Exhibit 10.6
================================================================================
RESIDENCE INN
MANAGEMENT AGREEMENT
between
HMH PROPERTIES, INC.
("Owner")
and
RESIDENCE INN BY MARRIOTT, INC.
("Management Company")
================================================================================
TABLE OF CONTENTS
Page
----
ARTICLE I - DEFINITION OF TERMS
-------------------------------
1.01 Definition of Terms.................................................. 2
ARTICLE II - APPOINTMENT OF MANAGEMENT COMPANY
----------------------------------------------
2.01 Appointment ......................................................... 37
2.02 Delegation of Authority.............................................. 37
2.03 Operational Standards................................................ 38
2.04 Limitations on Authority............................................. 42
2.05 Covenants, Conditions or Restrictions................................ 44
2.06 Licenses and Permits................................................. 46
ARTICLE III - OWNERSHIP OF THE INN
----------------------------------
3.01 Ownership of the Inn................................................. 47
ARTICLE IV - TERM
-----------------
4.01 Term................................................................. 49
4.02 Actions to be Taken Upon Termination................................. 52
4.03 Performance Termination.............................................. 55
ARTICLE V - COMPENSATION OF MANAGEMENT COMPANY; DISTRIBUTIONS
-------------------------------------------------------------
5.01 Management Fees...................................................... 58
5.02 Distribution of Operating Profit..................................... 58
5.03 Accounting and Interim Payments...................................... 59
5.04 Accounting for Period Prior to Effective Date........................ 61
ARTICLE VI - FINANCING OF THE INN
---------------------------------
6.01 Amendments of Management Agreement................................... 62
6.02 Notice and Opportunity to Cure....................................... 63
6.03 Collateral Assignment of Management Agreement........................ 65
6.04 Subordination of Management Agreement................................ 67
6.05 Non-Disturbance Agreement............................................ 68
6.06 Attornment........................................................... 69
6.07 No Modification or Termination of Agreement.......................... 71
6.08 Owner's Right to Finance the Inn..................................... 71
6.09 Cross Collateralization.............................................. 72
6.10 Sale\Leaseback Transactions.......................................... 73
ARTICLE VII - WORKING CAPITAL AND FIXED ASSET SUPPLIES
------------------------------------------------------
7.01 Working Capital...................................................... 75
7.02 Fixed Asset Supplies................................................. 76
ARTICLE VIII - REPAIRS, MAINTENANCE AND REPLACEMENTS
----------------------------------------------------
8.01 Routine Repairs and Maintenance...................................... 78
8.02 FF&E Reserve......................................................... 78
8.03 Building Alterations, Improvements, Renewals,
and Replacements................................................ 85
8.04 Liens................................................................ 90
8.05 Ownership of Replacements, Etc....................................... 91
ARTICLE IX - BOOKKEEPING AND BANK ACCOUNTS
------------------------------------------
9.01 Books and Records.................................................... 92
9.02 Inn Accounts, Expenditures........................................... 94
9.03 Annual Operating Budget.............................................. 95
9.04 Operating Losses; Credit............................................. 96
9.05 Consolidated Reports................................................. 97
ARTICLE X - PROPRIETARY MARKS; INTELLECTUAL PROPERTY
----------------------------------------------------
10.01 Proprietary Marks................................................... 98
10.02 Purchase of Inventories and Fixed Asset Supplies.................... 99
10.03 Computer Software and Equipment..................................... 99
10.04 Intellectual Property............................................... 100
10.05 Breach of Covenant.................................................. 101
ARTICLE XI - POSSESSION AND USE OF INN
--------------------------------------
11.01 Quiet Enjoyment..................................................... 102
11.02 Use................................................................. 102
11.03 Chain Services...................................................... 103
11.04 Owner's Right to Inspect............................................ 106
11.05 Indemnity........................................................... 106
ARTICLE XII - INSURANCE
-----------------------
12.01 Interim Insurance................................................... 109
12.02 Property and Operational Insurance.................................. 109
12.03 General Insurance Provisions........................................ 111
12.04 Cost and Expense.................................................... 112
12.05 Owner's Option to Obtain Certain Insurance.......................... 114
ARTICLE XIII - TAXES
--------------------
13.01 Real Estate and Personal Property Taxes............................. 117
ARTICLE XIV - INN EMPLOYEES
---------------------------
14.01 Employees........................................................... 121
ARTICLE XV - DAMAGE, CONDEMNATION AND FORCE MAJEURE
---------------------------------------------------
15.01 Damage and Repair................................................... 125
15.02 Condemnation........................................................ 126
15.03 Force Majeure....................................................... 127
ARTICLE XVI - DEFAULTS
----------------------
16.01 Definition of "Default.............................................. 130
16.02 Definition of "Event of Default".................................... 131
16.03 Remedies Upon an Event of Default................................... 132
16.04 Owner's Estate...................................................... 133
ARTICLE XVII - WAIVER AND PARTIAL INVALIDITY
--------------------------------------------
17.01 Waiver.............................................................. 135
17.02 Partial Invalidity.................................................. 135
ARTICLE XVIII - ASSIGNMENT
--------------------------
18.01 Assignment.......................................................... 136
ARTICLE XIX - SALE OF THE INN
-----------------------------
19.01 Sale of the Inn..................................................... 139
ARTICLE XX - MISCELLANEOUS
--------------------------
20.01 Right to Make Agreement............................................. 144
20.02 Consents............................................................ 145
20.03 Agency.............................................................. 145
20.04 Confidentiality..................................................... 146
20.05 Equity Offerings.................................................... 147
20.06 Applicable Law...................................................... 148
20.07 Recordation......................................................... 148
20.08 Headings............................................................ 148
20.09 Notices............................................................. 149
20.10 Environmental Matters............................................... 150
20.11 Estoppel Certificates............................................... 151
20.12 Trade Area Restriction.............................................. 153
20.13 Arbitration......................................................... 153
20.14 Entire Agreement.................................................... 155
Exhibit "A" Location of Inn and Legal Description
Exhibit "A-1" Number of Suites and Brief Description of Facilities; Priority
Basis; Performance Termination Threshold; Loan Priority Basis (number set forth
in (i) of Definition); Revenue Index Threshold
Exhibit "B" Form of Accounting Period Statement
Exhibit "C" [Intentionally Deleted]
Exhibit "D" Map of Restricted Area
Exhibit "D-1" Narrative Description of Restricted Area
Exhibit "E" Proprietary Marks which will remain the property of Owner after
Termination
Exhibit "F" Title Encumbrances; Existing CC&R's (separately describing those
charges thereunder which will be treated as capital expenditures
under Section 8.03); Existing Ground Lease (if applicable);
Existing Mortgages (if any)
RESIDENCE INN
MANAGEMENT AGREEMENT
--------------------
This Management Agreement ("Agreement") is executed as of the _____________
day of ________________________, 1993 ("Effective Date"), by HMH PROPERTIES,
INC., ("Owner"), a Delaware corporation, with a mailing address at 00000
Xxxxxxxx Xxxx, Xxxxxxxx, Xxxxxxxx 00000 and RESIDENCE INN BY MARRIOTT, INC.
(Management Company"), a Delaware corporation, with a mailing address at 00000
Xxxxxxxx Xxxx, Xxxxxxxx, Xxxxxxxx 00000.
R E C I T A L S :
A. Owner is the owner of the Inn (as defined and more fully described in
Section 1.01) which is located as set forth on Exhibit "A" hereto; and
B. Owner desires to have Management Company manage and operate the Inn,
and Management Company is willing to perform such services for the account of
Owner on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITION OF TERMS
-------------------
1.01 Definition of Terms
-------------------
The following terms when used in this Agreement shall have the meanings
indicated:
"Accounting Period" shall mean each of the four (4) week accounting periods
-----------------
which are used in Management Company's accounting system, except that an
Accounting Period may occasionally contain five (5) weeks when necessary to
conform Management Company's accounting system to the calendar.
"Accounting Period Statement" shall have the meaning set forth in Section
---------------------------
5.03.
"Additional Invested Capital" shall mean the cumulative total, as of any
---------------------------
given date during the Term, of the following: (i) any expenditures made by
Owner in response to a Building Estimate, pursuant to Section 8.03, and any
expenditures by Owner pursuant to Section 20.10.C; (ii) any contributions by
Owner to the FF&E Reserve (beyond the funding described in Section 8.02.B and
8.02.E); other than those contributions which are reimbursed to Owner under
Section 8.02.F; (iii) any payments by Owner with regard to special assessments
or impact fees, pursuant to Section 13.01.B(2) or 13.01.B(3); and (iv) any
costs, expenses and charges which are described on Exhibit "F" hereto as
September 13, 1993 2
"capital charges" pursuant to Section 2.05.A. Owner shall give Management
Company prompt notice of any amounts for which it has provided funding which
constitute "Additional Invested Capital" together with such evidence of funding
as Management Company may reasonably require.
"Affiliate" shall mean any individual or entity directly or indirectly
---------
through one or more intermediaries, controlling, controlled by or under common
control with a party. The term "control," as used in the immediately preceding
sentence, means, with respect to a corporation, the right to the exercise,
directly or indirectly, of fifty-one percent (51%) or more of the voting rights
attributable to the shares of the controlled corporation, and, with respect to
an entity that is not a corporation, the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of the
controlled entity.
"Agreement" shall have the meaning set forth in the Preamble.
---------
"Annual Operating Budget" shall have the meaning set forth in Section 9.03.
-----------------------
"Annual Operating Statement" shall have the meaning set forth in Section
--------------------------
9.01.
"Available Cash Flow" shall mean an amount, with respect to
-------------------
September 13, 1993 3
each Fiscal Year or portion thereof, (prorated for any partial Fiscal Year)
during the Term of this Agreement, equal to the excess, if any, of the Operating
Profit for such Fiscal Year over the sum of: (i) the applicable Owner's Priority
in such Fiscal Year, plus; (ii) the Base Management Fee, plus; (iii) Deferred
Contingent Base Management Fees paid to Manager in such Fiscal Year.
"Base Management Fee" shall mean for each Fiscal Year (prorated for any
-------------------
partial Fiscal Year) during the Term of this Agreement, an amount equal to two
percent (2%) of Gross Revenues, which shall be paid to Management Company as
compensation (in addition to the Residence Inn System Fee and Incentive
Management Fee) for the services performed pursuant to this Agreement.
"Building Estimate" shall have the meaning set forth in Section 8.03.A.
-----------------
"Capitalization Multiple" shall mean the number ten (10).
-----------------------
"Case Goods" shall mean furniture and furnishings used in the Inn,
----------
including, without limitation: chairs, beds, chests, headboards, desks, lamps,
tables, television sets, kitchen equipment, mirrors, pictures, wall decorations
and similar items.
"CC&R's" shall have the meaning set forth in Section 2.05.
------
"Chain Services" shall have the meaning set forth in Section 11.03.
--------------
September 13, 1993 4
"Coverage Ratio" shall mean the number one and three-tenths (1.3).
--------------
"Cure Payment" shall have the meaning set forth in Section 4.03.B.
------------
"Deductions" shall have the meaning set forth in the definition of
----------
Operating Profit.
"Default" shall have the meaning set forth in Section 16.01.
-------
"Deferred Contingent Base Management Fees" shall mean an amount equal to
----------------------------------------
(a) the sum of all unpaid Base Management Fees deferred in accordance with
Section 5.02.B less (b) all sums paid to Management Company in accordance with
the provisions of Section 5.02.C.
"Effective Date" shall have the meaning set forth in the Preamble.
--------------
"Employee Claims" shall mean any and all claims (including all fines,
---------------
judgments, penalties, costs, Litigation and/or arbitration expenses, attorneys'
fees and expenses, and costs of settlement with respect to any such claim) by
any employee or employees of Management Company against Owner or Management
Company with respect to the employment at the Inn of such employee or employees.
"Employee Claims" shall include, without limitation, the following: (i) claims
which are eventually resolved by arbitration, by Litigation or by settlement;
(ii)
September 13, 1993 5
claims which also involve allegations that any applicable employment-related
contracts affecting the employees at the Inn have been breached; and (iii)
claims which involve allegations that one or more of the Employment Laws has
been violated; provided, however, that "Employee Claims" shall not include
claims for worker compensation benefits (which shall be governed by Article XII
hereof) or for unemployment benefits.
"Employment Laws" shall mean any federal, state or local law (including the
---------------
common law), statute, ordinance, rule, regulation, order or directive with
respect to employment, conditions of employment, benefits, compensation, or
termination of employment that currently exists or may exist at any time during
the Term of this Agreement, including, but not limited to, Title VII of the
Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Workers
Adjustment and Retraining Notification Act, the Occupational Safety and Health
Act, the Immigration Reform and Control Act of 1986, the Polygraph Protection
Act of 1988 and the Americans With Disabilities Act of 1990.
"Environmental Laws" shall mean: any federal, state or local law, rule or
------------------
regulation (both present and future) dealing with the use, generation,
treatment, storage, disposal or abatement of Hazardous Materials, including, but
not limited to, (i) the Comprehensive Environmental Response, Compensation and
Liability
September 13, 1993 6
Act, 42 U.S.C. Section 9601 et seq., as amended; (ii) the regulations
-- ---
promulgated thereunder, from time to time; (iii) all federal, state and local
laws, rules and regulations (now or hereafter in effect) dealing with the use,
generation, treatment, storage, disposal or abatement of Hazardous Materials;
and (iv) the regulations promulgated thereunder, from time to time.
"Event of Default" shall have the meaning set forth in Section 16.02.
----------------
"Existing CC&R's" shall have the meaning set forth in Section 2.05.A.
---------------
"Existing Ground Leases" shall mean the ground leases which are listed on
----------------------
Exhibit "F", but for purposes of this Agreement shall not include any amendments
or modifications after the Effective Date.
"Existing Mortgages" shall mean the Mortgages which are listed on Exhibit
------------------
"F", but for purposes of this Agreement shall not include any amendments or
modifications after the Effective Date.
"FF&E" shall mean furniture, furnishings, fixtures, Soft Goods, Case Goods,
----
Shuttle Vehicles, signage and equipment at the Inn (including, without
limitation, facsimile machines, communication systems, audio-visual equipment,
and all computer and other equipment needed for the reservation system and the
September 13, 1993 7
property management system, and all other electronic systems needed for any Inn,
from time to time, as well as similar systems based on other technologies which
may be developed in the future).
"FF&E Estimate" shall have the meaning set forth in Section 8.02.C.
-------------
"FF&E Reserve" shall have the meaning set forth in Section 8.02.A.
------------
"First Notice" shall have the meaning set forth in Section 6.02.
------------
"Fiscal Year" shall mean Management Company's Fiscal Year which now ends at
-----------
midnight on the Friday closest to December 31 in each calendar year; the new
Fiscal Year begins on the Saturday immediately following said Friday. Any
partial Fiscal Year between the Effective Date and the commencement of the first
full Fiscal Year and any partial Fiscal Year between the end of the last full
Fiscal Year and the Termination of this Agreement, shall constitute a separate
Fiscal Year. If Management Company's Fiscal Year is changed in the future,
appropriate adjustment to this Agreement's reporting and accounting procedures
shall be made; provided, however, that no such change or adjustment shall alter
the Term of this Agreement, or in any way reduce the distributions of Operating
Profit or other payments due Owner
September 13, 1993 8
hereunder, or otherwise significantly and adversely affect Owner's rights or
obligations under this Agreement.
"Fixed Asset Supplies" shall mean supply items included within "Property
--------------------
and Equipment" under the Uniform System of Accounts, including linen, cleaning
supplies, china, glassware, tableware, uniforms, and similar items.
"Force Majeure" shall mean acts of God, acts of war, civil disturbance,
-------------
governmental action (including the revocation or refusal to grant a License,
where such revocation or refusal is not due to the fault of the party whose
performance is to be excused for reasons of Force Majeure), strikes, lockouts,
fire, unavoidable casualties or any other causes beyond the reasonable control
of either party (excluding, however: (i) lack of financing; or (ii) general
economic and/or market factors).
"Foreclosure" shall mean any exercise of the remedies available to a
-----------
Holder, upon a default under the Secured Loan held by such Holder, which results
in a transfer of title to or possession of the Inn. The term "Foreclosure"
shall include, without limitation, any one or more of the following events, if
they occur in connection with a default under a Secured Loan: (i) a transfer by
judicial foreclosure; (ii) a transfer by deed in lieu of foreclosure; (iii) the
appointment by a court of a receiver to assume possession of the Inn; (iv) a
transfer of
September 13, 1993 9
either ownership or control of the Owner, by exercise of a stock pledge or
otherwise; (v) if title to the Inn is held by a tenant under a ground lease, an
assignment of the tenant's interest in such ground lease; or (vi) any similar
judicial or non-judicial exercise of the remedies held by the Holder.
"Foreclosure Date" shall mean the date on which title to or possession of
----------------
the Inn is transferred by means of a Foreclosure.
"Future CC&R's" shall have the meaning set forth in Section 2.05.B.
-------------
"GDP Deflator" shall mean the "Gross Domestic Product Implicit Price
------------
Deflator" issued from time to time by the United States Bureau of Economic
Analysis of the Department of Commerce, or if the aforesaid GDP Deflator is not
at such time so prepared and published, any comparable index selected by Owner
and reasonably satisfactory to Management Company (a "Substitute Index") then
prepared and published by an agency of the Government of the United States,
appropriately adjusted for changes in the manner in which such index is prepared
and/or year upon which such index is based. Any dispute regarding the selection
of the Substitute Index or the adjustments to be made thereto shall be settled
by arbitration in accordance with Section 20.13. Except as otherwise expressly
stated herein, whenever a number or amount is required to be "adjusted by the
September 13, 1993 10
GDP Deflator", or similar terminology, such adjustment shall be equal to the
percentage increase or decrease (except that, for purposes of this Agreement,
the GDP Deflator shall not be decreased below its level as of the Effective
Date) in the GDP Deflator which is issued for the month in which such adjustment
is to be made (or, if the GDP Deflator for such month is not yet publicly
available, the GDP Deflator for the most recent month for which the GDP Deflator
is publicly available) as compared to the GDP Deflator which was issued for the
month in which the Effective Date occurred.
"Gross Revenues" shall mean, for each Fiscal Year during the Term of this
--------------
Agreement, all revenues and receipts of every kind derived from operating the
Inn and parts thereof, including, but not limited to: income (from both cash
and credit transactions), before commissions and discounts for prompt or cash
payments, from rental of rooms, stores, offices, meeting, exhibit or sales space
of every kind; parking fees, license, lease and concession fees and rentals (not
including gross receipts of licensees, lessees and concessionaires); income from
vending machines; health club membership fees; food and beverage sales;
wholesale and retail sales of merchandise (other than proceeds from the sale of
FF&E no longer necessary to the operation of the Inn, which shall be deposited
in the FF&E Reserve as set forth in
September 13, 1993 11
Section 8.02.D hereof); service charges, to the extent not distributed to the
employees at the Inn as gratuities; and proceeds, if any, from business
interruption or other loss of income insurance; provided, however, that Gross
Revenues shall not include the following: gratuities to Inn employees; federal,
state or municipal excise, sales, use or similar taxes collected directly from
patrons or guests or included as part of the sales price of any goods or
services; insurance proceeds (other than proceeds from business interruption or
other loss of income insurance); condemnation proceeds (other than for a
temporary taking); any proceeds from any Sale of the Inn or from the refinancing
of any debt encumbering the Inn; proceeds from the disposition of FF&E no longer
necessary for the operation of the Inn; interest which accrues on amounts
deposited in either the FF&E Reserve or any escrow accounts which are
established in accordance with Section 13.01.C; or Cure Payments.
"Ground Lease Rental" shall mean the annual rental, as of the Effective
-------------------
Date, under the Existing Ground Lease.
"Ground Lessor" shall mean the landlord under the Existing Ground Lease.
-------------
"Hazardous Materials" shall mean and include any substance or material
-------------------
containing one or more of any of the following: "hazardous material",
"hazardous waste", "hazardous substance",
September 13, 1993 12
"regulated substance", "petroleum", "pollutant", "contaminant", or "asbestos",
as such terms are defined in any applicable Environmental Law, in such
concentration(s) or amount(s) as may impose clean-up, removal, monitoring or
other responsibility under any applicable Environmental Laws, or which may
present a significant risk of harm to guests, invitees or employees of the Inn.
"Holder" shall mean any holder, from time to time, of any Secured Loan.
------
"Impositions" shall mean all real estate and personal property taxes,
-----------
levies, assessments and similar charges (other than those which are specifically
excluded pursuant to Section 13.01.B) including, without limitation, the
following: all water, sewer or similar fees, rates, charges, excises or levies;
license fees; permit fees; inspection fees and other authorization fees and
other governmental charges of any kind or nature whatsoever, whether general or
special, ordinary or extraordinary, foreseen or unforeseen, or hereinafter
levied or assessed of every character (including all interest and penalties
thereon), which at any time during or in respect of the Term of this Agreement
may be assessed, levied, confirmed or imposed on Owner with respect to the Inn
or otherwise in respect of or be a lien upon the Inn. Impositions shall not
include any income or
September 13, 1993 13
franchise taxes payable by Owner or Management Company. Impositions shall
include any taxes, levies, assessments and similar charges which may be enacted
by the applicable governmental authority in lieu of, or in complete or partial
substitution for, Impositions.
"Incentive Management Fee" shall mean, for each Fiscal Year during the Term
------------------------
of this Agreement, the payments which shall be made to Management Company, as
compensation (in addition to the Base Management Fee and the Residence Inn
System Fee) to Management Company for its services under this Agreement, in the
amount of fifty percent (50%) of the Available Cash Flow in each Fiscal Year (or
portion thereof); provided, however, that the cumulative Incentive Management
Fee received by Management Company, from the Effective Date through any given
point in time during the Term of this Agreement, shall not exceed twenty percent
(20%) of the cumulative Operating Profit from the Effective Date through such
point in time; provided further, however, that in no event shall the aforesaid
cumulative limitation require Management Company to refund to Owner any
Incentive Management Fees which were paid in a previous Fiscal Year and which
were within such limitation as of the time when they were paid.
"Initial Term" shall have the meaning set forth in Section
------------
September 13, 1993 14
4.01.
"Inn" shall mean the hotel, containing approximately the number of Suites
---
which are set forth on Exhibit "A"-1 hereto, which Owner owns at the location
specified in Exhibit "A"; the term "Inn" shall include the Site, the
improvements built thereon, and all FF&E, Fixed Asset Supplies and Inventories
installed therein.
"Inn Retention" shall have the meaning set forth in Section 12.03 hereof.
-------------
"Intellectual Property" shall mean: (i) all Software; and (ii) all
---------------------
manuals, brochures and directives issued by Management Company to its employees
at the Inn regarding the procedures and techniques to be used in operating the
Inn.
