01 Property Insurance
------------------
A. Tenant shall, commencing with the Opening Date and during the term of
this Lease, procure and maintain, with insurance companies of recognized
responsibility, such property insurance as shall be recommended by Tenant and
approved by Landlord (such approval not to be unreasonably withheld, delayed or
conditioned) provided that the following minimum coverage (which shall be
increased if required by any of the lending institutions providing financing for
the Hotel) shall be obtained in any event:
1. Insurance on the Hotel (including contents) against loss or damage by
fire, lightning and all other risks covered by the usual standard extended
coverage endorsement, with such deductible limits as are used at other hotels
Tenant leases or manages in the United States, and with coverage in the amount
of not less than ninety percent (90%) of the replacement cost thereof;
2. Insurance against loss or damage from explosion of boilers, pressure
vessels, pressure pipes and sprinklers installed in the Hotel;
3. Business interruption insurance covering loss of profits and necessary
continuing expenses for interruptions caused by any occurrences covered by the
insurance referred to
- 40 -
in subparagraphs 1 and 2 above, for a period of nine months and otherwise of a
type and in amounts generally prevailing at other hotels leased or managed by
Tenant in the United States.
B. All policies of insurance required under Section 12.02 A shall be
carried in the name of Landlord, Tenant, and holder of the First Mortgage, and
any other mortgagee designated by Landlord, and losses thereunder shall be
payable to the parties as their respective interests may appear.
C. Any mortgage on the Hotel shall contain provisions to the effect that
proceeds of the insurance policies required to be carried under Section 12.01
shall be available for repair and restoration of the Hotel, except that, with
respect to any first Mortgage, in the event the Hotel is substantially
destroyed, proceeds may at the option of the holder be applied to repayment of
the debt.
12.02 Operational Insurance
---------------------
Tenant shall, commencing with the Opening Date and during the term of this
Lease, procure and maintain, with insurance companies of recognized
responsibility, such operational insurance as shall be recommended by Tenant and
approved by Landlord (such approval not to be unreasonably withheld, delayed or
conditioned), provided that the following minimum coverage (which shall be
increased if required by any of the lending institutions providing financing for
the Hotel) shall be obtained in any event:
- 41 -
A. Workers' compensation and employer's liability insurance as may be
required under applicable laws covering all Tenant's employees at the Hotel,
with such deductible limits and self-insured retentions as are used at other
hotels Tenant leases or manages in the United States.
B. Fidelity bonds, with reasonable limits to be determined by Tenant,
covering its employees in job classifications normally bonded in other hotels in
the Marriott chain or otherwise required by law, and comprehensive crime
insurance to the extent that Tenant and Landlord mutually agree it is necessary
for the Hotel.
C. Comprehensive general public liability and automobile insurance against
claims for death, bodily injury, or property damage occurring on, in or about
the Hotel, with a combined single limit of not less than Ten Million Dollars
($10,000,000) for each occurrence, with such deductible limits and self-insured
retentions as are used at other hotels Tenant leases or manages in the United
States.
D. Such other insurance as Tenant in its reasonable judgment deems
advisable for protection against claims, liabilities and losses arising out of
or connected with its performance under this Lease.
12.03 Coverage
--------
All insurance described in Sections 12.01 and 12.02 may be obtained by
Tenant by endorsement or equivalent means under
- 42 -
Marriott Corporation's blanket insurance policies, provided that such blanket
policies fulfill the requirements specified herein. Deductible limits and
self-insured retentions shall be as provided in the blanket policies covering
the hotels leased or managed by Marriott Corporation or an affiliate of Marriott
Corporation under the Marriott name in the United States. In addition, Marriott
Corporation, on behalf of Tenant, may (if it has legally qualified to do so)
self-insure or otherwise retain such risks or portions thereof as it does with
respect to other hotels owned, operated or managed under the Marriott name in
the United States and in accordance with the coverage specified in this Lease.
Tenant shall indemnify, hold harmless and defend Landlord against all claims,
losses, damages and other expenses against, or incurred by, Landlord as to which
such self-insurance is applicable, except with respect to the self-insured
retentions referred to above.