"Interest Rate" shall mean an annual rate of interest equal to the Prime
-------------
Rate (as adjusted from time to time) plus three hundred (300) basis points
provided; however, that in no event shall the Interest Rate exceed the maximum
rate which is permitted under applicable Legal Requirements.
"Inventories" shall mean "Inventories" as defined in the Uniform System of
-----------
Accounts, such as provisions in storerooms, refrigerators, pantries and
kitchens; beverages in wine cellars and bars; other merchandise intended for
sale; fuel; mechanical supplies; stationery; and other expensed supplies and
similar
September 13, 1993 15
items.
"Legal Requirement" shall mean any federal, state or local law, code, rule,
-----------------
ordinance, regulation or order of any governmental authority or agency having
jurisdiction over the business or operation of the Inn or the matters which are
the subject of this Agreement, including , without limitation, the following:
(i) any building, zoning or use laws, ordinances, regulations or orders and (ii)
Environmental Laws.
"License" shall mean any license, permit, decree, act, order, authorization
-------
or other approval or instrument which is necessary in order to operate the Inn
in accordance with Legal Requirements and pursuant to the Residence Inn System
Standards and otherwise in accordance with this Agreement.
"Litigation" shall mean: (i) any cause of action commenced in a federal,
----------
state or local court; and (ii) any claim brought before an administrative agency
or body (for example, without limitation, employment discrimination claims).
"Loan Priority Basis" shall mean the sum total, as of any given point in
-------------------
time during the Term, of: (i) the amount shown on Exhibit "A-1"; plus (ii) any
Additional Invested Capital expended by Owner, less the amount of any
condemnation award received by Owner and not applied to restoration of the Inn
pursuant to Section 15.02.B.
September 13, 1993 16
"Management Analysis Report" shall mean a report which, if required
--------------------------
pursuant to Section 9.01.B, shall be prepared by Management Company and
delivered to Owner and shall include a narrative description regarding the
preceding Fiscal Year, of: (i) the Inn's operating performance, including
significant variations from the Annual Operating Budget; (ii) an analysis of any
significant variation of the actual average daily revenue per available room
from what was set forth in the Annual Operating Budget; (iii) a review of the
competitive hotel market; (iv) a calculation of the Revenue Index, and Operating
Profit less Ground Lease Rental, if any, compared to the Performance Termination
Threshold; and (v) such other supplementary information as Owner or Management
Company shall reasonably deem necessary to an understanding of the operation of
the Inn.
"Management Company" shall have the meaning set forth in the Preamble.
------------------
"Management Fees" shall mean the Base Management Fee, the Deferred
---------------
Contingent Base Management Fees, the Residence Inn System Fee and the Incentive
Management Fee.
"Marriott" shall mean Marriott International, Inc., a Delaware corporation
--------
having an address at 00000 Xxxxxxxx Xxxx, Xxxxxxxx, Xxxxxxxx 00000.
"Mortgage" shall mean any security instrument which
--------
September 13, 1993 17
encumbers real property, including, without limitation, mortgages, deeds of
trust, security deeds and similar instruments.
"Net Operating Profit" shall mean the greater of (i) the excess, if any, of
--------------------
Operating Profit less Owner's Priority, or (ii) zero (0).
"Non-Disturbance Agreement" shall mean an agreement, in recordable form in
-------------------------
the jurisdiction in which the Inn is located, executed and delivered by a Holder
(which agreement shall by its terms be binding upon all Subsequent Owners), for
the benefit of Management Company, pursuant to which, in the event such Holder
or any Subsequent Owner comes into possession of or acquires title to the Inn
either at or following a Foreclosure, such Holder and all Subsequent Owners
shall (x) recognize Management Company's rights under this Agreement, and (y)
shall not name Management Company as a party in any Foreclosure action or
proceeding, and (z) shall not disturb Management Company in its right to
continue to manage the Inn pursuant to this Agreement; provided, however, that
at such time: (i) this Agreement has not expired or otherwise been earlier
terminated in accordance with its terms; (ii) there are no outstanding Events of
Default by Management Company, and (iii) no material event has occurred and no
material condition exists which, after notice or the passage
September 13, 1993 18
of time or both, would entitle Owner to terminate this Agreement.
"Operating Accounts" shall have the meaning set forth in Section 9.02.
------------------
"Operating Loss" shall mean a negative Operating Profit.
--------------
"Operating Profit" shall mean, in each Fiscal Year during the Term of this
----------------
Agreement, the excess of Gross Revenues over the following deductions
("Deductions") incurred by Management Company or its Affiliates (or, in the case
of any Owner Deductions, by Owner) in operating the Inn:
1. The cost of sales including, without limitation, salaries, wages,
employee benefits, Employee Claims (except to the extent specifically set forth
to the contrary in Section 14.01.C or 14.01.D), payroll taxes and other costs
related to Inn employees;
2. Departmental expenses; administrative and general expenses; the
cost of Inn advertising and business promotion; all utility costs, including but
not limited to the cost of heat, light, power and water; and the cost of routine
repairs, maintenance and minor alterations which are treated as Deductions under
Section 8.01;
3. The cost of Inventories and Fixed Asset Supplies consumed in the
operation of the Inn;
4. A reasonable reserve for uncollectible accounts
September 13, 1993 19
receivable as determined by Management Company;
5. All reasonable costs and fees of independent professionals or
other third parties who are retained by Management Company to perform services
required or permitted hereunder; provided that Management Company will notify
Owner at least thirty (30) days in advance of any proposed expenditure under
this paragraph 5 which is in excess of Twenty Thousand Dollars ($20,000) and
which was not specifically identified in the Annual Operating Budget, and
Management Company shall consider in good faith any comments which Owner may
have with respect to such proposed expenditure; and provided, further, that if
such expenditure involves immediately-needed repair work to the Inn or if
immediate action is otherwise required, the above-described requirement
regarding thirty (30) days' prior notice shall be modified to require whatever
notice period is reasonable under the circumstances;
6. The reasonable cost and expense of technical consultants and
operational experts who are employees of Management Company or one of its
Affiliates, and who perform specialized services in connection with non-routine
Inn work; provided, however, that the costs and expenses so incurred shall only
be Deductions to the extent such costs and expenses are reasonable and
competitively priced, as compared to similar work
September 13, 1993 20
done by outside consultants or experts; and provided, further, that Management
Company will notify Owner at least thirty (30) days in advance of any proposed
expenditure under this paragraph 6 which is in excess of Twenty Thousand Dollars
($20,000.00) and which was not specifically identified in the Annual Operating
Budget, and Management Company shall consider in good faith any comments which
Owner may have with respect to such proposed expenditure; and provided, further,
that if such expenditure involves immediately-needed repair work to the Inn or
if immediate action is otherwise required, the above-described requirement
regarding thirty (30) days' prior notice shall be modified to require whatever
notice period is reasonable under the circumstances;
7. The Residence Inn System Fee;
8. Subject to Section 11.03.B, the Inn's pro rata share of costs and
expenses incurred by Management Company (or its Affiliate) in providing Chain
Services;
9. Insurance costs and expenses as provided in Section 12.04.B;
10. Taxes, if any, payable by or assessed against Management Company
related to this Agreement or to Management Company's operation of the Inn
(exclusive of Management Company's income taxes or franchise taxes) and all
Impositions assessed
September 13, 1993 21
against the Inn;
11. Amounts which are required to be transferred into the FF&E
Reserve in accordance with the provisions of Section 8.02;
12. Transfers required to be made, as they may change from time to
time, to the System Marketing Fund, in order for the Inn to remain a member of
the System; (such contributions are presently two and one-half percent (2 1/2%)
of Suite Revenues);
13. The reimbursement to Owner of the amount of any Owner Deductions;
14. Lease payments pursuant to the leases of Shuttle Vehicles and
Telephone and Office Equipment (to the extent Management Company has not elected
to make such payments from the FF&E Reserve);
15. The payment to Management Company of the cost of preparing the
Management Analysis Report pursuant to Section 9.01.B; and
16. Such other costs and expenses incurred by Management Company or
its Affiliates (not including the costs and expenses included in the Residence
Inn System Fee) as are specifically provided for elsewhere in this Agreement or
are otherwise reasonably necessary for the proper and efficient operation of the
Inn (including, without limitation, the costs
September 13, 1993 22
and expenses of all functions described in Section 2.03, to the extent such
costs and expenses are not already treated as Deductions elsewhere in this
definition of Operating Profit, unless, and to the extent that, any such costs
and expenses are specifically stated not to be Deductions under any provision of
this Agreement).
The term "Deductions" shall not include: (i) debt service payments pursuant
to any Secured Loan; nor (ii) rental payments pursuant to any ground lease of
the Site; both of the foregoing shall be paid by Owner from its own funds, and
not from Gross Revenues nor from the FF&E Reserve.
"Owner" shall have the meaning set forth in the Preamble. Subject to
-----
compliance with Articles XVIII and XIX of this Agreement, the term "Owner" shall
include all successors and assigns of the entity identified as the "Owner" in
the Preamble.
"Owner Deductions" shall mean amounts paid by Owner with respect to: (i)
----------------
premiums for the insurance policies described in Section 12.04; and (ii)
reasonable costs of any negotiations or Litigation with respect to any contest
of Impositions, as described in Section 13.01.A; provided, however, that to the
extent Owner spends in excess of Five Thousand Dollars ($5,000.00) with respect
to any contest of Impositions and has not received Management Company's consent
as provided in Section
September 13, 1993 23
13.01.A, then any amount in excess of such Five Thousand Dollars ($5,000.00) or
such greater amount as may be approved by Management Company, shall not be
considered an Owner Deduction. Except as specifically set forth in Section
8.02.F.2, the amount of any Owner Deductions paid by Owner shall be reimbursed
to Owner (as a Deduction) in the Fiscal Year in which they were paid. Owner
shall give Management Company prompt notice of any amounts it has paid which
constitute Owner Deductions together with such evidence of payment as Management
Company may reasonable require.
"Owner's Distribution" shall mean, with respect to each Fiscal Year or
--------------------
portion thereof during the Term, funds distributed to Owner in accordance with
the provisions of Section 5.02 hereof which shall equal Operating Profit less
any Base Management Fees, Deferred Contingent Base Management Fees and Incentive
Management Fees paid to Management Company.
"Owner's Priority" shall mean, with respect to each Fiscal Year (prorated
----------------
for any partial Fiscal Years) during the Term of this Agreement, a dollar amount
equal to ten percent (10%) of the Priority Basis for that Fiscal Year.
IF THE INN HAS AN EXISTING GROUND LEASE, THE ANNUAL RENTAL PAYMENTS FOR SUCH
FISCAL YEAR (PRORATED FOR ANY PARTIAL FISCAL YEAR), SHALL BE ADDED TO THE
OWNER'S PRIORITY.
"Performance Termination Threshold" shall mean, with respect
---------------------------------
September 13, 1993 24
to each full Fiscal Year during the Term of this Agreement, the dollar amount
set forth on Exhibit "A-1", plus eight percent (8%) of any Additional Invested
Capital expended by Owner pursuant to clause (ii) of the definition of Priority
Basis; provided, however, that the aforesaid dollar amount shall be adjusted, as
of the tenth (10th) anniversary of the Effective Date, in an amount equal to
seventy-five percent (75%) of the percentage change in the GDP Deflator between
the Effective Date and the tenth (10th) anniversary of the Effective Date;
provided that, in no event will the Performance Termination Threshold be lower
than it is as of the Effective Date; and provided further, that in calculating
the aforesaid change in the GDP Deflator during such period of time, both (i)
the two (2) years having the highest annual rates of change in the GDP Deflator
during such period, and (ii) the two (2) years having the lowest annual rates of
change in the GDP Deflator during such period, shall be ignored, and such
percentage change in the GDP Deflator between the Effective Date and the tenth
(10th) anniversary of the Effective Date shall be recalculated, for purposes of
this Agreement, using as the rate of change in the GDP Deflator for each of such
four (4) excluded years (i.e., those years described in clauses (i) and (ii),
above) the average annual rate of change in the GDP Deflator during the non-
excluded years; and provided further
September 13, 1993 25
that, to the extent that certain portions of the Performance Termination
Threshold, as of immediately prior to such tenth (10th) anniversary adjustment,
reflect expenditures which qualify as Additional Invested Capital, the aforesaid
GDP Deflator adjustment shall be calculated with respect to such portions by
using, as the base, not the GDP Deflator as of the Effective Date, but rather
the GDP Deflator as of either the date of such expenditure or (if construction
is involved) the date on which the items in question were substantially
completed.
"Post-Foreclosure Decision Date" shall have the meaning set forth in
------------------------------
Section 6.06.
"Prime Rate" shall mean the "prime rate" as published in the "Money Rates"
----------
section of The Wall Street Journal; however, if such rate is, at any time during
-----------------------
the Term, no longer so published, the term "Prime Rate" shall mean the average
of the prime interest rates which are announced, from time to time, by the three
(3) largest banks (by assets) headquartered in the United States which publish a
"prime rate."
"Priority Basis" shall mean the sum total, as of any given point in time
--------------
during the Term, of: (i) the dollar amount shown on Exhibit "A-1"; plus (ii)
any Additional Invested Capital expended by Owner; provided that each
expenditure of Additional Invested Capital shall be added to the Priority Basis
at such
September 13, 1993 26
date or dates as the expenditure occurred, taking into consideration at what
point (or points) during the Fiscal Year such expenditure occurred; less (iii)
the amount of any condemnation award received by Owner and not applied to
restoration of the Inn pursuant to Section 15.02.B.
"Proprietary Marks" shall mean all trademarks, trade names, symbols, logos,
-----------------
slogans, designs, insignia, emblems, devices, service marks and distinctive
designs of buildings and signs, or combinations thereof, which are used to
identify inns in the Residence Inn chain. The names "Marriott", "Residence Inn"
and "Residence Inn By Marriott", and any of the foregoing used in conjunction
with other words or names, are examples without limitation of Proprietary Marks.
The term "Proprietary Marks" shall include all present and future Proprietary
Marks, whether they are now or hereafter owned by Management Company or one of
its Affiliates, and whether or not they are registered under the laws of the
United States or any other country. The term "Proprietary Marks" shall also
include all trade names, trademarks, symbols, logos, designs, etc. which are
used in connection with the operation of the Inn during the Term (such as,
without limitation, the names of the restaurants and lounges). Notwithstanding
the foregoing, those trade names, trademarks, symbols, logos, designs, etc.,
which are specifically
September 13, 1993 27
set forth on Exhibit "E" hereto shall be deemed to be "Proprietary Marks" only
for so long as this Agreement is in effect, and such Proprietary Marks shall
revert to the exclusive control of Owner as of the date of Termination.
"Proprietary Signage" shall mean any signage used in connection with the
-------------------
Inn (including both interior and exterior signage, and including billboards and
other signage not located on the Site) which contains one or more Proprietary
Marks; any signage which contains the word "Marriott" or "Residence Inn" shall
automatically be deemed to be Proprietary Signage.
"Prospectus" shall have the meaning set forth in Section 20.05.
----------
"Qualified Lender" shall mean any Holder, from time to time, of any
----------------
Qualified Loan with respect to which Management Company has received a written
notice (pursuant to Section 20.09 of this Agreement) stating: (i) the name and
address of such Holder; and (ii) that such Holder is a "Qualified Lender"
pursuant to the terms of this Agreement.
"Qualified Loan" shall mean any Secured Loan in which the initial principal
--------------
amount, as of the date such Secured Loan is incurred, when added to the current
principal balance of all existing Secured Loans as of that date, is less than or
equal to the greater of the following:
(i) Seventy percent (70%) of the Loan Priority Basis; or
September 13, 1993 28
(ii) the result obtained by (a) dividing the Operating Profit for the
thirteen (13) most recent full Accounting Periods by the Coverage
Ratio; then, (b) multiplying the result of clause (a) by the
Capitalization Multiple; or
(iii) the existing balance of any Secured Loans encumbering the Inn
immediately prior to the date of the incurrence of such Qualified
Loan, plus commercially reasonable Transaction Costs associated with
such refinancing, up to an amount equal to four percent (4%) of the
principal amount of such Qualified Loan.
In addition, regardless of whether or not the above test set forth in clauses
(i), (ii) and (iii) is satisfied, the existing (as of the Effective Date)
balance of any Secured Loan which is secured by an Existing Mortgage shall be
deemed to be a "Qualified Loan".
"Qualified Loan Acceleration" shall mean the acceleration of the
---------------------------
indebtedness incurred pursuant to any Qualified Loan, as a result of a default
under the terms and conditions of such Qualified Loan.
"Renewal Terms" shall have the meaning set forth in Section 4.01.
-------------
"Residence Inn System Fee" shall during any given Fiscal Year (or portion
------------------------
thereof), be equal to four percent (4%) of Gross Revenues. It shall mean an
amount paid to Management Company for
September 13, 1993 29
the Residence Inn System Services.
"Residence Inn System" shall mean the Residence Inn hotel system managed by
--------------------
Marriott (or one or more of its Affiliates) which is, as of the Effective Date,
operated under the trade name "Residence Inn by Marriott" or Marriott Residence
Inn".
"Residence Inn System Services" shall mean the following services which are
-----------------------------
paid for by the Residence Inn System Fee: System financial planning and policy
services; product planning and development; human resources management and
planning for the Residence Inn System (but not any particular inn within the
Residence Inn System); protection of the "Marriott Residence Inn" "Residence Inn
by Marriott," and "Residence Inn" trade names, trademarks, logos and
servicemarks; and the development and implementation of Management Company's
technical and operational programs designed for the periodic inspection and
consultation visits to the inns in the Residence Inn System (but not the
services of the personnel of the Architecture and Construction Division of
Management Company providing architectural, technical or procurement services
for the Inn, which shall be treated as a Deduction described in paragraph 6 of
the definition of "Operating Profit").
September 13, 1993 30
"Residence Inn System Standards" shall mean both the operational standards
------------------------------
(for example, staffing, amenities offered to guests, advertising, etc.) and the
physical standards (for example, the quality, condition, utility and age of the
FF&E, etc.) of Residence Inn hotels in the Marriott chain as such operational
and physical standards may fluctuate from time to time (provided, however, that
the Residence Inn System Standards shall in no event be lower than the
operational and physical standards, as of the date in question, of comparable
extended stay hotels in other hotel systems which are comparable to the
Residence Inn System).
"Restricted Area" shall mean that area which is shown on the map attached
---------------
hereto as Exhibit "D", as described in the narrative which is set forth in
Exhibit "D-1".
"Restricted Inn" shall mean any hotel whose size, facilities and market
--------------
positioning are such that, if such hotel had been operated by Management Company
or one of its Affiliates as of the Effective Date, it would have been operated
as a member of the Residence Inn System (that is, as an extended-stay hotel, as
opposed to a full service hotel or one of the other limited service brands also
operated by Affiliates of Management Company i.e. Courtyard by Marriott or
Fairfield Inn). The term "Restricted Inn" shall not include any one or more of
the
September 13, 1993 31
following: (i) any existing (as of the Effective Date) member of the Residence
Inn System which is within the Restricted Area; (ii) any Courtyard by Marriott
(or other similar moderate-price lodging product) or any Fairfield Inn (or other
similar economy-priced lodging product); (iii) any full service, suite or resort
hotel; (iv) any hotel or hotels which are members of a chain of hotels (provided
that such chain has a minimum of four (4) or more hotels in operation), all or
substantially all (but in no event less than four (4) hotels) of which is
acquired by, or merged with, or franchised by or joined through marketing
agreement with, Management Company or one of its Affiliates (or the operation of
which is transferred to Management Company or one of its Affiliates); (v) any
hotel or hotels which are members of a group of hotels which is (in a single
transaction with a single seller or transferor) acquired by or merged with, or
franchised by or joined through marketing agreement, with Management Company or
one of its Affiliates (or the operation of which is transferred to Management
Company or one of its Affiliates), provided that such group of hotels contains
no fewer than four (4) hotels; (vi) any future lodging product developed by
Management Company or one of its Affiliates which is not a lodging product which
would have been included within the Residence Inn System, as such system existed
as of the Effective
September 13, 1993 32
Date; or (vii) any existing non-Marriott hotel within the Restricted Area which
is specifically designated on Exhibit D-1 as not being a Restricted Inn.
"Revenue Data Publication" shall mean Xxxxx'x STAR Report, a monthly
------------------------
publication distributed by Xxxxx Travel Research, Inc. of Gallatin, Tennessee
or an alternative source, reasonably satisfactory to both parties, of data
regarding the Revenue Per Room of hotels in the general trade area of the Inn.
The "competitive set" for the Inn shall be determined (with periodic
adjustments) by Management Company, subject to Owner's approval (such approval
not to be unreasonably withheld). If such Xxxxx'x STAR Report is discontinued in
the future, or ceases (in the reasonable opinion of either Owner or Management
Company) to be a satisfactory source of data regarding the Revenue Per Room of
various hotels in the general trade area of the Inn, Management Company shall
select an alternative source, subject to Owner's approval (such approval not to
be unreasonably withheld). If the parties fail to agree on either such
competitive set or such alternative source, as the case may be, within a
reasonable period of time, the matter shall be resolved by arbitration pursuant
to Section 20.13.
"Revenue Index" shall mean that fraction which is equal to (a) the Revenue
-------------
Per Room for the Inn, divided by (b) the average
September 13, 1993 33
Revenue Per Room for the hotels in the Inn's competitive set (including the
Inn), as set forth in the Revenue Data Publication. Appropriate adjustments
shall be made in the event of a major renovation of the Inn.
"Revenue Index Threshold" shall mean the number set forth on Exhibit "A-1"
-----------------------
hereto. However, if the entry of a new hotel into the Inn's competitive set (or
the removal of a hotel from such competitive set) causes significant variations
in the Revenue Index which do not reflect the Inn's true position in the
relevant market, appropriate adjustments shall be made to the Revenue Index
Threshold by mutual consent of Owner and Management Company (neither such
consent to be unreasonably withheld).
"Revenue Per Room" shall mean, (i) the term "revenue per room" as defined
----------------
by the Revenue Data Publication; or (ii) if the Revenue Data Publication is no
longer being used (as more particularly set forth in the definition of "Revenue
Data Publication"), the aggregate gross room revenues of the hotel in question
for a given period of time divided by the total room nights for such period. If
clause (ii) of the preceding sentence is being used, a "room" shall be a hotel
guest room which is keyed as a single unit, and shall include rooms which are
temporarily unavailable due to: (i) maintenance, or (ii) ongoing renovation
work.
September 13, 1993 34
"Sale/Leaseback Transaction" shall have the meaning set forth in Section
--------------------------
6.10.