12.04 Cost and Expense
----------------
A. Insurance premiums and any costs or expenses with respect to the
insurance described in Article XII shall be paid by Tenant and shall be
Deductions in determining Operating Profit. Premiums on policies for more than
one (1) year shall be charged pro rata against Gross Revenues over the period of
the policies. The expenses incurred in maintaining Tenant's self-insurance
program shall be charged on an equitable basis to the hotels participating in
such programs.
- 43 -
Any reserves, losses, costs, damages or expenses which are uninsured, or fall
within deductible limits or self-insured retentions, shall be treated as a cost
of insurance and shall be Deductions in determining Operating Profit. Upon
Termination, an escrow fund in an amount acceptable to Tenant shall be
established from Gross Revenues (or, if Gross Revenues are not sufficient, with
funds provided by Landlord) to cover the amount of any deductible limits or
self-insured retentions and all other costs which will eventually have to be
paid by either Landlord or Tenant with respect to pending or contingent claims,
including those which arise after Termination for causes arising during the term
of the Lease for insured risks. As claims are settled, funds from the escrow
account will be released, as appropriate.
12.05 Policies and Endorsements
-------------------------
A. All insurance policies provided for under Section 12.01 and Section
12.02 C shall name Tenant, Landlord, the holder of the First Mortgage, and any
other mortgagee designated by Landlord as additional insureds (all such
mortgagees shall be named under the standard mortgagee clause applicable in the
jurisdiction in which the Hotel is located). The party obligated to procure such
insurance shall deliver to the other party certificates of insurance with
respect to all policies so procured, including existing, additional and renewal
policies and, in the case of insurance
- 44 -
about to expire, shall deliver certificates of insurance with respect to the
renewal policies not less than ten (10) days prior to the respective dates of
expiration.
B. All insurance policies provided for under Section 12.01 and Section
12.02 shall, to the extent obtainable, have attached thereto an endorsement that
such policy shall not be cancelled or materially changed without at least thirty
(30) days' prior written notice to Landlord, Tenant, the holder of the First
Mortgage, and any other mortgagee designated by Landlord.
12.06 Insurance Requirements Under First Mortgage
-------------------------------------------
Notwithstanding any other provision of this Article XII, insurance
requirements contained in the First Mortgage (for so long as the First Mortgage
remains in place or the holder of the First Mortgage is landlord under this
Agreement) shall take precedence over this Article XII.
END OF ARTICLE XII
- 45 -
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 Landlord in the Site, the
Hotel or this Lease during the term of this Lease shall be paid by Tenant 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 Landlord in the Site, the Hotel or this Lease,
unless payment thereof is in good faith being contested and enforcement thereof
is stayed. Tenant shall, within the earlier of thirty (30) days of payment or
three (3) days following written demand by Landlord, furnish Landlord with
copies of official tax bills and evidence of payment or contest thereof. For the
purpose of this Lease, any such taxes paid in accordance with the foregoing
shall be additional rental to Landlord. Notwithstanding the foregoing, Landlord
shall pay and have sole responsibility for all real estate and ad valorem
property taxes, assessments, "hook-up charges" and other charges incurred
during the period prior to the Opening Date or specifically imposed with respect
to the construction of the Hotel.
- 46 -
13.02 Investment Tax Credit
---------------------
Tenant shall be entitled to claim the investment tax credit (the "ITC")
allowed by Section 38 of the Internal Revenue Code of 1954, as amended, or any
similar benefit provided in the future, under federal or state taxation
statutes, in respect of all property on the Hotel premises on the Opening Date,
or added in the future, as to which such credit is applicable. Landlord agrees
to execute such documents, including a "Lessor's Election Statement," to
cooperate with Tenant in taking such action as may be necessary or appropriate
to enable Tenant to fully utilize the benefits of the ITC, and to take no action
which is inconsistent with Tenant's right to claim the ITC.
END OF ARTICLE XIII
- 47 -
ARTICLE XIV
HOTEL EMPLOYEES
---------------
14.01 Employees
---------
All Hotel personnel shall at all times during the term of this Lease be the
employees of Tenant or affiliates of Tenant.
A. Tenant 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. Tenant 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
Landlord and Tenant except in accordance with the usual practices of the hotel
and travel industry.
C. All employees who are responsible for the handling of rentals to be paid
to Landlord pursuant to Article V hereof, shall be under a blanket fidelity bond
in a company reasonably acceptable to Landlord and Tenant.
END OF ARTICLE XIV
- 48 -
ARTICLE XV
DAMAGE, CONDEMNATION AND FORCE MAJEURE
--------------------------------------
15.01 Damage and Repair
-----------------
A. If, during the term hereof, the Hotel is damaged or destroyed by fire,
casualty or other cause, Landlord shall, within thirty (30) days of such damage
or destruction, either (i) elect to repair or replace the damaged or destroyed
portion of the Hotel at its cost and expense and with all due diligence, or (ii)
if the cost and expense to repair or replace such damage or destruction is
greater than Five Million Dollars ($5,000,000) as indexed by The Consumer Price
Index with January 1, 1987 as the base index, or is in excess of the
corresponding insurance proceeds, elect to terminate this Lease; provided,
however, in the event Landlord elects to terminate the Lease, Landlord shall
promptly pay to Tenant an amount representing the present value of the portion
of the Operating Profit which would have been retained by Tenant calculated to
the end of the term of the Lease including Renewal Terms; provided, however, in
no event shall such amount exceed the fair market value of any assets of
Landlord (including but not limited to the value of the improvements and the
assets of the general partner(s), if any) and any insurance proceeds received by
Landlord on account of such damage or destruction. In the event Landlord and
Tenant cannot agree on such amount within thirty (30) days of
- 49 -
Tenant's receipt of such notice of election to terminate by Landlord, such
amount shall be determined by arbitration in accordance with Section 20.01.
B. In the event damage or destruction to the Hotel from any cause
materially and adversely affects (in Tenant's reasonable business judgment) the
operation of the Hotel, and (regardless of whether Landlord elects to repair or
replace said damaged or destroyed portion of the Hotel under Section 15.01 A)
Landlord fails to commence and complete the repairing or replacement of the same
with reasonable diligence so that the Hotel shall be substantially the same as
it was prior to such damage or destruction, Tenant may elect to terminate this
Lease upon sixty (60) days' written notice to Landlord, in which event Landlord
shall pay to Tenant an amount representing the present value of the Lease to
Tenant calculated in accordance with Section 15.01 A.
15.02 Condemnation
------------
A. In the event (i) all or substantially all of the Hotel shall be taken
in any eminent domain, condemnation, or similar proceeding by any competent
authority for any public or quasi-public use or purpose, or by agreement with
those authorized to exercise such a right under threat thereof, or (ii) a
portion of the Hotel shall be so taken and Tenant reasonably determines that
such taking renders it impracticable to continue the operation of the Hotel,
this Lease shall terminate as of the date on which the condemning
- 50 -
authority assumes possession, and any award for the loss of the Hotel to which
either Landlord or Tenant shall be entitled shall be fairly and equitably
apportioned between Landlord and Tenant (taking into consideration Tenant's
leasehold interest under this Lease, and Landlord's ownership of the Hotel and
the Site) in accordance with their respective interests. In the event Landlord
and Tenant are unable to agree on a fair and equitable apportionment within
thirty (30) days of notice of the amount of such award, the matter shall be
decided by arbitration in accordance with Section 20.01.
B. In the event a portion of the Hotel shall be taken by any of the events
described in Section 15.02 A, but Tenant reasonably determines that it is
practicable (on the assumption that the necessary repairs or replacements, if
any, are implemented within a reasonable time) to continue to operate the Hotel,
this Lease shall not terminate. In such event, the award for any such partial
taking or condemnation shall be made available to Landlord to the extent
necessary to implement whatever repairs or replacements are necessary to render
the Hotel substantially equivalent to its condition prior to such taking. The
balance of such award, if any, shall be fairly and equitably apportioned between
Landlord and Tenant (taking into consideration Tenant's leasehold interest under
this Lease, and Landlord's ownership of the Hotel and the Site) in accordance
with their respective interests. In the event Landlord and Tenant are unable to
agree on a fair and equitable apportionment within thirty (30) days of notice of
the amount of such award, the matter shall be decided by
- 51 -
arbitration in accordance with Section 20.01. Notwithstanding the foregoing, if
the estimated cost of such repairs is greater than Five Million Dollars
($5,000,000) as indexed by the Consumer Price Index (with January 1, 1987 as the
base index), or in excess of the amount of corresponding insurance proceeds,
Landlord, at its option, within thirty (30) days of the date of such taking, may
elect to terminate the Lease upon sixty (60) days' written notice to Tenant, in
which event Landlord shall promptly pay to Tenant the present value of the
portion of the Operating Profit which would have been retained by the Tenant
calculated in accordance with Section 15.01 A.