"Sale of the Inn" shall mean any sale, assignment, transfer or other
---------------
disposition, for value or otherwise, voluntary or involuntary, of Owner's title
to the Inn or the Site (either fee or leasehold title, as the case may be), but
shall not include a collateral assignment intended to provide security for a
loan. For purposes of this Agreement, a "Sale of the Inn" shall also include a
lease (or sublease) of the entire Inn or Site. The phrase "Sale of the Inn"
shall also include any sale, transfer, or other disposition, for value or
otherwise, in a single transaction or a series of related transactions, of the
controlling interest in Owner. If Owner is a corporation, the phrase
"controlling interest" shall mean the right to exercise, directly or indirectly,
fifty percent (50%) or more of the voting rights attributable to the shares of
Owner (through ownership of such shares or by contract). If Owner is not a
corporation, the phrase "controlling interest" shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of Owner. Notwithstanding the foregoing, the term "Sale
of the Inn" shall not include any sale, assignment, transfer or other
disposition of the Inn or the Site by Owner to an Affiliate of Owner.
September 13, 1993 35
"Soft Goods" shall mean all fabric, textile and flexible plastic products
----------
(not including items which are classified as "Fixed Asset Supplies" under the
Uniform System of Accounts) which are used in furnishing the Inn, including,
without limitation: carpeting, drapes, bedspreads, wall and floor coverings,
mats, shower curtains and similar items.
"Software" shall mean all computer software and accompanying documentation
--------
(including all future upgrades, enhancements, additions, substitutions and
modifications thereof), other than computer software which is commercially
available, which are used by Management Company in connection with the property
management system, the reservation system and all future electronic systems
developed by Management Company for use in the Inn.
"Subsequent Owner" shall mean any individual or entity which acquires title
----------------
to or possession of the Inn at or through a Foreclosure.
"Suite" shall mean a lodging unit in the Inn.
-----
"Suite Revenues" shall mean that portion of the Gross Revenues of the Inn
--------------
which is attributable to the rental of Suites.
"System Marketing Fund" shall mean that certain fund (or any successor to
---------------------
such fund) maintained by Management Company or one of its Affiliates, in its
capacity as franchisor of the
September 13, 1993 37
System, to pay for the following System costs: all costs associated with
developing, preparing, producing, directing, administering, conducting,
maintaining and disseminating advertising, marketing, promotional and public
relations materials, programs, campaigns, sales and marketing seminars and
training programs, and similar activities of every kind and nature, including
the Residence Inn directory; conducting market research; and paying the central
operational costs of the Residence Inn reservation system; provided, however,
that any costs described in this definition of System Marketing Fund may, at the
option of the Management Company and The Residence Inn Association, be charged
directly to each inn in the System on the basis of actual use by or benefit to
each inn and, in such event, shall become Deductions.
"Telephone and Office Equipment" shall mean the following equipment used in
------------------------------
the Inn and all ancillary equipment: (i) telephones; (ii) miscellaneous office
equipment such as copiers, postage meters, etc.; (iii) television sets; and (iv)
audio-visual equipment.
"Term" shall mean the Initial Term plus all Renewal Terms.
----
"Termination" shall mean the expiration or sooner cessation of this
-----------
Agreement.
"The Residence Inn Association" (TRIA) is an advisory
-----------------------------
September 13, 1993 38
council to owners and franchisees of the Residence Inn System with respect to
advertising, marketing, reservations and other matters relating to Residence Inn
System hotels. All owners, franchisees of the Residence Inn System and Owner
shall be members of TRIA.
"Transaction Costs" shall mean, with respect to the incurring of any
-----------------
Secured Loan, all normal transaction costs (to the extent actually incurred)
including, without limitation, the following: state and local transfer taxes;
escrow fees; recording costs; Mortgage recording taxes; costs of any survey
required by the Holder; reasonable fees of the Holder's outside attorneys and
accountants; appraisal fees; title insurance premiums; financing costs
(including "points"); reasonable attorneys' fees of Owner in connection with
such Secured Loan; environmental inspection, testing and reporting fees to the
extent required by the Holder; and brokerage commissions (provided that no such
brokerage commissions shall be recognized as "Transaction Costs" hereunder if
they are made to a person or entity affiliated with Owner, to the extent (if
any) that such payments exceed the normal customary amounts).
"Uniform System of Accounts" shall mean the Uniform System of Accounts for
--------------------------
Hotels, Eighth Revised Edition, 1986, as published by the Hotel Association of
New York City, Inc.
September 13, 1993 39
"Working Capital" shall mean assets which are used in the day-to-day
---------------
operation of the Inn's business, including, without limitation, amounts kept in
xxxxx cash funds, amounts deposited in operating bank accounts, receivables,
prepaid expenses and funds expended to purchase Inventories, less accounts
payable and accrued current liabilities.
END OF ARTICLE I
September 13, 1993 40
ARTICLE II
APPOINTMENT OF MANAGEMENT COMPANY
---------------------------------
2.01 Appointment
-----------
Owner hereby appoints and employs Management Company as Owner's exclusive
agent to supervise, direct and control the management and operation of the Inn
for the Term provided in Article IV. Management Company accepts said
appointment and agrees to manage the Inn during the Term of this Agreement in
accordance with the terms and conditions hereinafter set forth. The performance
of all activities by Management Company hereunder shall be for the account of
Owner.
2.02 Delegation of Authority
-----------------------
Except as otherwise specifically set forth in this Agreement, Inn
operations shall be under the exclusive supervision and control of Management
Company which, shall be responsible for the proper and efficient operation of
the Inn. Management Company shall have discretion and control, free from
interference, interruption or disturbance, but in all respects subject to the
provisions of this Agreement, in all matters relating to management and
operation of the Inn, including, without limitation, the following: charges for
Suites and
September 13, 1993 41
commercial space; credit policies; food and beverage services; employment
policies; granting of leases, parking services, licenses and concessions for
shops and agencies within the Inn (provided that the term of any such lease,
license or concession shall not exceed the Term of this Agreement; and provided
further that Owner's consent shall be required prior to the execution by
Management Company of any such lease, license or concession which pertains to
the Inn, and which (i) has a term of more than five (5) years; or (ii) involves
more than five hundred (500) square feet of space within the Inn); receipt,
holding and disbursement of funds; maintenance of bank accounts; procurement of
Inventories, supplies and services; promotion and publicity; and, generally, all
activities necessary for operation of the Inn.
2.03 Operational Standards
---------------------
In accordance with the Residence Inn System Standards and the other terms
of this Agreement, Management Company shall, in connection with the Inn, perform
each of the following functions (provided that in all cases, except as otherwise
specifically set forth in this Agreement, the costs and expenses of performing
such functions shall be Deductions):
A. Obtain and keep in full force and effect, either in its own name on
behalf of Owner or in Owner's name, as may be
September 13, 1993 42
required by the Legal Requirements, any and all Licenses to the extent same is
within the control of Management Company (or, if same is not within the control
of Management Company, Management Company shall use all due diligence and
reasonable efforts to obtain and keep same in full force and effect).
B. Recruit, employ, supervise, direct and (when appropriate) discharge all
of the employees at the Inn.
C. Establish and revise, as necessary, administrative policies and
procedures, including policies and procedures for the control of revenue and
expenditures, for the purchasing of supplies and services, for the control of
credit, and for the scheduling of maintenance, and verify that the foregoing
procedures are operating in a sound manner.
D. Plan, execute, and supervise repairs and maintenance at the Inn.
E. Procure (as agent for Owner) all Fixed Asset Supplies and Inventories.
F. Maintain the Operating Accounts.
G. Prepare and deliver Accounting Period Statements, Annual Operating
Statements, Annual Operating Budgets, Building Estimates, FF&E Estimates, and
such other budgets and reports as are required by this Agreement.
H. Establish prices, rates and charges for services
September 13, 1993 43
provided in the Inn, including Suite rates.
I. As agent for Owner, negotiate and enter into leases, concessions and
licenses for shops and other facilities within the Inn.
J. Administer the leases, concessions and licenses for shops and other
facilities within the Inn (whether entered into pursuant to subsection I, above,
or otherwise).
K. Provide services included in the Residence Inn System Fee and the Chain
Services.
L. Provide, or cause to be provided, risk management services relating to
the types of insurance required to be obtained or provided by Management Company
under this Agreement, provided that the costs and expenses of providing such
services are to be paid as described in Section 12.04.B.
M. Reasonably cooperate with Owner concerning: (i) disputes with any
Holder regarding the Inn, (ii) contests of Impositions and Legal Requirements;
and (iii) adjustments of insurance claims and condemnation awards involving the
Inn.
N. Reasonably cooperate (provided that Management Company shall not,
except as otherwise specifically set forth in Section 6.01, be obligated to
enter into any amendments of this Agreement) with Owner in any attempt(s) by
Owner to effectuate a Sale of the Inn (provided that nothing herein shall affect
the
September 13, 1993 44
provisions of Section 20.05), or to obtain any Secured Loan. If given reasonable
notice, such cooperation shall include, without limitation: (i) answering any
reasonable questions by prospective purchasers and Holders; (ii) preparing lists
and schedules of leases, concessions, FF&E, Fixed Asset Supplies, Inventories,
and similar items (but specifically excluding customer lists); and (iii) making
such certifications and representations to Owner, to such purchasers and to such
Holders, regarding the Inn and the operation thereof, as Owner may reasonably
request (taking into account the extent of Management Company's control and
responsibility provided for hereunder). Owner shall promptly reimburse
Management Company, from its own funds and not as a Deduction, for the
reasonable costs and expenses incurred by Management Company in connection with
any actions necessary to comply with the requirements of this Section 2.03.N,
provided that such actions are not otherwise required under other provisions of
this Agreement.
O. Arrange for and supervise public relations and advertising, and prepare
annual marketing plans.
P. Endeavor to manage the timing of expenditures to replenish Inventories,
Fixed Asset Supplies, payments on accounts payable and collections of accounts
receivable, so as to avoid or minimize any cash deficits with respect to Inn
operations, which
September 13, 1993 45
deficits would otherwise require additional funding of Working Capital by Owner.
Q. Comply with all provisions in the Existing Ground Lease and in any
Existing Mortgages which are by their terms applicable to the operation of the
Inn; provided, however, that all practices and procedures used by Management
Company in the operation of the Inn as of the Effective Date shall be deemed to
be in compliance with the Existing Ground Lease and all Existing Mortgages; and
provided further, that if either the Ground Lessor or any Holder under an
Existing Mortgage shall, from time to time, notify Management Company that it
has determined that certain practices and procedures which are used by
Management Company in the operation of the Inn are not in compliance with the
provisions of the Existing Ground Lease or such Existing Mortgage (as the case
may be), Management Company shall promptly alter such practices and procedures
to ensure such compliance; and provided further, that if such compliance would
require work by Management Company which is beyond the normal course of Inn
operations, or would impose additional financial burdens on the Inn which are
beyond the normal course of Inn operations, Owner (from its own funds, not as a
Deduction) shall compensate Management Company for such work and such additional
burdens.
September 13, 1993 46
2.04 Limitations on Authority
------------------------
A. Notwithstanding anything in Section 2.02 or elsewhere in this Agreement
to the contrary (unless otherwise stated in this Section 2.04), and in addition
to the various other provisions of this Agreement which prohibit Management
Company from taking certain actions or which allow certain actions only if
Owner's consent thereto has been obtained, Management Company shall not, without
the prior written approval of Owner, which approval Owner may withhold in its
sole discretion, perform any of the following actions in connection with the Inn
and on behalf of or burdening Owner:
1. Acquiring any land or interest therein;
2. Acquiring any capital assets or interest therein except: (i)
items in the approved Building Estimate, and (ii) FF&E, Fixed Asset Supplies and
Inventories (to the extent the same constitute capital assets) in the ordinary
course of business as expressly provided for in this Agreement;
3. Financing, refinancing or mortgaging of any portion of the Inn or
the revenue due to Owner therefrom;
4. Selling (other than dispositions of FF&E, Fixed Asset Supplies
and Inventories in the ordinary course of business as expressly provided for in
this Agreement), leasing (other than as expressly provided for in this
Agreement, including without
September 13, 1993 47
limitation, Section 2.02 of this Agreement) or other transferring of, or the
pledging or placing of any lien or encumbrance on, any part of the Inn ;
5. In the event of a total or partial condemnation, consenting to
any award or participating in any condemnation proceeding, except as expressly
provided for in this Agreement;
6. Entering into, modifying or terminating any lease, concession or
License, except to the extent permitted under Section 2.02;
7. Adjusting any claim or settling any Litigation which (i) is not
covered by any of the insurance policies described in Article XII and is not an
Employee Claim, and which would result in a Deduction or payment in excess of
Two Hundred Fifty Thousand Dollars ($250,000.00) in any Fiscal Year, as adjusted
by the GDP Deflator, or (ii) would impose on Owner any material liability or
obligation other than the payment of money, or would require Owner to make any
material admission; or
8. Adjusting any claim, under the applicable property insurance
policies, regarding injury or damage to the Inn or its contents, where the
estimated cost of restoration is in excess of Five Hundred Thousand Dollars
($500,000.00), as adjusted by the GDP Deflator.
September 13, 1993 48
2.05 Covenants, Conditions or Restrictions
-------------------------------------
A. As of the Effective Date, there are existing covenants, conditions,
restrictions and/or agreements, including reciprocal easements or cost-sharing
arrangements (all of the foregoing types of encumbrances on the Inn, or
agreements relating to the Inn, whether existing as of the Effective Date or
not, shall be collectively referred to as "CC&R's"; those CC&R's which are in
existence as of the Effective Date shall be referred to in this Agreement as
"Existing CC&R's"). Management Company hereby gives its consent to all Existing
CC&R's. Except as otherwise specifically set forth to the contrary in Exhibit
"F" hereto, all costs, expenses and charges which are imposed on the Inn under
the Existing CC&R's shall be paid from Gross Revenues as Deductions. Those
certain costs, expenses and charges which are described on Exhibit "F" hereto as
"capital charges" shall be paid by Owner, from its own funds, and all such
payments shall be treated for purposes of this Agreement as Additional Invested
Capital expended by Owner.
B. CC&R's which are entered into, or become encumbrances on the Inn
and/or the Site, after the Effective Date shall be referred to in this Agreement
as "Future CC&R's". Owner agrees that it will give Management Company, for
Management Company's prior approval, written notice of its intention to execute
any
September 13, 1993 49
Future CC&R's, such notice to be reasonably in advance of the execution thereof.
Owner covenants that, during the Term of this Agreement, there will not be
(unless Management Company has given its prior written consent thereto) any
Future CC&R's affecting the Site or the Inn: (i) which purport to impose any
material financial obligations on the Inn; (ii) which would prohibit or limit
Management Company from operating the Inn in accordance with the Residence Inn
System Standards; or (iii) which would allow Inn facilities (for example,
parking spaces) to be used by persons other than guests, invitees or employees
of the Inn.
C. All financial obligations imposed on Owner or on Management Company or
on the Inn pursuant to any Future CC&R's shall be paid by Owner from its own
funds, and not from Gross Revenues or from the FF&E Reserve, unless Management
Company has given its prior written consent to such Future CC&R's. Management
Company agrees that it will not unreasonably withhold its consent to any such
Future CC&R's; provided, however, that Management Company shall be entitled to
withhold its consent in its discretion if a proposed Future CC&R would have a
material impact on the operation of the Inn, as described in clauses (i), (ii)
or (iii) of Section 2.05.B. Upon receipt of such consent from Management
Company, such sums shall be Deductions in computing Operating Profit.
September 13, 1993 50
D. Owner shall not waive any protections which benefit the Hotel
pursuant to existing restrictive covenants without the prior written consent of
Management Company which consent shall not be unreasonably withheld, conditioned
or delayed.
2.06 Licenses and Permits
--------------------
Owner agrees that, upon request by Management Company, it will sign
promptly and without charge applications for Licenses.
END OF ARTICLE II
September 13, 1993 51
ARTICLE III
OWNERSHIP OF THE INN
--------------------
3.01 Ownership of the Inn
--------------------
A. Each party acknowledges that the status of title to the Site and to the
Inn is as described on Exhibit "F" hereto; neither party will hold the other
party responsible for any defects in said status of title, and each party hereby
releases the other party from all claims stemming from any such defects.
B. Owner hereby covenants that, throughout the Term of this Agreement,
it will not change the status of title to the Site from that which is described
on Exhibit "F" hereto, except that Owner shall have the right either (i) to
effectuate a Sale of the Inn in accordance with Article XIX, or (ii) to encumber
the Site and the Inn with the following:
1. Mortgages which are given to secure any one or more Qualified
Loans;
2. Liens for Impositions or other public charges not yet due or
which are being contested in good faith; and
3. Easements or other encumbrances (not including those described in
subsection 1 or 2 above) which do not adversely affect the operation of the Inn
by Management Company and which are not prohibited pursuant to Section 2.05.B of
this
September 13, 1993 52
Agreement.
C. Owner shall indemnify, defend and hold Management Company and its
Affiliates harmless from claims by entities which have loaned money to Owner
that Management Company (or any of such Affiliates) owes any such lender all or
any portion of such indebtedness.
D. Management Company shall indemnify, defend and hold Owner and its
Affiliates harmless from claims by entities which have loaned money to
Management Company that Owner (or any of such Affiliates) owes any such lender
all or any portion of such indebtedness.
END OF ARTICLE III
September 13, 1993 53
ARTICLE IV
TERM
----
4.01 Term
----
A. The initial term ("Initial Term") of this Agreement shall commence with
the Effective Date and, unless sooner terminated as herein provided, shall
continue until the expiration of Fiscal Year 2013. The Term shall thereafter be
automatically renewed for each of three (3) successive periods of ten (10) full
Fiscal Years each ("Renewal Terms"), unless either: (i) Management Company, at
its option, notifies Owner, in accordance with Section 20.09, at any time within
the period of eighteen (18) months prior to the expiration of the Initial Term
or the then current Renewal Term, as the case may be, of its intention not to
renew; or (ii) Management Company has committed an Event of Default, and has
been notified by Owner of such Event of Default, under Article XVI of this
Agreement, as of the date of any such renewal.
B. If Management Company so notifies Owner of its intention not to renew
pursuant to Section 4.01.A, Management Company shall continue to manage the Inn
pursuant to this Agreement until the termination date set forth in such notice,
provided that such termination date shall be: (i) no less than twelve (12)
months
September 13, 1993 54
after the date of such notice; and (ii) in no event earlier than the expiration
date of the Initial Term or the then current Renewal Term, as the case may be.
Such termination date may be after the expiration of the Initial Term or the
then current Renewal Term, as the case may be, provided that the requirements of
the preceding sentence are satisfied. However, if Management Company has so
notified Owner of its intention not to renew, Owner may, at its option, by
written notice to Management Company at least ninety (90) days prior to the date
on which Owner desires Termination to occur, reduce the period of time prior to
Termination to any shorter period of time which Owner desires, provided that
such shorter period of time shall be at least the greater of: (a) ninety (90)
days (beginning as of the date of such notice from Owner), or (b) the minimum
period of time which Management Company reasonably decides is prudent, given the
requirements of the applicable Employment Laws regarding employee discharges. In
no event shall the fact that Management Company may, pursuant to the preceding
sentence, be managing the Inn after the expiration of the Initial Term or the
then current Renewal Term, as the case may be, be construed as an election by
Management Company to renew the Term, if Management Company has elected (in
accordance with this Section 4.01) in writing not to so renew.
September 13, 1993 55
C. If Owner has the right, under the provisions of the Existing Ground
Lease, to elect to renew or extend the term of the Existing Ground Lease, Owner
shall so notify Management Company at least one hundred eighty (180) days (but
no more than one (1) year) prior to the expiration of the period within which
Owner is obligated to notify the Ground Lessor of its election to renew or
extend the term of the Existing Ground Lease. Such notice from Owner shall
contain all of the relevant facts about the impending election to renew or
extend, including the length of the period of renewal or extension. Unless
Management Company notifies Owner, within a period of ninety (90) days after
receipt of the foregoing notice from Owner, that Management Company disapproves
the renewal or extension of the term of the Existing Ground Lease, Owner will,
by proper notice to the Ground Lessor, within the applicable time period under
the Existing Ground Lease, elect to renew or extend the term of the Existing
Ground Lease.
D. If, after proper notice from Owner in accordance with Section 4.01 C,
Management Company fails to disapprove the renewal or extension of the term of
the Existing Ground Lease, the Term of this Agreement shall be deemed to be
automatically extended to the later of: (i) the expiration of the term of the
Existing Ground Lease, as renewed or extended in accordance with
September 13, 1993 56
Section 4.01 C; or (ii) the date on which the Term of this Agreement would
otherwise have expired absent this sentence. If, in order to comply with the
preceding sentence, it is necessary for Management Company to waive its option
not to renew with respect to one or more Renewal Terms, such waiver shall be
deemed to have been given; however, Management Company shall retain the right
not to renew (as more particularly described in Section 4.01 A) as to any
portion of such Renewal Term(s) which would occur after the expiration of the
term of the Existing Ground Lease, as renewed or extended in accordance with
Section 4.01 C.
E. If, after proper notice from Owner in accordance with Section 4.01 C,
Management Company disapproves the renewal or extension of the term of the
Existing Ground Lease, the Term of this Agreement shall be deemed to be
automatically reduced to the earlier of: (i) the expiration of the term of the
Existing Ground Lease; or (ii) the date on which the Term of this Agreement
would otherwise have expired absent this sentence.
4.02 Actions to be Taken Upon Termination
------------------------------------
Upon a Termination of this Agreement, the following shall be applicable:
A. Management Company shall, within sixty (60) days
September 13, 1993 57
after Termination of this Agreement, prepare and deliver to Owner a final
accounting statement with respect to the Inn, as more particularly described in
Section 9.01 hereof, along with a statement of any sums due from Owner to
Management Company pursuant hereto, dated as of the date of Termination. Within
thirty (30) days after the receipt by Owner of such final accounting statement,
the parties will make whatever cash adjustments are necessary pursuant to such
final statement. The cost of preparing such final accounting statement shall be
a Deduction, unless the Termination occurs as a result of an Event of Default by
either party, in which case the defaulting party shall pay such cost. Management
Company and Owner acknowledge that there may be certain adjustments for which
the necessary information will not be available at the time of such final
accounting, and the parties agree to readjust such amounts and make the
necessary cash adjustments when such information becomes available; provided,
however, that (unless there are ongoing disputes of which each party has
received notice) all accounts shall be deemed final as of one hundred eighty
(180) days after such Termination.
B. As of the date of the final accounting referred to in subsection A
above, Management Company shall release and transfer to Owner any of Owner's
funds which are held or controlled by
September 13, 1993 58
Management Company with respect to the Inn, with the exception of funds to be
held in escrow pursuant to Section 12.04, and Section 14.01.F. During the period
between the date of Termination and the date of such final accounting,
Management Company shall pay (or reserve against) all Deductions which accrued
(but were not paid) prior to the date of Termination, using for such purpose any
Gross Revenues prior to the date of Termination.
C. Management Company shall make available to Owner such books and
records respecting the Inn (including those from prior years, subject to
Management Company's reasonable records retention policies) as will be needed by
Owner to prepare the accounting statements, in accordance with the Uniform
System of Accounts, for the Inn for the year in which the Termination occurs and
for any subsequent year. Such books and records shall not include: (i)
employee records which must remain confidential either under Legal Requirements
or under reasonable system-wide corporate policies of Management Company; or
(ii) any Intellectual Property; or (iii) customer lists.
D. Management Company shall (to the extent permitted by Legal
Requirements) assign to Owner or any other manager employed by Owner to operate
and manage the Inn, all Licenses for the Inn which have been issued in
Management Company's name; provided that if Management Company has expended any
of its own funds in
September 13, 1993 59
the acquisition or transfer of any of such Licenses, Owner shall reimburse
Management Company therefor if it has not done so already.
E. All Proprietary Signage shall be removed by Management Company from
the Inn and from the Site (and from any locations other than the Site). The
cost of such removal shall be a Deduction, unless the Termination occurs either:
(i) as a result of an Event of Default by either party, in which case the
defaulting party shall pay the cost of such removal from its own funds, and not
as a Deduction; or (ii) as a result of Management Company's election not to
renew the Term, as of the expiration of either the Initial Term or any Renewal
Term (as the case may be), in which case Management Company shall pay the cost
of such removal from its own funds, and not as a Deduction.
F. Various other actions shall be taken, as described in this Agreement,
including, but not limited to, the actions described in Sections 7.01, 10.02,
10.03, 10.04, 12.04.B, and 14.01.F.
G. Management Company shall peacefully vacate and surrender the Inn to
Owner.
The provisions of this Section 4.02 shall survive any Termination.
September 13, 1993 60
4.03 Performance Termination
-----------------------
A. Subject to the provisions of Section 4.03.B below, Owner shall have
the option to terminate this Agreement if:
1. With respect to any two (2) consecutive full Fiscal Years (not
including any Fiscal Year prior to Fiscal Year 1996), Operating Profit less the
amount of Ground Lease Rental, if applicable, for each of such two (2) Fiscal
Years is less than the Performance Termination Threshold; and
2. The Revenue Index of the Inn during each of such two (2)
consecutive Fiscal Years; is less than the Revenue Index Threshold; and
3. The fact that the Inn is not meeting the tests set forth in
Section 4.03.A(1) and (2) is not the result of either (x) Force Majeure, or (y)
any major renovation of the Inn. Such option to terminate shall be exercised by
serving written notice thereof on Management Company no later than sixty (60)
days after the receipt by Owner of the annual accounting under Section 9.01
hereof for the second (2nd) of the two (2) Fiscal Years referred to in Section
4.03.A(1). If Management Company does not elect to avoid such Termination
pursuant to Section 4.03.B below, this Agreement shall terminate as of the end
of the fourth (4th) full Accounting Period following the date on which
Management Company receives Owner's written notice of its intent to terminate
September 13, 1993 61
this Agreement; provided that such period of time shall be extended as required
by applicable Legal Requirements pertaining to the termination of the employment
of the employees at the Inn. Owner's failure to exercise its right to terminate
this Agreement pursuant to Section 4.03.A with respect to any given Fiscal Year
shall not be deemed an estoppel or waiver of Owner's right to terminate this
Agreement with respect to subsequent Fiscal Years to which this Section 4.03.A
may apply.
B. Upon receipt of Owner's written notice of Termination under Section
4.03.A, Management Company shall have the option, to be exercised within sixty
(60) days after receipt of said notice, to avoid such Termination by paying
Owner an amount (the "Cure Payment") equal to one hundred five percent (105%) of
the amount by which Operating Profit less Ground Lease Rental, if any, for
either of the two (2) Fiscal Years in question (i.e., the two (2) Fiscal Years
referred to in Section 4.03.A(1)) was less than the Performance Termination
Threshold. Any such Cure Payment shall be accounted for as a fee to Owner in
connection with the avoidance of such Termination. In the event Management
Company makes a Cure Payment pursuant to this Section 4.03.B, the Fiscal Year
with respect to which such Cure Payment was made shall thereafter not be
treated, for purposes of subsequent elections by Owner pursuant to Section
4.03.A, as a Fiscal Year in which the circumstances
September 13, 1993 62
described in Section 4.03.A(1) have occurred. If Management Company exercises
such option to make such Cure Payment, then the foregoing Owner's election to
terminate this Agreement under Section 4.03.A shall be cancelled and of no force
or effect with respect to the two (2) Fiscal Years in question and this
Agreement shall not terminate. Such cancellation, however, shall not affect the
right of Owner, as to each subsequent Fiscal Year to which Section 4.03.A
applies, to again elect to terminate this Agreement pursuant to the provisions
of Section 4.03.A (which subsequent election shall again be subject to
Management Company's rights under this Section 4.03.B). If Management Company
does not exercise its option to make the Cure Payment then this Agreement shall
be terminated as of the date set forth in Section 4.03.A. Any Cure Payment which
is paid by Management Company pursuant to this Section 4.03.B shall not be
recoverable by Management Company. Any Cure Payment which is paid by Management
Company pursuant to this Section 4.03.B shall only operate to cancel Owner's
election to terminate this Agreement under Section 4.03.A, and shall not operate
to cure any outstanding Defaults by Management Company under Article XVI.
END OF ARTICLE IV
September 13, 1993 63
ARTICLE V
COMPENSATION OF MANAGEMENT COMPANY; DISTRIBUTIONS
-------------------------------------------------
5.01 Management Fees
---------------
A. In consideration of services to be performed during the Term of this
Agreement, Management Company shall retain the Management Fees. Owner's
Priority and the Management Fees shall be appropriately prorated for any partial
Fiscal Year.
B. Notwithstanding the provisions of Article IX of this Agreement
permitting the consolidation of reports and co-mingling of certain funds with
other hotels owned by Owner, the Base Management Fee, Deferred Contingent Base
Management Fees, Residence Inn System Fee and Incentive Management Fee shall be
calculated based on the revenues generated by the Inn and not on a consolidated
basis with any other hotels which may be owned by Owner.
5.02 Distribution of Operating Profit
--------------------------------
In each Fiscal Year, Operating Profit shall be distributed to Owner and
Management Company in accordance with the following priorities:
A. Owner shall first receive an amount equal to the lesser of: (i)
Owner's Priority; or (ii) Operating Profit.
September 13, 1993 64
B. Management Company shall next receive the Base Management Fee;
provided, however, that if, in any Fiscal Year the Base Management Fee exceeds
Net Operating Profit, such Base Management Fee shall be deferred to the extent
of such excess and such deferred sums shall become "Deferred Contingent Base
Fees".
C. Management Company shall next receive an amount equal to the Deferred
Contingent Base Fees to the extent that Net Operating Profit is otherwise
sufficient for such purposes.
D. Management Company shall next receive an amount equal to the
Incentive Management Fee.
E. Owner shall receive all Operating Profit remaining after the
distributions made pursuant to the preceding subparagraphs of this Section 5.02.
5.03 Accounting and Interim Payments
-------------------------------
A. On or before the twentieth (20th) day after the close of each
Accounting Period, Management Company shall deliver to Owner a reasonably
detailed accounting statement (the "Accounting Period Statement") in
substantially the form set forth in Exhibit "B" hereto. Upon Owner's written
request therefor, Management Company shall forward copies of any such Accounting
Period Statement to any Holders or Ground Lessors, at the addresses specified by
Owner. Such Accounting Period Statement shall set forth the
September 13, 1993 65
results of the operations of the Inn for the preceding Accounting Period and for
the Fiscal Year-to-date, all in accordance with generally accepted accounting
principles applied on a consistent basis. Each Accounting Period Statement shall
be accompanied by a statement, by the Controller, Assistant Controller or Vice
President of the Management Company that, to the best of his or her knowledge
and belief, and subject to routine year-end audit and adjustment, such
Accounting Period Statement is true and correct in all material respects. Each
Accounting Period Statement shall include: (i) calculations of Gross Revenues,
Deductions, Operating Profit, the Management Fees; and (ii) comparisons with the
applicable categories for the prior Fiscal Year. With each such Accounting
Period Statement, Management Company shall transfer any interim Owner's
Distribution due to Owner, and shall retain any interim Management Fees due to
Management Company. Calculations and payments of the Management Fees and the
Owner's Distribution with respect to each Accounting Period within a Fiscal Year
shall be accounted for cumulatively.
B. Within seventy-five (75) days after the close of each Fiscal Year,
Management Company shall submit an Annual Operating Statement, as more fully
described in Section 9.01, for such Fiscal Year to Owner, which Annual Operating
Statement shall be controlling over the interim Accounting Period Statements.
Any
September 13, 1993 66
adjustments or payments required by any such Annual Operating Statement shall be
made promptly by the parties. Operating Losses shall not be carried forward or
backward to subsequent or prior Fiscal Years.
5.04 Accounting for Period Prior to Effective Date
---------------------------------------------
A. It shall be a general principle in the accounting for the Inn that all
liabilities incurred and/or income generated prior to the Effective Date, or
properly allocated to the period prior to the Effective Date under generally
accepted accounting principles, shall be included in the Accounting Period
Statements and the Annual Operating Statements for the Inn pursuant to this
Agreement for the Fiscal Year in which such liabilities are paid or such income
is received, provided, however, that the foregoing shall not be reflected in the
computation of Operating Profit for purposes of Section 4.03.
B. As of the Effective Date, the cash on hand at the Inn shall be
deposited in one of the Operating Accounts set up by Management Company pursuant
to Section 9.02, and shall be treated as part of the Working Capital described
in Section 7.01.
END OF ARTICLE V
September 13, 1993 67
ARTICLE VI
FINANCING OF THE INN
--------------------
6.01 Amendments of Management Agreement
----------------------------------
A. If requested by any Qualified Lender or prospective Qualified Lender
(in which event such amendments shall take effect as of the funding of such
Qualified Loan), Management Company agrees to execute and deliver any amendment
of this Agreement which is reasonably required by such Qualified Lender or
prospective Qualified Lender, provided that Management Company shall be under no
obligation to amend this Agreement if the result of such amendment would be:
(i) to reduce, defer or delay the amount of any payment to be made to Management
Company hereunder; (ii) to materially increase Management Company's obligations
under this Agreement; (iii) to change the Term of this Agreement; (iv) to cause
the Inn to be operated other than pursuant to the Residence Inn System
Standards; (v) to amend either Section 8.02 or Section 14.01; or (vi) to
otherwise materially affect Management Company's rights under this Agreement.
Any such amendment shall take effect as of the funding of such Qualified Loan.
B. In addition to the provisions of Section 6.01.A, if a Qualified Lender
or prospective Qualified Lender requests that
September 13, 1993 68
Management Company enter into an amendment of this Agreement, and if such
amendment would impose additional duties (for example, an increase in the
reporting requirements or in the record-keeping requirements, or adding the
obligation to prepare parallel accounting statements using a different fiscal
year) on Management Company or would otherwise adversely affect Management
Company's rights under this Agreement, but not to the degree described in
clauses (i) through (vi) of Section 6.01.A, Management Company hereby agrees
that it will execute and deliver such requested amendment of this Agreement,
provided that Owner compensates Management Company for the additional burden
imposed by such amendment out of Owner's funds and not as a Deduction. It is
understood that the word "burden", as used in the preceding sentence, shall
encompass not only additional work to be performed by Management Company, but
also any adverse effect on the Incentive Management Fee which would be caused by
requiring increased services by third parties. Any dispute as to whether
Management Company is entitled to any compensation pursuant to this Section
6.01.B, or as to the amount of such compensation, shall be resolved by
arbitration pursuant to Section 20.13.
C. Proposed amendments to this Agreement which are requested by any
Qualified Lender or prospective Qualified Lender, and which would affect the
insurance provisions set forth in Article XII,
September 13, 1993 69
shall be governed exclusively by Article XII.
September 13, 1993 70
6.02 Notice and Opportunity to Cure
------------------------------
A. In the event of: (i) a Default by Owner in the performance or
observance of any of the terms and conditions of this Agreement; or (ii) any
other occurrence which entitles Management Company to terminate this Agreement,
and in the event that Management Company gives written notice thereof to Owner
pursuant to Article XVI of this Agreement, Management Company shall also give a
duplicate copy (herein referred to as the "First Notice") of such notice to,
each Qualified Lender, at the address previously provided to Management
Company. Any such notice will be sent in the manner described in Section 20.09
hereof. In addition, in the event that such Default is not cured within the
applicable cure period under Article XVI of this Agreement, and Management
Company intends to exercise its remedy of terminating this Agreement, Management
Company shall send a second notice (the "Second Notice") to each Qualified
Lender, at the same address and in the same manner applicable to the First
Notice stating Management Company's intention to terminate this Agreement.
Management Company shall forbear from taking any action to terminate this
Agreement for a period of thirty (30) days after the service of the First
Notice, and for an additional period of thirty (30) days after the service of
the Second Notice (if such Second Notice is required, as set forth above).
September 13, 1993 71
B. In the event of a Default by Owner under the provisions of this
Agreement, Management Company agrees to accept performance by any Qualified
Lender with the same force and effect as if same were performed by Owner, in
accordance with the provisions and within the cure periods prescribed in this
Agreement (except that each Qualified Lender shall have such additional cure
periods, not available to Owner, as are set forth in this Section 6.02).
C. No notice given by Management Company to Owner shall be effective as a
notice under Article XVI of this Agreement unless the applicable duplicate
notice to each Qualified Lender which is required under Section 6.02.A (either
the First Notice or the Second Notice, as the case may be) has been given. It
is understood that any failure by Management Company to give such a duplicate
notice (either the First Notice or the Second Notice, as the case may be) to any
Qualified Lender shall not itself be a Default by Management Company under this
Agreement, but rather shall operate only to void the effectiveness of any such
notice by Management Company to Owner under Article XVI of this Agreement.
D. Except as specifically limited by this Section 6.02, nothing herein
shall preclude Management Company from exercising any of its rights or remedies
against Owner with respect to any Default by Owner under this Agreement.
September 13, 1993 72
6.03 Collateral Assignment of Management Agreement
---------------------------------------------
September 13, 1993 73
Owner shall have the right to collaterally assign to any Qualified Lender,
as additional security for the indebtedness evidenced by a Qualified Loan, all
of Owner's right, title and interest in and to distributions payable to Owner
pursuant to Article V thereof. If, pursuant to any such assignment (or
subsequent loan documentation entered into between Owner and a Qualified Lender
with a similar purpose), and provided that Management Company has previously
received a copy of such assignment and such subsequent documentation, Management
Company may receive (from time to time) a notice or notices from such Qualified
Lender directing Management Company to pay to such Qualified Lender subsequent
distributions under Article V of this Agreement which would otherwise be payable
to Owner, Management Company shall comply with any such notice. Management
Company shall continue to make payments in compliance with any such notice from
such Qualified Lender until Management Company receives written instructions to
the contrary from such Qualified Lender. Owner hereby gives its consent to any
such payments by Management Company to such Qualified Lender which are in
compliance with any such notice. The foregoing consent by Owner shall be deemed
to be irrevocable until the entire Qualified Loan has been discharged, as
evidenced either by the recordation of a satisfaction or release executed by
such Qualified Lender, or by the delivery of a
September 13, 1993 74
written statement to that effect from such Qualified Lender to Management
Company. Management Company shall comply with the direction set forth in any
such notice without any necessity to investigate why such Qualified Lender sent
such notice, or to confirm whether or not Owner is in fact in default under the
terms of such Qualified Loan. If Management Company receives such notices from
more than one Qualified Lender, Management Company shall (at its option) either:
(i) comply with the provisions of the notice sent by the Qualified Lender whose
Qualified Loan has the senior lien priority; or (ii) institute Litigation for a
declaratory judgment to determine to whom payments under this Agreement shall be
made (in which case, the costs and expenses of such Litigation, including
attorneys' fees, shall be Deductions).
6.04 Subordination of Management Agreement
-------------------------------------
A. This Agreement, and Management Company's right to continue to manage
and operate the Inn pursuant to this Agreement, are and shall be subject and
subordinate to the lien of any Qualified Loan, (i.e., upon a Foreclosure of any
such Qualified Lender, at its option, unless such Qualified Lender has otherwise
agreed to the contrary in a Non-Disturbance Agreement shall have the right to
terminate this Agreement). Notwithstanding the foregoing, during the Term of
this Agreement, all debt service
September 13, 1993 75
(including increased or accelerated payments after a default) payable with
respect to any Qualified Loan shall be paid exclusively from Owner's
Distribution.
B. Section 6.04.A is intended to be, and is, fully effective and binding,
as between Management Company and any such Qualified Lender; however, Management
Company agrees to execute such confirmatory documentation (in recordable form in
the jurisdiction in which the Inn is located) as such Qualified Lender shall
reasonably request.
C. Notwithstanding the possible termination of this Agreement which is set
forth in the foregoing provisions of this Section 6.04, it is understood that,
until such time as this Agreement is validly terminated either (i) pursuant to
the applicable provision of this Agreement, or (ii) pursuant to a court order in
connection with the Foreclosure of a Qualified Loan (assuming that such
termination does not breach any binding Non-Disturbance Agreement), the Holder
of each Qualified Loan will honor and recognize the right of Management Company
to operate the Inn in accordance with this Agreement (including the right of
Management Company to collect all Gross Revenues and to make expenditures in
accordance with this Agreement).
September 13, 1993 76
6.05 Non-Disturbance Agreement
-------------------------
A. Owner agrees that, in connection with the obtaining by Owner of any
Secured Loan or Secured Loans, from time to time, Owner will use good faith
reasonable efforts to obtain a Non-Disturbance Agreement from each Holder or
Holders. The phrase "good faith reasonable efforts" shall be determined by
reference to the following: (i) normal loan underwriting procedures and
practices (including those practices relating to non-disturbance agreements)
which are generally being implemented by entities which are making loans similar
to such Secured Loan, as of that point in time; and (ii) the concessions which
Management Company is, as of that point in time, reasonably prepared to make in
order to satisfy the objectives of lenders in connection with the lender-manager
relationship after a Foreclosure. In no event, however, shall the failure of
Owner to obtain such a Non-Disturbance Agreement affect or modify any of the
responsibilities of Management Company toward Qualified Lenders which are
contained elsewhere in this Article VI.
B. Notwithstanding Section 6.05.A, Owner agrees that, prior to obtaining
any Qualified Loan, it will obtain from each prospective Holder or Holders
thereof a Non-Disturbance Agreement pursuant to which Management Company's
rights under this Agreement will not be disturbed as a result of a loan default
September 13, 1993 77
stemming from non-monetary factors which (i) relate to Owner and (ii) are not
Defaults by Management Company under Article XVI of this Agreement.
6.06 Attornment
----------
A. Management Company agrees that, subject to the provisions of Section
6.06.B, upon a Foreclosure of any Qualified Loan, provided that this Agreement
has not expired or otherwise been earlier terminated in accordance with its
terms, Management Company shall attorn to any Subsequent Owner and shall remain
bound by all of the terms, covenants and conditions of this Agreement for the
balance of the remaining Term (including any Renewal Terms) with the same force
and effect as if such Subsequent Owner were the "Owner" under this Agreement;
provided, however, that Management Company shall be under no such obligation to
so attorn, and, to the contrary, shall thereupon have the right to terminate
this Agreement on thirty (30) days' prior written notice to both Owner and such
Subsequent Owner: (i) if such Subsequent Owner would not qualify as a permitted
transferee under Section 19.01.A of this Agreement; or (ii) unless such
Subsequent Owner, within twenty (20) days after the Foreclosure Date (or, in the
event such Subsequent Owner acquires title to the Inn after the Foreclosure
Date, within twenty (20)
September 13, 1993 78
days after the date of such acquisition of title to the Inn), assumes all of the
obligations of the "Owner" under this Agreement which arise from and after the
Foreclosure Date (or such later date of acquisition of title to the Inn),
pursuant to a written assumption agreement which shall be delivered to
Management Company. Upon the written request of any Qualified Lender, Management
Company shall periodically execute and deliver a statement, in a form reasonably
satisfactory to such Qualified Lender, reaffirming Management Company's
obligation to attorn as set forth in this Section 6.06.A.
B. It is understood by the parties that, in view of the fact that a
Qualified Lender will have the right to terminate this Agreement on a
Foreclosure under the provisions of Section 6.04, Management Company has an
interest in being informed, within a reasonable period of time after a Qualified
Loan Acceleration, of whether or not such Qualified Lender intends to exercise
such right of termination. Accordingly, if, by no later than that date (the
"Post-Foreclosure Decision Date") which is ninety (90) days after the date of
any Qualified Loan Acceleration, Management Company has not received a Non-
Disturbance Agreement executed by the Holder of such Qualified Loan, Management
Company shall, as of the Post-Foreclosure Decision Date and thereafter, no
longer be under any obligation
September 13, 1993 79
to attorn (pursuant to the provisions of Section 6.06.A) with respect to any
Foreclosure of that Qualified Loan, and Management Company shall have the option
to terminate this Agreement, by written notice to both Owner and the Holder of
each existing Qualified Loan, at any time within the sixty (60) day period
immediately following the Post-Foreclosure Decision Date.
6.07 No Modification or Termination of Agreement
-------------------------------------------
If the documents evidencing and securing a Qualified Loan require the
consent of the Qualified Lender to any amendment or modification of this
Agreement which materially affects such Qualified Lender, no such amendment or
modification of this Agreement shall be binding or effective unless such
Qualified Lender shall have consented in writing thereto.
6.08 Owner's Right to Finance the Inn
--------------------------------
Owner shall have the right, from time to time, without Management Company's
prior consent or approval, to obtain Qualified Loans, and to encumber the Inn
with Mortgages securing such Qualified Loans. Owner shall not, without the
prior consent of Management Company, have the right to obtain Secured Loans
which are not Qualified Loans.
September 13, 1993 80
6.09 Cross Collateralization
-----------------------
A. In connection with obtaining Qualified Loans, Owner shall have
the right to cross collateralize the Inn with other inns which it owns in the
Residence Inn System, provided that:
1. the inns to be the subject of the Qualified Loans are owned
by Owner or an Affiliate of Owner;
2. the Qualified Loans are secured only by inns in the Residence
Inn System which are managed by Management Company or its Affiliates and are not
cross collateralized with any property other than inns managed by Management
Company or its Affiliates in the Residence Inn System;
3. the basic terms and conditions of the Qualified Loans for the
Inn and each other inn securing such loan are intended to be part of an
integrated transaction; and
4. the closing of the Qualified Loans shall take place within
six (6) months of each other.
B. Any Mortgage secured by the Inn shall contain a provision
requiring Holder to provide Management Company prior written notice of any
default under such Mortgage. Further, upon receipt of any notice of default by
such Holder, Owner shall forward a copy of such notice to Management Company
within three (3) days thereafter, in accordance with the notice provisions set
September 13, 1993 81
forth in Section 20.09.