C. If the temporary use or occupancy of all or any portion of the Hotel
shall be taken in any eminent domain, condemnation, or similar proceeding by any
competent authority for any public or quasi-public use or purpose, or by
agreement with those authorized to exercise such a right under threat thereof,
this Lease shall not terminate. In such event, Tenant shall be entitled to
receive the entirety of any award or payment made for such temporary use or
occupancy, and such amount shall be included in Gross Revenues.
D. There shall be no abatement of any rental due hereunder as a result of
any partial or temporary taking or condemnation pursuant to subsections B or C
above, provided that in the event of such a partial taking or condemnation, if
the Hotel cannot be restored to a substantially equivalent condition as it
existed prior to such event, and if the amount
- 52 -
of the debt service on the First Mortgage is not proportionately reduced,
Tenant's obligation to pay Minimum Rental pursuant to Section 5.01 B and
Adjusted Rental pursuant to Section 5.01 D shall be reduced accordingly relative
to the taken portion.
15.03 Force Majeure
-------------
Provided that the specific provisions of this Lease 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 Tenant's
reasonable business judgment, make continued operation of the Hotel
impracticable for more than a temporary period, then Tenant shall be entitled to
terminate this Lease upon sixty (60) days' written notice to Landlord.
15.04 Damage, Condemnation and Force Majeure Under the First Mortgage
---------------------------------------------------------------
Notwithstanding any other provision of this Article XV, (i) 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 and (ii) for so long as the lender under the First Mortgage
shall have any interest in the Hotel, whether as landlord under this Lease, as a
mortgagee or otherwise,
- 53 -
Tenant shall not be entitled to receive any amounts representing the present
value of the portion of the Operating Profit which would have been retained by
the Tenant prior to receipt by the lender under the First Mortgage of all
amounts outstanding under the First Mortgage or amounts which would have been
outstanding under the First Mortgage had no foreclosure of the First Mortgage
occurred or a deed in lieu of foreclosure been accepted by such lender.
END OF ARTICLE XV
- 54 -
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 issuance thereof;
- 55 -
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 Lease, 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
Lease 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 Lease 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 subsections A through E of Section
16.01.
16.02 Remedies Cumulative
-------------------
The rights granted hereunder shall not be in substitution for, but shall be
in addition to, any and all rights and
- 56 -
remedies available to the non-defaulting party by reason of applicable
provisions of law.
END OF ARTICLE XVI
- 57 -
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 Lease 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 Lease shall be declared invalid by
order, decree or judgment of a court, or governmental agency having
jurisdiction, this Lease shall be construed as if such portion had not been
inserted herein, except when such construction would operate as an undue
hardship on Tenant or Landlord or constitute a substantial deviation from the
general intent and purpose of said parties as reflected in this Lease.
END OF ARTICLE XVII
- 58 -
ARTICLE XVIII
ASSIGNMENT
----------
18.01 Assignment
----------
Neither party shall assign or transfer or permit the assignment or transfer
of this Lease without the prior written consent of the other party, except as
follows:
A. Landlord shall have the right to assign or transfer its interest in this
Lease without such consent in connection with a sale of the Hotel pursuant to
Section 19.01;
B. Landlord shall have the right to assign or transfer its interest in this
Lease without such consent as collateral security with respect to the financing
evidenced by any mortgage, deeds of trust or similar security instrument;
provided, however, (except with regard to the First Mortgage) any such mortgage,
deed of trust or security instrument will contain a provision reasonably
acceptable to Tenant's counsel that the Lease will not be subject to forfeiture
or Termination other than in accordance with the terms hereof, notwithstanding a
default under any such mortgage, deed of trust or security instrument. Under
such circumstances, Tenant is obligated to comply with the provisions of'
Section 18.02(vi) of this Agreement;
C. Provided that Tenant remains liable under all of the provisions hereof,
Tenant shall have the right to transfer or assign its interest in this Lease
without such consent to any
- 59 -
affiliates controlling or controlled by Marriott Corporation, including a
partnership in which Marriott Corporation 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 Corporation
if Marriott Corporation, 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. Tenant shall have the right to transfer or assign its interest in
this Lease without such consent in connection with a merger, consolidation, or
sale of all or substantially all of the assets of Marriott Corporation.