September 13, 1993 82
6.10 Sale/Leaseback Transactions
---------------------------
September 13, 1993 83
Any single transaction or related series of transactions in which (i)
Owner's interest in the Inn is sold or transferred by the then Owner ("Seller")
to a buyer ("Buyer"), and (ii) the Buyer (as "landlord") leases the Inn to the
Seller (as "tenant"), is hereby defined as a "Sale/Leaseback Transaction".
With respect to each Sale/Leaseback Transaction during the Term of this
Agreement, the following provisions will apply: (a) the sale or transfer of the
Inn will be considered a Sale of the Inn; however, the Seller (as tenant under
the aforesaid lease), not the Buyer, shall thereafter be treated as the "Owner"
for purposes of this Agreement; (b) the purchase price will not be a Secured
Loan, but any mortgage financing placed (either at the time of the transaction
or later) on the Buyer's interest in the Inn will be treated as a Secured Loan,
and the proceeds of each such Secured Loan will be aggregated with all
outstanding Secured Loans, which encumber either the Buyer's interest in the Inn
or the Seller's leasehold interest in the Inn, for purposes of determining
whether a given Secured Loan qualifies as a Qualified Loan; (c) payments
pursuant to such lease shall not be treated as Deductions, except for
Impositions and similar items which would have been treated as Deductions in the
absence of such Sale/Leaseback Transaction; and (d) all subsequent sales,
transfers or assignments of either Buyer's interest in the Inn or
September 13, 1993 84
Seller's interest in the Inn will be treated as Sales of the Inn. Owner will not
enter into any Sale/Leaseback Transaction unless Management Company and the
proposed Buyer have previously executed a mutually satisfactory attornment
agreement pursuant to which, as of the date of the termination of Seller's
leasehold interest, the provisions of this Agreement will (unless there has been
an Event of Default or other event entitling either party to terminate this
Agreement) be binding both on Management Company and on Buyer (as the successor
"Owner"); such attornment agreement will also contain an immediately-effective
provision which will incorporate the terms of Section 6.08 of this Agreement,
binding both on Management Company and on Buyer.
END OF ARTICLE VI
September 13, 1993 85
ARTICLE VII
WORKING CAPITAL AND FIXED ASSET SUPPLIES
----------------------------------------
7.01 Working Capital
---------------
A. Owner shall, from time to time during the Term of this Agreement,
provide Management Company, within thirty (30) days after Owner's receipt of
written request therefor by Management Company, with the funds necessary to
maintain Working Capital at levels determined by Management Company to be
reasonably necessary to operate the Inn in accordance with the Residence Inn
System Standards. Any such request by Management Company shall be accompanied
by a detailed explanation of the reasons for the request. If Owner fails to
respond to any such request within thirty (30) days after Owner's receipt
thereof, Management Company shall be entitled, at its option, without affecting
other remedies which may be available pursuant to Article XVI, to lend Owner the
necessary additional Working Capital from Management Company's own funds, which
loan will bear interest at the Interest Rate (compounded annually), and will be
secured by a security interest subordinate to any Qualified Loan encumbering all
Working Capital previously or thereafter provided by either Owner or Management
Company, and will be repaid in accordance with such terms and conditions as
Management Company
September 13, 1993 86
shall at that time reasonably determine.
B. Management Company will manage the Working capital of the Inn
prudently and in accordance with the Residence Inn System Standards. Management
Company shall review and analyze the Working Capital needs of the Inn on an
annual basis. If Management Company reasonably determines that there is excess
Working Capital, such excess shall be returned to Owner.
C. Working Capital provided by Owner pursuant to this Section 7.01 shall
remain the property of Owner throughout the Term of this Agreement. Upon
Termination, Owner shall retain any of its unused Working Capital, except for
Inventories purchased by Management Company pursuant to Section 10.02.
D. If Owner owns other inns in the Residence Inn By Marriott System
which are operated by Management Company, Management Company, at its option, may
co-mingle the Working Capital for the Inn with the Working Capital account for
Owner's other inn(s) in a single bank account.
September 13, 1993 87
7.02 Fixed Asset Supplies
--------------------
As of the Effective Date, Owner shall provide the Inn with the Fixed Asset
Supplies which are necessary to operate the Inn in accordance with the Residence
Inn System Standards. Owner shall, from time to time thereafter during the Term
of this Agreement, provide Management Company, within thirty (30) days after
Owner's receipt of written request therefor by Management Company, with any
additional funds necessary to maintain Fixed Asset Supplies at levels determined
by Management Company to be necessary to operate the Inn in accordance with the
Residence Inn System Standards. Fixed Asset Supplies shall remain the property
of Owner throughout the Term of this Agreement, except for Fixed Asset Supplies
purchased by Management Company pursuant to Section 10.02.
END OF ARTICLE VII
September 13, 1993 88
ARTICLE VIII
REPAIRS, MAINTENANCE AND REPLACEMENTS
-------------------------------------
8.01 Routine Repairs and Maintenance
-------------------------------
Management Company shall maintain the Inn in good repair and condition, to
a standard comparable with competitive hotels and in conformity with applicable
Legal Requirements and the Residence Inn System Standards, and shall make or
cause to be made such routine maintenance, repairs and minor alterations, the
cost of which can be expensed under generally accepted accounting principles, as
it, from time to time, deems reasonably necessary for such purposes. The cost
of such maintenance, repairs and alterations shall be paid from Gross Revenues
and shall be treated as a Deduction in determining Operating Profit.
8.02 FF&E Reserve
------------
A. Management Company shall establish a reserve account (the "FF&E
Reserve") in a bank designated by Management Company (and approved by Owner,
such approval not to be unreasonably withheld) to cover the cost of:
1. Replacements and renewals to the Inn's FF&E;
2. Certain routine repairs and maintenance to the Inn building which
are normally capitalized under generally accepted
September 13, 1993 89
accounting principles, such as exterior and interior repainting, resurfacing
building walls, floors, roofs and parking areas, and replacing folding walls and
the like (but which are not major repairs, alterations, improvements, renewals
or replacements to the Inn's buildings' structure, roof, or exterior facade, or
to its mechanical, electrical, heating, ventilating, air conditioning, plumbing
or vertical transportation systems, the cost of which shall be governed
exclusively by Section 8.03); and
3. At Management Company's option, lease payments for Telephone and
Office Equipment, Shuttle Vehicles and computer equipment used in connection
with the operation of the Inn.
Management Company agrees that it will, from time to time, execute such
reasonable documentation as may be requested by any Qualified Lender to assist
such Qualified Lender in establishing or perfecting its security interest in the
funds which are in the FF&E Reserve; provided, however, that no such
documentation shall contain any amendment or modification of any of the
provisions of this Agreement, including this Section 8.02.
B. During the period of time from the Effective Date through the
Termination of this Agreement, subject to the provisions of Sections 8.02.E and
8.02.F, Management Company shall transfer (as of the end of each Accounting
Period) into the FF&E Reserve an amount equal to five percent (5%) of Gross
September 13, 1993 90
Revenues for that Accounting Period. All such amounts transferred into the FF&E
Reserve after the Effective Date shall be paid from Gross Revenues and shall
constitute Deductions in determining Operating Profit.
C. Each year, at the same time as Management Company submits the Annual
Operating Budget described in Section 9.03, Management Company shall prepare an
estimate (the "FF&E Estimate") of the expenditures necessary for (i)
replacements and renewals to the Inn's FF&E, (ii) repairs to the Inn building of
the nature described in Section 8.02.A.2, and (iii) lease payments for Telephone
and Office Equipment, Shuttle Vehicles and computer equipment used in connection
with the operation of the Inn, during the ensuing Fiscal Year, and shall submit
such FF&E Estimate to Owner for its review. All expenditures from the FF&E
Reserve will be (as to both the amount of each such expenditure and the timing
thereof) both reasonable and necessary, given the objective that the Inn will be
maintained and operated to a standard comparable with competitive hotels and in
accordance with the Residence Inn System Standards. Notwithstanding the
foregoing, Management Company shall not be required to enumerate on the FF&E
Estimate any individual project which will cost less than Ten Thousand Dollars
($10,000.00) as adjusted by the GDP Deflator on each anniversary of the
Effective Date.
September 13, 1993 91
D. Management Company shall from time to time make such (i) replacements
and renewals to the Inn's FF&E, (ii) repairs to the Inn building of the nature
described in Section 8.02.A.2, as it deems necessary, and (iii) lease payments
for Telephone and Office Equipment, Shuttle Vehicles and computer equipment as
set forth in Section 8.03.A as it deems necessary, provided that Management
Company shall not expend more than the balance in the FF&E Reserve without the
prior approval of Owner. Management Company will endeavor to follow the
applicable FF&E Estimate, but shall be entitled to depart therefrom, in its
reasonable discretion, provided that: (a) such departures from the applicable
FF&E Estimate result from circumstances which could not reasonably have been
foreseen at the time of the submission of such FF&E Estimate; and (b) such
departures from the applicable FF&E Estimate are in the best interest of the
Inn; and (c) if the deviations from the FF&E Estimate are greater than Ten
Thousand Dollars ($10,000) as adjusted by the GDP Deflator on each anniversary
of the Effective Date, Management Company has submitted to Owner a revised FF&E
Estimate setting forth and explaining such departures. At the end of each
Fiscal Year, any amounts remaining in the FF&E Reserve shall be retained in the
FF&E Reserve, and shall be carried forward to the next Fiscal Year. Upon a Sale
of the Inn funds in the FF&E Reserve will not
September 13, 1993 92
be affected (or, if withdrawn, will be replaced as set forth in Section
19.01.D), and all dispositions of such funds (both before and after such Sale of
the Inn) will continue to be made exclusively pursuant to the provisions of this
Agreement. Proceeds from the sale of FF&E no longer necessary to the operation
of the Inn shall be deposited in the FF&E Reserve, as shall any interest which
accrues on amounts placed in the FF&E Reserve. Neither (i) proceeds from the
disposition of FF&E, nor (ii) interest which accrues on amounts held in the FF&E
Reserve, shall either (x) result in any reduction in the required contributions
to the FF&E Reserve set forth in subsection B above, or (y) be included in Gross
Revenues. Telephone and Office Equipment, as well as Shuttle Vehicles and
computer equipment used in connection with the operation of the Inn are the only
items of FF&E which Management Company is authorized to lease (rather than
purchase). At Management Company's option, lease payments with respect to
Telephone and Office Equipment, and Shuttle Vehicles and computer equipment used
in connection with the operation of the Inn shall be paid out of the FF&E
Reserve, as set forth in Section 8.02.A above. If Management Company proposes
that other items of FF&E (other than Telephone and Office Equipment, as well as
Shuttle Vehicles and computer equipment used in connection with the operation of
Inn) should be
September 13, 1993 93
leased rather than purchased, Management Company shall submit such proposal to
Owner for Owner's approval (not to be unreasonably withheld); in connection with
the foregoing, it is understood that the failure of a Qualified Lender to
approve such leasing proposal shall justify Owner in withholding its approval
thereof, regardless of whether withholding such approval would otherwise be
deemed to be unreasonable.
E. The percentage contribution for the FF&E Reserve which is described in
Section 8.02.B is an estimate. As the Inn ages, this percentage may not be
sufficient to keep the FF&E Reserve at the levels necessary to make the
replacements and renewals to the Inn's FF&E, or to make the repairs to the Inn
building of the nature described in Section 8.02.A.2, which are required to
maintain the Inn in accordance with the Residence Inn System Standards and
comparable with competitive hotels. If (i) any FF&E Estimate prepared in good
faith by Management Company exceeds the available funds in the FF&E Reserve or
would cause a shortfall to occur in future years , and (ii) Management Company
has prepared and delivered to Owner a financial plan describing the shortages in
the available funding in the FF&E Reserve for the Fiscal Years in question,
Management Company will have the right, during the time periods described in
such financial plan, to increase the percentage of Gross Revenues set forth in
Section
September 13, 1993 94
8.02.B to a higher percentage, provided that in no event will such percentage
exceed six percent (6%) of Gross Revenues per Fiscal Year.
F. If any FF&E Estimate which is prepared in accordance with clauses (i)
and (ii) of Section 8.02.E would require funding in excess of six percent (6%)
of Gross Revenues per Fiscal Year, Owner may either:
1. Agree to increase the percentages of Gross Revenues set forth in
Section 8.02.B to provide the additional funds required; or
2. Make a lump-sum contribution to the FF&E Reserve in the necessary
amount (in which case, such lump-sum contribution shall be an Owner Deduction
and shall be reimbursed to Owner in equal annual payments over the useful life
of the FF&E which is purchased, and such reimbursements shall be Deductions).
If Owner elects not to agree to either option 1 or option 2 above within
thirty (30) days after the submission of such FF&E Estimate (or, if Owner has
elected option 2, and has not funded the required amount within sixty (60) days
after expiration of the aforesaid thirty (30) day period), Management Company
shall be entitled, at its option, to terminate this Agreement by written notice
to Owner, (with a copy to each Qualified Lender)
September 13, 1993 95
which notice shall be delivered no later than ninety (90) days after the
expiration of the sixty (60) day period described in the preceding sentence. The
effective date of such Termination shall be the date set forth in such notice,
provided that in no event shall the effective date of such Termination be less
than one hundred eighty (180) days, and no more than three hundred sixty five
(365) days after the date of such notice. Such failure to fund by Owner shall
not be deemed a Default by Owner under Article XVI, and Management Company shall
not be entitled to any remedies with respect to such failure other than such
termination of this Agreement and as set forth in Section 8.03.E.
G. If Owner owns any other inn(s) in the Residence Inn By Marriott
System which is (are) operated by Management Company, Management Company shall
co-mingle the FF&E Reserve for the Inn with the FF&E reserve account for Owner's
other inn(s) in a single bank account unless such co-mingling is prohibited by
any Qualified Lender.
8.03 Building Alterations, Improvements, Renewals, and Replacements
--------------------------------------------------------------
A. Management Company shall prepare an annual estimate (the "Building
Estimate") of the expenditures necessary for major repairs, alterations,
improvements, renewals and replacements
September 13, 1993 96
(which repairs, alterations, improvements, renewals and replacements are not
among those referred to in Section 8.02.A.2) to the structure or exterior facade
of the Inn, or to the mechanical, electrical, heating, ventilating, air
conditioning, plumbing, or vertical transportation elements of the Inn building.
Management Company shall submit each such Building Estimate to Owner for its
approval at the same time the Annual Operating Budget is submitted, and
Management Company shall not make any expenditures for such purposes without the
prior written consent of Owner. Owner shall not unreasonably withhold its
consent with respect to such changes, repairs, alterations, improvements,
renewals or replacements to the Inn as are required by reason of any Legal
Requirement, or required under Management Company's current life-safety
standards (provided that, in order for any such life-safety standards to be
"required" within the meaning of this Section 8.03.A, such standards must be
both required and in the process of being implemented at a majority of the inns
within the Residence Inn System operated by Management Company which are
comparable to the Inn), or otherwise required for the continued safety of guests
or prevention of material damage to property, including the removal of Hazardous
Materials in compliance with all Environmental Laws pursuant to Section 20.10).
September 13, 1993 97
B. In the event of the receipt by Management Company of a governmental
order or other circumstances described in Section 8.03.A above, Management
Company shall give Owner notice thereof within five (5) business days thereafter
or sooner if circumstances reasonably warrant. Management Company shall then be
authorized (but not obligated) to take appropriate remedial action without
receiving Owner's prior consent as follows: (i) in an emergency threatening the
Inn, its guests, invitees or employees; or (ii) if the continuation of the given
condition could (in Management Company's reasonable judgment) subject Management
Company and/or Owner to either criminal or more than de minimis civil
----------
liability, and Owner has either failed to remedy the situation or has failed to
take appropriate legal action to stay the effectiveness of any applicable Legal
Requirement. Management Company shall cooperate with Owner in the pursuit of
any such action and shall have the right to participate therein. Owner shall
reimburse Management Company for any costs incurred by Management Company in
connection with any such remedial action within thirty (30) days after Owner's
receipt of notice from Management Company of the amount of such costs.
C. The cost of all changes, repairs, alterations, improvements, renewals
or replacements referred to in Section
September 13, 1993 98
8.03.A or 8.03.B (including the expenses incurred by either Owner or Management
Company in connection with any civil or criminal proceeding described above)
shall be borne solely by Owner, and shall not be paid from Gross Revenues or
from the FF&E Reserve. Any failure of Owner to either (i) approve and provide
funding for any proposed expenditures pursuant to the last sentence of Section
8.03.A, within seventy-five (75) days after Management Company's request
therefor, or (ii) in the case of any Legal Requirement which is described in
Section 8.03.B, to either comply therewith or to stay the effectiveness of such
Legal Requirement during the period of any contesting thereof, shall be a
Default by Owner. In such event, Management Company shall be entitled (without
affecting its other remedies under Article XVI) to terminate this Agreement upon
ninety (90) days' written notice to Owner; (with a copy to each Qualified
Lender); provided, however, that Management Company shall have the right to
stipulate such shorter period of time as may be appropriate, given the time
periods which are mandated by Legal Requirements, as described in Section
8.03.A, or given Management Company's good faith concerns about its own civil
and/or criminal liability.
D. Management Company shall have the right, from time to time, to set
forth in any Building Estimate (in addition to the
September 13, 1993 99
expenditures described in Section 8.03.A) such changes, alterations or
improvements to the Inn as are required, in Management Company's reasonable
judgment, to keep the Inn in a competitive, efficient and economical operating
condition, in accordance with the Residence Inn System Standards (which
Management Company shall substantiate by demonstrating a reasonable return on
the proposed investment to be made by Owner). The cost of all changes,
alterations or improvements referred to in this Section 8.03.D shall be paid, to
the extent reasonably possible (given the requirement, set forth in Section
8.02, that the balance in the FF&E Reserve be maintained at a level sufficient
to maintain the Inn in accordance with the Residence Inn System Standards) from
the FF&E Reserve, and Owner shall pay such costs from its own funds only to the
extent there are not adequate funds for such purpose in the FF&E Reserve. Any
failure of Owner to approve and fund the Owner's portion of any proposed
expenditures pursuant to Section 8.03.D, as described in the preceding sentence,
or provide funding for items in Section 8.03.A (other than those items included
in the last sentence of Section 8.03.A) within sixty (60) days after Management
Company's request therefor, shall not be a Default by Owner but shall entitle
Management Company to terminate this Agreement and receive payment of the fee
set forth in Section 8.03.E. Such
September 13, 1993 100
Termination shall be evidenced by written notice to Owner, (with a copy to each
Qualified Lender) which notice shall be delivered to Owner no later than ninety
(90) days after the expiration of the sixty (60) day period described in the
preceding sentence. The effective date of such Termination shall be the date
stated by Management Company in such notice, provided that such effective date
shall be no less than one hundred eighty (180) days, and no more than three
hundred sixty (360) days, after the date of such notice. It is understood that
"alterations" and "improvements" which either (a) increase or decrease the
number of guest rooms in the Inn, or (b) involve changing the architectural
footprint of the Inn or involve other significant changes in the structural
design of the Inn, in any case by more than a de minimis amount, are beyond the
-- -------
scope of this Article VIII, and would require an amendment of this Agreement
prior to implementation by either party.
E. Notwithstanding anything to the contrary in Section 8.02.F or 8.03.D,
if Owner owns five (5) or fewer inns in the Residence Inn System which are
managed by Management Company, and Management Company elects to terminate the
Management Agreement due to: (i) Owner's failure to elect either option 1 or 2
in Section 8.02.F; (ii) Owner's failure to fund the required amount in Section
8.02.F, having elected option 2, or (iii) Owner's
September 13, 1993 101
failure to fund pursuant to Section 8.03.D, as applicable, then upon Management
Company's election to terminate the Management Agreement, which pursuant to both
Sections 8.02.F and 8.03.D must (a) be made within ninety (90) days following
the expiration of the time period in which Owner must provide such additional
funds, and (b) set forth an effective date of such Termination which is no less
than one hundred eighty (180) days and no more than three hundred sixty five
(365) days after the date of such notice, then, Owner agrees to pay to
Management Company a fee equal to three (3) times the Base Management Fee for
the prior Fiscal Year (regardless of whether said Base Management Fee was
actually paid to Management Company); provided, however, that if, within ten
(10) days from receipt of Management Company's notice to terminate, Owner
provides the funds required pursuant to Section 8.02.F or 8.03.D, as applicable,
then upon receipt of such funds by Management Company, Management Company's
notice to terminate shall be deemed null and void and this Agreement shall
continue in full force and effect. Said fee shall be paid to Management Company
upon the termination date set forth in the written notice from Management
Company to Owner terminating this Agreement. This fee shall be compensation for
lost revenue and expenses and not as a penalty. If Owner fails to pay such fee
within the time period set forth herein, then Management Company
September 13, 1993 102
shall have the right (without affecting Management Company's other right under
this Agreement) to withhold the amount of such fee from Owner's Distribution.
8.04 Liens
-----
Management Company and Owner shall use their best efforts to prevent any
liens from being filed against the Inn which arise from any maintenance,
repairs, alterations, improvements, renewals or replacements in or to the Inn.
They shall cooperate fully in obtaining the release of any such liens, and the
cost thereof, if the lien was not occasioned by the fault of either party, shall
be treated the same as the cost of the matter to which it relates. If the lien
arises as a result of the fault of either party, then the party at fault shall
bear the full cost (including without limitation, all legal fees, court costs,
bonding fees and underlying debt) of obtaining the lien release.
8.05 Ownership of Replacements,Etc.
-----------------------------
All repairs, alterations, improvements, renewals or replacements of the Inn
which are made pursuant to Article VIII or otherwise shall be the property of
Owner. Subject to the provisions of Section 8.02, the funds in the FF&E Reserve
shall be the property of Owner.
September 13, 1993 103
END OF ARTICLE VIII
September 13, 1993 104
ARTICLE IX
BOOKKEEPING AND BANK ACCOUNTS
-----------------------------
9.01 Books and Records
-----------------
A. Books of control and account shall be kept on the accrual basis and in
material respects in accordance with the Uniform System of Accounts, with the
exceptions provided in this Agreement. Owner may at reasonable intervals during
Management Company's normal business hours examine such records. Within
seventy-five (75) days following the close of each Fiscal Year, Management
Company shall furnish Owner a statement (the "Annual Operating Statement") in
reasonable detail summarizing the Inn operations for such Fiscal Year and a
certificate of Management Company's chief accounting officer (or its controller
or any vice-president), certifying that to the best of his or her knowledge and
belief such year-end Annual Operating Statement is true and correct. Owner
shall have sixty (60) days after receipt to examine or review (at Owner's sole
expense, and not as a Deduction) said Annual Operating Statement. If Owner
raises no objections within said sixty (60) day period, the Annual Operating
Statement shall be deemed to have been accepted by Owner as true and correct,
and Owner shall have no further right to question its accuracy. If Owner does
raise such an objection,
September 13, 1993 105
by notice to Management Company, Owner shall arrange for an audit to be
commenced within sixty (60) days after the date of such objection, and shall
diligently cause such audit to be completed within a reasonable period of time.
Owner shall pay all costs and expenses of such audit at its sole expense (and
not as a Deduction); however, if such audit establishes that Management Company
has understated the Operating Profit for that Fiscal Year by five percent (5%)
or more, the reasonable costs and expenses of such audit shall be paid as a
Deduction.
B. Upon written request by Owner, but in no event more frequently than
annually, Management Company shall prepare and deliver to Owner the Management
Analysis Report. In addition, Management Company shall, in connection with an
impending Sale of the Inn or proposed commitment by a Qualified Lender to make a
Qualified Loan, within thirty (30) days after written request therefor from
Owner, prepare and deliver to Owner an updated Management Analysis Report
describing significant changes since the effective date of the most recent
Management Analysis Report; provided, however that Management Company shall not
be required to prepare such updated Management Analysis Report if a report has
been delivered within the previous one hundred twenty (120) days. The cost and
expense of preparing the Management Analysis Report shall be paid as a
Deduction.
September 13, 1993 106
C. Owner shall have the right to require that any given Annual Operating
Statement will include a reasonably detailed report setting forth the components
of Chain Services, the amounts billed for each such component during the Fiscal
Year in question and the method of allocation for each such component; provided,
however, that Owner must request Management Company to prepare such report by no
later than thirty (30) days prior to the date of such Annual Operating
Statement.
9.02 Inn Accounts, Expenditures
--------------------------
A. All funds derived from operation of the Inn shall be deposited by
Management Company in Inn bank accounts (the "Operating Accounts") in a bank or
banks designated by Management Company and approved by Owner. Withdrawals from
said accounts shall be made only by representatives of Management Company whose
signatures have been authorized. Reasonable xxxxx cash funds shall be
maintained at the Inn.
B. All payments made by Management Company hereunder shall be made from
authorized bank accounts, xxxxx cash funds, or from Working Capital provided by
Owner pursuant to Section 7.01. Management Company shall not be required to
make any advance or payment to or for the account of Owner except out of such
funds, and Management Company shall not be obligated to incur any
September 13, 1993 107
liability or obligation for Owner's account without assurances that necessary
funds for the discharge thereof will be provided by Owner. Debts and liabilities
incurred by Management Company as a result of its operation and management of
the Inn pursuant to the terms hereof, whether asserted before or after the
Termination of this Agreement, will be paid by Owner to the extent funds are not
available to Management Company for that purpose from Gross Revenues.
9.03 Annual Operating Budget
-----------------------
A. Management Company shall submit to Owner for its review, at least
thirty (30) days prior to the beginning of each full Fiscal Year after the
Effective Date, a preliminary draft of the projection of the estimated financial
results of the operation of the Inn during the next Fiscal Year (the "Annual
Operating Budget"). Such Annual Operating Budget shall project the estimated
Gross Revenues and Operating Profit for the forthcoming Fiscal Year for the Inn.
In preparing the Annual Operating Budget for each Fiscal Year, Management
Company's goal will be the maximization of the long-term Operating Profit of the
Inn, in keeping with the Residence Inn System Standards and the general
standards of the hotel industry for similar properties. At Owner's request,
Management Company agrees to take reasonable
September 13, 1993 108
steps to ensure that qualified personnel from Management Company's staff are
available to explain the preliminary draft of the Annual Operating Budget,
including any material items which have been budgeted at significantly different
amounts from the amounts actually experienced (or projected) for the same items
in the preceding Fiscal Year. A meeting (or meetings) for such purpose shall be
held, at Owner's request, within a reasonable period of time after the
submission to Owner of the preliminary draft of the Annual Operating Budget.
Management Company will at all times give good faith consideration to Owner's
suggestions regarding any Annual Operating Budget. Management Company shall
thereafter submit to Owner, within ten (10) days after the beginning of such
Fiscal Year, the final Annual Operating Budget.
B. Management Company shall use its best efforts to adhere to the Annual
Operating Budget. It is understood, however, that the Annual Operating Budget
is an estimate only and that unforeseen circumstances such as, but not limited
to, the costs of labor, materials, services and supplies, casualty, operation of
law, or economic and market conditions may make adherence to the Annual
Operating Budget impracticable, and Management Company shall be entitled to
depart therefrom for such reasons.
9.04 Operating Losses; Credit
------------------------
A. To the extent there is an Operating Loss, additional
September 13, 1993 109
funds in the amount of any such Operating Loss shall be provided by Owner within
thirty (30) days after Management Company has given written notice thereof to
Owner; provided, however, that if Owner has already received a request from
Management Company for additional Working Capital pursuant to Section 7.01.A,
and if such request under Section 7.01.A reflects fundamentally the same cash
shortage which resulted in a request under this Section 9.04.A, Owner and
Management Company shall mutually discuss the extent to which the requests under
Section 7.01.A and Section 9.04.A may overlap, and such requests shall be
modified accordingly.
B. In no event shall either party borrow money in the name of or pledge
the credit of the other.
9.05 Consolidated Reports
---------------------
With respect to Management Company's reports, books and records
required to be kept and provided to Owner pursuant to Sections 9.01.A, 9.01.B
and 9.03.A hereof provided that Owner is also the owner of other hotels in the
Residence Inn System and that said Inns are managed by Management Company,
Management Company shall have the right, at Management Company's option, to
prepare said reports on a consolidated basis rather than by individual inn;
provided, however that if Owner reasonably
September 13, 1993 110
determines that it requires individual reports for each individual inn and
requests individual reports from Management Company in writing, together with
Owner's reasons for requesting such individual reports, Management Company shall
comply with such request.
END OF ARTICLE IX
September 13, 1993 111
ARTICLE X
PROPRIETARY MARKS; INTELLECTUAL PROPERTY
----------------------------------------
10.01 Proprietary Marks
-----------------
A. During the Term of this Agreement, the Inn shall be known as a
"Residence Inn", "Residence Inn by Marriott" or "Marriott Residence Inn" with
such additional identification as may be agreed to by Owner and Management
Company to provide local identification. If the name of the "Residence Inn
System" is changed, Management Company shall have the right to change the name
of the Inn to conform thereto.
B. The name "Marriott", "Residence Inn", "Residence Inn by Marriott" and
"Marriott Residence Inn" whether used alone or in connection with another word
or words, and all other Proprietary Marks shall in all events remain the
exclusive property of Management Company and its Affiliates. Owner shall have
no right to use the Marriott or Residence Inn name or any other Proprietary
Xxxx; provided, however, that Owner shall have the right, during the Term of
this Agreement, to have Proprietary Signage installed (in strict conformance
with the specifications provided by Management Company prior to the Effective
Date, or subsequent specifications provided by Management Company from time to
time during the Term) in the Inn and on the Site.
September 13, 1993 112
C. Except as provided in Section 10.02, upon Termination, any use of or
right to use the Marriott or Residence Inn name or any other Proprietary Xxxx
under this Agreement by Owner shall immediately cease. As of the date of
Termination, Management Company shall remove all Proprietary Signage from the
Inn and from the Site (and from any locations other than the Site). The cost of
such removal shall be paid as set forth in Section 4.02.E.
D. Notwithstanding the foregoing, those trademarks, trade names, symbols,
logos and designs which are specifically listed on Exhibit "E" shall be deemed
"Proprietary Marks" only during the Term of this Agreement; upon a Termination,
the exclusive control of such Proprietary Marks shall revert to Owner.
10.02 Purchase of Inventories and Fixed Asset Supplies
------------------------------------------------
Upon Termination, Management Company shall have the option, to be exercised
no later than thirty (30) days prior to Termination, to elect to purchase, at
their then book value, any items of the Inn's Inventories and Fixed Asset
Supplies as may be marked with the Marriott or Residence Inn name or any other
Proprietary Xxxx. In the event Management Company does not exercise such
option, Owner agrees that it will use any such items not so purchased
exclusively in connection with the Inn
September 13, 1993 113
until they are consumed.
10.03 Computer Software and Equipment
-------------------------------
A. All Software is and shall remain the exclusive property of Management
Company or one of its Affiliates (or the licensor of such Software, as the case
may be), and Owner shall have no right to use, or to copy, any Software.
B. Upon Termination, Management Company shall have the right to remove
from the Inn, without compensation to Owner, all Software. Furthermore, upon
Termination, Management Company shall be entitled to remove from the Inn any
computer equipment which is utilized as part of a centralized reservation or
property management system or is otherwise considered proprietary by Management
Company. If any of such removed computer equipment is owned by Owner,
Management Company shall reimburse Owner for all previous expenditures made by
Owner for the purchase of such equipment, subject to a reasonable allowance for
depreciation.
10.04 Intellectual Property
---------------------
All Intellectual Property shall at all times be proprietary to Management
Company or its Affiliates, and shall be the exclusive property of Management
Company or its Affiliates. During the Term of this Agreement, Management
Company shall be
September 13, 1993 114
entitled to take all reasonable steps to ensure that the Intellectual Property
remains confidential and is not disclosed to anyone other than Management
Company's employees at the Inn. Upon Termination, all Intellectual Property
shall be removed from the Inn by Management Company, without compensation to
Owner.
10.05 Breach of Covenant
------------------
Management Company and/or its Affiliates shall be entitled, in case of any
breach of the covenants of Article X by Owner or others claiming through it, to
injunctive relief and to any other right or remedy available at law. Article X
shall survive Termination.
END OF ARTICLE X
September 13, 1993 115
ARTICLE XI
POSSESSION AND USE OF INN
-------------------------
11.01 Quiet Enjoyment
---------------
Owner covenants that, so long as: (i) an Event of Default by Management
Company has not occurred under Article XVI of this Agreement; and (ii) Owner
does not have the right to terminate this Agreement under any other Section of
this Agreement, Management Company shall quietly hold, occupy and enjoy the Inn
throughout the Term hereof free from hindrance or ejection by Owner or other
party claiming under, through or by right of Owner (except as may be otherwise
set forth in Section 6.04). Owner agrees to pay and discharge any payments and
charges and, at its expense, to prosecute all appropriate actions, judicial or
otherwise, necessary to assure such free and quiet occupation. Nothing set forth
in the preceding sentence, however, shall be deemed to create a recourse
obligation by Owner to pay any payment or charge pursuant to a contract which is
non-recourse to Owner.
11.02 Use
---
A. Management Company shall use the Inn solely for the operation of a
hotel pursuant to the Residence Inn System
September 13, 1993 116
Standards, and for all activities in connection therewith which are customary
and usual to such an operation.
B. Management Company shall comply with and abide by all applicable Legal
Requirements pertaining to its operation of the Inn, provided that: (i) all
costs and expenses (other than those which are specifically described in clauses
(ii) or (iii) of this Section 11.02.B) of such compliance shall be paid from
Gross Revenues as Deductions in the computation of Operating Profit; (ii) all
costs and expenses of compliance with Environmental Laws shall be paid as set
forth in Section 20.10; (iii) all costs and expenses of compliance with the
Legal Requirements which are described in Section 8.03.A shall be paid as set
forth in Section 8.03; and (iv) Management Company shall have the right, but not
the obligation, in its reasonable discretion, to contest or oppose, by
appropriate proceedings, any such Legal Requirements (provided that the consent
of Owner, not to be unreasonably withheld, shall be obtained prior to initiating
any such proceedings which directly involve Owner's ownership interest in the
Inn in a material manner. The reasonable expenses of any such contest shall be
paid from Gross Revenues as Deductions.
11.03 Chain Services
--------------
A. Management Company shall, beginning with the Effective
September 13, 1993 117
Date and thereafter during the Term of this Agreement, cause to be furnished to
the Inn certain services ("Chain Services") which are furnished generally on a
central or regional basis to other Residence Inn hotels in the Residence Inn
System managed by the Manager. Chain Services shall include: (i) national sales
office services; central training services; career development; and the
Residence Inn computer payroll and central accounting services; and (ii) such
additional central or regional services as are or may be, from time to time,
furnished for the benefit of hotels in the Residence Inn System or in
substitution for services now performed at individual inns which may be more
efficiently performed on a group basis; including, but not limited to, regional
managers and accounting staff; provided, however, that services not currently
included in chain services pursuant to subsections 11.03.A(i) and 11.03.A(ii)
above, shall only be added to "Chain Services" if, and to the extent that, such
services: (a) are not services included in the Residence Inn System Fee (it
being understood that Management Company's sole compensation for providing the
Residence Inn System Services shall be receipt of the Residence Inn System Fee);
(b) are not services relating to non-routine work (it being understood that the
cost and expense of such non-routine services shall be Deductions as set forth
in paragraph 6 of the definition of
September 13, 1993 118
Operating Profit); and (c) are either (x) new services (i.e., not previously
performed at or for the Inn) or (y) services which theretofore had been
performed at the Inn, but which can be performed more efficiently and
economically on a centralized or regional basis.
B. Costs and expenses incurred in the providing of Chain Services shall be
allocated on a fair and equitable basis among all Residence Inns owned, leased
or managed by Management Company in the United States. Such allocation shall be
made without regard to any "caps" or other limitations on the amount which
Management Company or its Affiliates may charge to a given inn, pursuant to
agreements which Management Company (or its Affiliates) may have with the owner
of such inn. Any excess of that portion of such costs and expenses which is
fairly allocated to a given inn over the "cap" which may be in effect with
regard to that inn shall be paid by Management Company from its own funds.
Management Company shall make no profit from Chain Services. Upon Owner's
written request, an explanation of the current Chain Services will be given to
Owner, and the basis for the allocation of the charge for each Chain Service
will be explained to Owner, in reasonable detail, at the time of the submission
of the Annual Operating Statement (as more particularly set forth in Section
9.01). In no event will the
September 13, 1993 119
total charge for all of the Chain Services which are described in clause (i) of
Section 11.03.A for any given Fiscal Year, exceed three percent (3%) of Gross
Revenues for such Fiscal Year. The parties hereby stipulate that the limitation
set forth in the preceding sentence is intended to apply only to the services
which are currently listed (as of the Effective Date) in Section 11.03.A(i);
accordingly, if there are types of expenditures which were originally treated as
Deductions (other than pursuant to paragraph 8 of the definition of "Operating
Profit" in Section 1.01), but which are later determined to be more properly
treated as Chain Services, such expenditures shall be treated as Deductions
pursuant to said paragraph 8 of the definition of "Operating Profit" without
regard to the aforesaid limitation.
11.04 Owner's Right to Inspect
------------------------
Owner or its agents shall have access to the Inn at all reasonable times
for the purpose of inspection or showing the Inn to prospective purchasers,
tenants or Holders.
11.05 Indemnity
---------
A. Management Company shall indemnify and hold harmless Owner (and any
officer, director, employee, advisor, partner or shareholder of Owner) in
respect of, and, at Owner's request,
September 13, 1993 120
shall defend any action, cause of action, suit, debt, cost, expense (including,
without limitation, reasonable attorneys' fees), claim or demand whatsoever
brought or asserted by any third person whomsoever, at law or in equity, arising
by reason of: (i) liabilities stemming from general corporate matters of
Management Company or its Affiliates, to the extent the same are not directly
and primarily related to the Inn; (ii) infringement and other claims relating to
the Proprietary Marks; (iii) if Management Company intentionally or negligently
fails to maintain insurance coverage that it is required to maintain pursuant to
this Agreement, the excess of the amount of any liability or loss that would
have been covered over the amount of any applicable deductible; and (iv) the bad
faith or willful misconduct of Management Company or its Affiliates, or any of
their employees, servants or agents or other persons for whom they are
responsible, resulting in a claim for bodily injury, death or property damage
occurring on, in or in conjunction with the business of the Inn, to the extent
that such claim exceeds the insurance proceeds (including Inn Retentions) which
are available to pay such claim.
B. If any claim, action or proceeding is made or brought against Owner,
against which claim, action or proceeding Management Company shall be obligated
to indemnify pursuant to
September 13, 1993 121
the terms of this Agreement, then, upon demand by the Owner, Management Company,
at its sole cost and expense, shall resist or defend such claim, action or
proceeding (in Owner's name, if necessary), using such attorneys as the Owner
shall approve, which approval shall not be unreasonably withheld. If, in the
Owner's reasonable opinion, (i) there exists a conflict of interest which would
make it inadvisable to be represented by counsel for Management Company, or (ii)
there are legal defenses available to Management Company that are different from
or inconsistent with those available to Owner, or (iii) there are claims at
issue which are not covered by Management Company's insurance, Owner shall be
entitled to retain its own attorneys, and Management Company shall pay the
reasonable fees and disbursements of such attorneys.
C. Matters with respect to which Management Company has specifically
agreed to indemnify Owner under other provisions of this Agreement (for example,
Section 14.01 regarding "Employee Claims", and Section 20.11 regarding
environmental matters) are to be treated exclusively under such other provisions
and not under this Section 11.05.
END OF ARTICLE XI
September 13, 1993 122
ARTICLE XII
INSURANCE
---------
12.01 Interim Insurance
-----------------
[Intentionally omitted]
12.02 Property and Operational Insurance
----------------------------------
Management Company shall, commencing with the Effective Date and thereafter
during the Term of this Agreement, procure and maintain, either with insurance
companies of recognized responsibility or by legally qualifying itself as a self
insurer, a minimum of the following insurance:
A. Property insurance on the Inn building(s) and contents against loss or
damage by fire, lightning and all other risks covered by the usual extended
coverage endorsement, all in an amount not less than one hundred percent (100%)
of the replacement cost thereof (excluding the cost of foundations and
excavations);
B. Boiler and machinery insurance against loss or damage from explosion of
boilers or pressure vessels to the extent applicable to the Inn;
C. Business interruption insurance covering loss of profits and necessary
continuing expenses for interruptions caused by any
September 13, 1993 123
occurrence covered by the insurance referred to in Section 12.02 A and B, which
shall be of a type and in such amounts (but such coverage shall in no event be
for less than one (1) year) as are generally established by Management Company
at similar hotels it owns, leases or manages under the Residence Inn name in the
United States;
D. General liability insurance against claims for bodily injury, death or
property damage occurring on, in, or in conjunction with the business of the
Inn, and automobile liability insurance on vehicles operated in conjunction with
the Inn, with a combined single limit for each occurrence of not less than
Twenty-Five Million Dollars ($25,000,000.00); representatives of Management
Company and Owner shall meet, at Owner's request, at intervals of approximately
once every five (5) years, to review the adequacy of such limit;
E. Workers' compensation and employer's liability insurance as may be
required under applicable laws covering all of Management Company's employees at
the Inn;
F. Fidelity bonds, with reasonable limits to be determined by Management
Company, covering its employees in job classifications normally bonded in other
similar hotels it leases or manages under the Residence Inn name in the United
States or as otherwise required by law, and comprehensive crime insurance
September 13, 1993 124
to the extent Management Company and Owner mutually agree it is necessary for
the Inn; and
G. Such other insurance in amounts as Management Company and Owner, in
their reasonable judgment, mutually deem advisable for protection against
claims, liabilities and losses arising out of or connected with the operation of
the Inn.
12.03 General Insurance Provisions
----------------------------
A. All insurance described in Section 12.02 may be obtained by Management
Company by endorsement or equivalent means under its blanket insurance policies,
provided that such blanket policies substantially fulfill the requirements
specified herein. Upon the request of either Owner or any Qualified Lender,
representatives of the requesting party shall be entitled to examine, at
Management Company's corporate headquarters, all insurance policies maintained
by Management Company regarding the Inn.
B. Management Company may self insure or otherwise retain such risks or
portions thereof as it does with respect to other similar hotels it owns, leases
or manages under the Residence Inn name in the United States.
C. All policies of insurance required under Section 12.02 shall be carried
in the name of Management Company. The policies
September 13,1993 125
required under Sections 12.02.A, B, C and D shall include the Owner as an
additional insured. Upon notice by the Owner, Management Company shall also have
the policies required under Sections 12.02.A, B, C and D include any Qualified
Lender as an additional insured. Any property losses thereunder shall be payable
to the respective parties as their interests may appear. Any Mortgage on the Inn
shall contain provisions to the effect that proceeds of the insurance policies
required to be carried under Section 12.02.A and B shall, with respect to any
casualty involving less than fifty percent (50%) of the replacement cost of the
Inn, be available for repair and restoration of the Inn.
D. Management Company shall deliver to the Owner certificates of insurance
with respect to all policies so procured and, in the case of insurance policies
about to expire, shall deliver certificates with respect to the renewal thereof.
E. All certificates of insurance provided for under Article XII shall, to
the extent obtainable, state that the insurance shall not be cancelled or
materially changed without at least thirty (30) days' prior written notice to
Owner.
F. The term "Inn Retention" shall mean the amount of any loss or reserve
under Management Company's blanket insurance or self-insurance programs which is
allocated to the Inn, not to exceed the higher of (a) the maximum per occurrence
limit
September 13, 1993 126
established for similar hotels participating in such programs, or (b) the
insurance policy deductible on any loss which may fall within high hazard
classifications as mandated by the insurer (e.g., earthquake, flood, windstorm
on coastal properties, etc.). If the Inn is not a participant under Management
Company's blanket insurance or self-insurance programs, "Inn Retention" shall
mean the amount of any loss or reserve allocated to the Inn, not to exceed the
insurance policy deductible.
12.04 Cost and Expense
----------------
A. [Intentionally omitted]
B. Insurance premiums and any other costs or expenses with respect to the
insurance or self-insurance required under Section 12.02, including any Inn
Retention, shall be paid from Gross Revenues as Deductions. To the extent that
such costs or expenses include reimbursement by Management Company of its own
costs or expenses, or those of one of its Affiliates, such costs or expenses
shall be generally competitive (as calculated over the Term of this Agreement)
with costs and expenses of non-affiliated entities providing similar services.
Such premiums and costs shall be allocated on an equitable basis to the hotels
participating under Management Company's blanket insurance or self-insurance
programs. Any reserves, losses, costs or expenses
September 13, 1993 127
which are uninsured shall be treated as a cost of insurance and shall be
Deductions. Upon Termination, an escrow fund in an amount reasonably acceptable
to Management Company shall be established from Gross Revenues (or, if Gross
Revenues are not sufficient, with funds provided by Owner) to cover the amount
of any Inn Retention and all other costs which will eventually have to be paid
by either Owner or Management Company with respect to pending or contingent
claims, including those which arise after Termination for causes arising during
the Term of this Agreement. Upon the final disposition of all such pending or
contingent claims, any unexpended funds remaining in such escrow shall be paid
to Owner.
12.05 Owner's Option to Obtain Certain Insurance
------------------------------------------
Owner may, at its option, by written notice to Management Company which
shall be delivered no later than ninety (90) days prior to the natural
expiration of the insurance policies which Management Company has obtained
pursuant to Section 12.02.A, B and C, procure and maintain the insurance
specified in Section 12.02.A, B and C (in which case Management Company shall
allow such policies obtained by it under Section 12.02.A, B, and C to expire),
subject to the following terms and conditions:
A. All such policies of insurance shall be carried in the
September 13, 1993 128
name of Owner, with Management Company as an additional insured. Any property
losses thereunder shall be payable to the respective parties as their interests
may appear. The documentation with respect to each Secured Loan shall contain
provisions to the effect that proceeds of the insurance policies required to be
carried under Section 12.01.A and B shall be available for repair and
restoration of the Inn, to the extent required pursuant to Section 12.03.C.