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 Lease. In the event of consent by either party to
an assignment of this Lease 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 Lease. Any
permitted assignment by either Landlord or Tenant of its interest in this lease,
and the assumption by the assignee of the assignor's duties under this Lease,
shall relieve Landlord or Tenant (except in the event of an
- 60 -
assignment under subsection C, above), as the case may be, their respective
obligations under this Lease 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
-------------
Tenant shall, on request of the Landlord or any lender or lenders under
the First Mortgage, or on request of any such lender or lenders under the First
Mortgage in a refinancing or on request of any lender, or lenders under a second
mortgage, enter into such supplemental agreements as may obligate Tenant to (i)
provide such lenders with notice of any default by Landlord hereunder and
thereafter permit such lenders to effect a cure thereof within a reasonable
period; (ii) supply such lender with copies of any notices or other
communications contemplated by this Lease from Tenant to Landlord; (iii)
postpone termination of this Lease in the event of a default by Landlord for so
long as the lender under the First Mortgage 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 the lender under the
First Mortgage in good faith shall notify Tenant that it intends to institute
foreclosure proceedings and thereafter for so long as such proceedings shall
have been
- 61 -
instituted and prosecuted with reasonable diligence; (iv) in the event of a
termination of this Lease, offer to enter into a new lease with the lender under
the First Mortgage upon the same terms and conditions as this Lease, except that
the lender under the First Mortgage shall have the right to assign this Lease
without Tenant's consent, the right of first refusal referred to in Article XIX
of the Lease shall not be applicable to such assignment by the lender under the
First Mortgage and the covenants referred to in Sections 3.02 and 3.03 of this
Lease shall not apply to the lender under the First Mortgage; (v) subordinate
the Tenant's interest in this Lease to the rights of such lenders 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 lender or its assignee as being the Landlord
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 foreclosure.
18.03 Transfer of Hotel to Lender under First Mortgage
------------------------------------------------
In the event of a transfer of the Hotel from Landlord to lender under
the First Mortgage or a purchaser, including
- 62 -
such lender under the First Mortgage, at foreclosure or by deed in lieu of
foreclosure, then such transferee shall have no personal liability to Tenant
under this Lease, and the only recourse of Tenant shall be to the extent of the
interest of such transferee in the Hotel.
END OF ARTICLE XVIII
- 63 -
ARTICLE XIX
SALE OF HOTEL
-------------
19.01 Right of First Refusal
----------------------
A. If Landlord receives a bona fide written offer to purchase the Hotel
and desires to accept such offer, Landlord shall give written notice thereof to
Tenant 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 Tenant and reasonably available to Landlord. Within thirty (30)
days after the date of receipt of Landlord's written notice and such other
information, Tenant shall elect, by written notice to Landlord, one of the
following alternatives:
1. To purchase the Hotel at the same price and upon the same
terms and conditions as those set forth in the written notice from Landlord to
Tenant or upon other terms acceptable to Landlord, in which event Landlord and
Tenant shall promptly enter into an agreement for such sale and shall finalize
the same within sixty (60) days of the date of Tenant's election.
2. To consent to such sale and to the assignment of the Lease to
such purchaser, provided that concurrently with the finalization thereof the
purchaser shall, by appropriate instrument in form satisfactory to Tenant,
assume all of Landlord's obligations hereunder and provided that such sale
- 64 -
must be finalized within one hundred eighty (180) days following the receipt of
written notice from Landlord give pursuant to Section 19.01 A. Consent by Tenant
shall not relieve Landlord from its obligations under the Lease for any acts or
omissions of Landlord prior to such approved sale and assignment. An executed
copy of such assumption agreement shall be delivered to Tenant.