However, any Holder of such Secured Loan shall be entitled to impose reasonable
conditions on the disbursement of insurance proceeds for the repair and/or
restoration of the Inn, including a demonstration by Owner and/or Management
Company that the amount of such proceeds (together with other funds Owner agrees
to make available) is sufficient for such purpose.
B. Owner shall deliver to Management Company certificates of insurance
with respect to all policies so procured and, in the case of insurance policies
about to expire, shall deliver certificates with respect to the renewal thereof.
C. All such certificates of insurance shall, to the extent obtainable,
state that the insurance shall not be canceled or materially changed without at
least thirty (30) days' prior written notice to the certificate holder.
D. Premiums for such insurance coverage shall be treated as
September 13, 1993 129
Deductions, provided that if the cost of such insurance procured by Owner
exceeds the cost of Management Company's comparable coverage by more than ten
percent (10%), all such excess costs shall be the sole responsibility of Owner
and shall not be a Deduction.
E. Should Owner exercise its option to procure the insurance described in
this Section 12.05, Owner hereby waives its rights of recovery from Management
Company or any of its Affiliates (and their respective directors, officers,
shareholders, agents and employees) for loss or damage to the Inn, and any
resultant interruption of business.
F. Should Owner exercise its right to obtain the insurance described in
this Section 12.05, Owner acknowledges that Management Company is under no
obligation to thereafter include the Inn in its blanket insurance program (with
respect to the coverage described in Section 12.02.A, B and C) for the balance
of the Term of this Agreement. However, upon a Sale of the Inn, a successor
Owner shall have the right, notwithstanding the fact that the previous Owner may
have obtained insurance in accordance with this Section 12.05, to have the Inn
included in Management Company's blanket insurance program (provided that the
Inn, as of that point in time, satisfies the applicable criteria for admission
to such program, as established by the program's
September 13, 1993 130
insurance carriers) by making a written request to Management Company for such
inclusion not later than thirty (30) days after the date on which such party
becomes the Owner.
G. All insurance procured by Owner hereunder shall be obtained from
reputable insurance companies reasonably acceptable to Management Company.
END OF ARTICLE XII
September 13, 1993 131
ARTICLE XIII
TAXES
-----
13.01 Real Estate and Personal Property Taxes
---------------------------------------
A. Except as specifically set forth in subsection B below, all Impositions
which accrue during the Term of this Agreement (or are properly allocable to
such Term under generally accepted accounting principles) shall be paid by
Management Company from Gross Revenues, as a Deduction, before any fine,
penalty, or interest is added thereto or lien placed upon the Inn or the
Agreement, unless payment thereof is stayed; provided, however, that Management
Company shall not be responsible for any fine, penalty or interest resulting
through no fault of Management Company or caused by Owner. Owner shall within
five (5) business days after the receipt of any invoice, xxxx, assessment,
notice or other correspondence relating to any Imposition, furnish Management
Company with a copy thereof. Management Company shall, within the earlier of
thirty (30) days of payment or five (5) business days following written demand
by Owner, furnish Owner with copies of official tax bills and assessments which
Management Company has received, and evidence of payment or contest thereof.
Either Owner or Management Company (in which case each party agrees to sign the
required applications and
September 13, 1993 132
otherwise cooperate with the other party in expediting the matter) may initiate
proceedings to contest any Imposition, and all reasonable costs of any
negotiations or proceedings with respect to any such contest shall either (i) be
paid from Gross Revenues and be a Deduction in determining Operating Profit; or
(ii) be considered an Owner Deduction; provided, however that in the event
either Owner or Management Company spends in excess of Five Thousand Dollars
($5,000.00) with respect to such contest, such party shall provide written
notice to the other party and the other party shall approve or disapprove of
such expenditure within ten (10) days following receipt of such notice. Failure
of such party to approve or disapprove such expenditure shall be deemed
approval. In the event that either party's expenditures in excess of Five
Thousand Dollars ($5,000.00) are not approved by the other party such party may
nevertheless proceed to spend whatever funds are necessary with respect to such
contest; provided, however, that any amounts in excess of Five Thousand Dollars
($5,000.00) (or such higher amount as may have been approved by the other party)
shall be at the sole cost of Owner or Management Company, as the case may be,
and shall not be considered an Owner Deduction by Owner nor be considered a
Deduction from Operating Profit by either Owner or Management Company.
September 13, 1993 133
B. The word "Impositions", as used in this Agreement, shall not include
the following, all of which shall be paid solely by Owner, not from Gross
Revenues nor from the FF&E Reserve:
1. Any franchise, corporate, estate, inheritance, succession, capital
levy or transfer tax imposed on Owner, or any income tax imposed on any income
of Owner (including distributions to Owner pursuant to Article V hereof);
2. Special assessments (regardless of when due or whether they are
paid as a lump sum or in installments over time) imposed because of facilities
which are constructed by or on behalf of the assessing jurisdiction (for
example, roads, sidewalks, sewers, culverts, etc.) which directly benefit the
Inn (regardless of whether or not they also benefit other buildings), which
assessments shall not be treated as Deductions, but rather shall be added to the
Additional Invested Capital as of each payment by Owner with respect thereto;
provided, however, that any installments (after the Effective Date) of any
assessments which were levied or imposed prior to the Effective Date shall be
Deductions;
3. "Impact Fees" (regardless of when due or whether they are paid as
a lump sum or in installments over time) which are required of Owner as a
condition to the issuance of site plan approval, zoning variances or building
permits, which impact fees
September 13, 1993 134
shall not be treated as Deductions, but rather shall be added to the Additional
Invested Capital as of each payment by Owner with respect thereto; provided,
however, that any installments (after the Effective Date) of any impact fees
which were levied or imposed prior to the Effective Date shall be Deductions;
and
4. "Tax-increment financing" or similar financing whereby the
municipality or other taxing authority has assisted in financing the
construction of the Inn by temporarily reducing or abating normal Impositions in
return for substantially higher levels of Impositions at later dates.
C. Owner shall have the right to require Management Company to establish
an escrow account (with either any Qualified Lender or another entity reasonably
acceptable to both Owner and Management Company) from which Impositions will be
paid. Payments into such escrow account will be Deductions. Any interest which
accrues on amounts deposited in such escrow account shall be added to the
balance in such escrow account and used to pay Impositions.
END OF ARTICLE XIII
September 13, 1993 135
ARTICLE XIV
INN EMPLOYEES
-------------
14.01 Employees
---------
A. All personnel employed at the Inn shall be the employees of Management
Company. Management Company shall have absolute discretion to hire, promote,
supervise, direct, train and discharge all employees at the Inn, to fix their
compensation and, generally, establish and maintain all policies relating to
employment.
B. Management Company shall decide which, if any, of the Inn's employees
shall reside at the Inn (provided that Owner's prior approval shall be obtained
if more than one such employee and his or her immediate families reside at the
Inn), and shall be permitted to provide free accommodations and amenities to its
employees and representatives living at or visiting the Inn in connection with
its management or operation. No person shall otherwise be given gratuitous
accommodations or services without prior joint approval of Owner and Management
Company except in accordance with usual practices of the hotel and travel
industry.
C. Any proposed settlement of any Employee Claim where the amount proposed
to be offered to the employee by Management Company is in excess of the
Settlement Threshold Amount shall be
September 13, 1993 136
jointly approved by Management Company and Owner. Any dispute between Owner and
Management Company as to whether Management Company's settlement recommendation
is reasonable, where such proposed settlement is in excess of the Settlement
Threshold Amount shall be resolved by arbitration under Section 20.13 hereof;
provided that Management Company shall have the right to settle any Employee
Claim (prior to the arbitration on the reasonableness of the settlement, as
described in this sentence) based on Management Company's recommendation, which
shall be Management Company's reasonable estimate, in good faith, by using: (i)
funds from Gross Revenues (as a Deduction) up to the amount of Owner's
settlement recommendation, which shall be Owner's reasonable estimate, in good
faith; and (ii) Management Company's own funds to the extent Management
Company's recommendation exceeds the amount described in subparagraph (i) above.
Following the settlement of such Employee Claim, the parties will arbitrate
under Section 20.13 the issue of whether Management Company's settlement
recommendation was reasonable under the circumstances. If the arbitrators decide
that Management Company's recommendation was reasonable, Management Company
shall be entitled to reimburse itself from Gross Revenues (as a Deduction) in
the amount of the funds advanced under subparagraph (ii) above, together with
accrued interest thereon
September 13, 1993 137
at the Prime Rate. If the arbitrators decide that Management Company's
settlement recommendation was not reasonable, then Management Company shall not
be entitled to any reimbursement of the amounts advanced by it under
subparagraph (ii) above, nor to accrued interest thereon.
D. Management Company shall pay from its own funds, and not from Gross
Revenues, any Employee Claim where the basis of such Employee Claim is conduct
by Management Company which: (i) is a substantial violation of the standards of
responsible labor relations as generally practiced by prudent owners or
operators of similar hotel properties in the general geographic area of the Inn;
and (ii) is not the isolated act of individual employees, but rather is a direct
result of corporate policies of Management Company which either encourage or
fail to discourage such conduct. In addition, Management Company shall
indemnify, defend and hold harmless Owner from and against any fines or
judgments arising out of such conduct, and all Litigation expenses (including
reasonable attorneys' fees and expenses) incurred in connection therewith. Any
dispute between Owner and Management Company as to whether or not certain
conduct by Management Company is not in accordance with the aforesaid standards
shall be resolved by arbitration under Section 20.13 hereof. The arbitration
proceedings described in the preceding sentence shall
September 13, 1993 138
be conducted independently of any arbitration proceedings with respect to such
Employee Claim pursuant to the applicable employee-related contract and/or
pursuant to Section 14.01.C of this Agreement.
E. With respect to all Litigation or arbitration involving Employee Claims
in which both Management Company and Owner are involved as actual or potential
defendants, Management Company shall have exclusive and complete responsibility
(subject to the rights of Owner to approve certain settlements, as set forth in
Section 14.01.C) for the resolution of such Employee Claims. In the event that
any Employee Claim is made against Owner, but not against Management Company,
Owner shall give notice to Management Company of the Employee Claim in a timely
manner so as to avoid any prejudice to the defense of the Employee Claim,
provided that Management Company shall in all events be so notified within
twenty (20) days after the date such Employee Claim is made against Owner.
Management Company will thereafter assume exclusive and complete responsibility
for the resolution of such Employee Claim.
F. At Termination, other than by reason of an Event of Default of
Management Company hereunder, an escrow fund shall be established from Gross
Revenues (or, if Gross Revenues are not sufficient, with funds provided by
Owner) to reimburse Management
September 13, 1993 139
Company for all costs and expenses incurred by Management Company which arise
out of either the transfer or the termination of employment of Management
Company's employees at the Inn, such as reasonable transfer costs, severance
pay, unemployment compensation and other employee liability costs.
END OF ARTICLE XIV
September 13, 1993 140
ARTICLE XV
DAMAGE, CONDEMNATION AND FORCE MAJEURE
--------------------------------------
15.01 Damage and Repair
-----------------
A. If, during the Term hereof, the Inn is damaged or destroyed by fire,
casualty or other cause, Owner shall, with all reasonable diligence, to the
extent that proceeds from the insurance described in Section 12.02 are available
(subject to the provisions of any Mortgage encumbering the Inn, but with the
limitations described in Section 12.03.C) for such purpose, repair or replace
the damaged or destroyed portion of the Inn to the same condition as existed
previously.
B. In the event damage or destruction to the Inn from any cause materially
and adversely affects the operation of the Inn and Owner fails to timely
(subject to Force Majeure, and subject to unreasonable delays caused by
Management Company, including unreasonable delays in adjusting the insurance
claim with the carriers which participate in Management Company's blanket
insurance program) commence and complete the repairing, rebuilding or
replacement of the same so that the Inn shall be substantially the same as it
was prior to such damage or destruction, such action shall be deemed an Event of
Default by Owner pursuant to Section 16.01.E and Management Company may, at
September 13, 1993 141
its option, elect to terminate this Agreement upon one hundred twenty (120)
days' written notice in addition to its remedies under Section 16.03.
15.02 Condemnation
------------
A. In the event all or substantially all of the Inn shall be taken in any
eminent domain, condemnation, compulsory acquisition, or similar proceeding by
any competent authority for any public or quasi-public use or purpose, or in the
event a portion of the Inn shall be so taken, but the result is that it is
unreasonable to continue to operate the Inn, this Agreement shall terminate.
B. In the event a portion of the Inn shall be taken by the events
described in Section 15.02.A, or the entire Inn is affected but on a temporary
basis, and the result is not to make it unreasonable to continue to operate the
Inn, this Agreement shall not terminate. However, so much of any award for any
such partial taking or condemnation as shall be necessary to render the Inn
equivalent to its condition prior to such event shall be used for such purpose;
the balance of such award, if any, shall be fairly and equitably apportioned
between Owner and Management Company in accordance with their respective
interests. The amount of any award received by Owner pursuant to Section
15.02.B and
September 13, 1993 142
not applied to restoration of the Inn shall be deducted from the Priority Basis
and the Loan Priority Basis at such time as the award is received by Owner. In
addition, the Performance Termination Threshold shall be reduced by an amount
equal to eight percent (8%) of such total amount (if any) of any award received
by Owner pursuant to this Section 15.02.B which is not used to restore the Inn.
C. In the event of any proceeding described in Section 15.02.A or
15.02.B, Owner and Management Company shall each have the right to initiate such
proceedings as they deem advisable to recover any damages to which they may be
entitled; provided, however, that Management Company shall be entitled to retain
the award or compensation it may obtain through proceedings which are conducted
separately from those of Owner only if such award or compensation does not
reduce the award or compensation otherwise available to Owner. (For this
purpose, any award or compensation received by any Holder shall be deemed to be
an award or compensation received by Owner).
15.03 Force Majeure
-------------
A. The withdrawal or revocation of any License which is material to the
operation of the Inn in accordance with the Residence Inn System Standards,
where such withdrawal or
September 13, 1993 143
revocation: (i) is not due to the fault of either Management Company or Owner,
and (ii) is not otherwise within the reasonable control of either Management
Company or Owner, shall not be an Event of Default under Article XVI of this
Agreement. Management Company and Owner shall each, in good faith, use all
commercially reasonable efforts (including the diligent pursuit of all available
appeals), during the period of one hundred twenty (120) days after the date of
such withdrawal or revocation, to have such License reinstated. If,
notwithstanding such efforts, such License is not reinstated prior to the
expiration of the aforesaid period of one hundred twenty (120) days, either
Owner or Management Company shall have the right, at its option, to terminate
this Agreement upon no less than sixty (60) days' notice to the other party;
provided, however, that the terminating party must deliver such notice of
Termination to the other party by no later than ninety (90) days after the
expiration of such one hundred twenty (120) day period; and provided further,
that no such Termination shall be effective if, prior to the effective date of
such Termination, such License is reinstated or such withdrawal or revocation of
such License is stayed.
B. If an order, judgment or directive by a court or administrative body is
issued, in connection with any legal or
September 13, 1993 144
Litigation involving Owner, which order, judgement or directive restricts or
prevents Management Company, in a material adverse manner, from operating the
Inn in accordance with the Residence Inn System Standards, and which, in
Management Company's reasonable opinion, will have a significant adverse effect
upon operations of the Inn, Management Company shall be entitled, at its option,
to terminate this Agreement upon sixty (60) days' written notice; provided,
however, that Management Company shall (if it so elects) deliver such notice of
Termination to Owner by
September 13, 1993 145
no later than ninety (90) days after the issuance of such order, judgment or
directive (or, if such order, judgment or directive is appealed, within ninety
(90) days after the final disposition of such appeal).
END OF ARTICLE XV
September 13, 1993 146
ARTICLE XVI
DEFAULTS
--------
16.01 Definition of "Default"
-----------------------
Any one or more of the following shall constitute a "Default," to the
extent permitted by applicable law:
A. The filing of a voluntary petition in bankruptcy or insolvency or a
petition for reorganization under any bankruptcy law by either party, or the
admission by either party that it is unable to pay its debts as they become due;
B. The consent to an involuntary petition in bankruptcy or the failure to
vacate, within ninety (90) days from the date of entry thereof, any order
approving an involuntary petition by either party;
C. The entering of an order, judgment or decree by any court of competent
jurisdiction, on the application of a creditor, adjudicating either party as
bankrupt or insolvent or approving a petition seeking reorganization or
appointing a receiver, trustee, or liquidator of all or a substantial part of
such party's assets, and such order, judgment or decree's continuing unstayed
and in effect for any period of ninety (90) days;
D. The failure of either party to make any payment required
September 13, 1993 147
to be made in accordance with the terms of this Agreement, as of the due date
which is specified in this Agreement;
E. The failure of either party to perform, keep or fulfill any of the
other covenants, undertakings, obligations or conditions set forth in this
Agreement.
16.02 Definition of "Event of Default"
--------------------------------
A. Upon the occurrence of any Default by either party hereto (hereinafter
referred to as the "defaulting party") under Section 16.01.A, B or C, such
Default shall immediately and automatically, without the necessity of any notice
to the defaulting party, constitute an "Event of Default" under this Agreement.
B. Upon the occurrence of any Default by a defaulting party under Section
16.01.D, such Default shall constitute an "Event of Default" under this
Agreement if the defaulting party fails to cure such Default within ten (10)
days after written notice from the non-defaulting party specifying such Default
and demanding such cure.
C. Upon the occurrence of any Default by either party hereto under
Section 16.01.E, such Default shall constitute an "Event of Default" under this
Agreement if the defaulting party fails to cure such Default within thirty (30)
days after written
September 13, 1993 148
notice from the non-defaulting party and demanding such cure, or, if the Default
is such that it cannot reasonably be cured within said thirty (30) day period of
time, if the defaulting party fails to commence the cure of such Default within
said thirty (30) day period of time or thereafter fails to diligently pursue
such efforts to completion.
16.03 Remedies Upon an Event of Default
---------------------------------
A. Upon the occurrence of an Event of Default under the provisions of
Section 16.02, the non-defaulting party shall have the right to pursue any one
or more of the following courses of action: (i) in the event of a material
breach by the defaulting party of its obligations under this Agreement, to
terminate this Agreement by written notice to the defaulting party, which
termination shall be effective as of the effective date which is set forth in
said notice, provided that said effective date shall be at least thirty (30)
days after the date of said notice; and provided further that, if the defaulting
party is the employer of all or a substantial portion of the employees at the
Inn, the foregoing period of thirty (30) days shall be extended to seventy-five
(75) days (or such longer period of time as may be necessary under applicable
Legal Requirements pertaining to termination of employment); (ii) to institute
forthwith any and
September 13, 1993 149
all proceedings permitted by law or equity, including, without limitation,
actions for specific performance and/or damages; and (iii) to avail itself of
any one or more of the other remedies described in this Section 16.03.
B. Upon the occurrence of a Default by either party under the provisions
of Section 16.01.D, the amount owed to the non-defaulting party shall accrue
interest, at the Interest Rate, from and after the date on which such payment
was originally due to the non-defaulting party.
C. The rights granted hereunder are intended to be cumulative, and shall
not be in substitution for, but shall be in addition to, any and all rights and
remedies available to the non-defaulting party (including, without limitation,
injunctive relief and damages; provided that the satisfaction of damage awards
against Owner shall be limited by the provisions of Section 16.04) by reason of
applicable provisions of law or equity.
16.04 Owner's Estate
--------------
Notwithstanding any other provision of this Agreement, in the event of any
Event of Default by Owner pursuant to the terms of this Agreement, Management
Company shall look only to Owner's estate and interest in the Site and the Inn
(which shall for this
September 13, 1993 150
purpose, include (i) amounts deposited in the Operating Accounts and the FF&E
Reserve, and (ii) accounts receivable) for the satisfaction of a money judgment
against Owner resulting from such Event of Default, and no other property or
assets of Owner, or of its partners, officers, directors, shareholders or
principals, shall be subject to levy, execution or other enforcement procedure
for the satisfaction of such judgment. Management Company's right to look to
Owner's estate and interest in the Site and the Inn for satisfaction of such a
money judgment against Owner shall survive Termination and shall not be affected
by any one or more Sales of the Inn. Nothing contained in this Section 16.04
shall be deemed to affect or diminish Management Company's remedies under this
Article XVI other than money damages against Owner (including, without
limitation, Termination of this Agreement).
END OF ARTICLE XVI
September 13, 1993 151
ARTICLE XVII
WAIVER AND PARTIAL INVALIDITY
-----------------------------
17.01 Waiver
------
The failure of either party to insist upon a strict performance of any of
the terms or provisions of this Agreement, or to exercise any option, right or
remedy herein contained, shall not be construed as a waiver or as a
relinquishment for the future of such term, provision, option, right or remedy,
but the same shall continue and remain in full force and effect. No waiver by
either party of any term or provision hereof shall be deemed to have been made
unless expressed in writing and signed by such party.
17.02 Partial Invalidity
------------------
If any portion of this Agreement shall be declared invalid by order, decree
or judgment of a court, this Agreement shall be construed as if such portion had
not been inserted herein except when such construction would operate as an undue
hardship on Management Company or Owner, or constitute a substantial deviation
from the general intent and purpose of said parties as reflected in this
Agreement.
END OF ARTICLE XVII
September 13, 1993 152
ARTICLE XVIII
ASSIGNMENT
----------
18.01 Assignment
----------
A. Management Company shall not assign or transfer its management
responsibilities under this Agreement without the prior written consent of
Owner; provided, however, that Management Company shall have the right, without
such consent, to: (i) assign its interest in this Agreement to any of its
Affiliates and any such Affiliate shall be deemed to be the Management Company
for the purposes of this Agreement, and (ii) sublease shops or grant Licenses or
concessions at the Inn so long as the terms of any such subleases, Licenses or
concessions are consistent with the provisions of Section 2.02 and provided
further that Owner's consent shall be required prior to the execution by
Management Company of any such lease, License or concession which (a) has a term
of more than five (5) years, or (b) involves more than five hundred (500) square
feet of space within the Inn. In the event of such an assignment by Management
Company of its interest in this Agreement to an Affiliate, the Management
Company which is named in the Preamble to this Agreement: (i) shall
automatically be deemed to guarantee the performance of such Affiliate under
this Agreement; (ii) shall,
September 13, 1993 153
at the request of Owner, execute a guaranty, in form and substance reasonably
satisfactory to both parties, of the performance of such Affiliate under this
Agreement (provided that the failure of Owner to obtain an executed guaranty
pursuant to this clause (ii) shall not affect the validity or enforceability of
the guaranty which is automatically created pursuant to clause (i); and provided
further, that, when Owner does so receive an executed guaranty pursuant to this
clause (ii), such executed guaranty shall be deemed to have superseded the
guaranty described in clause (i) above); and (iii) shall make available to such
Affiliate, in connection with the performance by such Affiliate under this
Agreement, Management Company's skill, personnel, facilities and resources.