3. To terminate the Lease by written notice to Landlord, 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. Landlord or Tenant 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, Tenant agrees that if the proposed purchaser, in
the reasonable opinion of Tenant, (i) is financially responsible and has
sufficient assets to fulfill the obligations of Landlord 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 Tenant or Marriott Corporation or
their affiliates, Tenant shall not exercise its right to terminate the Lease
pursuant to this
- 65 -
Section 19.01 A 3 and shall be deemed to have consented to the proposed sale or
assignment pursuant to Section 19.01 A 2.
B. If Tenant shall fail to elect any of the above alternatives within
said thirty (30) day period as set forth in the first paragraph of Section 19.01
A above, the same shall be conclusively deemed to constitute an election and
consent under subsection 2 above, and the provisions thereof shall prevail as if
Tenant had consented in writing thereto. Any proposed sale of which notice has
been given by Landlord to Tenant hereunder must be finalized within one hundred
eighty (180) days following the giving of such notice, unless Tenant has
exercised its option under subsection 1 above to purchase the Hotel. Failing
such finalization, such notice, and any response thereto given by Tenant, shall
be null and void and all of the provisions of Section 19.01 A must again be
complied with before Landlord 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
of the First Mortgage in the event of a foreclosure or foreclosure sale (or deed
in lieu of foreclosure) of the First Mortgage or to the Landlord if the lender
of the First Mortgage has an economic interest as a lender in the Hotel or the
Premises.
- 66 -
D. In the event Landlord or an assignee of Landlord disposes of the
Hotel, the Landlord or assignee shall pay to the Tenant from the proceeds of
such sale an amount equal to the sum of Additional Rental, less reductions
thereof pursuant to Section 5.01 E of the Lease, outstanding as of the date of
disposition; provided that the amount of such payment shall not exceed the
amount of the gross selling price of the Hotel reduced by (i) expenses of the
sale, (ii) repayments of any debt secured by the Hotel and any third party debts
of the Landlord or the assignee of Landlord, (iii) repayment of all loans to any
assignee of Landlord from Marriott Corporation or any of its affiliates, (iv) an
amount on the date of disposition equal to the cumulative paid-in capital of
the partners of an assignee of Landlord, if the assignee is a partnership, over
cumulative distributions to such partners of sale and refinancing proceeds of
such partnership ("Invested Capital"), (v) an amount equal to an annual 12%
cumulative return to the limited partners of an assignee of Landlord, if the
assignee is a partnership on their Invested Capital to the extent not previously
received from cash available for distribution from operations of Landlord, but
not from sale or refinancing proceeds. Such payment, if any, will be applied to
reduce the then outstanding cumulative Additional Rentals.
END OF ARTICLE XIX
- 67 -
ARTICLE XX
ARBITRATION
-----------
20.01 Arbitration
-----------
(a) In the event of a dispute between Landlord and Tenant 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) Landlord and Tenant 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 Landlord or
Tenant shall fail to appoint an arbitrator, as aforesaid, for a period of twenty
(20) days after written notice from the other party to make such appointment,
then the arbitrator appointed by the party
- 68 -
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 Landlord and Tenant. The fees of respective counsel engaged by the
parties, and the fees of expert witnesses and other witnesses called for the
parties, shall be paid by the respective party engaging such counsel or calling
or engaging such witnesses.
(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 Landlord and Tenant. A judgment of a court of competent
jurisdiction may be entered upon the award of the arbitrators in accordance with
the rules and statutes applicable thereto then obtaining. Nothing herein shall
be deemed to grant such arbitrators authority to modify or amend the Lease.
END OF ARTICLE XX
- 69 -
ARTICLE XXI
MISCELLANEOUS
-------------
21.01 Right to Make Lease
-------------------
Each party warrants, with respect to itself, that neither the execution
of this Lease, 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 Lease and any extensions thereof, the full right to enter into this Lease
and perform its obligations hereunder.
21.02 Consents
--------
Except as otherwise specifically restricted or limited, wherever in this
Lease the consent or approval of Landlord or Tenant is required, such consent or
approval shall not be unreasonably withheld, delayed or conditioned, shall be
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.
- 70 -
21.03 Lessor and Lessee
-----------------
The relationship of Landlord and Tenant shall be that of lessor and
lessee, and nothing contained in this Lease shall be construed to create a
partnership or joint venture between them or their successors in interest.
21.04 Applicable Law
--------------
This Lease shall be construed under and shall be governed by the laws of
the State of New Jersey.
21.05 Recordation
-----------
At the request of either party, the parties shall execute an appropriate
memorandum of this Lease 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 Landlord, reimbursed to Landlord 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.
- 71 -
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 Lease 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
Lease is in full force and effect as modified;
B. Whether or not there are any defaults hereunder known to such party
or existing setoffs or defenses against the enforcement of any of the terms,
agreements, covenants and conditions of the Lease, and, if so, specifying the
same; and
C. The dates to which any stated amounts of rent, additional rental
and/or other charges hereunder have been paid.
The giving of any such certificate shall not preclude Landlord or Tenant
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 Lease shall be in writing and delivered by hand against receipt or sent
by certified or registered mail, return receipt requested, as follows:
- 72 -
To Landlord: Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20058
Attn: Law Department
To Tenant: Marriott Hotel Services, Inc.
c/o Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20058
Attn: Law Department
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 Lease, 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 Lease, 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
-----------
In the event of a Termination of this Lease, the following events shall
occur:
- 73 -
A. Tenant shall, as of the date of Termination, surrender the Hotel, the
Site and Fixed Asset Supplies (but not the Working Capital and Inventories) to
Landlord, in the condition the property is in as of such date, subject to
Tenant's obligations to maintain the property as set forth in Sections 8.01 and
8.02 hereof
B. Tenant shall be obligated to deliver to Landlord 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 Tenant and delivered to Landlord 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 Landlord and assumed by Landlord.
E. To the extent legally possible, all licenses and permits required for
the operation of the Hotel will be assigned to Landlord.
F. Tenant will deliver all books and records pertaining to the operation
of the Hotel to Landlord. Landlord agrees that Tenant will have reasonable
access (including the right to make copies, at its expense) to such books and
records after Termination.
- 74 -
G. Tenant will transfer to Landlord all advance reservations and any
deposits made with respect thereto. Tenant 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 Tenant'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. Landlord and Tenant will undertake such other actions as are
necessary and appropriate in connection with Termination of the Lease and the
transfer of possession of the Hotel to Landlord.
21.11 Brokers
-------
No real estate broker or agent has been a party to this transaction.
Tenant shall hold Landlord harmless from and against the claim of any real
estate broker or agent claiming to have acted on behalf of Tenant, and Landlord
shall hold Tenant harmless from and against the claim of any other real estate
broker or agent claiming to have acted on behalf of Landlord.
21.12 Indemnification
---------------
Landlord shall indemnify Tenant from and against all liabilities,
claims, obligations, damages, costs and expenses as a result of a breach of this
Agreement by Landlord. Likewise, Tenant shall indemnify Landlord from and
against all liabilities, claims, obligations, damages, costs and expenses as a
result of a breach of this Agreement by Tenant.
- 75 -
21.13 Confidentiality
---------------
The parties hereby agree that the matters set forth in this Lease 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.
21.14 Landlord's Exculpation
----------------------
It is expressly understood and agreed by Tenant or any other entity
hereafter claiming an interest pursuant to this Lease that the liability of
Landlord hereunder, including any partner, officer or director of Landlord, for
damages or otherwise shall be limited to Landlord's interest in the Site, Hotel
and this Lease and that no personal liability is assumed by nor shall be
asserted or enforced against Landlord or any of its respective successors or
assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed by their duly authorized officers.
ATTEST: MARRIOTT CORPORATION ("LANDLORD")
/s/ C.G. Townsend By /s/ David N. Chichester
- ----------------------------- ------------------------
Assistant Secretary Vice President
MARRIOTT HOTEL SERVICES, INC.
("TENANT")
/s/ C.G. Townsend By /s/ David N. Chichester
- ----------------------------- ------------------------
Assistant Secretary
76
State of New York )
) ss.