B. Owner shall not assign or transfer its interest in this Agreement other
than (i) in connection with a Sale of the Inn which complies with the provisions
of Article XIX hereof; or (ii) as set forth in Section 18.01.C.
C. Nothing contained herein shall prevent: (i) the collateral assignment
of this Agreement by Owner as security for any Mortgage which complies with the
provisions of Section 3.01; or (ii) the transfer of this Agreement in connection
with a merger or consolidation or a sale of all or substantially all of the
assets of either party, provided that (x) if such transfer is
September 13, 1993 154
by Owner, the provisions of Article XIX hereof shall be complied with, and (y)
if such transfer is by Management Company, such transfer is being done as a part
of a merger, consolidation, etc., of all or substantially all of the business
which consists of managing the Residence Inn System.
D. In the event either party consents to an assignment of this Agreement
by the other, no further assignment shall be made without the express consent in
writing of such party, unless such assignment may otherwise be made without such
consent pursuant to the terms of this Agreement.
E. An assignment (either voluntarily or by operation of law) by Owner of
its interest in this Agreement (in compliance with Article XVIII) shall not
relieve Owner from its obligations under this Agreement which accrued prior to
the date of such assignment, but shall relieve Owner of such obligations
accruing after such date, if the assignment complies with Section 18.01.B and if
Management Company has received an assumption agreement executed by the assignee
(in form and substance reasonably satisfactory to Management Company). An
assignment (either voluntarily or by operation of law) by Management Company of
its interest in this Agreement shall not relieve Management Company from its
obligations under this Agreement, unless Owner so agrees in writing.
September 13, 1993 155
F. Subject to the provisions of this Article XVIII, the terms and
conditions of this Agreement shall inure to the benefit of, and be binding upon,
the respective successors, heirs, legal representatives, or assigns of each of
the parties hereto.
END OF ARTICLE XVIII
September 13, 1993 156
ARTICLE XIX
SALE OF THE INN
---------------
19.01 Sale of the Inn
---------------
A. Owner shall not enter into any Sale of the Inn to any individual or
entity which: (i) does not have sufficient financial resources and liquidity to
fulfill Owner's obligations under this Agreement; (ii) is in control of or
controlled by persons who have been convicted of felonies involving moral
turpitude in any state or federal court; or (iii) is engaged in the business of
operating or franchising (as distinguished from owning) a branded hotel chain
having five hundred (500) or more guest rooms in competition with Management
Company. An individual or entity shall not be deemed to be in the business of
operating hotels in competition with Management Company solely by virtue of (x)
the ownership of such hotels, either directly or indirectly through
subsidiaries, affiliates and partnerships, or (y) holding a Mortgage or
Mortgages secured by one or more hotels. Notwithstanding the foregoing, if
Owner or an Affiliate of Owner is a corporation whose shares are listed on a
public stock exchange, and if a Sale of the Inn occurs as a result of purchases
of such shares, through such public stock exchange, in sufficient quantities to
cause a transfer of the "controlling
September 13, 1993 157
interest" in Owner (as described in the definition of "Sale of the Inn"), and if
such Sale of the Inn is not in compliance with the provisions of this Section
19.01.A, Management Company shall have the right, at its option, to terminate
this Agreement by written notice to Owner (as more particularly described in
Section 19.01.B), but such non-compliance with this Section 19.01.A shall not be
an Event of Default nor shall it subject Owner to claims for damages by
Management Company pursuant to Article XVI.
B. If Owner receives a bona fide written offer to enter into a Sale of the
Inn, Owner shall give written notice thereof to Management Company, stating the
name of the prospective purchaser or tenant, as the case may be. Such notice
shall include appropriate information relating to such prospective purchaser or
tenant demonstrating compliance with the provisions of Section 19.01.A together
with such additional information as Management Company shall reasonably request.
If Management Company decides that a Sale of the Inn to such prospective
purchaser or tenant would violate the provisions of Section 19.01.A, Management
Company shall so notify Owner by no later than thirty (30) days after receipt of
such notice; provided, however, that any decision by Management Company
regarding any such prospective purchaser or tenant shall not be binding if the
September 13, 1993 158
information furnished by Owner pursuant to the preceding sentence is inaccurate.
Concurrently with the finalization of such Sale of the Inn, the purchaser or
tenant, as the case may be, shall, by appropriate instrument reasonably
satisfactory to Management Company, assume all of Owner's obligations hereunder.
An executed copy of such assumption agreement shall be delivered to Management
Company. If the proposed Sale of the Inn would violate the provisions of
Section 19.01.A, Owner will not enter into any agreement relating to such Sale
of the Inn. However, if Owner does enter into such an agreement, Management
Company shall have the right to terminate this Agreement by written notice to
Owner, which notice will set an effective date for such Termination not earlier
than thirty (30) days, nor more than one hundred twenty (120) days, following
the date of the giving of such notice. Management Company shall have the right
to change such effective date of Termination to coincide with the date of the
finalization of the proposed Sale of the Inn. At Management Company's election,
said notice of Termination shall not be effective if such Sale of the Inn is not
finalized. If such Termination by Management Company results from a Default by
Owner under Section 19.01.A, such Termination shall not relieve Owner (except as
otherwise set forth to the contrary in the last sentence of Section 19.01.A) of
liability to Management Company
September 13, 1993 159
for such Default.
C. In connection with the possibility of a Sale of the Inn achieved by
means of a transfer of the controlling interest in Owner, Owner, upon written
request of Management Company, shall (unless Owner is a publicly-traded
corporation which is registered under Section 12 or Section 15 of the Securities
Act of 1934) furnish Management Company with a list of the names and addresses
of the owners of the capital stock, (but only those owners which hold an
ownership interest of thirty percent (30%) or more), or the partnership
interests (both (i) general partner, and (ii) any limited partner holding an
ownership interest of thirty percent (30%) or more), or other ownership
interests in Owner. In addition, Owner shall notify Management Company of any
transaction or series of transactions in which Owner reduces its ownership
interest in the Inn below fifty percent (50%) or in which the former controlling
interest in Owner is reduced below fifty percent (50%). Management Company
agrees to use diligent efforts to keep all such lists confidential in accordance
with the provisions of Section 12.04.
D. It is understood that no Sale of the Inn (which is otherwise in
compliance with the provisions of this Article XIX) shall reduce or otherwise
affect: (i) the current level of Working Capital; (ii) the current amount
deposited in the FF&E
September 13, 1993 160
Reserve; or (iii) any of the Operating Accounts maintained by Management Company
pursuant to this Agreement. If, in connection with any Sale of the Inn, the
selling Owner intends to withdraw, for its own use, any of the cash deposits
described in the preceding sentence, the selling Owner must obtain the
contractual obligation of the buying Owner to replenish those deposits (in the
identical amounts) simultaneously with such withdrawal. The selling Owner is
hereby contractually obligated to Management Company to ensure that such
replenishment in fact occurs. The obligations described in this Section 19.01.D
shall survive such Sale of the Inn and shall survive Termination.
E. Management Company shall have the right to terminate this Agreement, on
thirty (30) days' written notice, if title to or possession of the Inn is
transferred by judicial or administrative process (including, without
limitation, a Foreclosure, or a sale pursuant to an order of a bankruptcy court,
or a sale by a court-appointed receiver) to an individual or entity which would
not qualify as a permitted transferee under clause (i), (ii) or (iii) of Section
19.01.A, regardless of whether or not such transfer is the voluntary action of
the transferring Owner, or whether (under applicable law) the Owner is in fact
the transferor; provided, however, that Management Company shall not have the
right to so terminate this Agreement
September 13, 1993 161
based on the assertion that a Qualified Lender fails to so qualify as a
permitted transferee under said clauses (i), (ii) or (iii) of Section 19.01.A.
END OF ARTICLE XIX
September 13, 1993 162
ARTICLE XX
MISCELLANEOUS
-------------
20.01 Right to Make Agreement
-----------------------
A. Each party warrants, with respect to itself, that neither the execution
of this Agreement nor the finalization of the transactions contemplated hereby
shall: (i) violate any provision of law or any judgment, writ, injunction,
order or decree of any court or governmental authority having jurisdiction over
it; (ii) result in or constitute a breach or default under any indenture,
contract, other commitment or restriction to which it is a party or by which it
is bound to the extent that the remedies for such breach or default would have a
material adverse effect on such party's ability to perform under this Agreement;
or (iii) require any consent, vote or approval which has not been taken, or at
the time of the transaction involved shall not have been given or taken. Each
party covenants that it has and will continue to have throughout the Term of
this Agreement and any extensions thereof, the full right to enter into this
Agreement and perform its obligations hereunder.
B. Each party agrees that it will, as of the Effective Date, provide the
other party with: (i) certified copies of the applicable resolutions of its
board of directors (if it is a
September 13, 1993 163
corporation), or written authorization by all general partners (if it is a
partnership) or other appropriate documentation establishing its authority to
execute this Agreement; and (ii) such opinions of counsel as the other party
shall reasonably request regarding the matters described in this Section 20.01.
20.02 Consents
--------
Wherever in this Agreement the consent or approval of Owner or Management
Company is required, such consent or approval shall (except to the extent that
such consent or approval is specifically designated as being "within the
discretion" of a party, or words to that effect, in the applicable provision)
not be unreasonably withheld, shall be in writing and shall be executed by a
duly authorized officer or agent of the party granting such consent or approval.
If either Owner or Management Company fails to respond within thirty (30) days
to a request by the other party for a consent or approval, such consent or
approval shall be deemed to have been given.
20.03 Agency
------
The relationship of Owner and Management Company shall be that of principal
and agent, and nothing contained in this Agreement shall be construed to create
a partnership or joint
September 13, 1993 164
venture between them or their successors in interest. Management Company's
agency established by this Agreement is coupled with an interest and may not be
terminated by Owner until the expiration of the Term of this Agreement, except
as provided in Section 4.03 and in Articles XV or XVI. Notwithstanding the
agency relationship created by this Agreement, except to the extent specifically
set forth to the contrary in Section 20.12, nothing contained herein shall
prohibit, limit or restrict Management Company or any of its Affiliates from
developing, owning, operating, leasing, managing or franchising hotels in the
market area where the Inn is located.
The agency coupled with an interest herein was created by a complex,
single, integrated transaction between Marriott Corporation (the parent
corporation of Owner and Management Company as of the Effective Date) and its
subsidiaries whereby Marriott Corporation and its subsidiaries developed,
constructed, own and manage the Hotel. This agency is further intended to
provide security for the covenants, promises and guarantees herein. The agency
was purchased for valuable consideration, and is not terminable except as
specifically allowed by the express provisions of this Agreement. The parties
intend for this agency to be coupled with an interest, waive any right to claim
it is terminable at will, and further agree to be equitably estopped
September 13, 1993 165
from asserting that the agency is not coupled with an interest.
20.04 Confidentiality
---------------
The parties hereto agree that the matters set forth in this Agreement are
strictly confidential and each party will make every effort to ensure that such
matters are not disclosed to any outside person or entities (including the
press) without the written consent of the other party; provided, however, that
such consent will not be required with respect to: (i) legally required filings
and other disclosures mandated by Legal Requirements; and (ii) in the case of
Owner, disclosure to any Qualified Lender or prospective Qualified Lender, or to
prospective purchasers of the Inn (subject to the provisions of Section 20.05,
if applicable).
September 13, 1993 166
20.05 Equity Offerings
----------------
September 13, 1993 167
No reference to Management Company or to any of its Affiliates will be made
in any prospectus, private placement memorandum, offering circular or offering
documentation related thereto (herein collectively referred to as the
"Prospectus"), issued by Owner or one of its Affiliates, which is designed to
interest potential investors in the Inn, unless Management Company has
previously received a copy of all such references. However, regardless of
whether Management Company does or does not so receive a copy of all such
references, neither Management Company nor any of its Affiliates will be deemed
a sponsor of the offering described in the Prospectus, nor will it have any
responsibility for the Prospectus, and the Prospectus will so state. Unless
Management Company agrees in advance, the Prospectus will not include: (i) any
Proprietary Xxxx; or (ii) except as required by applicable securities laws, the
text of this Agreement. Owner shall be entitled, however, to include in the
Prospectus an accurate summary of this Agreement; If there are no Legal
Requirements pursuant to which such information must be disclosed, appropriate
measures shall be taken to ensure that entities or individuals receiving such
Prospectus shall acknowledge the confidentiality of such information. Owner
shall indemnify, defend and hold Management Company and its Affiliates (and
their respective directors, officers, shareholders,
September 13, 1993 168
employees and agents) harmless from and against all loss, costs, liability and
damage (including attorneys' fees and expenses, and the cost of Litigation)
arising out of any Prospectus or the offering described therein.
20.06 Applicable Law
--------------
This Agreement shall be construed under and shall be governed by the laws
of the state where the Inn is located.
20.07 Recordation
-----------
The terms and provisions of this Agreement shall run with the land
designated as the Site, and with Owner's interest therein, and shall be binding
upon all successors to such interest. At the request of either party, the
parties shall execute an appropriate memorandum of this Agreement in recordable
form and cause the same to be recorded in the jurisdiction where the Inn is
located. Any cost of such recordation shall be borne by Management Company.
20.08 Headings
--------
Headings of Articles and Sections are inserted only for convenience and are
in no way to be construed as a limitation on the scope of the particular
Articles or Sections to which they
September 13, 1993 169
refer.
20.09 Notices
-------
Notices, statements and other communications to be given under the terms of
this Agreement shall be in writing, and shall be either: (i) delivered by hand
against receipt; or (ii) sent by certified or registered mail, postage prepaid,
return receipt requested or (iii) sent by either a nationally utilized overnight
delivery service or by "facsimile" machine (provided that, in either case, a
confirmatory copy is thereafter sent by certified or registered mail):
To Owner:
--------
c/o Host Marriott, Inc.
00000 Xxxxxxxx Xxxx
Xxxxxxxx, Xxxxxxxx 00000
Attn: Law Department
with a copy to:
--------------
c/o Host Marriott, Inc.
00000 Xxxxxxxx Xxxx
Xxxxxxxx, Xxxxxxxx 00000
Attn: Asset Management Department 72-1AD-2
September 13, 1993 170
To Management Company:
---------------------
Residence Inn by Marriott, Inc.
c/o Marriott International, Inc.
00000 Xxxxxxxx Xxxx
Xxxxxxxx, Xxxxxxxx 00000
Attn: Law Department - Hotel Operations
Residence Inn by Marriott, Inc.
c/o Marriott International, Inc.
00000 Xxxxxxxx Xxxx
Xxxxxxxx, Xxxxxxxx 00000
Attn: Residence Inn, Vice President, Finance
or at such other address as is from time to time designated by the party
receiving the notice. Any such notice which is properly mailed, as described
above, shall be deemed to have been served as of three (3) business days after
said posting.
September 13, 1993 171
20.10 Environmental Matters
---------------------
A. Management Company shall indemnify, defend and hold Owner and its
Affiliates (and their respective directors, officers, shareholders, employees
and agents) harmless from and against all loss, cost, liability and damage
(including, without limitation, engineers' and attorneys' fees and expenses, and
the cost of Litigation) arising from the placing, discharge, leakage, use or
storage of Hazardous Materials, in violation of applicable Environmental Laws,
on the Site or in the Inn by Management Company's employees, representatives or
agents during the Term of this Agreement. Regardless of whether or not a given
Hazardous Material is permitted on the Site under applicable Environmental Law,
Management Company shall only bring on the Site such Hazardous Materials as are
needed in the normal course of business of the Inn.
B. In the event of the discovery of Hazardous Materials on any portion of
the Site or in the Inn during the Term of this Agreement, Owner shall (except to
the extent such removal is Management Company's responsibility pursuant to
Section 20.10.A) promptly remove (if required by applicable Environmental Law)
such Hazardous Materials, together with all contaminated soil and containers,
and shall otherwise remedy the problem in accordance with all Environmental
Laws. Owner shall (except to the extent
September 13, 1993 172
that the removal of such Hazardous Materials is Management Company's
responsibility pursuant to Section 20.10.A) indemnify, defend and hold
Management Company and its Affiliates (and their respective directors, officers,
shareholders, employees and agents) harmless from and against all loss, cost,
liability and damage (including, without limitation, engineers' and attorneys'
fees and expenses, and the cost of Litigation) arising from the presence of
Hazardous Materials on the Site or in the Inn.
C. All costs and expenses of the removal of Hazardous Materials from the
Site or the Inn pursuant to Section 20.10.B, and of the aforesaid compliance
with all Environmental Laws, and any amounts paid to Management Company pursuant
to the indemnity set forth in the last sentence of Section 20.10.B, shall be
paid by Owner from its own funds, not as a Deduction nor from the FF&E Reserve,
and shall be treated as an expenditure by Owner pursuant to Section 8.03.
20.11 Estoppel Certificates
---------------------
Each party to this Agreement shall at any time and from time to time, upon
not less than thirty (30) days' prior notice from the other party, execute,
acknowledge and deliver to such other party, or to any third party specified by
such other party, a statement in writing: (i) certifying that this Agreement is
September 13, 1993 173
unmodified and in full force and effect (or if there have been modifications,
that the same, as modified, is in full force and effect and stating the
modifications); (ii) stating whether or not to the best knowledge of the
certifying party (a) there is a continuing default by the non-certifying party
in the performance or observance of any covenant, agreement or condition
contained in this Agreement, or (b) there shall have occurred any event which,
with the giving of notice or passage of time or both, would become such a
default, and, if so, specifying each such default or occurrence of which the
certifying party may have knowledge; and (iii) stating such other information as
the non-certifying party may reasonably request. Such statement shall be
binding upon the certifying party and may be relied upon by the non-certifying
party and/or such third party specified by the non-certifying party as
aforesaid. The obligations set forth in this Section 21.11 shall survive
Termination (that is, each party shall, on request, within the time period
described above, execute and deliver to the non-certifying party and to any such
third party a statement certifying that this Agreement has been terminated).
September 13, 1993 174
20.12 Trade Area Restriction
----------------------
Neither Management Company nor any of its Affiliates shall own, build,
franchise, manage or operate any Restricted Inn, under the "Residence Inn by
Marriott" or "Residence Inn" brand name, within the Restricted Area during the
period from the Effective Date through the sixth (6th) anniversary of the
Effective Date.
20.13 Arbitration
-----------
A. In the event of a dispute between Owner and Management Company with
respect to any issue of fact specifically mentioned herein as a matter to be
decided by arbitration, such dispute shall be determined by arbitration as
provided in this Section 20.13.
B. Disputes shall be resolved in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then pertaining. The
decision of the arbitrators shall be binding, final and conclusive on the
parties.
C. Owner and Management Company shall each appoint and pay all fees of a
fit and impartial person as arbitrator who shall have had at least ten (10)
years' recent professional experience in the general subject matter of the
dispute. Notice of such appointment shall be sent in writing by each party to
the other,
September 13, 1993 175
and the arbitrators so appointed, in the event of their failure to agree within
thirty (30) days after the appointment of the second arbitrator upon the matter
so submitted, shall appoint a third arbitrator. If either Owner or Management
Company shall fail to appoint an arbitrator, as aforesaid, for a period of
twenty (20) days after written notice from the other party to make such
appointment, then the arbitrator appointed by the party having made such
appointment shall appoint a second arbitrator and the two so appointed shall, in
the event of their failure to agree upon any decision within thirty (30) days
thereafter, appoint a third arbitrator. If such arbitrators fail to agree upon a
third arbitrator within forty-five (45) days after the appointment of the second
arbitrator, then such third arbitrator shall be appointed by the American
Arbitration Association from its qualified panel of arbitrators, and shall be a
person having at least ten (10) years' recent professional experience as to the
subject matter in question. The fees of the third arbitrator and the expenses
incident to the proceedings shall be borne equally between Owner and Management
Company, unless the arbitrators decide otherwise. The fees of respective counsel
engaged by the parties, and the fees of expert witnesses and other witnesses
called for the parties, shall be paid by the respective party engaging such
counsel or calling or engaging such witnesses.
September 13, 1993 176
D. The decision of the arbitrators shall be rendered within thirty (30)
days after appointment of the third arbitrator. Such decision shall be in
writing and in duplicate, one counterpart thereof to be delivered to Owner and
one to Management Company. A judgment of a court of competent jurisdiction may
be entered upon the award of the arbitrators in accordance with the rules and
statutes applicable thereto then obtaining.
20.14 Entire Agreement
----------------
This Agreement, together with other writings signed by the parties which
are expressly stated to be supplemental hereto and together with any instruments
to be executed and delivered pursuant to this Agreement, constitutes the entire
agreement between the parties, and supersedes all prior written and oral
understandings. This Agreement may be amended only by a writing signed by both
parties hereto.
END OF ARTICLE XX
September 13, 1993 177
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
Attest: OWNER:
HMH PROPERTIES, INC.
_______________________ By: ___________________________
Assistant Secretary Vice President
Attest: MANAGER:
RESIDENCE INN BY MARRIOTT, INC.
________________________ By: ____________________________
Assistant Secretary Vice President
September 13, 1993 178
EXHIBIT "A" TO MANAGEMENT AGREEMENT
Location of Inn; Legal Description of the Site
-----------------------------------------------
September 13, 1993 179
EXHIBIT "A-1"
Number of Suites and Brief Description of Facilities; Priority
--------------------------------------------------------------
Basis; Performance Termination Threshold; Loan Priority Basis
-------------------------------------------------------------
(number set forth in (i) of Definition); Revenue Index Threshold;
-----------------------------------------------------------------
EXHIBIT "B" TO MANAGEMENT AGREEMENT
Form of Accounting Period Statement
-----------------------------------
EXHIBIT "C" TO MANAGEMENT AGREEMENT
[INTENTIONALLY DELETED]
-----------------------
EXHIBIT "D" TO MANAGEMENT AGREEMENT
Map of Restricted Area
----------------------
EXHIBIT "D-1" TO MANAGEMENT AGREEMENT
Narrative Description of Restricted Area
----------------------------------------
EXHIBIT "E" TO MANAGEMENT AGREEMENT
Proprietary Marks which will remain the property
------------------------------------------------
of Owner after Termination
--------------------------
NOT APPLICABLE
EXHIBIT "F" TO MANAGEMENT AGREEMENT
Title Encumbrances; Existing CC&R's
-----------------------------------
(separately describing those charges thereunder
-----------------------------------------------
which will be treated as capital expenditures
---------------------------------------------
under Section 8.03) Existing Ground Lease (if applicable);
----------------------------------------------------------
Existing Mortgages (if any)
---------------------------