County of New York )
Be it remembered that on the 24th day of November, 1986, before me, the
---- --------
subscriber, a Notary Public authorized to take acknowledgments and proofs in
said county and state, personally appeared Lionel Kennedy, to me known, who
--------------
being by me duly sworn according to law, on his oath does depose and make proof
to my satisfaction that he well knows the seal of MARRIOTT CORPORATION, the
signatory in the foregoing instrument named; that the seal affixed to the said
instrument is the corporate seal of the said corporation, that it was so affixed
by virtue of authority from the board of directors of the said corporation; that
David Chichester was at the time of the execution thereof the Vice President of
- ----------------
the said corporation; that he saw the said David Chichester as such Vice
----------------
President affix said seal thereto, sign and deliver said instrument, and heard
him declare that he signed, sealed and delivered the same as the voluntary act
and deed of the said corporation, by virtue of such authority, and that this
deponent signed his name thereto, at the same time, as a subscribing witness.
/s/ Lionel Kennedy
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Signature of witness
Subscribed and sworn to before me at New York, NY the day and year aforesaid.
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[NOTARY PUBLIC, STATE OF
NEW YORK STAMP APPEARS HERE] /s/ Stephen L. Ganis
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Notary Public
State of New York
- 77 -
State of New York )
) ss.
County of New York )
Be it remembered that on the 24th day of November, 1986, before me, the
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subscriber, a Notary Public authorized to take acknowledgments and proofs in
said county and state, personally appeared Lionel Kennedy, to me known, who
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being by me duly sworn according to law, on his oath does depose and make proof
to my satisfaction that he well knows the seal of MARRIOTT HOTEL SERVICES, INC.,
the signatory in the foregoing instrument named; that the seal affixed to the
said instrument is the corporate seal of the said corporation, that it was so
affixed by virtue of authority from the board of directors of the said
corporation; that David Chichester was at the time of the execution thereof the
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Vice President of the said corporation; that he saw the said David Chichester
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as such Vice President affix said seal thereto, sign and deliver said
instrument, and heard him declare that he signed, sealed and delivered the same
as the voluntary act and deed of the said corporation, by virtue of such
authority, and that this deponent signed his name thereto, at the same time, as
a subscribing witness.
/s/ Lionel Kennedy
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Signature of witness
Subscribed and sworn to before me at New York, NY the day and year aforesaid.
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[NOTARY PUBLIC, STATE OF
NEW YORK STAMP APPEARS HERE] /s/ Stephen L. Ganis
-------------------------------------
Notary Public
State of New York
- 78 -
EXHIBIT A
All that tract or parcel of land and premises, situate, lying and being in the
Township of Hanover, in the County of Morris and State of New Jersey, more
particularly described as follows:
BEGINNING at a point in the present southwesterly side of New Jersey State
Highway Route 10 at a point where the westerly line of the premises to be
described and the easterly line now or formerly of Newark Milk and Cream Company
intersects said sideline of Route 10 and running; thence
1. South 60(degrees) 59'12" East and along the side of Route 10, 774.32 feet to
the corner of lands now or formerly of Melvin and Irene Wykoff, his wife;
thence
2. South 29(degrees) 00'48" West 178.12 feet; thence
3. Still along lands south 60(degrees) 59'12" East 211.0 feet to line of lands
of Iron Investment Corp., et.als., lands along the same; thence
4. The same South 12(degrees) 09'55" West 432.86 feet to a point;
thence
5. North 81(degrees) 54'29" West 181.92 feet to a point; thence
6. North 61(degrees) 11'56" West 760.78 feet to a point in line of lands of
Newark Milk and Cream Company; thence
7. Along the same North 13(degrees) 45'24" East 684.30 feet to the point and
place of BEGINNING.
BEING identified as tax lot 13 in block 1002 as shown on the tax map of the
Township of Hanover.
Being the same property conveyed from H.T. Restaurant, Inc. to Marriott
Corporation by Deed dated 7-22-83 and recorded 8-2-83 in the Morris Co. Clerk's
Office in Deed Book 2682 page 930, excepting therefrom the lands conveyed from
Marriott Corporation to the State of New Jersey, Department of Transportation,
by Deed dated March 23, 1984 and recorded May 1, 1984 in Deed Book 2725 page 495
in the Morris County Clerk's Office.
EXHIBIT B
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1. Easements as set forth in Deed Books 2764 page 738 2793 page 408; 2228 page
790; F31 page 134 and 071 page 70 X 30 page 580.
2. Right of others in and to the natural flow of stream crossing premises.
3. Lease Agreement as set forth in Deed Book 2796 page 830.
4. Slope rights as set forth in Deed Book 2725 page 495.